<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of
[x] Definitive Proxy Statement the Commission only (as
[ ] Definitive Additional Materials permitted by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
WORLDTALK COMMUNICATIONS CORPORATION
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was
determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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[LOGO]
WORLDTALK COMMUNICATIONS CORPORATION
5155 OLD IRONSIDES DRIVE
SANTA CLARA, CALIFORNIA 95054
-----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Worldtalk Communications Corporation (the "Company") will be held at the Santa
Clara Marriott, 2700 Mission College Blvd., Santa Clara, California on Friday,
June 12, 1998 at 9:00 a.m. Pacific Daylight Time for the following purposes:
1. To elect two (2) directors of the Company, with each to serve
until his term expires and his successor has been elected and
qualified or until such director's earlier resignation, death or
removal.
2. To ratify the selection of KPMG Peat Marwick LLP as independent
accountants for the Company for the year ending December 31,
1998.
3. To amend to the Company's 1996 Equity Incentive Plan to increase
the number of shares reserved for issuance thereunder by
1,000,000 shares.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 15, 1998
are entitled to notice of and to vote at the meeting or any adjournment thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING. IF THE RECORD HOLDER OF YOUR
SHARES IS A BROKER, BANK OR OTHER NOMINEE, PLEASE FOLLOW THE INSTRUCTIONS FOR
VOTING THAT ARE GIVEN TO YOU BY SUCH PERSON OR ENTITY.
By Order of the Board of Directors
Bernard Harguindeguy
President and Chief Executive Officer
Santa Clara, California
April 28, 1998
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Information Concerning Shares and Voting................ 1
Proposal No. 1.......................................... 2
Proposal No. 2.......................................... 4
Proposal No. 3.......................................... 5
Security Ownership of Certain Beneficial Owners and
Management.......................................... 9
Executive Officers...................................... 11
Executive Compensation.................................. 12
Certain Transactions.................................... 17
Stockholder Proposals................................... 18
Compliance Under Section 16(a) of the
Securities Exchange Act of 1934..................... 18
Other Business.......................................... 18
</TABLE>
<PAGE> 4
WORLDTALK COMMUNICATIONS CORPORATION
5155 OLD IRONSIDES DRIVE
SANTA CLARA, CALIFORNIA 95054
-----------
PROXY STATEMENT
-----------
APRIL 28, 1998
The accompanying proxy is solicited on behalf of the Board of Directors
of Worldtalk Communications Corporation, a Delaware corporation (the "Company"
or "Worldtalk"), for use at the Annual Meeting of Stockholders of the Company to
be held at the Santa Clara Marriott, 2700 Mission College Blvd., Santa Clara,
California on Friday, June 12, 1998 at 9:00 a.m. Pacific Daylight Time (the
"Meeting"). This Proxy Statement and the accompanying form of proxy were first
mailed to stockholders on or about April 30, 1998. An annual report for the
fiscal year ended December 31, 1997 is enclosed with this Proxy Statement.
RECORD DATE; QUORUM
Only holders of record of the Company's Common Stock at the close of
business on April 15, 1998 (the "Record Date") will be entitled to vote at the
Meeting. A majority of the shares outstanding on the record date will constitute
a quorum for the transaction of business.
OUTSTANDING SHARES
At the close of business on the Record Date, the Company had 10,529,280
shares of Common Stock outstanding and entitled to vote, which were held of
record by approximately 110 stockholders (although the Company has been informed
that there are approximately 1,700 beneficial owners).
VOTING RIGHTS; REQUIRED VOTE
Holders of the Company's Common Stock are entitled to one vote for each
share held as of the Record Date. In the event that a broker, bank, custodian,
nominee or other record holder of Worldtalk Common Stock indicates on a proxy
that it does not have discretionary authority to vote certain shares on a
particular matter (a "broker non-vote"), then those shares will not be
considered present and entitled to vote with respect to that matter, although
they will be counted in determining whether or not a quorum is present at the
Meeting.
With respect to Proposal No. 1, directors will be elected by a plurality
of the votes of shares of Common Stock present in person or represented by proxy
at the Meeting and entitled to vote on the election of directors. Proposal No. 2
and Proposal No. 3 require for approval the affirmative vote of a majority of
the shares of Common Stock that are (1) present in person or represented by
proxy at the Meeting, entitled to vote on the matter and (3) voted for or
against such proposal or the holder thereof abstained and such abstention was
not a broker non-vote.
VOTING OF PROXIES
The proxy accompanying this Proxy Statement is solicited on behalf of
the Board of Directors of Worldtalk for use at the Meeting. Stockholders are
requested to complete, date and sign the accompanying proxy and promptly return
it in the enclosed envelope or otherwise mail it to Worldtalk. All executed,
returned proxies that are not revoked will be voted in accordance with the
instructions contained therein. However, returned signed proxies that give no
instructions as to how they should be voted on a particular director nominee or
proposal will be counted as votes in favor of the nominees and the proposals set
forth in the accompanying Notice of Meeting and this Proxy Statement. If the
record holder of your shares is a broker, bank or other nominee, please follow
the instructions for voting that are given to you by such person or entity.
<PAGE> 5
In the event that sufficient votes in favor of the proposals are not
received by the date of the Meeting, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitations of
proxies. Any such adjournment would require the affirmative vote of the majority
of the outstanding shares present in person or represented by proxy at the
Meeting.
The expenses of soliciting proxies to be voted at the Meeting will be
paid by the Company. Following the original mailing of the proxies and other
soliciting materials, the Company and/or its agents may also solicit proxies by
mail, telephone, telegraph or in person. Following the original mailing of the
proxies and other soliciting materials, the Company will request that brokers,
custodians, nominees and other record holders of the Company's Common Stock
forward copies of the proxy and other soliciting materials to persons for whom
they hold shares of Common Stock and request authority for the exercise of
proxies. In such cases, the Company, upon the request of the record holders,
will reimburse such holders for their reasonable expenses.
REVOCABILITY OF PROXIES
Any person signing a proxy in the form sent by the Company with this
Proxy Statement has the power to revoke it prior to the Meeting or at the
Meeting prior to the vote pursuant to the proxy. A proxy may be revoked by any
of the following methods: (1) a written instrument delivered to the Company
stating that the proxy is revoked; (2) a subsequent proxy that is signed by the
person who signed the earlier proxy and is presented at the Meeting; or (3)
attendance at the Meeting and voting in person. Please note, however, that if a
stockholder's shares are held of record by a broker, bank or other nominee and
that stockholder wishes to vote at the Meeting, the stockholder must bring to
the Meeting a letter from the broker, bank or other nominee who is entitled to
vote the stockholder's shares confirming that stockholder's beneficial ownership
of the shares.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The Board of Directors of the Company (the "Board") is divided into
three classes, as nearly equal in number as possible. Each class serves three
years, with the terms of office of the respective classes expiring in successive
years. Directors in Class 1 will stand for election at the Meeting. The terms of
office of directors in Class 2 and Class 3 do not expire until the Annual
Meetings of Stockholders held in 1999 and 2000, respectively. The Board proposes
that each of the Class 1 nominees named below, both of whom are currently
serving as Class 1 directors, be re-elected as Class 1 directors for a
three-year term expiring at the Annual Meeting of Stockholders in 2001 and until
their successors are duly elected and qualified. The Board has no reason to
believe that any of the nominees will not serve if elected, but if any of them
should become unavailable to serve as a director, and if the Board designates a
substitute nominee, the proxy holder will vote for the substitute nominee
designated by the Board.
Directors will be elected by a plurality of the votes of shares of
Common Stock present in person or represented by proxy at the Meeting and
entitled to vote.
NOMINEES TO THE BOARD OF DIRECTORS
CLASS 1 -- TERM EXPIRES AT THE 2001 ANNUAL MEETING OF STOCKHOLDERS
David J. Cowan, age 32, has served as a director of the Company since
March 1993. He has been a general partner of Deer III & Co., a venture capital
investment firm that is the general partner of Bessemer Venture Partners III,
L.P., since August 1996. Previously he was an associate with Bessemer Venture
Partners from August 1992 to August 1996. Mr. Cowan is a director VeriSign,
Inc., an Internet security company and is also a director of several private
companies. Mr. Cowan received his A.B. degree in Math and Computer Science and
his Master of Business Administration degree from Harvard University.
Wade Woodson, age 39, has served as a director of the Company since
March 1993. He is a general partner with Sigma Partners, a venture capital
organization, with which he has been affiliated since 1987. Mr. Woodson received
his B.S. in Electrical Engineering from Stanford University, his J.D. degree
from Harvard University and his Masters in Business Administration degree from
the University of California, Berkeley.
2
<PAGE> 6
CONTINUING DIRECTORS
CLASS 2--TERM EXPIRES AT THE 1999 ANNUAL MEETING
Max D. Hopper, age 63, has served as a director of the Company since
September 1995. He has been Principal and Chief Executive Officer of Max D.
Hopper & Associates, a consulting and information management firm since January
1995. From November 1985 to January 1995, Mr. Hopper served AMR Corporation as
Chairman of the SABRE Group and Senior Vice President, Information Systems. Mr.
Hopper also serves as a director of Gartner Group, Inc., Scopus Technology,
Inc., USData Corporation, VTEL Corporation, Metrocall, Inc. and Payless
Cashways, Inc. Mr. Hopper holds a Bachelor of Science in Mathematics from the
University of Houston.
Anthony Sun, age 45, has served as a director of the Company since March
1995. He has been a general partner of Venrock Associates, a venture capital
firm, since 1979. He is a director of Award Software International, Inc., a
computer systems software company, Cognex Corporation, a computer systems
company, Inference Corporation, an Internet help desk software company, Komag
Inc., a computer storage component company and 3Dfx Interactive, Inc., a real
time 3D semiconductor company. He is also a director of several private
companies. Mr. Sun received S.B.E.E, S.M.E.E. and Engineer degrees from the
Massachusetts Institute of Technology and a Master of Business Administration
degree from Harvard University.
CLASS 3--TERM EXPIRES AT THE 2000 ANNUAL MEETING
Mr. Harguindeguy, age 39, has served as a director of the Company since
July 1997. He has also served as Chief Executive Officer of the Company since
July 1997 and as President of the Company since April 1997. From December 1996
to March 1997, he served as Vice President, Marketing and Business Development
of the Company. From August 1994 to December 1996, he served as Vice President,
Marketing of emotion, Inc., a company focused on the delivery of digital video
and graphics over networks. From February 1989 to August 1994, Mr. Harguindeguy
was Acting General Manager and Vice President of Worldwide Marketing for the
Netware Enterprise Division of Novell, Inc. Mr. Harguindeguy received a Bachelor
of Science degree in Electrical Engineering from the University of California,
Irvine and a Master in Engineering Management from Stanford University.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
The Board met six times, including telephone conference meetings, and
acted by written consent twice, during 1997. No director attended fewer than 75%
of the aggregate of the total number of meetings of the Board (held during the
period for which he was a director) and the total number of meetings held by all
committees of the Board on which such director served (during the period that
such director served).
Standing committees of the Board include an Audit Committee and a
Compensation Committee. The Board does not have a nominating committee or a
committee performing similar functions.
Messrs. Cowan and Woodson are the current members of the Audit
Committee. The Audit Committee met twice during 1997. The Audit Committee meets
with the Company's independent accountants to review the adequacy of the
Company's internal control systems and financial reporting procedures; reviews
the general scope of the Company's annual audit and the fees charged by the
independent accountants, reviews and monitors the performance of non-audit
services by the Company's auditors, reviews the fairness of any proposed
transaction between any officer, director or other affiliate of the Company and
the Company, and after such review, makes recommendations to the full Board, and
performs such further functions as may be required by any stock exchange or
over-the-counter market upon which the Company's Common Stock may now or in the
future be listed.
Messrs. Cowan and Sun are the current members of the Compensation
Committee. The Compensation Committee was formed in February 1996 and met six
times and acted by written consent once during 1997. The Compensation Committee
reviews and approves compensation and benefits for the Company's key executive
officers, administers the Company's stock purchase and equity incentive plans
and makes recommendations to the Board of Directors regarding such matters.
3
<PAGE> 7
DIRECTOR COMPENSATION.
The Company reimburses the members of the Board for reasonable expenses
associated with their attendance at Board meetings. All members of the Board who
are not also employees or consultants of the Company, or of a parent, subsidiary
or affiliate of the Company, are eligible to receive options under the Company's
1996 Directors Stock Option Plan (the "Directors Plan"). During 1997, no
directors were granted stock options pursuant to the Directors Plan.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF
EACH OF THE NOMINATED DIRECTORS
------------------------------
PROPOSAL NO. 2 - RATIFICATION OF SELECTION
OF INDEPENDENT ACCOUNTANTS
The Company has selected KPMG Peat Marwick LLP as its independent
accountants to perform the audit of the Company's financial statements for
fiscal year 1998, and the stockholders are being asked to ratify such selection.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Meeting, will have the opportunity to make a statement at the Meeting if they
desire to do so and are expected to be available to respond to appropriate
questions.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE SELECTION OF KPMG PEAT MARWICK LLP
-------------------------------
4
<PAGE> 8
PROPOSAL NO. 3 - AMENDMENT TO THE 1996 EQUITY INCENTIVE PLAN
In April 1998, the Board adopted, subject to stockholder approval, an
amendment to the Company's 1996 Equity Incentive Plan (the "Incentive Plan") to
increase the number of shares of Common Stock reserved for issuance thereunder
from 1,750,000 to 2,750,000 shares. The stockholders of the Company are now
being asked to approve this amendment.
The availability of additional stock and stock options will facilitate
the Company's expansion of its employee base, both through new hiring and
acquisitions. Management believes that this amendment to the Incentive Plan is
in the best interests of the Company because of the continuing need to provide
stock options to attract and retain qualified employees and remain competitive
in the industry. Below is a summary of the principal provisions of the Incentive
Plan, which summary is qualified in its entirety by reference to the full text
of the Incentive Plan.
SUMMARY OF THE 1996 EQUITY INCENTIVE PLAN
EQUITY INCENTIVE PLAN HISTORY. The Board adopted and the stockholders
approved the Incentive Plan in February 1996. The purpose of the Incentive Plan
is to provide incentives to attract, retain and motivate qualified employees,
consultants, independent contractors and advisors whose present and potential
contributions are important to the success of the Company, by offering them an
opportunity to participate in the Company's future performance through awards of
stock options, restricted stock and stock bonuses.
In April 1997, to respond to the substantial increase in competitive
attempts to recruit employees essential to the success of the Company, the
Compensation Committee elected to reprice options. Competition for skilled
engineers and other key employees in the semiconductor industry is intense and
the use of significant options for retention and motivation of such personnel is
pervasive in the high technology industries. The Compensation Committee believes
that stock options are a critical component of the compensation offered by the
Company to promote long-term retention of key employees, motivate high levels of
performance and recognize employee contributions to the success of the Company.
In light of a substantial decline in the market price of the Company's Common
Stock, the Compensation Committee believed that the large numbers of outstanding
stock options with an exercise price in excess of the actual market price were
no longer an effective tool to encourage employee retention or to motivate high
levels of performance. As a result, on April 28, 1997, the Compensation
Committee approved an option repricing program.
All employees were eligible to participate under the April 1997
repricing program. All eligible optionees with unvested options that had been
granted under the Company's option plans, and that had exercise prices greater
than $3.75, which was the closing price of a share of Common Stock on the Nasdaq
National Market on April 27, 1997, could amend such unvested options. Holders of
options to purchase a total of 851,584 shares of Common Stock amended such
options to lower the exercise price to $3.75 per share. In addition, the vesting
schedule of each repriced option was adjusted to provide that no vesting would
occur during the three-month period after the repricing.
From inception of the Incentive Plan in February 1996 to December 31,
1997, options to purchase an aggregate of 2,478,489 shares of the Company's
Common Stock were granted under the Incentive Plan, of which options to purchase
1,020,303 shares were cancelled. Options were granted under the Incentive Plan
to the Named Executive Officers (as defined in "Executive Compensation") in the
following amounts: Bernard Harguindeguy, 300,000 shares; Stephen R. Bennion,
62,500 shares; Sathvik Krishnamurthy, 87,500 shares; John G. Weald, 20,000
shares; Simon Khalaf, 77,500 shares and Mark A. Jung, 30,000 shares. During the
same period, the Company's current executive officers as a group (7 persons)
were granted options under the Incentive Plan to purchase an aggregate of
632,500 shares, and options to purchase an aggregate of 1,845,989 shares were
granted to employees other than current executive officers. No other options
were granted during the period under the Incentive Plan to any other executive
officer or director of the Company, or any associate of any of the foregoing,
and no other person received 5% or more of such options.
NUMBER OF SHARES SUBJECT TO THE INCENTIVE PLAN. An aggregate of
1,000,000 shares of the Common Stock of the Company was originally reserved by
the Board for issuance under the Incentive Plan. In June 1997, the stockholders
of Worldtalk approved an increase in this number to 1,750,000. This Proposal No.
3 seeks to increase the number of shares reserved for issuance under the
Incentive Plan from 1,750,000 to 2,750,000 shares. If any
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<PAGE> 9
option granted pursuant to the Incentive Plan expires or terminates for any
reason without being exercised in whole or in part, or any award terminates
without being issued, or any award is forfeited or repurchased by the Company at
the original purchase price, the shares released from such option will again
become available for grant and purchase under the Incentive Plan. This number of
shares is subject to proportional adjustment to reflect stock splits, stock
dividends and other similar events.
ADMINISTRATION. The Incentive Plan is administered by the Compensation
Committee (the "Committee"), the members of which are appointed by the Board.
The Committee currently consists of Messrs. Cowan and Sun, both of whom are
"disinterested persons," as that term is defined in the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and "outside directors," as that term
is defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code").
Subject to the terms of the Incentive Plan, the Committee determines the
persons who are to receive awards, the number of shares subject to each such
award and the terms and conditions of each such award. The Committee has the
authority to construe and interpret any of the provisions of the Incentive Plan
or any awards granted thereunder.
ELIGIBILITY. Employees, officers, directors, consultants, independent
contractors and advisors of the Company (and of any subsidiaries and affiliates)
are eligible to receive awards under the Incentive Plan (the "Participants"). No
Participant is eligible to receive more than 500,000 shares of Common Stock in
any calendar year under the Incentive Plan, other than new employees of the
Company (including directors and officers who are also new employees) who are
eligible to receive up to a maximum of 750,000 shares of Common Stock in the
calendar year in which they commence their employment with the Company. As of
April 15, 1998, approximately 81 persons were eligible to participate in the
Incentive Plan. At that date, 13,374 shares had been issued upon exercise of
options granted under the Incentive Plan, 1,384,199 shares were subject to
outstanding options and, 352,427 shares were available for future option grants.
The closing price of the Company's Common Stock on the Nasdaq National Market
was $3.00 per share as of April 15, 1998, the Record Date.
STOCK OPTIONS. The Incentive Plan permits the granting of both Incentive
Stock Options ("ISOs") that qualify under Section 422 of the Code and
Nonqualified Stock Options ("NQSOs"). ISOs may be granted only to employees
(including officers and directors who are also employees) of the Company or any
parent or subsidiary of the Company.
The option exercise price for each ISO share must be no less than 100%
of the "fair market value" (as defined in the Incentive Plan) of a share of
Common Stock at the time the ISO is granted. In the case of an ISO granted to a
10% shareholder, the exercise price for each such ISO share must be no less than
110% of the fair market value of a share of Common Stock at the time the ISO is
granted. The option exercise price for each NQSO share must be no less than 85%
of the fair market value of a share of Common Stock at the time of grant. To
date, the Company has not granted options under the Incentive Plan at less than
fair market value.
The exercise price of options granted under the Incentive Plan may be
paid as approved by the Committee at the time of grant: (1) in cash (by check);
(2) by cancellation of indebtedness of the Company to the Participant; (3) by
surrender of shares of the Company's Common Stock owned by the Participant for
at least six months and having a fair market value on the date of surrender
equal to the aggregate exercise price of the option or obtained by the
Participant in the public market; (4) by tender of a full recourse promissory
note; (5) by waiver of compensation due to or accrued by the Participant for
services rendered; (6) by a "same-day sale" commitment from the Participant and
a National Association of Securities Dealers, Inc. ("NASD") broker; (7) by a
"margin" commitment from the Participant and a NASD broker; or (8) by any
combination of the foregoing.
TERMINATION OF OPTIONS. Options are generally exercisable for a period
of ten years. Options granted under the Incentive Plan generally terminate three
months (or such shorter or longer period as determined by the Committee not
exceeding five years) after the Participant ceases to be employed or retained by
the Company unless the termination of employment or retention is due to
permanent and total disability or death, in which case the option may be
exercised at any time within 12 months after termination to the extent the
option was exercisable to the date of termination. In no event will an option be
exercisable after the expiration date of the option.
RESTRICTED STOCK AWARDS. The Committee may grant Participants restricted
stock awards to purchase stock either in addition to, or in tandem with, other
awards under the Incentive Plan, under such terms, conditions and
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<PAGE> 10
restrictions as the Committee may determine. Awards of restricted stock may be
subject to a right of repurchase in favor of the Company. The purchase price for
such awards must be no less than 85% of the fair market value of the Company's
Common Stock on the date of the award (and in the case of an award granted to a
10% stockholder, the purchase price shall be 100% of fair market value) and can
be paid for in any of the forms of consideration listed in items (1) through (5)
in "Stock Options" above, as are approved by the Committee at the time of grant.
To date, the Company has not granted any restricted stock awards under the
Incentive Plan.
STOCK BONUS AWARDS. The Committee may grant Participants stock bonus
awards either in addition to, or in tandem with, other awards under the
Incentive Plan, under such terms, conditions and restrictions as the Committee
may determine. Such awards may be subject to a right of repurchase in favor of
the Company. To date, the Company has not granted any stock bonus awards.
MERGERS, CONSOLIDATIONS, CHANGE OF CONTROL. In the event of a merger,
consolidation, dissolution or liquidation of the Company, the sale of
substantially all the assets of the Company or any other similar corporate
transaction, the successor corporation may assume, convert or replace equivalent
options in exchange for those granted under the Incentive Plan or provide
substantially similar consideration, shares or other property as was provided to
stockholders of the Company (after taking into account provisions of the awards)
under the Incentive Plan. In connection with certain types of acquisitions, the
vesting of the outstanding stock options and awards will accelerate to make
certain of them exercisable in full; others accelerate and become exercisable as
to less than all of the shares subject to the option.
AMENDMENT OF THE INCENTIVE PLAN. The Board may at any time amend or
terminate the Incentive Plan, including amendment of any form of award agreement
or instrument to be executed pursuant to the Incentive Plan. However, the Board
may not amend the Incentive Plan in any manner that requires stockholder
approval pursuant to the Code or the regulations promulgated thereunder, or the
Exchange Act or Rule 16b-3 (or its successor) promulgated thereunder.
TERM OF THE INCENTIVE PLAN. Unless terminated earlier as provided in the
Incentive Plan, the Incentive Plan will terminate in February 2006, ten years
from the date the Incentive Plan was adopted by the Board.
FEDERAL INCOME TAX INFORMATION.
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT OF THE
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND PARTICIPANTS UNDER THE
INCENTIVE PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL
TAX CONSEQUENCES FOR ANY PARTICIPANT WILL DEPEND UPON HIS OR HER INDIVIDUAL
CIRCUMSTANCES. EACH PARTICIPANT HAS BEEN, AND IS, ENCOURAGED TO SEEK THE ADVICE
OF A QUALIFIED TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN
THE INCENTIVE PLAN.
Incentive Stock Options. A Participant will recognize no income upon
grant of an ISO and will incur no tax on its exercise (unless the Participant is
subject to the alternative minimum tax ("AMT") described below). If the
Participant holds the stock acquired upon exercise of an ISO (the "ISO Shares")
for one year after the date the option was exercised and for two years after the
date the option was granted, the Participant generally will realize capital gain
or loss (rather than ordinary income or loss) upon disposition of the ISO
Shares. This gain or loss will be equal to the difference between the amount
realized upon such disposition and the amount paid for the ISO shares.
If the Participant disposes of ISO Shares prior to the expiration of
either required holding period (a "disqualifying disposition"), then gain
realized upon such disposition, up to the difference between the fair market
value of the ISO Shares on the date of exercise (or, if less, the amount
realized on a sale of such shares) and the option exercise price, generally will
be treated as ordinary income. Any additional gain will be long-term or
short-term capital gain, depending upon the amount of time the ISO Shares were
held by the Participant.
Alternative Minimum Tax. The difference between the fair market value of
the ISO shares on the date of exercise and the exercise price is an adjustment
to income for purposes of AMT. The AMT (imposed to the extent it exceeds the
taxpayer's regular tax) is 26% of an individual taxpayer's alternative minimum
taxable income (28% of that portion in the case of alternative minimum taxable
income in excess of $175,000). A maximum 20% AMT rate applies to the portion of
alternative minimum taxable income that would normally be taxed as net capital
gain.
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Alternative minimum taxable income is determined by adjusting regular taxable
income for certain items, increasing that income by certain tax preference items
(including the difference between the fair market value of the ISO shares on the
date of exercise and the exercise price) and reducing this amount by the
applicable exemption amount ($45,000 in the case of a joint return, subject to
reduction under certain circumstances). If a disqualifying disposition of the
ISO Shares occurs in the same calendar year as exercise of the ISO, there is no
AMT adjustment with respect to those shares. Also upon a sale of ISO shares that
is not a disqualifying disposition, alternative minimum taxable income is
reduced in the year of sale by the excess of fair market value of the ISO shares
at exercise over the amount paid for the ISO shares. Special rules apply where
all or a portion of the exercise price is paid by tendering shares of Common
Stock.
Nonqualified Stock Options. A Participant will not recognize any taxable
income at the time a NQSO is granted. However, upon exercise of a NQSO the
Participant will include in income as compensation an amount equal to the
difference between the fair market value of the shares on the date of exercise
and the Participant's exercise price. The included amount will be treated as
ordinary income by the Participant and may be subject to income tax and FICA
withholding by the Company (either by payment in cash or withholding out of the
Participant's salary). Upon resale of the shares by the Participant, any
subsequent appreciation or depreciation in the value of the shares will be
treated as capital gain or loss.
Restricted Stock and Stock Bonus Awards. Restricted stock and stock
bonus awards will generally be subject to tax at the time of receipt, unless
there are restrictions that enable the Participant to defer tax. At the time the
tax is incurred, the tax treatment will be similar to that discussed above for
NQSOs.
Maximum Tax Rates. The maximum tax rate applicable to ordinary income is
39.6%. Long-term capital gain will be taxed at a maximum rate of 20%. For this
purpose, in order to receive long-term capital gain treatment, the shares must
be held for more than eighteen months. Mid-term capital gain will be taxed at a
maximum rate of 28%. For this purpose, in order to receive mid-term capital gain
treatment, the shares must be held for more than one year and not more than
eighteen months. Capital gains may be offset by capital losses, and up to $3,000
of capital losses may be offset annually against ordinary income.
Tax Treatment of the Company. The Company will be entitled to a
deduction in connection with the exercise of a NQSO by a Participant or the
receipt of restricted stock or stock bonuses by a Participant to the extent that
the Participant recognizes ordinary income and the Company withholds tax. The
Company will be entitled to a deduction in connection with the disposition of
ISO Shares only to the extent that the Participant recognizes ordinary income on
a disqualifying disposition of the ISO Shares.
ERISA. The Incentive Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") and is not qualified
under Section 401(a) of the Code.
NEW PLAN BENEFITS. The amounts of future option grants under the
Incentive Plan are not determinable because, under the terms of the Incentive
Plan, such grants are made in the discretion of the Committee. Future option
exercise prices are not determinable because they are based upon fair market
value of the Company's Common Stock on the date of grant.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT
TO THE 1996 EQUITY INCENTIVE PLAN
-----------------------------
8
<PAGE> 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 15,
1998, known to the Company regarding the beneficial ownership of the Company's
Common Stock by (1) each person known by the Company to be the beneficial owner
of more than 5% of the Company's Common Stock, (2) each director and nominee,
(3) each executive officer named in the Summary Compensation Table below and (4)
all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OUTSTANDING
NAME OF BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK(1)
------------------------ ------------ ---------------
<S> <C> <C>
David J. Cowan (2)............................... 1,579,960 15.0%
Bessemer Venture Partners III L.P.
1025 Old Country Road, Suite 205
Westbury, NY 11590
Anthony Sun (3).................................. 1,271,334 12.1
Venrock Associates
30 Rockefeller Plaza, Rm. 5508
New York, NY 10112
PCE 1991 Limited Partnership..................... 900,839 8.6
1056 Gage Street
Winnetka, IL 60093
Wade Woodson (4)................................. 730,333 6.9
Sigma Partners
2884 Sand Hill Road, Suite 121
Menlo Park, CA 94025
Deltec Asset Management Corporation (5).......... 598,000 5.7
535 Madison Avenue, 26th Floor
New York, NY 10022
Stephen R. Bennion (6)........................... 198,031 1.9
Bernard Harguindeguy (7)......................... 75,000 *
Simon Khalaf (8)................................. 72,269 *
John Weald (9)................................... 65,867 *
Sathvik Krishnamurthy (10)....................... 59,164 *
Mark A. Jung (11)................................ 55,924 *
Max D. Hopper (12)............................... 50,000 *
All officers and directors as a group (11 persons)
(13)............................................. 4,355,908 40.3%
</TABLE>
- ---------------------
* Less than 1%
(1) Percentage ownership is calculated on the basis of 10,529,280 shares
outstanding as of April 15, 1998. Unless otherwise indicated below, the
persons and entities named in the table have sole voting and sole
investment power with respect to all shares beneficially owned, subject
to community property laws where applicable. Shares of Common Stock
subject to options that are currently exercisable or exercisable within
60 days after April 15, 1998 are deemed to be outstanding and to be
beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Mr. Cowan is a director of the Company and a general partner of Deer III
& Co. L.P. ("Deer"), the general partner of Bessemer Venture Partners
III, L.P. ("BVP III"). The share number includes 1,305 shares held of
record by Mr. Cowan; 7,500 shares subject to options exercisable within
60 days after April 15, 1998; 1,528,929 shares held of record by BVP
III; 38,668 shares held of record by the general partners of Deer; and
3,558 shares over which BVP III exercises voting control, held of record
by two individuals, each of whom is a present or former employee or
consultant to Bessemer Securities Corporation, the sole owner of the
limited partner of BVP III. Deer is a general partnership whose voting
partners are Robert H. Buescher, David J.
9
<PAGE> 13
Cowan, G. Felda Hardymon and Christopher F.O. Gabrieli. BVP disclaims
beneficial ownership of securities held by the general partners of Deer.
(3) Represents 7,500 shares of Common Stock subject to options exercisable
within 60 days of April 15, 1998; 872,599 shares held of record by
Venrock Associates; and 391,235 shares held of record by Venrock
Associates II, L.P. Each fund disclaims beneficial ownership of the
shares held by the other. Mr. Sun is a director of the Company and a
general partner of Venrock Associates and Venrock Associates II, L.P.
(4) Mr. Woodson is a director of the Company and a general partner of Sigma
Partners II, L.P. and Sigma Associates II, L.P. The share number
represents 2,098 shares held by Mr. Woodson; 7,500 shares of Common
Stock subject to options exercisable within 60 days of April 15, 1998;
670,458 shares held by Sigma Partners II, L.P.; and 50,277 shares held
by Sigma Associates II, L.P. Each fund disclaims beneficial ownership of
the shares held by the other.
(5) Information taken from a Schedule 13G filed on January 28, 1998.
(6) Includes 7,031 shares subject to options exercisable within 60 days
after April 15, 1998. Mr. Bennion is the Company's Executive Vice
President, Finance and Administration, Chief Financial Officer and
Secretary. Mr. Bennion has announced his resignation from the Company
effective in May 1998.
(7) Represents shares subject to options exercisable within 60 days after
April 15, 1998. Mr. Harguindeguy is President, Chief Executive Officer
and a director of the Company.
(8) Includes 61,719 shares subject to options exercisable within 60 days
after April 15, 1998. Mr. Khalaf is the Company's Vice President,
Marketing.
(9) Includes 32,867 shares subject to options exercisable within 60 days
after April 15, 1998. Mr. Weald is the Company's Vice President,
Engineering - Santa Clara.
(10) Includes 51,939 shares subject to options exercisable within 60 days
after April 15, 1998. Mr. Krishnamurthy is the Company's Vice President,
Product Planning and Development. Mr. Krishnamurthy has announced his
resignation from the Company effective April 30, 1998.
(11) Includes 16,875 shares subject to options exercisable within 60 days
after April 15, 1998. Mr. Jung is the former President and Chief
Executive Officer of the Company.
(12) Mr. Hopper is a director of the Company.
(13) Includes 282,432 shares subject to options exercisable within 60 days
after April 15, 1998, including those set forth in footnotes (2) through
(4), (6) through (10) and (12) above.
10
<PAGE> 14
EXECUTIVE OFFICERS
The executive officers of the Company, and their ages as of April 15,
1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Bernard Harguindeguy 39 President and Chief Executive Officer
Stephen R. Bennion 54 Executive Vice President, Finance and
Administration, Chief Financial Officer
and Secretary
Robert D. Dickinson III 32 Vice President, Engineering - Bellevue
Simon Khalaf 32 Vice President, Marketing
Sathvik Krishnamurthy 29 Vice President, Product Planning and
Development
Joseph Longo 44 Vice President, Consulting and Customer
Services
John Weald 40 Vice President, Engineering - Santa Clara
</TABLE>
For information regarding the positions an offices held by Mr.
Harguindeguy, please refer to the discussion regarding nominees for election as
directors in "Nominees" under Proposal No. 1 above.
Mr. Bennion has served as Chief Financial Officer and Secretary of the
Company since April 1995. He has served as Executive Vice President, Finance and
Administration of the Company since April 1997. From April 1995 to April 1997,
he was the Company's Vice President, Finance and Operations. Mr. Bennion has
announced his resignation from the Company effective in May 1998. From September
1994 to March 1995, he was Vice President and Chief Financial Officer of
Catapult Entertainment, Inc., a developer of video game networks. From September
1991 to September 1994, Mr. Bennion served as Vice President and Chief Financial
Officer of Molecular Dynamics, a manufacturer of life sciences instrumentation.
From October 1988 to September 1991, Mr. Bennion served as Vice President and
Treasurer of MIPS Computer Systems, Inc., a developer of RISC chips and
computers. Mr. Bennion received his Bachelor of Science degree in Accounting and
Economics from Weber State University and is a Certified Public Accountant.
Mr. Dickinson has served as Vice President, Engineering - Bellevue for
Worldtalk since December 1997. From November 1996 to December 1997, he served as
Director, Research and Development for the Deming Internet Security division of
the Company. In December 1995, Mr. Dickinson founded Deming Software, Inc., a
developer of electronic mail security solutions. He served as President, CEO and
Chairman of Deming Software, Inc. from December 1995 until its acquisition by
Worldtalk in November 1996. From June 1991 to November 1995, he served in
various executive positions and was a member of the board of directors of
ConnectSoft, Inc., a communications software development and consulting firm.
Mr. Dickinson received a Bachelor of Arts in Business Administration from
Washington State University
Mr. Khalaf has been the Company's Vice President, Marketing since
November 1996. Mr. Khalaf co-founded Worldtalk, in March 1992 and has held
several marketing and engineering positions within the Company, including
Director of Marketing from January 1996 to October 1996, Product Marketing
Manager from August 1994 to December 1995, Engineering Team Leader from October
1993 to July 1994 and Senior Software Engineer from March 1992 to September
1993. Before joining Worldtalk, Mr. Khalaf was a Senior Engineer at Touch
Communications, Inc., a provider of OSI-based networking software. Mr. Khalaf
holds a Master of Science in Computer Engineering from Syracuse University and a
Bachelor of Science in Engineering from the American University of Beirut.
Mr. Krishnamurthy has been the Company's Vice President, Product
Planning and Development since August 1997. Mr. Krishnamurthy has announced his
resignation from the Company effective April 30, 1998. Prior to his current
role, he held various marketing and engineering positions at Worldtalk,
including Vice President and General Manager, Deming Internet Security from
November 1996 to July 1997, Director of Product Marketing for Internet Security
Products from January 1996 to October 1996, Engineering Team Leader from
November 1993 to
11
<PAGE> 15
December 1995 and Senior Software Engineer from November 1992 to October 1993.
Before joining Worldtalk in November 1992, Mr. Krishnamurthy held engineering
positions at Retix, Inc., a supplier of OSI software. He holds a Bachelor of
Science degree in Computer Engineering from University of California, Los
Angeles.
Mr. Longo has served as Vice President, Consulting and Customer Services
since September 1997 managing Worldtalk's team of consultants providing training
and custom programming services for Worldtalk products. From April 1997 to
September 1997, Mr. Longo was the Company's Vice President, Professional
Services. Previously, he served as the Company's Director of Professional
Services from January 1995 to April 1997. From May 1989 to January 1995, Mr.
Longo held various positions, including his last position as the Director of
Custom Development, at The Santa Cruz Operation, Inc., a supplier of UNIX
operating systems for Intel PCs. Previously, Mr. Longo was Vice President of
Technical Services for Austec Limited, a company that specialized in programming
languages for UNIX systems. He received his Bachelors Degree in Applied Science
from the R.M.I.T., Melbourne, Australia, and a Post Graduate Diploma in Digital
Communications from the C.I.T., Melbourne, Australia.
Mr. Weald has served as the Company's Vice President, Engineering -
Santa Clara since July 1997. From April 1997 to July 1997, he served as the
Company's Vice President of Software Development. From April 1995 to March 1997,
he served as the Company's Director of Software Engineering and from April 1994
to March 1995, he served as Software Development Manager for the Company. From
April 1992 to March 1994, Mr. Weald was a Senior Software Engineer for the
Company. Prior to joining Worldtalk, he held various software development
positions at Touch Communications, Austec Inc., AGS Computers, Inc., and ITT. He
holds a Bachelor of Science degree in Data Processing from Loughborough
University, England.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to or earned or
paid for services rendered in all capacities to the Company during each of 1995,
1996 and 1997 by the Company's Chief Executive Officer and the Company's four
other most highly compensated executive officers who were serving as executive
officers at the end of 1997 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------- ------------
OTHER SECURITIES
NAME AND PRINCIPAL FISCAL ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS COMPENSATION(2)
---- ------ -------- ------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Bernard Harguindeguy 1997 $198,103 $ 70,000 -- 475,000(3) $ 205
President and Chief 1996 -- 25,000 -- -- --
Executive Officer 1995 -- -- -- -- --
Stephen R. Bennion 1997 139,167 40,000 -- 50,000 720
Executive Vice 1996 130,531 40,000 -- 12,500 456
President, Finance 1995 72,573 -- -- 191,000 190
and Administration,
Chief Financial
Officer and
Secretary (4)
Sathvik Krishnamurthy 1997 133,800 100,000 -- 90,313(6) 105
Vice President, 1996 96,343 30,000 -- 27,500 44
Product Planning and 1995 76,609 6,500 -- 20,671 26
Development (5)
Simon Khalaf 1997 134,792 30,000 -- 76,875(7) 119
Vice President, 1996 106,674 20,000 -- 27,500 62
Marketing 1995 81,843 6,499 -- 23,297 25
John G. Weald 1997 128,471 19,000 -- 20,000 217
Vice President, 1996 110,000 12,000 -- -- 79
Engineering- Santa 1995 94,695 7,281 -- 41,923 59
Clara
Mark A. Jung 1997 186,089 -- -- -- 163
Former Chief 1996 137,936 80,000 -- 30,000 1,438
Executive Officer 1995 122,205 30,000 -- 206,022 1,160
</TABLE>
12
<PAGE> 16
(1) Bonuses are paid at the discretion of the Compensation Committee based
on the achievement of certain objectives.
(2) Includes excess group term life insurance premiums.
(3) Includes 175,000 shares subject to previously-granted options that were
repriced in April 1997. See " -- Report on Executive Compensation."
(4) Resigned from the Company effective in May 1998.
(5) Resigned from the Company effective April 30, 1998.
(6) Includes 30,313 shares subject to previously-granted options that were
repriced in April 1997. See " -- Report on Executive Compensation."
(7) Includes 26,875 shares subject to previously-granted options that were
repriced in April 1997. See " -- Report on Executive Compensation."
The following table sets forth further information regarding the option
grants pursuant to the Company's 1996 Equity Incentive Plan during 1997 to each
of the Named Executive Officers. In accordance with the rules of the SEC, the
table sets forth the hypothetical gains or "option spreads" that would exist for
the options at the end of their respective ten-year terms. These gains are based
on assumed rates of annual compound stock price appreciation of 5% and 10% from
the date the option was granted to the end of the option term.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION TERM (2)
-------------------------------
NAME GRANTED (1) FISCAL 1997 PER SHARE DATE 5% 10%
- ---- ----------- ----------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bernard Harguindeguy 175,000 8.9% $ 7.500 01/02/07 $1,110,474 $2,545,687
225,000(3) 11.4 3.750 04/28/07 530,624 1,344,715
75,000 3.8 6.625 09/19/07 363,563 889,154
Stephen R. Bennion 50,000 2.5 6.625 09/19/07 249,041 592,769
Sathvik Krishnamurthy 3,438(4) 0.2 3.750 01/24/06 7,107 17,507
1,875(4) 0.1 3.750 02/07/06 3,876 9,548
25,000(4) 1.3 3.750 07/19/06 51,686 127,307
60,000 3.0 3.750 04/28/07 141,500 358,590
Simon Khalaf 1,875(4) 0.1 3.750 02/07/06 3,876 9,548
25,000(4) 1.3 3.750 07/19/06 51,686 127,307
50,000 2.5 3.750 04/28/07 117,916 298,825
John G. Weald 20,000 1.0 3.500 08/06/07 44,022 111,561
Mark A. Jung 0 0 -- -- 0 0
</TABLE>
(1) The incentive stock options shown in the table were granted at fair
market value and become exercisable with respect to 25% of the shares on
the first anniversary of the grant and with respect to an additional
6.25% of the shares every three months that the optionee renders
services to the Company thereafter. The options shown in the table will
expire ten years from the date of grant, subject to earlier termination
upon termination of employment.
(2) The 5% and 10% assumed annual compound rates of stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and
do not represent the Company's estimate or projection of future Common
Stock prices.
(3) Includes 175,000 shares subject to previously-granted options that were
repriced in April 1997. See " -- Report on Executive Compensation."
(4) Represent shares subject to previously-granted options that were
repriced in April 1997. See " -- Report on Executive Compensation."
The following table sets forth certain information concerning the
exercise of options by each of the Named Executive Officers during fiscal 1997,
including the aggregate amount of gains on the date of exercise. In addition,
the table includes the number of shares covered by both exercisable and
unexercisable stock options as of December 31, 1997. Also reported are values of
"in-the-money" options that represent the positive spread between the respective
exercise prices of outstanding stock options and $3.75 per share, which was the
closing price of the Company's Common Stock as reported on the Nasdaq National
Market on December 31, 1997.
13
<PAGE> 17
AGGREGATE OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END (2)
ACQUIRED VALUE ------------------------------ -----------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bernard Harguindeguy 0 0 0 300,000 0 0
Stephen R. Bennion
0 0 5,468 57,032 0 0
Sathvik Krishnamurthy 0 0 42,054 69,742 $ 32,245 $ 26,253
Simon Khalaf ........ 0 0 63,889 59,978 134,013 29,123
John G. Weald ....... 0 0 30,247 34,976 98,375 49,164
Mark A. Jung ........ 0 0 11,250 18,750 0 0
</TABLE>
(1) "Value Realized" represents the fair market value of the shares of
Common Stock underlying the option on the date of exercise less the
aggregate exercise price of the option.
(2) These values, unlike the amounts set forth in the column entitled "Value
Realized," have not been, and may never be, realized and are based on
the positive spread between the respective exercise prices of
outstanding options and the closing price of the Company's Common Stock
on December 31, 1997, the last day of trading for the fiscal year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Cowan and Sun. No
interlocking relationships exist between the Company's Board of Directors or
Compensation Committee and the board of directors or compensation committee of
any other company.
REPORT ON EXECUTIVE COMPENSATION
The report on executive compensation below is required by the SEC and
shall not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act, or under the Securities Exchange Act of 1934, as amended, except
to the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed soliciting material or filed under
such Acts.
Final decisions regarding executive compensation and stock option grants
to executives are made by the Compensation Committee of the Board of Directors
(the "Committee"). The Committee is composed of two independent non-employee
directors, neither of whom have any interlocking relationships as defined by the
SEC.
GENERAL COMPENSATION POLICY
The Committee acts on behalf of the Board to establish the general
compensation policy of the Company for all employees of the Company. The
Committee administers the Company's incentive and equity plans, including the
1992 Stock Option Plan (which was terminated in April 1996), the 1996 Equity
Incentive Plan and the 1996 Employee Stock Purchase Plan. The Company no longer
grants options under the 1992 Stock Option Plan.
The Committee's philosophy in compensating the CEO is to relate
compensation directly to corporate performance. Thus, the Company's compensation
policy for the CEO relates a portion of his total compensation to the Company's
financial objectives and individual objectives set forth at the beginning of the
Company's year. Consistent with this policy, a designated portion of the CEO's
compensation is contingent on corporate performance, and is also based on his
performance as measured against objectives established by the Committee in its
discretion. Long-term equity incentives for the CEO are effected through the
granting of stock options under the 1996 Equity Incentive Plan. Stock options
have value for the CEO only if the price of the Company's stock increases above
the fair market value on the grant date and the CEO remains in the Company's
employ for the period required for the shares to vest.
The base salary, incentive compensation and stock option grants of the
CEO are determined in part by the Committee reviewing data on prevailing
compensation practices in technology companies with whom the Company
14
<PAGE> 18
competes for executive talent and by their evaluating such information in
connection with the Company's corporate goals. To this end, the Committee
attempts to compare the compensation of the Company's CEO with the compensation
practices of comparable companies to determine base salary, target bonuses and
target total cash compensation. In addition to his base salary, the Company's
CEO is eligible to receive cash bonuses and to participate in the 1996 Equity
Incentive Plan.
In preparing the performance graph for this Proxy Statement, the Company
used the CRSP Total Return Index for Nasdaq Computer & Data Processing Services
Stocks ("CRSP Index") as its published line of business index as the Company
believes that the CRSP Index is a good indicator of stock price performance with
respect to the Company's industry.
1997 EXECUTIVE COMPENSATION
Base Compensation. The Board reviewed the recommendations and
performance and market data outlined above and established a base salary level
for the CEO. The Committee set Mr. Harguindeguy's annual salary level at
$180,000.
Incentive Compensation. A cash bonus is awarded to the extent that an
individual achieves predetermined individual objectives and the Company meets
predetermined financial objectives set by the Board at the beginning of the
year. Performance is measured at the end of the year. For 1997, the basis of
incentive compensation was Company revenue, percentage of growth of revenue and
profit after tax. The targets and actual bonus payments are determined by the
Committee, in its discretion.
Stock Options. In 1997, stock options were granted to certain executive
officers to aid in the retention of executive officers and to align their
interests with those of the stockholders. Stock options typically have been
granted to executive officers when the executive first joins the Company in
connection with a significant change in responsibilities and, occasionally, to
achieve equity within a peer group. The Committee may, however, grant additional
stock options to executives for other reasons. The number of shares subject to
each stock option granted is within the discretion of the Committee and is based
on anticipated future contribution and ability to impact corporate and/or
business unit results, past performance or consistency within the executive's
peer group. In 1997, the Committee considered these factors, as well as the
number of options held by such executive officers as of the date of grant that
remained unvested. In the discretion of the Committee, executive officers may
also be granted stock options to provide greater incentives to continue their
employment with the Company and to strive to increase the value of the Company's
Common Stock. The stock options generally become exercisable over a four-year
period and are granted at a price that is equal to the fair market value of the
Company's Common Stock on the date of grant.
STOCK OPTION REPRICING
In April 1997, the Compensation Committee offered to all employees the
opportunity to amend unvested stock options outstanding with exercise prices in
excess of $3.75, the fair market value of the Company's Common Stock at that
time, to lower the exercise price to $3.75 per share. In addition, the vesting
schedule of each repriced option was adjusted to provide that no vesting would
occur during the three-month period after the repricing. The option repricing
was an acknowledgment of the importance to the Company of providing equity
incentives to key employees in order to promote long-term retention of key
employees, motivate high levels of performance and recognize employee
contributions to the success of the Company. The Compensation Committee believed
that stock options that are "out of the money" are not an effective tool to
encourage employee retention or to motivate high levels of performance. The
Compensation Committee decided to include officers in the repricing because of
the importance of their administrative and technical leadership to the success
of the Company's business.
The following table sets forth information concerning the repricing of
options held by the Named Executive Officers during 1997.
15
<PAGE> 19
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
MARKET
NUMBER OF PRICE OF EXERCISE LENGTH OF
SECURITIES STOCK AT PRICE AT NEW ORIGINAL OPTION
UNDERLYING TIME OF TIME OF EXERCISE TERM REMAINING AT
NAME DATE OPTIONS REPRICED REPRICING REPRICING PRICE DATE OF REPRICING
---- ---- ---------------- --------- --------- ----- -----------------
<S> <C> <C> <C> <C> <C> <C>
Bernard Harguindeguy ..... 04/26/97 175,000 $ 3.750 $ 7.500 $ 3.750 9.75 years
Sathvik Krishnamurthy .... 04/26/97 3,438 3.750 6.000 3.750 8.75 years
04/26/97 1,875 3.750 8.000 3.750 8.83 years
04/26/97 25,000 3.750 10.625 3.750 9.25 years
Simon Khalaf ............. 04/26/97 1,875 3.750 8.000 3.750 8.83 years
04/26/97 25,000 3.750 10.625 3.750 9.25 years
</TABLE>
Company Performance and CEO Compensation. As noted above, Mr.
Harguindeguy's base salary was set at $180,000 commencing July 1997. In
addition, as an incentive to Mr. Harguindeguy to achieve Company objectives
established by the Committee, the Board of Directors exercised its discretion
and recommended that Mr. Harguindeguy be granted stock options to purchase
75,000 shares of the Company's Common Stock, in addition to his options to
purchase 225,000 shares granted in 1997 before Mr. Harguindeguy became the CEO.
The objectives established by the Committee included satisfactorily managing the
Company's current and future corporate performance, such as meeting the
Company's financial projections and the Company's sales targets, significantly
strengthening the Company's marketing position and successfully managing the
Company through a management change and a transition in the fundamental nature
of the business. In granting the stock options to Mr. Harguindeguy, the Board of
Directors reviewed his prior outstanding option grants and the number of options
that remained unexercisable. The Committee believes this was appropriate because
Mr. Harguindeguy's total compensation, including compensation derived from
incentive compensation, is at a level it believes is competitive with the
average amount paid by other software companies based on survey data. Based upon
the criteria set forth under the discussion of "Incentive Compensation" above,
the Committee awarded Mr. Harguindeguy incentive compensation of $50,000 for his
service as the Company's CEO, in addition to a $20,000 bonus paid to Mr.
Harguindeguy for his service as the Company's Vice President, Marketing and
Business Development, Chief Operating Officer and President during the first six
months of 1997. Mr. Harguindeguy's incentive compensation was based upon
obtaining and surpassing corporate operating objectives. This figure represents
approximately 100% of the target bonus for Mr. Harguindeguy for 1997. The
Committee reviewed the compensation practices of comparable companies in making
these awards.
Compliance with Section 162(m) of the Internal Revenue Code of 1986. For
1998, the Company intends to comply with the requirements of Section 162(m) of
the Internal Revenue Code of 1986. The 1996 Directors Stock Option Plan is
already in compliance with Section 162(m) by limiting stock awards to named
executive officers. The Company does not expect cash compensation for 1998 to be
in excess of $1,000,000 or consequently affected by the requirements of Section
162(m).
BOARD OF DIRECTORS COMPENSATION COMMITTEE
DAVID J. COWAN ANTHONY SUN DAVID J. COWAN
MAX D. HOPPER WADE WOODSON ANTHONY SUN
BERNARD HARGUINDEGUY
COMPANY STOCK PRICE PERFORMANCE
The stock price performance graph below is required by the SEC and shall
not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act, or under the Securities Exchange Act of 1934, as amended, except
to the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed soliciting material or filed under
such Acts.
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company from the first day of trading of the Company's
Common Stock upon the Company's initial public offering (April 12,
16
<PAGE> 20
1996) to December 31, 1997 with the cumulative total return on the Nasdaq Stock
Market (U.S. Companies) and the CRSP Total Return Index for Nasdaq Computer &
Data Processing Services Stocks for the same period (assuming the investment of
$100 in the Company's Common Stock and in each of the indices on the date of the
Company's initial public offering, and reinvestment of all dividends).
COMPARISON OF CUMULATIVE TOTAL RETURN
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
WORLDTALK COMMUNICATIONS NASDAQ STOCK MARKET NASDAQ COMPUTER & DATA
CORPORATION U.S. INDEX PROCESSING SERVICES
------------------------- ---------------------- --------------------
INVESTMENT INVESTMENT INVESTMENT
MARKET PRICE VALUE INDEX VALUE INDEX VALUE
------------ ---------- ----- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
04/12/96............. $ 8.000 $ 100.00 361.5 $ 100.00 779.3 $ 100.00
06/30/96............. 12.250 153.13 391.6 108.33 875.2 112.31
09/30/96............. 9.250 115.63 405.5 112.17 892.5 114.53
12/31/96............. 7.500 93.75 425.4 117.68 928.1 119.09
03/31/97............. 6.500 81.25 402.4 111.31 861.5 110.55
06/30/97............. 5.125 64.06 476.1 131.70 1104.8 141.77
09/30/97............. 7.000 87.50 556.7 154.00 1208.1 155.02
12/31/97............. 3.750 46.88 522.1 144.43 1140.2 146.31
</TABLE>
CERTAIN TRANSACTIONS
Since January 1, 1997, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which the Company
was or is to be a party in which the amount involved exceeds $60,000 and in
which any director, executive officer, or holder of more than 5% of the
Company's Common Stock had or will have a direct or indirect material interest
other than normal compensation arrangements, which are described under
"Executive Compensation" above and the transactions described below:
In December 1995, the Company made loans to Mark A. Jung, the Company's
former President and Chief Executive Officer, and to Mr. Bennion, for $105,000
and $60,000, respectively. In March 1996, Mr. Jung borrowed an additional
$68,000 from the Company to cover certain 1995 federal and state tax
liabilities. These loans, in the form of full recourse promissory notes, bore
simple interest at 5.83%, compounded semiannually, the applicable federal rate
in effect for loans first contracted in December 1995. The loans were secured by
an interest in 521,865 and 191,000 shares, respectively, of the Company's Common
Stock owned by each officer. In March 1997, Mr. Jung and Mr. Bennion repaid the
principal amount of these loans, together with accrued interest.
In October 1996, the Company made a loan in the amount of $325,000 to
Chris Andrews, a former officer of the Company at an annual interest rate of
6.61% in order to assist Mr. Andrews in purchasing a home. In 1997, Mr. Andrews
repaid the entire principal amount of this loan and all accrued interest
thereon.
17
<PAGE> 21
In January 1997, the Company entered into Employment Agreements with Mr.
Harguindeguy, Mr. Khalaf, Mr. Bennion, Mr. Krishnamurthy, Mr. Jung, Mr. Andrews
and Steven M. Goldner, a former officer of the Company. These Employment
Agreements provide, among other things, that upon certain corporate
transactions, including changes in control, (a) all shares of stock and options
held by each officer will be assumed, converted, substituted or replaced by the
successor company or (b) the successor company may provide substantially similar
consideration to the officers as was provided to stockholders or optionholders
generally with respect to any stock or options held by such officer. In case of
a sale of the Company, the successor company may not terminate an officer's
employment prior to the first anniversary of the sale of the Company, except for
cause, without giving written notice. During the notice period, which must
continue until the first anniversary of the sale of the Company, the officer
will continue to collect twelve months' salary and bonus at then-current levels
regardless of whether the officer's services are actually required by the
Company or its successor. All employee benefits will continue and each officer's
options and shares of stock will continue to vest during the period of notice,
provided that the officer was not terminated for cause. Upon request of the
Company, the officer must also provide certain consulting services, paid at an
hourly rate for services actually performed, during the twelve months following
the first anniversary of the sale of the Company. During this period, provided
the officer's consulting arrangement is not terminated for cause, the officer's
options and shares will continue to vest.
In July 1997, the Company entered into a Separation, Consulting and
Release Agreement with Mr. Jung, pursuant to which Mr. Jung (1) continued to
receive compensation at his then-current salary level through October 1997, (2)
received additional vesting of his outstanding stock options and (3) was
eligible to receive additional consulting compensation for a specified period
after October 1997. In July 1997, the Company also entered into a Settlement,
Consulting and Release Agreement with Steven Goldner, a former officer of the
Company, pursuant to which Mr. Goldner (1) continued to receive compensation for
a specified period, (2) received additional vesting of his outstanding stock
options and (3) was eligible to receive additional consulting compensation for a
specified period.
STOCKHOLDER PROPOSALS
Proposals of Stockholders intended to be presented at the Company's 1999
Annual Meeting of Stockholders must be received by the Company at its principal
executive offices no later than December 29, 1998 in order to be included in the
Company's Proxy Statement and form of proxy relating to the meeting.
COMPLIANCE UNDER SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers, and persons who own more than 10% of the
Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the SEC and the Nasdaq National Market. Such persons
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms that they file.
Based solely on its review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements for the year
ended December 31, 1997 were met except that the Form 3 on which Bernard
Harguindeguy reported his initial beneficial ownership was filed late.
OTHER BUSINESS
The Board does not presently intend to bring any other business before
the Meeting, and, so far as is known to the Board, no matters are to be brought
before the Meeting except as specified in the Notice of the Meeting. As to any
business that may properly come before the Meeting, however, it is intended that
proxies, in the form enclosed, will be voted in respect thereof in accordance
with the judgment of the persons voting such proxies.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING. IF THE RECORD HOLDER OF YOUR
SHARES IS A BROKER, BANK OR OTHER NOMINEE, PLEASE FOLLOW THE INSTRUCTIONS FOR
VOTING THAT ARE GIVEN TO YOU BY SUCH PERSON OR ENTITY.
18
<PAGE> 22
Appendix 1
WORLDTALK CORPORATION
1996 EQUITY INCENTIVE PLAN
As adopted on February 7, 1996
and Amended Through April 17, 1998
1. PURPOSE. The purpose of this Plan, as amended herein
(the "PLAN"), is to provide incentives to attract, retain and motivate eligible
persons whose present and potential contributions are important to the success
of the Company, its Parent, Subsidiaries and Affiliates, by offering them an
opportunity to participate in the Company's future performance through awards of
Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined in
the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections
2.2 and 18, the total number of Shares reserved and available for grant and
issuance pursuant to this Plan will be 2,750,000(1) Shares (post 1-for-2 1996
reverse stock split). Subject to Sections 2.2 and 18, Shares that: (a) are
subject to issuance upon exercise of an Option but cease to be subject to such
Option for any reason other than exercise of such Option; (b) are subject to an
Award granted hereunder but are forfeited or are repurchased by the Company at
the original issue price; or (c) are subject to an Award that otherwise
terminates without Shares being issued; will again be available for grant and
issuance in connection with future Awards under this Plan. At all times the
Company shall reserve and keep available a sufficient number of Shares as shall
be required to satisfy the requirements of all outstanding Options granted under
this Plan and all other outstanding but unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the
number of outstanding Shares is changed by a stock dividend, recapitalization,
stock split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may
be granted only to employees (including officers and directors who are also
employees but are not members of the Compensation Committee of the Board) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent, Subsidiary or Affiliate of the
Company; provided such consultants, contractors and advisors render bona fide
services not in connection with the offer and sale of securities in a
capital-raising transaction. No person will be eligible to receive more than
500,000 Shares in any calendar year under this Plan pursuant to the grant of
Awards hereunder, other than new employees of the Company or of a Parent,
Subsidiary or Affiliate of the Company (including new employees who are also
officers and directors of the Company or any Parent, Subsidiary or Affiliate of
the Company but are not members of the Compensation Committee of the Board) who
are eligible to receive up to a maximum of 750,000 Shares in the calendar year
in which they commence their employment. A person may be granted more than one
Award under this Plan.
4. ADMINISTRATION.
- --------
1 Reflects (i) an increase from 1,000,000 to 1,750,000 shares approved by the
Board on March 11, 1997 and by stockholders on June 12, 1997 and (ii) an
increase to 2,750,000 shares approved by the Board on April 17, 1998 and by
stockholders on June 12, 1998.
<PAGE> 23
4.1 Committee Authority. This Plan will be
administered by the Committee or by the Board acting as the Committee. Subject
to the general purposes, terms and conditions of this Plan, and to the direction
of the Board, the Committee will have full power to implement and carry out this
Plan. Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award
Agreement and any other agreement or document
executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and
regulations relating to this Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other
consideration subject to Awards;
(f) determine whether Awards will be granted singly,
in combination with, in tandem with, in
replacement of, or as alternatives to, other
Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent,
Subsidiary or Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and
payment of Awards;
(i) correct any defect, supply any omission or
reconcile any inconsistency in this Plan, any
Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make other determinations necessary or advisable
for the administration of this Plan.
4.2 Committee Discretion. Any determination made by
the Committee with respect to any Award will be made in its sole discretion at
the time of grant of the Award or, unless in contravention of any express term
of this Plan or Award, at any later time, and such determination will be final
and binding on the Company and on all persons having an interest in any Award
under this Plan. The Committee may delegate to one or more officers of the
Company the authority to grant an Award under this Plan to Participants who are
not Insiders of the Company.
4.3 Exchange Act Requirements. If two or more
members of the Board are Outside Directors, the Committee will be comprised of
at least two (2) members of the Board, all of whom are Outside Directors and
Disinterested Persons. During all times that the Company is subject to Section
16 of the Exchange Act, the Company will take appropriate steps to comply with
the disinterested administration requirements of Section 16(b) of the Exchange
Act, which will consist of the appointment by the Board of a Committee
consisting of not less than two (2) members of the Board, each of whom is a
Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible
persons and will determine whether such Options will be Incentive Stock Options
within the meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"),
the number of Shares subject to the Option, the Exercise Price of the Option,
the period during which the Option may be exercised, and all other terms and
conditions of the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted
under this Plan will be evidenced by an Award Agreement which will expressly
identify the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be
in such form and contain such provisions (which need not be the same for each
Participant) as the Committee may from time to time approve, and which will
comply with and be subject to the terms and conditions of this Plan.
-2-
<PAGE> 24
5.2 Date of Grant. The date of grant of an Option
will be the date on which the Committee makes the determination to grant such
Option, unless otherwise specified by the Committee. The Stock Option Agreement
and a copy of this Plan will be delivered to the Participant within a reasonable
time after the granting of the Option.
5.3 Exercise Period. Options will be exercisable
within the times or upon the events determined by the Committee as set forth in
the Stock Option Agreement governing such Option; provided, however, that no
Option will be exercisable after the expiration of ten (10) years from the date
the Option is granted; and provided further that no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any Parent or
Subsidiary of the Company ("TEN PERCENT STOCKHOLDER") will be exercisable after
the expiration of five (5) years from the date the ISO is granted. The Committee
also may provide for the exercise of Options to become exercisable at one time
or from time to time, periodically or otherwise, in such number of Shares or
percentage of Shares as the Committee determines.
5.4 Exercise Price. The Exercise Price of an
Option will be determined by the Committee when the Option is granted and may be
not less than 85% of the Fair Market Value of the Shares on the date of grant;
provided that: (a) the Exercise Price of an ISO will be not less than 100% of
the Fair Market Value of the Shares on the date of grant; and (b) the Exercise
Price of any ISO granted to a Ten Percent Stockholder will not be less than 110%
of the Fair Market Value of the Shares on the date of grant. Payment for the
Shares purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised
only by delivery to the Company of a written stock option exercise agreement
(the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not
be the same for each Participant), stating the number of Shares being purchased,
the restrictions imposed on the Shares purchased under such Exercise Agreement,
if any, and such representations and agreements regarding Participant's
investment intent and access to information and other matters, if any, as may be
required or desirable by the Company to comply with applicable securities laws,
together with payment in full of the Exercise Price for the number of Shares
being purchased.
5.6 Termination. Notwithstanding the exercise
periods set forth in the Stock Option Agreement, exercise of an Option will
always be subject to the following:
(a) If the Participant is Terminated for any reason
except death or Disability, then the Participant may exercise such
Participant's Options only to the extent that such Options would have
been exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no later than
the expiration date of the Options.
(b) If the Participant is Terminated because of
Participant's death or Disability (or the Participant dies within three
(3) months after a Termination other than because of Participant's
death or disability), then Participant's Options may be exercised only
to the extent that such Options would have been exercisable by
Participant on the Termination Date and must be exercised by
Participant (or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination Date
(or such shorter or longer time period not exceeding five (5) years as
may be determined by the Committee, with any such exercise beyond (a)
three (3) months after the Termination Date when the Termination is for
any reason other than the Participant's death or Disability, or (b)
twelve (12) months after the Termination Date when the Termination is
for Participant's death or Disability, deemed to be an NQSO), but in
any event no later than the expiration date of the Options.
5.7 Limitations on Exercise. The Committee may
specify a reasonable minimum number of Shares that may be purchased on any
exercise of an Option, provided that such minimum number will not prevent
Participant from exercising the Option for the full number of Shares for which
it is then exercisable.
-3-
<PAGE> 25
5.8 Limitations on ISOs. The aggregate Fair
Market Value (determined as of the date of grant) of Shares with respect to
which ISOs are exercisable for the first time by a Participant during any
calendar year (under this Plan or under any other incentive stock option plan of
the Company or any Affiliate, Parent or Subsidiary of the Company) will not
exceed $100,000. If the Fair Market Value of Shares on the date of grant with
respect to which ISOs are exercisable for the first time by a Participant during
any calendar year exceeds $100,000, then the Options for the first $100,000
worth of Shares to become exercisable in such calendar year will be ISOs and the
Options for the amount in excess of $100,000 that become exercisable in that
calendar year will be NQSOs. In the event that the Code or the regulations
promulgated thereunder are amended after the Effective Date of this Plan to
provide for a different limit on the Fair Market Value of Shares permitted to be
subject to ISOs, such different limit will be automatically incorporated herein
and will apply to any Options granted after the effective date of such
amendment.
5.9 Modification, Extension or Renewal. The
Committee may modify, extend or renew outstanding Options and authorize the
grant of new Options in substitution therefor, provided that any such action may
not, without the written consent of a Participant, impair any of such
Participant's rights under any Option previously granted. Any outstanding ISO
that is modified, extended, renewed or otherwise altered will be treated in
accordance with Section 424(h) of the Code. The Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants
affected by a written notice to them; provided, however, that the Exercise Price
may not be reduced below the minimum Exercise Price that would be permitted
under Section 5.4 of this Plan for Options granted on the date the action is
taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any
other provision in this Plan, no term of this Plan relating to ISOs will be
interpreted, amended or altered, nor will any discretion or authority granted
under this Plan be exercised, so as to disqualify this Plan under Section 422 of
the Code or, without the consent of the Participant affected, to disqualify any
ISO under Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer
by the Company to sell to an eligible person Shares that are subject to
restrictions. The Committee will determine to whom an offer will be made, the
number of Shares the person may purchase, the price to be paid (the "PURCHASE
PRICE"), the restrictions to which the Shares will be subject, and all other
terms and conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases
under a Restricted Stock Award made pursuant to this Plan will be evidenced by
an Award Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such
form (which need not be the same for each Participant) as the Committee will
from time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If such
person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer will terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares
sold pursuant to a Restricted Stock Award will be determined by the Committee
and will be at least 85% of the Fair Market Value of the Shares on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8 of
this Plan.
6.3 Restrictions. Restricted Stock Awards will be
subject to such restrictions (if any) as the Committee may impose. The Committee
may provide for the lapse of such restrictions in installments and may
accelerate or waive such restrictions, in whole or part, based on length of
service, performance or such other factors or criteria as the Committee may
determine.
-4-
<PAGE> 26
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an
award of Shares (which may consist of Restricted Stock) for services rendered to
the Company or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus
may be awarded for past services already rendered to the Company, or any Parent,
Subsidiary or Affiliate of the Company (provided that the Participant pays the
Company the par value of the Shares awarded by such Stock Bonus in cash)
pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will be in
such form (which need not be the same for each Participant) as the Committee
will from time to time approve, and will comply with and be subject to the terms
and conditions of this Plan. A Stock Bonus may be awarded upon satisfaction of
such performance goals as are set out in advance in the Participant's individual
Award Agreement (the "PERFORMANCE STOCK BONUS AGREEMENT") that will be in such
form (which need not be the same for each Participant) as the Committee will
from time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. Stock Bonuses may vary from Participant to Participant
and between groups of Participants, and may be based upon the achievement of the
Company, Parent, Subsidiary or Affiliate and/or individual performance factors
or upon such other criteria as the Committee may determine.
7.2 Terms of Stock Bonuses. The Committee will
determine the number of Shares to be awarded to the Participant and whether such
Shares will be Restricted Stock. If the Stock Bonus is being earned upon the
satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee will determine: (a) the nature, length and
starting date of any period during which performance is to be measured (the
"PERFORMANCE PERIOD") for each Stock Bonus; (b) the performance goals and
criteria to be used to measure the performance, if any; (c) the number of Shares
that may be awarded to the Participant; and (d) the extent to which such Stock
Bonuses have been earned. Performance Periods may overlap and Participants may
participate simultaneously with respect to Stock Bonuses that are subject to
different Performance Periods and different performance goals and other
criteria. The number of Shares may be fixed or may vary in accordance with such
performance goals and criteria as may be determined by the Committee. The
Committee may adjust the performance goals applicable to the Stock Bonuses to
take into account changes in law and accounting or tax rules and to make such
adjustments as the Committee deems necessary or appropriate to reflect the
impact of extraordinary or unusual items, events or circumstances to avoid
windfalls or hardships.
7.3 Form of Payment. The earned portion of a
Stock Bonus may be paid currently or on a deferred basis with such interest or
dividend equivalent, if any, as the Committee may determine. Payment may be made
in the form of cash, whole Shares, including Restricted Stock, or a combination
thereof, either in a lump sum payment or in installments, all as the Committee
will determine.
7.4 Termination During Performance Period. If a
Participant is Terminated during a Performance Period for any reason, then such
Participant will be entitled to payment (whether in Shares, cash or otherwise)
with respect to the Stock Bonus only to the extent earned as of the date of
Termination in accordance with the Performance Stock Bonus Agreement, unless the
Committee will determine otherwise.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant
to this Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to
the Participant;
(b) by surrender of shares that either: (1) have been
owned by Participant for more than six (6) months and have been paid
for within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note has
been fully paid with respect to such shares); or (2) were obtained by
Participant in the public market;
(c) by tender of a full recourse promissory note having
such terms as may be approved by the Committee and bearing interest at
a rate sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; provided, however, that Participants who are not
employees or
-5-
<PAGE> 27
directors of the Company will not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by collateral
other than the Shares; provided, further, that the portion of the
Purchase Price equal to the par value of the Shares, if any, must be
paid in cash;
(d) by waiver of compensation due or accrued to the
Participant for services rendered; provided, further, that the portion
of the Purchase Price equal to the par value of the Shares, if any,
must be paid in cash;
(e) with respect only to purchases upon exercise of an
Option, and provided that a public market for the Company's stock
exists:
(1) through a "same day sale" commitment
from the Participant and a broker-dealer that is a member of
the National Association of Securities Dealers (an "NASD
DEALER") whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the Shares so
purchased to pay for the Exercise Price, and whereby the NASD
Dealer irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company; or
(2) through a "margin" commitment from the
Participant and a NASD Dealer whereby the Participant
irrevocably elects to exercise the Option and to pledge the
Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the
Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the
Participant pay for Shares purchased under this Plan by authorizing a guarantee
by the Company of a third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 Withholding Generally. Whenever Shares are to
be issued in satisfaction of Awards granted under this Plan, the Company may
require the Participant to remit to the Company an amount sufficient to satisfy
federal, state and local withholding tax requirements prior to the delivery of
any certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax
laws, a Participant incurs tax liability in connection with the exercise or
vesting of any Award that is subject to tax withholding and the Participant is
obligated to pay the Company the amount required to be withheld, the Committee
may allow the Participant to satisfy the minimum withholding tax obligation by
electing to have the Company withhold from the Shares to be issued that number
of Shares having a Fair Market Value equal to the minimum amount required to be
withheld, determined on the date that the amount of tax to be withheld is to be
determined (the "TAX DATE"). All elections by a Participant to have Shares
withheld for this purpose will be made in writing in a form acceptable to the
Committee and will be subject to the following restrictions:
(a) the election must be made on or prior to the
applicable Tax Date;
(b) once made, then except as provided below, the
election will be irrevocable as to the particular Shares as to which
the election is made;
(c) all elections will be subject to the consent or
disapproval of the Committee;
(d) if the Participant is an Insider and if the Company
is subject to Section 16(b) of the Exchange Act: (1) the election may
not be made within six (6) months of the date of grant of the Award,
except as otherwise permitted by SEC Rule 16b-3(e) under the Exchange
Act, and (2) either (A) the election to use stock withholding must be
irrevocably made at least six (6) months prior to the Tax Date
(although such election may be revoked at any time at least six (6)
months prior to the Tax Date) or (B) the
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exercise of the Option or election to use stock withholding must be
made in the ten (10) day period beginning on the third day following
the release of the Company's quarterly or annual summary statement of
sales or earnings; and
(e) in the event that the Tax Date is deferred until
six (6) months after the delivery of Shares under Section 83(b) of the
Code, the Participant will receive the full number of Shares with
respect to which the exercise occurs, but such Participant will be
unconditionally obligated to tender back to the Company the proper
number of Shares on the Tax Date.
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 Voting and Dividends. No Participant will
have any of the rights of a stockholder with respect to any Shares until the
Shares are issued to the Participant. After Shares are issued to the
Participant, the Participant will be a stockholder and have all the rights of a
stockholder with respect to such Shares, including the right to vote and receive
all dividends or other distributions made or paid with respect to such Shares;
provided, that if such Shares are Restricted Stock, then any new, additional or
different securities the Participant may become entitled to receive with respect
to such Shares by virtue of a stock dividend, stock split or any other change in
the corporate or capital structure of the Company will be subject to the same
restrictions as the Restricted Stock; provided, further, that the Participant
will have no right to retain such stock dividends or stock distributions with
respect to Shares that are repurchased at the Participant's original Purchase
Price pursuant to Section 12.
10.2 Financial Statements. The Company will
provide financial statements to each Participant prior to such Participant's
purchase of Shares under this Plan (if requested by the Participant), and to
each Participant annually during the period such Participant has Awards
outstanding; provided, however, the Company will not be required to provide such
financial statements to Participants whose services in connection with the
Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and
any interest therein, will not be transferable or assignable by Participant, and
may not be made subject to execution, attachment or similar process, otherwise
than by will or by the laws of descent and distribution or as consistent with
the specific Plan and Award Agreement provisions relating thereto. During the
lifetime of the Participant an Award will be exercisable only by the
Participant, and any elections with respect to an Award, may be made only by the
Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the
Committee, the Company may reserve to itself and/or its assignee(s) in the Award
Agreement (a) a right of first refusal to purchase all Shares that a Participant
(or a subsequent transferee) may propose to transfer to a third party, and/or
(b) a right to repurchase a portion of or all Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at: (A) with respect to Shares that are "Vested" (as defined in
the Award or Exercise Agreement), the higher of Participant's original Purchase
Price or the Fair Market Value of such Shares on Participant's Termination Date;
or (B) with respect to Shares that are not "Vested" (as defined in the Award or
Exercise Agreement), at the Participant's original Purchase Price.
13. CERTIFICATES. All certificates for Shares or other
securities delivered under this Plan will be subject to such stock transfer
orders, legends and other restrictions as the Committee may deem necessary or
advisable, including restrictions under any applicable federal, state or foreign
securities law, or any rules, regulations and other requirements of the SEC or
any stock exchange or automated quotation system upon which the Shares may be
listed or quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions
on a Participant's Shares, the Committee may require the Participant to deposit
all certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
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<PAGE> 29
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at
any time or from time to time, authorize the Company, with the consent of the
respective Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. The Committee may at any time buy
from a Participant an Award previously granted with payment in cash, Shares
(including Restricted Stock) or other consideration, based on such terms and
conditions as the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An
Award will not be effective unless such Award is in compliance with all
applicable federal and state securities laws, rules and regulations of any
governmental body, and the requirements of any stock exchange or automated
quotation system upon which the Shares may then be listed or quoted, as they are
in effect on the date of grant of the Award and also on the date of exercise or
other issuance. Notwithstanding any other provision in this Plan, the Company
will have no obligation to issue or deliver certificates for Shares under this
Plan prior to: (a) obtaining any approvals from governmental agencies that the
Company determines are necessary or advisable; and/or (b) completion of any
registration or other qualification of such Shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register the
Shares with the SEC or to effect compliance with the registration, qualification
or listing requirements of any state securities laws, stock exchange or
automated quotation system, and the Company will have no liability for any
inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any
Award granted under this Plan will confer or be deemed to confer on any
Participant any right to continue in the employ of, or to continue any other
relationship with, the Company or any Parent, Subsidiary or Affiliate of the
Company or limit in any way the right of the Company or any Parent, Subsidiary
or Affiliate of the Company to terminate Participant's employment or other
relationship at any time, with or without cause.
18. CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by
Successor. In the event of:
(a) a dissolution or liquidation of the
Company,
(b) a merger or consolidation in which
the Company is not the surviving corporation (other than a merger or
consolidation with a wholly owned subsidiary, a reincorporation of the
Company in a different jurisdiction, or other transaction in which
there is no substantial change in the stockholders of the Company or
their relative stock holdings and the Awards granted under this Plan
are assumed, converted or replaced by the successor corporation, which
assumption will be binding on all Participants),
(c) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
(other than any stockholder which merges (or which owns or controls
another corporation which merges) with the Company in such merger)
cease to own at least 90% of the issued and outstanding capital stock
or other equity interests in the Company,
(d) the sale of all or substantially all of
the assets of the Company; or
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<PAGE> 30
(e) any other transaction which qualifies as
a "corporate transaction" under Section 424(a) of the Code wherein the
stockholders of the Company give up all of their equity interest in the
Company (except for the acquisition, sale or transfer of all or
substantially all of the outstanding shares of the Company from or by
the stockholders of the Company),
then, subject to Section 18.3 below, any or all outstanding Awards may be
assumed, converted or replaced by the successor corporation (if any), which
assumption, conversion or replacement will be binding on all Participants. In
the alternative and subject to Section 18.3 below, the successor corporation may
substitute equivalent Awards or provide substantially similar consideration to
Participants as was provided to stockholders (after taking into account the
existing provisions of the Awards). The successor corporation may also issue, in
place of outstanding Shares of the Company held by the Participant,
substantially similar shares or other property subject to repurchase
restrictions no less favorable to the Participant.
18.2 Termination of Awards. In the event of a
transaction described in clauses (a) through (e) of Section 18.1 and provided
that the successor corporation (if any) does not assume or substitute all
outstanding Awards as provided above, such Awards will expire on (and if the
Company has reserved to itself a right to repurchase shares issued upon exercise
of Awards at the original purchase price of such shares, such right shall
terminate upon) such event at such time and on such conditions as the Board
shall determine upon twenty (20) days advance written notice to Participants
holding outstanding Awards.
18.3 Acceleration of Vesting. In the event of a
merger described in either clause (b) or (c) of Section 18.1 above, the sale of
all or substantially all of the assets of the Company as a going concern in a
single transaction or series of related transactions or the sale or transfer of
a majority of the outstanding shares of the Company by the stockholders of the
Company in a single transaction or a series of related transactions other than
market transactions to unrelated purchasers (an "ACQUISITION") and:
(a) if the successor corporation, if any
(the "SUCCESSOR"), does not assume or substitute Awards as provided
above in Section 18.1, then each outstanding Award granted on or after
October 18, 1996 that is not totally "Vested" (as defined in the Award
or Exercise Agreement) shall immediately accelerate and become
exercisable as to the number of shares that is equal to (i) the number
of shares then "Vested" at the closing of the Acquisition, plus (ii)
the number of shares that would have "Vested" had the Award been held
for the year after such closing. Awards granted before October 18, 1996
will accelerate and become exercisable in full. Such acceleration shall
be under the terms described by the Board in the notice described in
the last sentence of Section 18.2; or
(b) if the Successor assumes or substitutes
Awards as provided above in Section 18.1, but any Participant's
employment with the Successor or any Parent, Subsidiary of Affiliate of
the Successor (as the definitions for such terms shall be revised to
substitute the Successor for the Company) is terminated by the
Successor, such Parent, Subsidiary or Affiliate without "cause" within
one year after the Acquisition, then the outstanding Awards held by the
terminated employee, as so substituted or assumed, and granted on or
after October 18, 1996 shall provide that they will likewise
immediately accelerate and become exercisable on the date of such
termination such that they are exercisable for (i) the number of shares
then "Vested" at the date of such termination, plus (ii) the number of
shares that would have "Vested" had the Award been held for the year
after such termination. Awards granted before October 18, 1996 will
accelerate vesting and become exercisable in full upon such
termination. For purposes hereof "cause" for termination of any
Participant's employment will exist at any time after the happening of
one or more of the following events: (i) Participant's conviction of a
felony involving moral turpitude; (ii) any willful act or acts of
dishonesty undertaken by the Participant and intended to result in
substantial gain or personal enrichment of Participant, directly or
indirectly, at the expense of the Successor, such Parent, Subsidiary or
Affiliate; (iii) any willful act or misconduct which is materially and
demonstrably injurious to the Successor, such Parent, Subsidiary or
Affiliate; (iv) substantial and repeated neglect of Participant's
responsibility, or malfeasance thereof, that remains uncured after
thirty (30) days written notice of such neglect; or (v) the death or
disability (within the meaning of Section 22(e)(3) of the Code) of the
Participant.
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<PAGE> 31
18.4 Other Treatment of Awards. Subject to any
greater rights granted to Participants under the foregoing provisions of this
Section 18, in the event of the occurrence of any transaction described in
Section 18.1, any outstanding Awards will be treated as provided in the
applicable agreement or plan of merger, consolidation, dissolution, liquidation,
sale of assets or other "corporate transaction."
18.5 Assumption of Awards by the Company. The
Company, from time to time, also may substitute or assume outstanding awards
granted by another company, whether in connection with an acquisition of such
other company or otherwise, by either; (a) granting an Award under this Plan in
substitution of such other company's award; or (b) assuming such award as if it
had been granted under this Plan if the terms of such assumed award could be
applied to an Award granted under this Plan. Such substitution or assumption
will be permissible if the holder of the substituted or assumed award would have
been eligible to be granted an Award under this Plan if the other company had
applied the rules of this Plan to such grant. In the event the Company assumes
an award granted by another company, the terms and conditions of such award will
remain unchanged (except that the exercise price and the number and nature of
Shares issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code). In the event the Company elects to
grant a new Option rather than assuming an existing option, such new Option may
be granted with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will
become effective on the date on which the registration statement filed by
the Company with the SEC under the Securities Act registering the initial public
offering of the Company's Common Stock is declared effective by the SEC (the
"EFFECTIVE DATE"); provided, however, that if the Effective Date does not occur
on or before December 31, 1996, this Plan will terminate as of December 31, 1996
having never become effective. This Plan shall be approved by the stockholders
of the Company (excluding Shares issued pursuant to this Plan), consistent with
applicable laws, within twelve (12) months before or after the date this Plan is
adopted by the Board. Upon the Effective Date, the Board may grant Awards
pursuant to this Plan; provided, however, that: (a) no Option may be exercised
prior to initial stockholder approval of this Plan; (b) no Option granted
pursuant to an increase in the number of Shares subject to this Plan approved by
the Board will be exercised prior to the time such increase has been approved by
the stockholders of the Company; and (c) in the event that stockholder approval
of such increase is not obtained within the time period provided herein, all
Awards granted hereunder will be canceled, any Shares issued pursuant to any
Award will be canceled, and any purchase of Shares hereunder will be rescinded.
So long as the Company is subject to Section 16(b) of the Exchange Act, the
Company will comply with the requirements of Rule 16b-3 (or its successor), as
amended, with respect to stockholder approval.
20. TERM OF PLAN. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years after the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any
time terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or (if the Company is subject
to the Exchange Act or Section 16(b) of the Exchange Act) pursuant to the
Exchange Act or Rule 16b-3 (or its successor), as amended, thereunder,
respectively.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of
this Plan by the Board, the submission of this Plan to the stockholders of the
Company for approval, nor any provision of this Plan will be construed as
creating any limitations on the power of the Board to adopt such additional
compensation arrangements as it may deem desirable, including, without
limitation, the granting of stock options and bonuses otherwise than under this
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.
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<PAGE> 32
23. DEFINITIONS. As used in this Plan, the following terms
will have the following meanings:
"AFFILIATE" means any corporation that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, another corporation, where "control" (including the terms "controlled by"
and "under common control with") means the possession, direct or indirect, of
the power to cause the direction of the management and policies of the
corporation, whether through the ownership of voting securities, by contract or
otherwise.
"AWARD" means any award under this Plan, including any Option, Restricted Stock
or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms and
conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to administer this Plan,
or if no such committee is appointed, the Board.
"COMPANY" means Worldtalk Communications Corporation, dba Worldtalk Corporation,
a corporation organized under the laws of the State of Delaware, or any
successor corporation.
"DISABILITY" means a disability, whether temporary or permanent, partial or
total, within the meaning of Section 22(e)(3) of the Code, as determined by the
Committee.
"DISINTERESTED PERSON" means a director who has not, during the period that
person is a member of the Committee and for one year prior to commencing service
as a member of the Committee, been granted or awarded equity securities pursuant
to this Plan or any other plan of the Company or any Parent, Subsidiary or
Affiliate of the Company, except in accordance with the requirements set forth
in Rule 16b-3(c)(2)(i) (and any successor regulation thereto) as promulgated by
the SEC under Section 16(b) of the Exchange Act, as such rule is amended from
time to time and as interpreted by the SEC.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PRICE" means the price at which a holder of an Option may purchase the
Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's
Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the last
trading day prior to the date of determination as reported in The Wall
Street Journal;
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the last
trading day prior to the date of determination on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted
on the Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and asked
prices on the last trading day prior to the date of determination as
reported in The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Committee
in good faith.
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<PAGE> 33
"INSIDER" means an officer or director of the Company or any other person whose
transactions in the Company's Common Stock are subject to Section 16 of the
Exchange Act.
"OUTSIDE DIRECTOR" means any director who is not; (a) a current employee of the
Company or any Parent, Subsidiary or Affiliate of the Company; (b) a former
employee of the Company or any Parent, Subsidiary or Affiliate of the Company
who is receiving compensation for prior services (other than benefits under a
tax-qualified pension plan); (c) a current or former officer of the Company or
any Parent, Subsidiary or Affiliate of the Company; or (d) currently receiving
compensation for personal services in any capacity, other than as a director,
from the Company or any Parent, Subsidiary or Affiliate of the Company;
provided, however, that at such time as the term "Outside Director", as used in
Section 162(m) of the Code is defined in regulations promulgated under Section
162(m) of the Code, "Outside Director" will have the meaning set forth in such
regulations, as amended from time to time and as interpreted by the Internal
Revenue Service.
"OPTION" means an award of an option to purchase Shares pursuant to Section 5.
"PARENT" means any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, if at the time of the granting of an Award
under this Plan, each of such corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this Plan.
"PLAN" means this Worldtalk Corporation 1996 Equity Incentive Plan, as amended
from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for issuance under
this Plan, as adjusted pursuant to Sections 2 and 18, and any successor
security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares, pursuant to
Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain
of corporations beginning with the Company if, at the time of granting of the
Award, each of the corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with respect to a
Participant, that the Participant has for any reason ceased to provide services
as an employee, director, consultant, independent contractor or advisor to the
Company or a Parent, Subsidiary or Affiliate of the Company, except in the case
of sick leave, military leave, or any other leave of absence approved by the
Committee, provided that such leave is for a period of not more than ninety (90)
days, or reinstatement upon the expiration of such leave is guaranteed by
contract or statute. The Committee will have sole discretion to determine
whether a Participant has ceased to provide services and the effective date on
which the Participant ceased to provide services (the "TERMINATION DATE").
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<PAGE> 34
WORLDTALK COMMUNICATIONS CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - JUNE 12, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY.
The undersigned hereby appoints Bernard Harguindeguy and Wade Woodson or
either of them as proxies, each with full power of substitution, and hereby
authorizes them to represent and to vote, as designated below, all shares of
Common Stock, par value $0.01 per share, of Worldtalk Communications Corporation
(the "Company"), held of record by the undersigned on April 15, 1998, at the
Annual Meeting of Stockholders of the Company to be held at the Santa Clara
Mariott, Santa Clara, California, on Friday, June 12, 1998, at 9:00 a.m. Pacific
Daylight Time, and at any adjournments or postponements thereof.
THIS PROXY WILL BE VOTED AS DIRECTED ON THE REVERSE SIDE. WHEN NO CHOICE
IS INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES LISTED
IN PROPOSAL 1 AND FOR PROPOSAL 2 AND PROPOSAL 3. In their discretion, the proxy
holders are authorized to vote upon such other business as may properly come
before the meeting or any adjournments or postponements thereof to the extent
authorized by Rule 14a-4(c) promulgated under the Securities Exchange Act of
1934, as amended.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 35
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE NOMINEES
LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2 AND PROPOSAL 3.
1. ELECTION OF DIRECTORS -
NOMINEES: CLASS 1: DAVID J. COWAN AND WADE WOODSON
[ ] FOR ALL [ ] WITHHOLD ALL [ ] FOR ALL EXCEPT*
- ----------------------------------------------
*(Except nominee(s) written above
2. RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1996 EQUITY INCENTIVE PLAN TO
INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER BY
1,000,000 SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATED:_______________________, 1998
SIGNATURE(S)______________________________________
Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares of stock stand of record in the names of two or more persons or in the
name of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the proxy. If shares of stock are held of record by a
corporation, the proxy should be executed by the president or vice president and
the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute the above proxy for a deceased stockholder should give
their full title. Please date the proxy.
