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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_]Preliminary Proxy Statement [_]Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CLARENT CORPORATION
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
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2. Form, Schedule or Registration Statement No.:
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3.Filing Party:
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4. Date Filed:
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[LOGO OF CLARENT]
700 Chesapeake Drive,
Redwood City, CA 94063
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 7, 2000
TO THE STOCKHOLDERS OF CLARENT CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of CLARENT
CORPORATION, a Delaware corporation (the "Company"), will be held on Wednesday
June 7, 2000 at 11:00 a.m. local time at the Marriott Hotel, 1770 South
Amphlett Blvd., San Mateo California 94402 for the following purposes:
1. To elect one director to hold office until the 2003 Annual Meeting of
Stockholders;
2. To approve amendment of the Company's 1999 Non-Employee Directors'
Stock Option Plan to (i) increase the aggregate number of shares of
Common Stock authorized for issuance under such plan by 200,000 shares,
from 300,000 shares to 500,000 shares and (ii) provide for a change in
the number of shares granted under and the vesting provisions of grants
available under the plan;
3. To approve an amendment to the Company's 1999 Amended and Restated
Equity Incentive Plan to increase the aggregate number of shares of
Common Stock authorized for issuance under such plan by 2,000,000
shares, from 14,792,465 shares to 16,792,465 shares;
4. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 2000; and
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 10, 2000, as
the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ Richard J. Heaps
Richard J. Heaps
Secretary
Redwood City, California
April 26, 2000
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING.
PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK
OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE
RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
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[LOGO OF CLARENT ]
700 Chesapeake Drive,
Redwood City, CA 94063
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held
June 7, 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Clarent Corporation, a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on June 7, 2000, at 11:00 a.m. local
time (the "Annual Meeting"), or at any adjournment or postponement thereof,
for the purposes set forth herein and in the accompanying Notice of Annual
Meeting. The Annual Meeting will be held at the Marriott Hotel, 1770 South
Amphlett Blvd., San Mateo California 94402. The Company intends to mail this
proxy statement and accompanying proxy card on or about April 26, 2000, to all
stockholders entitled to vote at the Annual Meeting.
Solicitation
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
card and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of Common Stock
beneficially owned by others to forward to such beneficial owners. The Company
may reimburse persons representing beneficial owners of Common Stock for their
costs of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. We do not currently intend but may retain services of a third-party
proxy solicitor that will be paid its customary fee, estimated to be about
$7,000, if it renders solicitation services.
Voting Rights and Outstanding Shares
Only holders of record of Common Stock at the close of business on April 10,
2000 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 10, 2000 the Company had outstanding and entitled
to vote 32,725,896 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual
Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Except for Proposal 1, abstentions will be
counted towards the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in
determining whether a matter has been approved.
Voting Via the Internet or by Telephone
For Shares Registered in the Name of a Broker or Bank
A number of brokers and banks are participating in a program provided
through ADP Investor Communication Services that offers telephone and Internet
voting options. If your shares are held in an account
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with a broker or bank participating in the ADP Investor Communication Services
program, you may vote those share telephonically by calling the telephone
number shown on the voting form received from your broker or bank, or via the
Internet at ADP Investor Communication Services' voting Web site
(www.proxyvote.com).
General Information for All Shares Voted Via the Internet or By Telephone
Votes submitted via the Internet or by telephone must be received by 12:00
noon, Daylight Central Time on June 6, 2000. Submitting your proxy via the
Internet or by telephone will not affect your right to vote in person should
you decide to attend the Annual Meeting.
The telephone and Internet voting procedures are designed to authenticate
stockholders' identities, to allow stockholders to give their voting
instructions and to confirm that stockholders' instructions have been recorded
properly. Stockholders voting via the Internet should understand that there
may be costs associated with electronic access, such as usage charges from
Internet access providers and telephone companies, that must be borne by the
stockholder.
Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 700
Chesapeake Drive, Redwood City, California 94063, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person. Attendance at the meeting will
not, by itself, revoke a proxy.
Stockholder Proposals
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2001 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is December 22, 2000. Pursuant to the Company's bylaws, a
stockholder proposal or a nomination for director that is not to be included
in such proxy statement and proxy at the Company's 2001 annual meeting of
stockholders must provide specified information to the Company between
February 7, 2001 and March 9, 2001.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation and Bylaws
provide that the Board of Directors shall be divided into three classes, each
class consisting, as nearly as possible, of one-third of the total number of
directors, with each class having a three-year term. Vacancies on the Board of
Directors may be filled only by persons elected by a majority of the remaining
directors. A director elected by the Board of Directors to fill a vacancy
(including a vacancy created by an increase in the number of directors) shall
serve for the remainder of the full term of the class of directors in which
the vacancy occurred and until such director's successor is elected and
qualified.
The Board of Directors is presently composed of five members. There is one
director in the class whose term of office expires in 2000. The nominee for
election to this class is currently a director of the Company. If elected at
the Annual Meeting, the nominee would serve until the 2003 annual meeting and
until his or her successor is elected and has qualified, or until such
director's earlier death, resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented
by executed proxies will be voted, if authority to do so is not withheld, for
the election of the nominee named below. In the event that the nominee should
be unavailable for election as a result of an unexpected occurrence, such
shares will be voted for the election of such substitute nominee as management
may propose. The person nominated for election has agreed to serve if elected,
and management has no reason to believe that the nominee will be unable to
serve.
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Set forth below is biographical information for the person nominated and for
each person whose term of office as a director will continue after the Annual
Meeting.
Nominee for Election for a Three-year Term Expiring at the 2003 Annual Meeting
Syaru Shirley Lin
Ms. Lin, age 31, has served as a director since July 1998. Since 1993, Ms.
Lin has been employed by Goldman Sachs (Asia) Limited. She currently serves as
managing director in the Principal Investment Area, which manages several
principal investment funds. From 1990 to 1993, Ms. Lin worked for Morgan
Stanley & Co. in New York and Hong Kong. Ms. Lin is also a non-executive
director of Hung Hing Printing Group Limited, a publicly listed company on the
Hong Kong Stock Exchange, D-Link Corporation, a publicly listed company on the
Taiwan Stock Exchange and Advanced Manufacturing OnLine Ltd., a private
company. Ms. Lin holds a B.A. degree from Harvard University.
The Board Of Directors Recommends
A Vote In Favor Of the Named Nominee.
Directors Continuing in Office Until the 2001 Annual Meeting
Wen Chang Ko
Mr. Ko, age 50, has served as a director since June 1997. Since 1990, Mr. Ko
has served as Chairman of the WK Technology Funds and also served as Chairman
of the Taipei Venture Capital Association from 1992 to 1995. From 1977 to
1990, Mr. Ko served in various management positions at Hewlett-Packard Taiwan
Ltd., most recently serving as Chairman and President from 1979 to 1990. From
1974 to 1977, Mr. Ko served in various positions at IBM in the United States,
most recently serving as Research and Development Project Manager from 1975 to
1977. Mr. Ko holds a B.S. degree in electrical engineering from National Cheng
Kung University and an M.S. degree in system science from Michigan State
University.
Michael F. Vargo
Mr. Vargo, age 39, one of our co-founders, has served as a Senior Vice
President since July 1999 and as our Chief Technology Officer and as a
director since our inception in July 1996. From April 1996 through June 1996,
Mr. Vargo served as a Senior Software Engineer at Oracle Corporation, a
leading provider of relational databases. From January 1995 through April
1996, Mr. Vargo served as a Senior Software Engineer at OnLive! Technologies,
Inc. From January 1992 through December 1994, Mr. Vargo served as a Senior
Software Engineer at Centigram Corporation, a voice messaging equipment
manufacturer. Prior to Centigram Corporation, Mr. Vargo spent seven years at
Pacific Bell. Mr. Vargo holds a B.S. degree in electrical engineering and an
M.E. degree in electrical engineering from California State Polytechnic
University at Pomona.
Directors Continuing in Office Until the 2002 Annual Meeting
Jerry Shaw-Yau Chang
Mr. Chang, age 41, one of our co-founders, has served as our President and
Chief Executive Officer and as a director since our inception in July 1996.
From March 1996 through June 1996, Mr. Chang worked as the system architect
for Relations Software, a developer of network and applications monitoring
software. From September 1994 through February 1996, Mr. Chang served as a
Senior Software Engineer at OnLive! Technologies, Inc., a developer of on-line
communications technology. Prior to September 1994, Mr. Chang spent seven
years at Centura Software Corporation, formerly Gupta Corporation, a supplier
of client/server application development and deployment technology, as a
manager and developer of Centura Software Corporation's client/server database
solution. Mr. Chang holds a B.S. degree in control engineering from National
Chiao-Tung University and an M.S. degree in computer science from Pennsylvania
State University. Mr. Chang's brother-in-law, Shoon Shen Tony Wang, serves as
our Controller of the Asia Pacific region.
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William R. Pape
Mr. Pape, age 49, has served as a director since October 1999. Since June
1998, Mr. Pape has been involved in several startups. In 1982, Mr. Pape co-
founded Verifone and from 1982 to 1998 served in a variety of senior
positions, including Senior Vice President, Chief Information Officer, Vice
President Product Marketing and Vice President Software Development. Prior to
co-founding Verifone, Mr. Pape was a principal at Innovative Software
Applications, and an Assistant Professor of Decision Sciences at the
University of Hawaii School of Business. Mr. Pape holds an A.B. degree in
psychology from Stanford University. He holds two advanced degrees from the
University of Hawaii, an M.A. in social psychology and an M.A. in
communications.
Board Committees and Meetings
During the fiscal year ended December 31, 1999 the Board of Directors held
eleven meetings and acted by unanimous written consent four times. The Board
of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee makes recommendations to the Board of Directors
regarding the selection of independent auditors; reviews the results and scope
of the audit and other professional services provided by our independent
auditors; reviews the independence of the independent auditors; and reviews
and evaluates our internal control functions. The Audit Committee is composed
of two non-employee directors: Mr. Ko and Ms. Lin. The Audit Committee did not
meet during the six months since the formation of the Committee and did not
act by unanimous written consent during the fiscal year ended December 31,
1999 but met in January 2000 in connection with the audit for the year ended
December 31, 1999.
The Compensation Committee reviews and approves the compensation and
benefits for our executive officers, grants stock options under our equity
incentive plans and makes recommendations to the Board of Directors regarding
compensation matters. The Compensation Committee is composed of two non-
employee directors: Mr. Ko and Ms. Lin. It met three times during the fiscal
year ended December 31, 1999 and acted by unanimous written consent three
times.
During the fiscal year ended December 31, 1999, each Board member attended
75% or more of the aggregate of the meetings of the Board of Directors and of
the committees on which he or she served, held during the period for which he
or she was a director or committee member, respectively.
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE 1999 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
In April 2000, the Board of Directors amended the 1999 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"), subject to stockholder
approval, to (i) increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 200,000 shares, from 300,000 shares
to 500,000 shares and (ii) provide for a change in the number of shares
granted under and the vesting provisions of grants available under the
Directors' Plan. The Board of Directors adopted this amendment in order to
enable the Company to grant stock options at levels and subject to vesting
terms determined appropriate by the Board of Directors.
As of April 10, 2000, 19,000 options have been granted under the Directors'
Plan. During the last fiscal year, the Company granted options to purchase
9,000 shares to the non-employee directors of the Company, at a weighted
average exercise price per share of $70.56. No options were granted under the
Directors' Plan to the directors who are also executive officers, the
executive officers as a group or the employees or consultants of the Company
who are not non-employee directors. Ms. Lin, the only nominee for election as
a director at this Annual Meeting, was granted an option to purchase 2,000
shares at the exercise price of $63.75 during the last fiscal year.
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Stockholders are requested in this Proposal 2 to approve the amendment to
the Directors' Plan. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
meeting will be required to approve the amendment to the Directors' Plan.
Abstentions will be counted toward the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether this matter has been approved.
The Board Of Directors Recommends
A Vote In Favor Of Proposal 2.
The essential features of the Directors' Plan, as amended by the Board of
Directors, are outlined below:
General
The Directors' Plan provides for non-discretionary grants of nonstatutory
stock options. Options granted under the Directors' Plan are not intended to
qualify as incentive stock options, as defined under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). A complete copy of the
Directors' Plan, as amended, is attached hereto as Exhibit A.
Purpose
The purpose of the Directors' Plan is to retain the services of persons now
serving as non-employee directors of the Company (as defined below), to
attract and retain the services of persons capable of serving on the Board of
Directors of the Company and to provide incentives for such persons to exert
maximum efforts to promote the success of the Company. Three of the current
directors of the Company are eligible to participate in the Directors' Plan.
Administration
The Directors' Plan is administered by the Board of Directors of the
Company. The Board of Directors has the final power to construe and interpret
the Directors' Plan and options granted under it, and to establish, amend and
revoke rules and regulations for its administration.
The Board of Directors is authorized to delegate administration of the
Directors' Plan to a committee of not less than two members of the Board. The
Board of Directors does not presently contemplate delegating administration of
the Directors' Plan to any committee of the Board of Directors.
Eligibility
The Directors' Plan provides that options may be granted only to non-
employee directors of the Company. A "Non-Employee Director" is defined in the
Directors' Plan as a director of the Company and its affiliates who is not
otherwise an employee of the Company or any affiliate of the Company.
Share Reserve
The aggregate number of shares of Common Stock that may be issued under
options granted under the Directors' Plan is 500,000 shares.
Terms Of Options
Each option under the Directors' Plan is subject to the following terms and
conditions:
Non-Discretionary Grants. Option grants under the Directors' Plan are non-
discretionary and made solely in accordance with the express provisions of the
Directors' Plan.
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Each person who is elected or appointed for the first time after March 31,
2000, to be a non-employee director automatically shall, upon the date of his
or her initial election or appointment to be a non-employee director by the
Board of Directors or stockholders of the Company, be granted an option
(referred to as an initial grant) to purchase 35,000 shares of Common Stock.
In addition, on the day following this Annual Meeting, each person who is then
a non-employee director and who served as a non-employee director prior to
March 31, 2000, automatically shall be granted a one-time option to purchase
that number of shares of Common Stock equal to 35,000 shares of Common Stock
less the number of shares of Common Stock previously granted to the non-
employee director since our initial public offering. Prior to the amendment,
the initial grant was for an option to purchase up to 5,000 shares of Common
Stock.
On the day following each Annual Meeting of stockholders commencing with
this Annual Meeting, each person who is then a non-employee director
automatically shall be granted an option to purchase 15,000 shares of Common
Stock; provided, however, that if the person has not been serving as a non-
employee director for the entire period since the preceding Annual Meeting (or
the preceding twelve months, in the case of this Annual Meeting), then the
number of shares shall be reduced pro rata for each full quarter prior to the
date of grant during which such person did not serve as a non-employee
director. Prior to the amendment, no annual grants were available under the
Directors' Plan, though at each regular meeting of the Board of Directors each
non-employee director automatically received an option to purchase 2,000
shares of Common Stock, such grants are no longer available under the
Directors' Plan.
Option Exercise. All options granted under the Directors' Plan vest and
become exercisable as to one twenty-fourth (1/24th) of the shares of Common
Stock subject to the option, each month following the date of grant over a
period of two (2) years. Prior to the amendment, options granted under the
Directors' Plan were fully vested and became exercisable on the date of grant.
Exercise Price; Payment. The exercise price of options granted under the
Directors' Plan shall be equal to 100% of the fair market value of the Common
Stock on the date such option is granted. The exercise price of options
granted may be paid in (i) in cash, (ii) in shares of Common Stock of the
Company at the time the option is exercised or (iii) pursuant to a "same-day"
sale program which results in the receipt of cash (or check) by the Company
prior to the issuance of shares of the Common Stock.
Transferability; Term. Under the Directors' Plan, an option shall be
transferable only to the extent specifically provided for in the option
agreement evidencing the stock option, provided that if the stock option
agreement does not provide for transferability, then the option is not
transferable except by will or by the laws of descent and distribution or
pursuant to a domestic relations order. No option granted under the Directors'
Plan is exercisable by any person after the expiration of ten years from the
date the option is granted.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Plan as may be
determined by the Board of Directors.
Adjustment Provisions
If there is any sale of substantially all of the Company's assets, any
merger or any consolidation in which the Company is not the surviving
corporation or other change in control of the Company, all outstanding awards
under the Directors' Plan either will be assumed or substituted for by any
surviving entity. If the surviving entity determines not to assume or
substitute for such awards, the awards will terminate if not exercised prior
to the sale of assets, merger or consolidation.
Duration, Amendment and Termination
The Board of Directors at any time, and from time to time, may amend the
Plan and/or some or all outstanding options granted under the Directors' Plan.
However, except for adjustments upon changes in stock, as provided for in the
Directors' Plan, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary
for the Directors' Plan to satisfy the requirements of Rule 16b-3 under the
Exchange Act or Nasdaq or any securities exchange listing requirements. Rights
and obligations under any option granted before any amendment of the
Directors' Plan shall not be impaired by such amendment unless (i) the Company
requests the consent of the person to whom the option was granted and (ii)
such person consents in writing.
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Certain Federal Income Tax Information
Stock options granted under the Directors' Plan are subject to federal
income tax treatment pursuant to rules governing options that are not
incentive stock options.
The following is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Directors' Plan, does not purport to be complete and does
not discuss the income tax laws of any state or foreign country in which an
optionee may reside.
Options granted under the Directors' Plan are nonstatutory options. There
are no tax consequences to the optionee or the Company by reason of the grant
of a nonstatutory stock option. Upon exercise of a nonstatutory stock option,
the optionee normally will recognize taxable ordinary income equal to the
excess of the stock's fair market value on the date of exercise over the
option exercise price. Because the optionee is a director of the Company,
under existing laws, the date of taxation (and the date of measurement of
taxable ordinary income) may in some instances be deferred unless the optionee
files an election under Section 83(b) of the Code. The filing of a Section
83(b) election with respect to the exercise of an option may affect the time
of taxation and the amount of income recognized at each such time. Upon
disposition of the stock, the optionee will recognize a capital gain or loss
equal to the difference between the selling price and the sum of the amount
paid for such stock plus any amount recognized as ordinary income upon
exercise of such option. Such gain or loss will be long-term or short-term
depending on whether the stock was held for more than one year.
PROPOSAL 3
APPROVAL OF AMENDMENT TO THE 1999 AMENDED AND RESTATED
EQUITY INCENTIVE PLAN, AS AMENDED
In October 1996, the Board of Directors adopted the Company's 1996 Stock
Option Plan. On April 8, 1999, the Board of Directors amended and restated the
above plan in the form of the 1999 Amended and Restated Equity Incentive Plan
(the "1999 Plan"). In December 1999, the Board of Directors approved the
amendment increasing the number of shares authorized for issuance under the
1999 Plan and stockholders approved the amendment at the Special meeting held
on February 15, 2000. In April 2000, the Board of Directors approved the
amendment further increasing the number of shares authorized for issuance
under the 1999 Plan discussed below and the solicitation of stockholders to
approve such amendment.
As of April 10, 2000, options to purchase an aggregate of 8,028,640 shares
of the Company's Common Stock are outstanding under the 1999 Plan, 4,167,844
shares of Common Stock had been issued upon the exercise of options granted
under 1999 Plan and only 2,295,981shares (plus any shares that might in the
future be returned to the plans as a result of cancellations or expiration of
options) remained available for future grant under the 1999 Plan. Since the
end of the last fiscal year, under the 1999 Plan, the Company granted to all
employees as a group (excluding executive officers) options to purchase
1,163,300 shares at exercise prices of $78.125 to $125.00 per share. Since the
end of the last fiscal year, options to purchase 675,000 shares at the
exercise price of $109.25 have been granted to current executive officers or
directors who are officers. As of April 10, 2000, no stock bonus or restricted
stock has been granted under the 1999 Plan. During the last fiscal year, the
Company granted to all employees as a group (excluding executive officers)
options to purchase 2,873,350 shares at exercise prices of $1.50 to $63.75 per
share and granted an option to purchase 200,000 shares at the exercise price
of $5.00 to all current executive officers as a group. No options were granted
under the 1999 Plan to any of the directors during the last fiscal year.
Stockholders are requested in this Proposal 3 to approve an amendment to the
1999 Plan to increase the number of shares authorized for issuance under the
1999 Plan by 2,000,000 shares, from a total of 14,792,465 shares to 16,792,465
shares. The purpose of this amendment is to ensure that the Company can
continue to grant stock options to employees and consultants at levels
determined appropriate by the Board and the Compensation Committee. The
Company believes that its ability to continue to provide employees with
attractive equity-based
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incentives is critical in allowing it to attract and retain qualified
individuals. The Company believes the grant of stock options encourages
employees to build long-term stockholder value. The affirmative vote of the
holders of a majority of the shares present in person or represented by proxy
and entitled to vote at the meeting will be required to approve the increase
to the 1999 Plan. Abstentions will be counted toward the tabulation of votes
cast on proposals presented to the stockholders and will have the same effect
as negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has been approved.
The Board Of Directors Recommends
A Vote In Favor Of Proposal 3.
The essential features of the 1999 Plan, as amended by the Board of
Directors, are outlined below:
General
The 1999 Plan provides for the grant or issuance of incentive stock options
to employees and nonstatutory stock options, restricted stock purchase awards,
stock bonuses and stock appreciation rights to consultants, employees
(including executive officers) and directors. Incentive stock options granted
under the 1999 Plan are intended to qualify as "incentive stock options"
within the meaning of Section 422 of the Code. Nonstatutory stock options
granted under the 1999 Plan are intended not to qualify as incentive stock
options under the Code. See "Federal Income Tax Information" for a discussion
of the tax treatment of the various awards included in the 1999 Plan. A
complete copy of the 1999 Plan, as amended, is attached hereto as Exhibit B.
Purpose
The 1999 Plan was adopted to provide a means by which selected employees and
directors of and consultants to the Company and its affiliates could be given
an opportunity to receive stock in the Company, to assist in retaining the
services of employees, directors and consultants holding key positions, to
secure and retain the services of persons capable of filling such positions
and to provide incentives for such persons to exert maximum efforts for the
success of the Company. All of the Company's 285 employees (as of December 31,
1999) and all of the Company's consultants are eligible to participate in the
1999 Plan, however, only employees of the Company may be granted incentive
stock options or stock appreciation rights pursuant to the 1999 Plan.
Administration
The 1999 Plan is administered by the Board of Directors of the Company. The
Board has the power to construe and interpret the 1999 Plan and, subject to
the provisions of the 1999 Plan, to determine the persons to whom and the
dates on which Stock Awards will be granted, the type of Stock Award that will
be granted, the number of shares to be subject to each Stock Award, the time
or times during the term of each Stock Award within which all or a portion of
such Stock Award may be exercised, the exercise price, the type of
consideration and other terms of the Stock Award. The Board of Directors is
authorized to delegate administration of the 1999 Plan to a committee composed
of not fewer than two members of the Board. The 1999 Plan provides that, in
the Board's discretion, all directors serving on such committee may be "non-
employee directors" within the meaning of Rule 16b-3 and/or "outside
directors" within the meaning of Section 162(m) of the Code. If administration
is delegated to a committee, the committee has the power to delegate
administrative powers to one or more subcommittees of two or more directors.
The Board has delegated administration of the 1999 Plan to the Compensation
Committee of the Board. As used herein with respect to the 1999 Plan, the
"Board" refers to the Compensation Committee (and, if applicable, such a
subcommittee) as well as to the Board of Directors itself.
Eligibility
Incentive stock options may be granted only to employees. Nonstatutory stock
options, restricted stock purchase awards and stock bonuses may be granted
only to employees, directors or consultants.
8
<PAGE>
No person is eligible for the grant of an incentive stock option if, at the
time of grant, such person owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company unless the
exercise price of such option is at least 110% of the fair market value of
such Common Stock subject to the option at the date of grant and the option is
not exercisable after the expiration of five years from the date of grant. For
incentive stock options granted under the 1999 Plan, the aggregate fair market
value, determined at the time of grant, of the shares of Common Stock with
respect to which such options are exercisable for the first time by an
optionee during any calendar year (under all such plans of the Company and its
affiliates) may not exceed $100,000.
Subject to adjustment provisions of the 1999 Plan, no person shall be
eligible to be granted Stock Awards covering more than 720,000 shares of
Common Stock in one calendar year.
Stock Subject to the 1999 Plan
The Common Stock that may be sold pursuant to Stock Awards under the 1999
Plan shall not exceed in the aggregate 16,792,465 shares of the Company's
Common Stock. However, each year on January 31, starting January 31, 2001 and
continuing through January 31, 2004, the aggregate number of shares of Common
Stock that may be issued pursuant to stock awards (other than incentive stock
options) under the 1999 Plan shall automatically be increased by that number
of shares of Common Stock that is equal to two and one-half percent (2.5%) of
the Company's outstanding shares of Common Stock on that date (or a lesser
amount as determined by the Board of Directors for each year). As of April 10,
2000, 8,028,640 shares were subject to outstanding options and 4,295,981
remained available for future grants under the 1999 Plan, giving effect to the
increase in the number of shares available for grant under the 1999 Plan
discussed in this Proposal 3. If any Stock Award expires or terminates, in
whole or in part, without having been exercised in full, the stock not
purchased under such Stock Award will revert to and again become available for
issuance under the 1999 Plan. The Common Stock subject to the 1999 Plan may be
unissued shares or reacquired shares, bought on the market or otherwise.
Stock Awards
The 1999 Plan provides for incentive stock options, nonstatutory stock
options, restricted stock purchase awards, stock appreciation rights and stock
bonuses (collectively "Stock Awards").
Terms of Stock Awards
The following is a description of the permissible terms of Stock Awards
under the 1999 Plan. Individual grants may be more restrictive as to any or
all of the permissible terms described below.
Exercise Price; Payment. The exercise price of each incentive stock option
will not be less than 100% of the fair market value of the Company's Common
Stock on the date of grant. The exercise price of each nonstatutory stock
option will not be less than 100% of the fair market value on the date of
grant. The purchase price of a restricted stock purchase award will not be
less than 100% of the fair market value of the Company's Common Stock on the
date such award is made. Stock bonuses may be awarded in consideration of past
services actually rendered to the Company or for its benefit. At April 10,
2000, the closing price of the Company's Common Stock as reported on the
Nasdaq National Market System was $83.375 per share.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. To the extent required by Section 162(m), an option
repriced under the 1999 Plan is deemed to be cancelled and a new option
granted. Both the option deemed to be cancelled and the new option deemed to
be granted will be counted against the share limitation.
The purchase price of stock acquired pursuant to a Stock Award is paid
either in cash at the time of exercise or purchase, or (if determined by the
Board at the time of grant for an option) by deferred payment or other
arrangement or in any other form of legal consideration that may be acceptable
to the Board. Additionally, in the case of an option and in the discretion of
the Board at the time of the grant of an option, the purchase price may
9
<PAGE>
be paid by delivery to the Company of other Common Stock of the Company. In
the case of any deferred payment arrangement, interest will be payable at
least annually and will be charged at the minimum rate of interest necessary
to avoid the treatment as interest of amounts that are not stated to be
interest.
Option Exercise. The total number of shares of stock subject to an option
may, but need not, be allotted in periodic installments. The option or stock
appreciation rights agreement may provide that from time to time during each
of such installment periods, the option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the option became vested but was not fully
exercised. The option agreement may also provide that an optionee may exercise
an option prior to full vesting, provided that the Company may have a
repurchase right with respect to any unvested shares.
Restricted stock purchase awards and stock bonuses granted under the 1999
Plan may be granted pursuant to a repurchase option in favor of the Company in
accordance with a vesting schedule determined by the Board.
Term and Termination. No option is exercisable after the expiration of ten
years from the date it was granted. In the event an optionee's continuous
status as an employee, director or consultant is terminated, the optionee may
exercise his or her option or stock appreciation right (to the extent that the
optionee was entitled to exercise it at the time of termination) but only
within the earlier of (i) the date three months after the termination of the
optionee's continuous status as an employee, director or consultant (or such
longer or shorter period as specified in the option agreement) or (ii) the
expiration of the term of the option as set forth in the option agreement.
The Board may, at any time, with the consent of the optionee, extend the
post-termination exercise period and provide for continued vesting; however,
any extension beyond three months from the date of termination will cause an
incentive stock option to become a nonstatutory stock option.
In the event an optionee's continuous status as an employee, director or
consultant terminates as a result of the optionee's death or disability, the
optionee (or such optionee's estate, heirs or beneficiaries) may exercise his
or her option, but only within the period ending on the earlier of (i) 12
months (upon disability) or (ii) 18 months (upon death) following such
termination (or such longer or shorter period as specified in the option
agreement).
In the event a stock bonus or restricted stock purchase award recipient's
continuous status as an employee, director or consultant terminates, the
Company may repurchase or otherwise reacquire any or all of the shares of
stock held by that person which have not vested as of the date of termination
under the terms of the stock bonus or restricted stock purchase agreement
between the Company and such person.
Adjustment Provisions
If any change is made to the Common Stock subject to the 1999 Plan due to a
change in corporate capitalization and without receipt of consideration by the
Company (through reincorporation, stock dividend, stock split, reverse stock
split, combination or exchange of shares) the class(es) and maximum number of
shares subject to the 1999 Plan will be appropriately adjusted. If any change
is made in the Common Stock subject to the 1999 Plan, or subject to any Stock
Award, without receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
maximum annual award applicable under the 1999 Plan and the class(es) and
number of shares and price per share of stock subject to outstanding Stock
Awards will be appropriately adjusted.
Unless an option agreement specifies otherwise, in the event of a merger,
consolidation, liquidation, dissolution or the sale of substantially all of
the Company's assets or a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or
10
<PAGE>
otherwise, any surviving corporation shall assume or continue any Stock Awards
outstanding under the 1999 Plan or shall substitute similar awards for those
outstanding under the 1999 Plan or such Stock Awards shall continue in full
force and effect. In the event a surviving corporation refuses to assume or
continue such Stock Awards or substitute similar awards, then, with respect to
Stock Awards held by persons then performing services as employees, directors
or consultants, the time during which such Stock Awards may be exercised shall
be accelerated prior to completion of such transaction and such Stock Awards
shall be terminated if not exercised prior to such transaction.
Unless an option agreement specifies otherwise, in the event of an
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Exchange Act (other than any employee benefit plan, or related
trust, sponsored or maintained by the Company or an affiliate) of the
beneficial ownership of securities of the Company representing at least 50% of
the combined voting power entitled to vote in the election of directors, the
Company or a controlling affiliate of the Company shall assume or continue
outstanding Stock Awards held by persons whose continuous service with the
Company has not terminated, or substitute similar Stock Awards. If the Company
or controlling affiliate refuses to assume or continue such Stock Awards, or
to substitute similar Stock Awards for those outstanding under the 1999 Plan,
then, with respect to Stock Awards held by persons then performing services as
employees, directors or consultants, the time during which such Stock Awards
may be exercised shall be accelerated.
Duration, Amendment and Termination
The Board at any time, and from time to time, may amend the 1999 Plan.
However, no amendment shall be effective unless approved by the stockholders
of the Company within 12 months before or after the adoption of the amendment,
where such amendment requires stockholder approval in order for the 1999 Plan
to satisfy the requirements of Section 422 of the Code or to comply with the
requirements of Rule 16b-3 of the Exchange Act or Nasdaq or any securities
exchange listing requirements. The Board may in its sole discretion submit any
other amendment to the 1999 Plan for stockholder approval.
The Board may suspend or terminate the 1999 Plan at any time. Unless sooner
terminated, the 1999 Plan will terminate in March 2009. No Stock Awards may be
granted under the 1999 Plan while the 1999 Plan is suspended or after it is
terminated.
Restrictions on Transfer
An incentive stock option shall not be transferable except by will or by the
laws of descent and distribution, and shall be exercisable during the lifetime
of the person to whom the incentive stock option is granted only by such
person. A stock bonus or restricted stock purchase award shall not be
transferable except by will or by the laws of descent and distribution or
pursuant to a domestic relations order. A nonstatutory stock option shall be
transferable only to the extent specifically provided for in the option
agreement evidencing the nonstatutory stock option, provided that if the
nonstatutory stock option agreement does not provide for transferability, then
the option is not transferable except by will or by the laws of descent and
distribution or pursuant to a domestic relations order. An award holder may
designate a beneficiary who may exercise his or her award after death.
Federal Income Tax Information
Incentive Stock Options. Incentive stock options under the 1999 Plan are
intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for more than two years from the date on which the option is granted
and more than one year from the date on which the shares are transferred to
the optionee upon exercise of the option, any gain or loss on a disposition of
such stock will be
11
<PAGE>
long-term capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a
"disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The
optionee's additional gain, or any loss, upon the disqualifying disposition
will be a capital gain or loss, which will be long-term or short-term
depending on whether the stock was held for more than one year. Capital gains
currently are generally subject to lower tax rates than ordinary income. The
maximum long-term capital gains rate for federal income tax purposes is
currently 20% while the maximum ordinary income rate is effectively 39.6% at
the present time. Slightly different rules may apply to optionees who acquire
stock subject to certain repurchase options or who are subject to Section
16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled to a
corresponding business expense deduction in the tax year in which the
disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
1999 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory
stock option, the optionee normally will recognize taxable ordinary income
equal to the excess of the stock's fair market value on the date of exercise
over the option exercise price. With respect to employees, the Company is
generally required to withhold from regular wages or supplemental wage
payments an amount based on the ordinary income recognized. Generally, the
Company will be entitled to a business expense deduction equal to the taxable
ordinary income realized by the optionee. Upon disposition of the stock, the
optionee will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock plus any
amount recognized as ordinary income upon exercise of the option. Such gain or
loss will be long-term or short-term depending on whether the stock was held
for more than one year. Slightly different rules may apply to optionees who
acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act. Stock appreciation rights will be subject
to similar tax treatment.
Restricted Stock Purchase Awards and Stock Bonuses. Restricted stock
purchase awards and stock bonuses granted under the 1999 Plan generally have
the following federal income tax consequences:
Upon acquisition of the stock, the recipient normally will recognize taxable
ordinary income equal to the excess of the stock's fair market value over the
purchase price, if any. However, to the extent the stock is subject to certain
types of vesting restrictions, the taxable event will be delayed until the
vesting restrictions lapse unless the recipient elects to be taxed on receipt
of the stock. With respect to employees, the Company is generally required to
withhold from regular wages or supplemental wage payments an amount based on
the ordinary income recognized. Generally, the Company will be entitled to a
business expense deduction equal to the taxable ordinary income realized by
the optionee. Upon disposition of the stock, the optionee will recognize a
capital gain or loss equal to the difference between the selling price and the
sum of the amount paid for such stock plus any amount recognized as ordinary
income upon acquisition (or vesting) of the stock. Such gain or loss will be
long-term or short-term depending on whether the stock was held for more than
one year. Slightly different rules may apply to optionees who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of
the Exchange Act.
Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m) which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1 million for a covered employee. It is possible that
compensation attributable to Stock Awards granted in the future under the 1999
Plan, when combined with all other types of compensation received by a covered
employee from the Company, may cause this limitation to be exceeded in any
particular year.
12
<PAGE>
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the option is granted by a compensation committee comprised
solely of "outside directors" and either: (i) the option plan contains a per-
employee limitation on the number of shares for which options may be granted
during a specified period, the per-employee limitation is approved by the
stockholders, and the exercise price of the option is no less than the fair
market value of the stock on the date of grant; or (ii) the option is granted
(or exercisable) only upon the achievement (as certified in writing by the
compensation committee) of an objective performance goal established in
writing by the compensation committee while the outcome is substantially
uncertain, and the option is approved by stockholders.
ADDITIONAL EQUITY INCENTIVE PLAN
In addition to the Directors' Plan and the 1999 Plan, the Company currently
has the following equity incentive plan.
1999 Employee Stock Purchase Plan. In April 1999, the Board of Directors
approved the 1999 Employee Stock Purchase Plan (the "Purchase Plan") covering
an aggregate of 600,000 shares of Common Stock. The Purchase Plan is intended
to qualify as an employee stock purchase plan within the meaning of Section
423 of the Internal Revenue Code. Under the Purchase Plan, the Board of
Directors or a committee may authorize participation by eligible employees,
including officers, in periodic offerings following the adoption of the
Purchase Plan. The offering period for any offering will be no more than 27
months.
Under the Purchase Plan, employees are eligible to participate if they are
employed by us or one of our affiliates designated by the Board of Directors
and are employed at least 20 hours per week and at least five months per year.
Employees who participate in an offering will have the right to purchase up to
the number of shares of Common Stock purchasable pursuant to a percentage
designated by the Board of Directors (up to 10%) of an employee's earnings
withheld pursuant to the Purchase Plan and applied, on specified dates
determined by the Board of Directors, to the purchase of shares of Common
Stock. The price of Common Stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the Common Stock on the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment with us. In the event of changes in control, the Board of Directors
has discretion to provide that each right to purchase Common Stock will be
assumed or an equivalent right will be substituted by the successor
corporation, or that such rights may continue in full force and effect, or
that all sums collected by payroll deductions will be applied to purchase
stock immediately prior to the change in control. The Purchase Plan will
terminate at the Board of Directors' discretion or when all of the shares
reserved for issuance under the Purchase Plan have been issued. As of April
10, 2000, 46,926 shares of Common Stock have been purchased under the Purchase
Plan.
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP
has audited the Company's financial statements since the Company's inception.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and
will be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Ernst &
13
<PAGE>
Young LLP to the stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection, the Audit
Committee and the Board will reconsider whether or not to retain that firm.
Even if the selection is ratified, the Audit Committee and the Board in their
discretion may direct the appointment of different independent auditors at any
time during the year if they determine that such a change would be in the best
interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Ernst & Young LLP. Abstentions will be
counted toward the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in
determining whether this matter has been approved.
The Board Of Directors Recommends
A Vote In Favor Of Proposal 4.
14
<PAGE>
EXECUTIVE OFFICERS
Our executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Jerry Shaw-Yau Chang........... 41 Chief Executive Officer, President and
Director
Richard J. Heaps............... 47 Chief Operating Officer, Chief Financial
Officer, General Counsel and Secretary
Michael F. Vargo............... 39 Senior Vice President, Chief Technology
Officer and Director
Mark E. McIlvane............... 46 Senior Vice President, Worldwide Sales
Heidi H. Bersin................ 44 Senior Vice President, Corporate
Marketing and Communications
Mong Hong (Mahan) Wu........... 40 Senior Vice President and General
Manager, Asia Pacific
Peter K. Bohacek............... 64 Senior Vice President, Business
Development and Product Marketing
</TABLE>
Biographical information about Messrs. Vargo and Chang is included under the
caption "Directors Continuing in Office Until the 2001 Annual Meeting" and
"Directors Continuing in Office Until the 2002 Annual Meeting," respectively.
Mr. Heaps has served as our Chief Operating Officer, Chief Financial
Officer, General Counsel and Secretary since September 1998. From July 1997
through August 1998, Mr. Heaps worked as an independent consultant and headed
a private consulting firm and law practice serving Silicon Valley-based high-
technology companies. From October 1987 through July 1997, Mr. Heaps served in
various management positions at Centura, most recently serving as Senior Vice
President of Business Development and General Counsel. Mr. Heaps is a member
of the State Bar of California and a member of the board of directors of the
Children's Discovery Museum of San Jose. Mr. Heaps holds a B.A. degree in
economics and mathematics from Yale University and J.D. and M.B.A. degrees
from Stanford University.
Mr. McIlvane has served as our Senior Vice President, Worldwide Sales since
July 1999, having previously served as our Vice President, Worldwide Sales
since July 1997. From January 1993 through June 1997, Mr. McIlvane served as
Vice President of Sales and Marketing for Comverse Technology, Inc., a
manufacturer of high-performance voice processing computers for network-based
telecommunications service providers. Prior to Comverse Technology, Inc., Mr.
McIlvane served in various senior positions at Applied Communications, Inc., a
wholly owned subsidiary of U.S. WEST, Inc. and Bell & Howell Corporation. Mr.
McIlvane holds a B.S. degree in business and economics from MacMurray College.
Ms. Bersin has served as our Senior Vice President, Corporate Marketing and
Communications since July 1999, having previously served as our Vice
President, Marketing since February 1997. From 1983 through January 1997, Ms.
Bersin served in various management positions at Pacific Bell and Pacific Bell
Information Services, including Director of Pacific Bell Information Services
from 1986 to 1997. Ms. Bersin holds a B.A. degree from Stanford University and
an M.B.A. degree from Yale University.
Mr. Wu has served as our Senior Vice President and General Manager, Asia
Pacific since July 1999, having previously served as our Vice President and
General Manager of the Asia Pacific region since April 1997. From January 1996
through March 1997, Mr. Wu served as the Regional Sales Manager of Computer
Sales Operations for Hewlett-Packard Company, a measurement and computer
equipment manufacturer, in Asia, except Japan, and Australia after Hewlett-
Packard Company acquired Convex Computer Corporation, a supercomputer
manufacturer, where Mr. Wu served as General Manager of the Asia Pacific
region, except Japan, from January 1994 through December 1995. Mr. Wu holds a
B.S. degree in electrical engineering and an M.B.A. degree from National
Chiao-Tung University.
15
<PAGE>
Dr. Bohacek has served as our Senior Vice President, Business Development
and Product Marketing since February 2000, having previously served as our
Vice President, Business Development since December 1998. During 1997 and 1998
Dr. Bohacek was the President of Bohacek Consulting. From April 1994 through
January 1997, Dr. Bohacek served as Vice President and General Manager for the
Client Server Telecommunications Division of Mitel Corporation. From March
1990 through April 1994, Dr. Bohacek served as Vice President of Marketing for
the Telecommunications Division at Tandem Computers. Beginning in July 1964,
he held various positions at AT&T and AT&T Bell Laboratories. When he left
AT&T, in March 1990, he was Marketing and Systems Engineering Vice President
for AT&T Network Systems (now Lucent Technologies) and AT&T Bell Laboratories
Executive Director. At AT&T Network Systems/Bell Laboratories, Dr. Bohacek was
responsible for the creation of AT&T's Intelligent Network. From 1962 through
1964 he was Assistant Professor and Ford Postdoctoral Fellow at the
Massachusetts Institute of Technology. Dr. Bohacek holds B.E., M.Eng. and
Ph.D. degrees in electrical engineering from Yale University.
16
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of April 10, 2000 by:
. each stockholder who is known by us to own beneficially more than 5% of
our Common Stock;
. each of our named executive officers;
. each of our directors and nominee for director; and
. all of our directors and executive officers as a group.
Unless otherwise indicated, to our knowledge, all persons listed below have
sole voting and investment power with respect to their shares of our Common
Stock, except to the extent authority is shared by spouses under applicable
law. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Applicable percentage ownership is based
on 32,725,896 shares of Common Stock outstanding as of April 10, 2000,
together with options for that stockholder that are currently exercisable or
exercisable within 60 days of April 10, 2000. In computing the number and
percentage of shares beneficially owned by a person, shares of Common Stock
subject to options currently exercisable, or exercisable within 60 days of
April 10, 2000 are counted as outstanding, while these shares are not counted
as outstanding for computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
Shares Beneficially
Shares Issuable Owned After Offering
pursuant to (Including the Number of
Options Shares Shown in
Exercisable within the First Column)
Principal Stockholders, Directors and 60 days of ---------------------------
Named Executive Officers April 10, 2000 Number Percent
------------------------------------- ------------------ -------------- ------------
<S> <C> <C> <C>
WK Technology Funds (1)........ -- 3,840,068 11.73%
6F, No. 15
Section 2, Tiding Avenue
Taipei 114, Taiwan
FMR Corp. (2).................. -- 3,465,100 10.59
82 Devonshire Street
Boston, Massachusetts 02109
1998 Wang/Chang Family
Revocable Trust (3)........... -- 2,247,750 6.87
c/o Clarent Corporation
700 Chesapeake Drive
Redwood City, California 94063
1998 Vargo Family Trust (4).... -- 1,760,715 5.38
c/o Clarent Corporation
700 Chesapeake Drive
Redwood City, California 94063
The Goldman Sachs Group, Inc.
(5)........................... -- 1,727,658 5.28
85 Broad Street
New York, New York 10004
Jerry Shaw-Yau Chang (6)....... 9,375 2,511,683 7.67
Richard J. Heaps............... 65,544 156,611 *
Michael F. Vargo (7)........... 4,688 2,353,638 7.19
Mark E. McIlvane............... 331,589 382,089 1.16
Mong Hong (Mahan) Wu........... 28,022 288,257 *
Wen Chang Ko (8)............... 6,000 5,556,068 16.97
Syaru Shirley Lin (9).......... 6,000 1,733,658 5.30
William R. Pape................ 7,000 7,000 *
All officers and directors as a
group (10 persons) (10)....... 13,648,019 40.84%
</TABLE>
--------
* Represents beneficial ownership of less than one percent of the Common
Stock.
17
<PAGE>
(1) Consists of 463,514 shares held by WK Global Investment Ltd., 776,620
shares held by WK Technology Fund, 768,859 shares held by WK Technology
Fund II, 834,661 shares held by WK Technology Fund III, 396,414 shares
held by WK Technology Fund IV and 600,000 shares held by WK Technology
Fund V. Mr. Ko is the chairman and a beneficial owner of each of the
above entities and exercises sole voting and dispositive powers with
respect to the shares held of record by the WK Technology Funds.
(2) Fidelity Management & Research Company, a wholly-owned subsidiary of FMR
Corp. and an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, is the beneficial owner of these shares
as a result of acting as investment adviser to various investment
companies registered under Section 8 of the Investment Company Act of
1940.
(3) Mr. Chang is a trustee of the 1998 Wang/Chang Family Revocable Trust.
(4) Mr. Vargo is a trustee of the 1998 Vargo Family Trust.
(5) Consists of 1,234,042 shares held by The Goldman Sachs Group, Inc.,
114,435 shares held by Bridge Street Fund 1998, L.P. and 379,181 shares
held by Stone Street Fund 1998, L.P. Bridge Street Fund 1998, L.P. and
Stone Street Fund 1998, L.P. are affiliates of The Goldman Sachs Group,
Inc. The Goldman Sachs Group, Inc. is the general partner or managing
general partner of each of these investment partnerships. The Goldman
Sachs Group, Inc. disclaims beneficial ownership of the shares owned by
these investment partnerships to the extent attributable to partnership
interests therein held by persons other than The Goldman Sachs Group,
Inc. and its affiliates. Each of these investment partnerships shares
voting and investment power with some of its respective affiliates.
(6) Consists of 2,247,750 shares held by the 1998 Wang/Chang Family Revocable
Trust of which Mr. Chang is a trustee, 4,558 shares held by Alice Wang,
Mr. Chang's spouse, 200,000 shares held by Wang/Chang Investments, L.P.
of which Mr. Chang and Mrs. Wang are principals, 25,000 shares held by
the Huei-Ling Alice Wang 2000 Annuity Trust of which Mrs. Wang is a
trustee and 25,000 shares held by the Jerry Shaw-Yau Chang 2000 Annuity
Trust of which Mr. Chang is a trustee.
(7) Consists of 1,760,715 shares held by the 1998 Vargo Family Trust of which
Mr. Vargo is a trustee and 588,235 shares held by Vargo Investments, L.P.
of which Mr. Vargo is a principal.
(8) Includes 3,840,068 shares held by the WK Technology Funds. Mr. Ko is the
chairman of the WK Technology Funds. Mr. Ko disclaims beneficial
ownership of these shares except to the extent of his interest as a
stockholder thereof.
(9) Consists of 1,727,658 shares held by The Goldman Sachs Group, Inc. and
its affiliated entities. Ms. Lin is an executive director in the
Principal Investment Area of Goldman Sachs (Asia) Limited. Ms. Lin
disclaims beneficial ownership of these shares.
(10) Includes an aggregate of 3,840,068 shares held by the WK Technology
Funds, 2,247,750 shares held by the 1998 Wang/Chang Family Revocable
Trust, 200,000 shares held by Wang/Chang Investments, L.P., 25,000 shares
held by the Huei-Ling Alice Wang 2000 Annuity Trust, 25,000 shares held
by the Jerry Shaw-Yau Chang 2000 Annuity Trust, 1,760,715 shares held by
the 1998 Vargo Family Trust, 588,235 shares held by Vargo Invesments,
L.P., 420,639 shares held by the Bersin Family Trust, 1,727,658 shares
held by The Goldman Sachs Group, Inc. and its affiliated entities and
4,558 shares held by Alice Wang.
18
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity
securities, to file with the SEC initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than ten percent stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with, except Mr. Wu
and Mr. Vargo timely reported all transactions but reported an incorrect
number of shares owned on the Initial Statement of Beneficial Ownership on
Form 3 due to a clerical error made in a previous year. These errors were
corrected by amending the Form 3s.
19
<PAGE>
EXECUTIVE COMPENSATION
Compensation of Directors
Directors who are also executive officers do not receive any additional
compensation for serving as members of the Board of Directors or any committee
of the Board of Directors. During the last fiscal year, non-employee directors
who joined the Board of Directors after our initial public offering received
an initial option to purchase 5,000 shares of Common Stock and all non-
employee directors who served during our last fiscal year received an option
to purchase 2,000 shares of Common Stock under our 1999 Non-Employee
Directors' Stock Option Plan at each regular meeting of the Board of
Directors, beginning with the third meeting after our initial public offering
or after the initial grant of 5,000 shares. The Board of Directors has
approved, subject to stockholders approval, increasing the initial option for
non-employee directors who join the Board of Directors after March 31, 2000,
to 35,000 shares of Common Stock, subject to monthly vesting over a two-year
period, and providing for annual grants of 15,000 shares of Common Stock to
all non-employee directors and a catch up grant for non-employee directors who
have served prior to March 31, 2000 also subject to monthly vesting over a
two-year period. This change in the non-employee director compensation is
discussed further in Proposal 2. The members of the Board of Directors are
also eligible for reimbursement for their expenses incurred in connection with
attendance at Board meetings in accordance with Company policy.
During the last fiscal year, the Company granted options covering 9,000
shares to the non-employee directors of the Company, at a weighted average
exercise price per share of $70.56. The fair market value of such Common Stock
on the date of grant was based on the closing sales price reported on the
Nasdaq National Market for the date of grant. As of April 10, 2000, no options
had been exercised under the Directors' Plan.
Executive Compensation
The following table sets forth information for the years ended December 31,
1998 and December 31, 1999, regarding the compensation of our chief executive
officer and each of our four most highly-compensated executive officers whose
salary and bonus for the years ended December 31, 1998 and December 31, 1999
were in excess of $100,000 on an annualized basis:
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
---------------------------------- ------------
Securities All Other
Name and Principal Other Annual Underlying Compensations
Position Year Salary Bonus($) Compensation (1) Options (#) ($)(2)
------------------ ---- -------- -------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Jerry Shaw-Yau Chang (3)
President and Chief 1999 $230,000 $105,000 $3,000 -- $4,320
Executive Officer...... 1998 100,000 -- -- -- --
Richard J. Heaps (4)
Chief Operating
Officer,
Chief Financial Officer
General Counsel and 1999 196,667 70,000 3,000 200,000 1,116
Secretary.............. 1998 67,500 6,160 -- 400,000 --
Michael F. Vargo........ 1999 160,000 32,500 3,000 -- 1,234
Chief Technology
Officer............... 1998 131,875 7,500 -- -- --
Mark E. McIlvane (5)
Vice President, 1999 278,969 12,500 8,200 -- 6,067
Worldwide Sales........ 1998 202,717 20,000 7,800 160,000 2,000
Mong Hong (Mahan) Wu
Vice President and
General................ 1999 153,841 35,000 -- -- --
Manager, Asia Pacific.. 1998 131,640 26,145 -- -- --
</TABLE>
20
<PAGE>
- --------
(1) Consists of reimbursement of automobile expenses.
(2) Consists of life insurance and, in the case of Messrs. Chang and Vargo,
long-term disability insurance premiums.
(3) Mr. Chang's bonus for the fiscal year ended December 31, 1999 was based
in part on fulfillment of certain performance milestones that could not
be determined before completion of the Company's fiscal year-end audit.
(4) Mr. Heaps started his employment with us in September 1998. Mr. Heaps
would have earned a salary of $180,000 for the fiscal year ended December
31, 1998 if he had been employed by us for the entire year.
(5) Mr. McIlvane's salary consists of a salary of $150,000 and sales
commissions of $52,717 for the fiscal year ended December 31, 1998 and a
salary of $162,500 and sales commissions of $116,469 for the fiscal year
ended December 31, 1999.
Stock Option Grants And Exercises
The following table sets forth certain information relating to stock options
awarded to each of the named executive officers during the fiscal year ended
December 31, 1999. All such options were awarded under the 1999 Amended and
Restated Equity Incentive Plan.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (2)
------------------------------------------- ------------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price Per Expiration
Granted in 1999 (1) Share Date 5% 10%
---------- ----------- --------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jerry Shaw-Yau Chang.... -- -- -- -- -- --
Richard J. Heaps........ 200,000 6.5% $5.00 03/08/09 $3,886,684 $6,781,227
Michael F. Vargo........ -- -- -- -- -- --
Mark E. McIlvane........ -- -- -- -- -- --
Mong Hong (Mahan) Wu.... -- -- -- -- -- --
</TABLE>
- --------
(1) The total number of options granted to our employees in fiscal year 1999
was 3,073,350.
(2) In order to comply with the rules of the Securities and Exchange
Commission, we are including the gains or "option spreads" that would
exist for the respective options we granted to the named executive
officers. We calculate these gains based upon the initial public offering
price of $15.00 per share appreciating at 5% and 10% compounded annually
from the date of the option grant until the termination date of the
option. These gains do not represent our estimate or projection of the
future Common Stock price.
21
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year, and FY-End Option/SAR
Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Underlying Unexercised the-
Shares Options/SARs at Money Options/SARs at
Acquired Value FY-End (#) FY-End ($)
on Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jerry Shaw-Yau Chang.... -- -- -- -- -- --
Richard J. Heaps........ 72,750 $5,610,844 102,249 425,001 $7,708,874 $32,105,282
Michael F. Vargo........ -- -- -- -- -- --
Mark E. McIlvane........ 40,625 3,162,656 363,750 95,625 28,286,177 7,425,276
Mong Hong (Mahan) Wu.... 128,336 9,990,958 23,333 186,667 1,816,474 14,532,025
</TABLE>
- --------
(1) The amount set forth represents the difference between the fair market
value of the underlying common stock as of December 31, 1999 ($77.875)
and the exercise price of the option, multiplied by the number of shares
underlying the option.
EMPLOYMENT SEVERANCE AND CHANGE OF CONTROL AGREEMENTS
In June 1997, we entered into an employment agreement with Mark E. McIlvane,
Senior Vice President, Worldwide Sales. The agreement was amended on June 1,
1998. The amended agreement provides for a starting annual base salary of
$150,000. Mr. McIlvane is also eligible to receive sales commissions. The
sales commissions are based upon the sales plan that sets out the quota
attainment standards and the associated percentage of revenue to be paid as
sales commissions. The sales plan's objectives include attaining revenue that
exceeds our business plan. Under the sales plan's provisions, commissions are
paid monthly based on product and service revenue. A higher commission
percentage can be earned if revenue exceeds quota targets. There is no limit
to the amount of commission that can be earned. The agreement also provides
Mr. McIlvane with incentive stock options to purchase an aggregate of 500,000
shares of Common Stock. Of those options, 40,000 shares vested immediately
upon the signing of the amendment to the employment agreement, 370,000 shares
are subject to time-based vesting over a four-year period and 90,000 shares
are subject to certain milestone-based vesting, but must vest by August 1,
2004. The agreement provides that Mr. McIlvane is employed "at-will," and the
employment relationship may be terminated for any reason at any time, but if
we terminate Mr. McIlvane's employment without cause, we must pay Mr. McIlvane
a severance payment equal to 100% of his annual salary.
In August 1998, we entered into an employment agreement with Richard J.
Heaps, Chief Operating Officer, Chief Financial Officer, General Counsel and
Secretary. The agreement provides for a starting annual base salary of
$180,000, which may be increased at the discretion of our Compensation
Committee. Mr. Heaps is also eligible to receive a $40,000 annual performance
bonus based on quarterly goals and objectives agreed upon by him and the chief
executive officer. The amount of the bonus will be reviewed and reset in each
subsequent year. The agreement also provides Mr. Heaps with an incentive stock
option to purchase 400,000 shares of Common Stock, which is subject to time-
based vesting over a four-year period. In the event Mr. Heaps is terminated
without cause or constructively terminated within 18 months of any change of
control, between 50% to 100% of the outstanding options then held by Mr. Heaps
will accelerate and vest, depending on how long Mr. Heaps had been employed
with us prior to termination. "Constructive termination" is defined in the
agreement as a voluntary termination of employment after his duties or
benefits are materially reduced. The agreement provides that Mr. Heaps is
employed "at-will," and the employment relationship may be terminated for any
reason at any time, but if we terminate Mr. Heaps' employment without cause or
if Mr. Heaps voluntarily terminates his employment after his duties or
benefits are materially reduced, we must pay Mr. Heaps a severance payment
equal to up to 100% of his annual salary, depending on the amount of time Mr.
Heaps has been employed by us.
22
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The material in this report and under the caption "Performance Measurement
Comparison" are not "soliciting material," are not deemed filed with the SEC
and are not to be incorporated by reference in any filing of the Company under
the Securities Act of 1933, as amended, or the Exchange Act of 1934, as
amended, whether made before or after the date of this Proxy Statement and
irrespective of any general incorporation language therein.
The Compensation Committee of the Board of Directors (the "Committee") is
composed of two non-employee directors. The Committee is responsible for
setting and administering the policies which govern annual executive salaries,
bonuses (if any) and stock ownership programs. The Committee annually
evaluates the performance and determines the compensation of the Chief
Executive Officer ("CEO") and the other executive officers of the Company
based upon a mix of the achievement of the corporate goals, individual
performance and comparisons with other telecommunications and technology
companies. The CEO is not present during the discussion of his compensation.
The policies of the Committee with respect to executive officers, including
the CEO, are to provide compensation sufficient to attract, motivate and
retain executives of outstanding ability and potential and to establish an
appropriate relationship between executive compensation and the creation of
stockholder value. To meet these goals, the Committee has adopted a mix among
the compensation elements of salary, bonus and stock options, with a bias
toward stock options to emphasize the link between executive incentives and
the creation of stockholder value as measured by the equity markets. In
general, the salaries and stock option awards of executive officers are not
determined by the Company's achievement of specific corporate performance
criteria. Instead the Committee determines the salaries for executive officers
based upon a review of salary surveys of other telecommunications and
technology companies performed for the Committee. To provide the Committee
with more information for making compensation comparisons, the Company
examines Radford Executive Compensation Report. Based upon this Report, the
executive officers' salaries are set in the mid-range as compared to other
technology companies. The executive officers' stock options are set in the mid
to high-range compared to other telecommunications and technology companies
based upon comparative analysis prepared by iQuantic after surveying more than
twenty telecommunications and technology companies at the request of the
Compensation Committee. In determining where a given officer's total
compensation, including the CEO's, is set within the ranges and in light of
the considerations described above, the Committee subjectively evaluates such
factors as the individual's performance and the profitability of the Company
as measured by earnings (or the reduction in losses) per share. Prior to the
formation of the Committee in April 1999, the full Board of Directors carried
the responsibilities of determining the executive compensation. In awarding
stock options prior to the formation of the Committee, the Board of Directors
considered individual performance, overall contribution to the Company,
officer retention, the number of unvested stock options and the total number
of stock options to be awarded.
Based on the reports and surveys of other telecommunications and technology
companies described above, bonuses are set in the mid-range compared to such
companies. However, payment of bonuses is also expressly linked to the
attainment of specified corporate goals which the Committee (or prior to the
formation of the Committee, the Board of Directors) sets at each year's
December meeting for the next year. Among other things, these goals determine
whether a bonus will be paid to all employees and the amount of funding
available for the bonus pool. For the bonus for services rendered in 1999, the
corporate performance goals, in order of importance, related to: (i) revenues;
(ii) completion of fund-raising activities; (iii) attainment of growth
objectives defined by hiring and expansion of operations. The Board of
Directors set the bonus for each executive officer based on the Board's or its
Committee's subjective evaluation of the individual's performance. The
Committee determined that the specified corporate goals were attained for
services rendered in 1999, based upon the Company's plans and objectives set
by the Board of Directors.
23
<PAGE>
The Committee uses the same procedures described above for the other
executive officers in setting the annual salary, bonus and stock option awards
for the CEO. The CEO's salary is determined based on comparisons with
telecommunications and technology companies as described above. In awarding
stock options, the Committee considers the CEO's performance, overall
contribution to the Company, retention, the number of unvested options and the
total number of options to be granted. Due to the CEO's current ownership
position in the Company arising from his status as a founder of the Company,
the CEO was not awarded stock options in 1999. The CEO's bonus is dependent on
the Company achieving the performance goals outlined above and the Committee's
subjective evaluation of the CEO's performance. As described above, in
determining where the CEO's total compensation is set within the ranges and in
light of the considerations described above, the Committee subjectively
evaluates such factors as the individual's performance and the profitability
of the Company as measured by earnings (or reduction in losses) per share.
Compared to other telecommunications and technology companies surveyed by the
Company, the CEO's salary is in the mid-range and his bonus is also in the
mid-range.
Section 162(m) of the Internal Revenue Code (the "Code") limits the Company
to a deduction for federal income tax purposes of no more than $1 million of
compensation paid to certain named executive officers in a taxable year.
Compensation above $1 million may be deducted if it is "performance-based
compensation" within the meaning of the Code. The Compensation Committee has
not yet established a policy for determining which forms of incentive
compensation awarded to its named executive officers shall be designed to
qualify as "performance-based compensation."
From the members of the Compensation Committee of the Company:
Wen Chang Ko
Syaru Shirley Lin
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of our compensation committee are Mr. Ko and Ms. Lin. None of
the members of the compensation committee of the Board of Directors is
currently or has been, at any time since our formation, one of our officers or
employees.
24
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON (1)
The following graph shows the total stockholder return of an investment of
$100 in cash on July 1, 1999 for (i) the Company's Common Stock, (ii) the
Standards & Poor's 500 Index (the "S&P 500") and (iii) the Standards & Poor
Technology Sector Index (the "S&P Tech."). All values assume reinvestment of
the full amount of all dividends and are calculated as of December 31 of each
year:
[PERFORMANCE GRAPH APPEARS HERE]
Cumulative Total Return
-----------------------
7/1/99 12/31/99
CLARENT CORPORATION 100.00 518.33
S & P 500 100.00 107.71
S & P TECHNOLOGY 100.00 140.36
- --------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the
Company under the 1933 Act or the 1934 Act whether made before or after
the date hereof and irrespective of any general incorporation language in
any such filing
25
<PAGE>
CERTAIN TRANSACTIONS
The Company has entered into indemnity agreements with all executive
officers and directors that provide, among other things, that the Company will
indemnify such executive officer or director, under the circumstances and to
the extent provided for therein, for expenses, damages, judgments, fines and
settlements she or he may be required to pay in actions or proceedings that
she or he is or may be made a party by reason of her or his position as a
director, executive officer or other agent of the Company, and otherwise to
the full extent permitted under Delaware law and the Company's Bylaws.
We believe that the foregoing transactions were in our best interest. As a
matter of policy the transactions were, and all future transactions between us
and any of our officers, directors or principal stockholders will be, approved
by a majority of the independent and disinterested members of the Board of
Directors, will be on terms no less favorable to us than could be obtained
from unaffiliated third parties and will be in connection with bona fide
business purposes.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/ Richard J. Heaps
-------------------------------------
Richard J. Heaps
Secretary
April 26, 2000
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended December 31, 1999 is
available without charge upon written request to: Corporate Secretary, Clarent
Corporation, 700 Chesapeake Drive, Redwood City, CA 94063.
26
<PAGE>
EXHIBIT A
Clarent Corporation
1999 Non-Employee Directors' Stock Option Plan
Adopted by the Board of Directors April 8, 1999
Approved by Stockholders June 22, 1999
Amended by the Board of Directors April 7, 2000
Approved by Stockholders , 2000
Effective Date: June 30, 1999
1. Purposes.
(a) Eligible Option Recipients. The persons eligible to receive Options are
the Non-Employee Directors of the Company.
(b) Available Options. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit
from increases in value of the Common Stock through the granting of
Nonstatutory Stock Options.
(c) General Purpose. The Company, by means of the Plan, seeks to retain the
services of its Non-Employee Directors, to secure and retain the
services of new Non-Employee Directors and to provide incentives for
such persons to exert maximum efforts for the success of the Company
and its Affiliates.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are
defined in Sections 424(e) and (f), respectively, of the Code.
(b) "Annual Grant" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria specified in subsection 6(b)
of the Plan.
(c) "Annual Meeting" means the annual meeting of the stockholders of the
Company.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Clarent Corporation, a Delaware corporation.
(h) "Consultant" means any person, including an advisor, (i) engaged by the
Company or an Affiliate to render consulting or advisory services and
who is compensated for such services or (ii) who is a member of the
Board of Directors of an Affiliate. However, the term "Consultant"
shall not include either Directors of the Company who are not
compensated by the Company for their services as Directors or Directors
of the Company who are merely paid a director's fee by the Company for
their services as Directors.
(i) "Continuous Service" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Optionholder's
Continuous Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Optionholder renders
service to the Company or an Affiliate as an Employee, Consultant
A-1
<PAGE>
or Director or a change in the entity for which the Optionholder renders
such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status
from a Non-Employee Director of the Company to a Consultant of an
Affiliate or an Employee of the Company will not constitute an
interruption of Continuous Service. The Board or the chief executive
officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave,
military leave or any other personal leave.
(j) "Director" means a member of the Board of Directors of the Company.
(k) "Disability" means the inability of a person, in the opinion of a
qualified physician acceptable to the Company, to perform the major
duties of that person's position with the Company or an Affiliate of
the Company because of the sickness or injury of the person.
(l) "Employee" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute
"employment" by the Company or an Affiliate.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
traded on the NASDAQ National Market System or the NASDAQ SmallCap
Market, the Fair Market Value of a share of Common Stock shall be
the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or market (or the
exchange or market with the greatest volume of trading in the Common
Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(o) "Initial Grant" means an Option granted to a Non-Employee Director who
meets the specified criteria pursuant to subsection 6(a) of the Plan.
(p) "IPO Date" means the effective date of the initial public offering of
the Common Stock.
(q) "Non-Employee Director" means a Director who is neither employed by the
Company or an Affiliate nor a representative of a five percent (5%) or
greater stockholder.
(r) "Nonstatutory Stock Option" means an Option not intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
(s) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "Option" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(u) "Option Agreement" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.
(v) "Optionholder" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding
Option.
A-2
<PAGE>
(w) "Plan" means this Clarent Corporation 1999 Non-Employee Directors'
Stock Option Plan.
(x) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(y) "Securities Act" means the Securities Act of 1933, as amended.
3. Administration.
(a) Administration by Board. The Board shall administer the Plan unless and
until the Board delegates administration to a committee.
(b) Powers of Board. The Board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:
(i) To determine the provisions of each Option to the extent not
specified in the Plan.
(ii) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may
correct any defect, omission or inconsistency in the Plan or in
any Option Agreement, in a manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of
the Company which are not in conflict with the provisions of the
Plan.
4. Shares Subject to the Plan.
(a) Share Reserve. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued
pursuant to Options shall not exceed in the aggregate Five Hundred
Thousand (500,000) shares of Common Stock.
(b) Reversion of Shares to the Share Reserve. If any Option shall for any
reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the stock not acquired under such Option
shall revert to and again become available for issuance under the Plan.
(c) Source of Shares. The stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.
5. Eligibility.
Nondiscretionary Options as set forth in section 6 shall be granted under
the Plan to all Non-Employee Directors.
6. Non-Discretionary Grants.
(a) Initial Grants. Without any further action of the Board, each Non-
Employee Director shall be granted the following Options:
(i) After March 31, 2000, each person who is elected or appointed for
the first time to be a Non-Employee Director automatically shall,
upon the date of his or her initial election or appointment to be a
Non-Employee Director by the Board or stockholders of the Company,
be granted an Initial Grant to purchase Thirty Five Thousand
(35,000) shares of Common stock on the terms and conditions set
forth herein.
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(ii) On the day following the first Annual Meeting after the IPO Date,
each person who is then a Non-Employee Director and who served as
a Non-Employee Director prior to March 31, 2000, automatically
shall be granted an Option to purchase that number of shares of
Common Stock equal to Thirty Five Thousand (35,000) shares of
Common Stock less the number of shares of Common Stock subject to
Options granted to such Non-Employee Director since the IPO Date.
(b) Annual Grants. Without any further action of the Board, on the day
following each Annual Meeting commencing with the first Annual Meeting
following the IPO Date, each person who is then a Non-Employee Director
automatically shall be granted an Annual Grant to purchase Fifteen
Thousand (15,000) shares of Common Stock on the terms and conditions
set forth herein; provided, however, that if the person has not been
serving as a Non-Employee Director for the entire period since the
preceding Annual Meeting, then the number of shares subject to the
Annual Grant shall be reduced pro rata for each full quarter prior to
the date of grant during which such person did not serve as a Non-
Employee Director.
7. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such
additional terms and conditions, not inconsistent with the Plan, as the
Board shall deem appropriate. Each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise)
the substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Exercise Price. The exercise price of each Option shall be one hundred
percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the
foregoing, an Option may be granted with an exercise price lower than
that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a
manner satisfying the provisions of Section 424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of (i) cash or check, (ii) delivery to
the Company of other Common Stock, (iii) deferred payment, (iv)
pursuant to a Regulation T Program if the Shares are publicly traded or
(v) any other form of legal consideration that may be acceptable to the
Board and provided in the Option Agreement; provided, however, that at
any time that the Company is incorporated in Delaware, payment of the
Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
(d) Transferability. An Option shall not be transferable other than to
"family members" as defined by Rule 701 of the Securities Act of 1933,
as amended, and by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the Optionholder only by
the Optionholder or such "family members" who are also transferees.
Notwithstanding the foregoing, the Optionholder may, by delivering
written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(e) Exercise Schedule. The Option shall be exercisable as the shares of
Common Stock subject to the Option vest.
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(f) Vesting Schedule. Options shall vest as follows: (i) one twenty-fourth
(1/24/th/) of the shares of Common Stock subject to the Option shall
vest each month after the date of the grant of the Option over a period
of two (2) years.
(g) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death
or Disability), the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise it as of the date
of termination) but only within such period of time ending on the
earlier of (i) the date twelve (12) months following the termination of
the Optionholder's Continuous Service, or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, after
termination, the Optionholder does not exercise his or her Option
within the time specified in the Option Agreement, the Option shall
terminate. For purposes of this Section 7(f), the limitations upon
exercise discussed herein shall also apply to permitted transferees
under Section 7(d).
(h) Extension of Termination Date. If the exercise of the Option following
the termination of the Optionholder's Continuous Service (other than
upon the Optionholder's death) would be prohibited at any time solely
because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate
on the earlier of (i) the expiration of the term of the Option set
forth in subsection 7(a) or (ii) the expiration of a period of three
(3) months after the termination of the Optionholder's Continuous
Service during which the exercise of the Option would not be in
violation of such registration requirements.
(i) Disability of Optionholder. In the event an Optionholder's Continuous
Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise it as of the date of
termination), but only within such period of time ending on the earlier
of (i) the date twelve (12) months following such termination or (ii)
the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise
his or her Option within the time specified herein, the Option shall
terminate. For purposes of this Section 7(h), the limitations upon
exercise discussed herein shall also apply to permitted transferees
under Section 7(d).
(j) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the three-month period after the termination
of the Optionholder's Continuous Service for a reason other than death,
then the Option may be exercised (to the extent the Optionholder was
entitled to exercise the Option as of the date of death) by the
Optionholder's estate, by a person who acquired the right to exercise
the Option by bequest or inheritance or by a person designated to
exercise the Option upon the Optionholder's death, but only within the
period ending on the earlier of (1) the date eighteen (18) months
following the date of death or (2) the expiration of the term of such
Option as set forth in the Option Agreement. If, after death, the
Option is not exercised within the time specified herein, the Option
shall terminate.
8. Covenants of the Company.
(a) Availability of Shares. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock
required to satisfy such Options.
(b) Securities Law Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell
shares of Common Stock upon exercise of the Options; provided, however,
that this undertaking shall not require the Company to register under
the Securities Act the Plan, any Option or any stock issued or issuable
pursuant to any such Option. If, after reasonable efforts, the Company
is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon
exercise of such Options unless and until such authority is obtained.
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9. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. Miscellaneous.
(a) Stockholder Rights. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any
shares subject to such Option unless and until such Optionholder has
satisfied all requirements for exercise of the Option pursuant to its
terms.
(b) No Service Rights. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder any
right to continue to serve the Company as a Non-Employee Director or
shall affect the right of the Company or an Affiliate to terminate (i)
the employment of an Employee with or without notice and with or
without cause, (ii) the service of a Consultant pursuant to the terms
of such Consultant's agreement with the Company or an Affiliate or
(iii) the service of a Director pursuant to the Bylaws of the Company
or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the
case may be.
(c) Investment Assurances. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to
give written assurances satisfactory to the Company as to the
Optionholder's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in
financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the
merits and risks of exercising the Option; and (ii) to give written
assurances satisfactory to the Company stating that the Optionholder is
acquiring the stock subject to the Option for the Optionholder's own
account and not with any present intention of selling or otherwise
distributing the stock. The foregoing requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (iii) the
issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective
registration statement under the Securities Act or (iv) as to any
particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances
under the then applicable securities laws. The Company may, upon advice
of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order
to comply with applicable securities laws, including, but not limited
to, legends restricting the transfer of the stock.
(d) Withholding Obligations. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in
addition to the Company's right to withhold from any compensation paid
to the Optionholder by the Company) or by a combination of such means:
(i) tendering a cash payment; (ii) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the
Optionholder as a result of the exercise or acquisition of stock under
the Option; or (iii) delivering to the Company owned and unencumbered
shares of the Common Stock.
11. Adjustments upon Changes in Stock.
(a) Capitalization Adjustments. If any change is made in the stock subject
to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend,
dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in
corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted
in the class(es) and maximum number of securities subject both to the
Plan pursuant to subsection 4(a) and to the nondiscretionary Options
specified in Section 6, and the
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outstanding Options will be appropriately adjusted in the class(es) and
number of securities and price per share of stock subject to such
outstanding Options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of
any convertible securities of the Company shall not be treated as a
transaction "without receipt of consideration" by the Company.)
(b) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then all outstanding Options
shall terminate immediately prior to such event.
(c) Change in Control--Asset Sale, Merger, Consolidation or Reverse
Merger. In the event of (i) a sale of all or substantially all of the
assets of the Company, (ii) a merger or consolidation in which the
Company is not the surviving corporation or (iii) a reverse merger in
which the Company is the surviving corporation but the shares of Common
Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then any surviving corporation or
acquiring corporation shall assume or continue any Options outstanding
under the Plan or shall substitute similar Options (including an option
to acquire the same consideration paid to the stockholders in the
transaction described in this subsection 11(c) for those outstanding
under the Plan. In the event any surviving corporation or acquiring
corporation refuses to assume or continue such Options or to substitute
similar Options for those outstanding under the Plan, then such Options
shall terminate if not exercised prior to such event.
(d) Change in Control--Securities Acquisition. In the event of an
acquisition by any person, entity or group within the meaning of
Section 13(d) or 14(d) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or an Affiliate) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act, or comparable successor rule) of securities of
the Company representing at least fifty percent (50%) of the combined
voting power entitled to vote in the election of Directors, then with
respect to Options held by Optionholders whose Continuous Service has
not terminated, the vesting of such Options shall be accelerated in
full.
12. Amendment of the Plan and Options.
(a) Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective
unless approved by the stockholders of the Company to the extent
stockholder approval is necessary to satisfy the requirements of Rule
16b-3 or any NASDAQ or securities exchange listing requirements.
(b) Stockholder Approval. The Board may, in its sole discretion, submit any
other amendment to the Plan for stockholder approval.
(c) No Impairment of Rights. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the
Plan unless (i) the Company requests the consent of the Optionholder
and (ii) the Optionholder consents in writing.
(d) Amendment of Options. The Board at any time, and from time to time, may
amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment
unless (i) the Company requests the consent of the Optionholder and
(ii) the Optionholder consents in writing.
13. Termination or Suspension of the Plan.
(a) Plan Term. The Board may suspend or terminate the Plan at any time. No
Options may be granted under the Plan while the Plan is suspended or
after it is terminated.
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(b) No Impairment of Rights. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the
Plan is in effect except with the written consent of the Optionholder.
14. Effective Date of Plan.
The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders
of the Company, which approval shall be within twelve (12) months before or
after the date the Plan is adopted by the Board.
15. Choice of Law.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
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EXHIBIT B
Clarent Corporation
1999 Amended and Restated Equity Incentive Plan
Adopted April 8, 1999
Approved By Stockholders June 22, 1999
Amended by Stockholder Approval on February 15, 2000
Amended by the Board of Directors April 7, 2000
Approved by Stockholders , 2000
Termination Date: April 7, 2009
This Clarent Corporation 1999 Amended and Restated Equity Incentive Plan
amends and restates, in its entirety, the Clarent Corporation 1996 Stock
Option Plan adopted October 11, 1996, and amended on May 29, 1997, May 29,
1998 and October 22, 1998.
1. Purposes.
(a) Eligible Stock Award Recipients. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and
its Affiliates.
(b) Available Stock Awards. The purpose of the Plan is to provide a means
by which selected Employees, Directors and Consultants may be given an
opportunity to benefit from increases in value of the Common Stock
through the granting of: (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) stock bonuses, (iv) rights to acquire restricted
stock and (v) Stock Appreciation Rights.
(c) General Purpose. The Company, by means of the Plan, seeks to retain the
services of persons who are now Employees, Directors or Consultants, to
secure and retain the services of new Employees, Directors and
Consultants and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are
defined in Sections 424(e) and (f), respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance with
subsection 3(c).
(e) "Common Stock" means the common stock of the Company.
(f) "Company" means Clarent Corporation, a California corporation.
(g) "Concurrent Stock Appreciation Right" or "Concurrent Right" means a
right granted pursuant to subsection 8(b)(ii) of the Plan.
(h) "Consultant" means any person, including an advisor, (1) engaged by the
Company or an Affiliate to render consulting or advisory services and
who is compensated for such services or (2) who is a member of the
Board of Directors of an Affiliate. However, the term "Consultant"
shall not include either Directors of the Company who are not
compensated by the Company for their services as Directors or Directors
of the Company who are merely paid a director's fee by the Company for
their services as Directors.
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(i) "Continuous Service" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Participant's
Continuous Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Participant renders
service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Participant renders
such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status
from an Employee of the Company to a Consultant of an Affiliate or a
Director of the Company will not constitute an interruption of
Continuous Service. The Board or the chief executive officer of the
Company, in that party's sole discretion, may determine whether
Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military
leave or any other personal leave.
(j) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the
Exchange Act, as determined for purposes of Section 162(m) of the Code.
(k) "Director" means a member of the Board.
(l) "Disability" means (i) before the Listing Date, the inability of a
person, in the opinion of a qualified physician acceptable to the
Company, to perform the major duties of that person's position with the
Company or an Affiliate of the Company because of the sickness or
injury of the person and (ii) after the Listing Date, the permanent and
total disability of a person within the meaning of Section 22(e)(3) of
the Code.
(m) "Employee" means any person employed by the Company or an Affiliate.
Neither service as a Director nor payment of a director's fee by the
Company or an Affiliate shall be sufficient to constitute "employment"
by the Company or an Affiliate.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
traded on the NASDAQ National Market System or the NASDAQ SmallCap
Market, the Fair Market Value of a share of Common Stock shall be
the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or market (or the
exchange or market with the greatest volume of trading in the
Common Stock) on the last market trading day prior to the time of
determination (which may be the same calendar day), as reported in
The Wall Street Journal or such other source as the Board deems
reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(iii) Prior to the Listing Date, the value of the Common Stock shall be
determined in a manner consistent with Section 260.140.50 of Title
10 of the California Code of Regulations.
(p) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
(q) "Independent Stock Appreciation Right" or "Independent Right" means a
right granted pursuant to subsection 8(b)(iii) of the Plan.
(r) "Listing Date" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on
any securities exchange or designated (or approved for designation)
upon notice of issuance as a national market security on an interdealer
quotation system if
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such securities exchange or interdealer quotation system has been
certified in accordance with the provisions of Section 25100(o) of the
California Corporate Securities Law of 1968.
(s) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from
the Company or its parent or a subsidiary for services rendered as a
consultant or in any capacity other than as a Director (except for an
amount as to which disclosure would not be required under Item 404(a)
of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a)
of Regulation S-K and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K;
or (ii) is otherwise considered a "non-employee director" for purposes
of Rule 16b-3.
(t) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(u) "Officer" means (i) before the Listing Date, any person designated by
the Company as an officer and (ii) on and after the Listing Date, a
person who is an officer of the Company within the meaning of Section
16 of the Exchange Act and the rules and regulations promulgated
thereunder.
(v) "Option" means an Incentive Stock Option or a Nonstatutory Stock Option
granted pursuant to the Plan.
(w) "Option Agreement" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.
(x) "Optionholder" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding
Option.
(y) "Outside Director" means a Director of the Company who either (i) is
not a current employee of the Company or an "affiliated corporation"
(within the meaning of Treasury Regulations promulgated under Section
162(m) of the Code), is not a former employee of the Company or an
"affiliated corporation" receiving compensation for prior services
(other than benefits under a tax qualified pension plan), was not an
officer of the Company or an "affiliated corporation" at any time and
is not currently receiving direct or indirect remuneration from the
Company or an "affiliated corporation" for services in any capacity
other than as a Director or (ii) is otherwise considered an "outside
director" for purposes of Section 162(m) of the Code.
(z) "Participant" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(aa) "Plan" means this Clarent Corporation 1999 Equity Incentive Plan.
(bb) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(cc) "Securities Act" means the Securities Act of 1933, as amended.
(dd) "Stock Appreciation Right" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(ee) "Stock Award" means any right granted under the Plan, including an
Option, a stock bonus, any right to acquire restricted stock and any
Stock Appreciation Right.
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(ff) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be
subject to the terms and conditions of the Plan.
(gg) "Tandem Stock Appreciation Right" or "Tandem Right" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
(hh) "Ten Percent Stockholder" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock
of the Company or of any of its Affiliates.
3. Administration.
(a) Administration by Board. The Board will administer the Plan unless and
until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) Powers of Board. The Board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; what type or combination of types of Stock
Award shall be granted; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a
person shall be permitted to receive stock pursuant to a Stock
Award; and the number of shares with respect to which a Stock Award
shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may
correct any defect, omission or inconsistency in the Plan or in
any Stock Award Agreement, in a manner and to the extent it shall
deem necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 13.
(iv) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests
of the Company which are not in conflict with the provisions of
the Plan.
(c) Delegation to Committee.
(i) General. The Board may delegate administration of the Plan to a
Committee or Committees of one or more members of the Board, and
the term "Committee" shall apply to any person or persons to whom
such authority has been delegated. If administration is delegated
to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the
Board, including the power to delegate to a subcommittee any of the
administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions,
not inconsistent with the provisions of the Plan, as may be adopted
from time to time by the Board. The Board may abolish the Committee
at any time and revest in the Board the administration of the Plan.
(ii) Committee Composition when Common Stock is Publicly Traded. At
such time as the Common Stock is publicly traded, in the
discretion of the Board, a Committee may consist solely of two or
more Outside Directors, in accordance with Section 162(m) of the
Code, and/or solely of two or more Non-Employee Directors, in
accordance with Rule 16b-3. Within the scope of such
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authority, the Board or the Committee may (i) delegate to a committee
of one or more members of the Board who are not Outside Directors,
the authority to grant Stock Awards to eligible persons who are
either (a) not then Covered Employees and are not expected to be
Covered Employees at the time of recognition of income resulting from
such Stock Award or (b) not persons with respect to whom the Company
wishes to comply with Section 162(m) of the Code and/or (ii) delegate
to a committee of one or more members of the Board who are not Non-
Employee Directors the authority to grant Stock Awards to eligible
persons who are not then subject to Section 16 of the Exchange Act.
4. Shares Subject to the Plan.
(a) Share Reserve. Subject to the provisions of Section 12 relating to
adjustments upon changes in stock, the stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate Sixteen
Million Seven Hundred Ninety Two Thousand Four Hundred Sixty Five
(16,792,465) shares of Common Stock, such number to be increased each
year on, respectively, January 31, 2001, January 31, 2002, January 31,
2003, and January 31, 2004, by that number of shares equal to two and
one-half percent (2.5%) of the Company's outstanding shares, measured
as of such date. Notwithstanding the foregoing (and subject to the
provisions of Section 12), the stock that may be issued pursuant to
Incentive Stock Options shall not exceed in the aggregate Sixteen
Million Seven Hundred Ninety Two Thousand Four Hundred Sixty Five
(16,792,465) shares of Common Stock, and the stock that may be issued
pursuant to stock bonuses or restricted stock agreements shall not
exceed thirty percent (30%) of the Share Reserve.
(b) Reversion of Shares to the Share Reserve. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full (or vested in the case of restricted
stock), the stock not acquired under such Stock Award shall revert to
and again become available for issuance under the Plan. If any Common
Stock acquired pursuant to the exercise of an Option shall for any
reason be repurchased by the Company under an unvested share repurchase
option provided under the Plan, the stock repurchased by the Company
under such repurchase option shall revert to and again become available
for issuance, pursuant to Stock Awards other than Incentive Stock
Options, under the Plan. Shares subject to Stock Appreciation Rights
exercised in accordance with Section 8 of the Plan shall not be
available for subsequent issuance under the Plan.
(c) Source of Shares. The stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.
(d) Share Reserve Limitation. Prior to the Listing Date, at no time shall
the total number of shares issuable upon exercise of all outstanding
Options and the total number of shares provided for under any stock
bonus or similar plan of the Company exceed the applicable percentage
as calculated in accordance with the conditions and exclusions of
Section 260.140.45 of Title 10 of the California Code of Regulations,
based on the shares of the Company which are outstanding at the time
the calculation is made.
5. Eligibility.
(a) Eligibility for Specific Stock Awards. Incentive Stock Options and
Stock Appreciation Rights appurtenant thereto may be granted only to
Employees. Stock Awards other than Incentive Stock Options and Stock
Appreciation Rights thereto may be granted to Employees, Directors and
Consultants.
(b) Ten Percent Stockholders. No Ten Percent Stockholder shall be eligible
for the grant of an Incentive Stock Option unless the exercise price of
such Option is at least one hundred ten percent (110%) of the Fair
Market Value of the Common Stock at the date of grant and the Option is
not exercisable after the expiration of five (5) years from the date of
grant.
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Prior to the Listing Date, no Ten Percent Stockholder shall be eligible
for the grant of a Nonstatutory Stock Option unless the exercise price
of such Option is at least one hundred ten percent (110%) of the Fair
Market Value of the Common Stock at the date of grant.
Prior to the Listing Date, no Ten Percent Stockholder shall be eligible
for a restricted stock award unless the purchase price of the
restricted stock is at least one hundred percent (100%) of the Fair
Market Value of the Common Stock at the date of grant.
(c) Section 162(m) Limitation. Subject to the provisions of Section 12
relating to adjustments upon changes in stock, no employee shall be
eligible to be granted Options and Stock Appreciation Rights covering
more than seven hundred twenty thousand (720,000) shares of the Common
Stock during any calendar year. This subsection 5(c) shall not apply
prior to the Listing Date and, following the Listing Date, this
subsection 5(c) shall not apply until (i) the earliest of: (1) the
first material modification of the Plan (including any increase in the
number of shares reserved for issuance under the Plan in accordance
with Section 4); (2) the issuance of all of the shares of Common Stock
reserved for issuance under the Plan; (3) the expiration of the Plan;
or (4) the first meeting of stockholders at which Directors of the
Company are to be elected that occurs after the close of the third
calendar year following the calendar year in which occurred the first
registration of an equity security under Section 12 of the Exchange
Act; or (ii) such other date required by Section 162(m) of the Code and
the rules and regulations promulgated thereunder.
(d) Consultants.
(i) Prior to the Listing Date, a Consultant shall not be eligible for
the grant of a Stock Award if, at the time of grant, either the
offer or the sale of the Company's securities to such Consultant is
not exempt under Rule 701 of the Securities Act ("Rule 701")
because of the nature of the services that the Consultant is
providing to the Company, or because the Consultant is not a
natural person, or as otherwise provided by Rule 701, unless the
Company determines that such grant need not comply with the
requirements of Rule 701 and will satisfy another exemption under
the Securities Act as well as comply with the securities laws of
all other relevant jurisdictions.
(ii) From and after the Listing Date, a Consultant shall not be
eligible for the grant of a Stock Award if, at the time of grant,
a Form S-8 Registration Statement under the Securities Act ("Form
S-8") is not available to register either the offer or the sale of
the Company's securities to such Consultant because of the nature
of the services that the Consultant is providing to the Company,
or because the Consultant is not a natural person, or as otherwise
provided by the rules governing the use of Form S-8, unless the
Company determines both (i) that such grant (A) shall be
registered in another manner under the Securities Act (e.g., on a
Form S-3 Registration Statement) or (B) does not require
registration under the Securities Act in order to comply with the
requirements of the Securities Act, if applicable, and (ii) that
such grant complies with the securities laws of all other relevant
jurisdictions.
(iii) As of April 7, 1999 Rule 701 and Form S-8 generally are available
to consultants and advisors only if (i) they are natural persons;
(ii) they provide bona fide services to the issuer, its parents,
its majority-owned subsidiaries or majority-owned subsidiaries of
the issuer's parent; and (iii) the services are not in connection
with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or
maintain a market for the issuer's securities.
6. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option. The
provisions of separate Options need not be identical, but each Option
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shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(a) Term. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable
after the expiration of ten (10) years from the date it was granted.
(b) Exercise Price of an Incentive Stock Option. Subject to the provisions
of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred
percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the
foregoing, an Incentive Stock Option may be granted with an exercise
price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) Exercise Price of a Nonstatutory Stock Option. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the
exercise price of each Nonstatutory Stock Option granted prior to the
Listing Date shall be not less than one hundred percent (100%) of the
Fair Market Value of the stock subject to the Option on the date the
Option is granted. The exercise price of each Nonstatutory Stock Option
granted on or after the Listing Date shall be not less than one hundred
percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the
foregoing, a Nonstatutory Stock Option may be granted with an exercise
price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the
Code.
(d) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes
and regulations, either (i) in cash at the time the Option is exercised
or (ii) at the discretion of the Board at the time of the grant of the
Option (or subsequently in the case of a Nonstatutory Stock Option) by
delivery to the Company of other Common Stock, according to a deferred
payment or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other Common Stock) with the
Participant or in any other form of legal consideration that may be
acceptable to the Board; provided, however, that at any time that the
Company is incorporated in Delaware, payment of the Common Stock's "par
value," as defined in the Delaware General Corporation Law, shall not
be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate
of interest necessary to avoid the treatment as interest, under any
applicable provisions of the Code, of any amounts other than amounts
stated to be interest under the deferred payment arrangement.
(e) Transferability of an Incentive Stock Option. An Incentive Stock Option
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. Notwithstanding the foregoing
provisions of this subsection 6(e), the Optionholder may, by delivering
written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) Transferability of a Nonstatutory Stock Option. Except to the extent
permitted by law, a Nonstatutory Stock Option granted prior to the
Listing Date shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime
of the Optionholder only by the Optionholder. A Nonstatutory Stock
Option granted on or after the Listing Date shall be transferable to
the extent provided in the Option Agreement. If the Nonstatutory Stock
Option does not provide for transferability, then the Nonstatutory
Stock Option shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime
of the Optionholder only
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by the Optionholder. Notwithstanding the foregoing provisions of this
subsection 6(f), the Optionholder may, by delivering written notice to
the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall
thereafter be entitled to exercise the Option.
(g) Vesting Generally. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable
in periodic installments which may, but need not, be equal. The Option
may be subject to such other terms and conditions on the time or times
when it may be exercised (which may be based on performance or other
criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary. The provisions of this subsection 6(g) are
subject to any Option provisions governing the minimum number of shares
as to which an Option may be exercised.
(h) Minimum Vesting Prior to the Listing Date. Notwithstanding the
foregoing subsection 6(g), Options granted prior to the Listing Date
shall provide for vesting of the total number of shares at a rate of at
least twenty percent (20%) per year over five (5) years from the date
the Option was granted, subject to reasonable conditions such as
continued employment. However, in the case of such Options granted to
Officers, Directors or Consultants, the Option may become fully
exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established by the
Company; for example, the vesting provision of the Option may provide
for vesting of less than twenty percent (20%) per year of the total
number of shares subject to the Option.
(i) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death
or Disability), the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise it as of the date
of termination) but only within such period of time ending on the
earlier of (i) the date three (3) months following the termination of
the Optionholder's Continuous Service (or such longer or shorter period
specified in the Option Agreement, which, for Options granted prior to
the Listing Date, shall not be less than thirty (30) days, unless such
termination is for cause) or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time
specified in the Option Agreement, the Option shall terminate.
(j) Extension of Termination Date. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the
termination of the Optionholder's Continuous Service (other than upon
the Optionholder's death or Disability) would be prohibited at any time
solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate
on the earlier of (i) the expiration of the term of the Option set
forth in subsection 6(a) or (ii) the expiration of a period of three
(3) months after the termination of the Optionholder's Continuous
Service during which the exercise of the Option would not be in
violation of such registration requirements.
(k) Disability of Optionholder. In the event an Optionholder's Continuous
Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise it as of the date of
termination), but only within such period of time ending on the earlier
of (i) the date twelve (12) months following such termination (or such
longer or shorter period specified in the Option Agreement, which, for
Options granted prior to the Listing Date, shall not be less than six
(6) months) or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder
does not exercise his or her Option within the time specified herein,
the Option shall terminate.
(l) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous
Service for a reason other
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than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise the Option as of the date of
death) by the Optionholder's estate, by a person who acquired the right
to exercise the Option by bequest or inheritance or by a person
designated to exercise the option upon the Optionholder's death pursuant
to subsection 6(e) or 6(f), but only within the period ending on the
earlier of (1) the date eighteen (18) months following the date of death
(or such longer or shorter period specified in the Option Agreement,
which, for Options granted prior to the Listing Date, shall not be less
than six (6) months) or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate.
(m) Early Exercise. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the
Optionholder's Continuous Service terminates to exercise the Option as
to any part or all of the shares subject to the Option prior to the
full vesting of the Option. Subject to the "Repurchase Limitation" in
subsection 11(h), any unvested shares so purchased may be subject to an
unvested share repurchase option in favor of the Company or to any
other restriction the Board determines to be appropriate.
(n) Right of Repurchase. Subject to the "Repurchase Limitation" in
subsection 11(h), the Option may, but need not, include a provision
whereby the Company may elect, prior to the Listing Date, to repurchase
all or any part of the vested shares acquired by the Optionholder
pursuant to the exercise of the Option.
(o) Right of First Refusal. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to
exercise a right of first refusal following receipt of notice from the
Optionholder of the intent to transfer all or any part of the shares
exercised pursuant to the Option. Except as expressly provided in this
subsection 6(o), such right of first refusal shall otherwise comply
with any applicable provisions of the Bylaws of the Company.
(p) Re-Load Options. Without in any way limiting the authority of the Board
to make or not to make grants of Options hereunder, the Board shall
have the authority (but not an obligation) to include as part of any
Option Agreement a provision entitling the Optionholder to a further
Option (a "Re-Load Option") in the event the Optionholder exercises the
Option evidenced by the Option Agreement, in whole or in part. Any such
Re-Load Option shall (i) provide for a number of shares equal to the
number of shares acquired upon exercise of such Option; (ii) have an
expiration date which is the same as the expiration date of the Option
the exercise of which gave rise to such Re-Load Option; and (iii) have
an exercise price which is equal to one hundred percent (100%) of the
Fair Market Value of the Common Stock subject to the Re-Load Option on
the date of exercise of the original Option. Notwithstanding the
foregoing, a Re-Load Option shall be subject to the same exercise price
and term provisions heretofore described for Options under the Plan,
including the provisions of Section 5(b) applicable to Ten Percent
Stockholders.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the
grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the
one hundred thousand dollars ($100,000) annual limitation on
exercisability of Incentive Stock Options described in subsection 11(d)
and in Section 422(d) of the Code. There shall be no Re-Load Options on
a Re-Load Option. Any such Re-Load Option shall be subject to the
availability of sufficient shares under subsection 4(a) and the "Section
162(m) Limitation" on the grants of Options under subsection 5(c) and
shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the
Plan regarding the terms of Options.
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7. Provisions of Stock Awards other than Options.
(a) Stock Bonus Awards. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may
change from time to time, and the terms and conditions of separate
stock bonus agreements need not be identical, but each stock bonus
agreement shall include (through incorporation of provisions hereof by
reference in the agreement or otherwise) the substance of each of the
following provisions:
(i) Consideration. A stock bonus shall be awarded in consideration for
past services actually rendered to the Company for its benefit.
(ii) Vesting. Subject to the "Repurchase Limitation" in subsection
11(h), shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase
option in favor of the Company in accordance with a vesting
schedule to be determined by the Board.
(iii) Termination of Participant's Continuous Service. Subject to the
"Repurchase Limitation" in subsection 11(h), in the event a
Participant's Continuous Service terminates, the Company may
reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination
under the terms of the stock bonus agreement.
(iv) Transferability. Shares of Common Stock granted pursuant to a
stock bonus agreement shall not be transferable prior to the time
they become vested.
(b) Restricted Stock Awards. Each restricted stock purchase agreement shall
be in such form and shall contain such terms and conditions as the
Board shall deem appropriate. The terms and conditions of the
restricted stock purchase agreements may change from time to time, and
the terms and conditions of separate restricted stock purchase
agreements need not be identical, but each restricted stock purchase
agreement shall include (through incorporation of provisions hereof by
reference in the agreement or otherwise) the substance of each of the
following provisions:
(i) Purchase Price. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, the purchase price under each
restricted stock purchase agreement shall be such amount as the
Board shall determine and designate in such restricted stock
purchase agreement. For restricted stock awards made prior to the
Listing Date, the purchase price shall not be less than one hundred
percent (100%) of the stock's Fair Market Value on the date such
award is made or at the time the purchase is consummated. For
restricted stock awards made on or after the Listing Date, the
purchase price shall not be less than eighty-five percent (85%) of
the stock's Fair Market Value on the date such award is made or at
the time the purchase is consummated.
(ii) Consideration. The purchase price of stock acquired pursuant to
the restricted stock purchase agreement shall be paid either: (i)
in cash at the time of purchase; (ii) at the discretion of the
Board, according to a deferred payment or other arrangement with
the Participant; or (iii) in any other form of legal consideration
that may be acceptable to the Board in its discretion; provided,
however, that at any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in
the Delaware General Corporation Law, shall not be made by
deferred payment.
(iii) Vesting. Subject to the "Repurchase Limitation" in subsection
11(h), shares of Common Stock acquired under the restricted stock
purchase agreement may, but need not, be subject to a share
repurchase option in favor of the Company in accordance with a
vesting schedule to be determined by the Board.
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(iv) Termination of Participant's Continuous Service. Subject to the
"Repurchase Limitation" in subsection 11(h), in the event a
Participant's Continuous Service terminates, the Company may
repurchase or otherwise reacquire any or all of the shares of
Common Stock held by the Participant which have not vested as of
the date of termination under the terms of the restricted stock
purchase agreement.
(v) Transferability. Except to the extent permitted by law, for a
restricted stock award made before the Listing Date, rights to
acquire shares under the restricted stock purchase agreement shall
not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the
Participant only by the Participant. For a restricted stock award
made on or after the Listing Date, rights to acquire shares under
the restricted stock purchase agreement shall be transferable by
the Participant only upon such terms and conditions as are set
forth in the restricted stock purchase agreement, as the Board
shall determine in its discretion, so long as stock awarded under
the restricted stock purchase agreement remains subject to the
terms of the restricted stock purchase agreement.
8. Stock Appreciation Rights.
(a) The Board or Committee shall have full power and authority, exercisable
in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the
holder must provide written notice of exercise to the Company in
compliance with the provisions of the Stock Award Agreement evidencing
such right. Except as provided in subsection 5(c), no limitation shall
exist on the aggregate amount of cash payments the Company may make
under the Plan in connection with the exercise of a Stock Appreciation
Right.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(i) Tandem Stock Appreciation Rights. Tandem Stock Appreciation Rights
will be granted appurtenant to an Option (other than an Incentive
Stock Option), and shall, except as specifically set forth in this
Section 8, be subject to the same terms and conditions applicable
to the particular Option grant to which it pertains. Tandem Stock
Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the
surrender, in whole or in part, of such Option for an appreciation
distribution. The appreciation distribution payable on the
exercised Tandem Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on
the date of the Option surrender) in an amount up to the excess of
(A) the Fair Market Value (on the date of the Option surrender) of
the number of shares of stock covered by that portion of the
surrendered Option in which the Optionholder is vested over (B) the
aggregate exercise price payable for such vested shares.
(ii) Concurrent Stock Appreciation Rights. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any
portion of the shares of stock subject to the underlying Option
and shall, except as specifically set forth in this Section 8, be
subject to the same terms and conditions applicable to the
particular Option grant to which it pertains. A Concurrent Right
shall be exercised automatically at the same time the underlying
Option is exercised with respect to the particular shares of stock
to which the Concurrent Right pertains. The appreciation
distribution payable on an exercised Concurrent Right shall be in
cash (or, if so provided, in an equivalent number of shares of
stock based on Fair Market Value on the date of the exercise of
the Concurrent Right) in an amount equal to such portion as shall
be determined by the Board or the Committee at the time of the
grant of the excess of (A) the aggregate Fair Market Value (on the
date of the exercise of the Concurrent Right) of the vested shares
of stock purchased under the underlying Option which have
Concurrent Rights appurtenant to them over (B) the aggregate
exercise price paid for such shares.
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(iii) Independent Stock Appreciation Rights. Independent Rights will be
granted independently of any Option and shall, except as
specifically set forth in this Section 8, be subject to the same
terms and conditions applicable to Nonstatutory Stock Options as
set forth in Section 6. They shall be denominated in share
equivalents. The appreciation distribution payable on the
exercised Independent Right shall be not greater than an amount
equal to the excess of (A) the aggregate Fair Market Value (on
the date of the exercise of the Independent Right) of a number of
shares of Company stock equal to the number of share equivalents
in which the holder is vested under such Independent Right, and
with respect to which the holder is exercising the Independent
Right on such date, over (B) the aggregate Fair Market Value (on
the date of the grant of the Independent Right) of such number of
shares of Company stock. The appreciation distribution payable on
the exercised Independent Right shall be in cash or, if so
provided, in an equivalent number of shares of stock based on
Fair Market Value on the date of the exercise of the Independent
Right.
9. Covenants of the Company.
(a) Availability of Shares. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of
Common Stock required to satisfy such Stock Awards.
(b) Securities Law Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and
sell shares of Common Stock upon exercise of the Stock Awards;
provided, however, that this undertaking shall not require the Company
to register under the Securities Act the Plan, any Stock Award or any
stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under
the Plan, the Company shall be relieved from any liability for failure
to issue and sell stock upon exercise of such Stock Awards unless and
until such authority is obtained.
10. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
11. Miscellaneous.
(a) Acceleration of Exercisability and Vesting. The Board shall have the
power to accelerate the time at which a Stock Award may first be
exercised and/or the time during which a Stock Award or any part
thereof will vest in accordance with the Plan, notwithstanding the
provisions in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.
(b) Stockholder Rights. No Participant shall be deemed to be the holder of,
or to have any of the rights of a holder with respect to, any shares
subject to an Option unless and until such Participant has satisfied
all requirements for exercise of the Option pursuant to its terms.
(c) No Employment or Other Service Rights. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall
confer upon any Participant or other holder of Stock Awards any right
to continue to serve the Company or an Affiliate in the capacity in
effect at the time the Stock Award was granted or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of
an Employee with or without notice and with or without cause, for any
reason, (ii) the service of a Consultant pursuant to the terms of such
Consultant's agreement with the Company or an Affiliate or (iii) the
service of a Director pursuant to the Bylaws of the Company or an
Affiliate, and any applicable provisions of the corporate law of the
state in which the Company or the Affiliate is incorporated, as the
case may be.
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(d) Incentive Stock Option $100,000 Limitation. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock
with respect to which Incentive Stock Options are exercisable for the
first time by any Optionholder during any calendar year (under all
plans of the Company and its Affiliates) exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such
limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
(e) Investment Assurances. The Company may require a Participant, as a
condition of exercising or acquiring stock under any Stock Award, (i)
to give written assurances satisfactory to the Company as to the
Participant's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in
financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the
merits and risks of exercising the Stock Award; and (ii) to give
written assurances satisfactory to the Company stating that the
Participant is acquiring the stock subject to the Stock Award for the
Participant's own account and not with any present intention of selling
or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise or
acquisition of stock under the Stock Award has been registered under a
then currently effective registration statement under the Securities
Act or (ii) as to any particular requirement, a determination is made
by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company
may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the
stock.
(f) Withholding Obligations. To the extent provided by the terms of a Stock
Award Agreement, the Participant may satisfy any federal, state or
local tax withholding obligation relating to the exercise or
acquisition of stock under a Stock Award by any of the following means
(in addition to the Company's right to withhold from any compensation
paid to the Participant by the Company) or by a combination of such
means: (i) tendering a cash payment; (ii) authorizing the Company to
withhold shares from the shares of the Common Stock otherwise issuable
to the Participant as a result of the exercise or acquisition of stock
under the Stock Award; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.
(g) Information Obligation. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to
Participants at least annually. This subsection 11(g) shall not apply
to key Employees whose duties in connection with the Company assure
them access to equivalent information.
(h) Repurchase Limitation. The terms of any repurchase option shall be
specified in the Stock Award and may be either at Fair Market Value at
the time of repurchase or at not less than the original purchase price.
To the extent required by Section 260.140.41 and Section 260.140.42 of
Title 10 of the California Code of Regulations, any repurchase option
contained in a Stock Award granted prior to the Listing Date to a
person who is not an Officer, Director or Consultant shall be upon the
terms described below:
(i) Fair Market Value. If the repurchase option gives the Company the
right to repurchase the shares upon termination of employment at
not less than the Fair Market Value of the shares to be purchased
on the date of termination of Continuous Service, then (i) the
right to repurchase shall be exercised for cash or cancellation of
purchase money indebtedness for all but not less than all of the
shares within ninety (90) days of termination of Continuous Service
(or in the case of shares issued upon exercise of Stock Awards
after such date of termination, within ninety (90) days after the
date of the exercise) or such longer period as may be agreed to by
the Company and the
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Participant (for example, for purposes of satisfying the requirements
of Section 1202(c)(3) of the Code regarding "qualified small business
stock") and (ii) the right terminates when the shares become publicly
traded.
(ii) Original Purchase Price. If the repurchase option gives the Company
the right to repurchase the shares upon termination of Continuous
Service at the original purchase price, then (i) the right to
repurchase at the original purchase price shall lapse at the rate
of at least twenty percent (20%) of the shares per year over five
(5) years from the date the Stock Award is granted (without respect
to the date the Stock Award was exercised or became exercisable)
and (ii) the right to repurchase shall be exercised for cash or
cancellation of purchase money indebtedness for all but not less
than all of the shares within ninety (90) days of termination of
Continuous Service (or in the case of shares issued upon exercise
of Options after such date of termination, within ninety (90) days
after the date of the exercise) or such longer period as may be
agreed to by the Company and the Participant (for example, for
purposes of satisfying the requirements of Section 1202(c)(3) of
the Code regarding "qualified small business stock").
12. Adjustments upon Changes in Stock.
(a) Capitalization Adjustments to Stock Subject to the Plan. If any change
is made in the stock subject to the Plan due to a change in corporate
capitalization and without the receipt of consideration by the Company
(through reincorporation, stock dividend, stock split, reverse stock
split, combination or reclassification of shares), the Plan will be
appropriately adjusted in the class(es) and maximum number of
securities subject to the Plan pursuant to subsection 4(a). Such
adjustments shall be made by the Board, the determination of which
shall be final, binding and conclusive.
(b) Capitalization and Transaction Adjustments to Outstanding Stock
Awards. If any change is made in the stock subject to any outstanding
Stock Award without the receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, separation, stock dividend, dividend in property other
than cash, stock split, reverse stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of
consideration by the Company), such outstanding Stock Awards shall be
appropriately adjusted in the classes and number of securities and
price per share of stock subject to such outstanding Stock Awards. Such
adjustments shall be made by the Board, the determination of which
shall be final, binding and conclusive.
(c) Capitalization and Transaction Adjustments (Section 162(m)). If any
change is made in the stock subject to the Plan, or subject to any
Stock Award, without the receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, separation, stock dividend, dividend in property other
than cash, stock split, reverse stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted
in the maximum number of securities subject to award to any person
pursuant to subsection 5(c). (The conversion of any convertible
securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.) Such adjustments
shall be made by the Board, the determination of which shall be final,
binding and conclusive.
(d) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then such Stock Awards shall
be terminated if not exercised (if applicable) prior to such event.
(e) Change in Control--Asset Sale, Merger, Consolidation or Reverse
Merger. In the event of (1) a sale of all or substantially all of the
assets of the Company, (2) a merger or consolidation in which the
Company is not the surviving corporation or (3) a reverse merger in
which the Company is the
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surviving corporation but the shares of Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger
into other property, whether in the form of securities, cash or
otherwise, then any surviving corporation or acquiring corporation shall
assume or continue any Stock Awards outstanding under the Plan or shall
substitute similar stock awards (including an award to acquire the same
consideration paid to the stockholders in the transaction described in
this subsection 12(e) for those outstanding under the Plan. In the event
any surviving corporation or acquiring corporation refuses to assume or
continue such Stock Awards or to substitute similar stock awards for
those outstanding under the Plan, then with respect to Stock Awards held
by Participants whose Continuous Service has not terminated, the vesting
of such Stock Awards (and, if applicable, the time during which such
Stock Awards may be exercised) shall be accelerated in full prior to
such event, and the Stock Awards shall terminate if not exercised (if
applicable) at or prior to such event. With respect to any other Stock
Awards outstanding under the Plan, such Stock Awards shall terminate if
not exercised (if applicable) prior to such event.
(f) Change in Control--Securities Acquisition. After the Listing Date, in
the event of an acquisition by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the Exchange Act, or any
comparable successor provisions (excluding any employee benefit plan,
or related trust, sponsored or maintained by the Company or an
Affiliate) of the beneficial ownership (within the meaning of Rule 13d-
3 promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of
the combined voting power entitled to vote in the election of
Directors, then with respect to Stock Awards held by Participants whose
Continuous Service has not terminated, the vesting of such Stock Awards
(and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full.
13. Amendment of the Plan and Stock Awards.
(a) Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 12 relating to
adjustments upon changes in stock, no amendment shall be effective
unless approved by the stockholders of the Company to the extent
stockholder approval is necessary to satisfy the requirements of
Section 422 of the Code, Rule 16b-3 or any NASDAQ or securities
exchange listing requirements.
(b) Stockholder Approval. The Board may, in its sole discretion, submit any
other amendment to the Plan for stockholder approval, including, but
not limited to, amendments to the Plan intended to satisfy the
requirements of Section 162(m) of the Code and the regulations
thereunder regarding the exclusion of performance-based compensation
from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) Contemplated Amendments. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or
advisable to provide eligible Employees with the maximum benefits
provided or to be provided under the provisions of the Code and the
regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under
it into compliance therewith.
(d) No Impairment of Rights. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the
Plan unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
(e) Amendment of Stock Awards. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided,
however, that the rights under any Stock Award shall not be impaired by
any such amendment unless (i) the Company requests the consent of the
Participant and (ii) the Participant consents in writing.
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14. Termination or Suspension of the Plan.
(a) Plan Term. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before
the tenth (10th) anniversary of the date the Plan is adopted by the
Board or approved by the stockholders of the Company, whichever is
earlier. No Stock Awards may be granted under the Plan while the Plan
is suspended or after it is terminated. Notwithstanding the foregoing,
all Incentive Stock Options shall be granted, if at all, no later than
the last day preceding the tenth (10th) anniversary of the earlier of
(i) the date on which the latest increase in the maximum number of
shares issuable under the Plan was approved by the stockholders of the
Company or (ii) the date such amendment was adopted by the Board.
(b) No Impairment of Rights. Rights and obligations under any Stock Award
granted while the Plan is in effect shall not be impaired by suspension
or termination of the Plan, except with the written consent of the
Participant.
15. Effective Date of Plan.
The Plan shall become effective as of the date on which it is adopted by
the Board, but no Stock Award shall be exercised (or, in the case of a
stock bonus, shall be granted) unless and until the Plan has been approved
by the stockholders of the Company, which approval shall be within twelve
(12) months before or after the date the Plan is adopted by the Board.
16. Choice of Law.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
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Annex A
Form of Proxy
Clarent Corporation
Proxy Solicited By The Board Of Directors for The Annual Meeting Of Stockholders
To Be Held On June 7, 2000
The undersigned hereby appoints Jerry Shaw-Yau Chang and Richard J. Heaps
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of Clarent Corporation,
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of Clarent Corporation to be held at the Marriott Hotel, 1770 South
Amphlett Blvd., San Mateo California 94402 on Wednesday, June 7, 2000 at
11:00 a.m. (local time), and at any and all postponements, continuations and
adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
Unless A Contrary Direction Is Indicated, This Proxy Will Be Voted For
Proposal 1, For Proposal 2, Proposal 3 And Proposal 4, As More Specifically
Described In The Proxy Statement. If Specific Instructions Are Indicated,
This Proxy Will Be Voted In Accordance Therewith.
(Continued and to be signed on other side)
Fold And Detach Here
<PAGE>
Please mark [_]
your vote
as indicated
The Board Of Directors Recommends A Vote For Proposal 1.
Proposal 1: To elect one director to hold office until the 2003 Annual Meeting
of Stockholders
[_] For [_] Against [_] Abstain
The Board Of Directors Recommends A Vote For Proposal 2.
Proposal 2: To approve amendment of the Company's 1999 Non-Employee Directors'
Stock Option Plan to (i) increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 200,000 shares, from 300,000 shares
to 500,000 shares and (ii) provide for a change in the number of shares granted
under and the vesting provisions of grants available under the plan.
[_] For [_] Against [_] Abstain
Proposal 3: To approve an amendment to the Company's 1999 Amended and Restated
Equity Incentive Plan to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 2,000,000 shares, from 14,792,465
shares to 16,792,465 shares.
[_] For [_] Against [_] Abstain
Proposal 4: To ratify the selection of Ernst & Young LLP as independent auditors
of the Company for its fiscal year ending December 31, 2000.
[_] For [_] Against [_] Abstain
Please Vote, Date And Promptly Return This Proxy In The Enclosed Return Envelope
Which Is Postage Prepaid If Mailed In The United States.
Dated , 2000
-------------- -----------------------------------------------
Signature(s)
Please sign exactly as your name appears hereon. If the stock is
registered in the names of two or more persons, each should sign.
Executors, administrators, trustees, guardians and attorneys-in-
fact should add their titles. If signer is a corporation, please
give full corporate name and have a duly authorized officer sign,
stating title. If signer is a partnership, please sign in
partnership name by authorized person.
