-------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1999
-------------
The 1999 Annual Meeting of the Stockholders of FileNET
Corporation (the "Company") will be held at 9:00 a.m. local time, on May 20,
1999, at The Mondavi Center, 1570 Scenic Avenue, Costa Mesa, California 92626,
for the following purposes:
1. To elect seven directors for the ensuing year or until the election
and qualification of their respective successors;
2. To approve an amendment to the Company's 1995 Stock Option Plan to
increase the number of shares of Common Stock available for issuance
thereunder by an additional 1,200,000 shares;
3. To approve an amendment to the Company's 1998 Employee Stock
Purchase Plan to increase the number of shares of Common Stock available
for issuance thereunder by an additional 300,000 shares; and
4. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on March
22, 1999, the record date, will be entitled to notice of, and to vote at, the
1999 Annual Meeting and any adjournment thereof.
By Order of the Board of Directors,
/s/ Mary K. Carrington
Mary K. Carrington
Secretary
Costa Mesa, California
Dated: April 9, 1999
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU EXPECT TO
ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A
POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. YOU MAY VOTE YOUR PROXY
ELECTRONICALLY OR BY TELEPHONE. PLEASE REFER TO PAGE 2 OF THE FOLLOWING PROXY
STATEMENT AND THE ENCLOSED VOTING FORM FOR INSTRUCTIONS. YOUR PROXY MAY BE
REVOKED AT ANY TIME PRIOR TO THE ANNUAL MEETING. IF YOU DECIDE TO ATTEND THE
ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU MAY DO SO AUTOMATICALLY
BY VOTING IN PERSON AT THE ANNUAL MEETING.
<PAGE>
3565 Harbor Boulevard
Costa Mesa, California 92626
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
MAY 20, 1999
-----------------
PROXY STATEMENT
-----------------
SOLICITATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of
Directors of FileNET Corporation (the "Company") for use at the Annual Meeting
of Stockholders to be held at The Mondavi Center, 1570 Scenic Avenue, Costa
Mesa, California 92626, on May 20, 1999 at 9:00 a.m. local time, and at any and
all adjournments or postponements thereof (the "Meeting").
All shares represented by each properly executed, unrevoked
proxy received in time for the Meeting will be voted in the manner specified
therein. If the manner of voting is not specified in an executed proxy received
by the Company, the proxy will be voted FOR (i) the election of the seven
nominees for election to the Board of Directors listed in the proxy, (ii) the
approval of the amendment to the Company's 1995 Stock Option Plan to increase
the number of shares of Common Stock available for issuance thereunder by an
additional 1,200,000 shares; and (iii) the approval of the amendment to the
Company's 1998 Employee Stock Purchase Plan to increase the number of shares of
Common Stock available for issuance thereunder by an additional 300,000 shares.
Any stockholder has the power to revoke his or her proxy at
any time before it is voted. A proxy may be revoked by delivering a written
notice of revocation to the Secretary of the Company, by presenting a
later-dated proxy executed by the person who executed the prior proxy, or by
attendance at the meeting and voting in person by the person who executed the
proxy. Attendance at the meeting will not, by itself, revoke a proxy.
This proxy statement is being mailed to the Company's
stockholders on or about April 9, 1999. The expense of soliciting proxies will
be borne by the Company. Expenses include reimbursement paid to brokerage firms
and others for their expenses incurred in forwarding solicitation material
regarding the Meeting to beneficial owners of the Company's Common Stock.
Solicitation of proxies will be made by mail. Further solicitation of proxies
may be made by telephone or oral communication by the Company's regular
employees, who will not receive additional compensation for such solicitation.
OUTSTANDING SHARES AND VOTING RIGHTS
Voting
Only holders of record of the approximately 31,934,143 shares
of the Company's Common Stock outstanding at the close of business on the record
date, March 22, 1999, will be entitled to notice of and to vote at the Meeting
or any adjournment or postponement thereof. The Company effected a two-for-one
stock split in the form of a stock dividend on June 12, 1998, to all
stockholders of record as of May 29, 1998. All share numbers and prices reported
herein have been adjusted accordingly. On each matter to be considered at the
Meeting, each stockholder will be entitled to cast one vote for each share of
the Company's Common Stock held of record by such stockholder on March 22, 1999.
<PAGE>
In order to constitute a quorum for the conduct of business at
the Meeting, a majority of the outstanding shares of the Common Stock of the
Company entitled to vote at the Meeting must be present or represented at the
Meeting. Pursuant to Delaware law, directors are elected by a plurality vote.
The other matters submitted for stockholder approval at the Meeting will be
decided by the affirmative vote of a majority of shares present in person or
represented by proxy at the Meeting and entitled to vote on each matter. With
regard to the election of directors, votes may be cast in favor of or withheld
from each nominee; votes that are withheld will be excluded entirely from the
vote and will have no effect. Abstentions may be specified on all proposals
except the election of directors and will be counted as present for purposes of
determining the existence of a quorum regarding the item on which the abstention
is noted and will also be counted for purposes of determining whether
stockholder approval of that item has been obtained. If shares are not voted by
the broker who is the record holder of the shares, or if shares are not voted in
other circumstances in which proxy authority is defective or has been withheld,
with respect to any matter these non-voted shares are not deemed to be entitled
to vote for purposes of determining whether stockholder approval of that matter
has been obtained, but the shares will be counted for quorum purposes.
Voting Electronically via the Internet or Telephone
Stockholders whose shares are registered directly with
EquiServe may vote either via the Internet or by calling EquiServe. Specific
instructions to be followed by any registered stockholder interested in voting
via Internet or telephone are set forth on the enclosed proxy card. The Internet
and telephone voting procedures are designed to authenticate the stockholder's
identity and to allow stockholders to vote their shares and confirm that their
instructions have been properly recorded.
If your shares are registered in the name of a bank or
brokerage firm, you may be eligible to vote your shares electronically over the
Internet or by telephone. A large number of banks and brokerage firms are
participating in the ADP Investor Communication Services online program. This
program provides eligible stockholders who receive a paper copy of the Annual
Report and Proxy Statement the opportunity to vote via the Internet or by
telephone. If your bank or brokerage firm is participating in ADP's program,
your voting form will provide instructions. If your voting form does not
reference Internet or telephone information, please complete and return the
paper Proxy in the self-addressed postage paid envelope provided.
2
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The table on the following page sets forth as of March 22,
1999 the amount and percentage of the outstanding shares of the Common Stock of
the Company which, according to the information supplied to the Company, are
beneficially owned by (i) each person who, to the knowledge of the Company, is
the beneficial owner of more than 5% of the Company's outstanding Common Stock,
(ii) each person who is currently a director of the Company or is a nominee for
election as a director of the Company, (iii) each named executive officer in the
Summary Compensation Table that appears below and (iv) all current directors and
executive officers of the Company as a group. Except to the extent indicated in
the footnotes to the following table, the person or entity listed has sole
voting or dispositive power with respect to the shares that are deemed
beneficially owned by such person or entity, subject to community property laws
where applicable.
Total Percent of
Outstanding Shares of
Common Stock Common Stock
Beneficially Beneficially
Name(1) Owned(2) Owned(2)
------------------ ------------------
Directors and 5% Holders
Merrill Lynch & Co., Inc.(3)
World Financial Center
250 Vesey Street
New York, NY 10381........... 1,608,366 5.04%
Theodore J. Smith(4)............ 407,330 1.27
Lee D. Roberts (5).............. 62,500 *
L. George Klaus(6).............. 50,511 *
John C. Savage(7)............... 38,991 *
William P. Lyons(8)............. 31,550 *
Carolyn M. Ticknor(9)........... 511 *
Roger S. Siboni................. 0 0
Named Executive Officers:
Bruce A. Waddington(10).......... 212,706 *
Mark S. St.Clare(11)............ 81,976 *
Ron L. Ercanbrack(12)............ 35,000 *
David Bennett(13)................ 5,800 *
All executive officers and
directors as a group (17
persons)(14) 1,018,730 3.12
- ---------------
* less than 1%
(1) The address of each individual named is 3565 Harbor Boulevard, Costa Mesa,
California 92626, unless otherwise indicated.
(2) Beneficial ownership and percentage of beneficial ownership as of March 22,
1999 for each person includes shares for which options held by such person
are currently exercisable or will become exercisable within 60 days after
March 22, 1999, as if such option shares were outstanding on March 22,
1999.
(3) Pursuant to Schedule 13G filed February 4, 1999 with the Securities and
Exchange Commission, Merrill Lynch & Co., Inc. (on behalf of Merrill Lynch
Asset Management Group) reported that as of December 31, 1998 it shared
(i) power to vote 1,608,366 shares and (ii) dispositive power of 1,608,366
shares.
3
<PAGE>
(4) Includes 198,330 shares held by the Theodore J. Smith Family Trust as to
which shares Mr. Smith, as co-trustee for this trust, has voting and
dispositive power. Also includes 209,000 shares issuable upon exercise of
options that are currently exercisable or will become exercisable within
60 days after March 22, 1999.
(5) Includes 62,500 shares issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days after March 22, 1999.
(6) Includes 50,000 shares held by the L. George Klaus Family Trust as to
which shares Mr. Klaus, as co-trustee for this trust, has shared voting
and dispositive power. Also includes 511 shares that are currently
exercisable for vested shares or will become exercisable for vested shares
within 60 days after March 22, 1999.
(7) Includes 36,427 shares that are currently exercisable for vested shares or
will become exercisable for vested shares within 60 days after March 22,
1999.
(8) Includes 2,000 shares held by the William P. Lyons Family Trust as to
which shares Mr. Lyons, as co-trustee for this trust, has shared voting
and dispositive power. Also includes 29,550 shares that are currently
exercisable for vested shares or will become exercisable for vested shares
within 60 days after March 22, 1999.
(9) Includes 511 shares that are currently exercisable for vested shares or
will become exercisable for vested shares within 60 days after March 22,
1999.
(10) Includes 197,680 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after March
22, 1999.
(11) Includes 62,300 shares issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days after March 22, 1999.
(12) Includes 35,000 shares issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days after March 22, 1999.
(13) Includes 4,000 shares issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days after March 22, 1999.
(14) Includes shares held by the Theodore J. Smith Family Trust, William P.
Lyons Family Trust and L. George Klaus Family Trust (see footnotes 4, 6
and 8). Also includes 707,923 shares that are currently exercisable for
vested shares or will become exercisable for vested shares within 60 days
after March 22, 1999.
4
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth, as of March 22, 1999, those
executive officers of the Company who were subject to the reporting requirements
of Section 16 of the Securities and Exchange Act of 1934, as amended:
Name Age Position
- ----------------- ----- -------------------------------------------------
Lee D. Roberts 46 Chief Executive Officer since April 1998, and
President and Chief Operating Officer of the
Company since May 1997. Mr. Roberts has also
served as a director of the Company since May
1998. Prior to joining the Company in May 1997,
Mr. Roberts was with International Business
Machines Corporation ("IBM") for over 20 years,
serving most recently as General Manager and Vice
President, Worldwide Marketing and Sales for the
Networking Division of IBM.
David Bennett 42 Vice President, Corporate Strategy and Planning
since October 1998. From January 1998 to October
1998, Mr. Bennett served as Vice President,
Channel Sales and from January 1997 to January
1998 was Director of Channel Sales. Prior to
joining the Company, Mr. Bennett was with Uniplex
Ltd. in the United Kingdom since 1989, most
recently as General Manager, International.
Mary K. Carrington 46 Senior Vice President and General Counsel since
October 1998, and Secretary since February 1999.
Prior to October 1998, Ms. Carrington served as
the Company's consulting legal counsel since 1990
and was previously associated with McKittrick,
Jackson, DeMarco & Peckenpaugh.
Brian A. Colbeck 33 Controller, Chief Accounting Officer and
Assistant Secretary since February 1999. From May
1998 to February 1999, Mr. Colbeck served as
Treasurer. From October 1997 to May 1998, he
served as Director, Corporate Tax and Treasury,
from March 1996 to October 1997 he was Director,
Corporate Tax and from 1994 to March 1996 he
served as Tax Manager.
David D. Despard 43 Senior Vice President, Global Professional
Services since July 1998. Prior to joining the
Company, Mr. Despard was with Wall Data, Inc.,
where he served as Vice President, Customer
Services, since 1995.
Frederick P. Dillon 49 Vice President, Worldwide Sales Operations since
January 1999. From December 1997 to January 1999
he was Director, Worldwide Sales Operations and
from January 1993 to December 1997 he was
Director, Sales Operations.
Ron L. Ercanbrack 44 Senior Vice President, Worldwide Sales since
October 1997. From June 1997 to October 1997, Mr.
Ercanbrack served as Senior Vice President,
International. Prior to joining the Company in
June 1997, Mr.Ercanbrack was with IBM for over 19
years, serving most recently as Vice President,
Worldwide Sales, Channel and OEM for the
Networking Division of IBM.
William J. Kreidler 54 Senior Vice President, Worldwide Customer
Services and Operations since July 1997. From
August 1992 to July 1997, Mr. Kreidler served as
Vice President, Operations.
Audrey N. Schaeffer 54 Vice President, Human Resources since January
1993, and Assistant Secretary since April 1988.
Mark S. St.Clare 52 Senior Vice President, Finance and Chief
Financial Officer since January 1985 and
Secretary from June 1993 to February 1999.
Bruce A. Waddington 48 Senior Vice President, Engineering since June
1993 and Chief Technical Officer since March
1996.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
the annual and long-term compensation earned for services rendered in all
capacities to the Company for the fiscal year ended December 31, 1998
(designated as the 1998 year below), the fiscal year ended December 31, 1997
(designated as the 1997 year below) and the fiscal year ended December 31, 1996
(designated as the 1996 year below), respectively, by the Company's Chief
Executive Officer and each of the other four most highly compensated executive
officers of the Company whose annual salary and bonuses exceeded $100,000 for
the fiscal year ended December 31, 1998 (collectively, the "Named Executive
Officers"). No executive officer who would have otherwise been includable in
such table on the basis of salary and bonus earned for the fiscal year ended
December 31, 1998 resigned or terminated employment during the fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------------ --------------------------
<S> <C> <C> <C> <C> <C> <C>
Other
Annual Stock All Other
Compen- Options Compen-
Name and Principal Position Year Salary(1) Bonus(2) sation (Shares) sation(3)
- --------------------------- ---- -------- ------- ---------- ---------- ---------
Theodore J. Smith(4) 1998 $372,750 0 0 0 $23,199
Chairman of the Board 1997 360,850 $162,146 0 370,000(5) 23,091
1996 349,385 0 0 60,000(6) 21,426
Lee D. Roberts(7) 1998 373,750 0 $28,000(8) 150,000 3,660
President, Chief Executive Officer 1997 190,000 188,500 472,143(9) 660,000 417
and Chief Operating Officer 1996 0 0 0 0 0
Bruce A. Waddington 1998 260,121 0 0 40,000 3,087
Senior Vice President-Engineering 1997 216,897 83,520 0 348,000(5) 3,004
and Chief Technical Officer 1996 185,070 0 0 40,000(6) 3,688
Ron L. Ercanbrack(10) 1998 259,457 0 93,514(11) 40,000 2,673
Senior Vice President-Worldwide 1997 135,089 124,400 74,194(12) 240,000 1,240
Sales 1996 0 0 0 0 0
Mark S. St.Clare 1998 238,444 0 0 30,000 4,592
Senior Vice President-Finance and 1997 210,514 76,560 0 210,000(5) 4,483
Chief Financial Officer 1996 201,417(13) 0 0 31,268(6) 4,094
David Bennett(14) 1998 220,191(15) 0 20,735(16) 20,000 1,600
Vice President-Corporate Strategy 1997 0 0 0 0 0
and Planning 1996 0 0 0 0 0
</TABLE>
- ----------
(1) Includes amounts deferred under (a) the Company's Employee Savings and
Investment Plan, a tax-qualified plan under Section 401(k) of the Internal
Revenue Code, and (b) the Company's Deferred Compensation Plan.
(2) Annual bonus amounts are earned and accrued for the fiscal year in which
reported, but are paid after the close of that fiscal year.
(3) Includes (a) the following premiums paid by the Company for fiscal 1998 on
certain term-life insurance policies maintained for the Named Executive
Officers under which such individuals designate their own beneficiaries:
$21,599, $3,660, $1,487, $1,073 and $2,992 for Messrs. Smith, Roberts,
Waddington, Ercanbrack and St.Clare, respectively, and (b) a $1,600
contribution for fiscal 1998 made by the Company on behalf of each Named
Executive Officer (other than Mr. Roberts) to the Section 401(k) Plan which
matches a portion of his contribution to that plan.
6
<PAGE>
(4) Mr. Smith served as the Company's Chief Executive Officer until April 1998,
when he resigned from such position. Although Mr. Smith continues to serve
as the Chairman of the Board of the Company, he ceased to be an employee of
the Company, effective as of December 31, 1998.
(5) Each of the option grants indicated for fiscal 1997 include the following
options regranted on July 11, 1997 in exchange for the cancellation of
preexisting options for the same number of shares but with a higher
exercise price per share: 155,000 option shares, 54,000 option shares and
70,000 option shares for Messrs. Smith, Waddington and St.Clare,
respectively.
(6) Each of the option grants indicated for fiscal 1996 was originally granted
with an exercise price in excess of $18.00 per share (other than a
634-share option granted to Mr. St.Clare in 1996) and was cancelled on July
11, 1997 in exchange for a new option for the same number of shares with an
exercise price of $18.00 per share, the fair market value per share of the
Common Stock on the date of regrant.
(7) Mr. Roberts was appointed to the position of Chief Executive Officer in
April 1998.
(8) Such amount represents a housing allowance paid to Mr. Roberts for fiscal
1998.
(9) Includes (a) $1,999 in reimbursed relocation expenses plus the tax gross-up
for the portion includable as taxable income, (b) a housing allowance in
the amount of $21,000 and (c) the aggregate amount of $449,144 paid in part
as reimbursement of the settlement costs and legal fees incurred by Mr.
Roberts in connection with a lawsuit commenced by his former employer and
in part as a tax gross-up on the portion of such reimbursement includable
in his taxable income. See "Employment Contracts and Change in Control
Arrangements" for further information.
(10) Mr. Ercanbrack joined the Company and was first appointed an executive
officer in June 1997.
(11) Includes (a) $57,514 in reimbursed relocation expenses plus the tax
gross-up for the portion includable as taxable income and (b) a housing
allowance in the amount of $36,000. See "Employment Contracts and Change in
Control Arrangements" for further information.
(12) Includes (a) $60,258 in reimbursed relocation expenses plus the tax
gross-up for the portion includable as taxable income and (b) a housing
allowance in the amount of $13,936. See "Employment Contracts and Change in
Control Arrangements" for further information.
(13) Includes $19,971 applied by Mr. St.Clare for the acquisition of special
option grants under the Company's Salary Reduction Option Grant Program.
(14) Mr. Bennett was first appointed as an executive officer in October 1998.
(15) Includes $68,912 in commissions earned by Mr. Bennett prior to his
appointment as Vice President, Corporate Strategy and Planning.
(16) Such amount represents reimbursed relocation expenses plus the tax gross-up
for the portion includable as taxable income.
7
<PAGE>
Option Grants in Last Fiscal Year
The following table provides information on option grants made
in the 1998 fiscal year to the Named Executive Officers. No stock appreciation
rights were granted during such fiscal year to the Named Executive Officers.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term(1)
------------------------------------------------------ --------------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise
Granted in Fiscal Price Expiration
Name (#)(2) Year ($/Sh) Date 5% 10%
- ------------------- ------------- ---------- --------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Theodore J. Smith........... 0 0 0 0 0 0
Lee D. Roberts.............. 90,000 4.3 $ 23.88 04/13/08 $1,351,620 $3,425,271
60,000 2.8 9.17 12/09/08 346,018 876,877
Bruce A. Waddington......... 40,000 1.9 9.17 12/09/08 230,679 584,585
Ron L. Ercanbrack........... 40,000 1.9 9.17 12/09/08 230,679 584,585
Mark S. St.Clare............ 30,000 1.4 9.17 12/09/08 173,009 438,439
David Bennett............... 20,000 1.0 5.75 10/21/08 72,323 183,280
</TABLE>
- ----------
(1) The assumed 5% and 10% annual rates of stock price appreciation are for
illustrative purposes only. Actual stock prices will vary from time to
time based upon market factors and the Company's financial performance. No
assurance can be given that such rates will be achieved. Unless the market
price of the Common Stock appreciates over the option term, no value will
be realized from the option grants made to the Named Executive Officers.
(2) Each option was granted under the Company's 1995 Stock Option Plan and
will become exercisable for the option shares in four successive equal
annual installments upon the optionee's completion of each year of service
over the four-year period measured from the grant date (December 10, 1998
for all grants except for the 90,000-share grant made to Mr. Roberts on
April 14, 1998 and the 20,000-share grant made to Mr. Bennett on October
22, 1998). Each option will become immediately exercisable for all the
option shares in the event the Company is acquired by merger or asset
sale, unless the option is to be assumed by the successor entity. Should
the option be assumed in the acquisition, then that option will
subsequently become exercisable for all the option shares in the event the
optionee's employment is terminated (whether involuntarily or through a
forced resignation) within 12 months after the acquisition. The option
will also accelerate in full in the event the optionee's employment is
terminated within 12 months after a change of control of the Company
(whether by tender offer for more than 50% of the Company's outstanding
voting securities or a change in the composition of the Board effected
through one or more contested elections for Board membership). Each option
has a maximum term of 10 years, subject to earlier termination following
the optionee's termination of employment.
8
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Year End Option Value
The following table sets forth certain information with
respect to the Named Executive Officers concerning their exercise of options
during fiscal 1998 and the unexercised options held by them at the close of such
fiscal year. No stock appreciation rights were held or exercised by the Named
Executive Officers at any time during the 1998 fiscal year.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money
Year End Options at
Shares (Number of Shares) Fiscal Year End(1)
Acquired Value Exercisable / Exercisable /
Name on Exercise(#) Realized($)(2) Unexercisable Unexercisable
- ----------------------- ------------- -------------- -------------------- ------------------------
<S> <C> <C> <C> <C>
Theodore J. Smith...... 264,000 $3,358,113 254,000 / 116,000 $ 675,740 / 279,560
Lee D. Roberts......... 125,000 2,711,360 25,000 / 510,000 106,250 / 2,046,900
Bruce A. Waddington.... 45,000 1,090,900 137,680 / 247,000 557,079 / 958,970
Ron L. Ercanbrack...... 25,000 558,650 25,000 / 190,000 97,000 / 671,600
Mark S. St.Clare....... 73,268 1,128,242 56,500 / 139,500 135,025 / 338,595
David Bennett.......... 0 0 1,500 / 24,500 3,615 / 124,045
</TABLE>
- ---------------
(1) Calculated on the basis of the average of the high and low selling prices
of the Company's Common Stock on December 31, 1998 ($11.41), the last
trading day in fiscal 1998, minus the exercise price of the option,
multiplied by the number of shares subject to the option.
(2) The excess of the fair market value of the purchased shares on the date of
exercise over the exercise price paid for such shares.
9
<PAGE>
Compensation Committee Report on Executive Compensation
It is the duty of the Compensation Committee to review and
determine the salaries and bonuses of executive officers of the Company,
including the Chief Executive Officer, and to establish the general compensation
policies for such individuals. The Compensation Committee also has the sole and
exclusive authority to make discretionary option grants to the Company's
executive officers under the 1995 Stock Option Plan.
The Compensation Committee believes that the compensation
programs for the Company's executive officers should reflect the Company's
performance and the value created for the Company's stockholders. In addition,
the compensation programs should support the short-term and long-term strategic
goals and values of the Company and should reward individual contribution to the
Company's success. The Company is engaged in a very competitive industry, and
the Company's success depends upon its ability to attract and retain qualified
executives through the competitive compensation packages it offers to such
individuals.
General Compensation Policy. The Compensation Committee's
policy is to provide the Company's executive officers with compensation
opportunities that are based upon their personal performance, the financial
performance of the Company and their contribution to that performance and are
competitive enough to attract and retain highly skilled individuals. Each
executive officer's compensation package is comprised of three elements: (i)
base salary that is competitive with the market and reflects individual
performance, (ii) annual variable performance awards payable in cash and tied to
the Company's achievement of annual financial performance goals and (iii)
long-term stock-based incentive awards designed to strengthen the mutuality of
interests between the executive officers and the Company's stockholders. As an
officer's level of responsibility increases, a greater proportion of his or her
total compensation will be dependent upon the Company's financial performance
and stock price appreciation.
The Company retains the services of an independent
compensation consulting firm to advise the Compensation Committee as to how the
Company's executive compensation compares to that of companies within and
outside of the industry. The Company also subscribes to and participates in
compensation surveys of the companies in its industry.
Factors. The principal factors that were taken into account in
establishing each executive officer's compensation package for the 1998 fiscal
year are described below. However, the Compensation Committee may in its
discretion apply entirely different factors, such as different measures of
financial performance, for future fiscal years.
Base Salary. In setting base salaries, the Compensation
Committee reviews published compensation survey data for its industry. The
Committee has also identified a group of companies for comparative compensation
purposes, and it reviews detailed compensation data incorporated into each such
company's proxy statements. This group is comprised of approximately 20
companies. The base salary for each officer reflects the salary levels for
comparable positions in the published surveys and the comparative group of
companies, as well as the individual's personal performance and internal
alignment considerations. The relative weight given to each factor varies with
each individual in the sole discretion of the Compensation Committee. Each
executive officer's base salary is adjusted each year on the basis of (i) the
Compensation Committee's evaluation of the officer's personal performance for
the year and (ii) the competitive marketplace for persons in comparable
positions. The Company's performance and profitability may also be a factor in
determining the base salaries of executive officers. For the 1998 fiscal year,
the base salary of the Company's executive officers ranged from approximately
the 40th percentile to the 75th percentile of the base salary levels in effect
for comparable positions in the surveyed compensation data.
Annual Incentives. The annual incentive bonus for the Chief
Executive Officer is based on a percentage of his base pay (50% for the 1998
fiscal year) but is adjusted to reflect the actual financial performance of the
Company in comparison to the Company's business plan. No bonus is paid if the
Company's target goal, which was based on a combination of earnings per share
(EPS) and sales performance, is less than 70% of plan; 100% of the bonus is paid
if the Company's goal is 100% of plan and 200% of the bonus is paid if the
Company's goal is equal to or greater than 125% of plan. The actual bonus is
calculated on a pro rata basis between these points. The other executive
officers of the Company are also eligible to receive annual incentive bonuses
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equal to a percentage of base salary (30-50% for fiscal 1998) on the basis of
the Company's performance to plan as measured in terms of achievement of the
Company's target EPS and sales performance goal, with additional consideration
given to attainment of individual performance goals. Based solely on the
Company's performance during fiscal year 1998, no bonuses were paid to any of
the executive officers for such year, other than a guaranteed bonus in the
amount of $80,000 paid to Mr. David Despard as part of his initial compensation
package with the Company.
Long Term Incentives. Generally, stock option grants are made
annually by the Compensation Committee to each of the Company's executive
officers. Each grant is designed to align the interests of the executive officer
with those of the stockholders and provide each individual with a significant
incentive to manage the Company from the perspective of an owner with an equity
stake in the business. Each grant allows the officer to acquire shares of the
Company's Common Stock at a fixed price per share (the market price on the grant
date) over a specified period of time (up to ten years). Each option becomes
exercisable in successive annual installments over a four-year period,
contingent upon the officer's continued employment with the Company.
Accordingly, the option will provide a return to the executive officer only if
he or she remains employed by the Company during the vesting period, and then
only if the market price of the shares appreciates over the option term.
The size of the option grant to each executive officer,
including the Chief Executive Officer, is set by the Compensation Committee at a
level that is intended to create a meaningful opportunity for stock ownership
based upon the individual's current position with the Company, the individual's
personal performance in recent periods and his or her potential for future
responsibility and promotion over the option term. The Compensation Committee
also takes into account the number of unvested options held by the executive
officer in order to maintain an appropriate level of equity incentive for that
individual. The relevant weight given to each of these factors varies from
individual to individual.
CEO Compensation. In setting the total compensation payable to
the individuals who served as the Company's Chief Executive Officer for the 1998
fiscal year, the Compensation Committee sought to make their compensation
competitive with other companies in the surveyed group, while at the same time
assuring that a significant percentage of their total compensation package was
tied to Company performance and stock price appreciation.
The Compensation Committee established Mr. Smith's base salary
for the portion of the 1998 fiscal year during which he served as the Chief
Executive Officer with the objective of maintaining his base salary at a
competitive level when compared with the base salary levels in effect for
similarly situated chief executive officers. For the 1998 fiscal year, Mr.
Smith's base salary was set at approximately the median of the base salary
levels of other chief executive officers at the surveyed companies.
However, the remaining components of Mr. Smith's compensation
for the portion of the 1998 fiscal year during which he served as the Company's
Chief Executive Officer were primarily dependent upon corporate performance. Mr.
Smith was eligible for a cash bonus tied to the Company's attainment of target
goals, with additional consideration to be given to individual business plan
objectives for the portion of the 1998 fiscal year during which he served as the
Company's Chief Executive Officer. However, on the basis of the Company's
performance during the 1998 fiscal year, the Compensation Committee did not
award him a bonus for such fiscal year. In addition, no stock options were
granted to him during his period of service as Chief Executive Officer in fiscal
1998.
After Mr. Roberts was promoted to the position of Chief
Executive Officer, the Compensation Committee adjusted his base salary for the
1998 fiscal year in recognition of his personal performance and with the
objective of establishing his base salary at a competitive level when compared
with the base salary levels in effect for similarly situated chief executive
officers. His base salary had previously been set in accordance with the
provisions of his May 1997 employment agreement with the Company. The adjustment
to Mr. Roberts' base salary increased his salary to a level which is
approximately at the median of the base salary levels in effect for the 1998
fiscal year for other chief executive officers at the surveyed companies.
However, the remaining components of Mr. Roberts' compensation
package for the 1998 fiscal year compensation were primarily dependent upon
corporate performance. Mr. Roberts was eligible for a cash bonus for the 1998
fiscal year tied to the Company's attainment of target goals, with additional
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consideration to be given to individual business plan objectives. On the basis
of the Company's performance for fiscal 1998, the Compensation Committee did not
to award Mr. Roberts a bonus for such fiscal year. The Compensation Committee
did, however, authorize two stock option grants to Mr. Roberts in fiscal 1998.
The options cover 150,000 shares in the aggregate and are designed to provide
him with an equity incentive to remain in the Company's employ and contribute to
the financial success of the Company. The option will have value for Mr. Roberts
only if he continues in the Company's employ over the vesting period and then
only if the market price of the underlying option shares appreciates over the
market price in effect on the dates the grants were made.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code disallows a tax
deduction to publicly held companies for compensation paid to certain of their
executive officers, to the extent that compensation exceeds $1 million per
covered officer in any fiscal year. The limitation applies only to compensation
which is not considered to be performance-based. The non-performance based
compensation paid in cash to the Company's executive officers for the 1998
fiscal year did not exceed the $1 million limit per officer, and the
Compensation Committee does not anticipate that the non-performance based
compensation to be paid in cash to the Company's executive officers for fiscal
1999 will exceed that limit. The Company's 1995 Stock Option Plan has been
structured so that any compensation deemed paid in connection with the exercise
of option grants made under that plan with an exercise price equal to the fair
market value of the option shares on the grant date will qualify as
performance-based compensation which will not be subject to the $1 million
limitation. However, the option grants made to Messrs. Roberts and Ercanbrack at
the time they joined the Company were not made under the 1995 Stock Option Plan,
and the deductibility of the compensation deemed paid by the Company in
connection with the exercise of those options will be subject to the $1 million
limitation. Because it is unlikely that the cash compensation payable to any of
the Company's executive officers, including Messrs. Roberts and Ercanbrack, in
the foreseeable future will approach the $1 million limit, the Compensation
Committee has decided at this time not to take any action to limit or
restructure the elements of cash compensation payable to the Company's executive
officers. The Compensation Committee will reconsider this decision should the
individual cash compensation of any executive officer ever approach the $1
million level.
It is the opinion of the Compensation Committee that the executive
compensation policies and plans provide the necessary total remuneration program
to properly align the Company's performance and the interests of the Company's
stockholders through the use of competitive and equitable executive compensation
in a balanced and reasonable manner, for both the short and long-term.
Submitted by the Compensation Committee of the Company's Board
of Directors:
Compensation Committee
L. George Klaus
William P. Lyons
John C. Savage
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is composed of Messrs. Klaus, Lyons
and Savage. No member of the Compensation Committee was at any time during the
1998 fiscal year or at any other time an officer or employee of the Company. No
executive officer of the Company served on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as members of the Company's Board of Directors or Compensation
Committee.
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Stock Price Performance Graph
The following graph compares the five year cumulative total
stockholder return on the Company's Common Stock against the cumulative total
return of the Nasdaq Stock Market Index and the Nasdaq Computer and Data
Processing Services Index for the period from December 31, 1993 to December 31,
1998.
[GRAPH APPEARS HERE]
Measurement period FILENET NASDAQ NASDAQ
(Fiscal year covered) CORPORATION STOCK MARKET C&DPS INDEX
- --------------------- ----------- ------------ -----------
Measurement Pt - 12/31/93 $100 $100 $100
FYE 01/01/95 $126 $ 98 $121
FYE 12/31/95 $219 $138 $185
FYE 12/31/96 $149 $170 $228
FYE 12/31/97 $140 $209 $280
FYE 12/31/98 $107 $293 $502
Assumes $100 invested on December 31, 1993 in the Company's Common Stock and in
the stock of each of the other Indices.
Notwithstanding anything to the contrary set forth in any of
the Company's previous filings under the Securities Act of 1933 or the
Securities Exchange Act of 1934 which might incorporate future filings made by
the Company under those statutes, neither the preceding Compensation Committee
Report on Compensation nor the Stock Price Performance Graph will be
incorporated by reference into any of those prior filings, nor will such report
or graph be incorporated by reference into any future filings made by the
Company under those statutes.
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Employment Contracts and Change in Control Agreements
In May 1997, the Company entered into an employment agreement
with Mr. Lee D. Roberts, the Company's President, Chief Executive Officer and
Chief Operating Officer. The agreement has a two-year term measured from May 22,
1997, and pursuant to that agreement, Mr. Roberts was granted an option on that
date to purchase 300,000 shares of the Company's Common Stock at an exercise
price of $7.16 per share. The option will vest in four successive equal annual
installments over a period of four years, subject to his continued employment
with the Company. If during the term of the agreement, (i) there is a change in
control of the Company and Mr. Roberts is terminated without cause in connection
therewith or (ii) Mr. Roberts resigns for "Good Reason" (as defined in the
agreement), then the Company must pay Mr. Roberts a sum equal to his annual base
salary in effect as of the date of his termination plus an amount equal to the
annual incentive bonus that Mr. Roberts would have been entitled to receive
during that year if the Company's target goals were at 100% of the plan. Upon
the occurrence of any of the foregoing events, Mr. Roberts will also be entitled
to exercise a portion of his option on an accelerated basis. Pursuant to the
agreement, Mr. Roberts was entitled to an initial annual base salary of
$325,000, an annual incentive bonus tied to the financial performance of the
Company and reasonable relocation expenses. In addition, the Company agreed to
reimburse Mr. Roberts for all legal fees incurred by him in connection with a
lawsuit brought against him by his former employer for the repayment of any
profit realized by him in connection with the exercise of his options to
purchase shares of that employer's common stock and the subsequent sale of those
shares. The Company also agreed to pay Mr. Roberts an amount equal to any
after-tax loss he incurred (based upon the excess of the amount received by him
upon the sale of the shares purchased under his former employer's options over
the option exercise price paid for those shares) in the event that he was
requested by the Company to settle the suit or did not prevail in the suit.
During the 1997 fiscal year, the Company paid Mr. Roberts an aggregate of
$449,144 in connection with the settlement of such suit and the reimbursement of
the tax liability arising from such payment.
In June 1997, the Company entered into an employment agreement
with Mr. Ron L. Ercanbrack, the Company's Senior Vice President, Worldwide
Sales. Mr. Ercanbrack's agreement has a two-year term measured from June 10,
1997, and pursuant to such agreement, Mr. Ercanbrack was granted an option to
purchase 200,000 shares of the Company's Common Stock at an exercise price of
$7.53 per share. The option will vest in four successive equal annual
installments over a period of four years, subject to Mr. Ercanbrack's continued
employment with the Company. If during the term of the agreement, (i) there is
change in control of the Company and Mr. Ercanbrack is terminated without cause
in connection therewith or (ii) he resigns for "Good Reason" (as defined in the
agreement), then the Company must pay Mr. Ercanbrack a sum equal to his annual
base salary in effect as of the date of his termination plus an amount equal to
the annual incentive bonus that he would have been entitled to receive during
that year if the Company's target goals were at 100% of the plan. Upon the
occurrence of any of the foregoing events, Mr. Ercanbrack will also be entitled
to exercise a portion of his option on an accelerated basis. Pursuant to the
agreement, Mr. Ercanbrack was entitled to an initial annual base salary of
$225,000, an annual incentive bonus tied to the financial performance of the
Company and reasonable relocation expenses.
None of the Company's other Named Executive Officers has an
employment agreement with the Company, and the employment of each such Named
Executive Officer may be terminated at any time at the discretion of the Board
of Directors. However, in October 1998, the Compensation Committee of the Board
of Directors approved and adopted a Severance Program for the Chief Executive
Officer and certain other executive officers of the Company. Under the Severance
Program, each eligible executive officer will be entitled to certain benefits in
the event his or her employment with the Company is involuntarily terminated,
other than for Cause (as defined in the Severance Program), or if such executive
officer resigns for "Good Reason" (as defined in the Severance Program), within
12 months following a change in control of the Company.
The benefits to be provided to an eligible executive officer
upon such involuntary termination (other than for Cause) or resignation for Good
Reason include (i) a lump sum payment equal to (A) the annual base salary in
effect for such executive officer immediately before the change in control or,
if greater, at the time of termination, plus (B) the annual incentive bonus that
such executive officer would have been entitled to receive under the Company's
bonus plan if the Company's goals were at 100% of target for the calendar year
in which the termination occurs or, if greater, the annual incentive bonus which
such executive officer would have received if the Company's goals were at 100%
of target for the calendar year in which the change in control occurs, plus the
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pro-rata portion of the bonus earned by such executive officer during the
calendar year in which the change of control occurs and (ii) continued health
care coverage under the Company's medical plan for a period of up to 12 months.
In addition, under the Severance Program, any shares of Common
Stock that are subject to outstanding options held by an eligible executive
officer or any unvested shares of Common Stock actually held by such officer
under the Company's 1995 Stock Option Plan will automatically vest in full on an
accelerated basis in the event such executive officer's employment is terminated
(whether involuntarily or through a forced resignation) within 12 months
following a change in control of the Company. The option grants made to the
Named Executive Officers during the 1998 fiscal year, together with all prior
option grants held by such individuals, contain such acceleration provisions.
For purposes of the Severance Program, a change in control is
defined as (i) the acquisition of the Company by merger or asset sale, (ii) a
successful tender for more than 50% of the Company's outstanding Common Stock or
(iii) a change in the majority of the Board as a result of one or more contested
elections for Board membership.
Substantially all of the executive officers who report
directly to the Chief Executive Officer participate in the Severance Program.
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COMPLIANCE WITH SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Company's directors, executive officers and persons who
own more than 10% of a registered class of the Company's equity securities to
file initial reports of ownership and reports of changes in ownership with the
SEC and the Nasdaq National Market. Such persons are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of copies of such forms received by
it with respect to fiscal year 1998 and the written representations received
from certain reporting persons that no other reports were required, the Company
believes that all directors, executive officers and persons who own more than
10% of the Company's Common Stock have complied with the reporting requirements
of Section 16(a), except that, following his appointment as an executive officer
of the Company on October 22, 1998 Mr. David Bennett did not timely file a Form
3.
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ELECTION OF DIRECTORS
Directors are elected at each Annual Meeting of Stockholders
and hold office until their successors are duly elected and qualified at the
next Annual Meeting of Stockholders. Pursuant to the Company's Bylaws and a
resolution adopted by a majority of the authorized number of directors, the
authorized number of members of the Board of Directors has been set at seven.
The following table sets forth certain information concerning
the nominees for election to the Board of Directors.
Name, Age, Principal Occupation or Position, Year First
Director and Directorships of Other Publicly Became a
Owned Companies Director
- --------------------------------------------- -----------
William P. Lyons, 54, President, Chief Executive Officer
and a director of Finjan Software, Ltd. since February 1998. 1992
From April 1992 until June 1997, Mr.Lyons served as President,
Chief Executive Officer and a director of ParcPlace-Digitalk, Inc.
L. George Klaus, 58, Chairman, President and Chief Executive
Officer of Platinum Software Corporation since February 1996 1998
and Chairman of the Board since September 1996. From July 1993
to October 1995, Mr. Klaus served as President, Chief Executive
Officer and Chairman of the Board of Frame Technology, Inc.
Lee D.Roberts, 46, Chief Executive Officer since April 1998,
and President and Chief Operating Officer since May 1997. Mr. 1998
Roberts has also served as a director of the Company since
May 1998. Prior to joining the Company in May 1997, Mr.Roberts
was with IBM for over 20 years, serving most recently as General
Manager and Vice President, Worldwide Marketing and Sales for the
Networking Division of IBM.
John C. Savage, 51, Managing Director of Alliant Partners, an
investment banking firm, since July 1998. From 1991 to July 1998, 1982
Mr. Savage served as a Managing Director of Redwood Partners, LLC,
a venture buy-out firm. Mr. Savage currently serves as a
Director of OrCad, Inc. and of Mattson Technology, Inc.
Roger S. Siboni, 44, President, Chief Executive Officer and a
director of Epiphany, Inc. since August 1998. From October 1996 1998
to August 1998, Mr. Siboni was Deputy Chairman and Chief Operating
Officer of KPMG Peat Marwick LLP, a member firm of KPMG
International. From 1993 to October 1996, Mr. Siboni was Managing
Partner of KMPG Peat Marwick LLP, Information, Communication and
Entertainment practice. Mr. Siboni currently severs as a director
of Cadence Design Systems, Inc. and Macromedia, Inc.
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Theodore J. Smith, 69, Chairman of the Board of the Company.
Mr. Smith served as the Chief Executive Officer of the Company 1982
since its inception in 1982 to April 1998, and President of
the Company from 1982 to May 1997. Mr. Smith is currently a
director of Intershop Communications, A.G.
Carolyn M. Ticknor, 51, Vice President since May 1995 and
General Manager since 1998 February 1994, LaserJet Solutions 1998
Group, Hewlett-Packard Company.
Except as otherwise indicated, during the past five years,
each of the nominees has held the same position with the same entities as listed
above.
The Board of Directors held 11 meetings (including three
unanimous written consents in lieu of a meeting) during the fiscal year ended
December 31, 1998. Each director attended or participated in at least 90% of the
aggregate number of meetings of the Board of Directors held during such period
and meetings held during such period by all committees of the Board of Directors
on which that director served, other than those directors who served on the
Board for only a portion of the year.
The Company has standing Audit and Compensation Committees,
but has not established a Nominating Committee. During fiscal year 1998, Messrs.
Lyons and Savage comprised the Audit Committee. The Audit Committee met three
times during the fiscal year ended December 31, 1998. Mr. Siboni was appointed
to the Audit Committee in February 1999. The Audit Committee's responsibilities
include recommending the selection of the Company's independent public
accountants to the Board of Directors, as well as reviewing the (i) scope and
results of the audit engagement with the independent public accountants and
management, (ii) adequacy of the Company's internal accounting control
procedures, (iii) independence of the independent public accountants and (iv)
the range of audit and non-audit fees charged by the independent public
accountants. During fiscal year 1998, Messrs. Lyons and Savage comprised the
Compensation Committee. The Compensation Committee held six meetings (plus one
action by unanimous written consent in lieu of a meeting) during the fiscal year
ended December 31, 1998. Mr. Klaus was appointed to the Compensation Committee
in February 1999. The Compensation Committee reviews and approves executive
salaries, considers awards to be granted under the Company's officer bonus plan,
has the exclusive authority to make stock option grants under the 1995 Stock
Option Plan to the Company's executive officers and performs other related
functions upon request of the Board of Directors. Either the Compensation
Committee or the full Board of Directors may award option grants to all other
eligible individuals under the 1995 Stock Option Plan.
Board Compensation and Benefits
Each director who is not an employee of the Company is
reimbursed for actual expenses incurred in attending Board meetings. In
addition, each non-employee director received the following compensation for his
or her Board service during fiscal 1998: (i) an annual retainer fee of $12,000;
(ii) a fee of $1,500 for each Board meeting attended; and (iii) a fee of $1,000
for each Committee meeting attended which was not held on the same day as a
Board meeting.
At the 1998 Annual Stockholders Meeting held on May 15, 1998,
Messrs. Lyons and Savage each received, upon their reelection to the Board, a
stock option for 44,000 shares of the Company's Common Stock under the Automatic
Option Grant Program in effect for non-employee Board members under the 1995
Stock Option Plan. Each option has an exercise price of $28.74 per share, the
fair market value per share of Common Stock on the grant date. Ms. Ticknor, Mr.
Siboni and Mr. Klaus each received, upon their initial appointment to the Board
during the 1998 fiscal year, an option grant for 25,000 shares of the Company's
Common Stock under the Automatic Option Grant Program. The options granted to
Ms. Ticknor, Mr. Siboni and Mr. Klaus have exercise prices of $9.17 per share,
$4.31 per share and $29.00 per share, respectively, the fair market value per
share of Common Stock on the applicable grant date. Each of the options granted
to the non-employee member of the Board members under the Automatic Option Grant
Program are immediately exercisable for all the option shares, but any shares
purchased under those options will be subject to repurchase by the Company, at
the option exercise price paid per share, upon the optionee's cessation of Board
service prior to vesting in those shares. The shares subject to each option will
vest in a series of four successive equal annual installments upon the
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optionee's completion of each year of Board service over the four-year period
measured from the grant date. The option has a maximum term of 10 years measured
from the grant date, subject to earlier termination following the optionee's
cessation of Board service.
On November 17, 1998, Mr. Klaus was granted an option for an
additional 20,000 shares of the Company's Common Stock under the Discretionary
Option Grant Program in effect under the 1995 Stock Option Plan. The option has
an exercise price of $8.25 per share, the fair market value per share of Common
Stock on the grant date, and will become exercisable for the option shares in a
series of four successive equal annual installments upon his completion of each
year of Board service over the four-year period measured from the grant date.
The option has a maximum term of 10 years measured from the grant date, subject
to earlier termination following his cessation of Board service.
On January 4, 1999, Mr. Klaus, Mr. Savage and Ms. Ticknor, in
connection with their election to apply their $12,000 cash retainer fee for the
1999 fiscal year to the acquisition of a special option grant under the Director
Fee Option Grant Program in effect under the 1995 Stock Option Plan, were each
granted an option for 1,532 shares under that program. Each option has an
exercise price of $3.92 per share, one-third of the fair market value per share
of the Common Stock on the grant date ($11.75). Accordingly, the spread on the
option shares at the time of grant (the fair market value of those shares less
the aggregate exercise price) was equal to the cash retainer fee that such Board
members elected to apply to the grant. Each option will become exercisable for
the option shares in a series of 12 successive equal monthly installments upon
the optionee's completion of each month of Board service during the 1999
calendar year. Each option has a maximum term of 10 years measured from the
grant date, subject to earlier termination three years following the optionee's
cessation of Board service.
Each non-employee Board member reelected to the Board at the
Meeting will receive an option grant for 7,000 shares of the Company's Common
Stock under the Automatic Option Grant Program in effect under the 1995 Stock
Option Plan, provided he or she has served as a non-employee Board member for at
least six months.
For further information concerning the term of these option
grants, please see the description of the Automatic Option Grant and Director
Fee Option Grant Programs in Proposal 2 below "Approval of Amendment to the 1995
Stock Option Plan."
The Company has entered into a business transaction with
Alliant Partners, of which Mr. Savage is a partner and Managing Director, to
liquidate certain business assets of the Company. A retainer fee of $15,000 and
a success fee of up to $75,000 is payable to Alliant Partners upon consummation
of the sale of those assets.
Stockholder Approval
Directors will be elected by an affirmative vote of a
plurality of the shares of voting stock present and entitled to vote, in person
or by proxy, at the Meeting. Abstentions or broker non-votes as to the election
of directors will not affect the election of the candidates receiving the
plurality of votes. Unless instructed to the contrary, the shares represented by
the proxies will be voted FOR the election of the seven nominees named above as
directors. Although it is anticipated that each nominee will be able to serve as
a director, should any nominee become unavailable to serve, the proxies will be
voted for such other person or persons as may be designated by the Company's
Board of Directors. As of the date of this Proxy Statement, the Board of
Directors is not aware of any nominee who is unable or will decline to serve as
a director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
ALL SEVEN NOMINEES NAMED ABOVE.
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Proposal 2
APPROVAL OF AMENDMENT TO THE 1995 STOCK OPTION PLAN
The Company's stockholders are being asked to approve an
amendment to the Company's 1995 Stock Option Plan (the "1995 Plan") that will
increase the number of shares of Common Stock issuable under the 1995 Plan by an
additional 1,200,000 shares.
The share increase to the 1995 Plan will assure that the
Company will have a sufficient reserve of Common Stock to provide a
comprehensive equity incentive program for the Company's officers, employees and
non-employee Board members in order to encourage those individuals to remain in
the Company's service and more closely align their interests with those of the
stockholders. The number of shares for which options will be granted to each
newly-hired or continuing employee will be based both on competitive market
conditions and individual performance.
The 1995 Plan became effective on May 24, 1995 upon approval
by the stockholders at the 1995 Annual Meeting and serves as the successor to
the Company's predecessor 1986 Stock Option Plan. The amendment to the 1995 Plan
that is the subject of this Proposal was adopted by the Board as of March 31,
1999. The following is a summary of the principal features of the 1995 Plan, as
most recently amended. The summary, however, does not purport to be a complete
description of all the provisions of the 1995 Plan. Any stockholder of the
Company who wishes to obtain a copy of the actual plan document may do so upon
written request to the Company's Secretary at the Company's principal executive
offices in Costa Mesa, California.
Equity Incentive Programs
The 1995 Plan contains five separate equity incentive
programs: (i) a Discretionary Option Grant Program, (ii) a Salary Reduction
Option Grant Program, (iii) a Stock Issuance Program, (iv) an Automatic Option
Grant Program, and (v) a Director Fee Option Grant Program. The principal
features of each program are described below. The Compensation Committee has the
exclusive authority to administer the Discretionary Option Grant Program and
Stock Issuance Program with respect to option grants and stock issuances made to
the Company's executive officers and non-employee Board members. The
Compensation Committee and the full Board each have separate but concurrent
authority to make option grants and stock issuances under those programs to all
other eligible individuals. The term Plan Administrator, as used in this
summary, will mean either the Compensation Committee or the Board, to the extent
each such entity is acting within the scope of its administrative jurisdiction
under the 1995 Plan. The Compensation Committee will also have the exclusive
authority to select the executive officers and other highly compensated
employees who may participate in the Salary Reduction Option Grant Program, but
neither the Compensation Committee nor the Board will exercise any other
administrative discretion under that program or under the Automatic Option Grant
or Director Fee Option Grant Program for the non-employee Board members. All
grants under these three latter programs will be made in strict compliance with
the express provisions of each such program, and stockholder approval of the
1,200,000-share increase subject to this Proposal will also constitute
pre-approval of all option grants subsequently made pursuant to the express
provisions of those programs on the basis of such share increase and the
subsequent exercise of those options in accordance with their terms.
Share Reserve
The maximum number of shares of the Company's Common Stock
available for issuance over the term of the 1995 Plan may not exceed 9,824,830
shares, including the 1,200,000-share increase for which stockholder approval is
sought under this Proposal. However, not more than 7,266,528 shares may be
issued under the 1995 Plan after March 22, 1999. In no event may any individual
participant in the 1995 Plan be granted stock options and direct stock issuances
for more than 400,000 shares in the aggregate per calendar year. Stockholder
approval of this Proposal will also constitute re-approval of such limitation.
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The shares of Common Stock issuable under the 1995 Plan may be
drawn from shares of the Company's authorized but unissued Common Stock or from
shares of Common Stock reacquired by the Company, including shares repurchased
on the open market.
Shares subject to any outstanding options under the 1995 Plan
(including options incorporated from the predecessor 1986 Stock Option Plan)
which expire or otherwise terminate prior to exercise will be available for
subsequent issuance. Unvested shares issued under the 1995 Plan and subsequently
repurchased by the Company, at the option exercise or direct issue price paid
per share, pursuant to the Company's repurchase rights under the 1995 Plan will
also be available for reissuance.
Eligibility
Employees, non-employee Board members, and independent
consultants and advisors in the service of the Company or its parent and
subsidiaries (whether now existing or subsequently established) will be eligible
to participate in the Discretionary Option Grant and Stock Issuance Programs.
Executive officers and other highly compensated employees will also be eligible
to participate in the Salary Reduction Option Grant Program, and non-employee
members of the Board will also be eligible to participate in the Automatic
Option Grant and Director Fee Option Grant Programs.
As of March 22, 1999, 11 executive officers, six non-employee
Board members and approximately 1,600 other employees and consultants were
eligible to participate in the Discretionary Option Grant and Stock Issuance
Programs, no executive officers were eligible to participate in the Salary
Investment Option Grant Program, and six non-employee Board members were
eligible to participate in the Automatic Option Grant and Director Fee Option
Grant Programs.
Valuation
The fair market value per share of Common Stock on any
relevant date under the 1995 Plan will be the average between the high and low
selling prices per share on that date on the Nasdaq National Market. On March
22, 1999, the fair market value per share determined on such basis was $7.72.
Discretionary Option Grant Program
The options granted under the Discretionary Option Grant
Program may be either incentive stock options under the federal tax laws or
non-statutory options. Each granted option will have an exercise price per share
not less than one hundred percent (100%) of the fair market value per share of
Common Stock on the option grant date, and no granted option will have a term in
excess of ten years. The shares subject to each option will generally vest in a
series of installments over a specified period of service measured from the
grant date.
Upon cessation of service, the optionee will have a limited
period of time in which to exercise any outstanding option to the extent
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
Salary Reduction Option Grant Program
The Plan Administrator will have complete discretion in
implementing the Salary Reduction Option Grant Program for one or more calendar
years and in selecting the executive officers and other highly compensated
individuals who are to participate in the program for those years. As a
condition to such participation, each selected individual must, prior to the
start of the calendar year of participation, file with the Plan Administrator an
irrevocable authorization directing the Company to reduce, by a designated
multiple of one percent (1%), his or her base salary for the upcoming calendar
year. The salary reduction amount must not be less than the greater of (i) five
percent (5%) of the participant's base salary for the year or (ii) Ten Thousand
Dollars ($10,000.00), and may not be more than the lesser of (i) twenty-five
percent (25%) of his or her base salary or (ii) Seventy Five Thousand Dollars
21
<PAGE>
($75,000.00). Each individual who files a proper salary reduction authorization
will be granted a stock option under the Salary Reduction Option Grant Program
on the first trading day in January of the calendar year for which that salary
reduction is to be in effect. Stockholder approval of the 1,200,000-share
increase subject to this Proposal will constitute pre-approval of each option
subsequently granted pursuant to the provisions of the Salary Reduction Option
Grant Program on the basis of such share increase and the subsequent exercise of
that option in accordance with its terms.
Each option will be subject to substantially the same terms
and conditions applicable to option grants made under the Discretionary Option
Grant Program, except for the following differences:
- Each option will be a non-statutory option.
- The exercise price per share will be equal to one-third of
the fair market value per share of Common Stock on the
option grant date, and the number of option shares will be
determined by dividing the total dollar amount of the
authorized reduction in the participant's base salary by
two-thirds of the fair market value per share of Common
Stock on the option grant date. As a result, the total
spread on the option (the fair market value of the option
shares on the grant date less the aggregate exercise price
payable for those shares) will equal the dollar amount of
the reduction to the optionee's base salary to be in effect
for the calendar year for which the option grant is made.
- The option will become exercisable for the option shares in
a series of twelve (12) successive equal monthly
installments upon the optionee's completion of each calendar
month of service in the calendar year for which the salary
reduction is in effect.
- Each option will remain outstanding for vested shares until
the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the three (3)-year
period measured from the date the optionee's service
terminates.
Stock Issuance Program
Shares may be issued under the Stock Issuance Program for such
valid consideration under the Delaware General Corporation Law as the Plan
Administrator deems appropriate, provided the value of such consideration is not
less than the fair market value of the issued shares on the date of issuance.
Shares may also be issued as a bonus for past services.
The shares issued as a bonus for past services will be fully
vested upon issuance. All other shares issued under the program will be subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. The following requirements will govern the applicable vesting
schedule:
- For any shares which are to vest solely through the
participant's performance of services, the Plan
Administrator will impose a minimum service period of at
least three (3) years before any of the shares will vest.
- For any shares which are to vest upon the participant's
performance of services and the Company's attainment of one
or more prescribed performance milestones, the Plan
Administrator will impose a minimum service period of at
least one (1) year.
The Plan Administrator will have the sole and exclusive
authority, exercisable upon a participant's termination of service, to vest any
or all unvested shares of Common Stock at the time held by that participant, to
the extent the Plan Administrator determines that such vesting provides an
appropriate severance benefit under the circumstances.
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<PAGE>
Automatic Option Grant Program
Under the Automatic Option Grant Program, each individual will
receive, at the time he or she first becomes a non-employee Board member,
whether through election by the stockholders or appointment by the Board, an
option grant for 25,000 shares of Common Stock, provided such individual was not
previously in the Company's employ. In addition, at each annual stockholders
meeting, including the 1999 Annual Meeting, each individual who is reelected to
the Board as a non-employee Board member will automatically be granted a stock
option to purchase 7,000 shares of Common Stock, provided such individual has
served as a non-employee Board member for at least six months. There will be no
limit on the number of such 7,000-share options which any one non-employee Board
member may receive over his or her period of Board service, and non-employee
Board members who have previously served in the Company's employ will be fully
eligible for one or more 7,000-share option grants over their period of Board
service. Stockholder approval of the 1,200,000-share increase subject to this
Proposal will constitute pre-approval of each option granted on or after the
date of the 1999 Annual Meeting pursuant to the provisions of the Automatic
Option Grant Program on the basis of such share increase and the subsequent
exercise of that option in accordance with its terms.
Each option under the Automatic Option Grant Program will have
an exercise price per share equal to one hundred percent (100%) of the fair
market value per share of Common Stock on the option grant date and a maximum
term of ten (10) years measured from the grant date. The option will be
immediately exercisable for all the option shares, but any purchased shares will
be subject to repurchase by the Company, at the exercise price paid per share,
upon the optionee's cessation of Board service prior to vesting in those shares.
The shares subject to each option will vest (and the Company's repurchase rights
will lapse) in four (4) successive equal annual installments over the optionee's
period of Board service, with the first such installment to vest upon the
completion of one (1) year of Board service measured from the option grant date.
The shares subject to each outstanding automatic option grant
will immediately vest should the optionee die or become permanently disabled
while a Board member or should any of the following events occur while the
optionee continues in Board service: (i) an acquisition of the Company by merger
or asset sale, (ii) the successful completion of a tender offer for more than
fifty percent (50%) of the outstanding voting securities or (iii) a change in
the majority of the Board occasioned by one or more contested elections for
Board membership. Each automatic option grant held by an optionee upon his or
her termination of Board service will remain exercisable, for any or all of the
option shares in which the optionee is vested at the time of such termination,
for up to a twelve (12)-month period following such termination date.
Director Fee Option Grant Program
Each non-employee Board member will have the right to apply
all or a portion of his total retainer fee otherwise payable in cash each year
(currently $12,000) to the acquisition of a special option grant under the
Director Fee Option Grant Program. The grant will automatically be made on the
first trading day in January following the filing of the stock-in-lieu of cash
election and will have an exercise price per share equal to one-third of the
fair market value of the option shares on the grant date. The number of option
shares will be determined by dividing the total dollar amount of the retainer
fee subject to the director's election by two-thirds of the fair market value
per share of Common Stock on the option grant date. As a result, the total
spread on the option (the fair market value of the option shares on the grant
date less the aggregate exercise price payable for those shares) will be equal
to the portion of the retainer fee subject to the director's election.
Stockholder approval of the 1,200,000-share increase subject to this Proposal
will constitute pre-approval of each option subsequently granted pursuant to the
provisions of the Director Fee Option Grant Program on the basis of that share
increase and the subsequent exercise of that option in accordance with its
terms.
The option will become exercisable for the option shares in a
series of twelve (12) successive equal monthly installments upon the optionee's
completion of each month of Board service during the calendar year of the option
grant. In the event the optionee ceases Board service for any reason (other than
death or permanent disability), the option will immediately terminate with
respect to any unvested shares subject to the option at the time. However, the
option will remain exercisable for the vested shares subject to the option until
the earlier of (i) the expiration of the ten (10)-year option term or (ii) the
end of the three (3)-year period measured from the date of the optionee's
cessation of Board service. Should the optionee's service as a Board member
cease by reason of death or permanent disability, then the option will
23
<PAGE>
immediately become exercisable for all the shares of Common Stock subject to the
option and may be exercised for such shares until the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the end of the three
(3)-year period measured from the date of the optionee's cessation of Board
service.
Stock Awards
The table below shows, as to each of the Named Executive
Officers in the Summary Compensation Table and the various indicated individuals
and groups, the number of shares of Common Stock subject to options granted
under the 1995 Plan during the period from January 1, 1998 through March 22,
1999, together with the weighted average exercise price payable per share. No
direct stock issuances have been made to date under the 1995 Plan.
<TABLE>
======================================================================================
OPTION TRANSACTIONS
======================================================================================
<CAPTION>
Name Options Granted Weighted Average
(Number of Shares) Exercise Price
========================================== ==================- ==================
<S> <C> <C>
Theodore J. Smith
Chairman of the Board 0 $ 0
========================================== ------------------- ------------------
Lee D. Roberts
President, Chief Executive Officer
and Chief Operating Officer 150,000 $18.00
========================================== ------------------- ------------------
Bruce A. Waddington
Senior Vice President-Engineering
and Chief Technical Officer 40,000 $ 9.17
========================================== ------------------- ------------------
Ron L. Ercanbrack
Senior Vice President-World Wide Sales 40,000 $ 9.17
========================================== ------------------- ------------------
Mark S. St.Clare
Senior Vice President-Finance
and Chief Financial Officer 30,000 $ 9.17
========================================== ------------------- ------------------
David Bennett
Vice President-Corporate
Strategy and Planning 20,000 $ 5.75
========================================== =================== ==================
All non-employee directors as a group (5) 188,816 $20.02
========================================== =================== ==================
All employees, including current officers
who are not executive officers, as a group 1,399,785 $12.02
========================================== =================== ==================
</TABLE>
As of March 22, 1999, 5,827,121 shares of Common Stock were
subject to outstanding options under the 1995 Plan, and 1,439,407 shares
remained available for future issuance, including the 1,200,000-share increase
for which stockholder approval is sought under this Proposal.
New Plan Benefits
As of March 22, 1999, no option grants or direct stock
issuances have been made under the 1995 Plan on the basis of the 1,200,000-share
increase for which stockholder approval is sought under this Proposal. However,
Messrs. Lyons, Klaus, Savage, Siboni, and Smith will each receive an option
grant for 7,000 shares, under the Automatic Option Grant Program upon their
reelection to the Board at the 1999 Annual Meeting. Each such option will have
an exercise price per share equal to the average of the high and low selling
prices per share on the Nasdaq National Market on the date of the 1999 Annual
Meeting.
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<PAGE>
Acceleration
In the event that the Company is acquired by merger or asset
sale, each outstanding option under the Discretionary Option Grant Program which
is not to be assumed or replaced by the successor corporation will automatically
accelerate in full, and all unvested shares under the Stock Issuance Program
will immediately vest, except to the extent the Company's repurchase rights with
respect to those shares are transferred to the successor corporation. The Plan
Administrator will have complete discretion to grant one or more options under
the Discretionary Option Grant Program which will become fully exercisable for
all option shares in the event those options are assumed in the acquisition and
the optionee's service with the Company or the acquiring entity is involuntarily
terminated within a designated period following such acquisition. The Plan
Administrator will have similar discretion to grant options that will become
fully exercisable for all the option shares should the optionee's service
terminate, whether involuntarily or through a resignation for good reason,
within a designated period following a change in control of the Company (whether
by successful tender offer for more than fifty percent (50%) of the outstanding
voting stock or by proxy contest for the election of Board members). The Plan
Administrator may also provide for the automatic vesting of any outstanding
shares under the Stock Issuance Program upon similar terms and conditions.
Each option outstanding under the Salary Reduction Option
Grant, Automatic Option Grant and Director Fee Option Grant Programs will also
automatically accelerate in the event of an acquisition or change in control of
the Company.
The acceleration of vesting in the event of a change in the
ownership or control of the Company may be seen as an anti-takeover provision
and may have the effect of discouraging a merger proposal, a takeover attempt or
other efforts to gain control of the Company.
Financial Assistance
The Plan Administrator may institute a loan program to assist
one or more participants in financing the exercise of outstanding options or the
purchase of shares under the 1995 Plan. The Plan Administrator will determine
the terms of any such assistance. However, the maximum amount of financing
provided any participant may not exceed the cash consideration payable for the
issued shares plus all applicable taxes incurred in connection with the
acquisition of the shares.
Changes in Capitalization
In the event any change is made to the outstanding shares of
Common Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to (i) the maximum number and/or class of securities issuable under
the 1995 Plan, (ii) the number and/or class of securities for which any one
person may be granted stock options and direct stock issuances under the 1995
Plan per calendar year, (iii) the number and/or class of securities for which
grants are subsequently to be made under the Automatic Option Grant Program to
new and continuing non-employee Board members and (iv) the number and/or class
of securities and the exercise price per share in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits thereunder.
Amendment and Termination
The Board may amend or modify the 1995 Plan in any or all
respects whatsoever, subject to any required stockholder approval under
applicable law or regulation. The Board may terminate the 1995 Plan at any time,
and the 1995 Plan will in all events terminate on May 24, 2005.
25
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
Option Grants
Options granted under the 1995 Plan may be either incentive
stock options that satisfy the requirements of Section 422 of the Internal
Revenue Code or non-statutory options that are not intended to meet such
requirements. The Federal income tax treatment for the two types of options
differs as follows:
Incentive Options. No taxable income is recognized by the
optionee at the time of the option grant, and no taxable income is generally
recognized at the time the option is exercised. The optionee will, however,
recognize taxable income in the year in which the purchased shares are sold or
otherwise made the subject of disposition. For Federal tax purposes,
dispositions are divided into two categories: (i) qualifying and (ii)
disqualifying. A qualifying disposition occurs if the sale or other disposition
is made after the optionee has held the shares for more than two (2) years after
the option grant date and more than one (1) year after the exercise date. If
either of these two holding periods is not satisfied, then a disqualifying
disposition will result.
Upon a qualifying disposition, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for the shares. If there is a disqualifying disposition
of the shares, then the excess of (i) the fair market value of those shares on
the exercise date over (ii) the exercise price paid for the shares will be
taxable as ordinary income to the optionee. Any additional gain or loss
recognized upon the disposition will be recognized as a capital gain or loss by
the optionee.
If the optionee makes a disqualifying disposition of the
purchased shares, then the Company will be entitled to an income tax deduction,
for the taxable year in which such disposition occurs, equal to the excess of
(i) the fair market value of such shares on the option exercise date over (ii)
the exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.
Non-Statutory Options. No taxable income is recognized by an
optionee upon the grant of a non-statutory option. The optionee will in general
recognize ordinary income, in the year in which the option is exercised, equal
to the excess of the fair market value of the purchased shares on the exercise
date over the exercise price paid for the shares, and the optionee will be
required to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory
option are unvested and subject to repurchase by the Company in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee will not recognize any taxable income at the time of exercise but will
have to report as ordinary income, as and when the Company's repurchase right
lapses, an amount equal to the excess of (i) the fair market value of the shares
on the date the repurchase right lapses over (ii) the exercise price paid for
the shares. The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the option
an amount equal to the excess of (i) the fair market value of the purchased
shares on the exercise date over (ii) the exercise price paid for such shares.
If the Section 83(b) election is made, the optionee will not recognize any
additional income as and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal
to the amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
Direct Stock Issuance
The tax principles applicable to direct stock issuances under
the 1995 Plan will be substantially the same as those summarized above for the
exercise of non-statutory option grants.
26
<PAGE>
Deductibility of Executive Compensation
The Company anticipates that any compensation deemed paid by
it in connection with disqualifying dispositions of incentive stock option
shares or exercises of non-statutory options granted with exercise prices equal
to the fair market value of the option shares on the grant date will qualify as
performance-based compensation for purposes of Section 162(m) of the Internal
Revenue Code and will not have to be taken into account for purposes of the $1
million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company. Accordingly, all
compensation deemed paid with respect to those options will remain deductible by
the Company without limitation under Section 162(m) of the Internal Revenue
Code.
Accounting Treatment
Under current accounting principles, neither the grant nor the
exercise of options granted under the 1995 Plan with exercise prices equal to
the fair market value of the option shares on the grant date will result in a
direct charge to the Company's reported earnings. However, the Company must
disclose, in footnotes and pro-forma statements to the Company's financial
statements, the impact those options would have upon the Company's reported
earnings were the fair value of those options at the time of grant treated as a
compensation expense. In addition, the number of outstanding options under the
1995 Plan may be a factor in determining the Company's diluted earnings per
share.
The Financial Accounting Standards Board recently announced
that it intends to issue an Exposure Draft of a proposed interpretation of APB
Opinion 25, "Accounting for Stock Issued to Employees." Under the proposed
interpretation, option grants to non-employee Board members or independent
consultants after December 15, 1998 may result in a direct charge to the
Company's reported earnings based upon the fair value of the option measured
initially as of the grant date and then subsequently on the vesting date of each
installment of the underlying option shares. Such charge will accordingly
include the appreciation in value of the option shares over the period between
the grant date of the option (or, if later, the effective date of the final
interpretation) and the vesting date of each installment of the option shares.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting
shares of the Company present or represented and entitled to vote at the Meeting
is required for approval of the amendment to 1995 Plan. Should such stockholder
approval not be obtained, then any stock options granted under the 1995 Plan on
the basis of the 1,200,000-share increase which is the subject of this Proposal
will terminate without ever becoming exercisable for any of the shares of Common
Stock subject to those options, and no further options will be granted on the
basis of that increase. However, in the absence of such stockholder approval,
stock options and direct stock issuances may continue to be made under the 1995
Plan until the share reserve as last approved by the stockholders is issued.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE 1995 PLAN.
27
<PAGE>
Proposal 3
APPROVAL OF AMENDMENT TO THE 1998 EMPLOYEE STOCK PURCHASE PLAN
The Company's stockholders are being asked to approve an
amendment to the 1998 Employee Stock Purchase Plan (the "1998 Purchase Plan")
that will increase the number of shares of Common Stock issuable under the 1998
Purchase Plan by an additional 300,000 shares.
The purpose of the share increase is to ensure that the
Company will continue to have a sufficient reserve of Common Stock available
under the 1998 Purchase Plan to provide eligible employees of the Company and
its participating affiliates with the opportunity to acquire a proprietary
interest in the Company through participation in a payroll-deduction based
employee stock purchase program designed to operate in compliance with Section
423 of the Internal Revenue Code.
The 1998 Purchase Plan, which serves as the successor to the
Company's predecessor 1988 Employee Qualified Stock Purchase Plan (the
"Predecessor Plan"), was adopted by the Board of Directors on March 17, 1998 and
became effective on October 1, 1998 (the "Effective Date"). The amendment to the
1998 Purchase Plan that is the subject of this Proposal was adopted by the Board
as of March 31, 1999. The following is a summary of the principal features of
the 1998 Purchase Plan, as most recently amended. The summary, however, does not
purport to be a complete description of all the provisions of the 1998 Purchase
Plan. Any stockholder of the Company who wishes to obtain a copy of the actual
plan document may do so upon written request to the Corporate Secretary at the
Company's principal executive offices in Costa Mesa, California.
Share Reserve
The maximum number of shares of the Company's Common Stock
available for issuance over the term of the 1998 Purchase Plan may not exceed
692,278, including the 300,000-share increase for which stockholder approval is
sought under this Proposal. This share reserve will also be used to fund all
stock purchases under the International Employee Stock Purchase Plan which the
Company has established for the employees of its foreign subsidiaries. The
provisions of the International Employee Stock purchase Plan are substantially
the same as those in effect for the 1998 Purchase Plan, except for certain
modifications that were made to satisfy legal or regulatory requirements of the
applicable foreign jurisdictions.
In the event any change is made to the outstanding shares of
Common Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to (i) the class and maximum number of securities issuable under
the 1998 Purchase Plan, including the class and maximum number of securities
issuable per participant or in the aggregate on any one purchase date, and (ii)
the class and maximum number of securities subject to each outstanding purchase
right and the purchase price payable per share thereunder.
Administration
The 1998 Purchase Plan is currently administered by the
Compensation Committee of the Board of Directors. Such committee, as Plan
Administrator, has full authority to adopt such rules and procedures as it may
deem necessary for proper plan administration and to interpret the provisions of
the 1998 Purchase Plan. All costs and expenses incurred in plan administration
will be paid by the Company without charge to participants.
Offering Periods
Shares will be issued through a series of successive offering
periods, each of six (6) months duration. The initial offering period, however,
has a duration of seven (7) months, which began on October 1, 1998 and will end
on April 30, 1999. The initial offering period for the International Employee
Stock Purchase Plan has a duration of up to eight (8) months, beginning
September 1, 1998 and ending on April 30, 1999. The next offering period for
both the 1998 Purchase Plan and the International Employee Stock Purchase Plan
is scheduled to commence on May 1, 1999. Each participant will be granted a
separate option to purchase shares of Common Stock for each offering period in
which he or she participates. Except for the initial offering period in which
28
<PAGE>
the options were granted on October 1, 1998 (or September 1, 1998 for the
International Plan) and will be exercised on April 30, 1999, options under the
1998 Purchase Plan will be granted on the first business day in May and November
of each year and will be automatically exercised on the last business day in the
immediately succeeding October and April, respectively, of each year. Each
option entitles the participant to purchase the whole number of shares of Common
Stock obtained by dividing the participant's payroll deductions for the offering
period by the purchase price in effect for such period.
Eligibility
Any individual who customarily works for more than twenty (20)
hours per week for more than five (5) months per calendar year in the employ of
the Company or any participating affiliate will be eligible to participate in
one or more offering periods. An eligible employee may only join an offering
period on the start date of that period.
Participating affiliates include any parent or subsidiary
corporations of the Company, whether now existing or hereafter organized, which
elect, with the approval of the Plan Administrator, to extend the benefits of
the 1998 Purchase Plan to their eligible employees.
As of March 22, 1999, approximately 1,300 employees, including
11 executive officers, were eligible to participate in the 1998 Purchase Plan.
Purchase Provisions
Each participant may authorize periodic payroll deductions in
any multiple of one percent (1%) of his or her cash earnings, up to a maximum of
ten percent (10%). A participant may not increase his or her rate of payroll
deduction for an offering period after the start of that period, but he or she
may decrease the rate once per offering period.
On the last business day of each offering period, the
accumulated payroll deductions of each participant will automatically be applied
to the purchase of whole shares of Common Stock at the purchase price in effect
for that period.
Purchase Price
The purchase price per share at which Common Stock will be
purchased on the participant's behalf for each offering period will be equal to
eighty-five percent (85%) of the lower of (i) the fair market value per share of
Common Stock on the start date of that offering period or (ii) the fair market
value per share of Common Stock on the last day of that offering period.
Valuation
The fair market value per share of Common Stock on any
relevant date will be deemed equal to the average of the high and low selling
prices per share on such date on the Nasdaq National Market. On March 22, 1999,
the fair market value per share determined on such basis was $7.72.
Special Limitations
The 1998 Purchase Plan imposes certain limitations upon a
participant's rights to acquire Common Stock, including the following
limitations:
- No purchase right may be granted to any individual who owns
stock (including stock purchasable under any outstanding
options or purchase rights) possessing five percent (5%) or
more of the total combined voting power or value of all
classes of stock of the Company or any of its affiliates.
- No purchase right granted to a participant may permit such
individual to purchase Common Stock at a rate greater than
$25,000 worth of such Common Stock (valued at the time such
29
<PAGE>
purchase right is granted) for each calendar year the
purchase right remains outstanding at any time.
- No participant may purchase more than 800 shares of Common
Stock on any one purchase date.
- No more than 170,000 shares of Common Stock may be purchased
in the aggregate by all participants on any one purchase
date.
The Plan Administrator will have the discretionary authority,
exercisable prior to the start of any offering period, to increase or decrease
the 800-share and 170,000-share limitations to be in effect for the number of
shares purchasable per participant or in the aggregate by all participants on
each purchase date during that offering period.
Termination of Purchase Rights
A participant's purchase right will immediately terminate upon
such participant's loss of eligible employee status, and his or her accumulated
payroll deductions for the offering period in which the purchase right
terminates will be promptly refunded. A participant may withdraw from an
offering period at any time prior to the last fifteen (15) days of that period
and elect to have his or her accumulated payroll deductions for the offering
period in which such withdrawal occurs either refunded or applied to the
purchase of shares of Common Stock on the next purchase date.
Stockholder Rights
No participant will have any stockholder rights with respect
to the shares of Common Stock covered by his or her purchase right until the
shares are actually purchased on the participant's behalf. No adjustment will be
made for dividends, distributions or other rights for which the record date is
prior to the date of such purchase.
Assignability
No purchase right will be assignable or transferable and will
be exercisable only by the participant.
Acquisition
Should the Company be acquired by merger or asset sale during
an offering period, all outstanding purchase rights will automatically be
exercised immediately prior to the effective date of such acquisition. The
purchase price will be equal to eighty-five (85%) of the lower of (i) the fair
market value per share of Common Stock on the start date of that offering period
or (ii) the fair market value per share of Common Stock immediately prior to
such acquisition. The limitation on the maximum number of shares purchasable in
the aggregate on any one purchase date will not apply to the share purchases
effected in connection with such acquisition.
Amendment and Termination
The 1998 Purchase Plan will terminate upon the earliest to
occur of (i) October 31, 2008, (ii) the date on which all available shares are
issued or (iii) the date on which all outstanding purchase rights are exercised
in connection with an acquisition of the Company.
The Board of Directors may at any time alter, suspend or
discontinue the 1998 Purchase Plan. However, the Board of Directors may not,
without stockholder approval, (i) increase the number of shares issuable under
the 1998 Purchase Plan, except in connection with certain changes in the
Company's capital structure, (ii) alter the purchase price formula so as to
reduce the purchase price or (iii) modify the requirements for eligibility to
participate in the 1998 Purchase Plan.
30
<PAGE>
Plan Benefits
The table below shows, as to each of the Named Executive
Officers in the Summary Compensation Table and the various indicated groups, the
following information with respect to transactions under the Predecessor Plan
effected during the period from January 1, 1998 to December 31, 1998: (i) the
number of shares of Common Stock purchased under the Predecessor Plan during
that period and (ii) the weighted average purchase price paid per share of
Common Stock in connection with such purchases.
<TABLE>
==============================================================================================
PURCHASE PLAN TRANSACTIONS
==============================================================================================
<CAPTION>
Weighted
Average
Name Number of Shares Purchase Price
======================================================= ================== =================
<S> <C> <C>
Theodore J. Smith
Chairman of the Board 0 $ 0
======================================================= ------------------ -----------------
Lee D. Roberts
President, Chief Executive Officer
and Chief Operating Officer 0 $ 0
======================================================= ------------------ -----------------
Bruce A. Waddington
Senior Vice President-Engineering
and Chief Technical Officer 0 $ 0
======================================================= ------------------ -----------------
Ron L. Ercanbrack
Senior Vice President-World Wide Sales 0 $ 0
======================================================= ------------------ -----------------
Mark S. St.Clare
Senior Vice President-Finance
and Chief Financial Officer 1,338 $ 8.66
======================================================= ------------------ -----------------
David Bennett
Vice President-Corporate Strategy and Planning 0 $ 0
======================================================= ================== =================
All current executive officers as a group
(12 persons) 4,772 $ 8.66
======================================================= ================== =================
All employees, including current officers who are not
executive officers as a group (470 persons) 156,744 $ 8.81
======================================================= ================== =================
</TABLE>
Federal Tax Consequences
The 1998 Purchase Plan is intended to be an "employee stock
purchase plan" within the meaning of Section 423 of the Internal Revenue Code.
Under a plan which so qualifies, no taxable income will be recognized by a
participant, and no deductions will be allowable to the Company, in connection
with the grant or the exercise of an outstanding purchase right.
Taxable income will not be recognized until there is a sale or
other disposition of the shares acquired under the 1998 Purchase Plan or in the
event the participant should die while still owning the purchased shares.
If the participant sells or otherwise disposes of the
purchased shares within two (2) years after the start date of the offering
period in which such shares were acquired or within one (1) one year after the
actual purchase date of those shares, then the participant will recognize
ordinary income in the year of sale or disposition equal to the amount by which
the fair market value of the shares on the purchase date exceeded the purchase
price paid for those shares, and the Company will be entitled to an income tax
deduction, for the taxable year in which such sale or disposition occurs, equal
in amount to such excess.
If the participant sells or disposes of the purchased shares
more than two (2) years after the start date of the offering period in which
such shares were acquired and more than one (1) one year after the actual
purchase date of those shares, then the participant will recognize ordinary
income in the year of sale or disposition equal to the lesser of (i) the amount
by which the fair market value of the shares on the sale or disposition date
exceeded the purchase price paid for those shares or (ii) fifteen percent (15%)
31
<PAGE>
of the fair market value of the shares on the start date of the offering period,
and any additional gain upon the disposition will be taxed as a long-term
capital gain. The Company will not be entitled to any income tax deduction with
respect to such sale or disposition.
If the participant still owns the purchased shares at the time
of death, the lesser of (i) the amount by which the fair market value of the
shares on the date of death exceeds the purchase price or (ii) fifteen percent
(15%) of the fair market value of the shares on his or her entry date into the
offering period in which those shares were acquired will constitute ordinary
income in the year of death.
Accounting Treatment
Under current accounting rules, the issuance of Common Stock
under the 1998 Purchase Plan will not result in a direct charge to the Company's
reported earnings. However, the Company must disclose, in footnotes and
pro-forma statements to the Company's financial statements, the impact the
purchase rights granted under the 1998 Purchase Plan would have upon the
Company's reported earnings were the fair value of those purchase rights treated
as compensation expense.
Stockholder Approval
The affirmative vote of a majority of the Company's voting
stock present or represented and entitled to vote at the Meeting is required for
approval of the amendment to the 1998 Purchase Plan. Should such stockholder
approval not be obtained, then the 300,000-share increase will not be
implemented, and any purchase rights granted on the basis of the 300,000-share
increase to the 1998 Purchase Plan will immediately terminate. No additional
purchase rights will be granted on the basis of such share increase, and the
1998 Purchase Plan will terminate once the existing share reserve has been
issued.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE 1998 PURCHASE PLAN.
32
<PAGE>
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The firm of Deloitte & Touche LLP, the Company's independent
accountants for the fiscal year ended December 31, 1998, was selected by the
Board of Directors, upon recommendation of the Audit Committee, to act in the
same capacity for the fiscal year ending December 31, 1999. Neither the firm nor
any of its members has any relationship with the Company or any of its
affiliates except in the firm's capacity as the Company's auditor.
Representatives of Deloitte & Touche LLP are expected to be
present at the Meeting and will have the opportunity to make statements if they
so desire and respond to appropriate questions from the stockholders.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
All proposals of stockholders intended to be presented at the
Company's 2000 Annual Meeting of Stockholders must be directed to the attention
of the Secretary of the Company, at the address of the Company set forth on the
first page of this Proxy Statement, by December 10, 1999 if they are to be
considered for possible inclusion in the Proxy Statement and form of proxy used
in connection with such meeting.
In addition, the proxy solicited for the 2000 Annual Meeting
will confer discretionary authority to vote on any stockholder proposals
presented at that meeting, unless the Company is provided with notice of such
proposal no later than February 24, 2000.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors
knows of no other matters which may be presented for consideration at the
Meeting. However, if any other matter is presented properly for consideration
and action at the Meeting, or any adjournment or postponement thereof, it is
intended that the Proxies will be voted with respect thereto in accordance with
the best judgment and in the discretion of the proxy holders.
By Order of the Board of Directors,
/s/ Mary K. Carrington
------------------------
Mary K. Carrington
Secretary
Dated: April 9, 1999
<PAGE>
FILENET CORPORATION
1995 STOCK OPTION PLAN
AS AMENDED AND RESTATED THROUGH MARCH 31, 1999
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option Plan is intended to promote the interests of FileNET
Corporation, a Delaware corporation, by providing eligible persons with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
This Plan shall serve as the successor to the Corporation's existing Second
Amended and Restated Stock Option Plan (the "Predecessor Plan"), and no further
option grants or share issuances shall be made under the Predecessor Plan from
and after the Effective Date of this Plan. All outstanding stock options under
the Predecessor Plan on the Effective Date shall be incorporated into this Plan
and shall accordingly be treated as outstanding stock options under this Plan.
However, each outstanding option grant so incorporated shall continue to be
governed solely by the express terms and conditions of the agreement evidencing
such grant, and no provision of this Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of the Corporation's Common Stock
thereunder.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
All share numbers in this March 31, 1999 restatement reflect the 2-for-1
split of the Common Stock effective June 12, 1998.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- the Discretionary Option Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
- the Salary Reduction Option Grant Program under which eligible
employees may elect to have a portion of their base salary reduced each
year in return for options to purchase shares of Common Stock,
- the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock
directly without any intervening option grant,
<PAGE>
- the Automatic Option Grant Program under which eligible non-employee
Board members shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock, and
- the Director Fee Option Grant Program under which non-employee Board
members may elect to have all or any portion of their annual retainer fee
otherwise payable in cash applied to a special option grant.
B. The provisions of Articles One and Seven shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have the sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Except to the extent the Primary Committee is
granted sole and exclusive authority under one or more specific provisions of
the Plan, administration of the Discretionary Option Grant and Stock Issuance
Programs with respect to all other persons eligible to participate in these
programs may, at the Board's discretion, be vested in the Primary Committee or a
Secondary Committee, or the Board may retain the power to administer these
programs with respect to such persons. The members of the Secondary Committee
may be individuals who are Employees.
B. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of any
Secondary Committee and reassume all powers and authority previously delegated
to such committee.
C. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction or
any option or stock issuance thereunder.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
2
<PAGE>
E. The Primary Committee shall have the sole and exclusive authority to
select the eligible individuals who are to participate in the Salary Reduction
Option Grant Program, but all option grants under the Salary Reduction Option
Grant Program shall be made in accordance with express terms of that program and
the Primary Committee shall exercise no discretion with respect to the terms of
those grants. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
that program, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee Board members, and
(iii) consultants and other independent advisors who provide services
to the Corporation (or any Parent or Subsidiary).
B. Only the Company's executive officers and other highly-compensated
Employees shall be eligible to participate in the Salary Reduction Option Grant
Program.
C. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine, (i) with respect
to the option grants under the Discretionary Option Grant Program, which
eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a
Non-Qualified Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
for such shares.
D. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant or to effect
stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals who first become
non-employee Board members on or after the Effective Date, whether through
appointment by the Board or election by the Corporation's stockholders, and (ii)
those individuals who are re-elected to serve as non-employee Board members at
one or more Annual Stockholders Meetings beginning with the 1996 Annual Meeting.
A non-employee Board member who has previously been in the employ of the
3
<PAGE>
Corporation (or any Parent or Subsidiary) shall not be eligible to receive an
option grant under the Automatic Option Grant Program at the time he or she
first becomes a non-employee Board member, but shall be eligible to receive
periodic option grants under the Automatic Option Grant Program upon his or her
subsequent re-election to the Board.
F. All non-employee Board members shall be eligible to participate in the
Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 9,824,830 shares.
Such share reserve is comprised of (i) the 4,224,830 shares of Common Stock
which remained available for issuance under the Predecessor Plan as of the
Effective Date, including the shares subject to the outstanding option grants
under the Predecessor Plan which have been incorporated into this Plan and the
additional shares of Common Stock available for future grant under the
Predecessor Plan, (ii) an additional increase of 700,000 shares of Common Stock
previously authorized by the Board and approved by the Corporation's
stockholders at the 1995 Annual Meeting, (iii) an additional increase of
1,300,000 shares of Common Stock authorized by the Board in March 1996 and
approved by the stockholders at the 1996 Annual Meeting, (iv) a further increase
of 1,200,000 shares of Common Stock authorized by the Board on March 20, 1997
and approved by the stockholders at the 1997 Annual Meeting, (v) a further
increase of 1,200,000 shares of Common Stock authorized by the Board on March
17, 1998 and approved by the stockholders at the 1998 Annual Meeting plus (vi) a
further increase of 1,200,000 shares of Common Stock authorized by the Board on
March 31, 1999, subject to stockholder approval at the 1999 Annual Meeting. In
no event, however, shall any person participating in the Plan receive stock
options and direct stock issuances under this Plan for more than 400,000 shares
of Common Stock per calendar year, beginning with the 1995 calendar year.
B. Shares of Common Stock subject to outstanding options (including options
incorporated into this Plan from the Predecessor Plan) shall be available for
subsequent issuance under the Plan to the extent those options expire or
terminate for any reason prior to exercise in full. Unvested shares issued under
the Plan and subsequently cancelled or repurchased by the Corporation at the
option exercise or direct issue price paid per share pursuant to the
Corporation's repurchase rights under the Plan shall also be available for
subsequent issuance under the Plan. However, should the exercise price of an
option under the Plan be paid with shares of Common Stock or should shares of
Common Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be reduced
by the gross number of shares for which the option is exercised or which vest
under the stock issuance, and not by the net number of shares of Common Stock
issued to the holder of such option or stock issuance.
4
<PAGE>
C. If any change is made to the Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be made to
(i) the maximum number and/or class of securities issuable under the Plan, (ii)
the number and/or class of securities for which any one person may be granted
stock options and direct stock issuances under this Plan per calendar year,
(iii) the number and/or class of securities for which grants are subsequently to
be made under the Automatic Option Grant Program to new and continuing
non-employee Board members, (iv) the number and/or class of securities and the
exercise price per share in effect under each outstanding option under the Plan
and (v) the number and/or class of securities and price per share in effect
under each outstanding option incorporated into this Plan from the Predecessor
Plan. Such adjustments to the outstanding options are to be effected in a manner
which shall preclude the enlargement or dilution of rights and benefits under
such options. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.
5
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Six
and the documents evidencing the option, be payable in one or more of the
forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions
to (a) a Corporation-designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares
plus all applicable Federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of such
exercise and (b) the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete
the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
6
<PAGE>
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option,
but no such option shall be exercisable after the expiration of the
option term.
(ii) Any option exercisable in whole or in part by the Optionee
at the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution.
(iii) Should the Optionee's Service be terminated for Misconduct,
then all outstanding options held by the Optionee shall terminate
immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number
of vested shares for which the option is exercisable on the date of
the Optionee's cessation of Service. Upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding
for any vested shares for which the option has not been exercised.
However, the option shall, immediately upon the Optionee's cessation
of Service, terminate and cease to be outstanding to the extent the
option is not otherwise at that time exercisable for vested shares.
(v) In the event of a Corporate Transaction, the provisions of
Section III of this Article Two shall govern the period for which the
outstanding options are to remain exercisable following the Optionee's
cessation of Service and shall supersede any provisions to the
contrary in this section.
2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option
remains outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the
limited exercise period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
7
<PAGE>
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at
the time of the Optionee's cessation of Service but also with respect
to one or more additional installments in which the Optionee would
have vested had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the exercise price paid per share, any or
all of those unvested shares. The terms upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right.
F. Limited Transferability of Options. During the lifetime of the Optionee,
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Qualified Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Seven shall be applicable to Incentive Options. Options
which are specifically designated as Non-Qualified Options when issued under the
Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Dollar Limitation. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000).
8
<PAGE>
To the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
C. 10% Stockholder. If any Employee to whom an Incentive Option is granted
is a 10% Stockholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date, and the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) or to be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof), (ii) such option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested option shares at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction, all
outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments to reflect such Corporate Transaction shall also be made to (i) the
exercise price payable per share under each outstanding option, provided the
9
<PAGE>
aggregate exercise price payable for such securities shall remain the same, (ii)
the maximum number and/or class of securities available for issuance over the
remaining term of the Plan, (iii) the maximum number and/or class of securities
for which any one person may be granted stock options and direct stock issuances
under the Plan per calendar year and (iv) the maximum number and/or class of
securities which may be issued pursuant to Incentive Options granted under the
Plan following the consummation of the Corporate Transaction.
E. The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate in the event the Optionee's Service subsequently terminates by reason
of an Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Corporate Transaction in which
those options are assumed or replaced and do not otherwise accelerate. Any
options so accelerated shall remain exercisable for fully-vested shares until
the earlier of (i) the expiration of the option term or (ii) the expiration of
the one (1)-year period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may provide that one or more of
the Corporation's outstanding repurchase rights with respect to shares held by
the Optionee at the time of such Involuntary Termination shall immediately
terminate, and the shares subject to those terminated repurchase rights shall
accordingly vest in full.
F. The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate in the event the Optionee's Service subsequently terminates by reason
of an Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Change in Control. Each option
so accelerated shall remain exercisable for fully-vested shares until the
earlier of (i) the expiration of the option term or (ii) the expiration of the
one (1)-year period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may provide that one or more of
the Corporation's outstanding repurchase rights with respect to shares held by
the Optionee at the time of such Involuntary Termination shall immediately
terminate, and the shares subject to those terminated repurchase rights shall
accordingly vest in full.
G. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Qualified
Option under the Federal tax laws.
H. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
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ARTICLE THREE
SALARY REDUCTION OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Reduction
Option Grant Program is to be in effect and to select the Employees eligible to
participate in the Salary Reduction Option Grant Program for those calendar year
or years. Each selected Employee who elects to participate in the Salary
Reduction Option Grant Program must, prior to the start of each calendar year of
participation, file with the Plan Administrator (or its designate) an
irrevocable authorization directing the Corporation to reduce his or her base
salary for that calendar year by a designated multiple of one percent (1%).
However, the minimum amount of such salary reduction must be not less than the
greater of (i) five percent (5%) of his or her rate of base salary for that
calendar year or (ii) Ten Thousand Dollars ($10,000.00) and must not be more
than the lesser of (i) twenty five percent (25%) of his or her rate of base
salary for the calendar year or (ii) Seventy Five Thousand Dollars ($75,000.00).
Each individual who files a proper salary reduction authorization shall
automatically be granted an option under this Salary Reduction Option Grant
Program on the first trading day in January of the calendar year for which that
salary reduction is to be in effect. Stockholder approval of this 1999
Restatement at the 1999 Annual Stockholders Meeting shall constitute
pre-approval of each option subsequently granted pursuant to the express terms
of this Salary Reduction Option Grant Program and the subsequent exercise of
that option in accordance with its terms.
II. OPTION TERMS
Each option shall be a Non-Qualified Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below.
A. Exercise Price.
1. The exercise price per share shall be thirty-three and one-third
percent (33-1/3%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
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X = A/(Bx66-2/3%), where
X is the number of option shares,
A is the dollar amount by which the Optionee's base salary
is to be reduced for the calendar year, and
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. Exercise and Term of Options. The option shall become exercisable
in a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease Service
for any reason while holding one or more options under this Article Three,
then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the three (3)-year period measured
from the date of such cessation of Service. Should the Optionee die while
holding one or more options under this Article Three, then each such option
may be exercised, for any or all of the shares for which the option is
exercisable at the time of the Optionee's cessation of Service (less any
shares subsequently purchased by Optionee prior to death), by the personal
representative of the Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution. Such right of exercise shall
lapse, and the option shall terminate, upon the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the three (3)-year
period measured from the date of the Optionee's cessation of Service.
However, the option shall, immediately upon the Optionee's cessation of
Service for any reason, terminate and cease to remain outstanding with
respect to any and all shares of Common Stock for which the option is not
otherwise at that time exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under
this Salary Reduction Option Grant Program shall automatically accelerate
so that each such option shall, immediately prior to the effective date of
the Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option
and may be exercised for any or all of those shares as fully-vested shares
of Common Stock. Each such outstanding option shall be assumed by the
successor corporation (or parent thereof) in the Corporate Transaction and
shall remain exercisable for the fully-vested shares until the earlier of
(i) the expiration of the ten (10)-year option term or (ii) the expiration
of the three (3)-year period measured from the date of the Optionee's
cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Reduction Option Grant Program shall automatically accelerate so that each
such option shall immediately become fully exercisable with respect to the
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total number of shares of Common Stock at the time subject to such option
and may be exercised for any or all of those shares as fully-vested shares
of Common Stock. The option shall remain so exercisable until the earlier
or (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service.
C. The grant of options under the Salary Reduction Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer
all or any part of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary
Reduction Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
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ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
directly without any intervening option grants. Each such stock issuance shall
be evidenced by a Stock Issuance Agreement which complies with the terms
specified below.
A. Issue Price. The shares shall be issued for such valid consideration
under the Delaware General Corporation Law as the Plan Administrator may deem
appropriate, but the value of such consideration as determined by the Plan
Administrator shall not be less than one hundred percent (100%) of the Fair
Market Value of the issued shares of Common Stock on the issuance date.
B. Vesting Provisions.
1. The Primary Committee shall have the sole and exclusive authority
to issue shares of Common Stock under the Stock Issuance Program as a bonus
for past services rendered to the Corporation (or any Parent or
Subsidiary). All such bonus shares shall be fully and immediately vested
upon issuance.
2. All other shares of Common Stock authorized for issuance under the
Stock Issuance Program by the applicable Plan Administrator shall have a
minimum vesting schedule determined in accordance with the following
requirements:
(i) For any shares which are to vest solely by reason of Service
to be performed by the Participant, the Plan Administrator shall
impose a minimum Service period of at least three (3) years measured
from the issue date of such shares.
(ii) For any shares which are to vest upon the Participant's
completion of a designated Service requirement and the Corporation's
attainment of one or more prescribed performance milestones, the Plan
Administrator shall impose a minimum Service period of at least one
(1) year measured from the issue date of such shares.
3. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock
split, recapitalization, combination of shares, exchange of shares or other
change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the
same vesting requirements applicable to the Participant's unvested shares
of Common Stock and (ii) such escrow arrangements as the Plan Administrator
shall deem appropriate.
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4. The Participant shall have full stockholder rights with respect to
any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares
is vested. Accordingly, the Participant shall have the right to vote such
shares and to receive any regular cash dividends paid on such shares.
5. Should the Participant cease to remain in Service while holding one
or more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect
to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and
the Participant shall have no further stockholder rights with respect to
those shares. To the extent the surrendered shares were previously issued
to the Participant for consideration paid in cash or cash equivalent
(including the Participant's purchase-money promissory note), the
Corporation shall repay to the Participant the cash consideration paid for
the surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to such
surrendered shares.
6. The Primary Committee shall have the sole and exclusive authority,
exercisable upon a Participant's termination of Service, to waive the
surrender and cancellation of any or all unvested shares of Common Stock
(or other assets attributable thereto) at the time held by that
Participant, if the Primary Committee determines such waiver to be an
appropriate severance benefit for the Participant.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the Stock
Issuance Program shall terminate automatically, and all the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Corporate Transaction, except to the extent (i) those repurchase
rights are to be assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program in such manner that those repurchase rights shall automatically
terminate, and all the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within eighteen
(18) months following the effective date of any Corporate Transaction in which
those repurchase rights are assigned to the successor corporation (or parent
thereof).
C. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program in such manner that those repurchase rights shall automatically
terminate, and all the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within eighteen
(18) months following the effective date of any Change in Control.
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III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
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ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
The provisions of the Automatic Option Grant Program have been revised as
of March 17, 1998 and have been approved by the stockholders at the 1998 Annual
Meeting.
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified below:
1. Each individual who is re-elected to the Board as a non-employee
Board member at the 1998 Annual Stockholders Meeting shall automatically be
granted at that time a Non-Qualified Option to purchase 15,000 shares of
Common Stock.
2. Each individual who is first elected or appointed as a non-employee
Board member at the 1998 Annual Stockholders Meeting or at any time
thereafter shall automatically be granted, upon his or her initial election
or appointment (as the case may be), a Non-Qualified Option to purchase
25,000 shares of Common Stock, provided that individual has not previously
been in the employ of the Corporation or any Parent or Subsidiary.
3. On the date of each Annual Stockholders Meeting, beginning with the
1998 Annual Meeting, each individual who is re-elected to serve as a
non-employee Board member at such meeting shall automatically be granted a
Non-Qualified Option to purchase an additional 7,000 shares of Common
Stock, provided such individual has served as a non-employee Board member
for a period of at least six (6) months. There shall be no limit on the
number of such 7,000-share option grants any one non-employee Board member
may receive over his or her period of Board service, and non-employee Board
members who have previously been in the employ of the Corporation or any
Parent or Subsidiary shall be eligible to receive such annual option grants
upon their re-election as non-employee Board members at one or more Annual
Stockholders Meetings.
Only the 15,000-share and 7,000-share option grants made at the 1998
Annual Meeting have been adjusted to 30,000 shares and 14,000 shares,
respectively, to reflect the June 12, 1998 split of the Common Stock. All
other share numbers in this Article Five remain in effect after such split.
Stockholder approval of this 1999 Restatement at the 1999 Annual
Stockholders Meeting shall constitute pre-approval of each option granted
at or after that Annual Meeting pursuant to the express terms of this
Automatic Option Grant Program and the subsequent exercise of that option
in accordance with its terms.
B. Exercise Price.
1. The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option
grant date.
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2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder
is utilized, payment of the exercise price for the purchased shares must be
made on the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years measured
from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each option grant shall vest, and the
Corporation's repurchase right shall lapse, in a series of four (4) successive
equal annual installments over the Optionee's period of continued service as a
Board member, with the first such installment to vest upon the Optionee's
completion of one (1) year of Board service measured from the option grant date.
E. Effect of Termination of Board Service. The following provisions shall
govern the exercise of any outstanding options held by the Optionee under this
Automatic Option Grant Program at the time the Optionee ceases to serve as a
Board member:
(i) The Optionee (or, in the event of Optionee's death, the personal
representative of the Optionee's estate or the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution) shall have a twelve (12)-month
period following the date of such cessation of Board service in which to
exercise each such option. However, each option shall, immediately upon the
Optionee's cessation of Board service, terminate and cease to remain
outstanding with respect to any option shares in which the Optionee is not
otherwise at that time vested.
(ii) During the twelve (12)-month exercise period, the option may not
be exercised in the aggregate for more than the number of vested shares for
which the option is exercisable at the time of the Optionee's cessation of
Board service. However, should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares at the
time subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of such shares as
fully-vested shares.
(iii) In no event shall the option remain exercisable after the
expiration of the option term.
II. SPECIAL ACCELERATION EVENTS
A. In the event of any Corporate Transaction, the shares of Common Stock at
the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the specified effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to that
option and may be exercised for all or any portion of such shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant under the Plan shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation or its parent company.
B. In connection with any Change in Control of the Corporation, the shares
of Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the specified effective date for the Change in Control,
become fully exercisable for all of the shares of Common Stock at the time
subject to that option and may be exercised for all or any portion of those
shares as fully-vested shares of Common Stock. Each such option shall remain
exercisable for such fully-vested option shares until the expiration or sooner
termination of the option term.
C. The automatic option grants outstanding under the Plan shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option Grant
Program shall be the same as the terms in effect for option grants made under
the Discretionary Option Grant Program.
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ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
Each non-employee Board member may elect to apply all or any portion of the
annual retainer fee otherwise payable in cash for his or her service on the
Board to the acquisition of a special option grant under this Director Fee
Option Grant Program. Such election must be filed with the Corporation's Chief
Financial Officer prior to first day of July in the calendar year immediately
preceding the calendar year for which the annual retainer fee which is the
subject of that election is otherwise payable. Each non-employee Board member
who files such a timely election shall automatically be granted an option under
this Director Fee Option Grant Program on the first trading day in January in
the calendar year for which the annual retainer fee which is the subject of that
election would otherwise be payable. Stockholder approval of the 1999
Restatement at the 1999 Annual Stockholders Meeting shall constitute
pre-approval of each option subsequently granted pursuant to the express terms
of this Director Fee Option Grant Program and the subsequent exercise of that
option in accordance with its terms.
II. OPTION TERMS
Each option shall be a Non-Qualified Option governed by the terms and
conditions specified below.
A. Exercise Price.
1. The exercise price per share shall be thirty-three and one-third
percent (33-1/3%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock subject to
the option shall be determined pursuant to the following formula (rounded down
to the nearest whole number):
X = A/(Bx66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the
non-employee Board member's election, and
B is the Fair Market Value per share of Common Stock on the
option grant date.
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C. Exercise and Term of Options. The option shall become exercisable in a
series of twelve (12) successive equal monthly installments upon the Optionee's
completion of each calendar month of Board service in the calendar year for
which the annual retainer fee which is the subject of his or her election under
this Article Six would otherwise be payable. Each option shall have a maximum
term of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Article Six, then each such option shall remain
exercisable, for any or all of the shares for which the option is exercisable at
the time of such cessation of Board service, until the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the expiration of the three
(3)-year period measured from the date of such cessation of Board service.
However, each option held by the Optionee under this Article Six at the time of
his or her cessation of Board service shall immediately terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.
E. Death or Permanent Disability. Should the Optionee's service as a Board
member cease by reason of death or Permanent Disability, then each option held
by such Optionee under this Article Six shall immediately become exercisable for
all the shares of Common Stock at the time subject to that option, and the
option may, during the three (3)-year period following such cessation of Board
service, be exercised for any or all of those shares as fully-vested shares.
Should the Optionee die while holding one or more options under this
Article Six, then each such option may be exercised, for any or all of the
shares for which the option is exercisable at the time of the Optionee's
cessation of Board service (less any shares subsequently purchased by Optionee
prior to death), by the personal representative of the Optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution. Such
right of exercise shall lapse, and the option shall terminate, upon the earlier
of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of Board
service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee remains a
Board member, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. Each such outstanding
option shall be assumed by the successor corporation (or parent thereof) in the
Corporate Transaction and shall remain exercisable for the fully-vested shares
until the earlier of (i) the expiration of the ten (10)-year option term or (ii)
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Board service.
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B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. The
option shall remain so exercisable until the earlier or (i) the expiration of
the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service.
C. The grant of options under the Director Fee Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
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ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay the
option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
promissory note payable in one or more installments. The terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion. Promissory
notes may be authorized with or without security or collateral. In all events,
the maximum credit available to the Optionee or Participant may not exceed the
sum of (i) the aggregate option exercise price or purchase price payable for the
purchased shares plus (ii) any Federal, state and local income and employment
tax liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
II. TAX WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon the
exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
III. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan became effective upon approval by the Corporation's
stockholders at the 1995 Annual Stockholders Meeting.
B. The Plan was amended and restated by the Board in March 1996 (the "March
1996 Restatement") to effect the following revisions: (i) increase the maximum
number of shares of Common Stock authorized for issuance over the term of the
Plan by an additional 1,300,000 shares to 6,224,830 shares and (ii) increase the
limit on the maximum number of shares of Common Stock which may be issued under
the Plan prior to the required cessation of further Incentive Option grants by
an additional 1,300,000 shares to a total of 6,100,000 shares of Common Stock.
The March 1996 Restatement became effective immediately upon adoption by the
Board and was approved by the Corporation's stockholders at the 1996 Annual
Meeting.
C. The Plan was again amended and restated on March 20, 1997 (the "1997
Amendment") to effect the following changes: (i) increase the number of shares
of Common Stock authorized for issuance over the term of the Plan by an
additional 1,200,000 shares, (ii) render the non-employee Board members eligible
to receive option grants and direct stock issuances under the Discretionary
Option Grant and Stock Issuance Programs, (iii) eliminate the plan limitation
which precluded the grant of additional Incentive Options once the number of
shares of Common Stock issued under the Plan, whether as vested or unvested
shares, exceeded 6,100,000 shares, (iv) eliminate certain restrictions on the
eligibility of non-employee Board members to serve as Plan Administrator and (v)
effect a series of technical changes to the provisions of the Plan (including
the stockholder approval requirements) in order to take advantage of the recent
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amendments to Rule 16b-3 of the Securities and Exchange Commission which exempts
certain officer and director transactions under the Plan from the short-swing
liability provisions of the Federal securities laws. The 1997 Amendment became
effective immediately upon adoption by the Board and was approved by the
Corporation's stockholders at the 1997 Annual Meeting.
D. The Plan was further amended and restated on March 17, 1998 (the "1998
Restatement") to increase the number of shares of Common Stock authorized for
issuance over the term of the Plan by an additional 1,200,000 shares and to
effect the following changes to the Automatic Option Grant Program in effect
under Article Five:
(i) Each individual reelected to the Board as a non-employee Board
member at the 1998 Annual Meeting shall receive at that time an option
grant for 15,000 shares of the Company's Common Stock.
(ii) Each individual who first joins the Board as a non-employee Board
member at the 1998 Annual Meeting or at any time thereafter shall, upon his
or her initial election or appointment to the Board, receive an option
grant for 25,000 shares of the Company's Common Stock, provided such
individual has not previously been in the Company's employ.
(iii) On the date of each Annual Stockholders Meeting, beginning with
the 1998 Annual Meeting, each individual reelected to the Board as a
non-employee Board member will receive an option grant for 7,000 shares of
the Company's Common Stock, provided such individual has served as a
non-employee Board member for at least six months.
The 1998 Restatement was approved by the stockholders at the 1998 Annual
Meeting, and no option grants made on the basis of the 600,000-share increase
under the 1998 Restatement became exercisable in whole or in part until the 1998
Restatement was so approved. All option grants made prior to the 1998
Restatement shall remain outstanding in accordance with the terms and conditions
of the respective instruments evidencing those options or issuances, and nothing
in the 1998 Restatement shall be deemed to modify or in any way affect those
outstanding options or issuances.
E. The Plan was further amended and restated on March 31, 1999 (the "1999
Restatement") to increase the number of shares of Common Stock authorized for
issuance over the term of the Plan by an additional 1,200,000 shares, subject to
stockholder approval at the 1999 Annual Meeting. No option grants or direct
stock issuances shall be made on the basis of the 1,200,000-share increase
authorized by the 1999 Restatement unless and until the Restatement is approved
by the stockholders at the 1999 Annual Meeting. All option grants made prior to
the 1999 Restatement shall remain outstanding in accordance with the terms and
conditions of the respective instruments evidencing those options or issuances,
and nothing in the 1999 Restatement shall be deemed to modify or in any way
affect those outstanding options or issuances. Subject to the foregoing
limitations, the Plan Administrator may make option grants under the Plan at any
time before the date fixed herein for the termination of the Plan.
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F. The Plan Administrator shall have full power and authority, exercisable
in its sole discretion, to extend one or more provisions of the Discretionary
Option Grant Program, including (without limitation) the vesting acceleration
provisions of Section III of Article Two relating to Corporate Transactions and
Changes in Control, to one or more outstanding stock options under the
Predecessor Plan which are incorporated into this Plan on the Effective Date but
which do not otherwise contain such provisions.
G. The Plan shall terminate upon the earliest of (i) May 24, 2005, (ii) the
date on which all shares available for issuance under the Plan shall have been
issued as fully-vested shares or (iii) the termination of all outstanding
options in connection with a Corporate Transaction. Upon a clause (i) plan
termination, all outstanding option grants and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to amend
or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant and Salary Reduction Option Grant Programs and shares
of Common Stock may be issued under the Stock Issuance Program that are in each
instance in excess of the number of shares then available for issuance under the
Plan, provided any excess shares actually issued under those programs shall be
held in escrow until there is obtained stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.
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VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option under
the Plan and the issuance of any shares of Common Stock (i) upon the exercise of
any granted option or (ii) under the Stock Issuance Program shall be subject to
the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining such person) or of the Optionee or
the Participant, which rights are hereby expressly reserved by each, to
terminate such person's Service at any time for any reason, with or without
cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option grant
program in effect under the Plan.
B. Board shall mean the Corporation's Board of Directors.
C. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or related
group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under
common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities pursuant
to a tender or exchange offer made directly to the Corporation's
stockholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority
of the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals
who either (A) have been Board members continuously since the
beginning of such period or (B) have been elected or nominated
for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were
still in office at the time the Board approved such election or
nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. Common Stock shall mean the Corporation's common stock.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person
or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
G. Corporation shall mean FileNET Corporation, a Delaware corporation.
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H. Director Fee Option Grant Program shall mean the special stock option
grant in effect for non-employee Board members under Article Six of
the Plan.
I. Discretionary Option Grant Program shall mean the discretionary option
grant program in effect under the Plan.
J. Effective Date shall mean the date of the 1995 Annual Stockholders
Meeting, provided the Plan is approved by the stockholders at that
meeting.
K. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed
and the manner and method of performance.
L. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.
M. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the average of the
high and low selling prices per share of Common Stock on the date
in question, as such prices are reported by the National
Association of Securities Dealers on the Nasdaq National Market
or any successor system. If there are no high or low selling
prices for the Common Stock on the date in question, then the
Fair Market Value shall be the average of the high and low
selling prices on the last preceding date for which such
quotations exist.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the average of the high and
low selling prices per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as
such prices are officially quoted in the composite tape of
transactions on such exchange. If there are no high and low
selling prices for the Common Stock on the date in question, then
the Fair Market Value shall be the average of the high and low
selling prices on the last preceding date for which such
quotations exist.
N. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
O. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
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(ii) such individual's voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and
participation in any corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual's place of employment by more than
fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without the
individual's consent.
P. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or
disclosure by such person of confidential information or trade secrets
of the Corporation (or any Parent or Subsidiary), or any other
intentional misconduct by such person adversely affecting the business
or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be
inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or
discharge of any Optionee, Participant or other person in the Service
of the Corporation (or any Parent or Subsidiary).
Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
R. Non-Qualified Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. Optionee shall mean any person to whom an option is granted under the
Discretionary Option Grant, Salary Reduction Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.
T. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided
each corporation in the unbroken chain (other than the Corporation)
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
U. Participant shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
V. Permanent Disability or Permanently Disabled shall mean the inability
of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous
duration of twelve (12) months or more. However, solely for purposes
of the Automatic Option Grant and Director Fee Option Grant Programs,
Permanent Disability or Permanently Disabled shall mean the inability
of the non-employee Board member to perform his or her usual duties as
a Board member by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous
duration of twelve (12) months or more.
W. Plan shall mean the Corporation's 1995 Stock Option Plan, as set forth
in this document.
X. Plan Administrator shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to one or more classes of eligible
persons, to the extent such entity is carrying out its administrative
functions under those programs with respect to the persons under its
jurisdiction.
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Y. Predecessor Plan shall mean the Corporation's Second Amended and
Restated Stock Option Plan, pursuant to which 3,250,000 shares of
Common Stock have been authorized for issuance.
Z. Primary Committee shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to
Section 16 Insiders.
AA. Salary Reduction Option Grant Program shall mean the salary reduction
grant program in effect under the Plan.
BB. Secondary Committee shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons
other than Section 16 Insiders.
CC. Section 16 Insider shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section
16 of the 1934 Act.
DD. Service shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee,
a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically
provided in the documents evidencing the option grant or stock
issuance.
EE. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
FF. Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
GG. Stock Issuance Program shall mean the stock issuance program in effect
under the Plan.
HH. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation,
provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
II. 10% Stockholder shall mean the owner of stock (as determined under
Code Section 424(d)) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Corporation (or
any Parent or Subsidiary).
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FILENET CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
AS AMENDED AND RESTATED MARCH 31, 1999
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests of
FileNET Corporation by providing eligible employees with the opportunity to
acquire a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan designed to qualify under
Section 423 of the Code.
This Plan shall serve as the successor to the Corporation's existing 1988
Employee Stock Purchase Plan (the "Predecessor Plan"), and no further shares of
Common Stock will be issued under the Predecessor Plan from and after the
Effective Date.
Capitalized terms herein shall have the meanings assigned to such terms in
the attached Appendix.
All share numbers in this Plan reflect the 2-for-1 split of the Common
Stock effective on June 12, 1998
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and construe
any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares of Common Stock purchased
on the open market. The maximum number of shares of Common Stock which may be
issued over the term of the Plan and the International Plan shall not exceed Six
Hundred Ninety Two Thousand Two Hundred and Seventy Eight (692,278) shares and
shall be limited to the following components: (i) the actual number of shares of
Common Stock remaining for issuance under the Predecessor Plan on the Effective
Date (Ninety Two Thousand Two Hundred Seventy Eight (92,278) shares plus (ii) an
additional Three Hundred Thousand (300,000) shares of Common Stock approved by
the stockholders at the 1998 Annual Meeting in connection with the
implementation of the Plan plus (iii) an additional increase of Three Hundred
Thousand (300,000) shares authorized by the Board on March 31, 1999, subject to
stockholder approval at the 1999 Annual Meeting.
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B. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and class of securities issuable under the Plan
and the International Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date, (iii) the maximum number
and class of securities purchasable by all Participants in the aggregate on any
one Purchase Date and (iv) the number and class of securities and the price per
share in effect under each outstanding purchase right in order to prevent the
dilution or enlargement of benefits thereunder.
IV. PURCHASE PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive purchase periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each purchase period shall have a duration of six (6) months. Purchase
periods shall run from the first business day in May to the last business day in
October each year and from the first business day in November each year to the
last business day in April of the following year. However, the initial purchase
period under the Plan shall begin on October 1, 1998 and end on the last
business day in April 1999.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of any
purchase period shall be eligible to participate in the Plan for that purchase
period.
B. To participate in the Plan for a particular purchase period, the
Eligible Employee must complete the enrollment form prescribed by the Plan
Administrator and file such form with the Plan Administrator (or its designate)
on or before the start date of the purchase period.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Cash Earnings paid to the Participant during each purchase
period, up to a maximum of ten percent (10%). The deduction rate so authorized
shall continue in effect for the entire purchase period and for each subsequent
purchase period the Participant remains in the Plan. The Participant may not
increase his or her rate of payroll deduction during a purchase period, but may
effect such increase as of the start date of any subsequent purchase period
following the filing of a new payroll deduction authorization with the Plan
Administrator. However, the
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Participant may, at any time during the purchase period, reduce his or her rate
of payroll deduction to become effective as soon as possible after filing the
appropriate form with the Plan Administrator. The Participant may not, however,
effect more than one (1) such reduction per purchase period.
B. Payroll deductions shall begin on the first pay day following the start
date of the purchase period and shall (unless sooner terminated by the
Participant) continue through the pay day ending with or immediately prior to
the last day of the purchase period. The amounts so collected shall be credited
to the Participant's book account under the Plan, but no interest shall be paid
on the balance from time to time outstanding in such account. The amounts
collected from the Participant shall not be required to be held in any
segregated account or trust fund and may be commingled with the general assets
of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination of the
Participant's purchase right in accordance with the provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date.
VII. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be granted a separate
purchase right on the start date of each purchase period in which he or she
participates. The purchase right shall provide the Participant with the right to
purchase shares of Common Stock on the Purchase Date upon the terms set forth
below. The Participant shall execute a stock purchase agreement embodying such
terms and such other provisions (not inconsistent with the Plan) as the Plan
Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan to
any Eligible Employee if such individual would, immediately after the grant, own
(within the meaning of Code Section 424(d)) or hold outstanding options or other
rights to purchase, stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Corporation or any
Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall be
automatically exercised on the Purchase Date, and shares of Common Stock shall
accordingly be purchased on behalf of each Participant on such date. The
purchase shall be effected by applying the Participant's payroll deductions for
the purchase period ending on such Purchase Date to the purchase of shares of
Common Stock at the purchase price in effect for that purchase period.
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C. Purchase Price. The purchase price per share at which Common Stock will
be purchased on the Participant's behalf on each Purchase Date shall be equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
Common Stock on the start date of the purchase period or (ii) the Fair Market
Value per share of Common Stock on that Purchase Date.
D. Number of Purchasable Shares. The number of shares of Common Stock
purchasable by a Participant on each Purchase Date shall be the number of whole
shares obtained by dividing the amount collected from the Participant through
payroll deductions during the purchase period ending with that Purchase Date by
the purchase price in effect for that period. However, the maximum number of
shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed eight hundred (800) shares, subject to periodic adjustments in
the event of certain changes in the Corporation's capitalization. In addition,
the maximum number of shares of Common Stock purchasable by all Participants in
the aggregate on any one Purchase Date under the Plan and the International Plan
shall not exceed One Hundred Seventy Thousand (170,000) shares, subject to
periodic adjustments in the event of certain changes in the Corporation's
capitalization. However, the Plan Administrator shall have the discretionary
authority, exercisable prior to the start of any purchase period under the Plan,
to increase or decrease the limitations to be in effect for the number of shares
purchasable per Participant and in the aggregate by all Participants on the
Purchase Date in effect for that period.
E. Excess Payroll Deductions. Any payroll deductions not applied to the
purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date or the limitation on the maximum number of shares purchasable in
the aggregate on the Purchase Date by all Participants shall be promptly
refunded.
F. Termination of Purchase Right. The following provisions shall govern the
termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the last fifteen (15) days
of the purchase period, terminate his or her outstanding purchase right by
filing the appropriate form with the Plan Administrator (or its designate),
and no further payroll deductions shall be collected from the Participant
with respect to the terminated purchase right. Any payroll deductions
collected during the purchase period in which such termination occurs
shall, at the Participant's election, be immediately refunded or held for
the purchase of shares on the next Purchase Date. If no such election is
made at the time the purchase right is terminated, then the payroll
deductions collected with respect to the terminated right shall be refunded
as soon as possible.
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(ii) The termination of such purchase right shall be irrevocable, and
the Participant may not subsequently rejoin the purchase period for which
the terminated purchase right was granted. In order to resume participation
in any subsequent purchase period, such individual must re-enroll in the
Plan (by making a timely filing of the prescribed enrollment forms) before
the start date of the new purchase period.
(iii) Should the Participant cease to remain an Eligible Employee for
any reason (including death, disability or change in status) while his or
her purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for
the purchase period in which the purchase right so terminates shall be
immediately refunded. However, should the Participant cease to remain in
active service by reason of an approved unpaid leave of absence, then the
Participant shall have the right, exercisable up until the last business
day of the purchase period in which such leave commences, to (a) withdraw
all the payroll deductions collected to date on his or her behalf during
such purchase period or (b) have such funds held for the purchase of shares
on the next scheduled Purchase Date. In no event, however, shall any
further payroll deductions be collected on the Participant's behalf during
such leave. Upon the Participant's return to active service (i) within
ninety (90) days after the start of the leave or (ii) prior to the
expiration of any longer period during his or her re-employment rights are
guaranteed by law or contract, his or her payroll deductions under the Plan
shall automatically resume at the rate in effect at the time the leave
began.
G. Corporate Transaction. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the purchase period in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
Common Stock on the start date of the purchase period in which such Corporate
Transaction occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Corporate Transaction. However,
the applicable limitation on the number of shares of Common Stock purchasable
per Participant shall continue to apply to any such purchase, but not the
limitation on the aggregate number of shares purchasable by all Participants.
The Corporation shall use its best efforts to provide at least ten (10)
days prior written notice of the occurrence of any Corporate Transaction, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.
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H. Proration of Purchase Rights. Should the total number of shares of
Common Stock which are to be purchased pursuant to outstanding purchase rights
on any particular date exceed either (i) the number of shares then available for
issuance under the Plan or (ii) the maximum number of shares purchasable by all
Participants (and all participants in the International Plan) in the aggregate
on that Purchase Date, then the Plan Administrator shall make a pro-rata
allocation of the available shares on a uniform and nondiscriminatory basis, and
the payroll deductions of each Participant (and each participant in the
International Plan), to the extent in excess of the aggregate purchase price
payable for the Common Stock pro-rated to such individual, shall be refunded.
I. Assignability. The purchase right shall be exercisable only by the
Participant and shall not be assignable or transferable by the Participant.
J. Stockholder Rights. A Participant shall have no stockholder rights with
respect to the shares subject to his or her outstanding purchase right until the
shares are purchased on the Participant's behalf in accordance with the
provisions of the Plan and the Participant has become a holder of record of the
purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans (within the meaning of
Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise
permit such Participant to purchase more than Twenty-Five Thousand Dollars
($25,000) worth of stock of the Corporation or any Corporate Affiliate
(determined on the basis of the Fair Market Value of such stock on the date or
dates such rights are granted) for each calendar year such rights are at any
time outstanding.
B. For purposes of applying such accrual limitations, the following
provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding purchase
right shall accrue on the Purchase Date in effect for the purchase period
for which such right is granted.
(ii) No right to acquire Common Stock under any outstanding purchase
right shall accrue to the extent the Participant has already accrued in the
same calendar year the right to acquire Common Stock under one (1) or more
other purchase rights at a rate equal to Twenty-Five Thousand Dollars
($25,000) worth of Common Stock (determined on the basis of the Fair Market
Value per share on the date or dates of grant) for each calendar year such
rights were at any time outstanding.
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C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular purchase period, then the payroll
deductions which the Participant made during that purchase period with respect
to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on March 17, 1998 and approved by the
Corporation's stockholders at the 1998 Annual Meeting held on May 15, 1998. The
Plan .shall become effective on the Effective Date. However, no purchase rights
granted under the Plan shall be exercised, and no shares of Common Stock shall
be issued hereunder, until the Corporation shall have complied with all
applicable requirements of the 1933 Act (including the registration of the
shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation.
B. The Plan was amended and restated on March 31, 1999 (the "1999
Restatement") to increase the number of shares of Common Stock authorized for
issuance over the term of the Plan by an additional Three Hundred Thousand
(300,000) shares, subject to stockholder approval at the 1999 Annual Meeting. No
purchase rights shall be granted, and no shares shall be issued, on the basis of
the Three Hundred Thousand (300,000)-share increase authorized by the 1999
Restatement unless and until the Restatement is approved by the stockholders at
the 1999 Annual Meeting.
C. Unless sooner terminated by the Board, the Plan shall terminate upon the
earliest to occur of (i) the last business day in October 2008, (ii) the date on
which all shares available for issuance under the Plan (and the International
Plan) shall have been sold pursuant to purchase rights exercised under the Plan
(and the International Plan) or (iii) the date on which all purchase rights are
exercised in connection with a Corporate Transaction. No further purchase rights
shall be granted or exercised, and no further payroll deductions shall be
collected, under the Plan following such termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any time to
become effective immediately following the close of any purchase period.
However, the Board may not, without the approval of the Corporation's
stockholders, (i) increase the number of shares of Common Stock issuable under
the Plan, except for permissible adjustments in the event of certain changes in
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the Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan, or (iii) modify the requirements for eligibility to participate
in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan shall
be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the State of
California without resort to that State's conflict-of-laws rules.
8
<PAGE>
Schedule A
Corporations Participating in
Employee Stock Purchase Plan
As of October 1, 1998
FileNET Corporation, a Delaware corporation
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
B. Cash Earnings shall mean the (i) base salary payable to a Participant
by one or more Participating Companies during such individual's period
of participation in one or more purchase periods under the Plan plus
(ii) all overtime payments, bonuses, commissions and other
incentive-type payments received during such period. Such Cash
Earnings shall be calculated before deduction of (A) any income or
employment tax withholdings or (B) any pre-tax contributions made by
the Participant to any Code Section 401(k) salary deferral plan or any
Code Section 125 cafeteria benefit program now or hereafter
established by the Corporation or any Corporate Affiliate. However,
Cash Earnings shall not include any contributions (other than Code
Section 401(k) or Code Section 125 contributions) made on the
Participant's behalf by the Corporation or any Corporate Affiliate to
any employee benefit or welfare plan now or hereafter established.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
D. Common Stock shall mean the Corporation's common stock.
E. Corporate Affiliate shall mean any parent or subsidiary corporation of
the Corporation (as determined in accordance with Code Section 424),
whether now existing or subsequently established.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing fifty
percent (50%) or more of the total combined voting power of the
Corporation's outstanding securities are transferred to a person
or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation.
G. Corporation shall mean FileNET Corporation, a Delaware corporation and
any corporate successor to all or substantially all of the assets or
voting stock of FileNET Corporation which shall by appropriate action
adopt the Plan.
H. Effective Date shall mean the October 1, 1998 effective date of the
Plan.
I. Eligible Employee shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is
regularly expected to render more than twenty (20) hours of service
A-1
<PAGE>
per week for more than five (5) months per calendar year for earnings
considered wages under Code Section 3401(a).
J. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the average of the
high and low selling prices per share of Common Stock on the date
in question, as those prices are reported by the National
Association of Securities Dealers on the Nasdaq National Market.
If there are no selling prices for the Common Stock on the date
in question, then the Fair Market Value shall be the average of
the high and low selling prices on the last preceding date for
which such quotations exist.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the average of the high and
low selling prices per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as
those prices are officially quoted in the composite tape of
transactions on such exchange. If there are no selling prices for
the Common Stock on the date in question, then the Fair Market
Value shall be the average of the high and low selling prices on
the last preceding date for which such quotations exist.
K. International Plan shall mean the FileNET Corporation International
Employee Stock Purchase Plan.
L. 1933 Act shall mean the Securities Act of 1933, as amended.
M. Participant shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
N. Participating Corporation shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to
time by the Board to extend the benefits of the Plan to their Eligible
Employees. The Participating Corporations in the Plan as of the
Effective Date are listed in attached Schedule A.
O. Plan shall mean the Corporation's Employee Stock Purchase Plan, as set
forth in this document.
P. Plan Administrator shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Plan.
Q. Predecessor Plan shall mean the Corporation's 1988 Employee Stock
Purchase Plan.
R. Purchase Date shall mean the last business day of each purchase
period. The initial Purchase Date shall be April 30, 1999.
A-2
<PAGE>
S. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
A-3
<PAGE>
Dear Stockholder:
Please fill out, sign and return your Proxy card promptly or use our new
telephone or Internet voting capabilities. Your vote is very important.
Thank you for your cooperation.
FileNET Corporation
[509-FILENET CORPORATION][FILE NAME:FIL616B.ELX] [VERSION-2] [04/01/99]
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DETACH HERE
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PROXY
FILENET CORPORATION
3565 Harbor Boulevard
Costa Mesa, CA 92626
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Mary K. Carrington and Mark S. St. Clare as
Proxy holders, or either of them acting alone, each with the power to appoint
his substitute, and hereby authorizes them to represent and vote, as designated
below, all of the shares of Common Stock of FileNET Corporation (the "Company"),
held of record by the undersigned on March 22, 1999 at the 1999 Annual Meeting
of Stockholders to be held at 9:00 a.m. local time, on May 20, 1999, at The
Mondavi Center, 1570 Scenic Avenue, Costa Mesa, California 92626, and any
adjournment thereof ("the Meeting").
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT
THE MEETING. A POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. EVEN IF
YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE
MEETING.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE (SEE REVERSE SIDE)
<PAGE>
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DETACH HERE
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Vote by Telephone Vote by Internet
It's fast, convenient, and immediate! It's fast, convenient, and your vote
Call Toll-Free on a Touch-Tone Phone immediately confrimed and posted.
1-877-PRX-VOTE (1-877-779-8683)
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement/Prospectus and Proxy Statement/Prospectus and Proxy
Card. Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/file
For shareholders residing outside
the United States call collect on a
touch-tone phone 1-201-536-8073.
3. Enter your 14-digit Voter Control 3. Enter your 14-digit Voter Control
Number located on your Proxy Card Number located on your Proxy Card
above your name. above your name.
4. Follow the recorded instructions. 4. Follow the instructions provided.
YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT!
Call 1-877-ORX-VOTE anytime! Go to http://www.epoxyvote.com/file
anytime!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET
[509-FILENET CORPORATION][FILE NAME:FIL616A.ELX] [VERSION-3] [04/01/99]
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DETACH HERE
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Please mark
[X] votes as in
this example
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is given, this Proxy will be voted
FOR the election to the Board of ALL the nominees listed below and FOR proposals
2 and 3. In their discretion, the Proxy holders are authorized to vote upon such
other business as may properly come before the meeting or any adjournment or
postponement thereof.
1. Election of Directors
Nominees: (01)William P. Lyons, (02)L. George Klaus, (03)Lee D. Roberts,
(04)John C. Savage, (05)Roger S. Siboni, (06)Theodore J. Smith and
(07)Carolyn M. Ticknor
FOR ALL NOMINEES [_] WITHHOLD FROM ALL NOMINEES [_]
[_] _______________________________________ [_] MARK HERE FOR ADDRESS
For all nominees except as noted above CHANGE AND NOTE BELOW
2. To approve an amendment to the Company's 1995 Stock Option Plan to increase
the number of shares of Common Stock available for issuance thereunder by an
additional 1,200,000 shares.
FOR [_] AGAINST[_] ABSTAIN [_]
3. To approve an amendment to the Company's 1998 Employee Stock Purchase Plan
to increase the number of shares of Common Stock available for issuance
thereunder by an additional 300,000 shares.
FOR [_] AGAINST[_] ABSTAIN [_]
4. To transact such other business as may properly come before the meeting.
Please date this Proxy and sign it exactly as your name or names appear. When
shares are held by joint tenants, both should sign. When signing as an attorney,
executor, administrator, trustee or guardian, please give full title as such. If
shares are held by a corporation, please sign in full corporate name by the
president or other authorized officer. If shares are held by a partnership,
please sign in full partnership name by an authorized person.
Signature: _____________________________________________ Date:__________
Signature: _____________________________________________ Date:__________
