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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
STAMPS.COM INC.
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(Name of Registrant as Specified In Its Charter)
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(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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Notes:
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[LOGO OF STAMPS.COM]
Dear Stockholder:
You are cordially invited to attend the 2000 Annual Meeting of Stockholders
(the "Annual Meeting") of Stamps.com Inc. (the "Company") to be held at 2:00
p.m. Pacific Daylight Savings Time on Tuesday, June 13, 2000 at the DC3 Museum
of Flying, 2800 Donald Douglas Loop North, Santa Monica, California 90405.
At the Annual Meeting, the stockholders will be asked to elect four
directors, approve an amendment to the Company's 1999 Stock Incentive Plan and
ratify the selection of the Company's auditors for 2000. The accompanying
Notice of 2000 Annual Meeting of Stockholders and Proxy Statement describe the
matters to be presented at the Annual Meeting.
The Board of Directors unanimously recommends that stockholders vote in
favor of the election of the nominated directors, the amendment to the
Company's 1999 Stock Incentive Plan and the ratification of the Company's
auditors.
Whether or not you plan to attend the Annual Meeting, please mark, sign,
date and return your proxy card in the enclosed envelope as soon as possible.
Your stock will be voted in accordance with the instructions you have given in
your proxy card. You may attend the Annual Meeting and vote in person even if
you have previously returned your proxy card.
Sincerely,
/S/ JOHN M. PAYNE
John M. Payne
Chairman of the Board
and Chief Executive Officer
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STAMPS.COM INC.
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 13, 2000
TO THE STOCKHOLDERS OF STAMPS.COM INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Stamps.com Inc., a Delaware corporation (the "Company"), will be held on June
13, 2000, at 2:00 p.m. Pacific Daylight Savings Time at the DC3 Museum of
Flying, 2800 Donald Douglas Loop North, Santa Monica, California 90405, for
the following purposes, as more fully described in the Proxy Statement
accompanying this Notice:
1. To elect four directors to serve for a three-year term ending in the
year 2003 or until their successors are duly elected and qualified;
2. To approve an amendment to the Company's 1999 Stock Incentive Plan (the
"1999 plan") to increase the number of shares of Common Stock authorized
for issuance over the term of the 1999 plan by 2,000,000 shares;
3. To ratify the appointment of Arthur Andersen LLP as independent auditors
of the Company for the fiscal year ending December 31, 2000; and
4. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on May 8, 2000, are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books of the Company will remain open between the record date and the date of
the meeting. A list of stockholders entitled to vote at the Annual Meeting
will be available for inspection at the executive offices of the Company.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed proxy
as promptly as possible in the envelope enclosed for your convenience. Should
you receive more than one proxy because your shares are registered in
different names and addresses, each proxy should be signed and returned to
assure that all your shares will be voted. You may revoke your proxy at any
time prior to the Annual Meeting. If you attend the Annual Meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
Annual Meeting will be counted.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Michael A. Zuercher
Michael A. Zuercher
Sr. Director, Legal Affairs and
Secretary
Santa Monica, California
May 16, 2000
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
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[LOGO OF STAMPS.COM]
3420 Ocean Park Boulevard, Suite 1040
Santa Monica, California 90405
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 13, 2000
General
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of Stamps.com Inc., a Delaware corporation (the "Company"), for use
at the Annual Meeting of Stockholders to be held on June 13, 2000 (the "Annual
Meeting"). The Annual Meeting will be held at 2:00 p.m. Pacific Daylight
Savings Time at the DC3 Museum of Flying, 2800 Donald Douglas Loop North,
Santa Monica, California 90405. These proxy solicitation materials were mailed
on or about May 16, 2000 to all stockholders entitled to vote at the Annual
Meeting.
Voting
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice and are described in more
detail in this Proxy Statement. On May 8, 2000, the record date for
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, 48,852,025 shares of the Company's common stock, par value $0.001
("Common Stock"), were issued and outstanding. No shares of the Company's
preferred stock, par value $0.001, were outstanding. Each share of Common
Stock is entitled to one vote at the Annual Meeting.
The nominees for election to the Board of Directors who receive the
greatest number of votes cast for the election of Directors by the shares
present at the Annual Meeting, in person or by proxy, shall be elected
Directors. Stockholders may not cumulate votes in the election of directors.
To approve the proposed amendment to the Company's 1999 plan to increase the
number of shares authorized for issuance under that plan, a majority of the
outstanding shares of Common Stock entitled to vote on the matter must vote in
favor of the proposed amendment. The adoption of the proposal to ratify the
appointment of the Company's independent auditors requires the affirmative
vote of a majority of shares present at the Annual Meeting, in person or by
proxy.
A majority of the outstanding shares of Common Stock present in person or
represented by proxy constitutes a quorum for the transaction of business 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. Abstentions and broker non-
votes are counted as present for purposes of determining the presence or
absence of a quorum for the transaction of business. Abstentions will be
counted towards the tabulations of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes, whereas broker
non-votes will not be counted for purposes of determining whether a proposal
has been approved. In the election of Directors, an abstention or broker non-
vote will have no effect on the outcome.
Proxies
If the enclosed form of proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the proxy does not specify how the shares
represented thereby are to be voted, the proxy will be voted FOR the election
of the directors proposed by the Board unless the authority to vote for the
election of such director is withheld and, if no contrary instructions are
given, the proxy will be voted FOR the approval of Proposals 2, 3 and 4
described in the accompanying Notice and Proxy Statement. You may revoke or
change your Proxy at any time before the Annual
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Meeting by filing with the Secretary of the Company at the Company's principal
executive offices at 3420 Ocean Park Blvd., Suite 1040, Santa Monica,
California 90405, a notice of revocation or another signed Proxy with a later
date. You may also revoke your Proxy by attending the Annual Meeting and
voting in person.
Solicitation
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to the stockholders.
Copies of solicitation materials will be furnished to brokerage houses,
fiduciaries and custodians holding shares in their names that are beneficially
owned by others so that they may forward this solicitation material to such
beneficial owners. In addition, the Company may reimburse such persons for
their costs in forwarding the solicitation materials to such beneficial
owners. The Company has retained proxy solicitor MacKenzie Partners, Inc. to
assist in the distribution of proxies and proxy solicitation materials for an
estimated fee of $5,000. The original solicitation of proxies by mail may be
supplemented by a solicitation by telephone, telegram or other means by
directors, officers or employees of the Company. No additional compensation
will be paid to these individuals for any such services. Except as described
above, the Company does not presently intend to solicit proxies other than by
mail.
Deadline for Receipt of Stockholder Proposals
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 2001 Annual Meeting must be received no
later than January 17, 2001, in order that they may be included in the proxy
statement and form of proxy relating to that meeting. In addition, the proxy
solicited by the Board of Directors for the 2001 Annual Meeting will confer
discretionary authority to vote on any stockholder proposal presented at that
meeting, unless the Company receives notice of such proposal not later than
April 1, 2001.
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MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE: ELECTION OF DIRECTORS
General
The Company's Certificate of Incorporation provides for a classified Board
of Directors consisting of three classes of directors with staggered three-
year terms, with each class consisting, as nearly as possible, of one-third of
the total number of directors. The Board currently consists of twelve persons.
The class whose term of office expires at the Annual Meeting currently
consists of four directors. The directors elected to this class will serve for
a term of three years, expiring at the 2003 annual meeting of stockholders or
until his successor has been duly elected and qualified. The nominees listed
below are currently directors of the Company. If this proposal is approved,
the Board will consist of twelve persons, with each class consisting of four
directors.
The nominees for election have agreed to serve if elected, and management
has no reason to believe that such nominees will be unavailable to serve. In
the event the nominees are unable or decline to serve as a director at the
time of the Annual Meeting, the proxies will be voted for any nominee who may
be designated by the present Board of Directors to fill the vacancy. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
FOR the nominees named below.
Nominees for Term Ending Upon the 2003 Annual Meeting of Stockholders
David C. Bohnett, 44, has been a Director since March 1999. Mr. Bohnett is
currently the managing member of Baroda Ventures, LLC. Until May 1999, Mr.
Bohnett served as Chairman of the Board and Secretary of GeoCities, an
Internet company that hosts communities of interest, which he founded in
November 1994. From November 1994 to April 1998, Mr. Bohnett also served as
GeoCities' Chief Executive Officer and President. From November 1994 to
November 1997, Mr. Bohnett also served as GeoCities' Chief Financial Officer.
Prior to founding GeoCities, from February 1990 to May 1994, Mr. Bohnett
served as Director of Product Marketing at Goal Systems, which merged with
LEGENT, a software company. From 1988 to 1990, Mr. Bohnett was Chief Financial
Officer of Essential Software, which merged with Goal Systems. Mr. Bohnett
also was a director of GeoCities until the company was acquired by Yahoo! in
May 1999. Mr. Bohnett serves on the Boards of Directors of NetZero, Inc., an
Internet service provider, NCR Corporation, a provider of information
technology hardware and software, and several private companies. Mr. Bohnett
received his B.S. degree in Business Administration from the University of
Southern California and his M.B.A. degree in Finance from the University of
Michigan.
Thomas H. Bruggere, 54, has been a Director since April 1998 and was our
Chairman of the Board of Directors from April 1998 until October 1999. Since
1994, Mr. Bruggere has been a private investor. In 1995 and 1996, Mr. Bruggere
was the Democratic Nominee for the US Senate from Oregon. Mr. Bruggere founded
Mentor Graphics, an electronic design automation software company, in 1981 and
served as its Chief Executive Officer until 1994. Mr. Bruggere also serves on
the Board of Directors of Open Market, Inc., a software development company,
and several privately-held companies. Mr. Bruggere received his B.S. in
Mathematics from UC Santa Barbara, his M.S. in Computer Science from the
University of Wisconsin and his M.B.A. from Pepperdine University.
G. Bradford Jones, 45, has been a Director since October 1998. Mr. Jones is
currently a General Partner at Brentwood Venture Capital, which he joined in
1981, and a Managing Director of Redpoint Ventures, a firm he co-founded in
October 1999. Mr. Jones also currently serves on the board of directors of
Onyx Acceptance Corporation, a specialized consumer finance company, Interpore
International, a medical device company, and ISOCOR, an Internet messaging and
directory software developer, Sandpiper Networks, an Internet content
management and distribution company, Trading Edge, an Internet-based fixed
income securities broker and several privately-held companies. Mr. Jones
received his B.S. in Chemistry from Harvard University, his Master degree in
Physics from Harvard University and his J.D./M.B.A. from Stanford University.
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Stephen M. Teglovic, 39, is the Company's Executive Vice President of
Carrier Solutions and has been a Director since March 2000. Prior to joining
Stamps.com, Mr. Teglovic was the President and Chief Executive Officer and a
director of iShip.com since its founding in May 1997. Before launching
iShip.com, from November 1995 to April 1997, Mr. Teglovic served as General
Manager of Velleb, Inc., a wholly owned subsidiary of UPS that was responsible
for the design and development of UPS Online Professional. Prior to Velleb,
from January 1993 to October 1995, Mr. Teglovic served as both vice president
of engineering and vice president of consulting for ConnectSoft, Inc., which
built custom software systems, primarily for Fortune 1000 companies. Mr.
Teglovic previously served in the Airborne Infantry of the United States Army
and as a commissioned officer in the California National Guard. Mr. Teglovic
received his B.S. in Management Information Systems from California
Polytechnic, San Luis Obispo.
Continuing Directors for Term Ending Upon the 2001 Annual Meeting of
Stockholders
Mohan P. Ananda, 54, has been a Director since January 1998. Mr. Ananda is
a founder and currently serves as the Chief Executive Officer and Chairman of
the Board of AmazingHitz.com, Inc., an Internet-based entertainment company.
From January 1997 to October 1998, Mr. Ananda served as our Chief Executive
Officer. From June 1986 to December 1996, Mr. Ananda was a partner of Ananda &
Krause, a law firm. Mr. Ananda also serves on the Board of Directors of other
privately-held companies. Mr. Ananda received his B.S. in Engineering from
Coimbature Institute of Technology in India, his M.S. in Aeronautics from the
California Institute of Technology, his Ph.D. in Astrodynamics and Control
from UCLA, and his J.D. from the University of West Los Angeles.
Thomas N. Clancy, 42, has been a Director since February 1998. Mr. Clancy
has been a General Partner at Enterprise Partners Venture Capital since
October 1999 and was a Venture Partner at Enterprise Partners from February
1999 to October 1999. Prior to joining Enterprise Partners in September 1996,
Mr. Clancy was a Partner at Technical Resource Connection, now Perot Systems,
a provider of information technology services, from February 1996 to August
1996. Previously, Mr. Clancy served as the Chief Executive Officer at
Expersoft from May 1994 to January 1996 and as Vice President of Product
Marketing at Expersoft from October 1993 to May 1994. From March 1983 to
November 1991, Mr. Clancy worked at Citibank in engineering management and
product development. Mr. Clancy serves on the board of a number of private
companies. Mr. Clancy received his B.S. in Computer and Systems Engineering
from Rensselaer Polytechnic Institute.
John A. Duffy, 53, has been a Director since March 2000. Mr. Duffy is a
Senior Vice President of Corporate Strategy for United Parcel Service, Inc.
(UPS) and is a member of the UPS management committee, which is responsible
for the day-to-day management of that company. Mr. Duffy has served in various
roles at UPS since 1970, including corporate international marketing,
strategic operations planning and corporate strategy. Mr. Duffy received his
B.S. from Boston College, and completed his executive education at Columbia
University and at INSEAD at Fountainbleau, France.
Marvin Runyon, 75, has been a Director since February 1999. From July 1992
to June 1998, Mr. Runyon served as Postmaster General of the United States.
Prior to joining the US Postal Service, he served as Chairman of the Tennessee
Valley Authority from 1988 to 1992. From 1980 to 1988, Mr. Runyon was the
founding President and CEO of Nissan Motor Manufacturing Corporation U.S.A.
Previously, Mr. Runyon spent 37 years at Ford Motor Co., leaving in 1980 with
the position of Vice President, Body and Assembly Operations. Mr. Runyon
serves as a board member of Genesis Direct, Inc., a specialty retailer. Mr.
Runyon received his B.S. from Texas A&M University.
Continuing Directors for Term Ending Upon the 2002 Annual Meeting of
Stockholders
Jeffrey J. Brown, 39, has been a Director since February 1998. In June
1993, Mr. Brown founded and, since that time, he has been a director,
executive officer and shareholder of Forrest Binkley & Brown Venture Co., the
general partner of Forrest Binkley & Brown L.P., and the Managing Partner of
SBIC Partners. Mr. Brown is also a founder, director, executive officer and
shareholder of Forrest Binkley & Brown Venture
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Advisor Co., an affiliate of SBIC Partners. From 1987 to 1992, Mr. Brown
served in various executive capacities at Security Pacific Venture Capital
Group. From April 1992 until June 1993, Mr. Brown acted as Senior Vice
President of BankAmerica Venture Capital Group. Mr. Brown is a director of
Golden State Vintners, Inc., a supplier of premium bulk wines and wine
processing services, and serves on the boards of a number of private
companies. Mr. Brown received his B.S. in Mathematics from Willamette
University and his M.B.A. from Stanford University.
John M. Payne, 44, has been our Chairman and Chief Executive Officer since
October 1999 and served as our Chief Executive Officer, President and a
Director from October 1998 until October 1999. Mr. Payne was a consultant to
us from May 1998 to October 1998. From June 1994 to January 1998, Mr. Payne
served as the President and Chief Operating Officer and as the President and
Chief Executive Officer of Airmedia, Inc., a wireless communications software
and service provider. On April 15, 1999, Airmedia filed for Chapter 11
bankruptcy protection. From October 1992 to June 1994, Mr. Payne was the
founding Chief Executive Officer of Fingertip Technologies, Inc., a software
company. Previously, Mr. Payne co-founded and served as President of two
specialty software firms, Financial Microsystems from June 1986 to October
1992, and Loan Star Computer from September 1979 to November 1986. Mr. Payne
received his B.A. in Economics from the University of California, Irvine.
Loren E. Smith, 62, has been our President and Chief Operating Officer
since October 1999 and has served as a Director since February 1999. Since
November 1996, Mr. Smith has been a Principal at Threshold Management, a
consulting firm that specializes in strategic growth management for leading
businesses in a diverse range of industries. He was also employed as a
Principal at Threshold Management from July 1993 to October 1994. From October
1994 to October 1996, he served as the Senior Vice President and Chief
Marketing Officer of the US Postal Service. In 1985, Mr. Smith joined Citibank
and was responsible for establishing the national marketing organization of
its Consumer Services Group. From 1975 to 1995, he founded Threshold
Management. Previously, Mr. Smith held various management positions at General
Foods Corporation and Colgate Palmolive Co. Mr. Smith received his A.B. in
Economics from Albion College and his M.B.A. from the University of Michigan.
Carolyn M. Ticknor, 52, has served as a Director since July 1999. Ms.
Ticknor is currently the President of Hewlett-Packard's Imaging and Printing
Systems. Since joining Hewlett-Packard in 1977, Ms. Ticknor has served in
various management roles in the Information Networks Division, the Roseville
Networks Division and the LaserJet Solutions Group. Prior to joining Hewlett-
Packard, Ms. Ticknor worked for Bank of America in computer services from 1971
to 1975. Ms. Ticknor received her B.A. in Psychology from the University of
Redlands (Calif.), her M.S. in Industrial Psychology from San Francisco State
University and her M.B.A. from Stanford University.
Board Committees and Meetings
The Board of Directors held sixteen meetings and acted by unanimous written
consent twice during the fiscal year ended December 31, 1999 (the "1999 Fiscal
Year"). The Board of Directors has an Audit Committee and a Compensation
Committee. With the exception of Ms. Ticknor, each director attended or
participated in 75% or more of the aggregate of (i) the total number of
meetings of the Board of Directors and (ii) the total number of meetings held
by all committees of the Board on which such director served during the 1999
Fiscal Year. Ms. Ticknor attended three meetings of the total of ten meetings
held in the 1999 Fiscal Year subsequent to her appointment to the Company's
Board of Directors in July 1999.
The Audit Committee currently consists of three directors, Messrs. Bohnett,
Brown and Runyon, and is primarily responsible for approving the services
performed by the Company's independent auditors and reviewing their reports
regarding the Company's accounting practices and systems of internal
accounting controls. The Audit Committee held two meetings during the 1999
Fiscal Year.
The Compensation Committee currently consists of three directors, Messrs.
Bruggere, Clancy and Jones, and is primarily responsible for reviewing and
approving the Company's general compensation policies and
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setting compensation levels for the Company's executive officers. The
Compensation Committee also has the authority to administer the Company's
Employee Stock Purchase Plan and the Company's 1999 Stock Incentive Plan and
to make option grants thereunder. The Compensation Committee held three
meetings and acted by unanimous written consent four times during the 1999
Fiscal Year.
The Board has also established a Special Stock Option Committee for the
purpose of granting options to non-Section 16 employees and consultants. The
Special Stock Option Committee is currently comprised of Messrs. Bruggere,
Clancy, Jones and Payne, each of whom are individually authorized to make
option grants under our 1999 Stock Incentive Plan. The Special Stock Option
Committee acted by unanimous written consent seven times during the 1999
Fiscal Year.
Director Compensation
Directors receive no cash compensation for serving on the Board of
Directors or on any board committee.
Under the Automatic Option Grant Program in effect under the Company's 1999
plan, each individual who joined the Board as a non-employee director at any
time after June 24, 1999 received or will receive, at the time of such initial
election or appointment, an automatic option grant, to purchase 10,000 shares
of Common Stock, provided such person has not previously been in the Company's
employ. In addition, on the date of each annual stockholders meeting,
beginning with the 2000 Annual Meeting, each individual who is to continue to
serve as a non-employee Board member, whether or not such individual is
standing for re-election at that particular Annual Meeting, will be granted an
option to purchase 2,500 shares of Common Stock, provided such individual has
not received an option grant under the Automatic Option Grant Program within
the preceding six months. Each grant under the Automatic Option Grant Program
will have an exercise price per share equal to the fair market value per share
of the Company's Common Stock on the grant date, and will have a maximum term
of ten years, subject to earlier termination should optionee cease to serve as
a Board of Directors member.
Under this Automatic Option Grant Program, Ms. Ticknor received an
automatic option grant on July 9, 1999 for 10,000 shares of the Company's
Common Stock. The exercise price per share in effect for this option is
$32.4375, the fair market value per share of Common Stock on the grant date.
Mr. Duffy received an automatic option grant on March 7, 2000 for 10,000
shares of the Company's Common Stock. The exercise price per share in effect
for this option is $29.6875, the fair market value per share of Common Stock
on the grant date. Each option is immediately exercisable for all the option
shares, but any shares purchased under the option will be subject to
repurchase by the Company, at the exercise price paid per share, upon the
optionee's cessation of Board service prior to vesting in those shares. The
shares subject to each option grant will vest in a series of thirty-six
successive equal monthly installments upon the optionee's completion of each
successive thirty-six month period of Board service over the thirty-six month
period measured from the grant date.
In February 1999, Messrs. Runyon and Smith and, in March 1999, Mr. Bohnett,
were each granted an option to purchase 108,000 shares of common stock at an
exercise price of $3.00 per share. The options were granted at fair market
value on the date of grant and vest ratably over three year periods. In April
1999, Messrs. Clancy, Jones and Brown were each granted an option to purchase
36,000 shares of common stock at an exercise price of $3.00 per share. These
options were granted at fair market value on the date of grant and vest in
full on the first anniversary of the grant. In addition, directors are
reimbursed for all reasonable expenses incurred by them in attending Board and
Committee meetings.
In February 1999, the Company entered into a three-year consulting
agreement with Loren Smith under which he will provide marketing and strategic
planning services. Mr. Smith also agreed to serve as a director on the
Company's Board of Directors and to serve as a member on a board committee. In
exchange for these services, the Company compensated Mr. Smith $120,000 per
year, and in consideration of his consulting services, granted him an option
to purchase 135,000 shares of common stock at $0.33 per share. This agreement
terminated in October 1999 upon Mr. Smith's appointment as the Company's
President and Chief Operating
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Officer. In connection with Mr. Smith's appointment as President and Chief
Operating Officer, the Company granted Mr. Smith an option to purchase 300,000
shares of common stock at an exercise price of $35.625 per share. The options
were granted at fair market value and vest over a period of two years.
On June 21, 1999, the Company entered into a consulting services agreement
with Carolyn Ticknor to provide strategic planning and business development
advice, and other consulting services that the Company may request. In
exchange for these services, the Company granted Ms. Ticknor an option to
purchase 10,000 shares of our common stock at an exercise price of $11.00 per
share. This consulting agreement expired on October 1, 1999.
In October 1999, the Company entered into a three-year consulting agreement
with Marvin Runyon under which he will provide strategic planning services. In
exchange for these services, the Company granted Mr. Runyon an option to
purchase 36,000 shares of common stock at an exercise price of $35.625 per
share. These options were granted at fair market value and vest ratably over a
three-year period. In November 1999, this agreement was amended to provide
that Mr. Runyon receive $2,000 per day in compensation for any special
projects on which the Company requires his services.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote FOR the
election of the nominees listed above.
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PROPOSAL TWO: APPROVAL OF AMENDMENT TO 1999 STOCK INCENTIVE PLAN
The Company's stockholders are being asked to approve an amendment to the
Company's 1999 Stock Incentive Plan which will increase the number of shares
the Company's common stock reserved for issuance under the 1999 plan by an
additional 2,000,000 shares. The Company's board of directors adopted the
amendment on April 25, 2000, subject to stockholder approval at the annual
meeting.
The share increase will assure that a sufficient reserve of the Company's
common stock remains available under the 1999 plan in order to allow the
Company to continue to utilize equity incentives to attract and retain the
services of key individuals essential to the Company's long-term growth and
financial success. The Company relies significantly on equity incentives in
the form of stock option grants in order to attract and retain key employees
and believes that equity incentives are necessary for the Company to remain
competitive in the marketplace for executive talent and other key employees.
Option grants made to newly hired or continuing employees will be based on
both competitive market conditions and individual performance.
The following is a summary of the principal features of the 1999 plan, as
most recently amended. Any stockholder who wishes to obtain a copy of the
actual plan document may do so upon written request to the Company at 3420
Ocean Park Boulevard, Suite 1040, Santa Monica, California 90405, Attention:
Corporate Secretary. The 1999 plan serves as the successor to the Company's
1998 Stock Plan which terminated in connection with the Company's initial
public offering. All outstanding options under the 1998 plan at the time of
termination were transferred to the 1999 plan.
Equity Incentive Programs
The 1999 plan consists of five separate equity incentive programs: (i) the
discretionary option grant program, (ii) the stock issuance program, (iii) the
salary investment option grant program, (iv) the automatic option grant
program for non-employee board members and (v) the director fee option grant
program for non-employee board members. The principal features of each program
are described below. The compensation committee of the Company's board of
directors will have the exclusive authority to administer the discretionary
option grant and stock issuance programs with respect to option grants and
stock issuances made to executive officers and non-employee board members and
will also have the authority to make option grants and stock issuances under
those programs to all other eligible individuals. However, the board of
directors may at anytime appoint a secondary committee of one or more board
members to have separate but concurrent authority with the compensation
committee to make option grants and stock issuances under those two programs
to individuals other than executive officers and non-employee board members.
The compensation committee will also have complete discretion to select the
individuals who are to participate in the salary investment option grant
program, but all grants made to the selected individuals will be governed by
the express terms of that program.
The term plan administrator, as used in this summary, will mean the
Company's compensation committee and any secondary committee, to the extent
each of those entities is acting within the scope of its administrative
jurisdiction under the 1999 plan. However, neither the compensation committee
nor any secondary committee will exercise any administrative discretion under
the automatic option grant or director fee option grant program. All grants
under those programs will be made in strict compliance with the express
provisions of those programs.
Share Reserve
At present, 13,019,551 shares of common stock are reserved for issuance
over the term of the 1999 plan assuming stockholder approval of the 2,000,000
share increase. An additional 966,624 shares of common stock are reserved for
issuance upon exercise of options assumed by the Company in connection with
the Company's acquisition of iShip.com in March 2000. The shares issuable upon
exercise of these assumed options are not part of the 1999 plan share reserve.
The share reserve for the 1999 plan consists of (i) the 7,290,000 shares of
common stock initially reserved for issuance under the 1999 plan (including
the shares of common stock subject to the outstanding options under the
Company's predecessor 1998 plan which have been transferred to the 1999
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<PAGE>
plan); plus (ii) 1,229,551 shares added to the share reserve as the result of
an automatic annual reserve increase of three percent as of the last trading
day of December 1999 as provided in the 1999 plan; plus (iii) a 2,500,000
share increase approved by the Company's stockholders in March 2000; plus (iv)
a 2,000,000 share increase which is the subject of this proposal. In addition,
the share reserve under the 1999 plan will continue to automatically increase
on the first trading day of each calendar year by an amount equal to three
percent of the total number of shares of common stock outstanding on the last
trading day of the preceding calendar year, but in no event will any annual
increase exceed 1,564,715 shares, subject to adjustment for subsequent stock
splits, stock dividends and similar transactions.
No participant in the 1999 plan may receive option grants, separately
exercisable stock appreciation rights or direct stock issuances for more than
1,125,000 shares of common stock in total per calendar year, subject to
adjustment for subsequent stock splits, stock dividends and similar
transactions. Stockholder approval of this proposal will also constitute
approval of that 1,125,000-share limitation for purposes of Internal Revenue
Code Section 162(m).
The shares of common stock issuable under the 1999 plan may be drawn from
shares of authorized but unissued common stock or from shares of common stock
which the Company acquires, including shares purchased on the open market.
Shares subject to any outstanding options under the 1999 plan (including
options transferred from the predecessor plan) which expire or otherwise
terminate prior to exercise will be available for subsequent issuance.
Unvested shares issued under the 1999 plan which the Company subsequently
purchases, at the option exercise or direct issue price paid per share,
pursuant to the Company's purchase rights under the 1999 plan will be added
back to the number of shares reserved for issuance under the 1999 plan and
will accordingly be available for subsequent issuance. However, any shares
subject to stock appreciation rights exercised under the 1999 plan will not be
available for reissuance.
Eligibility
Officers and employees, non-employee Company board members and independent
consultants in the Company's service or in the service of the Company's parent
and subsidiaries (whether now existing or subsequently established) will be
eligible to participate in the discretionary option grant and stock issuance
programs. The Company's executive officers and other highly paid employees
will also be eligible to participate in the salary investment option grant
program. Participation in the automatic option grant and director fee option
grant programs will be limited to the non-employee members of the Company's
board of directors.
As of April 28, 2000, twelve executive officers, nine non-employee board
members and approximately 400 other employees and consultants were eligible to
participate in the discretionary option grant and stock issuance programs.
Valuation
The fair market value per share of common stock on any relevant date under
the 1999 plan will be deemed to be equal to the closing selling price per
share on that date on the Nasdaq National Market. On May 8, 2000, the fair
market value per share determined on such basis was $11.875.
Discretionary Option Grant Program
The plan administrator will have complete discretion under the
discretionary option grant program to determine which eligible individuals are
to receive option grants, the time or times when those grants are to be made,
the number of shares subject to each grant, the status of any granted option
as either an incentive stock option or a non-statutory option under the
federal tax laws, the vesting schedule (if any) to be in effect for the option
grant and the maximum term for which any granted option is to remain
outstanding.
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<PAGE>
Each granted option will have an exercise price per share determined by the
plan administrator, but the exercise price will not be less than one hundred
percent of the fair market value of the option shares on the grant date and no
granted option will have a term in excess of ten years. The shares subject to
each option will generally vest in one or more installments over a specified
period of service measured from the grant date. However, one or more options
may be structured so that they will be immediately exercisable for any or all
of the option shares. However, the shares acquired under those options will be
subject to repurchase by the Company, at the exercise price paid per share, if
the optionee ceases service with us prior to vesting in those shares.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent exercisable for
vested shares. The plan administrator will have complete discretion to extend
the period following the optionee's cessation of service during which his or
her outstanding options may be exercised and/or to accelerate the
exercisability or vesting of the options in whole or in part. This discretion
may be exercised at any time while the options remain outstanding, whether
before or after the optionee's actual cessation of service.
The plan administrator is authorized to issue tandem stock appreciation
rights under the discretionary option grant program which will provide the
holders with the right to surrender their options for an appreciation
distribution from the Company. The amount of the distribution payable by the
Company will be equal to the excess of (a) the fair market value of the vested
shares of common stock subject to the surrendered option over (b) the
aggregate exercise price payable for the shares. This appreciation
distribution may, at the discretion of the plan administrator, be made in cash
or in shares of common stock.
Salary Investment Option Grant Program
The Company's compensation committee will have complete discretion in
implementing the salary investment option grant program for one or more
calendar years and in selecting the executive officers and other eligible
individuals who are to participate in the program for those years. As a
condition to participation, each selected individual must, prior to the start
of the calendar year of participation, file with the compensation committee an
irrevocable authorization directing the Company to reduce his or her base
salary for the upcoming calendar year by a specified dollar amount not less
than $10,000 nor more than $50,000 and to apply that amount to the acquisition
of a special option grant under the program.
Each selected individual who files a timely election will automatically be
granted a non-statutory option on the first trading day in January of the
calendar year for which that salary reduction is to be in effect. Stockholder
approval of the 2,000,000 share increase which is the subject of this proposal
will also constitute pre-approval of each option granted under the salary
investment option grant program on the basis of the increase and the
subsequent exercise of that option in accordance with the terms of the program
summarized below.
The number of shares subject to each option will be determined by dividing
the salary reduction amount by two-thirds of the fair market value per share
of common stock on the grant date, and the exercise price will be equal to
one-third of the fair market value of the option shares on the grant date. As
a result, the total spread on the option shares at the time of grant (the fair
market value of the option shares on the grant date less the aggregate
exercise price payable for those shares) will be equal to the salary reduction
amount.
The option will become exercisable in a series of twelve equal monthly
installments upon the optionee's completion of each calendar month of service
in the calendar year for which the salary reduction is in effect and will
become immediately exercisable in all the option shares on an accelerated
basis should the Company experience changes in ownership or control. Each
option will remain exercisable for any vested shares until the earlier of (i)
the expiration of the 10-year option term or (ii) the end of the 3-year period
measured from the date of the optionee's cessation of service.
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<PAGE>
Stock Issuance Program
Shares may be issued under the stock issuance program for valid
consideration under the Delaware General Corporation Law as the plan
administrator deems appropriate. The shares may also be issued as a bonus for
past services without any cash outlay required of the recipient. Shares of
common stock may also be issued under the program pursuant to share right
awards which entitle the recipients to receive those shares upon the
attainment of designated performance goals. The plan administrator will have
complete discretion under the program to determine which eligible individuals
are to receive stock issuances or share right awards, the time or times when
those issuances or awards are to be made, the number of shares subject to each
issuance or award and the vesting schedule to be in effect for the stock
issuance or share rights award.
The shares issued may be fully and immediately vested upon issuance or may
vest upon the completion of a designated service period or the attainment of
pre-established performance goals. The plan administrator will, however, have
the discretionary authority at any time to accelerate the vesting of any and
all unvested shares outstanding under the stock issuance program.
Outstanding share right awards under the program will automatically
terminate, and no shares of common stock will actually be issued in
satisfaction of those awards, if the performance goals established for the
awards are not attained. The plan administrator, however, will have the
discretionary authority to issue shares of common stock in satisfaction of one
or more outstanding share right awards as to which the designated performance
goals are not attained.
Automatic Option Grant Program
Under the automatic option grant program, eligible non-employee members of
the Company's board of directors will receive a series of option grants over
their period of board service. Each non-employee board member will, at the
time of his or her initial election or appointment to the board, receive an
option grant for 10,000 shares of common stock, as long as the individual has
not previously been in the Company's employ. In addition, on the date of each
annual stockholders meeting, each individual who is to continue to serve as a
non-employee board member will automatically be granted an option to purchase
2,500 shares of common stock, provided he or she has served as a non-employee
board member for at least six months. There will be no limit on the number of
2,500-share option grants any one eligible non-employee board member may
receive over his or her period of continued board service, and non-employee
board members who have previously been in the Company's employ will be
eligible to receive one or more annual option grants over their period of
board service.
Stockholder approval of the 2,000,000 share increase which is the subject
of this proposal will also constitute pre-approval of each option granted
under the automatic option grant program on the basis of the increase and the
subsequent exercise of that option in accordance with the terms of the program
summarized below.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of common stock on the grant date and will have a
maximum term of 10 years, subject to earlier termination following the
optionee's cessation of board service. Each automatic option will be
immediately exercisable for all of the option shares; however, any unvested
shares purchased under that option will be subject to repurchase by the
Company, at the exercise price paid per share, should the optionee cease board
service prior to vesting in those shares. The shares subject to each initial
10,000-share automatic option grant will vest in a series of 36 successive
equal monthly installments upon the optionee's completion of each month of
board service over the 36 month period measured from the grant date. However,
the shares subject to each initial option grant will immediately vest in full
upon changes in control or ownership or upon the optionee's death or
disability while a board member. The shares subject to each annual 2,500-share
automatic grant will be fully vested at the time of the option grant.
Following the optionee's cessation of board service for any reason, each
option will remain exercisable for a 12 month period and may be exercised
during that time for any or all shares in which the optionee is vested at the
time of cessation of board service.
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<PAGE>
Director Fee Option Grant Program
The plan administrator will have complete discretion in implementing the
director fee option grant program for one or more calendar years. If the
program is implemented, each non-employee board member may elect, prior to the
start of each calendar year, to apply all or any portion of any annual
retainer fee otherwise payable in cash for his or her period of service on the
board for that year to the acquisition of a below-market option grant. The
option grant will be a nonstatutory option and will automatically be made on
the first trading day in January in the calendar year for which one of those
elections is in effect. The option will have a maximum term of 10 years
measured from the grant date and an exercise price per share equal to one-
third of the fair market value of the option shares on the award date. The
number of shares subject to each option will be determined by dividing the
amount of the retainer fee applied to the acquisition of that option by two-
thirds of the fair market value per share of common stock on the grant date.
As a result, the total spread on the option (the fair market value of the
option shares on the grant date less the aggregate exercise price payable for
those shares) will be equal to the portion of the retainer fee applied to the
acquisition of the option.
Stockholder approval of the 2,000,000 share increase which is the subject
of this proposal will also constitute pre-approval of each option subsequently
granted under the director fee option grant program and the subsequent
exercise of each such option in accordance with the terms of the program
summarized below.
The option will become exercisable in a series of 12 successive equal
monthly installments upon the optionee's completion of each month of board
service in the calendar year in which the option is granted, subject to full
and immediate acceleration upon changes in control or ownership or upon the
optionee's death or disability while a board member. Each option granted under
the program will remain exercisable for vested shares until the earlier of (i)
the expiration of the ten-year option term or (ii) the expiration of the 3
year period measured from the date of the optionee's cessation of board
service.
Limited Stock Appreciation Rights
Limited stock appreciation rights may be granted under the discretionary
option grant program to one or more of the Company's officers or non-employee
board members as part of their option grants, and each option granted under
the salary investment option grant, automatic option grant and director fee
option grant program will automatically include a limited stock appreciation
right. Upon the successful completion of a hostile tender offer for more than
fifty percent of the Company's outstanding voting securities or a change in a
majority of the Company's board of directors as a result of one or more
contested elections for board membership, each outstanding option with a
limited stock appreciation right may be surrendered to us in return for a cash
distribution. The amount of the distribution payable by us per surrendered
option share will be equal to the excess of (i) the fair market value per
share at the time the option is surrendered or, if greater, the tender offer
price paid per share in the hostile take-over over (ii) the exercise price
payable per share under the option.
Stockholder approval of the 2,000,000 share increase which is the subject
of this proposal will also constitute pre-approval of each limited stock
appreciation right granted under the salary investment option grant, automatic
option grant or director fee option grant program on the basis of the increase
and the subsequent exercise of that right in accordance with the foregoing
terms.
Predecessor Plan
All outstanding options under the predecessor 1998 plan which were
transferred to the 1999 plan will continue to be governed by the terms of the
agreements evidencing those options, and no provision of the 1999 plan will
affect or otherwise modify the rights or obligations of the holders of the
transferred options with respect to their acquisition of common stock.
However, the plan administrator has complete discretion to extend one or more
provisions of the 1999 plan to the transferred options, to the extent those
options do not otherwise contain those provisions.
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Stock Awards
The table below shows, as to the Company's Chief Executive Officer, the
Company's four other most highly compensated executive officers (with base
salary and bonus for fiscal year 1999 in excess of $100,000) and the other
individuals and groups indicated, the number of shares of common stock subject
to option grants made under the 1999 plan and the predecessor 1998 plan
through April 26, 2000, together with the weighted average exercise price
payable per share. The Company has not made any direct stock issuances to date
under the 1999 plan or the predecessor 1998 plan.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
Underlying Per
Options Share
Name and Position Granted (#) ($)
- ----------------- ---------- --------
<S> <C> <C>
John M. Payne........................................... 50,000 $31.0625
Chairman and Chief Executive Officer (October 1998 to
present)
Loren E. Smith.......................................... 543,000 $ 19.83
President and Chief Operating Officer (October 1999 to
present)
John W. LaValle......................................... 500,000 $ 7.48
Executive Vice President and Chief Financial Officer
Douglas J. Walner....................................... 366,357 $ 0.07
Senior Vice President, Business Development
Michael D. Walther...................................... 225,000 $ 1.53
Senior Vice President, Network Operations
All current executive officers as a group (12 persons).. 4,297,144 $ 10.10
All current non-employee directors as a group (9
persons)............................................... 380,000 $ 6.13
All employees, including current officers who are not
executive officers, as a group (426 persons)........... 6,970,274 $ 10.77
</TABLE>
As of April 26, 2000, 9,820,297 shares of common stock were subject to
outstanding options under the 1999 plan and 2,078,216 shares remained
available for future issuance, assuming stockholder approval of this proposal.
As of April 26, 2000, 966,624 shares of common stock were subject to options
under the iShip.com Inc. Amended and Restated 1997 Stock Plan which was
assumed by the Company in connection with the Company's acquisition of
iShip.com in March 2000.
New Plan Benefits
No option grants or share issuances have been made to date on the basis of
the share increase which is the subject of this proposal.
General Provisions
Acceleration. In the event that the Company is acquired by merger or asset
sale, each outstanding option under the discretionary option grant program
which is not to be assumed by the successor corporation will automatically
accelerate in full, and all unvested shares under the discretionary option
grant and stock issuance programs will immediately vest, except to the extent
the Company's repurchase rights with respect to those shares are to be
assigned to the successor corporation and except in the case of an optionee
who tenure with the Company is less than one year. For optionees with less
than one year of service, any options which are not to be assumed by the
successor corporation will accelerate only for a portion of the shares such
that the optionee will receive two years of vesting. In addition, those
options contain additional acceleration provisions pursuant to which those
options will vest upon an involuntary termination of the optionee's employment
within 18 months
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<PAGE>
following an acquisition in which the Company's repurchase rights with respect
to the option shares continue in effect. These special change-in-control
provisions are pursuant to an addendum delivered by the plan administrator
with each optionee's grant.
The vesting of outstanding shares under the stock issuance program may be
accelerated upon similar terms and conditions. The plan administrator will
also have the authority to grant options which will immediately vest in the
event the Company is acquired, whether or not those options are assumed by the
successor corporation.
The plan administrator is also authorized under the discretionary option
grant and stock issuance programs to grant options and to structure repurchase
rights so that the shares subject to those options or repurchase rights will
immediately vest in connection with a change in ownership or control (whether
by successful tender offer for more than 50% of the Company's outstanding
voting stock or by a change in the majority of the Company's board of
directors by reason of one or more contested elections for board membership).
That accelerated vesting may occur either at the time of the change in
ownership or control or upon the involuntary termination of the individual's
service within a designated period (not to exceed 18 months) following the
change in ownership or control.
The plan administrator will have the discretionary authority to extend any
of the acceleration provisions of the 1999 plan to one or more options
transferred from the 1998 plan which do not otherwise contain those
provisions. Currently, the transferred options are structured in accordance
with the special change-in-control provisions described above for the 1999
plan and the Company's repurchase rights with respect to the unvested shares
subject to those options are not to be assigned to the successor entity or
otherwise continued in effect. In addition, those options contain additional
acceleration provisions pursuant to which those options will vest upon an
involuntary termination of the optionee's employment within 18 months
following an acquisition in which the Company's repurchase rights with respect
to the option shares continue in effect.
The shares subject to each option under the salary investment option grant,
automatic option grant and director fee option grant program will immediately
vest in the event (i) the Company is acquired by merger or asset sale, (ii) a
tender offer for more than 50% of the Company's outstanding voting stock or
(iii) there is a change in the majority of the board effected through one or
more contested elections for board membership.
The acceleration of vesting in the event of a change in the ownership or
control may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of us.
Stockholder Rights and Option Transferability. No optionee will have any
stockholder rights with respect to the option shares until the optionee has
exercised the option and paid the exercise price for the purchased shares.
Options are not assignable or transferable other than by will or the laws of
inheritance following optionee's death, and during the optionee's lifetime,
the option may only be exercised by the optionee. However, non-statutory
options may be transferred or assigned during optionee's lifetime to one or
more members of the optionee's family or to a trust established for one or
more family members or to one or more other persons, to the extent the
transfer is in connection with the optionee's estate or pursuant to a domestic
relations order.
Changes in Capitalization. In the event any change is made to the
outstanding shares of common stock by reason of any recapitalization, stock
dividend, stock split, combination of shares, exchange of shares or other
change in corporate structure effected without the Company's receipt of
consideration, appropriate adjustments will be made to (i) the maximum number
and/or class of securities issuable under the 1999 plan, (ii) the maximum
number and/or class of securities for which any one person may be granted
stock options, separately exercisable stock appreciation rights and direct
stock issuances under the 1999 plan per calendar year, (iii) the number and/or
class of securities for which grants are subsequently to be made under the
automatic option grant program to new and continuing non-employee board
members, (iv) the number and/or class of securities and the exercise price per
share in effect under each outstanding option, (v) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option transferred from the predecessor 1998 plan to the 1999 plan and (vi)
the maximum number and/or class of securities by which the share reserve under
the
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<PAGE>
1999 plan is to increase automatically each year. These adjustments will be
designed to preclude any dilution or enlargement of benefits under the 1999
plan or the outstanding options there under.
Financial Assistance. The plan administrator may institute a loan program
to assist one or more participants in financing the exercise of outstanding
options under the discretionary option grant program or the purchase of shares
under the stock issuance program through full-recourse interest-bearing
promissory notes. However, the maximum amount of financing provided any
participant may not exceed the cash consideration payable for the issued
shares plus all applicable taxes incurred in connection with the acquisition
of those shares.
Special Tax Election. The plan administrator may provide one or more
holders of options or unvested share issuances under the 1999 plan with the
right to have the Company withhold a portion of the shares otherwise issuable
to these individuals in satisfaction of the withholding taxes to which these
individuals become subject in connection with the exercise of those options or
the vesting of those shares. Alternatively, the plan administrator may allow
these individuals to deliver previously acquired shares of common stock in
payment of the withholding tax liability.
Amendment and Termination. The board may amend or modify the 1999 plan at
any time, subject to any required stockholder approval pursuant to applicable
laws and regulations. Unless sooner terminated by the board, the 1999 plan
will terminate on the earliest of (i) June 30, 2009, (ii) the date on which
all shares available for issuance under the 1999 plan have been issued as
fully vested shares or (iii) the termination of all outstanding options in
connection with changes in control or ownership.
Federal Income Tax Consequences
Option Grants. Options granted under the 1999 plan may be either incentive
stock options which satisfy the requirements of Section 422 of the Internal
Revenue Code or non-statutory options which are not intended to meet the
requirements. The Federal income tax treatment for the two types of options
differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made
the subject of a taxable disposition. For Federal tax purposes, dispositions
are divided into two categories: (i) qualifying and (ii) disqualifying. A
qualifying disposition occurs if the sale or other disposition of the shares
is made more than two years after the date the option for those shares is
granted and more than one year after the date the option is exercised for
those shares. If either of these two requirements is not satisfied, then a
disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized
upon the disposition will be recognized as a capital gain or loss by the
optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of the shares on the option exercise date over (ii) the exercise
price paid for the shares. If the optionee makes a qualifying disposition,
then the Company will not be entitled to any income tax deduction.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to that income.
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<PAGE>
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by us in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee
will not recognize any taxable income at the time of exercise but will have to
report as ordinary income, as and when the Company's repurchase right lapses,
an amount equal to the excess of (i) the fair market value of the shares on
the date the repurchase right lapses over (ii) the exercise price paid for the
shares. The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the
option an amount equal to the excess of (i) the fair market value of the
purchased shares on the exercise date over (ii) the exercise price paid for
the shares. If the Section 83(b) election is made, the optionee will not
recognize any additional income as and when the repurchase right lapses.
The Company's will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for
the taxable year in which ordinary income is recognized by the optionee.
Stock Appreciation Rights. No taxable income is recognized upon receipt of
a stock appreciation right. The holder will recognize ordinary income, in the
year in which the stock appreciation right is exercised, in an amount equal to
the excess of the fair market value of the underlying shares of common stock
on the exercise date over the base price in effect for the exercised right,
and the holder will be required to satisfy the tax withholding requirements
applicable to such income.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the holder in connection with the exercise of
the stock appreciation right. The deduction will be allowed for the taxable
year in which the ordinary income is recognized.
Direct Stock Issuances. The tax principles applicable to direct stock
issuances under the 1999 plan will be substantially the same as those
summarized above for the exercise of non-statutory option grants.
Deductibility of Executive Compensation. The Company anticipates that any
compensation deemed paid by it in connection with the disqualifying
disposition of incentive stock option shares or the exercise of non-statutory
options with exercise prices equal to the fair market value of the option
shares on the grant date will qualify as performance-based compensation for
purposes of Code Section 162(m) and will not have to be taken into account for
purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to the Company's executive officers.
Accordingly, all compensation deemed paid with respect to those options will
remain deductible by the Company without limitation under Code Section 162(m).
Accounting Treatment
Under the current accounting principles in effect for equity incentive
programs like the 1999 plan, the option grants under the discretionary option
grant and automatic option grant programs will not result in any direct charge
to the Company's reported earnings. However, the fair value of those options
is required to be disclosed in the notes to the Company's financial
statements, and the Company must also disclose, in footnotes to the Company's
financial statements, the pro-forma impact those options would have upon the
Company's reported earnings were the fair value of those options at the time
of grant treated as a compensation expense. In addition, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis.
On March 31, 2000, the Financial Accounting Standards Board issued FASB
Intrepretation #44 of APB Opinion 25, "Accounting for Stock Issued to
Employees." Under the FASB Interpretation, option grants made to non-employee
consultants (but not non-employee board members) after December 15, 1998 will
result in a direct charge to the Company's reported earnings based upon the
fair value of the option measured initially as of the grant date. The charge
will accordingly include the appreciation in the value of the option shares
over the period between the grant date of the option (or, if later, the July
1, 2000 effective date of the final Interpretation) and the vesting date of
each installment of the option shares. In addition, if the proposed
interpretation is adopted,
16
<PAGE>
any options which are repriced after December 15, 1998 will also trigger a
direct charge to the Company's earnings measured by the appreciation in the
value of the underlying shares over the period between the grant date of the
option (or, if later, the July 1, 2000 effective date of the final
Intrepretation) and the date the option is exercised for those shares.
Should one or more individuals be granted tandem stock appreciation rights
under the 1999 plan, then those rights would result in a compensation expense
to be charged against the Company's reported earnings. Accordingly, at the end
of each fiscal quarter, the amount (if any) by which the fair market value of
the shares of common stock subject to outstanding stock appreciation rights
has increased from the prior quarter-end would be accrued as compensation
expense, to the extent their fair market value is in excess of the aggregate
exercise price in effect for those rights.
Stockholder Approval
The affirmative vote of at least a majority of the shares of common stock
present in person or by proxy at the special meeting and entitled to vote is
required for approval of the amendment to the 1999 plan. Should stockholder
approval not be obtained, then the 2,000,000 share increase to the share
reserve under the 1999 plan will not be implemented, any stock options granted
under the 1999 plan on the basis of that increase will immediately terminate
without ever becoming exercisable for the shares of common stock subject to
those options, and no additional options or stock issuances will be made on
the basis of the proposed share increase. The 1999 plan will, however,
continue in effect, and option grants and direct stock issuances may continue
to be made under the 1999 plan until all the shares of common stock available
for issuance under the 1999 plan have been issued pursuant to option grants
and direct stock issuances.
Recommendation of the Board of Directors
The Board of Directors recommends a vote FOR the amendment of the Company's
1999 plan to increase the number of shares of Common Stock reserved for
issuance under the 1999 plan.
17
<PAGE>
PROPOSAL THREE: RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Arthur Andersen LLP,
independent public auditors for the Company during the 1999 Fiscal Year, to
serve in the same capacity for the year ending December 31, 2000, and is
asking the stockholders to ratify this appointment. The affirmative vote of a
majority of the shares represented and voting at the Annual Meeting is
required to ratify the selection of Arthur Andersen LLP.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified,
the Board of Directors in its discretion may direct the appointment of a
different independent auditing firm at any time during the year if the Board
of Directors believes that such a change would be in the best interests of the
Company and its stockholders.
A representative of Arthur Andersen LLP is expected to be present at the
Annual Meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of Arthur Andersen LLP to serve as the Company's
independent auditors for the fiscal year ending December 31, 2000.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed Proxy.
18
<PAGE>
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
March 31, 2000, by (i) all persons who are beneficial owners of five percent
(5%) or more of the Company's Common Stock, (ii) each director and nominee for
director, (iii) the executive officers named in the Summary Compensation Table
of the Executive Compensation and Related Information section of this Proxy
Statement and (iv) all current directors and executive officers as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned, subject to
community property laws, where applicable. Unless otherwise indicated, the
address of each beneficial owner listed below is c/o Corporate Secretary,
Stamps.com Inc., 3420 Ocean Park Boulevard, Suite 1040, Santa Monica,
California 90405. Percentage of ownership is based on 48,501,045 shares of
Common Stock issued and outstanding on March 31, 2000. Shares of Common Stock
subject to stock options which are currently exercisable or will become
exercisable within 60 days after March 31, 2000 are deemed outstanding for
computing the percentage of the person or group holding such options, but are
not deemed outstanding for computing the percentage of any other person or
group.
<TABLE>
<CAPTION>
Number of Percentages
Shares of Shares
Beneficially Beneficially
Name of Beneficial Owner Owned Owned
------------------------ ------------ ------------
<S> <C> <C>
Named executive officers and directors:
G. Bradford Jones (1) ............................ 4,376,186 9.0%
Jeffrey J. Brown (2) ............................. 4,373,448 9.0%
Thomas N. Clancy (3) ............................. 3,592,448 7.4%
Mohan P. Ananda (4) .............................. 2,084,095 4.3%
John M. Payne (5) ................................ 1,712,100 3.5%
Thomas H. Bruggere (6) ........................... 488,475 1.0%
John W. LaValle (7) .............................. 416,062 *
Stephen M. Teglovic (8) .......................... 362,298 *
Douglas J. Walner (9) ............................ 357,557 *
Loren E. Smith (10) .............................. 319,500 *
Michael D. Walther (11) .......................... 202,200 *
David C. Bohnett ................................. 179,193 *
Marvin Runyon (12) ............................... 138,631 *
Carolyn M. Ticknor (13) .......................... 20,000 *
John A. Duffy (14) ............................... 10,000 *
Other 5% Stockholders:
Brentwood Venture Capital (15)
11150 Santa Monica Blvd., Suite 1200
Los Angeles, CA 90025 ............................ 4,340,186 9.0%
SBIC Partners, L.P.
201 Main Street, Suite 2302
Fort Worth, TX 76201.............................. 4,337,448 8.9%
Enterprise Partners IV, L.P. (16)
5000 Birch Street, Suite 6200
Newport Beach, CA 92660 .......................... 3,546,448 7.3%
All directors and executive officers as a group (20
people) (17) ...................................... 19,496,426 39.0%
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of common stock.
19
<PAGE>
(1) Includes 4,163,690 shares and 173,496 shares held by Brentwood Associates
VIII, L.P. and Brentwood Affiliates Fund, L.P., respectively. G. Bradford
Jones is a General Partner at Brentwood Venture Capital, the general
partner of Brentwood Associates VIII, L.P. and Brentwood Affiliates Fund,
L.P. Mr. Jones disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest therein. Also includes 36,000 shares
subject to options, all of which are presently exercisable within 60 days
from March 31, 2000.
(2) Includes 4,337,448 shares held by SBIC Partners, L.P. Jeffrey J. Brown is
a director and executive officer of Forrest Binkley & Brown Venture Co.,
the general partner of Forrest Binkley & Brown L.P., the Managing Partner
of SBIC Partners. Mr. Brown disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest therein. Also
includes 36,000 shares subject to options, all of which are presently
exercisable within 60 days from March 31, 2000.
(3) Includes 3,262,731 shares and 283,717 shares held by Enterprise Partners
IV, L.P. and Enterprise Partners IV Associates, L.P. respectively. Thomas
N. Clancy is a General Partner at Enterprise Partners Venture Capital,
the general partner of Enterprise Partners IV, L.P. and Enterprise
Partners IV Associates, L.P. Mr. Clancy disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest therein. Also
includes 10,000 shares of common stock and 36,000 shares to options, all
of which are presently exercisable within 60 days from March 31, 2000.
(4) Includes 240,000 shares held in trust for the benefit of Mr. Ananda's
family.
(5) Includes 75,000 shares held in trust for the benefit of Mr. Payne's
family. Includes 25,000 shares subject to options, all of which are
presently exercisable within 60 days from March 31, 2000. Does not
include 25,000 shares subject to options, none of which are presently
exercisable or will be exercisable within 60 days of March 31, 2000.
(6) Includes 75,000 shares held in trust for the benefit of his children as
to which Mr. Bruggere disclaims beneficial ownership.
(7) Includes 409,562 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
2000. Does not include 83,938 shares subject to options, none of which
are presently exercisable or will be exercisable within 60 days from
March 31, 2000.
(8) Includes 45,091 shares held by the Steve and Pam Teglovic LLC.
(9) Includes 340,857 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
2000.
(10) Includes 318,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
2000. Does not include 225,000 shares subject to options, none of which
are presently exercisable or will be exercisable within 60 days of March
31, 2000.
(11) Includes 195,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
2000.
(12) Includes 4,800 shares held by Mr. Runyon's wife. Includes 79,000 shares
subject to options, all of which are presently exercisable or will become
exercisable within 60 days from March 31, 2000. Does not include 29,000
shares subject to options, none of which are presently exercisable or
will be exercisable within 60 days of March 31, 2000.
(13) Includes 20,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
2000.
(14) Includes 10,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
2000.
20
<PAGE>
(15) Includes 4,163,690 shares and 173,496 shares held by Brentwood Associates
VIII, L.P. and Brentwood Affiliates Fund, L.P., respectively.
(16) Includes 3,262,731 shares and 283,717 held by Enterprise Partners IV,
L.P. and Enterprise Partners IV Associates, L.P., respectively.
(17) Includes 1,511,919 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days of March 31, 2000.
21
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following summary compensation table indicates the cash and non-cash
compensation earned during the fiscal year ended December 31, 1999 by our
Chief Executive Officer and each of our other four highest paid executive
officers whose total compensation exceeded or would have exceeded $100,000
during 1999 had those officers provided services to us for the entire fiscal
year.
Summary Compensation Table for Fiscal Year 1999
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Securities
Name and Principal ------------------ Other Annual Underlying All Other
Positions Year Salary($) Bonus($) Compensation($) Options(#) Compensation($)
------------------ ---- --------- -------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
John M. Payne........... 1999 234,829 40,000(1) -- -- --
Chairman and Chief Ex-
ecutive Officer 1998 27,897 -- -- -- 112,800(2)
(October 1998 to pres-
ent)
Loren E. Smith.......... 1999 49,441 -- -- 543,000 143,928(3)
President and Chief Op-
erating Officer 1998 -- -- -- -- --
(October 1999 to pres-
ent)
John W. LaValle......... 1999 162,565 -- -- 104,198 1,958(4)
Executive Vice
President and 1998 42,000 -- -- 395,802 --
Chief Financial Officer
Douglas J. Walner....... 1999 182,084 73,125(1) -- -- 1,350(4)
Senior Vice President
of Business 1998 35,000 25,000 -- 366,357 7,434(5)
Development
Michael D. Walther...... 1999 132,275 25,000(1) -- 225,000 31,253(6)
Senior Vice President,
Systems 1998 -- -- -- -- --
Operations (April 1999
to March 2000)
</TABLE>
- -------
(1) Represents bonus amounts earned in fiscal year 1998 and paid in 1999.
(2) Represents total payments to Mr. Payne for consulting services performed
during the period from May 1998 to October 1998.
(3) Represents total payments to Mr. Smith for consulting services performed
during the period from February 1999 to October 1999.
(4) Represents contributions to our 401(k) plan which we made on behalf of
the named officer to match a portion of his elective deferred
contributions to such plan.
(5) Represents total payments to Mr. Walner for consulting services performed
during the period from August 1998 to September 1998.
(6) Represents total payments to Mr. Walther for consulting services
performed during the period February 1999 to April 1999. Also includes
$1,253 of matching funds paid by the Company under the terms of the
Company's 401(k) plan.
22
<PAGE>
Stock Options Granted During Fiscal Year 1999
During the fiscal year ended December 31, 1999, we granted options to
purchase 5,001,454 shares of common stock. All options were granted at an
exercise price equal to the fair market value of our common stock as
determined by our Board of Directors on the date of grant or, after the
Company's initial public offering in June 1999, based on the closing price on
the Nasdaq National Market of our common stock on the date of grant. The
exercise price may be paid in cash, check, promissory note, shares of our
common stock valued at fair market value on the exercise date or a cashless
exercise procedure involving a same-day sale of the purchased shares. The
following table indicates information regarding options to purchase common
stock granted to our officers listed in the Summary Compensation Table.
<TABLE>
<CAPTION>
Potential Realizable
Value at
Assumed Annual Rates
of Stock Price
Appreciation
Individual Grants for Option Term
- --------------------------------------------------------------------------- ----------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/Sh)(2) Date 5%($) 10%($)
- ------------------------ ------------ -------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Loren E. Smith.......... 135,000 2.7% $ 0.33 02/9/09 $ 28,017 $ 71,001
108,000 2.2 0.33 02/9/09 22,414 56,801
300,000 6.0 35.625 10/19/09 6,721,311 17,033,123
John W. LaValle......... 104,198 2.1 35.625 10/19/09 2,334,490 5,916,056
Michael D. Walther...... 123,750 2.5 0.33 1/25/09 25,682 65,084
101,250 2.0 3.00 3/31/09 191,027 484,099
</TABLE>
The options granted to Messrs. Smith and LaValle for 300,000 and 104,198
shares of common stock, respectively, were granted under our 1999 Stock
Incentive Plan. Mr. Smith's remaining options and Mr. Walther's options listed
in the table above were granted under our 1998 Stock Plan, which was succeeded
by our 1999 Stock Incentive Plan upon the closing of our initial public
offering. Shares underlying Mr. Smith's option to purchase 135,000 shares of
common stock vest over a period of four years. Shares underlying Mr. Smith's
option to purchase 108,000 shares vest in 36 equal monthly installments from
February 10, 1999. Mr. Smith's option to purchase 300,000 shares of common
stock vests in 24 equal montly installments from October 20, 1999.
Mr. LaValle's option vests in 36 equal monthly installments from October 20,
1999. Shares underlying Mr. Walther's option to purchase 123,750 shares of
common stock vest in full on January 26, 2000. Shares underlying Mr. Walther's
option to purchase 101,250 shares of common stock vest in 36 equal monthly
installments from January 26, 2000. The vesting of each of the options may be
accelerated upon a change-in-control in which the options are not assumed by
the successor corporation.
Potential realizable values are net of exercise price, but before the
payment of taxes associated with exercise. Amounts represent hypothetical
gains that could be achieved for the respective options if exercised at the
end of the option term. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by rules of the Securities and Exchange
Commission and do not represent our estimate or projection of our future
common stock prices. There can be no assurance provided to any executive
officer or other holder of the Company's securities that the actual stock
price appreciation over the ten-year option term will be at the assumed 5% and
10% levels or at any other defined level. Unless the market price of the
common stock appreciates over the option term, no value will be realized from
those option grants which were made with an exercise price equal to the fair
market value of the option shares on the grant date.
The exercise price may be paid in cash or in shares of common stock valued
at fair market value on the exercise date. Alternatively, the option may be
exercised through a cashless exercise procedure pursuant to which the optionee
provides irrevocable instructions to a brokerage firm to sell the purchased
shares and to remit to the Company, out of the sale proceeds, an amount equal
to the exercise price plus all applicable withholding taxes. The Compensation
Committee may also assist an optionee in the exercise of an option by (i)
authorizing a loan
23
<PAGE>
from the Company in a principal amount not to exceed the aggregate exercise
price plus any tax liability incurred in connection with the exercise or (ii)
permitting the optionee to pay the option price in installments over a period
of years upon terms established by the Compensation Committee.
Aggregated Option Exercises and Year-End Option Values
The following table provides information, with respect to the officers
named in the Summary Compensation Table, concerning the exercise of options
during the 1999 fiscal year and unexercised options held by them at of the end
of that fiscal year.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised in-the-Money
Options/SARs Options/SARs at FY-End
Shares Value at FY-End (#) ($)(2)
acquired on Realized ---------------- ----------------------
Name exercise (#) ($)(1) Vested Unvested Vested Unvested
---- ------------ -------- ------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Loren E. Smith.......... -- $ -- 110,000 433,000 $3,660,075 $ 8,174,610
John W. LaValle......... 6,500 269,295 116,476 377,024 4,634,368 12,168,265
Douglas J. Walner....... 500 21,184 121,952 243,905 5,067,715 10,135,472
Michael D. Walther...... -- -- -- 225,000 -- 9,053,212
</TABLE>
- --------
(1) Based upon the market price of the purchased shares on the exercise date
less the option exercise price paid for those shares.
(2) Based upon the market price of $41.625 per share, determined on the basis
of the closing selling price per share of Common Stock on the Nasdaq
National Market on the last day of the 1999 fiscal year, less the option
exercise price payable per share.
Employment Agreements and Change in Control Arrangements
John M. Payne has entered into a letter agreement, effective as of October
29, 1998, to serve as our President and Chief Executive Officer. In October
1999, Mr. Payne was appointed to the offices of Chairman of the Board and
Chief Executive Officer. Mr. Payne currently receives a base salary in 2000 of
$300,000. In addition, we gave Mr. Payne benefits that we make available to
our employees in comparable positions, and upon his execution of the letter
agreement, we sold 1,500,000 shares of our common stock to him at $0.07 per
share, the fair market value on the purchase date. Mr. Payne is an at-will
employee and his employment may be terminated at any time by him or by us. If
Mr. Payne's employment is constructively terminated or terminated by us
without cause, he will be entitled to receive monthly installments of his base
salary for six months. After two years of employment, Mr. Payne's severance
period will increase to nine months, and after three years of service, the
severance period will increase to one year. If Mr. Payne is constructively
terminated by us or a successor entity involuntarily within 12 months
following a change in control, he will receive the severance payments
described above and all of his unvested stock will become immediately vested.
John W. LaValle entered into a letter agreement, effective as of August 16,
1998, to serve as our Chief Financial Officer and Senior Vice President. In
April 2000, Mr. LaValle was appointed an Executive Vice President. Mr. LaValle
currently receives a base salary in 2000 of $200,000. In connection with the
commencement of his employment, Mr. LaValle was granted an option to purchase
395,802 shares of common stock at $0.07 per share, the fair market value on
the grant date. In October 1999, Mr. LaValle was granted an option to purchase
104,198 shares of common stock with an exercise price of $35.625, the fair
market value
on the grant date. In addition, Mr. LaValle receives standard medical and
dental benefits available to our other employees. Mr. LaValle is an at-will
employee and his employment can be terminated at any time by him or by us. If
Mr. LaValle's employment is constructively terminated or terminated by us or a
successor entity within 12 months following a change in control, all of his
unvested stock will become immediately vested.
24
<PAGE>
For purposes of the agreements with Messrs. Payne and LaValle,
"constructive termination" shall occur upon the following:
. a relocation without consent;
. disability or death;
. an assignment to a new position that is not commensurate with the
individual's seniority and compensation level; or
. any reduction in the individual's compensation.
Loren E. Smith entered into a letter agreement, effective as of October 20,
1999, to serve as President and Chief Operations Officer. Mr. Smith receives a
base salary of $250,000 per year and was granted an option to purchase 300,000
shares of common stock at $38.625 per share, the fair market value on the
grant date. In addition, Mr. Smith receives standard medical and dental
benefits available to our other employees. Mr. Smith is an at-will employee
and his employment can be terminated at any time by him or by us. If Mr.
Smith's employment is constructively terminated or terminated by us or a
successor entity within 18 months following a change in control, all of his
unvested stock will become immediately vested under the special change in
control protections afforded all of our employees.
Douglas J. Walner is subject to an agreement which partially accelerates
the vesting of his options upon a change in control and his subsequent
termination.
In April 1999, we amended our 1998 Stock Plan to adopt a change in control
provision. As a result of this provision, should any optionee have his or her
service involuntarily terminated within 18 months following a change in
control in which his or her options are assumed by the successor corporation
and do not otherwise accelerate at that time, then those options will
accelerate and become fully exercisable for all of the option shares as fully-
vested shares of common stock upon an involuntary termination. A "change in
control" under the 1998 Stock Plan is defined as a merger or consolidation in
which securities possessing more than 50% of the total combined voting power
of our outstanding securities are transferred to a person or persons different
from those who held those securities immediately prior to the transaction, or
the sale, transfer or other disposition of all or substantially all of our
assets in complete liquidation or dissolution of us. "Involuntary Termination"
is defined under the 1998 Stock Plan as the optionee's involuntary dismissal
or discharge by us for reasons other than misconduct, or the optionee's
voluntary resignation following:
. a change in his or her position with us which materially reduces his or
her responsibilities;
. a reduction in his or her level of compensation by more than 15%; or
. a relocation of the optionee's place of employment by more than 50
miles, and this change, reduction or relocation is effected by us
without the optionee's consent.
Our 1999 Stock Incentive Plan is a successor plan to our 1998 Stock Plan,
and includes change in control provisions which may result in the accelerated
vesting of outstanding option grants and stock issuances.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Company's Board of Directors currently
consists of Messrs. Bruggere, Clancy and Jones. None of these individuals was
an officer or employee of the Company at any time during the 1999 fiscal year
or at any other time.
No current executive officer of the Company has ever served as a member of
the board of directors or compensation committee of any other entity that has
or has had one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee.
25
<PAGE>
Board Compensation Committee Report on Executive Compensation
It is the duty of the Compensation Committee to review and determine the
salaries and bonuses of executive officers of the Company, including the Chief
Executive Officer, and to establish the general compensation policies for such
individuals. The Compensation Committee also has the sole and exclusive
authority to make discretionary option grants to the Company's executive
officers under the Company's 1999 Stock Incentive Plan.
The Compensation Committee believes that the compensation programs for the
Company's executive officers should reflect the Company's performance and the
value created for the Company's stockholders. In addition, the compensation
programs should support the short-term and long-term strategic goals and
values of the Company and should reward individual contribution to the
Company's success. The Company is engaged in a very competitive industry, and
the Company's success depends upon its ability to attract and retain qualified
executives through the competitive compensation packages it offers to such
individuals.
General Compensation Policy. The Compensation Committee's policy is to
provide the Company's executive officers with compensation opportunities which
are based upon their personal performance, the financial performance of the
Company and their contribution to that performance and which are competitive
enough to attract and retain highly skilled individuals. Each executive
officer's compensation package is comprised of three elements: (i) base salary
that is competitive with the market and reflects individual performance, (ii)
annual variable performance awards payable in cash and tied to the Company's
achievement of annual financial and other performance goals and (iii) long-
term stock-based incentive awards designed to strengthen the mutuality of
interests between the executive officers and the Company's stockholders. As an
officer's level of responsibility increases, a greater proportion of his or
her total compensation will be dependent upon the Company's financial
performance and stock price appreciation rather than base salary.
The Company utilizes the services of an independent compensation consulting
firm to advise the Committee as to how the Company's executive compensation
levels compare to those of companies within and outside of the industry.
Factors. The principal factors that were taken into account in establishing
each executive officer's compensation package for the 1999 fiscal year are
described below. However, the Compensation Committee may in its discretion
apply entirely different factors, such as different measures of financial
performance, for future fiscal years.
Base Salary. In setting base salaries, the Compensation Committee reviewed
published compensation survey data for its industry. The Committee also
identified a group of companies for comparative compensation purposes for
which it reviewed detailed compensation data incorporated into their proxy
statements. This group was comprised of 23 companies. The base salary for each
officer reflects the salary levels for comparable positions in the published
surveys and the comparative group of companies, as well as the individual's
personal performance and internal alignment considerations. The relative
weight given to each factor varies with each individual in the sole discretion
of the Compensation Committee. Each executive officer's base salary is
adjusted each year on the basis of (i) the Compensation Committee's evaluation
of the officer's personal performance for the year and (ii) the competitive
marketplace for persons in comparable positions. The Company's performance and
profitability may also be a factor in determining the base salaries of
executive officers. For the 1999 fiscal year, the base salary of the Company's
executive officers ranged from the 50th percentile to the 85th percentile of
the base salary levels in effect for comparable positions in the surveyed
compensation data.
Annual Incentives. For the 1999 fiscal year, the annual incentive bonus for
the Chief Executive Officer was based on the actual financial performance of
the Company in comparison to the Company's business plan, with additional
consideration given to bonus ranges for chief executive officers indicated in
the surveyed compensation data. The other executive officers of the Company
were also awarded annual incentive bonuses on the basis of the Company's
performance to plan, with additional consideration given to attainment of
individual goals and bonus ranges for comparable positions indicated in the
surveyed compensation data. For future fiscal
26
<PAGE>
years, the annual incentive bonuses for executive officers will be based upon
management incentive plans that have been adopted for the 2000 fiscal year.
The bonuses will be based substantially on the Company's financial
performance, including achievement of revenue and customer acquisition goals
and meeting cost objectives. Additional consideration may be given for
attainment of individual goals.
Long Term Incentives. Generally, stock option grants will be considered
annually by the Compensation Committee for each of the Company's executive
officers, as appropriate. Each grant made is designed to align the interests
of the executive officer with those of the stockholders and provide each
individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the business. Each grant
allows the officer to acquire shares of the Company's Common Stock at a fixed
price per share (the market price on the grant date) over a specified period
of time (up to ten years). Each option becomes exercisable in a series of
installments over a 3 to 4-year period, contingent upon the officer's
continued employment with the Company. Accordingly, the option will provide a
return to the executive officer only if he or she remains employed by the
Company during the vesting period, and then only if the market price of the
shares appreciates over the option term.
The size of the option grant to each executive officer, including the Chief
Executive Officer, is set by the Compensation Committee at a level that is
intended to create a meaningful opportunity for stock ownership based upon the
individual's current position with the Company, the individual's personal
performance in recent periods and his or her potential for future
responsibility and promotion over the option term. The Compensation Committee
also takes into account the number of unvested options held by the executive
officer in order to maintain an appropriate level of equity incentive for that
individual. The relevant weight given to each of these factors varies from
individual to individual. The Compensation Committee has established certain
guidelines with respect to the option grants made to the executive officers,
but has the flexibility to make adjustments to those guidelines at its
discretion.
CEO Compensation. In setting the total compensation payable to the
Company's Chief Executive Officer for the 1999 fiscal year, the Compensation
Committee sought to make that compensation competitive with the compensation
paid to the chief executive officers of the companies in the surveyed group,
while at the same time assuring that a significant percentage of compensation
was tied to Company performance and stock price appreciation.
The Compensation Committee adjusted Mr. Payne's base salary for the 1999
fiscal year in recognition of his personal performance and with the objective
of maintaining his base salary at a competitive level when compared with the
base salary levels in effect for similarly situated chief executive officers.
With respect to Mr. Payne's base salary, it is the Compensation Committee's
intent to provide him with a level of stability and certainty each year and
not have this particular component of compensation affected to any significant
degree by Company performance factors. For the 1999 fiscal year, Mr. Payne's
base salary was approximately at the median of the base salary levels of other
chief executive officers at the surveyed companies.
The remaining components of Mr. Payne's 1999 fiscal year compensation,
however, were primarily dependent upon corporate performance. Mr. Payne was
eligible for a cash bonus for the 1999 fiscal year conditioned on the
Company's attainment of commercial launch of its Internet Postage service, the
completion of financings necessary to fund the Company's growth and the
achievement of other business objectives. Additional consideration to be given
to individual business plan objectives. A $150,000 bonus was paid to him in
the first quarter of 2000 for fiscal 1999 because the Company attained these
goals. No stock option grants were made to Mr. Payne in fiscal 1999 as the
committee believed his existing equity ownership in the Company provided
adequate incentive for future performance.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code disallows a tax deduction to publicly held companies for
compensation paid to certain of their executive officers, to the extent that
compensation exceeds $1 million per covered officer in any fiscal year. The
limitation applies only to compensation which is not considered to be
performance-based. Non-performance based compensation
27
<PAGE>
paid to the Company's executive officers for the 1999 fiscal year did not
exceed the $1 million limit per officer, and the Compensation Committee does
not anticipate that the non-performance based compensation to be paid to the
Company's executive officers for fiscal 1999 will exceed that limit. The
Company's 1999 Stock Incentive Plan has been structured so that any
compensation deemed paid in connection with the exercise of option grants made
under that plan with an exercise price equal to the fair market value of the
option shares on the grant date will qualify as performance-based compensation
which will not be subject to the $1 million limitation. Because it is unlikely
that the cash compensation payable to any of the Company's executive officers
in the foreseeable future will approach the $1 million limit, the Compensation
Committee has decided at this time not to take any action to limit or
restructure the elements of cash compensation payable to the Company's
executive officers. The Compensation Committee will reconsider this decision
should the individual cash compensation of any executive officer ever approach
the $1 million level.
It is the opinion of the Compensation Committee that the executive
compensation policies and plans provide the necessary total remuneration
program to properly align the Company's performance and the interests of the
Company's stockholders through the use of competitive and equitable executive
compensation in a balanced and reasonable manner, for both the short and long-
term.
Submitted by the Compensation Committee of the Company's Board of
Directors:
Thomas H. Bruggere
Thomas N. Clancy
G. Bradford Jones
28
<PAGE>
Stock Performance Graph
The following line graph compares the cumulative total return to
stockholders of the Company's Common Stock from June 25, 1999 (the date of the
Company's initial public offering) to December 31, 1999 to the cumulative
total return over such period of (i) Nasdaq US Index and (ii) a peer group
consisting of Pitney Bowes, a postage and other business services provider
that has a product line that competes directly with the Company's products.
The Company's other primary competitor, E-Stamp, is not included in the data
because no public market existed in E-Stamp's common stock at the time of the
Company's initial public offering. The graph assumes that $100 was invested on
June 25, 1999 in the Company's common stock at its initial public offering
price of $11.00 per share and in each of the other two indices and the
reinvestment of all dividends, if any.
The information contained in the Performance Graph shall not be deemed to
be "soliciting material" or to be "filed" with the SEC, nor shall such
information be incorporated by reference into any future filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, except to the extent that the Company specifically incorporates it by
reference into any such filing. The graph is presented in accordance with SEC
requirements. Stockholders are cautioned against drawing any conclusions from
the data contained therein, as past results are not necessarily indicative of
future performance.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Base Quarters Ending
Period: -----------------------------------
June 25, June 30, September 30, December 31,
Company/Index 1999 1999 1999 1999
- ------------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C>
STAMPS.COM INC. ................... 100.00 118.39 235.10 281.61
NASDAQ US INDEX.................... 100.00 105.07 107.46 155.09
PEER GROUP......................... 100.00 101.58 96.76 77.12
</TABLE>
29
<PAGE>
CERTAIN TRANSACTIONS
Transactions with Mr. Payne
John M. Payne, the Company's Chairman and Chief Executive Officer,
purchased 1,500,000 shares of common stock in November 1998 for a purchase
price of $100,000, which amount includes a note payable to Stamps.com for
$99,000.
The Company paid Mr. Payne $112,800 for consulting services he rendered
between May 1998 and October 1998.
In February 2000, Mr. Payne purchased 187,000 shares of the Company's
common stock on the open market for an aggregate purchase price of
approximately $6.0 million. The shares were purchased on margin by Mr. Payne
and the margin account was secured by a pledge of 1,467,500 shares of the
Company's common stock held by Mr. Payne. In April 2000, the Company agreed to
guarantee Mr. Payne's margin account in the event the value of the shares
pledged becomes insufficient collateral to secure the indebtedness outstanding
under the margin account. The guarantee is in the form of a single-purpose
line of credit extended to Mr. Payne which will have a balance due to the
Company to the extent the value of the pledged shares is insufficient
collateral to secure indebtedness outstanding under the margin account. This
line of credit is secured by all of Mr. Payne's assets.
Transactions with Mr. Ananda
Mohan Ananda, a member of the board of directors, purchased 2,172,595
shares of common stock in January 1998 for a total purchase price of $28,968.
As payment of the purchase price, Mr. Ananda assigned to the Company
intellectual property rights in his inventions developed for the Company and
received a license back from the Company to use those intellectual property
rights in a restricted field of use.
The Company paid $61,000 in March 1998 to Safeware Corporation for employee
salary and patent prosecution expenses incurred on the Company's behalf to
attain patents. These patent prosecution expenses consisted primarily of fees
paid to patent counsel and fees paid to the US Patent and Trademark Office.
Mr. Ananda is the majority shareholder in Safeware Corporation. The Company
also reimbursed Mr. Ananda for approximately $20,000 for expenses incurred on
the Company's behalf.
Under previous agreements with Mr. Ananda, the Company owns all of the
intellectual property developed by Mr. Ananda during the course of his
employment and all of the intellectual property he developed for the Company
before his formal employment began. Mr. Ananda resigned as the Company's Chief
Executive Officer on January 1, 1999. In May 1999, the Company entered into a
separation agreement and a license agreement with Mr. Ananda to formalize his
resignation and to redefine his intellectual property rights relative to the
Company. The new license agreement reaffirmed the Company's ownership of the
intellectual property invented by Mr. Ananda. In addition, the license
agreement clarified and narrowed Mr. Ananda's field of use restrictions to
limit his license to a few narrowly defined electronic commerce applications
that do not compete with the Company's Internet postage service.
Consulting Services
In February 1999, the Company entered into a three-year consulting
agreement with Loren Smith under which he will provide marketing and strategic
planning services. Mr. Smith also agreed to serve as a director on the
Company's Board of Directors and to serve as a member on a board committee. In
exchange for these services, the Company compensated Mr. Smith $120,000 per
year, and in consideration of his consulting services, granted him an option
to purchase 135,000 shares of common stock at $0.33 per share. This agreement
terminated in October 1999 upon Mr. Smith's appointment as the Company's
President and Chief Operating Officer. In connection with Mr. Smith's
appointment as President and Chief Operating Officer, the Company granted Mr.
Smith an option to purchase 300,000 shares of common stock at an exercise
price of $35.625 per share. The options were granted at fair market value and
vest over a period of two years.
30
<PAGE>
On June 21, 1999, the Company entered into a consulting services agreement
with Carolyn Ticknor, a director, to provide strategic planning and business
development advice, and other consulting services that the Company may
request. In exchange for these services, the Company granted Ms. Ticknor an
option to purchase 10,000 shares of our common stock at an exercise price of
$11.00 per share. This consulting agreement expired on October 1, 1999.
In October 1999, the Company entered into a three-year consulting agreement
with Marvin Runyon, a director, under which he will provide strategic planning
services. In exchange for these services, the Company granted Mr. Runyon an
option to purchase 36,000 shares of common stock at an exercise price of
$35.625 per share. These options were granted at fair market value and vest
ratably over a three-year period. In November 1999, this agreement was amended
to provide that Mr. Runyon receive $2,000 per day in compensation for any
special projects on which the Company requires his services.
EncrypTix Investment
In November 1999, the Company formed a subsidiary, EncrypTix, Inc., to
develop secure printing opportunities in the events, travel and financial
services industries. In February 2000, the Company invested $1.0 million and
granted EncrypTix a license to its technology in those three specific fields
of use in exchange for shares of Series A Preferred Stock of EncrypTix. In
addition, EncrypTix raised approximately $30 million in a Series B Preferred
Stock financing from a group of financial and strategic investors that
includes Vulcan Ventures, American Express Travel Related Services Company,
Inc., Galileo International, GetThere.com, Inc., Loews Cineplex Entertainment
Corporation, Mail Boxes Etc. USA, Inc., Mitsubishi International Corporation,
Sabre, Inc., SunAmerica Investment Inc. and Tickets.com, Inc. The price per
share of the Series B Preferred Stock was $7.45, which price was negotiated in
an arm's-length transaction between EncrypTix and the third party investors.
As a result of the Series B Preferred Stock financing, the Company retains
almost two-thirds of the economic interest and over 90% of the voting control
of EncrypTix through the ownership of all of the outstanding Series A
Preferred Stock of EncrypTix. The Series A Preferred Stock has supermajority
voting rights so as to preserve at least 80% of the voting control of
EncrypTix for the Company.
In March 2000, the Company's directors and executive officers, with the
exception Messrs. Duffy and Jones, purchased an aggregate of 232,884 shares of
Series B Preferred Stock of EncrypTix at $7.45 per share, the same price per
share paid by the third-party investors in EncrypTix. All of the foregoing
shares purchased by the individual directors and executive officers has been
paid in full with cash.
Indemnification of Directors and Officers
In addition to the indemnification provisions contained in the Company's
Certificate of Incorporation and Bylaws, the Company has entered into separate
indemnification agreements with each of its directors and officers. These
agreements require the Company, among other things, to indemnify such director
or officer against expenses (including attorneys' fees), judgments, fines and
settlements (collectively, "Liabilities") paid by such individual in
connection with any action, suit or proceeding arising out of such
individual's status or service as a director or officer of the Company (other
than Liabilities arising from willful misconduct or conduct that is knowingly
fraudulent or deliberately dishonest) and to advance expenses incurred by such
individual in connection with any proceeding against such individual with
respect to which such individual may be entitled to indemnification by the
Company.
All future transactions between the Company and its officers, directors,
principal stockholders and affiliates will be approved by a majority of the
independent and disinterested members of the Board of Directors, and will be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
31
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934 which require them to file reports with
respect to their ownership of the Common Stock and their transactions in such
Common Stock. Based upon (i) the copies of Section 16(a) reports which the
Company received from such persons for their 1999 Fiscal Year transactions in
the Common Stock and their Common Stock holdings, and (ii) the written
representations received from one or more of such persons that no annual Form
5 reports were required to be filed by them for the 1999 Fiscal Year, the
Company believes that all reporting requirements under Section 16(a) for such
fiscal year were met in a timely manner by its directors, executive officers
and greater than ten percent beneficial owners except as set forth below.
ANNUAL REPORT
A copy of the Annual Report of the Company for the 1999 Fiscal Year has
been mailed concurrently with this Proxy Statement to all stockholders
entitled to notice of and to vote at the Annual Meeting. The Annual Report is
not incorporated into this Proxy Statement and is not considered proxy
solicitation material.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the Securities and
Exchange Commission on or about March 30, 2000. The Company filed an amended
Annual Report on Form 10-K/A with the Securities and Exchange Commission on or
about April 28, 2000. Stockholders may obtain a copy of this report, without
charge, by writing to Investor Relations at Stamps.com Inc., 3420 Ocean Park
Boulevard, Suite 1040, Santa Monica, California 90405.
THE BOARD OF DIRECTORS OF STAMPS.COM INC.
Dated: May 16, 2000
32
<PAGE>
STAMPS.COM INC.
1999 STOCK INCENTIVE PLAN
-------------------------
(AMENDED AND RESTATED AS OF MARCH 7, 2000)
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1999 Stock Incentive Plan is intended to promote the interests of
Stamps.com Inc., a Delaware corporation, by providing eligible persons in the
Corporation's service with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- the Discretionary Option Grant Program under which eligible
employees may, at the discretion of the Plan Administrator, be granted options
to purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary invested
each year in special option grants,
- the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which eligible non-
employee Board members shall automatically receive option grants at designated
intervals over their period of continued Board service, and
- the Director Fee Option Grant Program under which non-
employee Board members may elect to have all or any portion of their annual
retainer fee otherwise payable in cash applied to a special stock option grant.
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
<PAGE>
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However, any
discretionary option grants or stock issuances for members of the Primary
Committee must be authorized by a disinterested majority of the Board.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions
of any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
D. The Primary Committee shall have the sole and exclusive authority
to determine which Section 16 Insiders and other highly compensated Employees
shall be eligible for participation in the Salary Investment Option Grant
Program for one or more calendar years. However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final
2.
<PAGE>
and binding on all parties who have an interest in the Discretionary Option
Grant and Stock Issuance Programs under its jurisdiction or any option or stock
issuance thereunder.
G. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or
Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances are
to be made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration for such
shares.
D. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the Underwriting Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members at one or more Annual Stockholders Meetings held after the
Underwriting Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant under the Automatic Option Grant Program at the time he
or she first becomes a non-employee
3.
<PAGE>
Board member, but shall be eligible to receive periodic option grants under the
Automatic Option Grant Program while he or she continues to serve as a non-
employee Board member.
F. All non-employee Board members shall be eligible to participate
in the Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed 11,019,551
shares. Such reserve shall consist of: (i) the 7,290,000 shares of Common Stock
initially reserved for issuance under the Plan, including the shares subject to
outstanding options incorporated from that Predecessor Plan, (ii) an additional
increase of 2,500,000 shares authorized by the Board in October 22, 1999 and
approved by the stockholders at the Special Stockholders Meeting held on March
7, 2000, and (iii) 1,229,551 shares added to the reserve in the automatic share
increase that occurred January 4, 2000.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2000, by
an amount equal to three percent (3%) of the total number of shares of Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
1,564,715 shares.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 1,125,000 shares of Common Stock in the aggregate per calendar year.
D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
4.
<PAGE>
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two, Section III of Article Three,
Section II of Article Five or Section III of Article Six of the Plan shall not
be available for subsequent issuance under the Plan.
E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made by the Plan Administrator to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year, (iii) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan, (v) the number and/or class of securities and price per
share in effect under each outstanding option incorporated into this Plan from
the Predecessor Plan and (vi) the maximum number and/or class of securities by
which the share reserve is to increase automatically each calendar year pursuant
to the provisions of Section V.B of this Article One. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
5.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Seven and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for
vested shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide
irrevocable instructions to (a) a Corporation-designated
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus
all applicable Federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of
such exercise and (b) the Corporation to deliver the certificates
for the purchased shares directly to such brokerage firm in order
to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable
----------------------------
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
6.
<PAGE>
C. Effect of Termination of Service.
--------------------------------
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be
determined by the Plan Administrator and set forth in the
documents evidencing the option, but no such option shall be
exercisable after the expiration of the option term.
(ii) Any option held by the Optionee at the time
of death and exercisable in whole or in part at that time may be
subsequently exercised by the personal representative of the
Optionee's estate or by the person or persons to whom the option
is transferred pursuant to the Optionee's will or in accordance
with the laws of inheritance or by the Optionee's designated
beneficiary or beneficiaries of that option.
(iii) Should the Optionee's Service be terminated
for Misconduct or should Optionee otherwise engage in Misconduct
while one or more of his or her options under this Article Two
are outstanding, then all those options shall terminate
immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more
than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service.
Upon the expiration of the applicable exercise period or (if
earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares for
which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding to the extent the option is
not otherwise at that time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the
option is to remain exercisable following the Optionee's
cessation of Service from the limited exercise period otherwise
in effect for that option to such greater period of time as the
Plan Administrator shall deem appropriate, but in no event beyond
the expiration of the option term, and/or
(ii) permit the option to be exercised, during
the applicable post-Service exercise period, not only with
respect to the number of vested shares of Common Stock for which
such option is exercisable at the time of the Optionee's
cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested
had the Optionee continued in Service.
7.
<PAGE>
D. Stockholder Rights. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
-----------------
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the exercise price paid
per share, any or all of those unvested shares. The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator and set forth in the document evidencing
such repurchase right.
F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or the laws of inheritance
following the Optionee's death. However, a Non-Statutory Option may, in
connection with the Optionee's estate plan, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate. Notwithstanding the foregoing, the Optionee may also
designate one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Two, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section II.
---
A. Eligibility. Incentive Options may only be granted to Employees.
-----------
B. Dollar Limitation. The aggregate Fair Market Value of the shares
-----------------
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000).
8.
<PAGE>
To the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
C. 10% Stockholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. However, an outstanding option shall not become
exercisable on such an accelerated basis if and to the extent: (i) such option
is, in connection with the Corporate Transaction, to be assumed by the successor
corporation (or parent thereof) or (ii) such option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing at the time of the Corporate Transaction on any shares for which the
option is not otherwise at that time exercisable and provides for subsequent
payout in accordance with the same exercise/vesting schedule applicable to those
option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
- --------
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and
9.
<PAGE>
(iii) the maximum number and/or class of securities for which any one person may
be granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan per calendar year and (iv) the maximum
number and/or class of securities by which the share reserve is to increase
automatically each calendar year.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effect date of
such Corporate Transaction, become exercisable for all the shares of Common
Stock at the time subject to those options and may be exercised for any or all
of those shares as fully vested shares of Common Stock, whether or not those
options are to be assumed in the Corporate Transaction. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall not be assignable in connection with such Corporate
Transaction and shall accordingly terminate upon the consummation of such
Corporate Transaction, and the shares subject to those terminated rights shall
thereupon vest in full.
F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become exercisable for all the shares of
Common Stock at the time subject to those options in the event the Optionee's
Service is subsequently terminated by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those options are assumed
and do not otherwise accelerate. Any options so accelerated shall remain
exercisable for fully vested shares until the earlier of (i) the expiration of
-------
the option term or (ii) the expiration of the one (1) year period measured from
the effective date of the Involuntary Termination. In addition, the Plan
Administrator may structure one or more of the Corporation's repurchase rights
so that those rights shall immediately terminate with respect to any shares held
by the Optionee at the time of his or her Involuntary Termination, and the
shares subject to those terminated repurchase rights shall accordingly vest in
full at that time.
G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effect date of a
Change in Control, become exercisable for all the shares of Common Stock at the
time subject to those options and may be exercised for any or all of those
shares as fully vested shares of Common Stock. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall terminate automatically upon the consummation of such
Change in Control, and the shares subject to those terminated rights shall
thereupon vest in full. Alternatively, the Plan Administrator may condition the
automatic acceleration of one or more outstanding options under the
Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a
10.
<PAGE>
designated period (not to exceed eighteen (18) months) following the effective
date of such Change in Control. Each option so accelerated shall remain
exercisable for fully vested shares until the earlier of (i) the expiration of
-------
the option term or (ii) the expiration of the one (1) year period measured from
the effective date of Optionee's cessation of Service.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may
establish, to elect between the exercise of the underlying option
for shares of Common Stock and the surrender of that option in
exchange for a distribution from the Corporation in an amount
equal to the excess of (a) the Fair Market Value (on the option
surrender date) of the number of shares in which the Optionee is
at the time vested under the surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable
for such shares.
(ii) No such option surrender shall be effective unless
it is approved by the Plan Administrator, either at the time of
the actual option surrender or at any earlier time. If the
surrender is so approved, then the distribution to which the
Optionee shall be entitled may be made in shares of Common Stock
valued at Fair Market Value on the option surrender date, in
cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
11.
<PAGE>
(iii) If the surrender of an option is not
approved by the Plan Administrator, then the Optionee shall
retain whatever rights the Optionee had under the surrendered
option (or surrendered portion thereof) on the option surrender
date and may exercise such rights at any time prior to the later
-----
(a) five (5) business days after the receipt of the rejection
notice or (b) the last day on which the option is otherwise
exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be
exercised more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be
granted limited stock appreciation rights with respect to their
outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over,
each individual holding one or more options with such a limited
stock appreciation right shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile
Take-Over) to surrender each such option to the Corporation. In
return for the surrendered option, the Optionee shall receive a
cash distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common Stock
at the time subject to such option (whether or not the Optionee
is otherwise at the time vested in those shares) over (B) the
aggregate exercise price payable for those shares. Such cash
distribution shall be paid within five (5) days following the
option surrender date.
(iii) At the time such limited stock appreciation
right is granted, the Plan Administrator shall pre-approve any
subsequent exercise of that right in accordance with the terms of
this Paragraph C. Accordingly, no further approval of the Plan
Administrator or the Board shall be required at the time of the
actual option surrender and cash distribution.
12.
<PAGE>
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
--------------------------------------
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
--------
that each such document shall comply with the terms specified below.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the reduction in the
Optionee's base salary for the calendar year to be in effect
pursuant to this program, and
13.
<PAGE>
B is the Fair Market Value per share of Common Stock on
the option grant date.
C. Exercise and Term of Options. The option shall become
----------------------------
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease
--------------------------------
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
-------
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or the laws of inheritance or by the designated beneficiary
or beneficiaries of such option. Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten (10)-
-------
year option term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Service. However, the option shall, immediately upon
the Optionee's cessation of Service for any reason, terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the fully-
vested shares until the earlier of (i) the expiration of the ten (10)-year
-------
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become exercisable for all the shares of Common Stock
at the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. The option shall remain so
exercisable until the earliest to occur of (i) the expiration of the ten (10)-
--------
year
14.
<PAGE>
option term, (ii) the expiration of the three (3)-year period measured from the
date of the Optionee's cessation of Service, (iii) the termination of the option
in connection with a Corporate Transaction or (iv) the surrender of the option
in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation. The Primary Committee shall, at the time the
option with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
--------
payable for such securities shall remain the same.
E. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
15.
<PAGE>
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals.
A. Purchase Price.
--------------
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the Corporation (or
any Parent or Subsidiary).
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or
16.
<PAGE>
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
17.
<PAGE>
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).
C. The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
18.
<PAGE>
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified
-----------
below:
1. Each individual who is first elected or appointed as a non-
employee Board member at any time on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 10,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after
the Underwriting Date, each individual who is to continue to serve as an
Eligible Director, whether or not that individual is standing for re-election to
the Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 2,500 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 2,500-share option grants
any one Eligible Director may receive over his or her period of Board service,
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have otherwise received one or
more stock option grants from the Corporation prior to the Underwriting Date
shall be eligible to receive one or more such annual option grants over their
period of continued Board service.
B. Exercise Price.
--------------
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years
-----------
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be
-------------------------------
immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's cessation
of Board service prior to vesting in those shares. Each initial 10,000 share
grant shall vest, and the Corporation's repurchase right shall lapse, in a
series of thirty-six (36) successive equal monthly installments upon the
Optionee's completion of each month of Board service over the thirty-six (36)-
month period measured from the option grant date. Each annual 2,500 share
automatic option shall be fully-vested when granted.
19.
<PAGE>
E. Limited Transferability of Options. Each option under this
----------------------------------
Article Five may, in connection with the Optionee's estate plan, be assigned in
whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Five, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
F. Termination of Board Service. The following provisions shall
----------------------------
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's
death, the personal representative of the Optionee's estate or
the person or persons to whom the option is transferred pursuant
to the Optionee's will or the laws of inheritance or the
designated beneficiary or beneficiaries of such option) shall
have a twelve (12)-month period following the date of such
cessation of Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the
option may not be exercised in the aggregate for more than the
number of vested shares of Common Stock for which the option is
exercisable at the time of the Optionee's cessation of Board
service.
(iii) Should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all
shares at the time subject to the option shall immediately vest
so that such option may, during the twelve (12)-month exercise
period following such cessation of Board service, be exercised
for all or any portion of those shares as fully-vested shares of
Common Stock.
20.
<PAGE>
(iv) In no event shall the option remain exercisable
after the expiration of the option term. Upon the expiration of
the twelve (12)-month exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the
option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Board service for
any reason other than death or Permanent Disability, terminate
and cease to be outstanding to the extent the option is not
otherwise at that time exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
Immediately following the consummation of the Corporate Transaction, each
automatic option grant shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become exercisable for all
of the shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
Each such option shall remain exercisable for such fully-vested option shares
until the expiration or sooner termination of the option term or the surrender
of the option in connection with a Hostile Take-Over.
C. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction or Change in
Control.
D. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or consent
of the Board or any Plan Administrator shall be required at the time of the
actual option surrender and cash distribution.
21.
<PAGE>
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
--------
payable for such securities shall remain the same.
F. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
22.
<PAGE>
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
---------------------------------
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may elect to apply all or any portion of
the annual retainer fee otherwise payable in cash for his or her service on the
Board for that year to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to first day of the calendar year
for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A (divided by) (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to
the non-employee Board member's election, and
B is the Fair Market Value per share of Common Stock on
the option grant date.
23.
<PAGE>
C. Exercise and Term of Options. The option shall become
----------------------------
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Board service during
the calendar year in which the option is granted. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. Limited Transferability of Options. Each option under this
----------------------------------
Article Six may, in connection with the Optionee's estate plan, be assigned in
whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Six, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
E. Termination of Board Service. Should the Optionee cease Board
----------------------------
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
- -------
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
F. Death or Permanent Disability. Should the Optionee's service as
-----------------------------
a Board member cease by reason of death or Permanent Disability, then each
option held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
-------
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service. In the event of the
Optionee's death while holding such option, the option may be exercised by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior
24.
<PAGE>
to death), by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the Optionee's
will or the laws of inheritance or by the designated beneficiary or
beneficiaries of such option. Such right of exercise shall lapse, and the option
shall terminate, upon the earlier of (i) the expiration of the ten (10)-year
-------
option term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Board service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the fully-
vested shares until the earlier of (i) the expiration of the ten (10)-year
-------
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall immediately become exercisable for all the shares of Common Stock at the
time subject to such option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. The option shall remain so exercisable
until the earliest to occur of (i) the expiration of the ten (10)-year option
--------
term, (ii) the expiration of the three (3)-year period measured from the date of
the Optionee's cessation of Board service, (iii) the termination of the option
in connection with a Corporate Transaction or (iv) the surrender of the option
in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the optionee is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation. No approval or consent of the Board or any Plan
Administrator shall be required at the time of the actual option surrender and
cash distribution.
D. The grant of options under the Director Fee Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
25.
<PAGE>
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
26.
<PAGE>
ARTICLE SEVEN
MISCELLANEOUS
-------------
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject in connection with the exercise of their options
or the vesting of their shares. Such right may be provided to any such holder
in either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold,
-----------------
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at
--------------
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
27.
<PAGE>
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective immediately on the Plan Effective Date.
However, the Salary Investment Option Grant Program and the Director Fee Option
Grant Program shall not be implemented until such time as the Primary Committee
may deem appropriate. Options may be granted under the Discretionary Option
Grant at any time on or after the Plan Effective Date, and the initial option
grants under the Automatic Option Grant Program were made on the Plan Effective
Date to any non-employee Board members who were eligible for such grants at that
time. Stockholder approval of the Plan was obtained within twelve (12) months
after the Plan Effective Date.
B. The Plan was amended by the Board on October 22, 1999 in order to
increase the number of shares of Common Stock reserved for issuance under the
Plan by additional Two Million Five Hundred Thousand (2,500,000) shares from
Seven Million Two Hundred Ninety Thousand (7,290,000) to Nine Million Two
Hundred Ninety Thousand (9,290,000) shares. The amendment (the "October 1999
Amendment") received stockholder approval at a Special Stockholders Meeting held
on March 7, 2000.
C. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date were incorporated into the Plan
at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock.
D. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
E. The Plan shall terminate upon the earliest to occur of (i) June
--------
30, 2009, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully-vested shares or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Should the
Plan terminate on June 30, 2009, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
28.
<PAGE>
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
29.
<PAGE>
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant any right
to continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee or the
Participant, which rights are hereby expressly reserved by each, to terminate
such person's Service at any time for any reason, with or without cause.
30.
<PAGE>
APPENDIX
---------
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option
------------------------------
grant program in effect under Article Five of the Plan.
B. Board shall mean the Corporation's Board of Directors.
-----
C. Change in Control shall mean a change in ownership or control of
-----------------
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by
any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation),
of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%)
of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over
a period of thirty-six (36) consecutive months or less such that
a majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election
or nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
----
E. Common Stock shall mean the Corporation's common stock.
------------
F. Corporate Transaction shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons
holding those securities immediately prior to such transaction,
or
(ii) the sale, transfer or other disposition of
all or substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
A-1.
<PAGE>
G. Corporation shall mean Stamps.com Inc., a Delaware corporation,
-----------
and any corporate successor to all or substantially all of the assets or voting
stock of Stamps.com Inc.. which shall by appropriate action adopt the Plan.
H. Director Fee Option Grant Program shall mean the special stock
---------------------------------
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. Discretionary Option Grant Program shall mean the discretionary
----------------------------------
option grant program in effect under Article Two of the Plan.
J. Eligible Director shall mean a non-employee Board member eligible
-----------------
to participate in the Automatic Option Grant or Director Fee Option Grant
Program in accordance with the eligibility provisions of Articles One, Five and
Six.
K. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. Exercise Date shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
M. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be
the closing selling price per share of Common Stock on the date
in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National Market.
If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling
price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) For Purposes of any option grants made on
the Underwriting Date, the Fair Market Value shall be deemed to
be equal to the price per share at which the Common Stock is to
be sold in the initial public offering pursuant to the
Underwriting Agreement.
A-2.
<PAGE>
N. Hostile Take-Over shall mean the acquisition, directly or
-----------------
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. Incentive Option shall mean an option which satisfies the
----------------
requirements of Code Section 422.
P. Involuntary Termination shall mean the termination of the Service
-----------------------
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct,
or
(ii) such individual's voluntary resignation
following (A) a change in his or her position with the
Corporation which materially reduces his or her duties and
responsibilities or the level of management to which he or she
reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonus under
any corporate-performance based bonus or incentive programs) by
more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is
effected by the Corporation without the individual's consent.
Q. Misconduct shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 Act shall mean the Securities Exchange Act of 1934, as
--------
amended.
S. Non-Statutory Option shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
T. Optionee shall mean any person to whom an option is granted under
--------
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
A-3.
<PAGE>
U. Parent shall mean any corporation (other than the Corporation) in
------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. Participant shall mean any person who is issued shares of Common
-----------
Stock under the Stock Issuance Program.
W. Permanent Disability or Permanently Disabled shall mean the
--------------------------------------------
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
X. Plan shall mean the Corporation's 1999 Stock Incentive Plan, as
----
set forth in this document.
Y. Plan Administrator shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Z. Plan Effective Date shall mean the date the Plan shall become
-------------------
effective and shall be coincident with the Underwriting Date.
AA. Predecessor Plan shall mean the Corporation's 1998 Stock Plan in
----------------
effect immediately prior to the Plan Effective Date hereunder.
BB. Primary Committee shall mean the committee of two (2) or more
-----------------
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
CC. Salary Investment Option Grant Program shall mean the salary
--------------------------------------
investment option grant program in effect under Article Three of the Plan.
DD. Secondary Committee shall mean a committee of one or more Board
-------------------
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
A-4.
<PAGE>
EE. Section 16 Insider shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. Service shall mean the performance of services for the
-------
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
GG. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
HH. Stock Issuance Agreement shall mean the agreement entered into by
------------------------
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
II. Stock Issuance Program shall mean the stock issuance program in
----------------------
effect under Article Four of the Plan.
JJ. Subsidiary shall mean any corporation (other than the
----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
KK. Take-Over Price shall mean the greater of (i) the Fair Market
--------------- -------
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
LL. 10% Stockholder shall mean the owner of stock (as determined
---------------
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
MM. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
NN. Underwriting Date shall mean the date on which the Underwriting
-----------------
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
OO. Withholding Taxes shall mean the Federal, state and local income
-----------------
and employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.
A-5.
<PAGE>
STAMPS.COM INC.
PROXY
Annual Meeting of Stockholders, June 13, 2000
This Proxy is Solicited on Behalf of the Board of Directors of Stamps.com Inc.
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders to be held June 13, 2000 and the
Proxy Statement and appoints John M. Payne and John W. LaValle, and each of
them, the Proxy of the undersigned, with full power of substitution, to vote
all shares of Common Stock of Stamps.com Inc. (the "Company") which the
undersigned is entitled to vote, either on his or her own behalf or on behalf
of any entity or entities, at the 2000 Annual Meeting of Stockholders of the
Company to be held at the DC3 Museum of Flying, 2800 Donald Douglas Loop North,
Santa Monica, California 90405 on Tuesday, June 13, 2000 at 2:00 p.m. Pacific
Daylight Savings Time (the "Annual Meeting"), and at any adjournment or
postponement thereof, with the same force and effect as the undersigned might
or could do if personally present thereat. The shares represented by this Proxy
shall be voted in the manner set forth on this proxy card.
1. To elect each of the following nominees to serve for a three-year term
ending in the year 2003 or until his successor is duly elected and qualified:
David C. Bohnett Thomas H. Bruggere G. Bradford Jones Stephen M. Teglovic
FOR ALL NOMINEES [_] WITHHOLD ALL NOMINEES [_]
WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE: _________
2. To approve an amendment to the Company's 1999 Stock Incentive Plan to
increase the number of shares of Common Stock authorized for issuance
thereunder by an additional 2,000,000 shares of Common Stock;
FOR [_] AGAINST [_] ABSTAIN [_]
3. To ratify the appointment of Arthur Andersen LLP as independent auditors
of the Company for the fiscal year ending December 31, 2000.
FOR [_] AGAINST [_] ABSTAIN [_]
4. In accordance with the discretion of the proxy holders, to act upon all
matters incident to the conduct of the meeting and upon other matters as
may properly come before the meeting.
The Board of Directors recommends a vote IN FAVOR OF the directors listed
above and a vote IN FAVOR OF each of the listed proposals. This Proxy, when
properly executed, will be voted as specified above. If no specification is
made, this Proxy will be voted IN FAVOR OF the election of the directors listed
above and IN FAVOR OF the other proposals.
Please print the name(s)
appearing on each share
certificate(s) over which you
have voting authority:
______________________________
______________________________
(Print name(s) on
certificate)
Please sign your name: _______
______________________________
(Authorized Signature(s))
Date: ________________________
