<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 240.14a-11(c) or 240.14a-12
PERSISTENCE SOFTWARE INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------
(3) Filing Party:
---------------------------------------------------------------------
(4) Date Filed:
---------------------------------------------------------------------
<PAGE> 2
PERSISTENCE SOFTWARE, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 8, 2000
The Annual Meeting of Stockholders for the year ended December 31, 1999
(the "Annual Meeting") of Persistence Software, Inc., a Delaware corporation
(the "Company") located at 1720 South Amphlett Boulevard, Third Floor, San
Mateo, California, 94402, will be held at the Marriott Hotel, 1770 South
Amphlett Boulevard, San Mateo, California, 94402 on Thursday, June 8, 2000, 2:00
p.m. local time, for the following purposes:
1. To elect three (3) Class I directors to serve until the annual meeting
of the stockholders for the year ending December 31, 2002.
2. To approve the amendment of the "evergreen" provision of the Company's
1997 Stock Plan to increase the number of shares by which this plan
shall be automatically increased on the first day of each year beginning
in 2001, 2002, 2003, 2004 and 2005 from (i) the lesser of 650,000 shares
or 3.5% of the outstanding shares of Common Stock on the last day of the
immediately preceding year, to (ii) the lesser of 840,000 shares or
4.33% of the outstanding shares of Common Stock on the last day of the
immediately preceding year, or such lesser number of shares as
determined by the board of directors.
3. To ratify the appointment of Deloitte & Touche LLP as the independent
auditors of the Company for the fiscal year ending December 31, 2000.
4. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
The foregoing items of business, including the nominees for directors, are
more fully described in the Proxy Statement which is attached and made a part of
this Notice.
The board of directors has fixed the close of business on April 17, 2000 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and any adjournment or postponement thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, whether or not you expect to attend the Annual Meeting in
person, you are urged to mark, date, sign and return the enclosed proxy card as
promptly as possible in the postage-prepaid envelope provided to ensure your
representation and the presence of a quorum at the Annual Meeting. If you send
in your proxy card and then decide to attend the Annual Meeting to vote your
shares in person, you may still do so. Your proxy is revocable in accordance
with the procedures set forth in the Proxy Statement.
By Order of the Board of Directors,
/s/ Christine Russell
Christine Russell
Chief Financial Officer and Secretary
San Mateo, CA
April 27, 2000
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED EXPENSE OF
RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND SO DESIRE, YOU
MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY.
<PAGE> 3
PERSISTENCE SOFTWARE, INC.
1720 SOUTH AMPHLETT BLVD., THIRD FLOOR
SAN MATEO, CA 94402
------------------------
PROXY STATEMENT
------------------------
GENERAL
This Proxy Statement is furnished in connection with the solicitation by
the board of directors (the "Board") of Persistence Software, Inc., a Delaware
corporation (the "Company") located at 1720 South Amphlett Boulevard, Third
Floor, San Mateo, California, 94402, of proxies in the enclosed form for use in
voting at the Annual Meeting of Stockholders (the "Annual Meeting") to be held
at the Marriott Hotel, 1770 South Amphlett Boulevard, San Mateo, California,
94402, on Thursday, June 8, 2000, 2:00 p.m. local time, and any adjournment or
postponement thereof.
This Proxy Statement, the enclosed proxy card and the Company's Annual
Report to Stockholders for the year ended December 31, 1999, including financial
statements, were first mailed to stockholders entitled to vote at the meeting on
or about April 27, 2000.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
Christine Russell) a written notice of revocation or a duly executed proxy
bearing a later date, or by attending the Annual Meeting and voting in person.
RECORD DATE; VOTING SECURITIES
The close of business on April 17, 2000 has been fixed as the record date
(the "Record Date") for determining the holders of shares of Common Stock of the
Company entitled to notice of and to vote at the Annual Meeting. At the close of
business on the Record Date, the Company had approximately 19,506,371 shares of
Common Stock outstanding and held of record by approximately 224 stockholders.
VOTING AND SOLICITATION
Each outstanding share of Common Stock on the Record Date is entitled to
one vote on all matters. Shares of Common Stock may not be voted cumulatively.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's transfer agent. The Inspector will also determine whether or not a
quorum is present. The nominees for election as directors at the Annual Meeting
will be elected by a plurality of the votes of the shares of Common Stock
present in person or represented by proxy at the meeting. All other matters
submitted to the stockholders will require the affirmative vote of a majority of
shares present in person or represented by proxy at a duly held meeting at which
a quorum is present, as required under Delaware law for approval of proposals
presented to stockholders. In general, Delaware law also provides that a quorum
consists of a majority of the shares entitled to vote and present in person or
represented by proxy. The Inspector will treat abstentions as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum and as negative votes for purposes of determining the approval of any
matter submitted to the stockholders for a vote.
Any proxy which is returned using the form of proxy enclosed and which is
not marked as to a particular item will be voted FOR the election of directors,
FOR the amendment of the 1997 Stock Plan, FOR ratification of the appointment of
the designated independent auditors, and as the proxy holders deem advisable on
other matters that may come before the meeting, as the case may be with respect
to the item not marked. If a broker indicates on the enclosed proxy or its
substitute that it does not have discretionary authority as to certain shares to
vote on a particular matter ("broker non-votes"), those shares will not be
considered as present with respect to that matter. The Company believes that the
tabulation procedures to be
<PAGE> 4
followed by the Inspector are consistent with the general requirements of
Delaware law concerning voting of shares and determination of a quorum.
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing and
mailing proxy solicitation materials for the Annual Meeting and reimbursements
paid to brokerage firms and others for their expenses incurred in forwarding
solicitation materials regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation personally,
telephonically or by facsimile through its officers, directors and employees,
none of whom will receive additional compensation for assisting with the
solicitation.
PROPOSAL NO. 1
ELECTION OF CLASS I DIRECTORS
NOMINEES
At the Annual Meeting, the stockholders will elect the Class I directors to
a three-year term to serve until the annual meeting of stockholders for the year
ended December 31, 2002 or until their respective successors are elected and
qualified. In the event any Class I nominee is unable or unwilling to serve as a
director at the time of the Annual Meeting, the proxies may be voted for the
balance of those nominees named and for any substitute nominee designated by the
present Board or the proxy holders to fill such vacancy, or for the balance of
the nominees named without nomination of a substitute, or the size of the Board
may be reduced in accordance with the Bylaws of the Company. The Board has no
reason to believe that any of the Class I directors named below will be unable
or unwilling to serve as a nominee or as a director if elected.
Assuming a quorum is present, the three nominees receiving the highest
number of affirmative votes of shares entitled to be voted for them will be
elected as directors of the Company for the ensuing year. Unless marked
otherwise, proxies received will be voted FOR the election of each of the three
Class I nominees named below. In the event that additional persons are nominated
for election as directors, the proxy holders intend to vote all proxies received
by them in such a manner as will ensure the election of as many of the Class I
nominees listed below as possible, and, in such event, the specific nominees to
be voted for will be determined by the proxy holders.
The names of the nominees, their ages as of March 31, 2000 and certain
other information about them are set forth below:
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION DIRECTOR SINCE CLASS
--------------- --- -------------------- -------------- -----
<S> <C> <C> <C> <C>
Gregory Ennis(1)(2)............... 34 Director, Thompson Clive July 1995 I
William J. Harding(1)............. 52 General Partner, Morgan Stanley March 1996 I
Dean Witter Venture Partners
Joseph P. Roebuck................. 64 Vice President of Strategic Sales, May 1999 I
Sun Microsystems
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Gregory Ennis has served as a director of the Company since November 1996.
Since July 1995, Mr. Ennis has been a Director of Thompson Clive Inc., which is
the U.S. subsidiary of a London-based venture capital firm. From 1992 to July
1995, Mr. Ennis was an Associate of Thompson Clive Inc. Previously, Mr. Ennis
was a project analyst with Citibank in Frankfurt, Germany. Mr. Ennis holds an
A.B. degree in Economics and Political Science from Stanford University and an
M.B.A. degree from The Anderson School at the University of California at Los
Angeles.
William J. Harding has served as a director of the Company since March
1996. Since October 1994, he has been a General Partner of Morgan Stanley Dean
Witter Venture Partners, a venture capital firm. From 1985 to 1994, Dr. Harding
served as General Partner of several venture capital partnerships affiliated
with
2
<PAGE> 5
J.H. Whitney & Co. Dr. Harding is also a director of Commerce One, an ecommerce
solutions company, InterNAP Network Services, an Internet connectivity service
company, interWAVE Communications International, LTD, a wireless network
solutions company, Blaze Software, Inc., a software company, and several private
companies. Dr. Harding holds a B.S. degree in Engineering Mathematics and an
M.S. degree in Systems Engineering from the University of Arizona and a Ph.D.
degree in Engineering from Arizona State University.
Joseph P. Roebuck has served as director since May 1999. Since November
1998, Mr. Roebuck has served as Vice President of Strategic Sales for Sun
Microsystems, Inc., a manufacturer of hardware and software systems. From
October 1993 to October 1998, Mr. Roebuck served as Vice President of Worldwide
Sales, Computer Systems Division at Sun Microsystems, Inc. Mr. Roebuck received
an A.B. degree in Liberal Arts from Cornell University.
In addition, the Company has two other classes of directors: Class II,
which consists of Laurence R. Hootnick, Merritt Lutz and Jeffrey T. Webber,
whose term expires at the annual meeting of stockholders for the year ending
December 31, 2000, and Class III, which consists of Christopher T. Keene and
Jack L. Hancock, whose term expires at the annual meeting of stockholders for
the year ending December 31, 2001.
The names of the Class II and Class III directors, their ages as of March
31, 2000 and certain other information about them are set forth below:
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE PRINCIPAL OCCUPATION DIRECTOR SINCE CLASS
---------------- --- -------------------- -------------- -----
<S> <C> <C> <C> <C>
Christopher T. Keene......... 39 Chairman of the Board and Chief June 1991 III
Executive Officer, Persistence Software,
Inc.
Laurence R. Hootnick......... 58 President, Persistence Software, Inc. April 1999 II
Jack L. Hancock(1)........... 69 Private Investor July 1998 III
Merritt Lutz................. 57 Chairman of MS Technology Holdings and July 1997 II
MSIT Holdings
Jeffrey T. Webber............ 47 Founding partner, R.B. Webber & Company March 1995 II
</TABLE>
- ---------------
(1) Member of Audit Committee and Compensation Committee.
Christopher T. Keene co-founded the Company and has served as Chief
Executive Officer and a director since June 1991 and as Chairman of the Board
since April 1999. From June 1991 to April 1999, Mr. Keene also served as
President. Before founding the Company, Mr. Keene was a Manager at McKinsey &
Co., a management consulting firm, from July 1987 to June 1991. Mr. Keene holds
a B.S. degree in Mathematical Sciences with honors from Stanford University and
an M.B.A. degree from The Wharton School at the University of Pennsylvania.
Laurence R. Hootnick has served as President and director of the Company
since April 1999. From June 1996 to April 1999, Mr. Hootnick served as President
and Chief Executive Officer of Consilium, Inc., a manufacturer of factory
control software for integrated circuits. From December 1995 to May 1996, Mr.
Hootnick served as Senior Vice President of Power Computing, a manufacturer of
personal computers. From June 1995 to November 1995, he worked as a private
investor and consultant. Previously, Mr. Hootnick was employed as Senior Vice
President, Chief Operating Officer and director of NetManage, Inc., a developer
of networking software, as President and Chief Executive Officer of Maxtor, a
manufacturer of hard disk drives, and as Senior Vice President of Intel, a
semiconductor manufacturer. Mr. Hootnick holds a B.S. degree in Industrial
Management from The Massachusetts Institute of Technology and an M.B.A. degree
from the University of Maryland.
Jack L. Hancock has served as a director since July 1998. Since December
1993, Mr. Hancock has been a private investor. From 1987 to December 1993, he
held a variety of positions with Pacific Bell, serving as Executive Vice
President of Product and Technology Support. Mr. Hancock currently serves as a
director of BankServ, an electronic service provider for banking industry, Union
Bank of California, a financial institution,
3
<PAGE> 6
and MPOWER Communications, an integrated communications services provider. Mr.
Hancock holds a B.A. degree from West Virginia University and an M.B.A. degree
from George Washington University.
Merritt Lutz has served as a director since July 1997. Mr. Lutz has
presently is a Senior Advisor of Morgan Stanley Dean Witter & Co., a major
financial services institution, with responsibility for strategic technology
investments. Since 1995 he has served as the Chairman of MS Technology Holdings,
Inc. and MSIT Holdings, Inc., both of which are technology investment arms of
Morgan Stanley. In 1994, Mr. Lutz joined Morgan Stanley as Managing Director of
the Application Products Group. Mr. Lutz also serves as a director of SPSS Inc.,
a software company, and Interlink Electronics, a hardware manufacturer, as well
as several private companies. Mr. Lutz holds B.A. and M.A. degrees from Michigan
State University.
Jeffrey T. Webber has served as a director since March 1995. Since 1991,
Mr. Webber has been a founding partner of R.B. Webber & Company, a management
consulting firm. Since 1997, Mr. Webber has been a General Partner of The
Entrepreneurs' Fund, L.P., an early stage venture capital firm. From 1987 to
January 1991, he was a partner at Edgar, Dunn & Company, a management consulting
firm. Mr. Webber serves as a director of Sagent Technology, Inc., a datamart
solutions company, and Commerce One, a global trade exchange company, as well as
several private companies. Mr. Webber holds a B.A. degree in American Studies
from Yale University.
There are no family relationships among any of the directors or executive
officers of the Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the period from December 31, 1998 through December 31, 1999 (the
"last fiscal year"), the Board met six times and no director attended fewer than
75% of the aggregate number of meetings of the Board and meetings of the
committees of the Board on which he serves, except that Joseph P. Roebuck, who
became a director in May 1999, attended only two of the three meetings held
during the period in 1999 in which he served as a director. The Board has an
Audit Committee and a Compensation Committee. The Board does not have a
nominating committee or a committee performing the functions of a nominating
committee. A nomination for a director made by a stockholder must be submitted
to Christine Russell, the Chief Financial Officer and Secretary, at the address
of the Company's executive offices set forth above between March 10, 2001 and
May 19, 2001.
Nominations that are intended to be included in the Company's proxy
statement for the annual meeting for the year ended December 31, 2000 must be
submitted between March 10, 2001 and May 19, 2001. See "Deadline for Receipt of
Stockholder Proposals for Annual Meeting for the Year Ending December 31, 2000."
In 1999, the Audit Committee consisted of directors Gregory Ennis and
William J. Harding, two of the Company's non-employee directors, and held three
meetings during 1999. In April 2000, the Company adopted a new Audit Committee
charter in compliance with recently-enacted Nasdaq rules and appointed Jack L.
Hancock as a third member of the Audit Committee. The Audit Committee recommends
the engagement of the firm of certified public accountants to audit the
financial statements of the Company and monitors the effectiveness of the audit
effort, the Company's financial and accounting organization and its system of
internal accounting controls.
The Compensation Committee consists of directors Gregory Ennis and Jack L.
Hancock, and held five meetings during 1999. Its functions are to establish and
administer the Company's policies regarding annual executive salaries and cash
incentives and long-term equity incentives. The Compensation Committee
administers the Company's 1997 Stock Plan, 1994 Stock Purchase Plan, 1999
Directors' Stock Option Plan and 1999 Employee Stock Purchase Plan.
COMPENSATION OF DIRECTORS
Directors do not currently receive compensation for their services as
members of the board of directors. Employee directors are eligible to
participate in the 1997 Stock Plan and the 1999 Employee Stock Purchase Plan.
Nonemployee directors are eligible to participate in the 1997 Stock Plan and the
1999 Directors' Stock
4
<PAGE> 7
Option Plan. The 1999 Directors' Stock Option Plan provides that each director
who was a member of the board of directors as of June 24, 1999 will be granted
an option to purchase 4,000 shares of Common Stock on the first day of each
fiscal year beginning on January 1, 2000. The 1999 Directors' Stock Option Plan
provides that each person who becomes a non-employee director after June 24,
1999 will be granted: (i) a nonstatutory stock option to purchase 20,000 shares
of Common Stock on the date on which he or she first becomes a member of the
board of directors, (ii) an additional nonstatutory stock option to purchase
20,000 shares on the one year anniversary of his or her election as a director,
and (iii) an additional nonstatutory stock option to purchase 4,000 shares on
the first day of each fiscal year beginning at least two years after his or her
election as a director. Each of the Company's non-employee directors, Messrs.
Ennis, Hancock, Harding, Lutz, Roebuck and Webber, has served as a director
since before June 24, 1999, and therefore each was automatically granted an
option to purchase 4,000 shares of the Company's Common Stock under the 1999
Directors' Stock Option Plan on January 1, 2000.
RECOMMENDATION OF THE BOARD OF DIRECTORS:
THE BOARD RECOMMENDS A VOTE FOR
THE ELECTION OF ALL OF THE CLASS I NOMINEES NAMED ABOVE.
5
<PAGE> 8
PROPOSAL NO. 2
APPROVAL OF AMENDMENT OF THE 1997 STOCK PLAN
GENERAL
The Company's 1997 Stock Plan provides for the grant of incentive stock
options to employees (including employee directors) and of nonstatutory stock
options and stock purchase rights to employees (including employee directors)
and consultants (including non-employee directors). The purposes of the 1997
Stock Plan are to attract and retain the best available personnel, to provide
additional incentives to the Company's employees and consultants and to promote
the success of the Company's business. The 1997 Stock Plan was originally
adopted by the board of directors in April 1997 and approved by the Company's
stockholders in July 1997. As of March 31, 2000, a total of 5,609,652 shares of
Common Stock were reserved for issuance under the 1997 Stock Plan (not including
15,866 shares that may be transferred to the 1997 Stock Plan upon returned to
the 1994 Stock Purchase Plan if the Company repurchases such shares from
participants when they terminate employment), plus an automatic annual increase
on the first day of each year beginning in 2001, 2002, 2003, 2004 and 2005 equal
to the lesser of 650,000 shares, 3.5% of the Company's outstanding Common Stock
on the last day of the immediately preceding year, or a lesser number of shares
as determined by the board of directors. As of March 31, 2000, a total of
3,474,735 shares were subject to outstanding options under this plan, 1,150,485
shares had been issued on exercise of options or stock purchase rights and
1,000,298 shares remained available for future option grant and purchase
pursuant to the 1997 Stock Plan. Unless terminated earlier by the board of
directors, the 1997 Stock Plan will terminate in April 2007.
PROPOSAL
In April 2000, the board of directors adopted, subject to stockholder
approval, an amendment to the 1997 Stock Plan to modify the "evergreen"
provision of the plan relating to the number of additional shares that will
automatically be reserved for issuance under the plan at the beginning of each
year from 2001 through 2005. Before this amendment, the 1997 Stock Plan provided
for an automatic annual increase in the number of shares reserved under this
plan on the first day of each year beginning in 2001, 2002, 2003, 2004 and 2005
equal to the lesser of 650,000 shares, 3.5% of the Company's outstanding Common
Stock on the last day of the immediately preceding year, or a lesser number of
shares as determined by the board of directors. The Board has amended this
provision to provide for an automatic annual increase in the number of shares
reserved under the 1997 Stock Plan on the first day of each year beginning in
2001, 2002, 2003, 2004 and 2005 equal to the lesser of 840,000 shares, 4.33% of
the Company's outstanding Common Stock on the last day of the immediately
preceding year, or a lesser number of shares as determined by the board of
directors.
The purpose of the amendment of the 1997 Stock Plan is to allow the Company
to have a sufficient number of shares reserved for issuance to employees and
consultants of the Company. The Company is experiencing a period of rapid
growth, and must continue to recruit, retain and motivate highly skilled
management, sales, marketing and engineering personnel in order to remain
competitive. Competition for these skilled employees in the Internet and
software industries is intense, and if the Company is not successful in
attracting and retaining these skilled employees, its sales and product
development efforts would suffer. The board of directors believes that the
amendment of the "evergreen" provision to increase the number of shares by which
the 1997 Stock Plan will be automatically increased in each of the years 2001,
2002, 2003, 2004 and 2005 is in the best interests of the Company and its
stockholders, as the availability of an adequate number of shares for issuance
under the 1997 Stock Plan and the ability to grant stock options and stock
purchase rights are critical factors in attracting, motivating and retaining the
highly skilled personnel that are essential to the Company's success.
RECOMMENDATION OF THE BOARD OF DIRECTORS:
THE BOARD RECOMMENDS A VOTE FOR
APPROVAL OF THE AMENDMENT OF THE 1997 STOCK PLAN.
6
<PAGE> 9
SUMMARY OF THE 1997 STOCK PLAN
The following summary of the 1997 Stock Plan is qualified in its entirety
by the specific language of the 1997 Stock Plan, a copy of which is available to
any stockholder upon written request to the Secretary of the Company.
The following table sets forth information as of March 31, 2000 with
respect to the stock options and restricted stock purchased pursuant to stock
purchase rights under the 1997 Stock Plan to the Chief Executive Officer and
four other highest compensated executive officers during 1999, all current
executive officers as a group, all current directors who are not executive
officers as a group, and all employees and consultants (including all current
officers who are not executive officers) as a group. Because the grant of
options and stock under the 1997 Stock Plan is discretionary, the Company is
unable to determine the value and number of shares subject to options and stock
purchase rights it will grant as a result of the proposed amendment.
<TABLE>
<CAPTION>
SHARES SUBJECT WEIGHTED SHARES OF WEIGHTED
TO OPTIONS AVERAGE RESTRICTED AVERAGE
GRANTED UNDER EXERCISE STOCK GRANTED PURCHASE
1997 STOCK PRICE PER UNDER 1997 PRICE PER
NAME PLAN SHARE STOCK PLAN SHARE
---- -------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Christopher Keene.................................. -- -- -- --
Alan Cohen......................................... 20,000 $ 1.65 260,000 $0.23
Derek Henninger.................................... -- -- -- --
Christine Russell.................................. 20,000 $ 1.65 260,000 $0.23
Barry Goss......................................... -- -- 260,000 $0.23
All current executive officers as a group (10
persons)......................................... 1,680,000 $10.76 780,000 $0.23
All current directors who are not executive
officers (6 persons)............................. 150,253 $ 5.00 -- --
All employees and consultants (including all
current officers who are not executive officers)
as a group (144 persons)......................... 3,474,735 $10.78 796,487 $0.23
</TABLE>
The closing price of the Company's Common Stock on the Nasdaq National
Market was $19.875 on March 31, 2000.
The 1997 Stock Plan is not a qualified deferred compensation plan under
Section 401(a) of the Code, and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
PURPOSE
The purposes of the 1997 Stock Plan are to attract and retain the best
available personnel for the Company, to provide additional incentive to the
employees, officers, consultants and directors of the Company, and to promote
the success of the Company's business.
ADMINISTRATION
The board, or a committee of the board, administers the 1997 Stock Plan
(the "Administrator").
ELIGIBILITY
The 1997 Stock Plan provides that options and stock purchase rights may be
granted to employees (including officers and directors who are also employees)
and consultants of the Company (including non-employee directors). Incentive
stock options may be granted only to employees. The Administrator selects the
award recipients and determines the number of shares and the exercise price or
purchase price to be associated with each option or stock purchase right,
respectively. In making such determination, the Administrator takes into account
the duties and responsibilities of the award recipient, the value of the award
recipient's services, the award recipient's present and potential contribution
to the success of the Company, and other relevant factors. As of March 31, 2000,
there are approximately 144 employees, offices, consultants and directors
eligible to participate in the 1997 Stock Plan.
7
<PAGE> 10
The 1997 Stock Plan provides that the maximum number of shares of Common
Stock which may be granted under options or stock purchase rights to any one
employee under the 1997 Stock Plan during any fiscal year is 2,000,000 shares,
subject to adjustment as provided in the 1997 Stock Plan. In addition, to the
extent the aggregate market value of shares with respect to which options are
exercisable for the first time by an optionee during any calendar year exceeds
$100,000, such exercises will be treated as nonstatutory stock options.
TERMS OF OPTIONS
The terms of options granted under the 1997 Stock Plan are determined by
the Administrator. Each option is evidenced by a stock option agreement between
the Company and the recipient and is subject to the following additional terms
and conditions:
(a) Exercise of the Option. The optionee must earn the right to
exercise the option by continuing to work for the Company. The
Administrator determines when options are exercisable. An option is
exercised by giving written notice of exercise to the Company specifying
the number of full shares of Common Stock to be purchased, and by tendering
payment of the purchase price to the Company. The method of payment of the
exercise price of the shares purchased upon exercise of an option is
determined by the Administrator, and generally includes cash, shares of the
Company's Common Stock, or a cashless brokers' exercise.
(b) Exercise Price. Generally, the exercise price of options granted
under the 1997 Stock Plan is determined by the Administrator, in the case
of incentive stock options, and must be at least equal to the fair market
value of the shares on the date of grant. Incentive stock options granted
to stockholders owning more than 10% of the total combined voting power of
all classes of the Company's stock (such holders are referred to as "10%
Stockholders") are subject to the additional restriction that the exercise
price on such options must be at least 110% of the fair market value on the
date of the grant. Nonstatutory stock options may have any exercise price
determined by the Administrator, however, nonstatutory stock options
granted to a "covered employee" under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), will generally equal at
least 100% of the fair market value on the date of grant.
(c) Termination of Employment. If the optionee's employment or
consulting relationship with the Company is terminated for any reason other
than death or total and permanent disability, options under the 1997 Stock
Plan may generally be exercised for 90 days (or such other period of time
as is determined by the Administrator) after the date of such termination
to the extent the option was exercisable on the date of such termination.
In no event may an option be exercised by any person after the expiration
of its term.
(d) Disability. If an optionee is unable to continue his or her
employment or consulting relationship with the Company as a result of or
her disability, options may be exercised within six months (or such other
period of time as is determined by the Administrator) after the date of
termination and may be exercised only to the extent the option was
exercisable on the date of termination, but in no event may the option be
exercised after its termination date.
(e) Death. If an optionee should die while employed or retained by the
Company, and such optionee has been continuously employed or retained by
the Company since the date of grant of the option, the option may be
exercised within six months after the date of death (or such other period
of time as is determined by the Administrator) by the optionee's estate or
by a person who acquired the right to exercise the option by bequest or
inheritance to the extent the optionee would have been entitled to exercise
the option at the date of death, but in no event may the option be
exercised after its termination date.
(f) Option Termination Date. Stock options granted under the 1997
Stock Plan expire ten years from the date of grant unless a shorter period
is provided in the option agreement. Incentive stock options granted to 10%
Stockholders may not have a term of more than five years.
8
<PAGE> 11
(g) Nontransferability of Options. Incentive stock options are not
transferable by the optionee, other than by will or the laws of descent and
distribution, and are exercisable only by the optionee during his or her
lifetime or, in the event of death, by a person who acquires the right to
exercise the option by bequest or inheritance or by reason of the death of
the optionee. In the case of nonstatutory stock options, the Administrator
may at its discretion in certain circumstances allow the transferability of
such options.
(h) Corporate Transactions. In the event of the proposed dissolution
or liquidation of the Company, each option will terminate unless otherwise
provided by the Administrator. If the Company sells all or substantially
all of its assets or is acquired by another corporation, each outstanding
option and stock purchase right may be assumed or an equivalent award
substituted by the acquiror. If the acquiror does not agree to this
assumption or substitution, then unexercised awards terminate.
(i) Other Provisions. The option agreement and restricted stock
purchase agreement may contain such other terms, provisions and conditions
not inconsistent with the 1997 Stock Plan as may be determined by the
Administrator.
TERMS OF STOCK PURCHASE RIGHTS
The 1997 Stock Plan also permits the Administrator to issue stock purchase
rights to employees, directors and consultants. In making such grants, the
Administrator determines the number of shares subject to the right, the purchase
price (which may be any price set by the Administrator), the consideration to be
paid for shares (which may be any consideration allowed by the Administrator),
the vesting, and other applicable terms and conditions, as all set forth in a
stock purchase agreement between the Company and the recipient. The purchase
price of stock purchase rights issued to "covered employees" under Section
162(m) of the Code will generally be equal to the full fair market value of the
shares on the date the award is issued.
Shares purchased upon exercise of a stock purchase right are generally
subject to a repurchase right in favor of the Company which would allow the
Company to repurchase the shares from the recipient at his or her original
purchase price after the recipient's relationship with the Company terminates.
This repurchase right generally lapses over time as the recipient continues to
provide services to the Company, so that the recipient would own the shares
outright after the period of time specified in the purchase agreement.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Company's Common Stock
that results in an increase or decrease in the number of outstanding shares of
Common Stock without receipt of consideration by the Company, appropriate
adjustment shall be made in the exercise price and/or repurchase price of each
outstanding award, the number of shares subject to each award, and the annual
limitation on grants to employees, as well as the number of shares reserved and
the number of shares available for issuance under the 1997 Stock Plan (including
the fixed number of shares in the plan's evergreen provision).
AMENDMENT AND TERMINATION
The board of directors may amend the 1997 Stock Plan at any time or from
time to time or may terminate it without approval of the stockholders; provided,
however, that stockholder approval will be obtained for any amendment to the
1997 Stock Plan as required by applicable laws and rules. However, no action by
the board of directors or the stockholders may alter or impair any award
previously granted under the 1997 Stock Plan, unless mutually agreed otherwise
between the holder of an award and the board of directors. The 1997 Stock Plan
shall terminate in April 2007, provided that any awards then outstanding under
the 1997 Stock Plan shall remain outstanding until they expire by their terms.
UNITED STATES FEDERAL INCOME TAX INFORMATION
The following is a brief summary of certain U.S. federal income tax
consequences of transactions under the 1997 Stock Plan based on federal income
tax laws in effect on the date of this Proxy Statement. This
9
<PAGE> 12
summary is not intended to be exhaustive and does not address all matters which
may be relevant to a particular optionee based on his or her specific
circumstances. The summary addresses only current U.S. federal income tax law
and expressly does not discuss the income tax laws of any state, municipality,
non-U.S. taxing jurisdiction or gift, estate or other tax laws other than
federal income tax law. The Company advises all optionees to consult their own
tax advisor concerning the tax implications of option grants and exercises and
the disposition of stock acquired upon such exercises, under the 1997 Stock
Plan.
Options granted under the 1997 Stock Plan may be either incentive stock
options, which are intended to qualify for the special tax treatment provided by
Section 422 of the Code, or nonstatutory stock options, which will not qualify.
If an option granted under the 1997 Stock Plan is an incentive stock option, the
optionee will recognize no income upon grant of the incentive stock option and
will incur no tax liability due to the exercise, except to the extent that such
exercise causes the optionee to incur alternative minimum tax. (See discussion
below.) The Company will not be allowed a deduction for federal income tax
purposes as a result of the exercise of an incentive stock option regardless of
the applicability of the alternative minimum tax. Upon the sale or exchange of
the shares more than two years after grant of the option and one year after
exercise of the option by the optionee, any gain will be treated as a long-term
capital gain. If both of these holding periods are not satisfied, the optionee
will recognize ordinary income equal to the difference between the exercise
price and the lower of the fair market value of the Common Stock on the date of
the option exercise or the sale price of the Common Stock. The Company will be
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Any gain or loss recognized on a disposition of the shares prior
to completion of both of the above holding periods in excess of the amount
treated as ordinary income will be characterized as long-term capital gain if
the sale occurs more than one year after exercise of the option or as short-term
capital gain if the sale is made earlier. For individual taxpayers, the current
U.S. federal income tax rate on long-term capital gains is 20%, whereas the
maximum rate on other income is 39.6%. Capital losses for individual taxpayers
are allowed in full against capital gains plus $3,000 of other income.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income at the time he or she is granted a nonstatutory stock option.
However, upon its exercise, the optionee will recognize ordinary income for tax
purposes measured by the excess of the fair market value of the shares over the
exercise price at the exercise date. The income recognized by an optionee who is
also an employee of the Company will be subject to income and employment tax
withholding by the Company by payment in cash by the optionee or out of the
optionee's current earnings. Upon the sale of such shares by the optionee, any
difference between the sale price and the fair market value of the shares as of
the date of exercise of the option will be treated as capital gain or loss, and
will qualify for long-term capital gain or loss treatment if the shares have
been held for more than one year from date of exercise.
ALTERNATIVE MINIMUM TAX
The exercise of an incentive stock option may subject the optionee to the
alternative minimum tax under Section 55 of the Code. The alternative minimum
tax is calculated by applying a tax rate of 26% to alternative minimum taxable
income of joint filers up to $175,000 ($87,500 for married taxpayers filing
separately) and 28% to alternative minimum taxable income above that amount.
Alternative minimum taxable income is equal to (i) taxable income adjusted for
certain items, plus (ii) items of tax preference less (iii) an exemption amount
of $45,000 for joint returns, $33,750 for unmarried individual returns and
$22,500 in the case of married taxpayers filing separately (which exemption
amounts are phased out for upper income taxpayers). Alternative minimum tax will
be due if the tax determined under the foregoing formula exceeds the regular tax
of the taxpayer for the year.
In computing alternative minimum taxable income, shares purchased upon
exercise of an incentive stock option are treated as if they had been acquired
by the optionee pursuant to exercise of a nonstatutory stock option. As a
result, the optionee recognizes alternative minimum taxable income equal to the
excess of the fair market value of the Common Stock on the date of exercise over
the option exercise price. Because the alternative minimum tax calculation may
be complex, optionees should consult their own tax advisors prior to exercising
incentive stock options.
10
<PAGE> 13
If an optionee pays alternative minimum tax, the amount of such tax may be
carried forward as a credit against any subsequent year's regular tax in excess
of the alternative minimum tax for such year.
REQUIRED VOTE
The approval of the amendment of the 1997 Stock Plan requires the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock present at the Annual Meeting in person or by proxy and entitled to
vote.
11
<PAGE> 14
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Deloitte & Touche LLP has served as the Company's independent auditors
since January 1993 and has been appointed by the Board to continue as the
Company's independent auditors for the year ending December 31, 2000. In the
event that ratification of this selection of auditors is not approved by a
majority of the shares of Common Stock voting at the Annual Meeting in person or
by proxy, the Board will reconsider its selection of auditors.
A representative of Deloitte & Touche LLP is expected to be present at the
Annual Meeting. This representative will have an opportunity to make a statement
and will be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS:
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000.
12
<PAGE> 15
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information that has been provided to the
Company with respect to beneficial ownership of shares of the Company's Common
Stock as of March 31, 2000 for (i) each person who is known by the Company to
own beneficially more than five percent of the outstanding shares of Common
Stock, (ii) each director of the Company, (iii) each of the executive officers
named in the Summary Compensation Table of this proxy statement (the "Named
Executive Officers"), and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OWNERSHIP COMMON STOCK
---------------- ---------- -----------------
<S> <C> <C>
Christopher T. Keene........................................ 2,790,000 14.30%
Gregory Ennis(1)............................................ 2,027,855 10.40%
c/o Thompson Clive Investments plc
3000 Sand Hill Road
Building 1, Suite 185
Menlo Park, CA 94025
Thompson Clive Investments plc.............................. 2,013,855 10.33%
3000 Sand Hill Road
Building 1, Suite 185
Menlo Park, CA 94025
William J. Harding(2)....................................... 43,490 *
c/o Morgan Stanley Dean Witter Venture Partners
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
Merritt Lutz(3)............................................. 1,252,460 6.41%
c/o MSIT Holdings, Inc.
1585 Broadway
New York, NY 10036
MSIT Holdings, Inc.......................................... 1,207,791 6.19%
1585 Broadway
New York, NY 10036
Derek Henninger(4).......................................... 1,301,700 6.67%
Laurence R. Hootnick(5)..................................... 850,000 4.18%
Jeffrey T. Webber(6)........................................ 53,960 *
Joseph P. Roebuck(7)........................................ 24,000 *
Jack L. Hancock(8).......................................... 30,041 *
Alan Cohen(9)............................................... 266,250 1.36%
Barry Goss.................................................. 260,000 1.33%
Christine Russell(10)....................................... 262,250 1.34%
All directors and executive officers as a group (16
persons)(11).............................................. 9,181,026 44.74%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 14,000 shares issuable upon exercise of options that are
exercisable on or before May 30, 2000, 2,313,855 shares held by Thompson
Clive Investments plc and 52,120 shares held by Thompson Clive Inc. 401(k)
fbo Greg Ennis. Mr. Ennis is a director of Thompson Clive Inc., a
wholly-owned U.S. subsidiary of Thompson Clive & Partners Limited, the
manager of Thompson Clive Investments plc. Mr. Ennis disclaims beneficial
ownership of the shares held by the entities except to the extent of his
proportionate interest therein.
(2) Includes 14,000 shares issuable upon exercise of options that are
exercisable on or before May 30, 2000.
(3) Includes 44,669 shares issuable upon exercise of options that are
exercisable on or before May 30, 2000 and 1,207,791 shares held by MSIT
Holdings, Inc. Mr. Lutz is the Chairman of MSIT Holdings, Inc.
13
<PAGE> 16
He disclaims beneficial ownership of the shares held by the entity except
to the extent of his proportionate interest therein.
(4) Includes 1,237,197 shares held by The Henninger Family Trust, 30,476 shares
held by The Henninger Family Irr Tr fbo: Grant Larson Henninger uad
04/03/2000, 30,476 shares The Henninger Family Irr Tr fbo: Webb Ryan
Henninger uad 04/03/2000. Mr. Henninger is a trustee of these trusts. He
disclaims beneficial ownership of the shares held by the trusts except to
the extent of his proportionate interest therein.
(5) Includes 850,000 shares issuable upon exercise of an option which are
exercisable on or before May 30, 2000, but which are subject to a right of
repurchase in the Company's favor at cost in the event Mr. Hootnick ceases
employment with us.
(6) Includes 14,000 shares issuable upon exercise of options that are
exercisable on or before May 30, 2000, 28,037 shares held by The
Entrepreneurs' Fund, L.P., 1,391 shares held by BW Management LLC and 1,000
shares held by the Jeffrey and Judith Webber, Trustees of the Webber Living
Trust. Mr. Webber is a general partner of The Entrepreneurs' Fund, L.P., a
managing member of BW Management LLC and trustee of the Webber Living
Trust. He disclaims beneficial ownership of the shares held by the entities
except to the extent of his proportionate interest therein.
(7) Includes 24,000 shares issuable upon exercise of an option that are
exercisable on or before May 30, 2000.
(8) Includes 30,041 shares issuable upon exercise of an option that are
exercisable on or before May 30, 2000.
(9) Includes 6,250 shares issuable upon exercise of an option that are
exercisable on or before May 30, 2000 and 260,000 shares held by Alan B.
Cohen and Vivian L. Cohen, Trustees of the Alan and Vivian Cohen Trust of
12/2/98. Mr. Cohen is a trustee of this entity. He disclaims beneficial
ownership of the shares held by this entity except to the extent of his
proportionate interest therein.
(10) Includes 6,250 shares issuable upon exercise of an option that are
exercisable on or before May 30, 2000.
(11) Includes an aggregate of 19,020 shares issuable pursuant to the exercise of
outstanding options that are exercisable on or before May 30, 2000 held by
executive officers not named in this table.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The number of shares beneficially owned by a
person includes shares of Common Stock subject to options held by that person
that are currently exercisable or exercisable on or before May 30, 2000. The
shares issuable pursuant to these options are deemed outstanding for computing
the percentage ownership of the person holding these options but are not deemed
outstanding for the purposes of computing the percentage ownership of each other
person.
14
<PAGE> 17
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation earned by (a) the individual who
served as the Company's Chief Executive Officer during the year ended December
31, 1999 (b) the four other most highly compensated individuals who served as
executive officers of the Company during the year ended December 31, 1999 and
(c) the compensation received by each such individual for the Company's three
preceding years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ----------------------------------
---------------------------- RESTRICTED SECURITIES
FISCAL SALARY BONUS STOCK AWARD(S) UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) OPTIONS/SARS(#)
--------------------------- ------ -------- -------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Christopher T. Keene................... 1999 $167,616 $ 15,000 -- --
Chairman of the Board and Chief 1998 151,670 40,630 -- --
Executive Officer 1997 135,000 15,000 -- --
Alan Cohen............................. 1999 147,846 71,723 -- 20,000
Senior Vice President of Sales and 1998 140,000 108,750 -- --
International Operations 1997 -- -- 260,000 --
Derek Henninger........................ 1999 148,616 55,000 -- --
Vice President of Engineering 1998 138,367 47,200 -- --
1997 130,000 15,000 1,700 --
Christine Russell...................... 1999 152,846 15,000 -- 20,000
Chief Financial Officer 1998 102,000 10,791 -- --
1997 25,870 -- 260,000 --
Barry Goss............................. 1999 147,847 15,250 -- --
Vice President of Strategic Marketing 1998 133,640 62,750 -- --
1997 -- -- 260,000 --
</TABLE>
- ---------------
(1) As of December 31, 1999, the named executive officers held restricted stock
in the following aggregate numbers and values, based on the December 31,
1999 closing price of $22.50 per share:
- Christopher T. Keene held 2,790,000 shares of Common Stock
representing the aggregate value $62,775,000.
- Alan Cohen held 260,000 shares of Common Stock representing the
aggregate value $5,850,000.
- Derek Henninger held 1,301,700 shares of Common Stock representing the
aggregate value $29,288,250.
- Christine Russell held 256,000 shares of Common Stock representing the
aggregate value $5,760,000.
- Barry Goss held 260,000 shares of Common Stock representing the
aggregate value $5,850,000.
The Company has entered into change of control agreements with Christine
Russell, Alan Cohen and Barry Goss. These change of control agreements provide
that restricted stock or stock options granted to such officer under the 1997
Stock Plan will immediately vest if he or she is terminated without cause or
resigns for good reason within 12 months after a change of control of the
Company.
15
<PAGE> 18
OPTION GRANTS IN 1999
The following table provides certain information with respect to stock
options granted to the Named Executive Officers in the year ended December 31,
1999. In addition, as required by Securities and Exchange Commission rules, the
table sets forth the hypothetical gains that would exist for the options based
on assumed rates of annual compound stock price appreciation during the option
term. No stock appreciation rights were granted to the Named Executive Officers
in 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS/ ANNUAL RATES OF STOCK
SECURITIES SARS GRANTED EXERCISE PRICE APPRECIATION
UNDERLYING TO EMPLOYEES OF BASE FOR OPTION TERM(1)
OPTIONS/SARS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED (#) YEAR (%)(2) ($/SH)(3) DATE 5% ($) 10% ($)
---- ------------ ----------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alan Cohen(4)............. 20,000 0.7% $1.65 2/17/09 $700,003 $1,134,184
Christine Russell(4)...... 20,000 0.7% $1.65 2/17/09 $700,003 $1,134,184
</TABLE>
- ---------------
(1) The potential realizable value represents the difference between (i) the
fair market value of the shares on the date of grant, assuming the closing
price per share of $22.50 on December 31,1999 was the fair market value on
such date, compounded annually for ten years at the indicated rates of
appreciation, and (ii) the exercise price of the option. The 5% and 10%
assumed annual rates of compounded stock price appreciation are mandated by
the Securities and Exchange Commission. There can be no assurance that the
actual stock price appreciation over the 10-year option terms will be at the
assumed rates of 5% and 10% or at any other defined rate. Unless the market
price of the Common Stock appreciates over the option term, the executive
officers will not realize any value from these option grants.
(2) The Company granted stock options representing 2,863,287 shares to employees
in the last fiscal year.
(3) The exercise price may be paid in cash, in shares of Common Stock valued at
fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares.
(4) Each option becomes exercisable at the rate of 5,000 shares on February 18,
2000 and approximately 417 shares per month thereafter.
AGGREGATED OPTION EXERCISES IN 1999
AND VALUE OF UNEXERCISED OPTIONS HELD AS OF DECEMBER 31, 1999
The following table sets forth the number of shares covered by stock
options held by Named Executive Officers as of the year ended December 31, 1999,
and the value of "in-the-money" stock options, which represents the difference
between the exercise price of a stock option and the market price of the shares
subject to such option on December 31, 1999. No stock appreciation rights (SARs)
were outstanding during the year ended December 31, 1999, and no stock options
were exercised by Named Executive Officers during the year ended December 31,
1999.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS AT
ACQUIRED ON VALUE FISCAL YEAR END(#) FISCAL YEAR END($)
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(1)
---- ----------- ----------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Alan Cohen................ -- -- 0/20,000 0/$417,000
Christine Russell......... -- -- 0/20,000 0/$417,000
</TABLE>
- ---------------
(1) Value is based on the closing price of the Company's Common Stock on The
Nasdaq Stock Market on December 31, 1999 of $22.50 per share, less the
exercise price of the option.
16
<PAGE> 19
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, that might incorporate future filings, including this
Proxy Statement, in whole or in part, the following report and the Stock
Performance Graph herein shall not be deemed to be incorporated by reference
into any such filings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the board of directors was formed in 1999 and
consists of external board of directors members Greg Ennis and Jack L. Hancock.
The Compensation Committee is responsible for establishing and monitoring the
general compensation policies and compensation plans of the Company, as well as
the specific compensation levels for executive officers. Decisions concerning
the compensation of the Company's executive officers are made by the
Compensation Committee and reviewed by the full board of directors (excluding
any interested director).
EXECUTIVE OFFICER COMPENSATION PROGRAMS. The objectives of the executive
officer compensation program are to attract, retain, motivate and reward key
personnel who possess the necessary leadership and management skills critical to
the Company's growth and long-term success. Executive officers' compensation
includes competitive base salary, annual cash bonus incentives, long-term
stock-based incentive compensation and various benefits, including medical and
life insurance plans. The executive compensation policies of the Compensation
Committee are intended to combine competitive levels of compensation and rewards
for above average performance and to align relative compensation with the
achievements of key business objectives, optimal satisfaction of customers, and
maximization of stockholder value. The Compensation Committee believes that
stock ownership by management is beneficial in aligning management and
stockholder interests, thereby enhancing stockholder value.
BASE SALARIES. Salaries for the Company's executive officers are determined
primarily on the basis of the executive officer's responsibility, general salary
practices of peer companies and the officer's individual qualifications and
experience. The base salaries are reviewed annually and may be adjusted by the
Compensation Committee in accordance with certain criteria which include
individual performance, the functions performed by the executive officer, the
scope of the executive officer's on-going duties, general changes in the
compensation peer group in which the Company competes for executive talent, and
the Company's financial performance generally. The weight given each such factor
by the Compensation Committee may vary from individual to individual.
INCENTIVE BONUSES. The Compensation Committee believes that a cash
incentive bonus plan can serve to motivate the Company's executive officers and
management to address annual performance goals, using more immediate measures
for performance than those reflected in the appreciation in value of stock
options. The bonus amounts are based upon recommendations by management and a
subjective consideration of factors including such officer's level of
responsibility, individual performance, contributions to the Company's success
and the Company's financial performance generally.
STOCK OPTION GRANTS. Stock options may be granted to executive officers and
other employees under the 1997 Stock Plan. Because of the direct relationship
between the value of an option and the stock price, the Compensation Committee
believes that options motivate executive officers to manage the Company in a
manner that is consistent with stockholder interests. Stock option grants are
intended to focus the attention of the recipient on the Company's long-term
performance, which the Company believes results in improved stockholder value,
and to retain the services of the executive officers in a competitive job market
by providing significant long-term earnings potential. To this end, stock
options generally vest and become fully exercisable over a four-year period.
Initial option grants typically vest at the rate of one fourth of the total
shares underlying the option on the annual anniversary of the vesting
commencement date and 1/48 of the total shares on the monthly anniversary of the
vesting commencement date thereafter. Additional option grants typically vest at
the rate of 1/48 of the total shares per month. The principal factors considered
in granting stock options to executive officers of the Company are prior
performance, level of responsibility, other compensation and the executive
officer's ability to influence the Company's long-term growth and profitability.
However, the 1997
17
<PAGE> 20
Stock Plan does not provide any quantitative method for weighting these factors,
and a decision to grant an award is primarily based upon a subjective evaluation
of the past as well as future anticipated performance.
OTHER COMPENSATION PLANS. The Company has adopted certain general employee
benefit plans in which executive officers are permitted to participate on parity
with other employees. The Company also provides a 401(k) deferred compensation
pension plan. Benefits under these general plans are indirectly tied to the
Company's performance.
DEDUCTIBILITY OF COMPENSATION. Section 162(m) of the Code disallows a
deduction by the Company for compensation exceeding $1.0 million paid to certain
executive officers, excluding, among other things, performance-based
compensation. Because the compensation paid to the executive officers has not
approached the limitation, the Compensation Committee has not had to use any of
the available exemptions from the deduction limit. The Compensation Committee
remains aware the Section 162(m) limitations, and the available exemptions, and
will address the issue of deductibility when and if circumstances warrant the
use of such exemptions.
CHIEF EXECUTIVE OFFICER COMPENSATION. The compensation of the Chief
Executive Officer is reviewed annually on the same basis as discussed above for
all executive officers. Christopher T. Keene has served as the Chief Executive
Officer since June 1991. Mr. Keene's base salary for the year ended December 31,
1999 was $167,616. The base salary was established in part by comparing the base
salaries of chief executive officers at other companies in the Company's
industry and of similar size. Mr. Keene's base salary was below the median of
the base salary range for Chief Executive Officers of comparative companies. Mr.
Keene received a bonus of $15,000 during 1999. He holds 2,790,000 shares of
Common Stock and no stock options.
April 27, 2000
Compensation Committee:
/s/ Gregory Ennis
/s/ Jack L. Hancock
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the board of directors currently consists of
Gregory Ennis and Jack L. Hancock. No member of the Compensation Committee or
executive officer of the Company has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.
TRANSACTIONS WITH MANAGEMENT
The Company entered into a change of control agreements with Laurence
Hootnick in April 1999, Carol Curry in November 1999, Randy Hietter in December
1999, James Barton in February 2000 and Lyn Anderson in February 2000. These
change of control agreements provide that restricted stock or stock options
granted to these officers will immediately vest if he or she is terminated
without cause or resigns for good reason within 12 months after the Company's
change of control.
The Company engages R.B. Webber & Company to perform market and business
analysis on a project by project basis. Jeffrey T. Webber, one of the Company's
directors, is President of R.B. Webber & Company. In connection with these
services, the Company paid R.B. Webber & Company $69,000 in 1999.
In February 1999, the Company sold 28,037 shares of Series D Preferred
Stock to The Entrepreneurs' Fund, L.P. for a purchase price of $5.35 per share.
Jeffery T. Webber is a general partner of The Entrepreneurs' Fund, L.P.
The Company has entered into indemnification agreements with its officers
and directors containing provisions that may require it to indemnify its
officers and directors against liabilities that may arise by reason of their
status or service as officers or directors, other than liabilities arising from
willful misconduct of a culpable nature, and to advance their expenses incurred
as a result of any proceeding against them.
Pursuant to a technology development and license agreement with Morgan
Stanley Dean Witter & Co., the Company recognized revenue of $82,000 from Morgan
Stanley Dean Witter in 1999 and had $3,400 of deferred revenue with Morgan
Stanley Dean Witter as of December 31, 1999. William Harding and Merritt
18
<PAGE> 21
Lutz, who are affiliated with Morgan Stanley Dean Witter & Co., serve as
directors of the Company. MSIT Holdings, Inc., an affiliate of Morgan Stanley
Dean Witter &. Co. and Merritt Lutz, owns more than 5% of the Company's Common
Stock.
The following table summarizes the options to purchase Common Stock the
Company has granted to its directors and executive officers since January 1,
1999:
<TABLE>
<CAPTION>
COMMON STOCK
UNDERLYING DATE OF PRICE PER
NAME OPTIONS(1) GRANT SHARE
---- ------------ -------- ---------
<S> <C> <C> <C>
Lyn Anderson............................................ 50,000 2/22/00 $17.75
James Barton............................................ 5,000 10/5/99 $12.875
James Barton............................................ 80,000 2/9/00 $16.9375
Alan Cohen.............................................. 20,000 2/18/99 $ 1.65
Alan Cohen(2)........................................... 100,000 4/13/00 $19.0625
Carol Curry............................................. 200,000 11/23/99 $13.25
Barry Goss(2)........................................... 50,000 4/13/00 $19.0625
Randy Hietter........................................... 25,000 2/18/99 $ 1.65
Randy Hietter........................................... 10,000 9/2/99 $16.375
Randy Hietter........................................... 40,000 10/5/99 $12.875
Randy Hietter........................................... 25,000 3/21/00 $17.00
Laurence Hootnick(3).................................... 850,000 4/29/00 $10.00
Laurence Hootnick(4).................................... 340,000 4/29/00 $10.00
Christine Russell....................................... 20,000 2/18/99 $ 1.65
Christine Russell(2).................................... 70,000 4/13/00 $19.0625
Gregory Ennis(5)........................................ 10,000 4/29/00 $10.00
Gregory Ennis(5)........................................ 4,000 1/1/00 $22.50
Jack L. Hancock(5)...................................... 10,000 4/29/00 $10.00
Jack L. Hancock(5)...................................... 4,000 1/1/00 $22.50
William J. Harding(5)................................... 10,000 4/29/00 $10.00
William J. Harding(5)................................... 4,000 1/1/00 $22.50
Merritt Lutz(5)......................................... 6,288 2/18/99 $ 1.65
Merritt Lutz(5)......................................... 10,393 4/29/00 $10.00
Merritt Lutz(5)......................................... 4,000 1/1/00 $22.50
Joseph P. Roebuck(5).................................... 20,000 4/29/00 $10.00
Joseph P. Roebuck(5).................................... 4,000 1/1/00 $22.50
Jeffrey T. Webber(5).................................... 10,000 4/29/00 $10.00
Jeffrey T. Webber(5).................................... 4,000 1/1/00 $22.50
</TABLE>
- ---------------
(1) Unless otherwise set forth above, option vests at the rate of 1/4 of the
total number of shares on the first anniversary of the vesting commencement
date and 1/48 of the total number of shares per month thereafter.
(2) Option vests at the rate of 1/24 of the total number of shares on the 25th
month following the vesting commencement date and 1/24 of the total number
of shares thereafter.
(3) Option is immediately exercisable. However, if the option is exercised, the
underlying shares are subject to a right of repurchase at $10.00 per share
in favor of the Company in the event Mr. Hootnick ceases employment with us.
The Company's repurchase option lapses at the rate of 1/4 of the total
number of shares on the first anniversary of the vesting commencement date
and 1/48 of the total number of shares per month thereafter.
(4) Option vests upon the earlier of five years or the attainment of specified
revenue milestones within 36 months of Mr. Hootnick's first date of
employment.
(5) Option is fully vested.
19
<PAGE> 22
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return data
for the Company's stock since June 24, 1999 (the date on which the Company's
stock was first registered under Section 12 of the Exchange Act) to the
cumulative return over such period of (i) The Nasdaq National Market Composite
Index, and (ii) The Nasdaq National Market Computer Index. The graph assumes
that $100 was invested on June 24, 1999, the effective date of the Company's
initial public offering, in the Common Stock of the Company and in each of the
comparative indices and assumes reinvestment of dividends. The graph further
assumes that such amount was initially invested in the Common Stock of the
Company at a per share price of $11.00, the price to which such stock was first
offered to the public by the Company on the date of its initial public offering,
and reinvestment of any dividends. The stock price performance on the following
graph is not necessarily indicative of future stock price performance.
COMPARISON OF 1999 YEAR CUMULATIVE TOTAL RETURN*
AMONG PERSISTENCE SOFTWARE, INC.,
THE NASDAQ NATIONAL MARKET COMPOSITE INDEX
AND THE NASDAQ NATIONAL MARKET COMPUTER INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
PERSISTENCE NASDAQ NATIONAL NASDAQ COMPUTER
----------- --------------- ---------------
<S> <C> <C> <C>
100 100 100
125.573 99.949 99.963
122.727 101.919 102.117
118.182 103.48 103.893
6/30/99 123.864 105.199 106.546
132.955 105.991 107.895
146.591 107.357 109.718
160.227 107.187 108.975
156.255 107.433 109.936
153.409 108.566 110.978
155.682 109.396 112.161
177.273 109.292 111.826
200 108.81 111.053
193.182 110.38 113.163
197.727 111.215 113.721
236.364 112.203 115.143
262.5 110.861 113.683
214.773 107 108.569
204.545 108.164 110.169
190.345 105.116 106.182
180.682 105.433 106.633
159.091 102.55 103.239
157.955 104.922 106.378
153.409 105.971 108.18
156.818 103.38 105.212
7/31/99 153.409 103.317 104.916
140.909 102.735 104.463
122.164 101.344 103.614
114.773 99.458 102.193
138.636 100.486 103.357
122.727 99.78 102.952
117.045 98.642 101.962
132.955 97.517 100.852
136.936 100.472 104.744
136.364 99.859 103.429
131.818 103.341 107.651
145.455 103.634 107.73
163.636 104.657 108.444
168.182 104.117 108.549
163.636 102.689 106.942
168.182 103.747 108.438
182.955 106.562 112.006
189.773 107.859 114.38
180.682 109.957 117.234
164.773 108.735 115.874
163.636 108.119 115.387
165.909 106.3 113.571
8/31/99 161.364 107.349 114.865
163.636 107.803 115.32
148.864 107.154 115.302
156.818 111.445 120.63
159.664 111.21 120.104
146.591 110.088 118.254
159.091 111.793 120.777
173.864 113.171 122.719
180.682 111.501 120.419
177.273 112.433 121.841
181.818 110.298 118.956
179.545 110.006 119.107
180.682 112.485 122.553
175 113.137 123.452
171.591 110.574 120.14
168.182 112.036 121.963
167.045 107.768 116.068
163.636 107.402 115.791
188.636 108.24 117.047
206.818 108.031 117.062
235.227 107.006 114.781
9/30/99 259.664 107.629 115.573
236.936 107.26 115.469
130.118 109.589 118.323
117.045 109.738 118.661
114.209 112.006 120.299
104.545 112.147 119.735
97.727 113.165 120.595
109.664 114.327 121.532
103.409 112.612 119.984
106.818 109.811 117.037
109.091 110.029 117.238
104.545 107.08 114.247
94.318 105.405 112.541
92.045 105.366 111.31
90.345 109.312 116.982
93.182 109.861 117.853
95.455 110.428 117.836
104.545 110.407 117.245
103.409 110.229 117.28
89.773 109.876 116.431
85.8 112.742 118.733
10/31/99 79.545 116.338 124.022
76.709 116.385 124.156
75 116.935 125.151
80.682 118.775 126.928
82.391 119.853 127.833
82.391 121.673 129.212
80.682 123.314 130.978
88.636 122.562 130.024
122.164 123.781 131.48
122.727 125.41 133.854
121.591 126.345 133.721
128.409 126.269 132.798
146.591 129.164 136.278
144.318 128.228 135.17
132.955 131.286 139.2
130.682 132.153 141.028
131.818 133.067 143.074
120.455 131.109 140.996
120.455 134.164 144.743
119.318 135.227 145.582
118.182 134.179 144.795
11/30/99 112.5 130.818 140.954
117.045 131.513 142.678
115.909 135.414 147.67
113.636 138.086 151.272
119.891 139.082 153.028
136.364 140.688 155.463
146.591 140.639 154.751
135.227 140.952 155.212
133.527 141.96 156.824
140.345 143.446 158.393
134.664 140.048 154.57
119.891 142.04 159.562
125 145.703 164.585
115.909 147.197 166.687
155.118 148.407 167.84
177.273 153.431 173.081
184.091 154.463 174.587
175 155.731 175.797
181.818 155.973 176.351
180.682 155.838 175.209
179.545 158.56 177.651
219.318 158.362 177.983
12/31/99 204.545 159.623 178.717
</TABLE>
<TABLE>
<CAPTION>
6/24/99 6/30/99 9/30/99 12/31/99
------- ------- ------- --------
<S> <C> <C> <C> <C>
PERSISTENCE SOFTWARE, INC.................................. $100 $124 $260 $205
THE NASDAQ NATIONAL MARKET COMPOSITE INDEX................. $100 $105 $108 $160
THE NASDAQ NATIONAL MARKET COMPUTER INDEX.................. $100 $107 $116 $179
</TABLE>
20
<PAGE> 23
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR
ANNUAL MEETING FOR THE YEAR ENDING DECEMBER 31, 2000
Proposals of stockholders intended to be included in the Company's proxy
statement for the annual meeting of stockholders for the year ending December
31, 2000 must be received by Christine Russell, Chief Financial Officer,
Persistence Software, Inc., 1720 South Amphlett Boulevard, Third Floor, San
Mateo, California, 94402, between March 10, 2001 and May 19, 2001. If the
Company is not notified of a stockholder proposal between March 10, 2001 and May
19, 2001, then the proxies held by management of the Company provide
discretionary authority to vote against such stockholder proposal, even though
such proposal is not discussed in the Proxy Statement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file with the Securities and
Exchange Commission ("SEC") initial reports of ownership and changes in
ownership of the Company's Common Stock. Reporting Persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, based solely on its review of the copies of
such reports received or written representations from certain Reporting Persons
that no other reports were required, the Company believes that during its fiscal
year ended December 31, 1999, all Reporting Persons complied with all applicable
filing requirements, except that Jeffrey Webber, a director, failed to timely
file one report on Form 4, which reflected two transactions involving open
market purchases of shares.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Proxy Statement incorporates certain documents of the Company by
reference that are not presented herein or delivered herewith. Such documents
are available to any person, including any beneficial owner, to whom this Proxy
Statement is delivered, upon oral or written request, without charge, directed
to Christine Russell, Chief Financial Officer, Persistence Software, Inc., 1720
South Amphlett Blvd., Third Floor, San Mateo, California, 94402, telephone
number (650) 372-3600. In order to ensure timely delivery of the documents, such
requests should be made by May 19, 2000.
OTHER MATTERS
The board of directors knows of no other business that will be presented to
the Annual Meeting. If any other business is properly brought before the Annual
Meeting, proxies in the enclosed form will be voted in respect thereof as the
proxy holders deem advisable.
It is important that the proxies be returned promptly and that your shares
be represented. Stockholders are urged to mark, date, execute and promptly
return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
/s/ Christine Russell
Christine Russell
Chief Financial Officer and Secretary
April 27, 2000
San Mateo, California
21
<PAGE> 24
EXHIBIT A
PERSISTENCE SOFTWARE, INC.
1997 STOCK PLAN
(As Amended)
1. PURPOSES OF THE PLAN. The purposes of this 1997 Stock Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be incentive stock
options (as defined under Section 422 of the Code) or nonstatutory stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as amended,
and the regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "AFFILIATE" means an entity other than a Subsidiary (as
defined below) in which the Company owns a significant interest, directly or
indirectly, as determined in the discretion of the Committee, or which, together
with the Company, is under common control of a third person or entity.
(c) "APPLICABLE LAWS" means the legal requirements relating to
the administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any Stock Exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options or Stock
Purchase Rights are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time; provided, however, that to the
extent permitted under such laws, rules, regulations and requirements, the
rights of any participant under the Plan shall be determined in accordance with
the law of the State of California, without giving effect to principles of
conflict of law.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CHANGE OF CONTROL" means a sale of all or substantially
all of the Company's assets, or any merger or consolidation of the Company with
or into another corporation other than a merger or consolidation in which the
holders of more than 50% of the shares of capital stock of the Company
outstanding immediately prior to such transaction continue to hold (either by
the voting securities remaining outstanding or by their being converted into
voting securities of the surviving entity) more than 50% of the total voting
power
<PAGE> 25
represented by the voting securities of the Company, or such surviving entity,
outstanding immediately after such transaction.
(f) "CODE" means the Internal Revenue Code of 1986, as
amended.
(g) "COMMITTEE" means one or more committees or subcommittees
of the Board appointed by the Board to administer the Plan in accordance with
Section 4 below.
(h) "COMMON STOCK" means the Common Stock of the Company.
(i) "COMPANY" means Persistence Software, Inc., a California
corporation.
(j) "CONSULTANT" means any person, including an advisor, who
renders services to the Company or any Parent, Subsidiary or Affiliate and is
compensated for such services, and any Director of the Company whether
compensated for such services or not.
(k) "CONTINUOUS SERVICE" means the absence of any interruption
or termination of service as an Employee or Consultant to the Company or a
Parent, Subsidiary or Affiliate. Continuous Service shall not be considered
interrupted in the case of (i) sick leave; (ii) military leave; (iii) any other
leave of absence approved by the Administrator, provided that such leave is for
a period of not more than 90 days, unless reemployment upon the expiration of
such leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) in the case of
transfers between locations of the Company or between the Company, its
Parent(s), Subsidiaries, Affiliates or their respective successors. Unless
otherwise determined by the Administrator or the Company, a change in status
from an Employee to a Consultant or from a Consultant to an Employee will not
constitute a termination of Continuous Service.
(l) "CORPORATE TRANSACTION" means a sale of all or
substantially all of the Company's assets, or a merger, consolidation or other
capital reorganization of the Company with or into another corporation.
(m) "DIRECTOR" means a member of the Board.
(n) "EMPLOYEE" means any person (including, if appropriate,
any Named Executive, Officer or Director) employed by the Company or any Parent,
Subsidiary or Affiliate of the Company. The payment by the Company of a
director's fee to a Director shall not be sufficient to constitute "employment"
of such Director by the Company.
(o) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(p) "FAIR MARKET VALUE" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market
<PAGE> 26
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such system or exchange on the date of
determination (or if no trading or bids occurred on the date of determination,
on the last trading day prior to the date of determination), as reported in The
Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System
(but not on the National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
for the date of determination (or if no bids occurred on the date of
determination, on the last trading day prior to the date of determination); or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(q) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable Option Agreement.
(r) "LISTED SECURITY" means any security of the Company that
is listed or approved for listing on a national securities exchange or
designated or approved for designation as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc.
(s) "NAMED EXECUTIVE" means any individual who, on the last
day of the Company's fiscal year, is the chief executive officer of the Company
(or is acting in such capacity) or among the four most highly compensated
officers of the Company (other than the chief executive officer). Such officer
status shall be determined pursuant to the executive compensation disclosure
rules under the Exchange Act.
(t) "NONSTATUTORY STOCK OPTION" means an Option not intended
to qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.
(u) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16(a) of the Exchange Act and the rules and
regulations promulgated thereunder.
(v) "OPTION" means a stock option granted pursuant to the
Plan.
(w) "OPTION AGREEMENT" means a written document, the form(s)
of which shall be approved from time to time by the Administrator, reflecting
the terms of an Option granted under the Plan and includes any documents
attached to or incorporated into such Option Agreement, including, but not
limited to, a notice of stock option grant and a form of exercise notice.
<PAGE> 27
(x) "OPTION EXCHANGE PROGRAM" means a program approved by the
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price.
(y) "OPTIONED STOCK" means the Common Stock subject to an
Option.
(z) "OPTIONEE" means an Employee or Consultant who receives an
Option.
(aa) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(bb) "PARTICIPANT" means any holder of one or more Options or
Stock Purchase Rights, or the Shares issuable or issued upon exercise of such
awards, under the Plan.
(cc) "PLAN" means this 1997 Stock Plan.
(dd) "REPORTING PERSON" means an Officer, Director or greater
than 10% shareholder of the Company within the meaning of Rule 16a-2 of the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 of the
Exchange Act.
(ee) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(ff) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written
document, the form(s) of which shall be approved from time to time by the
Administrator, reflecting the terms of a Stock Purchase Right granted under the
Plan and includes any documents attached to such agreement.
(gg) "RULE 16b-3" means Rule 16b-3 promulgated under the
Exchange Act, as amended from time to time, or any successor provision.
(hh) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 15 of the Plan.
(ii) "STOCK EXCHANGE" means any stock exchange or consolidated
stock price reporting system on which prices for the Common Stock are quoted at
any given time.
(jj) "STOCK PURCHASE RIGHT" means the right to purchase Common
Stock pursuant to Section 11 below.
(kk) "SUBSIDIARY" means a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
(ll) "TEN PERCENT HOLDER" means a person who owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary.
<PAGE> 28
3. STOCK SUBJECT TO THE PLAN. The maximum aggregate number of
shares that may be sold under the Plan (as amended effective April 21, 1999) is
5,609,652 Shares of Common Stock, plus a maximum of 38,645 additional Shares
that may be transferred to the Plan from the Company's 1994 Stock Purchase Plan
upon return to the 1994 Stock Purchase Plan pursuant to an amendment to the Plan
dated December 10, 1997, plus an annual increase on the first day of each of the
Company's fiscal years beginning in 2001, 2002, 2003, 2004 and 2005 equal to the
lesser of (i) 840,000 Shares, (ii) 4.33% of the Shares outstanding on the last
day of the immediately preceding fiscal year, or (iii) such lesser number of
Shares as is determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock. The number of Shares subject to the Plan
set forth in this Section 3 are subject to adjustment in accordance with the
provisions of Section 15 of the Plan.
If an Option expires or becomes unexercisable for any reason without
having been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares that were subject thereto shall, unless the Plan
has been terminated, become available for future grant under the Plan. In
addition, any Shares of Common Stock that are retained by the Company upon
exercise of an Option or Stock Purchase Right in order to satisfy the exercise
or purchase price for such Option or Stock Purchase Right or any withholding
taxes due with respect to such exercise or purchase shall be treated as not
issued and shall continue to be available under the Plan. Notwithstanding any
other provision of the Plan, Shares issued under the Plan and later repurchased
by the Company pursuant to any repurchase right that the Company may have shall
not be available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) GENERAL. The Plan shall be administered by the Board or a
Committee, or a combination thereof, as determined by the Board. The Plan may be
administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the Applicable Laws, the Board may
authorize one or more officers (who may (but need not) be Officers) to grant
Options or Stock Purchase Rights to Employees and Consultants (other than
Consultants who are Directors).
(b) ADMINISTRATION WITH RESPECT TO REPORTING PERSONS AND NAMED
EXECUTIVES. With respect to Options granted to Reporting Persons and Named
Executives, the Plan may (but need not) be administered so as to permit grants
of Options to Reporting Persons to qualify for the exemption set forth in Rule
16b-3 and to permit grants of Options to Named Executives to qualify as
performance-based compensation under Section 162(m) of the Code, and otherwise
so as to satisfy the Applicable Laws.
(c) COMMITTEE COMPOSITION. If a Committee has been appointed
pursuant to this Section 4, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of any Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies (however caused) and remove all members of
a Committee and thereafter directly administer the Plan, all to the extent
permitted by the
<PAGE> 29
Applicable Laws and, in the case of a Committee administering the Plan pursuant
to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and
Section 162(m) of the Code.
(d) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(p) of the Plan;
(ii) to select the Employees and Consultants to whom
Options and Stock Purchase Rights or any combination thereof may from time to
time be granted;
(iii) to determine whether and to what extent Options and
Stock Purchase Rights or any combination thereof are granted;
(iv) to determine the number of Shares of Common Stock to
be covered by each such award granted;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder, which
terms and conditions include but are not limited to the exercise or purchase
price, the time or times when Options or Stock Purchase Rights may be exercised
(which may be based on performance criteria), any vesting acceleration or waiver
of forfeiture restrictions, and any restriction or limitation regarding any
Option, Optioned Stock, Stock Purchase Right or Restricted Stock, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 10(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was granted
and to make any other amendments or adjustments to any Option that the
Administrator determines, in its discretion and under the authority granted to
it under the Plan, to be necessary or advisable, provided however that no
amendment or adjustment to an Option that would materially and adversely affect
the rights of any Optionee shall be made without the prior written consent of
the Optionee;
(ix) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights;
(x) to initiate an Option Exchange Program;
(xi) to construe and interpret the terms of the Plan and
awards granted under the Plan; and
<PAGE> 30
(xii) in order to fulfill the purposes of the Plan and
without amending the Plan, to modify grants of Options or Stock Purchase Rights
to Participants who are foreign nationals or employed outside of the United
States in order to recognize differences in local law, tax policies or customs.
(e) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Participants.
5. ELIGIBILITY.
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options and Stock
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees, provided however that Employees of
Affiliates shall not be eligible to receive Incentive Stock Options. An Employee
or Consultant who has been granted an Option or Stock Option Right may, if he or
she is otherwise eligible, be granted additional Options or Stock Purchase
Rights.
(b) TYPE OF OPTION. Each Option shall be designated in the
Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Options are
exercisable for the first time by an Optionee during any calendar year (under
all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such
excess Options shall be treated as Nonstatutory Stock Options. For purposes of
this Section 5(b), Incentive Stock Options shall be taken into account in the
order in which they were granted, and the Fair Market Value of the Shares shall
be determined as of the date of grant of such Option. In the event any Option
designated as an Incentive Stock Option fails to meet the requirements set forth
in this Plan for an Incentive Stock Option or as required to qualify as an
incentive stock option within the meaning of Code Section 422, such Option shall
not be void but instead shall be deemed a Nonstatutory Stock Option.
(c) NO EMPLOYMENT RIGHTS. The Plan shall not confer upon any
Participant any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon its
adoption by the Board. It shall continue in effect for a term of ten (10) years
unless sooner terminated under Section 16 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term
stated in the Option Agreement; provided however that the term shall be no more
than ten (10) years from the date of grant thereof or such shorter term as may
be provided in the Option Agreement and provided further that, in the case of an
Incentive Stock Option granted to a person who at the time of such grant is a
Ten Percent Holder, the term of such Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
<PAGE> 31
8. LIMITATION ON GRANTS TO EMPLOYEES. Subject to adjustment as
provided in Section 13 below, the maximum number of Shares which may be subject
to Options and Stock Purchase Rights granted to any one Employee under this Plan
for any fiscal year of the Company shall be 2,000,000.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be such price as is
determined by the Administrator and set forth in the Option Agreement, but shall
be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who at the time of grant is
a Ten Percent Holder, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant; or
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted prior to the date, if any, on which the
Common Stock becomes a Listed Security to a person who is at the time of grant
is a Ten Percent Holder, the per Share exercise price shall be no less than 110%
of the Fair Market Value per Share on the date of grant if required by the
Applicable Laws and, if not so required, shall be such price as is determined by
the Administrator;
(B) granted to a person who, at the time of the grant
of such Option, is a Named Executive of the Company, the per share Exercise
Price shall be no less than 100% of the Fair Market Value on the date of grant
if such Option is intended to qualify as performance-based compensation under
Section 162(m) of the Code; or
(C) granted prior to the date, if any, on which the
Common Stock becomes a Listed Security to any person other than a Named
Executive or a Ten Percent Holder, the per Share exercise price shall be no less
than 85% of the Fair Market Value per Share on the date of grant if required by
Applicable Law and, if not so required, shall be such price as is determined by
the Administrator.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price other than as required above pursuant to
a Corporate Transaction.
(b) PERMISSIBLE CONSIDERATION. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Administrator (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant) and may
consist entirely of (1) cash; (2) check; (3) delivery of Optionee's
<PAGE> 32
promissory note with such recourse, interest, security and redemption provisions
as the Administrator determines to be appropriate; (4) cancellation of
indebtedness; (5) surrender of other Shares that (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date of surrender (or such other period as may be
required to avoid a charge to the Company's earnings) or were not acquired,
directly or indirectly, from the Company, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which the Option is exercised; (6) authorization by the Optionee for the Company
to retain from the total number of Shares as to which the Option is exercised
that number of Shares having a Fair Market Value on the date of exercise equal
to the exercise price for the total number of Shares as to which the Option is
exercised; (7) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect exercise of the Option and prompt delivery to the
Company of the sale or loan proceeds required to pay the exercise price and any
applicable withholding taxes; (8) any combination of the foregoing methods of
payment; or (9) such other consideration and method of payment for the issuance
of Shares to the extent permitted under the Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider whether acceptance of such consideration may be reasonably expected to
benefit the Company and the Administrator may refuse to accept a particular form
of consideration at the time of any Option exercise if, in its sole discretion,
acceptance of such form of consideration is not in the best interests of the
Company at such time.
10. EXERCISE OF OPTION.
(a) VESTING. Any Option granted hereunder shall be exercisable
at such times and under such conditions as determined by the Administrator,
consistent with the terms of the Plan, and reflected in the Option Agreement,
including vesting requirements and/or performance criteria with respect to the
Company and/or the Optionee; provided however that, if required by the
Applicable Laws, any Option granted prior to the date, if any, upon which the
Common Stock becomes a Listed Security shall become exercisable at a rate of at
least 20% per year over five years from the date the Option is granted. In the
event that any of the Shares issued upon exercise of an Option (which exercise
occurs prior to the date, if any, upon which the Common Stock becomes a Listed
Security) should be subject to a right of repurchase in the Company's favor,
such repurchase right shall, if required by the Applicable Laws, lapse at the
rate of at least 20% per year over five years from the date the Option is
granted. Notwithstanding the above, in the case of an Option granted to an
officer (including but not limited to Officers), Director or Consultant, the
Option may become exercisable, or a repurchase right, if any, in favor of the
Company shall lapse, at any time or during any period established by the
Administrator. The Administrator shall have the discretion to determine whether
and to what extent the vesting of Options shall be tolled during any unpaid
leave of absence; provided however that in the absence of such determination,
vesting of Options shall be tolled during any such leave.
(b) PROCEDURE FOR EXERCISE. An Option may not be exercised for
a fraction of a Share. An Option shall be deemed exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to
<PAGE> 33
which the Option is exercised. Full payment may, as authorized by the
Administrator, consist of any consideration and method of payment allowable
under Section 9(b) of the Plan. Exercise of an Option in any manner shall result
in a decrease in the number of Shares that thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(c) RIGHTS AS A SHAREHOLDER. Until the issuance (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Option. No adjustment will be made for a dividend
or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 15 of the Plan.
(d) TERMINATION OF CONTINUOUS SERVICE. In the event of
termination of an Optionee's Continuous Service, such Optionee's right to
exercise the Option shall cease and the Option shall forthwith become void and
cease to have effect, except as set forth specifically in the Option Agreement.
Notwithstanding the foregoing, if required by the Applicable Laws, any Option
granted prior to the date, if any, upon which the Common Stock becomes a Listed
Security shall be exercisable by the Optionee for a period of time following the
termination of the Optionee's Continuous Service as follows:
(i) In the event of termination of Continuous Service for
reasons other than the Optionee's disability or death, the Option shall be
exercisable by the Optionee following such termination for a period of not less
than thirty (30) days, as is determined by the Administrator (with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option), after the date of such termination of Continuous Service
(but in no event later than the date of expiration of the term of such Option as
set forth in the Option Agreement), to the extent that the Optionee was entitled
to exercise it at the date of such termination. If an Option Agreement provides
that an Incentive Stock Option may be exercised more than three (3) months after
the termination of the Optionee's Continuous Service, to the extent that such
Optionee fails to exercise such Option within three (3) months of the date of
such termination, such Option thereafter shall be treated as a Nonstatutory
Stock Option. To the extent that the Optionee was not entitled to exercise the
Option at the date of such termination, or if the Optionee does not exercise the
Option to the extent so entitled within the time specified above, the Option
shall terminate and the Optioned Stock underlying the unexercised portion of the
Option shall revert to the Plan.
(ii) In the event of termination of Continuous Service as
a result of Optionee's disability, such Optionee may, but only within six (6)
months (or such longer period of time as is determined by the Administrator,
with such determination in the case of an Incentive Stock Option made at the
time of grant of the Option) from the date of such termination (but in no event
later than the date of expiration of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent he or she was entitled to
<PAGE> 34
exercise it at the date of such termination. To the extent that the Optionee was
not entitled to exercise the Option at the date of termination, or if the
Optionee does not exercise the Option to the extent so entitled within the time
specified herein, the Option shall terminate and the Optioned Stock underlying
the unexercised portion of the Option shall revert to the Plan.
(iii) In the event of the death of an Optionee prior to
termination of his or her Continuous Service, the Option may be exercised at any
time within six (6) months (or such longer period of time as is determined by
the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) following the date of
death (but in no event later than the expiration date of the term of such Option
as set forth in the Option Agreement) by such Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent of the right to exercise that had accrued at the date of
death or, if earlier, the date of termination of the Optionee's Continuous
Service. To the extent that the Optionee was not entitled to exercise the Option
at the date of death or termination, as the case may be, or if the Optionee does
not exercise such Option to the extent so entitled within the time specified
above, the Option shall terminate and the Optioned Stock underlying the
unexercised portion of the Option shall revert to the Plan.
(e) EXTENSION OF EXERCISE PERIOD. The Administrator shall have
full power and authority to extend the period of time for which an Option is to
remain exercisable following termination of an Optionee's Continuous Service
from the periods set forth in Sections 10(b), 10(c) and 10(d) above or in the
Option Agreement to such greater time as the Board shall deem appropriate,
provided that in no event shall such Option be exercisable later than the date
of expiration of the term of such Option as set forth in the Option Agreement.
(f) BUY-OUT PROVISIONS. The Administrator may at any time
offer to buy out for a payment in cash or Shares an Option previously granted
under the Plan based on such terms and conditions as the Administrator shall
establish and communicate to the Optionee at the time such offer is made.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the consideration to be paid, and the time within which such person
must accept such offer, which shall in no event exceed 30 days from the date
upon which the Administrator made the determination to grant the Stock Purchase
Right. In the case of a Stock Purchase Right granted prior to the date, if any,
on which the Common Stock becomes a Listed Security and if required by the
Applicable Laws at such time, the purchase price of Shares subject to such Stock
Purchase Rights shall not be less than 85% of the Fair Market Value of the
Shares as of the date of the offer, or, in the case of a Ten Percent Holder, the
price shall not be less than 100% of the Fair Market Value of the Shares as of
the date of the offer. The offer to purchase Shares subject to
<PAGE> 35
Stock Purchase Rights shall be accepted by execution of a Restricted Stock
Purchase Agreement in the form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company an
irrevocable, exclusive option (the "Repurchase Option") exercisable upon the
termination of the purchaser's Continuous Service. The purchase price for Shares
repurchased pursuant to the Restricted Stock Purchase Agreement shall be the
original purchase price paid by the purchaser and may be paid by cash, check or
cancellation of any indebtedness of the purchaser to the Company, at the
Company's option. The Repurchase Option shall lapse at such rate as the
Administrator may determine; provided however that with respect to a Stock
Purchase Right granted prior to the date, if any, on which the Common Stock
becomes a Listed Security to a purchaser who is not an officer (including an
Officer), Director or Consultant of the Company or of any Parent or Subsidiary
of the Company, such Repurchase Option shall lapse at a minimum rate of 20% of
the Shares subject to the Stock Purchase Right if required by the Applicable
Laws.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 15
of the Plan.
12. TAXES.
(a) As a condition of the exercise of an Option or Stock
Purchase Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising the Option or Stock Purchase Right)
shall make such arrangements as the Administrator may require for the
satisfaction of any applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of Option or Stock
Purchase Right and the issuance of Shares. The Company shall not be required to
issue any Shares under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option or Stock Purchase Right.
(c) This Section 12(c) shall apply only after the date, if
any, upon which the Common Stock becomes a Listed Security. In the case of
Participant other than an Employee (or in the case of an Employee where the next
payroll payment is not sufficient to satisfy such tax
<PAGE> 36
obligations, with respect to any remaining tax obligations), in the absence of
any other arrangement and to the extent permitted under the Applicable Laws, the
Participant shall be deemed to have elected to have the Company withhold from
the Shares to be issued upon exercise of the Option or Stock Purchase Right that
number of Shares having a Fair Market Value determined as of the applicable Tax
Date (as defined below) equal to the minimum statutory withholding rates for
federal and state tax purposes, including payroll taxes, applicable to the
exercise. For purposes of this Section 12, the Fair Market Value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined under the Applicable Laws (the "Tax Date").
(d) At the discretion of the Administrator, a Participant may
satisfy his or her tax withholding obligations arising in connection with an
Option by one or some combination of the following methods: (i) by cash payment;
(ii) by payroll deduction out of the Optionee's current compensation; or (iii)
if permitted by the Administrator, in its discretion, a Participant may satisfy
his or her tax withholding obligations upon exercise of an Option or Stock
Purchase Right by surrendering to the Company Shares that (A) in the case of
Shares previously acquired from the Company, have been owned by the Participant
for more than six (6) months on the date of surrender, and (B) have a Fair
Market Value determined as of the applicable Tax Date equal to the minimum
statutory withholding rates for federal and state tax purposes, including
payroll taxes, applicable to the exercise.
(e) Any election or deemed election by a Participant to have
Shares withheld to satisfy tax withholding obligations under Section 12(c) or
(d) above shall be irrevocable as to the particular Shares as to which the
election is made and shall be subject to the consent or disapproval of the
Administrator. Any election by a Participant under Section 12(d) above must be
made on or prior to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made
by a Participant and the Tax Date is deferred under Section 83 of the Code
because no election is filed under Section 83(b) of the Code, the Participant
shall receive the full number of Shares with respect to which the Option or
Stock Purchase Right is exercised but such Participant shall be unconditionally
obligated to tender back to the Company the proper number of Shares on the Tax
Date.
13. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS.
Options and Stock Purchase Rights may not be transferred or disposed of in any
manner other than by will or by the laws of descent or distribution or pursuant
to a domestic relations order (as defined by the Code or the rules thereunder);
provided that, after the date, if any, upon which the Common Stock becomes a
Listed Security, the Administrator may in its discretion grant transferable
Nonstatutory Stock Options pursuant to Option Agreements specifying (i) the
manner in which such Nonstatutory Stock Options are transferable and (ii) that
any such transfer shall be subject to the Applicable Laws. The designation of a
beneficiary by an Optionee will not constitute a transfer. An Option or Stock
Purchase Right may be exercised, during the lifetime of the holder of Option or
Stock Purchase Right, only by such holder or a transferee permitted by this
Section 13.
<PAGE> 37
14. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date
of grant of an Option or Stock Purchase Right shall, for all purposes, be the
date on which the Administrator makes the determination granting such Option or
Stock Purchase Right, or such later date as is determined by the Administrator;
provided however that in the case of an Incentive Stock Option, the grant date
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, CORPORATE
TRANSACTIONS AND CERTAIN OTHER TRANSACTIONS.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option or Stock Purchase Right, the number of Shares set
forth in Sections 3 and 8 above, and the number of shares of Common Stock that
have been authorized for issuance under the Plan but as to which no Options or
Stock Purchase Rights have yet been granted or that have been returned to the
Plan upon cancellation or expiration of an Option or Stock Purchase Right, as
well as the price per Share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued Shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination,
recapitalization or reclassification of the Common Stock (including any change
in the number of Shares of Common Stock effected in connection with a change of
domicile of the Company), or any other increase or decrease in the number of
issued Shares of Common Stock effected without receipt of consideration by the
Company; provided however that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Administrator, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares of Common Stock subject to an Option or Stock Purchase
Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the extent
it has not previously been exercised, each outstanding Option or Stock Purchase
Right shall terminate immediately prior to the consummation of such action,
unless otherwise provided by the Administrator.
(c) CORPORATE TRANSACTIONS; CHANGE OF CONTROL. In the event of
a Corporate Transaction, including a Change of Control, each outstanding Option
and Stock Purchase Right shall be assumed or an equivalent option or right shall
be substituted by the successor corporation or a Parent or Subsidiary of such
successor corporation (such entity, the "Successor Corporation"), unless the
Successor Corporation does not agree to such assumption
<PAGE> 38
or substitution, in which case such Options and Stock Purchase Rights shall
terminate upon consummation of the transaction.
For purposes of this Section 15(c), an Option or a Stock
Purchase Right shall be considered assumed, without limitation, if, at the time
of issuance of the stock or other consideration upon a Corporate Transaction or
a Change of Control, as the case may be, each holder of an Option or Stock
Purchase Right would be entitled to receive upon exercise of the Option or Stock
Purchase Right the same number and kind of shares of stock or the same amount of
property, cash or securities as such holder would have been entitled to receive
upon the occurrence of the transaction if the holder had been, immediately prior
to such transaction, the holder of the number of Shares of Common Stock covered
by the Option or the Stock Purchase Right at such time (after giving effect to
any adjustments in the number of Shares covered by the Option or Stock Purchase
Right as provided for in this Section 15); provided however that if the
consideration received in the transaction is not solely common stock of the
Successor Corporation, the Administrator may, with the consent of the Successor
Corporation, provide for the consideration to be received upon exercise of the
Option or Stock Purchase Right to be solely common stock of the Successor
Corporation equal to the Fair Market Value of the per Share consideration
received by holders of Common Stock in the transaction.
(d) CERTAIN DISTRIBUTIONS. In the event of any distribution to
the Company's shareholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without receipt
of consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
16. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend, discontinue or terminate the Plan. To the extent
necessary and desirable to comply with the Applicable Laws, the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such
as degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Except as provided in
Section 15, no amendment, suspension or termination of the Plan shall materially
and adversely affect Options already granted and such Options shall remain in
full force and effect as if the Plan had not been amended, suspended or
terminated, unless mutually agreed otherwise between the Optionee and the
Company, which agreement must be in writing and signed by such Optionee and the
Company. Except as provided in Section 15, no amendment, suspension or
termination of the Plan shall materially and adversely affect Stock Purchase
Rights already granted, or the
<PAGE> 39
holder of Restricted Stock acquired pursuant to a Stock Purchase Right, unless
mutually agreed otherwise between the holder of the Stock Purchase Right and the
Company, which agreement must be in writing and signed by such holder and the
Company.
17. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the Applicable Laws, with such compliance determined
by the Company in consultation with its legal counsel.
As a condition to the exercise of an Option or Stock Purchase Right,
the Company may require the person exercising such Option or Stock Purchase
Right to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by Applicable Laws.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by
Option Agreements and Restricted Stock Purchase Agreements, respectively, in
such form(s) as the Administrator shall from time to time approve.
20. SHAREHOLDER APPROVAL. If required by the Applicable Laws,
continuance of the Plan shall be subject to approval by the shareholders of the
Company within twelve (12) months before or after the date the Plan is adopted.
Such shareholder approval shall be obtained in the manner and to the degree
required under the Applicable Laws.
21. INFORMATION AND DOCUMENTS TO OPTIONEES AND PURCHASERS. Prior to the
date, if any, upon which the Common Stock becomes a Listed Security and if
required by the Applicable Laws, the Company shall provide financial statements
at least annually to each Optionee and to each individual who acquired Shares
pursuant to the Plan, during the period such Optionee or purchaser has one or
more Options or Stock Purchase Rights outstanding, and in the case of an
individual who acquired Shares pursuant to the Plan, during the period such
individual owns such Shares. The Company shall not be required to provide such
information if the issuance of Options or Stock Purchase Rights under the Plan
is limited to key employees whose duties in connection with the Company assure
their access to equivalent information.
<PAGE> 40
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF PERSISTENCE SOFTWARE, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 8, 2000
The undersigned stockholder of Persistence Software, Inc., a Delaware
corporation, (the "Company") hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement, each dated April 27, 2000, and
hereby appoints Christopher T. Keene and Laurence R. Hootnick, or either of
them, proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
Annual Meeting of Stockholders of Persistence Software, Inc. to be held on
Thursday, June 8, 2000, at 2:00 p.m., local time, at the Marriott Hotel, 1770
South Amphlett Boulevard, San Mateo, California, 94402, and at any adjournment
or postponement thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth below:
<TABLE>
<S> <C> <C>
1. ELECTION OF CLASS I [ ] FOR all nominees listed [ ] WITHHOLD authority to vote
DIRECTORS: below for all nominees listed
(except as indicated). below.
</TABLE>
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW:
Gregory Ennis William J. Harding Joseph P. Roebuck
2. PROPOSAL TO APPROVE THE AMENDMENT OF THE "EVERGREEN" PROVISION OF THE
COMPANY'S 1997 STOCK PLAN TO INCREASE THE NUMBER OF SHARES BY WHICH THIS PLAN
SHALL BE AUTOMATICALLY INCREASED ON THE FIRST DAY OF EACH THE FISCAL YEARS
BEGINNING IN 2001, 2002, 2003, 2004 AND 2005 FROM (I) THE LESSER OF 650,000
SHARES OR 3.5% OF THE COMPANY'S OUTSTANDING COMMON STOCK COMMON STOCK ON THE
LAST DAY OF THE IMMEDIATELY PRECEDING FISCAL YEAR, TO (II) THE LESSER OF 840,000
SHARES OR 4.33% OF THE COMPANY'S OUTSTANDING COMMON STOCK ON THE LAST DAY OF THE
IMMEDIATELY PRECEDING FISCAL YEAR, OR SUCH LESSER NUMBER OF SHARES AS DETERMINED
BY THE BOARD OF DIRECTORS:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PLEASE SIGN ON REVERSE SIDE AND RETURN IMMEDIATELY
<PAGE> 41
3. PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE, LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 2000:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
and, in their discretion, upon such other matter or matters that may properly
come before the meeting and any postponement(s) or adjournment(s) thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF CLASS I DIRECTORS; (2) FOR
APPROVAL OF THE AMENDMENT OF THE COMPANY'S 1997 STOCK PLAN, (3) FOR RATIFICATION
OF THE APPOINTMENT OF DELOITTE & TOUCHE, LLP AS THE INDEPENDENT AUDITORS OF THE
COMPANY FOR THE YEAR ENDING DECEMBER 31, 2000, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
Date:
--------------------------------
Signature
Date:
--------------------------------
Signature
(This Proxy should be marked,
dated, signed by the
stockholder(s) exactly as his or
her name appears hereon, and
returned promptly in the
enclosed envelope. Persons
signing in a fiduciary capacity
should so indicate. If shares
are held by joint tenants or as
community property, both should
sign.)
