<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934, as amended.
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
FAXSAV INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
-----------------------------------------------------------------------
(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):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials:
/ / 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:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
FAXSAV INCORPORATED
399 Thornall Street
Edison, New Jersey 08837
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1998
The Annual Meeting of Stockholders of FaxSav Incorporated (the "Company")
will be held at the Woodbridge Hilton, 120 Wood Avenue South, Iselin, New
Jersey, 08830, (732) 494-6200 on May 28, 1998 at 10:00 a.m. (eastern standard
time) for the following purposes:
(1) To elect one Director to serve until the Annual Meeting of
Stockholders in 2001 or until his respective successor shall have been duly
elected and qualified;
(2) To approve an amendment to the 1996 Stock Option/Stock Issuance Plan
(the "Plan"), which includes the following changes: (i) increase the number
of shares of Common Stock available for issuance by 650,000 shares; (ii)
render non-employee Board members who serve as the Plan Administrator
eligible to receive option grants and direct stock issuances under the
Discretionary Option Grant and Stock Issuance Programs of the Plan; (iii)
require stockholder approval of future amendments to the Plan only to the
extent necessary to satisfy applicable laws or regulations; (iv) allow the
shares issued under the Plan which are subsequently reacquired by the
Company pursuant to the Company's exercise of its repurchase rights to be
added back to the share reserve available for future issuance under the
Plan; (v) increase the number of shares of Common Stock for which any one
individual may receive option grants, separately exercisable stock
appreciation rights and direct stock issuances over the term of the Plan to
1,000,000 shares; and (vi) effect additional changes to the administrative
provisions of the Plan in order to take advantage of the recent amendments
to Rule 16b-3 of the Securities and Exchange Commission which exempts
certain officer and director transactions under the Plan from the
short-swing liability provisions of the Federal securities laws.
(3) To ratify the selection of Coopers & Lybrand L.L.P., independent
public accountants, as auditors of the Company for the fiscal year ending
December 31, 1998; and
(4) To transact such other business as may properly come before the
Annual Meeting.
Only stockholders of record at the close of business on April 6, 1998 will
be entitled to notice of, and to vote at, the Annual Meeting of Stockholders. A
list of stockholders eligible to vote at the meeting will be available for
inspection at the meeting and for a period of ten days prior to the meeting
during regular business hours at the corporate headquarters at the address
above.
Whether or not you expect to attend the Annual Meeting, your proxy vote is
important. To assure your representation at the meeting, please sign and date
the enclosed proxy card and return it promptly in the enclosed envelope, which
requires no additional postage if mailed in the United States or Canada.
By Order of the Board of Directors
/s/ Thomas F. Murawski
Thomas F. Murawski
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS
April 28, 1998
- --------------------------------------------------------------------------------
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD
BE COMPLETED AND RETURNED PROMPTLY
- --------------------------------------------------------------------------------
<PAGE>
FAXSAV INCORPORATED
PROXY STATEMENT
APRIL 28, 1998
This Proxy Statement is furnished to stockholders of record of FaxSav
Incorporated (the "Company") as of April 6, 1998 in connection with the
solicitation of proxies by the Board of Directors of the Company (the "Board of
Directors" or the "Board") for use at the Annual Meeting of Stockholders to be
held on May 28, 1998 (the "Annual Meeting").
Shares cannot be voted at the meeting unless the owner is present in person
or by proxy. All properly executed and unrevoked proxies in the accompanying
form that are received in time for the meeting will be voted at the meeting or
any adjournment thereof in accordance with instructions thereon, or if no
instructions are given, will be voted "FOR" the election of the named nominees
as Directors of the Company, "FOR" the amendments to the Company's 1996 Stock
Option/Stock Issuance Plan and "FOR" the ratification of Coopers & Lybrand
L.L.P., independent public accountants, as auditors of the Company and will be
voted in accordance with the best judgment of the persons appointed as proxies
with respect to other matters which properly come before the Annual Meeting. Any
person giving a proxy may revoke it by written notice to the Company at any time
prior to exercise of the proxy. In addition, although mere attendance at the
Annual Meeting will not revoke the proxy, a stockholder who attends the meeting
may withdraw his or her proxy and vote in person. Abstentions and broker
non-votes will be counted for purposes of determining the presence or absence of
a quorum for the transaction of business at the Annual Meeting. Abstentions will
be counted in tabulations of the votes cast on each of the proposals presented
at the Annual Meeting, whereas broker non-votes will not be counted for purposes
of determining whether a proposal has been approved.
The Annual Report of the Company (which is deemed not to be a part of the
proxy solicitation materials) is attached hereto. The Company will send a copy
of its 1997 Annual Report on Form 10-K to each requesting stockholder.
The mailing address of the principal executive offices of the Company is 399
Thornall Street, Edison, New Jersey 08837. This Proxy Statement and the
accompanying form of proxy are being mailed to the stockholders of the Company
on or about April 30, 1998.
VOTING SECURITIES
The Company has only one class of voting securities issued and outstanding,
its common stock, par value $0.01 per share (the "Common Stock"). At the Annual
Meeting, each stockholder of record at the close of business on April 6, 1998
will be entitled to one vote for each share of Common Stock owned on that date
as to each matter presented at the Annual Meeting. On April 6, 1998, 10,813,541
shares of Common Stock were outstanding. A list of stockholders eligible to vote
at the Annual Meeting will be available for inspection at the Annual Meeting and
for a period of ten days prior to the Annual Meeting during regular business
hours at the principal executive offices of the Company at the address specified
above.
PROPOSAL ONE: ELECTION OF DIRECTOR
One Director is to be elected at the Annual Meeting to serve as a Class I
Director until the Annual Meeting of Stockholders to be held in 2001 or until
his respective successor is duly elected and qualified. Unless otherwise
instructed, the proxy holders will vote the proxies received by them FOR the
Company's nominee, Robert Labant. The nominee is currently a Director of the
Company.
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors has been divided into three classes, denominated Class I, Class II and
Class III, with members of each class holding office for staggered three-year
terms or until their respective successors are duly elected and qualified. Class
I currently consists of Director Peter Howley whose term expires at the Annual
Meeting of Stockholders to be held in 2000. Class II consists of Robert Labant.
Class III consists of Directors Thomas Murawski and
<PAGE>
Jeffrey Drazan whose terms expire at the Annual Meeting of Stockholders to be
held in 1999. At each annual meeting, the successors to the Directors whose
terms have expired are elected to serve from the time of their election and
qualification until the third annual meeting of the stockholders following the
election or until a successor has been duly elected and qualified. The Bylaws
provide that the number of Directors shall be four but may be increased to a
maximum of nine. The Certificate of Incorporation restricts the removal of
Directors under certain circumstances.
If any nominee is unable to be a candidate when the election takes place,
the shares represented by valid proxies will be voted in favor of the remaining
nominees. The Board of Directors does not currently anticipate that any nominee
will be unable to be a candidate for election.
The affirmative vote of a plurality of the Company's outstanding Common
Stock present in person or by proxy at the Annual Meeting is required to elect
the Directors.
INFORMATION REGARDING NOMINEE FOR ELECTION AS DIRECTORS
The Board of Directors currently has four members. The following information
with respect to the principal occupation or employment, other affiliations and
business experience of the nominee during the last five years has been furnished
to the Company by such nominee. Except as indicated, the nominee for re-election
has had the same principal occupation for the last five years.
ROBERT LABANT has been a director of the Company since June 1996. Since July
1996, Mr. Labant has served as President and Chief Operating Officer of Candle
Software Services Corporation, a systems management software company. From
February 1995 until July 1996, Mr. Labant worked as a self-employed independent
consultant to software companies. For twenty-eight years, until February 1995,
Mr. Labant served in various capacities at International Business Machines Corp.
("IBM"). Mr. Labant's last position at IBM was as Senior Vice President and
General Manager of North American Operations, and previously he served as Vice
President and General Manager of the AS 400 Product Manufacturing and
Development Division. Mr. Labant also serves on the Board of Directors of
Arkwright Insurance, a mutual insurance company, and on the Board of Overseers
of the Amos Tuck School of Business at Dartmouth College.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF ROBERT LABANT.
INFORMATION REGARDING NONEMPLOYEE DIRECTORS WHO ARE NOT NOMINEES FOR REELECTION
AS DIRECTORS
JEFFREY M. DRAZAN has been a director of the Company since August 1990. Mr.
Drazan has been a general partner of Sierra Ventures, a venture capital firm,
since 1987. Mr. Drazan also serves as a director of Stratacom Inc., a
telecommunications equipment company, Retix, a telecommunications equipment
company, and Digital Generation Systems Inc., a multimedia network services
company and Micromuse Inc., a networking software company. Mr. Drazan was
originally elected to the Board of Directors in August 1990 pursuant to the
terms of a Warrant Purchase Agreement.
PETER A. HOWLEY has been a director of the Company since January 1992. Mr.
Howley has been a private investor since May 1994. From August 1985 until May
1994, Mr. Howley served as President, Chief Executive Officer, and Chairman of
the Board of Directors of Centex Telemanagement, Inc., a telecommunications
management services company. Mr. Howley currently serves as a director of
Worldport Communications, Inc., and Exodus Communications, Inc.
COMMITTEES OF THE BOARD
The Audit Committee of the Board of Directors reviews, acts on and reports
to the Board of Directors with respect to various auditing and accounting
matters, including the selection of the Company's auditors, the scope of the
annual audits, fees to be paid to the auditors, the performance of the Company's
2
<PAGE>
independent auditors and the accounting practices of the Company. The Audit
Committee consists of Mr. Drazan and Mr. Labant.
The Compensation Committee of the Board of Directors determines the salaries
and incentive compensation of the officers of the Company and provides
recommendations for the salaries and incentive compensation of the other
employees and the consultants of the Company. The Compensation Committee also
administers various incentive compensation, stock and benefit plans. The
Compensation Committee consists of Mr. Drazan and Mr. Howley.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Drazan and Howley. Certain
members of the Company's Board of Directors have been parties to transactions
with the Company. See "Certain Transactions." Although neither Mr. Drazan nor
Mr. Howley was an officer or executive of the Company in fiscal year 1997, from
October 1991 to November 1991, Mr. Drazan served as interim president of the
Company until a successor was found for the individual previously serving in
that position.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During 1997, the Board of Directors held six meetings, the Compensation
Committee held four meetings during 1997 and the Audit Committee held three
meetings during 1997. During 1997, each incumbent Director attended all meetings
of the Board of Directors and all meetings held by committees of which such
directors were a member, with the exception of Mr. Labant, who did not attend
two Board of Director meetings and one Audit Committee meeting.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's Directors,
executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their ownership of the Company's
Common Stock and any changes in that ownership to the Securities and Exchange
Commission and the Nasdaq National Market Surveillance Department. Specific due
dates for these reports have been established and the Company is required to
report in this Proxy Statement any failure to file by these dates during 1997.
Based solely on its review of such forms received by it from such persons for
their 1997 transactions, the Company believes that all Directors, officers and
beneficial owners of more than ten percent of the Company's Common Stock were in
compliance with all such filing requirements.
COMPENSATION OF DIRECTORS
CASH COMPENSATION. The Company does not pay cash compensation to any of its
Directors.
STOCK OPTION GRANT. Under the Automatic Option Grant component of the
Company's 1996 Stock Option/Stock Issuance Plan, each individual who first
becomes a non-employee Board member on or after October 11, 1996 will receive a
22,222 share option grant on the date such individual joins the Board, provided
such individual has not been in the prior employ of the Company. In addition, at
each Annual Stockholders Meeting since the 1997 Annual Meeting, each individual
who is to continue to serve as a non-employee Board member after the meeting and
has served as a non-employee Board member for at least six months will receive
an additional option grant to purchase 4,444 shares of Common Stock whether or
not such individual has been in the prior employ of the Company. Each of Messrs.
Labant, Howley and Drazan will receive a grant of an option to purchase 4,444
shares of Common Stock in connection with the Annual Meeting.
3
<PAGE>
PROPOSAL TWO: APPROVAL OF AMENDMENT TO
1996 STOCK OPTIONS/STOCK ISSUANCE PLAN
The Company's stockholders are being asked to approve an amendment to the
Company's 1996 Stock Option/Stock Issuance Plan (the "Plan"), which includes the
following changes:
(i) increase the number of shares of Common Stock available for issuance
by 650,000 shares;
(ii) render non-employee Board members who serve as the Plan
Administrator eligible to receive option grants and direct stock issuances
under the Discretionary Option Grant and Stock Issuance Programs of the
Plan;
(iii) require stockholder approval of future amendments to the Plan only
to the extent necessary to satisfy applicable laws or regulations;
(iv) allow the shares issued under the Plan which are subsequently
reacquired by the Company pursuant to the Company's exercise of its
repurchase rights to be added back to the share reserve available for future
issuance under the Plan;
(v) increase the number of shares of Common Stock for which any one
individual may receive option grants, separately exercisable stock
appreciation rights and direct stock issuances over the term of the Plan to
1,000,000 shares; and
(vi) effect additional changes to the administrative provisions of the
Plan in order to take advantage of the recent amendments to Rule 16b-3 of
the Securities and Exchange Commission which exempts certain officer and
director transactions under the Plan from the short-swing liability
provisions of the Federal securities laws.
The Plan became effective on June 30, 1996. The amendment to the Plan that
is the subject of the Proposal was adopted by the Board on March 25, 1998,
subject to stockholder approval at the Annual Meeting.
The proposed share increase will assure that a sufficient reserve of Common
Stock is available under the Plan to attract and retain the services of
employees, which is essential to the Company's long-term growth and success. The
increase in the number of shares of Common Stock for which any one individual
may receive option grants, separately exercisable stock appreciation rights and
direct stock issuances under the Plan will ensure that any compensation deemed
paid by the Company in connection with the exercise of options or rights or the
issuance of shares to the Company's executive officers will continue to qualify
as performance-based compensation which is not subject to the $1 million
limitation on the tax deductibility of executive compensation per covered
individual imposed under Internal Revenue Code Section 162(m). The remaining
amendments will provide the Company with more opportunities to make equity
incentives available to the non-employee Board members as an inducement for
their continued service and to facilitate plan administration by eliminating a
number of limitations and restrictions previously incorporated into the Plan to
comply with the applicable requirements of SEC Rule 16b-3 prior to its recent
amendment.
The following is a summary of the principal features of the Plan as amended.
The summary, however, does not purport to be a complete description of all the
provisions of the Plan. Any stockholder of the Company who wishes to obtain a
copy of the actual plan document may do so upon written request to the Corporate
Secretary at the Company's principal executive offices, 399 Thornall Street,
Edison, New Jersey 08837.
EQUITY INCENTIVE PROGRAMS
The Plan contains three separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) a Stock Issuance Program and (iii) an
Automatic Option Grant Program. The Compensation
4
<PAGE>
Committee of the Board and the Board have separate but concurrent authority to
administer the Discretionary Option Grant and Stock Issuance Programs. The Plan
Administrator (which as used in this summary will mean either the Compensation
Committee or the Board to the extent each such entity is administering the Plan)
will have complete discretion (subject to the provisions of the Plan) to
authorize option grants under the Plan. However, all grants under the Automatic
Option Grant Program will be made in strict compliance with the provisions of
that program, and no administrative discretion will be exercised by the Plan
Administrator with respect to the grants made thereunder. Stockholder approval
of the amendment to the Plan subject to this Proposal will constitute
pre-approval of all option grants subsequently made on the basis of the amended
Plan under that program and the subsequent exercise and cancellation of those
options in accordance with those terms.
SHARE RESERVE
The maximum number of shares of the Company's Common Stock available for
issuance over the term of the Plan may not exceed 2,444,175 shares, including
the 650,000-share increase for which stockholder approval is sought under this
Proposal. In no event may any one participant in the Plan receive options,
separately exercisable stock appreciation rights or direct stock issuances for
more than 1,000,000 shares in the aggregate over the term of the Plan.
The shares of Common Stock issuable under the Plan may be drawn from shares
of the Company's authorized but unissued Common Stock or from shares of Common
Stock reacquired by the Company, including shares repurchased on the open
market.
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to the securities issuable (in the aggregate and to each participant) under
the Plan and to each outstanding option.
Should an option expire or terminate prior to exercise in full, the shares
subject to the portion of the option not so exercised will be available for
subsequent issuance under the Plan. Unvested shares issued under the Plan and
subsequently repurchased by the Company at the original option or issue price
paid per share will be added back to the share reserve and will accordingly be
available for subsequent issuance under the Plan. However, shares subject to any
options surrendered in connection with outstanding stock appreciation rights
under the Plan will not be available for subsequent issuance.
ELIGIBILITY
Officers and other employees of the Company and its parent or subsidiaries
(whether now existing or subsequently established), non-employee members of the
Board and the board of directors of its parent or subsidiaries and consultants
and independent advisors of the Company and its parent and subsidiaries will be
eligible to participate in the Discretionary Option Grant and Stock Issuance
Programs. Non-employee members of the Board (including members of the
Compensation Committee) will also be eligible to participate in the Automatic
Option Grant Program.
As of April 6, approximately six executive officers, 36 other employees and
three non-employee Board members were eligible to participate in the Plan, and
three non-employee Board members were eligible to participate in the Automatic
Option Grant Program.
VALUATION
The fair market value per share of Common Stock on any relevant date under
the Plan will be the closing selling price per share on that date on the Nasdaq
National Market. On April 6, 1998, the closing selling price per share was
$2.94.
5
<PAGE>
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at an
exercise price per share not less than eighty five percent (85%) of the fair
market value per share of Common Stock on the option grant date. No granted
option will have a term in excess of ten years.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
TANDEM STOCK APPRECIATION RIGHTS provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (a) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (b) the
aggregate exercise price payable for such shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in
cash or in shares of Common Stock.
LIMITED STOCK APPRECIATION RIGHTS may be granted to officers of the
Company as part of their option grants. Any option with such a limited stock
appreciation right in effect may be surrendered upon the successful
completion of a hostile take-over of the Company. In return for the
surrendered option, the officer will be entitled to a cash distribution from
the Company in an amount per surrendered option share equal to the excess of
(a) the take-over price per share over (b) the exercise price payable for
such share.
The Plan Administrator will have the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program which have
exercise prices in excess of the then current market price of Common Stock and
to issue replacement options with an exercise price based on the market price of
Common Stock at the time of the new grant.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share not
less than eighty five percent (85%) of fair market value per share of Common
Stock, payable in cash or through a promissory note payable to the Company.
Shares may also be issued solely as a bonus for past services.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. The Plan Administrator will, however, have the discretionary
authority at any time to accelerate the vesting of any unvested shares.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member will automatically be granted at that time an option
grant for 22,222 shares of Common Stock. In addition, on the date of each Annual
Stockholders Meeting, beginning with the 1997 Annual Meeting, each individual
who is to continue to serve as a non-employee Board member after such meeting
will automatically be granted an option to purchase 4,444 shares of Common
Stock, provided such individual has served as a non-employee Board member for at
least six months.
Each option will have an exercise price per share equal to 100% of the fair
market value per share of Common Stock on the option grant date and a maximum
term of ten years measured from the option grant date. Each option will be
immediately exercisable for all the option shares; however, any purchased
6
<PAGE>
shares will be subject to repurchase by the Company, at the exercise price paid
per share, upon the optionee's cessation of Board service prior to vesting. Each
initial option grant will vest (and the Company's repurchase rights will lapse)
in a series of four (4) equal successive annual installments upon the optionee's
completion of each year of Board service over the four (4)-year period of Board
service measured from the option grant date. Each annual grant will vest (and
the Company's repurchase right will lapse) upon the optionee's completion of one
(1) year of Board service measured from the grant date.
The shares subject to each automatic option grant will immediately vest upon
the optionee's death or permanent disability or upon certain changes in the
ownership or control of the Company. In addition, upon the successful completion
of a hostile take-over, each automatic option grant may be surrendered to the
Company for a cash distribution per surrendered option share in an amount equal
to the excess of (a) the take-over price per share over (b) the exercise price
payable for such share.
GENERAL PROVISIONS
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation will
automatically accelerate in full, and all unvested shares under the Stock
Issuance Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. The Plan Administrator will have the discretionary
authority to provide for the acceleration of any options assumed in an
acquisition and any unvested shares which do not vest at the time of the
acquisition upon the involuntary termination of the optionee's service within 18
months following the acquisition. In connection with a hostile change in control
of the Company (whether by successful tender offer for more than 50% of the
outstanding voting stock or by proxy contest for the election of Board members),
the Plan Administrator will have the discretionary authority to provide for the
automatic acceleration of outstanding options under the Discretionary Grant
Program and the automatic vesting of outstanding shares under the Stock Issuance
Program at the time of such change in control or upon the subsequent termination
of the optionee's service.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
FINANCIAL ASSISTANCE
The Plan Administrator may permit one or more participants to pay the
exercise price of outstanding options or the purchase price of shares under the
Plan by delivering a promissory note payable in installments. The Plan
Administrator will determine the terms of any such promissory note. However, the
maximum amount of financing provided any participant may not exceed the cash
consideration payable for the purchased shares plus all applicable taxes
incurred in connection with the acquisition of the shares. Any such promissory
note may be subject to forgiveness in whole or in part, at the discretion of the
Plan Administrator, over the participant's period of service.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the Plan Administrator
may allow such individuals to deliver previously acquired shares of Common Stock
in payment of such tax liability.
7
<PAGE>
AMENDMENT AND TERMINATION
The Board may amend or modify the Plan in any or all respects whatsoever
subject to any required stockholder approval. The Board may terminate the Plan
at any time, and the Plan will in all events terminate on June 29, 2006.
STOCK AWARDS
The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table and the various indicated individuals and
groups, the number of shares of Common Stock subject to options granted between
January 1, 1997 and April 24, 1998 under the Plan together with the weighted
average exercise price payable per share.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
NAME OPTION SHARES EXERCISE PRICE
- ----------------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Thomas F. Murawski................................................................. 125,000 $ 2.30
Chief Executive Officer, President and Chairman of the Board of Directors
Thomas C. Mullaney................................................................. -- --
Vice President, Sales
Peter S. Macaluso.................................................................. 25,000 1.50
Vice President and Chief Financial Officer
George Frylinck.................................................................... 25,000 1.50
Vice President, International Marketing and Business Development
James C. Kaufeld................................................................... 25,000 1.50
Vice President, Engineering
All current executive officers as a group (6 persons).............................. 310,000 2.33
Jeffrey M. Drazan.................................................................. 4,444 1.50
Director
Peter A. Howley.................................................................... 4,444 1.50
Director
Robert Labant...................................................................... 26,666(1) 2.70
Director
All non-employee directors as a group (3 persons).................................. 35,554 2.40
All employees, including current officers who are not executive officers as
a group (45 persons)............................................................. 710,777 2.50
</TABLE>
- ------------------------
(1) Includes an option to purchase 22,222 shares of Common Stock that was
granted to Mr. Labant upon cancellation of a grant in June 1996 of an option
to purchase 22,222 shares of Common Stock at an exercise price of $8.00 per
share.
8
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the Plan may be either incentive stock options which
satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
INCENTIVE STOCK OPTIONS. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise disposed
of. For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. A qualifying disposition occurs if the sale
or other disposition is made after the optionee has held the shares for more
than two years after the option grant date and more than one year after the
exercise date. If either of these two holding periods is not satisfied, then a
disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the Plan will
be substantially the same as those summarized above for the exercise of
non-statutory option grants.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which such ordinary income
is recognized by the optionee.
9
<PAGE>
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options granted with exercise prices equal to the
fair market value of the option shares on the grant date will qualify as
performance-based compensation for purposes of Code Section 162(m) and will not
have to be taken into account for purposes of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain
executive officers of the Company. Accordingly, all compensation deemed paid
with respect to those options is expected to remain deductible by the Company
without limitation under Code Section 162(m).
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less than the
fair market value of the shares on the grant or issue date will result in a
compensation expense to the Company's earnings equal to the difference between
the exercise or issue price and the fair market value of the shares on the grant
or issue date. Such expense will be accruable by the Company over the period
that the option shares or issued shares are to vest. Option grants or stock
issuances at 100% of fair market value will not result in any charge to the
Company's earnings. However, the Company must disclose in footnotes and
pro-forma statements to the Company's financial statements, the impact those
options would have upon the Company's reported earnings were the value of those
options at the time of grant treated as a compensation expense. Whether or not
granted at a discount, the number of outstanding options may be a factor in
determining the Company's earnings per share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which have
no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings.
NEW PLAN BENEFITS
As of April 6, 1998, no option grants have been made under the Plan on the
basis of the 650,000-share increase for which stockholder approval is sought as
part of this Proposal. However, on the date of the Annual Meeting, each of
Messrs. Drazan, Howley and Labant will receive an option grant for 4,444 shares
under the Automatic Option Grant Program at an exercise price equal to the fair
market value of the shares on that date.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the 1998 Annual Meeting
is required for approval of the amendment to the Plan. Should such stockholder
approval not be obtained, then the share reserve will not be increased,
non-employee Board members who serve as Plan Administrator will not become
eligible to receive option grants under the Discretionary Option Grant Program
or direct stock issuances under the Stock Issuance Program, any unvested shares
repurchased by the Company will not be added back to the share reserve for
reissuance and the maximum number of shares of Common Stock for which any one
individual may receive option grants, separately exercisable stock appreciation
rights and direct stock issuances over the term of this Plan will not be
increased to 1,000,000 shares. The Plan will, however, continue to remain in
effect, and option grants and stock issuances may continue to be made pursuant
to the provisions of the Plan prior to its amendment until the available reserve
of Common Stock under such plan is issued.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE PLAN. THE BOARD BELIEVES THAT IT IS IN THE BEST
INTERESTS OF THE COMPANY TO IMPLEMENT A COMPREHENSIVE EQUITY INCENTIVE PROGRAM
FOR THE COMPANY WHICH WILL PROVIDE A MEANINGFUL OPPORTUNITY FOR OFFICERS,
EMPLOYEES AND NON-EMPLOYEE BOARD MEMBERS TO ACQUIRE A SUBSTANTIAL PROPRIETARY
INTEREST IN THE ENTERPRISE AND THEREBY ENCOURAGE SUCH INDIVIDUALS TO REMAIN IN
THE COMPANY'S SERVICE AND MORE CLOSELY ALIGN THEIR INTERESTS WITH THOSE OF THE
STOCKHOLDERS.
10
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS
The executive officers of the Company on April 6, 1998 were the following:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Thomas F. Murawski................. 53 Chief Executive Officer, President and Chairman of the Board of
Directors
Thomas C. Mullaney................. 52 Vice President, Sales
Peter S. Macaluso.................. 51 Vice President and Chief Financial Officer
George Frylinck.................... 50 Vice President, International Marketing and Business Development
James C. Kaufeld................... 46 Vice President, Engineering
William Fallon..................... 37 Vice President, Marketing
</TABLE>
INFORMATION CONCERNING EXECUTIVE OFFICERS WHO ARE NOT NOMINEES FOR REELECTION AS
DIRECTORS
THOMAS F. MURAWSKI joined FaxSav in November 1991, after serving as
Executive Vice President of Western Union Corporation, a global
telecommunications and financial services company ("Western Union"), where he
was President of its Network Services Group. Prior to joining Western Union, Mr.
Murawski served twenty-three years with ITT Corporation, a diversified
manufacturing and services company ("ITT"). He has held operating
responsibilities in the areas of subsidiary and product line management,
engineering, sales and marketing for both voice and data-oriented businesses.
Mr. Murawski's last position with ITT was President and General Manager of ITT
World Communications Inc., an international telecommunications services company.
THOMAS C. MULLANEY joined FaxSav in June 1994 after serving from February
1994 to June 1994 as the Chief Operating Officer of Athena Design, Inc., a
start-up software company. From January 1991 through February 1994, Mr. Mullaney
was self-employed as a marketing consultant to telecommunications companies.
Prior to working as a consultant, Mr. Mullaney served eighteen years at MCI, a
diversified telecommunications services company. He served MCI as Regional Vice
President of Sales and Operations, Vice President of National Sales and Customer
Service, Division Vice President Sales and Marketing, as well as Vice President
of Carrier and Special Account Sales.
PETER S. MACALUSO has been employed by FaxSav since February 1991. From
August 1989 to February 1991, he was Vice President of Operations for Century
Cellular Corp., a cellular subsidiary of Cellular Communications Inc., a cable
television services and cellular phone company. He was employed by Metro Mobile
CTS Inc., an independent cellular telephone company ("Metro Mobile"), from May
1985 to December 1988, where his position was Chief Financial Officer. Mr.
Macaluso is a certified public accountant and, prior to his employment at Metro
Mobile, he was employed by Coopers & Lybrand, an international accounting and
management consulting firm. His last position with Coopers & Lybrand was as an
Audit Manager.
GEORGE FRYLINCK joined FaxSav in November 1992. From November 1990 until Mr.
Frylinck joined the Company, he acted as an independent consultant to various
telecommunications industry clients. From 1988 to November 1990, he was Senior
Vice President of Marketing, Sales and International Operations, at World
Communications Inc., a communications services company that was a subsidiary of
the Swiss-based TeleColumbus Incorporated. Prior to his experience at World
Communications Inc., Mr. Frylinck was the Vice President responsible for
establishing and directing marketing and sales functions for International
Private Line Services (IPLS) at Western Union and served at ITT, where he held
such key management positions as Director of Product Management, International
Leased Lines with ITT.
JAMES C. KAUFELD joined FaxSav in April 1993 and has over twenty years
experience in the design, development and management of telecommunications
systems. From January 1989 to April 1993,
11
<PAGE>
Mr. Kaufeld was General manager and Regional Vice President of IEX (a
telecommunications consulting firm), with responsibility for sales and product
management for the carrier market. Prior to January 1989, Mr. Kaufeld worked at
AT&T Bell Laboratories, where he held a variety of management positions and
assignments ranging rom research into multi- processor operating systems, to the
design and development of interactive systems for real-time control of AT&T's
long distance network.
WILLIAM FALLON joined FaxSav in March 1998. From July 1996 until he joined
the Company, he was Director of Business Development and then Vice President of
Operations for Audible, Inc. ("Audible"), a start-up Internet commerce company.
Prior to joining Audible, from 1986 to July 1996 Mr. Fallon held a variety of
senior marketing and product management positions at AT&T Corporation, primarily
in the development of its messaging and online/Internet businesses. His two most
recent positions at AT&T were as Director of its HomePlace Messaging Services
Group, a network-based unified messaging service, and Director of PersonaLink
Services, an advanced electronic messaging service.
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation paid by
the Company during 1997, 1996 and 1995 to the Company's Chief Executive Officer
and the four other mostly highly compensated executive officers of the Company
whose total compensation during 1997 exceeded $100,000 (collectively, the "Named
Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION (1) -------------
--------------------- SECURITIES
FISCAL SALARY BONUS UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#)
- ------------------------------------------------------------------- ----------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Thomas F. Murawski,................................................ 1997 $ 199,142 $ 40,000 125,000
President and Chief Executive Officer 1996 190,362 61,025 77,778
1995 149,220 45,000 253,763
Thomas C. Mullaney,................................................ 1997 148,512 -- --
Vice President, Sales 1996 148,362 22,955 --
1995 114,572 37,500 113,334
Peter S. Macaluso,................................................. 1997 119,424 18,500 25,000
Vice President and Chief Financial Officer 1996 119,334 18,596 8,889
1995 99,220 18,750 39,250
James C. Kaufeld,.................................................. 1997 148,512 10,000 25,000
Vice President, Engineering 1996 148,362 18,770 6,667
1995 139,220 15,000 22,238
George Frylinck,................................................... 1997 $ 118,512 $ 20,000 25,000
Vice President, International Marketing and 1996 118,362 10,440 3,333
Business Development 1995 99,220 18,750 37,583
</TABLE>
- ------------------------
(1) Other compensation in the form of perquisites and other personal benefits
has been omitted as the aggregate amount of such perquisites and other
personal benefits constituted the lesser of $50,000 or 10% of the total
annual salary and bonus of the Named Executive Officer for such year.
12
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows, with respect to the Named Executive Officers,
certain information concerning the grant of stock options in 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
---------------------------------------------------------- ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL OPTIONS INITIAL PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR(1) ($/SHARE) DATE 5% 10%
- --------------------------------------- ----------- --------------- --------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas F. Murawski..................... 25,000 4.5% $ 1.50 5/19/07 $ 23,583 $ 59,765
100,000 18.0% 2.50 12/9/07 157,223 398,435
Thomas C. Mullaney..................... -- -- -- -- -- --
Peter S. Macaluso...................... 25,000 4.5% 1.50 5/19/07 23,583 59,765
James C. Kaufeld....................... 25,000 4.5% 1.50 5/19/07 23,583 59,765
George Frylinck........................ 25,000 4.5% 1.50 5/19/07 23,583 59,765
</TABLE>
- ------------------------
(1) Based on a aggregate of 552,277 options granted to employees in fiscal 1997,
including options granted to the Named Executive Officers.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the ten-year option term. The assumed 5%
and 10% rates of stock appreciation are mandated by rules of the Securities
and Exchange Commission and do not represent the Company's estimate of the
future market price of the Common Stock from the date of grant to the
current date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
No options were exercised by the Named Executive Officers in 1997. The
following table sets forth certain information for each Named Executive Officers
regarding stock option holdings as of December 31, 1997.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END (#) FISCAL YEAR END(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas F. Murawski........................................ 312,620 291,046 $ 570,837 $ 424,742
Thomas C. Mullaney........................................ 90,851 66,927 191,364 147,442
Peter S. Macaluso......................................... 65,412 48,589 119,592 67,850
James C. Kaufeld.......................................... 78,806 41,304 135,576 53,032
George Frylinck........................................... 64,309 44,135 119,019 31,897
</TABLE>
- ------------------------
(1) Amounts calculated by subtracting the exercise price of the options from the
market value of the underlying Common Stock using the closing selling price
on the Nasdaq National Market of $2.56 per share of Common Stock on December
31, 1997.
13
<PAGE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors consists of two
nonemployee directors, Messrs. Drazan and Howley. See "Executive
Compensation-Compensation Committee Interlocks and Insider Participation." The
Compensation Committee has reviewed and ratified the compensation paid to
executive officers in 1997.
The Compensation Committee advises the Board of Directors on matters of the
Company's compensation philosophy and the compensation of executive officers and
other individuals compensated by the Company. The Compensation Committee also is
responsible for the administration of the Company's Plan under which option
grants, restricted awards and performance awards may be made to directors,
executive officers and employees of the Company and its subsidiaries.
GENERAL COMPENSATION POLICY. The fundamental policy of the Compensation
Committee is to provide the Company's executive officers with competitive
compensation opportunities based upon their contribution to the development and
financial success of the Company and their personal performance. It is the
Compensation Committee's objective to have a portion of each executive officer's
compensation contingent upon the Company's performance as well as upon such
executive officer's own level of performance. Accordingly, the compensation
package for each executive officer is comprised of two elements: (i) base salary
which reflects individual performance and is designed primarily to be
competitive with salary levels in the industry and (ii) long-term stock-based
incentive awards which strengthen the mutuality of interests between the
executive officers and the Company's stockholders.
FACTORS. The principal factors which the Compensation Committee considered
in ratifying the components of each executive officer's compensation package for
fiscal year 1997 are summarized below. The Compensation Committee may, however,
in its discretion apply entirely different factors in advising the Chief
Executive Officer and the Board of Directors with respect to executive
compensation for future years.
- BASE SALARY. The suggested base salary for each executive officer is
determined on the basis of the following factors: experience, personal
performance, the salary levels in effect for comparable positions within and
without the industry and internal base salary comparability considerations.
The weight given to each of these factors differs from individual to
individual, as the Compensation Committee deems appropriate.
- BONUS. The suggested bonus for each executive officer is determined on
the basis of the following factors: Company performance, personal
performance and the bonus levels in effect for comparable positions within
and without the industry. The Committee establishes maximum annual bonus
amounts for each individual based on the bonus levels for comparable
positions and earned bonus amounts are based on performance results. The
weight given to each of these factors differs from individual to individual,
as the Compensation Committee deems appropriate. In addition, the
Compensation Committee may from time to time award additional cash bonuses
when such bonuses are deemed to be in the best interest of the Company.
- LONG-TERM INCENTIVE COMPENSATION. Long-term incentives are provided
primarily through grants of stock options. The grants are designed to align
the interests of each executive officer with those of the stockholders and
provide each individual with a significant incentive to manage the Company
from the perspective of an owner with an equity stake in the Company. Each
option grant allows the individual to acquire shares of the Company's Common
Stock at a fixed price per share (generally, the market price on the grant
date) over a specified period of time (up to ten years). Each option
generally becomes exercisable in installments over a five-year period,
contingent upon the executive officer's continued employment with the
Company. Accordingly, the option grant will provide a return to the
executive officer only if the executive officer remains employed by the
14
<PAGE>
Company during the vesting period, and then only if the market price of the
underlying shares appreciates.
The number of shares subject to each option grant is set at a level intended
to create a meaningful opportunity for stock ownership based on the executive
officer's current position with the Company, the base salary associated with
that position, the size of comparable awards made to individuals in similar
positions within the industry, the individual's potential for increased
responsibility and promotion over the option term and the individual's personal
performance in recent periods. The Compensation Committee also considers the
number of unvested options held by the executive officer in order to maintain an
appropriate level of equity incentive for that individual. However, the
Compensation Committee does not adhere to any specific guidelines as to the
relative option holdings of the Company's executive officers. There were 200,000
stock options granted to executive officers in 1997.
CEO COMPENSATION. Regulations of the Securities and Exchange Commission
require the Board of Directors to disclose their basis for compensation reported
for Mr. Murawski in 1997 and to discuss the relationship between the Company's
performance during the last fiscal year and Mr. Murawski's performance. In
advising the Board of Directors with respect to the compensation payable to the
Company's Chief Executive Officer, the Compensation Committee seeks to establish
a level of base salary competitive with that paid by companies within the
industry which are of comparable size to the Company and by companies outside of
the industry with which the Company competes for executive talent.
The suggested base salary established for Mr. Murawski on the basis of the
foregoing criteria was intended to provide a level of stability and certainty
each year. Accordingly, this element of compensation was not affected to any
significant degree by Company performance factors.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). As a result of
Section 162(m) of the Internal Revenue Code of 1986, as amended, which was
enacted into law in 1993, the Company will not be allowed a federal income tax
deduction for compensation paid to certain executive officers, to the extent
that compensation exceeds $1 million per officer in any one year. This
limitation will apply to all compensation paid to the covered executive officers
which is not considered to be performance based. Compensation which does qualify
as performance-based compensation will not have to be taken into account for
purposes of this limitation. The Plan contains certain provisions which are
intended to assure that any compensation deemed paid in connection with the
exercise of stock options granted under the plan with an exercise price equal to
the market price of the option shares on the grant date will qualify as
performance-based compensation. The Compensation Committee does not expect that
the compensation to be paid to the Company's executive officers for 1998 will
exceed the $1 million limit per officer.
THE COMPENSATION COMMITTEE
MR. PETER A. HOWLEY
MR. JEFFREY M. DRAZAN
15
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph comparing the annual percentage change in the
Company's cumulative total stockholder return on its Common Stock from October
11, 1996 (the date public trading of the Company's stock commenced) to the last
day of the Company's last completed fiscal year (as measured by dividing (i) the
sum of (A) the cumulative amount of dividends for the measurement period,
assuming dividend reinvestment, and (B) the excess of the Company's share price
at the end over the price at the beginning of the measurement period, by (ii)
the share price at the beginning of the measurement period) with the cumulative
total return so calculated of the Nasdaq Stock Market-US Index and a stock index
comprised of companies in a line of business similar to the Company during the
same period.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)
AMONG FAXSAV INCORPORATED, THE NASDAQ STOCK MARKET (US) INDEX
AND THE NASDAQ TELECOMMUNICATIONS INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF 14 MONTH CUMULATIVE TOTAL RETURN*
<S> <C> <C>
among faxsav incorporated, the NASDAQ stock market (U.S.)
index
and the NASDAQ telecommunications index
FAXSAV INCORPORATED NASDAQ STOCK MARKET (U.S.)
10/11/96 100 100
12/1/96 69 103
12/1/97 32 127
<CAPTION>
COMPARISON OF 14 MONTH CUMULATIVE TOTAL RETURN*
<S> <C>
among faxsav incorporated, the NASDAQ stock market (U.S.)
index
and the NASDAQ telecommunications index
NASDAQ TELECOMMUNICATIONS
10/11/96 100
12/1/96 101
12/1/97 149
</TABLE>
<TABLE>
<CAPTION>
10/11/96 12/96 12/97
--------- --------- ---------
<S> <C> <C> <C>
FaxSav Incorporated................................................................. $ 100.00 $ 68.75 $ 32.03
Nasdaq Stock Market (U.S.) Index.................................................... 100.00 103.16 126.62
Nasdaq Telecommunications Index..................................................... 100.00 100.90 149.03
</TABLE>
- ------------------------
(1) $100 invested on 10/11/96 in FaxSav Incorporated, the Nasdaq Stock Market
(US) Index and the Nasdaq Telecommunications Index.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, which might incorporate future filings made by
the Company under those statutes, the preceding Compensation Committee Report on
Executive Compensation and the Company Stock Performance Graph will not be
incorporated by reference into any of those prior filings, nor will such report
or graph be incorporated by reference into any future filings made by the
Company under those statutes.
16
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 6, 1998 by (i) each person
(or group of affiliated persons) who is known by the Company to own beneficially
five percent or more of the outstanding shares of Common Stock of the Company,
(ii) each Director and nominee for Director, (iii) each of the Named Executive
Officers and (iv) all executive officers and Directors as a group. The
information concerning beneficial owners of more than 5% of the Company's Common
Stock is based solely on filings with the Securities and Exchange Commission on
Schedules 13(D), 13(G) and on Forms 3, 4 and 5.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF
COMMON STOCK BENEFICIALLY SHARES
NAME OF BENEFICIAL OWNER OWNED(1) OUTSTANDING(1)(2)
- --------------------------------------------------------------------- ------------------------- -------------------
<S> <C> <C>
Entities affiliated with Sierra Ventures (2)......................... 2,106,076 18.2%
Building 4, Suite 210
3000 Sand Hill Road
Menlo Park, California 94025
Telstra Holdings Pty. Limited c/o FaxSav Incorporated................ 961,723 8.3%
399 Thornall Street
Edison, NJ
Entities affiliated with Menlo Ventures (3).......................... 845,833 7.3%
3000 Sand Hill Road
Menlo Park, CA 94025
Battery Ventures II, L.P............................................. 796,847 6.9%
200 Portland Street
Boston, MA 02114
Sutter Hill Ventures, a California Limited Partnership (4)........... 688,497 5.9%
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304-1005
Thomas F. Murawski (5)............................................... 350,478 3.0%
Jeffrey Drazan (2)................................................... 2,106,076 18.2%
Peter A. Howley (6).................................................. 211,558 1.8%
Robert Labant (7).................................................... 21,388 *
Thomas C. Mullaney (8)............................................... 104,592 *
Peter S. Macaluso (9)................................................ 75,078 *
James C. Kaufeld (10)................................................ 88,438 *
George Frylinck (11)................................................. 73,346 *
All current directors and executive officers as a group (8 3,030,954(12) 26.1%
persons)...........................................................
</TABLE>
- ------------------------
* Less than one percent.
(1) Gives effect to the shares of Common Stock issuable within 60 days of April
6, 1998 upon the exercise of all options and other rights beneficially owned
by the indicated stockholders on that date. Unless otherwise indicated, the
persons named in the table have sole voting and sole investment control with
respect to all shares beneficially owned. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
includes voting and investment power with respect to shares.
(2) Includes (i) 1,375,364 shares of Common Stock held by Sierra III, (ii)
13,832 shares of Common Stock held by Sierra III International and (iii)
676,325 shares of Common Stock held by Sierra V. Mr. Drazan, a Director of
the Company, is a general partner of an affiliate of Sierra III, Sierra III
17
<PAGE>
International and Sierra V and, as such, may be deemed to share voting and
investment power with respect to such shares. Mr. Drazan disclaims
beneficial ownership of such shares except to the extent of his interest in
such shares arising from his interest in Sierra III, Sierra III
International and Sierra V. Also includes 40,555 shares of Common Stock
issuable to Mr. Drazan upon exercise of stock options.
(3) Includes (i) 833,333 shares of Common Stock held by Menlo VI and (ii) 12,500
shares of Common Stock held by Menlo Entrepreneurs. MV Management VI, L.P.
is the General Partner of Menlo VI and Menlo Entrepreneurs.
(4) Excludes an aggregate of 390,497 shares of Common Stock held, in their
individual capacity, by the five general partners of the general partner of
Sutter Hill Ventures, a California Limited Partnership ("Sutter Hill"). The
five general partners share voting and investment power with respect to the
shares held by Sutter Hill. Each of these individuals disclaims beneficial
ownership of the shares held by Sutter Hill except as to their proportionate
interest therein, and disclaims beneficial ownership of the shares held by
the other four individuals.
(5) Consists of 349,478 shares of Common Stock issuable upon exercise of stock
options. Also includes 1,000 shares of Common Stock held by Mr. Murawski's
son. Mr. Murawski disclaims beneficial ownership of the shares held by his
son.
(6) Includes 43,333 shares of Common Stock issuable upon exercise of stock
options.
(7) Includes 4,444 shares of Common Stock issuable upon exercise of stock
options.
(8) Consists of 104,592 shares of Common Stock issuable upon exercise of stock
options.
(9) Consists of 75,078 shares of Common Stock issuable upon exercise of stock
options.
(10) Consists of 88,438 shares of Common Stock issuable upon exercise of stock
options.
(11) Consists of 73,346 shares of Common Stock issuable upon exercise of stock
options.
(12) See Notes (2) through (11).
18
<PAGE>
CERTAIN TRANSACTIONS
STOCK OPTIONS
In 1997, the Company granted executive officers and directors a total of
213,332 stock options with exercise prices ranging from $1.50 per share to $2.50
per share.
EMPLOYMENT SEVERANCE AGREEMENTS
The Company does not presently have any employment contracts in effect with
the Chief Executive Officer or any of the other Named Executive Officers.
The Compensation Committee as Plan Administrator of the Plan will have the
authority to provide for the accelerated vesting of the shares of Common Stock
subject to outstanding options held by the Chief Executive Officer and any other
executive officer or the shares of Common Stock subject to direct issuances held
by such individual, in connection with certain changes in control of the Company
or the subsequent termination of the officer's employment following the change
in control event.
Each of the Company's directors and officers, with the exception of Mr.
Labant, is party to an agreement with the Company providing for the acceleration
of the vesting of options to purchase Common Stock held by such director and
officer in the event of the involuntary removal or dismissal (as defined in such
agreement) of such director or officer in connection with an acquisition (as
defined in such agreement) of the Company. Such agreements may have the effect
of delaying or preventing a change in control of the Company, and therefore,
could adversely affect the price of the Company's Common Stock. The Company has
also agreed to pay Mr. Murawski $12,500 per month, plus all benefits, for up to
three months after the termination of his employment without cause.
Each of the Company's officers is party to an agreement with the Company
providing for certain payments in the event of an involuntary termination (as
defined in the agreements) in connection with a change in control (as defined in
the agreement). Mr. Murawski's agreement provides for the payment of an amount
equal to eighteen months base salary. Mr. Macaluso's agreement provides for the
payment of an amount equal to twelve months base salary. The remaining officers
have agreements providing for the payment of an amount equal to six months base
salary.
AGREEMENT WITH TELSTRA INCORPORATED
The Company and Telstra Incorporated are parties to a Traffic Agreement,
effective November 1994 (the "Traffic Agreement"). Under the terms of the
Traffic Agreement, the Company will exclusively use Telstra's (or its nominees)
"WorldFax" service for the Company's outbound traffic from the United States
provided that such service is offered at a rate which the Company can reasonably
demonstrate that it can secure from a recognized service provider for services
of equivalent quality on comparable terms over the same time period. The Traffic
Agreement has a five year term which began in late 1995, upon the commercial
commencement of Telstra's "WorldFax" service in the United States. In 1997,
FaxSav paid Telstra $115,922 for services under the Traffic Agreement.
PROPOSAL THREE: INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors
appointed Coopers & Lybrand L.L.P., independent public accountants and auditors
of the Company since 1992 as auditors of the Company to serve for the year
ending December 31, 1998, subject to the ratification of such appointment by the
stockholders at the Annual Meeting. The affirmative vote of a plurality of the
Company's outstanding Common Stock present in person or by proxy is required to
ratify the appointment of the auditors. A representative of Coopers & Lybrand
L.L.P. will attend the Annual Meeting with the opportunity to make a statement
if he or she so desires and will also be available to answer inquiries.
THE BOARD OF DIRECTORS RECOMMENDS THE RATIFICATION OF THE APPOINTMENT OF
COOPERS & LYBRAND L.L.P. AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS AND
AUDITORS.
19
<PAGE>
STOCKHOLDER PROPOSALS
In accordance with regulations issued by the Securities and Exchange
Commission by certified mail-return receipt requested, stockholder proposals
intended for presentation at the 1999 Annual Meeting of Stockholders must be
received by the Secretary of the Company no later than December 7, 1998 if such
proposals are to be considered for inclusion in the Company's Proxy Statement
for the 1998 Annual Meeting of Stockholders.
OTHER MATTERS
Management knows of no matters that are to be presented for action at the
meeting other than those set forth above. If any other matters properly come
before the meeting, the persons named in the enclosed form of proxy will vote
the shares represented by proxies in accordance with their best judgment on such
matters.
Proxies will be solicited by mail and may also be solicited in person or by
telephone by some regular employees of the Company. The Company may also
consider the engagement of a proxy solicitation firm. Costs of the solicitation
will be borne by the Company.
By Order of the Board of Directors
/s/ Thomas F. Murawski
Thomas F. Murawski
Chief Executive Officer and President
Edison, New Jersey
April 28, 1998
20
<PAGE>
REVOCABLE PROXY
FAXSAV INCORPORATED
|X| PLEASE MARK VOTES
AS IN THIS EXAMPLE
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS --
MAY 28, 1998
(This Proxy is solicited by the Board of Directors of the Company)
The undersigned stockholder of FaxSav Incorporated hereby appoints Thomas
F. Murawski, Chief Executive Officer, President and Chairman of the Board of
Directors, and Peter S. Macaluso, Vice President and Chief Financial Officer,
and each of them, with full power of substitution, proxies to vote the shares of
stock, in accordance with the undersigned's specifications, which the
undersigned could vote if personally present at the Annual Meeting of
Stockholders of FaxSav Incorporated to be held at the Woodbridge Hilton, 120
Wood Avenue South, Iselin, New Jersey 08830, (732) 494-6200 on May 28, 1998 at
10:00 a.m. (daylight savings time), or any adjournment thereof.
1. ELECTION OF DIRECTOR (for With-
term as described in the Proxy For hold
Statement). |_| |_|
Robert Labant
2. APPROVAL OF AMENDMENTS.
To 1996 Stock Option/Stock Issuance For Against Abstain
Plan (as described in the Proxy |_| |_| |_|
Statement).
3. RATIFICATION OF ACCOUNTANTS.
For Against Abstain
Proposal to ratify the selection of |_| |_| |_|
Coopers & Lybrand L.L.P., independent
public accountants, as auditors of the
Company (as described in the Proxy
Statement).
4. IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
PERSON NOMINATED BY MANAGEMENT AS DIRECTOR AND FOR PROPOSALS 2 & 3.
----------------------------------------
Please be sure to sign and date Date
this Proxy in the box below.
- ----------------------------------------------------------------------------
- ---Stockholder sign above---------Co-holder (if any) sign above-------------
Please date and sign exactly as your name appears on the envelope in which
the material was mailed. If shares are held jointly, each stockholder should
sign. Executors, administrators, trustees, etc. should use full title and, if
more than one, all should sign. If the stockholder is a corporation, please sign
full corporate name by an authorized officer. If the stockholder is a
partnership, please sign full partnership name by an authorized person.
- --------------------------------------------------------------------------------
Detach above card, sign, date and mail in postage paid envelope provided.
FAXSAV INCORPORATED
- --------------------------------------------------------------------------------
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- --------------------------------------------------------------------------------
<PAGE>
FAXSAV INCORPORATED
1996 STOCK OPTION/STOCK ISSUANCE PLAN
(As Amended and Restated through March 25, 1998)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1996 Stock Option/Stock Issuance Plan is intended to promote
the interests of FaxSav Incorporated, a Delaware corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such
shares or as a bonus for services rendered the Corporation (or any Parent
or Subsidiary), and
(iii) the Automatic Option Grant Program under which Eligible
Directors shall automatically receive option grants at periodic intervals
to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
<PAGE>
III. ADMINISTRATION OF THE PLAN
A. The Board and the Primary Committee shall have separate but
concurrent authority to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to Section 16 Insiders.
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons.
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any committee and reassume all powers and authority previously delegated to such
committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant and Stock Issuance Programs and
to make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction or
any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to option
grants made thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
<PAGE>
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) to determine, (i) with respect to the option grants
under the Discretionary Option Grant Program, which eligible persons are to
receive option grants, the time or times when such option grants are to be made,
the number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each option is to become exercisable, the vesting schedule (if
any) applicable to the option shares and the maximum term for which the option
is to remain outstanding and (ii) with respect to stock issuances under the
Stock Issuance Program, which eligible persons are to receive stock issuances,
the time or times when such issuances are to be made, the number of shares to be
issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid for such shares.
C. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
D. The individuals eligible to participate in the Automatic Option
Grant Program shall be limited to (i) those individuals who first become
non-employee Board members on or after the Underwriting Date, whether through
appointment by the Board or election by the Corporation's stockholders, and (ii)
those individuals who are to continue to serve as non-employee Board members
after one or more Annual Stockholders Meetings held after the Underwriting Date,
including those individuals serving as non-employee Board members on the
Underwriting Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an initial option grant under the Automatic Option Grant Program on the
Underwriting Date or (if later) at the time he or she first becomes a
non-employee Board member, but such individual shall be eligible to receive
periodic option grants under the Automatic Option Grant Program upon his or her
continued service as a non-employee Board member after one or more Annual
Stockholders Meetings.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 2,444,175 shares.
Such authorized share reserve is comprised of (i) the number of shares which
remain available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders, including
the shares subject to the outstanding options incorporated into the Plan, (ii)
an increase of 555,555 shares authorized by the Board and approved by the
stockholders prior to the Plan Effective Date plus (iii) an additional increase
of 650,000 shares approved by the Board on March 25, 1998, subject to approval
by the stockholders at the 1998 Annual Meeting.
3.
<PAGE>
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 1,000,000 shares of Common Stock in the aggregate over the term of the
Plan.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
Unvested shares issued under the Plan (including unvested shares issued under
the Predecessor Plan) and subsequently repurchased by the Corporation, at the
original exercise or issue price paid per share, pursuant to the Corporation's
repurchase rights under the Plan, shall be added back to the number of shares of
Common Stock reserved for issuance under the Plan and shall accordingly be
available for reissuance through one or more subsequent options or direct stock
issuances under the Plan. Shares subject to any stock appreciation rights
exercised under the Plan shall reduce on a share-for-share basis the number of
shares of Common Stock available for subsequent issuance under the Plan. In
addition, should the exercise price of an option under the Plan (including any
option incorporated from the Predecessor Plan) be paid with shares of Common
Stock or should shares of Common Stock otherwise issuable under the Plan be
withheld by the Corporation in satisfaction of the withholding taxes incurred in
connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance.
D. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities for which any one
person may be granted options, separately exercisable stock appreciation rights
and direct stock issuances over the term of the Plan, (iii) the number and/or
class of securities for which automatic option grants are to be made
subsequently per Eligible Director under the Automatic Option Grant Program and
(iv) the number and/or class of securities and the exercise price per share in
effect under each outstanding option (including any option incorporated from the
Predecessor Plan) in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
4.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Five and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date,
or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to
(a) a Corporation-designated brokerage firm to effect the immediate sale
of the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
5.
<PAGE>
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be exercised subsequently by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's will
or in accordance with the laws of descent and distribution.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate and
cease to be outstanding to the extent the option is not otherwise at that
time exercisable for vested shares.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from the
period otherwise in effect for that option to such greater period of time
as the Plan Administrator shall deem appropriate, but in no event beyond
the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at the
time of the Optionee's cessation of Service but also with respect to one
or more additional installments in which the Optionee would have vested
under the option had the Optionee continued in Service.
6.
<PAGE>
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for the benefit of one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Exercise Price. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
7.
<PAGE>
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) or to be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof), (ii) such option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested option shares at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Corporate Transaction, whether
or not those options are to be assumed or replaced (or those repurchase rights
are to be assigned) in the Corporate Transaction. The Plan Administrator shall
also have the discretion to grant options which do not accelerate whether or not
such options are assumed (and to provide for repurchase rights that do not
terminate whether or not such rights are assigned) in connection with a
Corporate Transaction.
8.
<PAGE>
D. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction, (ii) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same and (iii) the maximum number of securities
and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under the Plan.
F. The Plan Administrator shall have the discretion, exercisable at
the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of any options which are
assumed or replaced in a Corporate Transaction and do not otherwise accelerate
at that time (and the termination of any of the Corporation's outstanding
repurchase rights which do not otherwise terminate at the time of the Corporate
Transaction) in the event the Optionee's Service should subsequently terminate
by reason of an Involuntary Termination within eighteen (18) months following
the effective date of such Corporate Transaction. Any options so accelerated
shall remain exercisable for fully-vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1)-year period
measured from the effective date of the Involuntary Termination.
G. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Change in Control or (ii)
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent Involuntary Termination of the Optionee's
Service within a specified period following the effective date of such Change in
Control. Any options accelerated in connection with a Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.
I. The grant of options under the Discretionary Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise
9.
<PAGE>
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution from
the Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price payable
for such shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the Optionee shall be entitled may be made in
shares of Common Stock valued at Fair Market Value on the option surrender
date, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to
the later of (a) five (5) business days after the receipt of the rejection
notice or (b) the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option, but in
no event may such rights be exercised more than ten (10) years after the
option grant date.
10.
<PAGE>
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each such
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for a
thirty (30)-day period following such Hostile Take-Over) to surrender each
such option to the Corporation, to the extent the option is at the time
exercisable for vested shares of Common Stock. In return for the
surrendered option, the Optionee shall receive a cash distribution from
the Corporation in an amount equal to the excess of (a) the Take-Over
Price of the shares of Common Stock which are at the time vested under
each surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares. Such cash distribution
shall be paid within five (5) days following the option surrender date.
(iii) Neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such option
surrender and cash distribution.
(iv) The balance of the option (if any) shall continue in full
force and effect in accordance with the documents evidencing such option.
11.
<PAGE>
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Five,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant or
the performance objectives to be attained,
(ii) the number of installments in which the shares are to
vest,
(iii) the interval or intervals (if any) which are to lapse
between installments, and
(iv) the effect which death, Permanent Disability or other
event designated by the Plan Administrator is to have upon the vesting
schedule,
12.
<PAGE>
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
cessation of the Participant's Service or the non-attainment of the performance
objectives applicable to those shares. Such waiver shall result in the immediate
vesting of the Participant's interest in the shares of Common Stock as to which
the waiver applies. Such waiver may be effected at any time, whether before or
after the Participant's cessation of Service or the attainment or non-attainment
of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All outstanding cancellation rights under the Stock Issuance
Program shall terminate automatically, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
of any Corporate Transaction, except to the extent (i) those cancellation rights
are assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed in the Stock Issuance Agreement.
13.
<PAGE>
B. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or at any time while the
Corporation's cancellation rights remain outstanding, to provide that any
cancellation rights that are assigned in the Corporate Transaction shall
automatically terminate, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event the Participant's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such Corporate
Transaction.
C. The Plan Administrator shall have the discretion to provide for
cancellation rights with terms different from those in effect under this Section
II in connection with a Corporate Transaction.
D. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or at any time while the
Corporation's cancellation right remains outstanding, to (i) provide for the
automatic termination of one or more outstanding cancellation rights and the
immediate vesting of the shares of Common Stock subject to those rights upon the
occurrence of a Change in Control or (ii) condition any such accelerated vesting
upon the subsequent Involuntary Termination of the Participant's Service within
a specified period following the effective date of such Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
14.
<PAGE>
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified
below:
1. Each individual who is first elected or appointed as a
non-employee Board member on or after the Underwriting Date shall automatically
be granted, on the date of such initial election or appointment, a Non-Statutory
Option to purchase 22,222 shares of Common Stock, provided such individual has
not previously been in the employ of the corporation (or any Parent or
Subsidiary).
2. On the date of each Annual Stockholders Meeting held after
the Underwriting Date, each individual who is to continue to serve as an
Eligible Director, shall automatically be granted a Non-Statutory Option to
purchase an additional 4,444 shares of Common Stock, provided such individual
has served as a non-employee Board member for at least six (6) months. There
shall be no limit on the number of such 4,444-share option grants any one
Eligible Director may receive over his or her period of Board service.
B. Exercise Price.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial grant shall vest, and the
Corporation's repurchase right shall lapse, in a series of four (4) successive
equal annual installments over the Optionee's period of continued service as a
Board member, with the first such installment to vest upon the Optionee's
completion of one (1) year of Board service measured from the option grant date.
Each annual grant shall vest, and the Corporation's repurchase right shall
lapse, upon the Optionee's completion of one (1) year of Board service measured
from the option grant date.
15.
<PAGE>
E. Effect of Termination of Board Service. The following provisions
shall govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution) shall have a twelve
(12)-month period following the date of such cessation of Board service in
which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares of Common Stock for which the option is exercisable at the time of
the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve
(12)-month exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of Board
service for any reason other than death or Permanent Disability, terminate
and cease to be outstanding to the extent the option is not otherwise at
that time exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to
16.
<PAGE>
such option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Each such option shall remain exercisable
for such fully-vested option shares until the expiration or sooner termination
of the option term or the surrender of the option in connection with a Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or consent
of the Board or any Plan Administrator shall be required in connection with such
option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
17.
<PAGE>
ARTICLE FIVE
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price under the Discretionary Option Grant Program or
the purchase price for shares issued under the Stock Issuance Program by
delivering a promissory note payable in one or more installments. The terms of
any such promissory note (including the interest rate and the terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In all events, the maximum credit available to the Optionee or
Participant may not exceed the sum of (i) the aggregate option exercise price or
purchase price payable for the purchased shares plus (ii) any Federal, state and
local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.
B. The Plan Administrator may, in its discretion, determine that one
or more such promissory notes shall be subject to forgiveness by the Corporation
in whole or in part upon such terms as the Plan Administrator may deem
appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or upon the issuance or vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
(i) Stock Withholding: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.
(ii) Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised or the
shares vest, one or more shares of Common Stock previously acquired by
such holder (other than in connection with the option exercise or share
vesting triggering the Taxes)
18.
<PAGE>
with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Discretionary Option Grant and Stock Issuance Programs became
effective on the Plan Effective Date. The Automatic Option Grant Program became
effective on the Underwriting Date and the initial options under that program
were made to the Eligible Directors at that time. The Plan was approved by the
Corporation's stockholders on August 23, 1996.
On March 25, 1998, the Board amended and restated the Plan to
(i) increase the number of shares of Common Stock available for issuance under
the Plan by 650,000 shares, (ii) render the non-employee Board members who serve
as the Plan Administrator eligible to receive option grants and direct stock
issuances under the Discretionary Option Grant and Stock Issuance Programs,
(iii) allow the shares issued under the Plan and subsequently reacquired by the
Corporation to be added back to the share reserve available for future issuance
under the Plan, (iv) increase the aggregate number of shares of Common Stock for
which any one individual may receive option grants, separately exercisable stock
appreciation rights and direct stock issuances over the term of the Plan to
1,000,000 shares and (v) effect changes to the administration provisions of the
Plan in order to take advantage of the amendments to Rule 16b-3 of the
Securities and Exchange Commission which exempt certain officer and director
transactions under the Plan from the short-swing liability provisions of the
Federal securities laws. If such stockholder approval is not obtained at the
1998 Annual Meeting, then (i) any options previously granted on the basis of the
650,000-share increase shall terminate, and no further options based on such
increase shall be granted, (ii) non-employee Board members who serve as the Plan
Administrator shall not be eligible to receive option grants or direct stock
issuances under the Discretionary Option Grant or Stock Issuance Programs, (iii)
shares of Common Stock reacquired by the Corporation shall not be added back to
the reserve available for issuance under the Plan and (iv) the limit on the
maximum number of shares for which any one individual may receive option grants,
separately exercisable stock appreciation rights and direct stock issuances over
the term of the Plan shall remain at 300,000 shares. Those options granted under
the Plan which are not based on such increase shall remain outstanding in
accordance with the terms and conditions of the respective agreements evidencing
such options, whether or not the requisite stockholder approval of the share
increase is obtained. Subject to the foregoing limitations, the Plan
Administrator may grant options under the Plan at any time before the date fixed
herein for termination of the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants shall be made under the Predecessor Plan after the
Plan Effective Date. All options outstanding under the Predecessor Plan as of
such date shall be incorporated into the Plan at that time and shall be treated
as outstanding options under the Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the terms of the documents
evidencing such option, and no provision of the Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
19.
<PAGE>
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest of (i) June 29, 2006,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options or the issuance of
shares (whether vested or unvested) under the Plan or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Upon such
Plan termination, all outstanding options and unvested stock issuances shall
continue to have force and effect in accordance with the provisions of the
documents evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect any rights and obligations with respect
to options, stock appreciation rights or unvested stock issuances at the time
outstanding under the Plan unless the Optionee or the Participant consents to
such amendment or modification. In addition, amendments to the Plan shall be
subject to approval of the Corporation's stockholders to the extent required by
applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs are held in escrow until there is
obtained stockholder approval of an amendment sufficiently increasing the number
of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess grants or issuances are made, then (i) any unexercised
options granted on the basis of such excess shares shall terminate and cease to
be outstanding and (ii) the Corporation shall promptly refund to the Optionees
and the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
20.
<PAGE>
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or
stock appreciation right under the Plan and the issuance of any shares of Common
Stock (i) upon the exercise of any option or stock appreciation right or (ii)
under the Stock Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options and stock appreciation rights
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
21.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option grant
program in effect under the Plan.
B. Board shall mean the Corporation's Board of Directors.
C. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board does
not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. Common Stock shall mean the Corporation's common stock.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction; or
A-1.
<PAGE>
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
G. Corporation shall mean FaxSav Incorporated, a Delaware corporation, and
any corporate successor to all or substantially all of the assets or voting
stock of FaxSav Incorporated which shall by appropriate action adopt the Plan.
H. Discretionary Option Grant Program shall mean the discretionary option
grant program in effect under the Plan.
I. Eligible Director shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
J. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.
L. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is sold in the initial
public offering pursuant to the Underwriting Agreement. For purposes of
any option grants made prior to the
A-2.
<PAGE>
Underwriting Date, the Fair Market Value shall be determined by the Plan
Administrator after taking into account such factors as the Plan
Administrator shall deem appropriate.
M. Hostile Take-Over shall mean the acquisition, directly or indirectly,
by any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
N. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
O. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and
participation in corporate-performance based bonus or incentive programs)
by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without the individual's consent.
P. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee, Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).
Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
R. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. Optionee shall mean any person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.
A-3.
<PAGE>
T. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. Participant shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
V. Permanent Disability or Permanently Disabled shall mean the inability
of the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more. However, solely for the purposes of the Automatic Option Grant Program,
Permanent Disability or Permanently Disabled shall mean the inability of the
non-employee Board member to perform his or her usual duties as a Board member
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
W. Plan shall mean the Corporation's 1996 Stock Option/Stock Issuance
Plan, as set forth in this document.
X. Plan Administrator shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Y. Plan Effective Date shall mean June 30, 1996, the date on which the
Plan was adopted by the Board.
Z. Predecessor Plan shall mean the Corporation's existing 1990 Stock
Option Plan.
AA. Primary Committee shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
AB. Secondary Committee shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
AC. Section 12(g) Registration Date shall mean the date on which the
Common Stock is first registered under Section 12(g) of the 1934 Act.
AD. Section 16 Insider shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
A-4.
<PAGE>
AE. Service shall mean the performance of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
AF. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
AG. Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
AH. Stock Issuance Program shall mean the stock issuance program in effect
under the Plan.
AI. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
AJ. Take-Over Price shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
AK. Taxes shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.
AL. 10% Stockholder shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
AM. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
AN. Underwriting Date shall mean the date on which the Underwriting
Agreement is executed and the initial public offering price of the Common Stock
is established.
A-5.
