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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
EDIFY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
EDIFY
APRIL 1, 1997
To Our Stockholders:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of Edify Corporation to be held at the Biltmore Hotel located at 2151 Laurelwood
Road, Santa Clara, California, on Thursday, May 8, 1997, at 10:00 a.m., P.D.T.
The matters expected to be acted upon at the meeting are described in
detail in the accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement.
It is important that you use this opportunity to take part in the affairs
of your Company by voting on the business to come before this meeting. WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND PROMPTLY
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE BEFORE THE
MEETING. Returning the Proxy does not deprive you of your right to attend the
meeting and to vote your shares in person.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Jeffrey M. Crowe
--------------------
Jeffrey M. Crowe
President and Chief Executive
Officer
<PAGE> 3
EDIFY CORPORATION
2840 SAN TOMAS EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Edify
Corporation (the "Company") will be held at the Biltmore Hotel located at 2151
Laurelwood Road, Santa Clara, California, on Thursday, May 8, 1997, at 10:00
a.m., P.D.T., for the following purposes:
1. To elect four directors of the Company, each to serve until the next
Annual Meeting of Stockholders and until his successor has been elected
and qualified or until his earlier resignation or removal. The Company's
Board of Directors intends to present the following nominees for
election as directors:
<TABLE>
<S> <C>
Jeffrey M. Crowe Tench Coxe
Stephen M. Berkley Stewart A. Schuster
</TABLE>
2. To approve an amendment to the Company's 1996 Equity Incentive Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder from 1,000,000 to 2,300,000 shares.
3. To approve an amendment to the Company's 1996 Employee Stock Purchase
Plan to increase the number of shares of Common Stock reserved for
issuance thereunder from 300,000 to 600,000 shares.
4. To ratify the selection of KPMG Peat Marwick LLP as the Company's
independent auditors for 1997.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 14, 1997 are
entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors
/s/ Stephanie A. Vinella
Vice President of Finance and
Administration,
Chief Financial Officer and
Secretary
Santa Clara, California
April 1, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
<PAGE> 4
EDIFY CORPORATION
2840 SAN TOMAS EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
------------------------
PROXY STATEMENT
------------------------
April 1, 1997
The accompanying proxy is solicited on behalf of the Board of Directors
(the "Board") of Edify Corporation, a Delaware corporation (the "Company" or
"Edify"), for use at the Annual Meeting of Stockholders of the Company to be
held at the Biltmore Hotel located at 2151 Laurelwood Road, Santa Clara,
California, on Thursday, May 8, 1997, at 10:00 a.m., P.D.T. (the "Meeting").
This Proxy Statement and the accompanying form of proxy were first mailed to
stockholders on or about April 1, 1997. An annual report for the year ended
December 31, 1996 is enclosed with this Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Only holders of record of the Company's Common Stock at the close of
business on March 14, 1997 (the "Record Date") will be entitled to vote at the
Meeting. A majority of the shares outstanding on the Record Date will constitute
a quorum for the transaction of business at the Meeting. At the close of
business on the Record Date, the Company had 16,320,024 shares of Common Stock
outstanding and entitled to vote.
Holders of the Company's Common Stock are entitled to one vote for each
share held as of the Record Date. Shares of Common Stock may not be voted
cumulatively.
In the event that a broker, bank, custodian, nominee or other record holder
of the Company's Common Stock indicates on a proxy that it does not have
discretionary authority to vote certain shares on a particular matter (a "broker
non-vote"), those shares will not be considered present and entitled to vote
with respect to that matter, although they will be counted in determining the
presence of a quorum.
Directors will be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Meeting and
entitled to vote on the election of directors. Approval of Proposals No. 2, 3
and 4 requires the affirmative vote of the majority of shares of Common Stock
present in person or represented by proxy at the Meeting that are voted "for" or
"against" the proposal. Neither an abstention nor a broker non-vote will be
counted as a vote "for" or "against" Proposal No. 2, 3 or 4. All votes will be
tabulated by the inspector of elections appointed for the Meeting.
The proxy accompanying this Proxy Statement is solicited on behalf of the
Board for use at the Meeting. Stockholders are requested to complete, date and
sign the accompanying proxy card and promptly return it in the enclosed
envelope. All executed, returned proxies that are not revoked will be voted in
accordance with the instructions contained therein; however, returned signed
proxies that give no instructions as to how they should be voted on a particular
proposal will be counted as votes "for" such proposal (or, in the case of the
election of directors, as a vote "for" election to the Board of all the nominees
presented by the Board).
In the event that sufficient votes in favor of the proposals are not
received by the date of the Meeting, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitations of
proxies. Any such adjournment would require the affirmative vote of the majority
of the shares present in person or represented by proxy at the Meeting and
entitled to vote.
The expenses of soliciting proxies to be voted at the Meeting will be paid
by the Company. Following the original mailing of the proxies and other
soliciting materials, the Company will request that brokers, custodians,
nominees and other record holders of the Company's Common Stock forward copies
of the proxy and other soliciting materials to persons for whom they hold shares
of Common Stock and request authority for the exercise of proxies. In such
cases, the Company, upon the request of the record holders, will reimburse such
holders for their reasonable expenses. The original solicitation of proxies by
mail may be supplemented by telephone, telegram or personal solicitation by
directors, officers and regular employees of the Company.
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REVOCABILITY OF PROXIES
Any person signing a proxy in the form accompanying this Proxy Statement
has the power to revoke it before the Meeting or at the Meeting before the vote
pursuant to the proxy. A proxy may be revoked by a writing delivered to the
Company stating that the proxy is revoked, by a subsequent proxy that is signed
by the person who signed the earlier proxy and is presented at the Meeting, or
by attendance at the Meeting and voting in person. Please note, however, that if
a stockholder's shares are held of record by a broker, bank or other nominee and
that stockholder wishes to vote at the Meeting, the stockholder must bring to
the Meeting a letter from the broker, bank or other nominee confirming that
stockholder's beneficial ownership of the shares.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The Board currently consists of five directors. Four directors are to be
elected at the Meeting. Burton J. McMurtry will not stand for re-election to the
Board. After the Meeting, the Board will decrease the authorized number of
directors to four until it has concluded its search for an additional outside
director. Each director will be elected to hold office until the next annual
meeting of stockholders or until a successor is duly elected and qualified or
until such director's earlier resignation or removal. Shares represented by the
accompanying proxy will be voted for the election of each of the four nominees
named below unless the proxy is marked in such a manner as to withhold authority
so to vote. If any nominee for any reason is unable to serve or for good cause
will not serve, the proxies may be voted for such substitute nominee as the
proxy holder may determine. The Company is not aware of any nominee who will be
unable to or for good cause will not serve as a director.
NOMINEES
The names of the nominees, each of whom is currently a director of the
Company, and certain information about them are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF DIRECTOR AGE PRINCIPAL OCCUPATION SINCE
- ---------------------------- --- ---------------------------------------------- ----------
<S> <C> <C> <C>
President and Chief Executive Officer of the
Jeffrey M. Crowe............ 40 Company 1990
Stephen M. Berkley(1)....... 52 President, SMB Associates 1990
Tench Coxe(2)............... 39 General Partner, Sutter Hill Ventures 1990
Stewart A. Schuster(2)...... 51 Partner, Brentwood Associates 1995
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mr. Crowe has been President, Chief Executive Officer and a director of the
Company since co-founding the Company in 1990. From 1982 to 1990, he held
various management and marketing positions at Rolm Corporation, a
telecommunications equipment manufacturing company, most recently as General
Manager. Mr. Crowe received a Bachelor of Arts degree in History from Dartmouth
College in 1978 and a Masters degree in Business Administration from Stanford
University in 1982.
Mr. Berkley has served as a director of the Company since December 1990.
Since August 1995, he has been Chairman of Quantum Corporation, a disk drive
company, and since June 1992 he has served as President of SMB Associates, an
investment and consulting group. From May 1987 to May 1992, he served as
Chairman and Chief Executive Officer of Quantum Corporation. Mr. Berkley
received a Bachelor of Arts degree in Economics from Colgate University in 1966
and a Masters degree in Business Administration from Harvard University in 1968.
He has pursued additional studies at the London School of Economics.
Mr. Coxe has served as a director of the Company since July 1990. Since
1987, he has been a general partner of the general partner of Sutter Hill
Ventures, a venture capital investment firm. Mr. Coxe received a Bachelor of
Arts degree in Economics from Dartmouth College in 1980 and a Masters degree in
Business
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Administration from Harvard University in 1984. Mr. Coxe is also a director of
Avant! Corporation, a semiconductor design software company, and several
privately-held companies.
Mr. Schuster has served as a director of the Company since September 1995.
Since December 1995, he has been a Venture Partner of Brentwood Associates. From
July 1986 to July 1995, he was at Sybase, a database software company, where he
served most recently as Executive Vice President of Marketing. Mr. Schuster
received a Bachelor of Science degree in Applied Mathematics and Computer
Science from Washington University in 1967, a Master of Science degree in
Mathematics from the University of Illinois in 1969 and a Ph.D. in Computer
Science from the University of Illinois in 1973. He currently serves as a
director of several privately-held companies.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
During 1996, the Board met 11 times, including telephone conference
meetings. No director attended fewer than 75% of the aggregate of the total
number of meetings of the Board (held during the period for which he was a
director) and the total number of meetings held by all committees of the Board
on which such director served (during the period that such director served).
Standing committees of the Board include an Audit Committee and a
Compensation Committee. During 1996, the Board did not have a nominating
committee or a committee performing similar functions. In January 1997, the
Board appointed a Nominating Committee consisting of Messrs. Berkley and
McMurtry to identify candidates for positions on the Board. The Nominating
Committee will consider stockholder recommendations for director sent to the
Nominating Committee, c/o Stephanie A. Vinella, at the Company's executive
offices.
The current members of the Audit Committee are Stephen M. Berkley and
Burton J. McMurtry. Mr. McMurtry will no longer serve on the Board after the
Meeting. The Audit Committee was formed in February 1996 and met four times
during 1996. The Audit Committee meets with the Company's independent auditors
to review the adequacy of the Company's internal control systems and financial
reporting procedures; reviews the general scope of the Company's annual audit
and the fees charged by the independent auditors; reviews and monitors the
performance of non-audit services by the Company's auditors, reviews the
fairness of any proposed transaction between any officer, director or other
affiliate of the Company and the Company, and after such review, makes
recommendations to the full Board; and performs such further functions as may be
required by any stock exchange or over-the-counter market upon which the
Company's Common Stock may be listed.
The current members of the Compensation Committee are Messrs. Coxe and
Schuster. The Compensation Committee was formed in February 1996 and met two
times during 1996. The Compensation Committee recommends compensation for
officers and employees of the Company, grants options and stock awards under the
Company's employee benefit plans and reviews and recommends adoption of and
amendments to stock option and employee benefit plans.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their
services as directors but are reimbursed for their reasonable expenses in
attending Board meetings. Members of the Board who are not employees,
consultants or independent contractors of the Company, or any parent, subsidiary
or affiliate of the Company, are eligible to participate in the Company's 1996
Directors Stock Option Plan. For a discussion of the provisions of the 1996
Directors Stock Option Plan, see "Summary of 1996 Directors Stock Option Plan."
On May 2, 1996, the Company granted to each of Messrs. Berkley, Coxe, McMurtry
and Schuster an option to purchase 7,500 shares of the Company's Common Stock at
an exercise price of $15.00 per share pursuant to the 1996 Directors Stock
Option Plan. Beginning after the Meeting, the Company will pay each outside
director compensation in the amount of $1,000 for each Board meeting attended
and $500 for each committee meeting attended.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION
OF EACH OF THE NOMINATED DIRECTORS.
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PROPOSAL NO. 2 -- AMENDMENT OF 1996 EQUITY INCENTIVE PLAN
Stockholders are being asked to approve an amendment to the Company's 1996
Equity Incentive Plan (the "Incentive Plan") to increase the number of shares of
Common Stock reserved for issuance thereunder by 1,300,000 shares, from
1,000,000 shares to 2,300,000 shares.
The Board believes that the increase in the number of shares reserved for
issuance under the Incentive Plan is in the best interests of the Company
because of the continuing need to provide stock options to attract and retain
quality employees and remain competitive in the industry. The granting of equity
incentives under the Incentive Plan plays an important role in the Company's
efforts to attract and retain employees of outstanding ability. Competition for
skilled engineers and other key employees in the software industry is intense
and the use of significant stock options for retention and motivation of such
personnel is pervasive in the high technology industries. The Board believes
that the additional reserve of shares with respect to which equity incentives
may be granted will provide the Company with adequate flexibility to ensure that
the Company can continue to meet those goals and facilitate the Company's
expansion of its employee base.
The Board approved the proposed amendment on December 18, 1996, to be
effective upon stockholder approval. Below is a summary of the principal
provisions of the Incentive Plan, assuming stockholder approval of the
amendment. The summary is not necessarily complete, and reference is made to the
full text of the Incentive Plan.
INCENTIVE PLAN HISTORY
The Incentive Plan was adopted by the Board in February 1996 and approved
by the stockholders of the Company in March 1996. The purpose of the Incentive
Plan is to offer eligible persons an opportunity to participate in the Company's
future performance through awards of stock options, restricted stock and stock
bonuses.
From inception of the Incentive Plan in May 1996 to December 31, 1996,
options to purchase an aggregate of 330,117 shares of the Company's Common Stock
were granted under the Incentive Plan. Of these, options to purchase a total of
322,117 shares were granted to all employees as a group (including all current
officers who are non-executive officers). The remaining options to purchase
8,000 shares were granted to Terrance A. Shough, the Company's Vice President of
Sales and an executive officer of the Company. No options were granted during
the period under the Incentive Plan to any other executive officer or director
of the Company, or any associate of any of the foregoing, and no person received
5% or more of such options.
SHARES SUBJECT TO THE INCENTIVE PLAN
The stock subject to issuance under the Incentive Plan consists of shares
of the Company's authorized but unissued Common Stock. The Board reserved an
aggregate of 1,000,000 shares of Common Stock for issuance under the Incentive
Plan. In addition, any shares remaining unissued under the Company's 1990 Stock
Option Plan (the "Prior Plan") on the effective date of the Incentive Plan, and
any shares issuable upon exercise of options granted pursuant to the Prior Plan
that expire or become unexercisable for any reason without having been exercised
in full, will no longer be available for distribution under the Prior Plan but
shall be available for distribution under the Incentive Plan. Shares subject to
an option granted pursuant to the Incentive Plan that expires or terminates for
any reason without being exercised or shares subject to an award granted
pursuant to the Incentive Plan that are forfeited or are repurchased by the
Company at the original issue price or are subject to an award granted pursuant
to the Incentive Plan that otherwise terminates without shares being issued,
will again become available for grant and issuance pursuant to awards under the
Incentive Plan. This number of shares is subject to proportional adjustment to
reflect stock splits, stock dividends and other similar events.
ELIGIBILITY
Employees, officers, directors, consultants, independent contractors and
advisors of the Company (and of any subsidiaries and affiliates) are eligible to
receive awards under the Incentive Plan (the "Participants").
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No Participant is eligible to receive more than 500,000 shares of Common Stock
in any calendar year under the Incentive Plan, other than new employees of the
Company (including directors and officers who are also new employees) who are
eligible to receive up to a maximum of 800,000 shares of Common Stock in the
calendar year in which they commence their employment with the Company. As of
December 31, 1996, approximately 300 persons were in the class of persons
eligible to participate in the Incentive Plan, no shares had been issued upon
exercise of options, 316,877 shares were subject to outstanding options and
4,240 shares had been issued pursuant to stock bonus awards. As of that date,
2,398,190 shares were available for future grant, after taking into account the
proposed amendment to the Incentive Plan and any shares issuable upon exercise
of options granted pursuant to the Prior Plan that have expired or become
unexercisable without having been exercised in full and that have become
available for distribution under the Incentive Plan. The closing price of the
Company's Common Stock on the Nasdaq National Market was $10.75 per share as of
March 13, 1997, the last trading day before the Record Date.
ADMINISTRATION
The Incentive Plan is administered by the Compensation Committee (the
"Committee"), the members of which are appointed by the Board. The Committee
currently consists of Tench Coxe and Stewart A. Schuster, both of whom are
"non-employee directors," as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and "outside
directors," as defined pursuant to Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code").
Subject to the terms of the Incentive Plan, the Committee determines the
persons who are to receive awards, the number of shares subject to each such
award, and the terms and conditions of such awards. The Committee also has the
authority to construe and interpret any of the provisions of the Incentive Plan
or any awards granted thereunder.
STOCK OPTIONS
The Incentive Plan permits the granting of options that are intended to
qualify either as Incentive Stock Options ("ISOs") or Nonqualified Stock Options
("NQSOs"). ISOs may be granted only to employees (including officers and
directors who are also employees) of the Company or any parent or subsidiary of
the Company. The option exercise price for each ISO share must be no less than
100% of the "fair market value" (as defined in the Incentive Plan) of a share of
Common Stock at the time the ISO is granted. The per share exercise price of an
ISO granted to a 10% stockholder must be no less than 110% of the fair market
value of a share of Common Stock at the time the ISO is granted. The option
exercise price for each NQSO share must be no less than 85% of the fair market
value of a share of Common Stock at the time of grant. The Company has not
granted options under the Incentive Plan at less than fair market value and does
not intend to do so in the foreseeable future.
The exercise price of options granted under the Incentive Plan may be paid
as approved by the Committee at the time of grant: (1) in cash (by check); (2)
by cancellation of indebtedness of the Company to the Participant; (3) by
surrender of shares of the Company's Common Stock owned by the Participant for
at least six months and having a fair market value on the date of surrender
equal to the aggregate exercise price of the option; (4) by tender of a full
recourse promissory note; (5) by waiver of compensation due to or accrued by the
Participant for services rendered; (6) by a "same-day sale" commitment from the
Participant and a National Association of Securities Dealers, Inc. ("NASD")
broker; (7) by a "margin" commitment from the Participant and a NASD broker; or
(8) by any combination of the foregoing.
RESTRICTED STOCK AWARDS
The Committee may grant Participants restricted stock awards to purchase
stock either in addition to, or in tandem with, other awards under the Incentive
Plan, under such terms, conditions and restrictions as the Committee may
determine. The purchase price for such awards must be no less than 85% of the
fair market value of the Company's Common Stock on the date of the award (and in
the case of an award granted to a 10% stockholder, the purchase price shall be
100% of fair market value) and can be paid for in any of the
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forms of consideration listed in items (1) through (5) in "Stock Options" above,
as are approved by the Committee at the time of grant. The Company has not
granted any restricted stock awards under the Incentive Plan and does not intend
to do so in the foreseeable future.
STOCK BONUS AWARDS
The Committee may grant Participants stock bonus awards either in addition
to, or in tandem with, other awards under the Incentive Plan, under such terms,
conditions and restrictions as the Committee may determine. As of December 31,
1996, 4,240 shares had been issued pursuant to stock bonus awards. The Company
intends to grant further stock bonus awards under the Incentive Plan, up to a
maximum of 10% of the shares of Common Stock reserved for issuance under the
Incentive Plan.
MERGERS, CONSOLIDATIONS, CHANGE OF CONTROL
In the event of a merger, consolidation, dissolution or liquidation of the
Company, the sale of substantially all of the assets of the Company or any other
similar corporate transaction, the successor corporation may assume, replace or
substitute equivalent awards in exchange for those granted under the Incentive
Plan or provide substantially similar consideration, shares or other property as
was provided to stockholders of the Company (after taking into account
provisions of the awards). In the event that the successor corporation does not
assume or substitute awards, such awards will expire upon the closing of such
transaction at the time and upon the conditions as the Board determines.
AMENDMENT OF THE INCENTIVE PLAN
The Board may at any time terminate or amend the Incentive Plan, including
amending any form of award agreement or instrument to be executed pursuant to
the Incentive Plan. However, the Board may not amend the Incentive Plan in any
manner that requires stockholder approval pursuant to the Code or the
regulations promulgated thereunder, or pursuant to the Exchange Act or Rule
16b-3 (or its successor) promulgated thereunder.
TERM OF THE INCENTIVE PLAN
Unless terminated earlier as provided in the Incentive Plan, the Incentive
Plan will expire in February 2006, ten years from the date the Incentive Plan
was adopted by the Board.
FEDERAL INCOME TAX INFORMATION
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT
OF THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND PARTICIPANTS UNDER THE
INCENTIVE PLAN. FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES FOR ANY PARTICIPANT WILL DEPEND UPON HIS OR HER INDIVIDUAL
CIRCUMSTANCES. EACH PARTICIPANT HAS BEEN AND IS ENCOURAGED TO SEEK THE ADVICE OF
A QUALIFIED TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN THE
INCENTIVE PLAN.
Incentive Stock Options. A Participant will recognize no income upon grant
of an ISO and incur no tax on its exercise (unless the Participant is subject to
the alternative minimum tax ("AMT")). If the Participant holds shares acquired
upon exercise of an ISO (the "ISO Shares") for more than one year after the date
the option was exercised and for more than two years after the date the option
was granted, the Participant generally will realize long-term capital gain or
loss (rather than ordinary income or loss) upon disposition of the ISO Shares.
This gain or loss will be equal to the difference between the amount realized
upon such disposition and the amount paid for the ISO Shares.
If the Participant disposes of ISO Shares prior to the expiration of either
required holding period (a "disqualifying disposition"), the gain realized upon
such disposition, up to the difference between the fair market value of the ISO
Shares on the date of exercise (or, if less, the amount realized on a sale of
such
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shares) and the option exercise price, will be treated as ordinary income. Any
additional gain will be long-term or short-term capital gain, depending upon the
amount of time the ISO Shares were held by the Participant.
Alternative Minimum Tax. The difference between the fair market value of
the ISO Shares on the date of exercise and the exercise price is an adjustment
to income for purposes of AMT. The AMT (imposed to the extent it exceeds the
taxpayer's regular tax) is 26% of an individual taxpayer's alternative minimum
taxable income (28% in the case of alternative minimum taxable income in excess
of $175,000). Alternative minimum taxable income is determined by adjusting
regular taxable income for certain items, increasing that income by certain tax
preference items (including the difference between the fair market value of the
ISO Shares on the date of exercise and the exercise price), and reducing this
amount by the applicable exemption amount ($45,000 in case of a joint return,
subject to reduction under certain circumstances). If a disqualifying
disposition of the ISO Shares occurs in the same calendar year as exercise of
the ISO, there is no AMT adjustment with respect to those ISO Shares. Also, upon
a sale of ISO Shares that is not a disqualifying disposition, alternative
minimum taxable income is reduced in the year of sale by the excess of the fair
market value of the ISO Shares at exercise over the amount paid for the ISO
Shares.
Nonqualified Stock Options. A Participant will not recognize any taxable
income at the time an NQSO is granted. However, upon exercise of an NQSO, the
Participant must include in income as compensation an amount equal to the
difference between the fair market value of the shares on the date of exercise
and the Participant's exercise price. The included amount must be treated as
ordinary income by the Participant and may be subject to withholding by the
Company (either by payment in cash or withholding out of the Participant's
salary). Upon resale of the shares by the Participant, any subsequent
appreciation or depreciation in the value of the shares will be treated as
capital gain or loss.
Restricted Stock and Stock Bonus Awards. Restricted stock and stock bonus
awards will generally be subject to tax at the time of receipt, unless there are
restrictions that enable the Participant to defer tax. At the time the tax is
incurred, the tax treatment will be similar to that discussed above for NQSOs.
Omnibus Budget Reconciliation Act of 1993. The Omnibus Budget
Reconciliation Act of 1993 provides that the maximum tax rate applicable to
ordinary income is 39.6%. Long-term capital gain will be taxed at a maximum of
28%. For this purpose, in order to receive long-term capital gain treatment, the
shares must be held for more than one year. Capital gains may be offset by
capital losses and up to $3,000 of capital losses may be offset annually against
ordinary income.
Tax Treatment of the Company. The Company generally will be entitled to a
deduction in connection with the exercise of an NQSO by a Participant or the
receipt of restricted stock or stock bonuses by a Participant to the extent that
the Participant recognizes ordinary income and the Company withholds tax. The
Company will be entitled to a deduction in connection with the disposition of
ISO Shares only to the extent that the Participant recognizes ordinary income on
a disqualifying disposition of the ISO Shares.
ERISA. The Incentive Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") and is not qualified
under Section 401(a) of the Code.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT OF THE 1996 EQUITY
INCENTIVE PLAN
PROPOSAL NO. 3 -- AMENDMENT OF 1996 EMPLOYEE STOCK PURCHASE PLAN
Stockholders are being asked to approve an amendment to the Company's 1996
Employee Stock Purchase Plan (the "Stock Purchase Plan") to increase the number
of shares of Common Stock reserved for issuance thereunder by 300,000 shares,
from 300,000 shares to 600,000 shares. The Board believes that the increase in
the number of shares reserved for issuance under the Stock Purchase Plan is in
the best interests of the Company because of the continuing need to provide
equity participation to attract and retain quality
8
<PAGE> 11
employees and remain competitive in the industry. The Stock Purchase Plan plays
an important role in the Company's efforts to attract and retain employees of
outstanding ability.
The Board approved the proposed amendment on March 13, 1997, to be
effective upon stockholder approval. Below is a summary of the principal
provisions of the Stock Purchase Plan, assuming stockholder approval of the
amendment. The summary is not necessarily complete, and reference is made to the
full text of the Stock Purchase Plan.
STOCK PURCHASE PLAN HISTORY
The Board adopted the Stock Purchase Plan in February 1996 and it was
approved by the stockholders of the Company in March 1996. The purpose of the
Stock Purchase Plan is to provide employees of the Company and its subsidiaries
and affiliates designated by the Board as eligible to participate in the Stock
Purchase Plan ("Participating Employees") with a convenient means to acquire an
equity interest in the Company through payroll deductions and to provide an
incentive for continued employment. The Company intends that the Stock Purchase
Plan will qualify as an "employee stock purchase plan" under Section 423 of the
Code.
SHARES SUBJECT TO THE STOCK PURCHASE PLAN
The stock subject to issuance under the Stock Purchase Plan consists of
shares of the Company's authorized but unissued Common Stock. An aggregate of
600,000 shares of Common Stock has been reserved by the Board for issuance under
the Stock Purchase Plan. This number of shares is subject to proportional
adjustment to reflect stock splits, stock dividends and other similar events.
ADMINISTRATION
The Stock Purchase Plan is administered by the Committee. The
interpretation or construction by the Committee of any provisions of the Stock
Purchase Plan will be final and binding on all Participating Employees.
ELIGIBILITY
All employees of the Company, or any parent or subsidiary, are eligible to
participate in an Offering Period (as defined below) under the Stock Purchase
Plan, except the following:
(a) employees who are not employed by the Company five days before the
beginning of such Offering Period;
(b) employees who are customarily employed for less than 20 hours per
week;
(c) employees who are customarily employed for less than five months in
a calendar year; and
(d) employees who own stock or hold options to purchase stock or who, as
a result of participation in the Stock Purchase Plan, would own
stock or hold options to purchase stock, possessing 5% or more of
the total combined voting power or value of all classes of stock of
the Company.
As of December 31, 1996, approximately 280 persons were eligible to
participate in the Stock Purchase Plan and no shares had been issued pursuant to
the Stock Purchase Plan. On January 31, 1997, 110,464 shares were issued
pursuant to the Stock Purchase Plan. As of that date, 189,536 shares were
available for future issuance under the Stock Purchase Plan, not including the
proposed amendment to the Stock Purchase Plan. As of March 13, 1997 (the last
trading day prior to the Record Date), the closing price of the Company's Common
Stock on the Nasdaq National Market was $10.75 per share.
Participating Employees participate in the Stock Purchase Plan through
payroll deductions. A Participating Employee sets the rate of such payroll
deductions, which may not be less than 2% nor more than 10% of the Participating
Employee's W-2 compensation, including, but not limited to, base salary, wages,
commissions, overtime, shift premiums, bonuses and draws against commissions,
before any deductions from the
9
<PAGE> 12
Participating Employee's salary pursuant to Sections 125 or 401(k) of the Code.
No Participating Employee is permitted to purchase shares under the Stock
Purchase Plan at a rate which, when aggregated with such employee's rights to
purchase stock under all similar purchase plans of the Company, exceeds $25,000
in fair market value determined as of the Offering Date for each calendar year.
OFFERING PERIODS
Each offering of Common Stock under the Stock Purchase Plan is for a period
of 24 months (the "Offering Period"). Offering Periods are planned to commence
on February 1 and August 1 of each year and end on January 31 and July 31 of
each year, respectively; provided, however, that the initial Offering Period
commenced on May 3, 1996 and will expire on January 31, 1998. Each Offering
Period shall consist of four six-month purchase periods (individually, a
"Purchase Period") during which payroll deductions of the Participating
Employees are accumulated under the Stock Purchase Plan. The Board has the power
to set the beginning of any Offering Period and to change dates or the duration
of Offering Periods or Purchase Periods without stockholder approval if such
change is announced at least 15 days before the scheduled beginning of the first
Offering Period or Purchase Period to be affected. The first day of each
Offering Period is the "Offering Date" for such Offering Period and the last
business day of each Purchase Period is the "Purchase Date" for such Purchase
Period.
Participating Employees will participate in the Stock Purchase Plan during
each Offering Period through regular payroll deductions as described above.
Participating Employees may elect to participate in any Offering Period by
enrolling as provided under the terms of the Stock Purchase Plan. Once enrolled,
a Participating Employee will automatically participate in each succeeding
Offering Period unless the Participating Employee withdraws from the Offering
Period or the Stock Purchase Plan is terminated. After the rate of payroll
deductions for an Offering Period has been set by a Participating Employee, that
rate will continue to be effective for the remainder of the Offering Period (and
for all subsequent Offering Periods in which the Participating Employee is
automatically enrolled) unless otherwise changed by the Participating Employee.
The Participating Employee may increase or lower the rate of payroll deductions
for any subsequent Offering Period, but may only lower the rate of payroll
deductions for an ongoing Offering Period. No more than one change may be made
during a single Offering Period.
PURCHASE PRICE
The purchase price of shares that may be acquired in any Purchase Period
under the Stock Purchase Plan is 85% of the lesser of: (i) the fair market value
of the shares on the Offering Date; or (ii) the fair market value of the shares
on the Purchase Date. The fair market value of a share of the Company's Common
Stock is deemed to be the closing price of the Company's Common Stock on the
Nasdaq National Market on the date of determination as reported in The Wall
Street Journal, except that the fair market value of a share of the Company's
Common Stock on the Offering Date of the first Offering Period was the price per
share at which shares of the Company's Common Stock were offered for sale to the
public in the Company's initial public offering of shares of its Common Stock
pursuant to a registration statement filed with the SEC under the Securities
Act.
PURCHASE OF STOCK UNDER THE STOCK PURCHASE PLAN
The number of whole shares a Participating Employee will be able to
purchase in any Purchase Period will be determined by dividing the total payroll
amount withheld from the Participating Employee during the Purchase Period
pursuant to the Stock Purchase Plan by the purchase price for each share
determined as described above. The purchase will take place automatically on the
Purchase Date of such Purchase Period.
WITHDRAWAL
A Participating Employee may withdraw from any Offering Period. Upon
withdrawal, the accumulated payroll deductions will be returned to the withdrawn
Participating Employee, without interest, provided that the withdrawal occurs at
least 15 days before the related Purchase Date. If the withdrawal occurs less
than
10
<PAGE> 13
15 days before such Purchase Date, payroll deductions will continue for the
remainder of that Purchase Period. No further payroll deductions for the
purchase of shares will be made for the succeeding Offering Period unless the
Participating Employee enrolls in the new Offering Period at least 15 days
before the Offering Date.
AMENDMENT OF THE STOCK PURCHASE PLAN
The Board may at any time amend, terminate or extend the term of the Stock
Purchase Plan, except that any such termination cannot affect the terms of
shares previously granted under the Stock Purchase Plan, nor may any amendment
make any change in the terms of shares previously granted which would adversely
affect the right of any participant, nor may any amendment be made without
stockholder approval if such amendment would: (a) increase the number of shares
that may be issued under the Stock Purchase Plan; (b) change the designation of
the employees (or class of employees) eligible for participation in the Stock
Purchase Plan; or (c) constitute an amendment for which stockholder approval is
required in order to comply with Rule 16b-3 (or any successor rule) of the
Exchange Act.
TERM OF THE STOCK PURCHASE PLAN
The Stock Purchase Plan will continue until the earlier to occur of: (i)
termination of the Stock Purchase Plan by the Board; (ii) the issuance of all
the shares of Common Stock reserved for issuance under the Stock Purchase Plan;
or (iii) February 2006, ten years after the date the Stock Purchase Plan was
adopted by the Board.
FEDERAL INCOME TAX INFORMATION
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT
OF THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND EMPLOYEES
PARTICIPATING IN THE STOCK PURCHASE PLAN. FEDERAL TAX LAWS MAY CHANGE AND THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES FOR ANY PARTICIPATING EMPLOYEE WILL
DEPEND UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPATING EMPLOYEE HAS
BEEN AND IS ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISER REGARDING
THE TAX CONSEQUENCES OF PARTICIPATION IN THE STOCK PURCHASE PLAN.
The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code.
Tax Treatment of the Participating Employee. Participating Employees will
not recognize income for federal income tax purposes either upon enrollment in
the Stock Purchase Plan or upon the purchase of shares. All tax consequences are
deferred until a Participating Employee sells the shares, disposes of the shares
by gift or dies.
If shares are held for more than one year after the date of purchase and
more than two years from the beginning of the applicable Offering Period, or if
the Participating Employee dies while owning the shares, the Participating
Employee realizes ordinary income on a sale (or a disposition by way of gift or
upon death) to the extent of the lesser of: (i) 15% of the fair market value of
the shares at the beginning of the Offering Period; or (ii) the actual gain (the
amount by which the market value of the shares on the date of sale, gift or
death exceeds the purchase price). All additional gain upon the sale of shares
is treated as long-term capital gain. If the shares are sold and the sale price
is less than the purchase price, there is no ordinary income and the
Participating Employee has a long-term capital loss for the difference between
the sale price and the purchase price.
If the shares are sold or are otherwise disposed of including by way of
gift (but not death, bequest or inheritance) (in any case, a "disqualifying
disposition") within either the one-year or the two-year holding periods
described above, the Participating Employee realizes ordinary income at the time
of sale or other disposition, taxable to the extent that the fair market value
of the shares at the date of purchase is greater than
11
<PAGE> 14
the purchase price. This excess will constitute ordinary income (not currently
subject to withholding) in the year of the sale or other disposition even if no
gain is realized on the sale or if a gratuitous transfer is made. The
difference, if any, between the proceeds of sale and the aggregate fair market
value of the shares at the date of purchase is a capital gain or loss. Capital
gains may be offset by capital losses, and up to $3,000 of capital losses may be
used annually against ordinary income.
Tax Treatment of the Company. The Company will be entitled to a deduction
in connection with the disposition of shares acquired under the Stock Purchase
Plan only to the extent that the Participating Employee recognizes ordinary
income on a disqualifying disposition of the shares. The Company will treat any
transfer of record ownership of shares as a disposition, unless it is notified
to the contrary. In order to enable the Company to learn of disqualifying
dispositions and ascertain the amount of the deductions to which it is entitled,
Participating Employees will be required to notify the Company in writing of the
date and terms of any disposition of shares purchased under the Stock Purchase
Plan.
ERISA. The Stock Purchase Plan is not subject to any of the provisions of
ERISA nor is it qualified under Section 401(a) of the Code.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT OF THE
1996 EMPLOYEE STOCK PURCHASE PLAN
PROPOSAL NO. 4 - RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
The Company has selected KPMG Peat Marwick LLP as its independent auditors
to perform the audit of the Company's financial statements for the year ending
December 31, 1997, and the stockholders are being asked to ratify such
selection. KPMG Peat Marwick LLP has been the Company's independent auditor
since the inception of the Company. Representatives of KPMG Peat Marwick LLP
will be present at the Meeting, will have the opportunity to make a statement at
the Meeting if they desire to do so, and will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE SELECTION OF KPMG PEAT MARWICK LLP
SUMMARY OF 1996 DIRECTORS STOCK OPTION PLAN
Below is a summary of the principal provisions of the Company's 1996 Directors
Stock Option Plan. There is no need to vote for stockholder approval of this
plan at the Meeting, and stockholder approval is not being sought. This summary
is provided to inform the stockholders of the Company of the terms and
conditions of such plan and is qualified in its entirety by reference to the
full text of such plan.
DIRECTORS PLAN HISTORY
The Company's 1996 Directors Stock Option Plan (the "Directors Plan") was
adopted by the Board in February 1996 and approved by the stockholders of the
Company in March 1996. The purpose of the Directors Plan is to enhance the
Company's ability through the use of equity incentives to attract and retain
highly qualified outside directors.
STOCK SUBJECT TO OPTIONS
The stock subject to options under the Directors Plan consists of shares of
the Company's authorized but unissued Common Stock. The aggregate number of
shares that may be issued pursuant to the Directors Plan is 100,000 shares of
Common Stock, subject to proportional adjustment to reflect stock splits, stock
dividends
12
<PAGE> 15
and other similar events. In the event that any outstanding option under the
Directors Plan expires or is terminated for any reason, the shares of Common
Stock allocable to the unexercised portion of such option may again be available
for the grant of options under the Directors Plan.
ADMINISTRATION
The Directors Plan is administered by the Board. The interpretation by the
Board of any of the provisions of the Directors Plan or any option granted under
the Directors Plan will be final and conclusive.
ELIGIBILITY
Under the Directors Plan, the Company automatically grants options to each
director of the Company who is not an employee of the Company (or of any parent,
subsidiary or affiliate of the Company) (the "Outside Directors") in accordance
with the formula specified in the next paragraph. As of December 31, 1996, four
persons were in the class of persons eligible to receive options pursuant to the
Directors Plan, no shares had been issued upon exercise of options and the
Company's current non-employee directors, as a group, had been granted options
to purchase an aggregate of 30,000 shares under the Directors Plan. As of March
13, 1997 (the last trading day prior to the Record Date), the closing price of
the Company's Common Stock on the Nasdaq National Market was $10.75 per share.
FORMULA FOR OPTION GRANTS
Each Outside Director who first becomes a member of the Board on or after
the effective date of the Directors Plan, will automatically be granted an
option to purchase 15,000 shares of Common Stock on the date the Outside
Director first becomes a member of the Board (an "Initial Grant"). On the
effective date of the Directors Plan and at each annual meeting of stockholders
thereafter, each Outside Director who was a member of the Board on the effective
date of the Directors Plan or who was granted an Initial Grant, will be
automatically granted an option to purchase 7,500 shares of Common Stock, so
long as he or she continuously remains a director of the Company (a "Succeeding
Grant").
TERMS OF OPTION GRANTS
Options granted pursuant to the Directors Plan are intended to be NQSOs.
Each Initial Grant and Succeeding Grant will have a term of ten years and be
exercisable in full immediately upon grant, subject to repurchase of unvested
shares. The shares vest at the rate of 2.08% of the shares subject to such
option per month, so long as the Outside Director continuously remains a
director of the Company. The option exercise price will be the "fair market
value" (as defined in the Directors Plan) of the Common Stock of the Company as
of the date of the grant of the option. The option exercise price will be
payable in cash (by check) and in a number of other forms of consideration,
including fully paid shares of Common Stock owned by the Outside Director for
more than six months, by waiver of compensation due or accrued to the Outside
Director for services rendered, through a "same day sale," through a "margin
commitment," or through any combination of the foregoing.
MERGERS, CONSOLIDATIONS, CHANGE OF CONTROL
In the event of a merger, consolidation, dissolution or liquidation of the
Company, the sale of substantially all of the assets of the Company or any other
similar corporate transaction, the successor corporation may assume, replace or
substitute equivalent options in exchange for those granted under the Directors
Plan or provide substantially similar consideration, shares or other property as
was provided to stockholders of the Company (after taking into account
provisions of the options). In the event that the successor corporation does not
assume or substitute the options, such options will expire upon the closing of
such transaction at the time and upon the conditions as the Board determines.
AMENDMENT OF THE DIRECTORS PLAN
The Committee, to the extent permitted by law, and with respect to any
shares at the time not subject to options, may terminate or amend the Directors
Plan; provided, however, that the Committee may not, without stockholder
approval, increase the total number of shares of Common Stock available for
issuance under the Directors Plan or change the class of persons eligible to
receive options; and provided further that amendments
13
<PAGE> 16
may not be made to the formula for and terms of option grants more than once in
any six-month period, other than to comport with changes in the Code, ERISA or
the rules thereunder. In any case, no amendment of the Directors Plan may
adversely affect any then outstanding options or any unexercised portions
thereof without the written consent of the Outside Director.
TERM OF THE DIRECTORS PLAN
Unless terminated earlier as provided in the Directors Plan, options may be
granted pursuant to the Directors Plan from time to time up until February 2006,
ten years after the date the Directors Plan was adopted by the Board.
FEDERAL INCOME TAX INFORMATION
For the federal tax implications to the Outside Directors and the Company
for options granted under the Directors Plan, please refer to the discussion of
the tax implications of NQSOs in "Proposal No. 2 - Amendment of 1996 Equity
Incentive Plan - Federal Income Tax Information" above.
ERISA
The Directors Plan is not subject to any of the provisions of ERISA nor is
it qualified under Section 401(a) of the Code.
NEW PLAN BENEFITS
The amounts of future option grants under the Incentive Plan are not
determinable because, under the terms of the Incentive Plan, such grants are
made in the discretion of the Committee. Future option exercise prices are not
determinable because they are based upon fair market value of the Company's
Common Stock on the date of grant. Similarly, the amounts of future stock
purchases under the Stock Purchase Plan are not determinable because, under the
terms of the Stock Purchase Plan, purchases are based upon elections made by
Participating Employees. Future purchase prices are not determinable because
they are based upon fair market value of the Company's Common Stock.
Only non-employee directors of the Company are eligible to participate in
the Directors Plan. The grant of options under the Directors Plan is not
discretionary. Under the Directors Plan, each outside director who has served
continuously from the effective date of the Company's initial public offering on
May 2, 1996 will automatically be granted an option to purchase 7,500 shares of
the Company's Common Stock on the date of the Meeting. Any outside director who
first joins the Board during 1997 will automatically be granted an option to
purchase 15,000 shares of the Company's Common Stock on the date of his or her
first appointment to the Board. The exercise prices of these options are not
determinable because they are equal to fair market value of the Company's Common
Stock on the date of grant.
14
<PAGE> 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 14, 1997,
with respect to the beneficial ownership of the Company's Common Stock by: (i)
each stockholder known by the Company to be the beneficial owner of more than 5%
of the Company's Common Stock; (ii) each director and nominee; (iii) each Named
Executive Officer; and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF OUTSTANDING
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) COMMON STOCK(1)
- --------------------------------------------------- ----------------------- -----------------------
<S> <C> <C>
Burton J. McMurtry
Technology Venture Investors(2)................... 1,801,874 11.0%
SMALLCAP World Fund, Inc.(3)........................ 990,000 6.1
Funds affiliated with The Goldman Sachs Group,
L.P.(4)........................................... 962,963 5.9
Jeffrey M. Crowe(5)................................. 608,949 3.7
Tench Coxe(6)....................................... 489,566 3.0
Thomas M. Glassanos(7).............................. 180,335 1.1
Terrance A. Shough(8)............................... 164,071 1.0
Martin G. Lane-Smith(9)............................. 160,334 1.0
Alvin S. Begun(10).................................. 103,384 *
Stephen M. Berkley(11).............................. 51,874 *
Stewart A. Schuster(12)............................. 26,874 *
All executive officers and directors as a group
(12 persons)(13).................................. 4,055,341 24.2
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Common Stock subject to options that are currently exercisable or
exercisable within 60 days of March 14, 1997 are deemed to be outstanding
and to be beneficially owned by the person holding such options for the
purpose of computing the percentage ownership of such person but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Includes 1,156,454 shares, 135,170 shares, 3,254 shares and 5,122 shares
held of record by Technology Venture Investors IV as nominee for Technology
Venture Investors-4, L.P., TVI Partners-4, L.P., TVI Affiliates-4 L.P. and
TVI Affiliates-4 1988, L.P., respectively. The general partner of all three
partnerships is TVI Management-4, L.P. Mr. McMurtry, a general partner of
TVI Management-4 L.P., is a director of the Company. Also includes 490,584
shares held of record by Technology Venture Investors-3, L.P. and 9,416
shares held of record by TVI Management-3, L.P. Mr. McMurtry is a general
partner of TVI Management-3, L.P., which is the general partner of
Technology Venture Investors-3, L.P. Also includes 1,874 shares of Common
Stock subject to options exercisable within 60 days of March 14, 1997. The
address of Mr. McMurtry and the TVI entities is 2480 Sand Hill Road, Suite
101, Menlo Park, California 94025.
(3) Based on a Schedule 13G filed with the Securities and Exchange Commission
on February 12, 1997. As of December 31, 1996, SMALLCAP World Fund, Inc.
held voting power with respect to these shares and Capital Research and
Management Company held dispositive power with respect to these shares. The
Capital Group of Companies, Inc., the parent holding company of SMALLCAP
World Fund, Inc. and Capital Research and Management Company, disclaims
beneficial ownership of these shares. The address of Capital Group
Companies, Inc. is 333 South Hope Street, 52nd Floor, Los Angeles,
California 90071.
(4) Represents 604,190 shares held of record by GS Capital Partners II, L.P.;
240,190 shares held of record by GS Capital Partners II Offshore, L.P.;
50,987 shares held of record by Bridge Street Fund 1995, L.P.; 45,310
shares held of record by Stone Street Fund 1995, L.P.; and 22,286 shares
held of record by
15
<PAGE> 18
Goldman, Sachs & Co. Verwaltungs GmbH, as nominee for GS Capital Partners
II Germany Civil Law Partnership. The general partner, managing general
partner or general manager of each fund is an affiliate of The Goldman
Sachs Group, L.P. ("GS Group"). The address of GS Group is 85 Broad Street,
19th Floor, New York, New York 10004. GS Group disclaims beneficial
ownership of the shares beneficially owned by the funds to the extent
attributable to partnership interests therein held by persons other than GS
Group and its affiliates.
(5) Includes 113,949 shares of Common Stock subject to options exercisable
within 60 days of March 14, 1997. Mr. Crowe is the President and Chief
Executive Officer and a director of the Company.
(6) Includes 418,294 shares held of record by Sutter Hill Ventures, a
California limited partnership, over which Mr. Coxe shares voting and
investment power with four other partners of the general partner. Mr. Coxe
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest therein. Also includes 1,874 shares of Common Stock
subject to options exercisable within 60 days of March 14, 1997. Mr. Coxe
is a director of the Company.
(7) Includes 53,183 shares of Common Stock subject to options exercisable
within 60 days of March 14, 1997. Mr. Glassanos is Vice President of
Marketing of the Company.
(8) Includes 62,679 shares of Common Stock subject to options exercisable
within 60 days of March 14, 1997. Mr. Shough is Vice President of Sales of
the Company.
(9) Includes 48,550 shares held of record by members of Mr. Lane-Smith's
immediate family and 77,159 shares of Common Stock subject to options
exercisable within 60 days of March 14, 1997. Mr. Lane-Smith is Vice
President of Engineering of the Company.
(10) Includes 27,083 shares of Common Stock subject to options exercisable
within 60 days of March 14, 1997. Mr. Begun is Vice President of
Professional Services of the Company.
(11) Includes 1,874 shares of Common Stock subject to options exercisable within
60 days of March 14, 1997. Mr. Berkley is a director of the Company.
(12) Includes 10,000 shares held of record by the Schuster Revocable Trust and
1,874 shares of Common Stock subject to options exercisable within 60 days
of March 14, 1997. Mr. Schuster is a director of the Company.
(13) Includes 425,699 shares of Common Stock subject to options exercisable
within 60 days of March 14, 1997, including the options described in
footnotes (2) and (5) through (12).
16
<PAGE> 19
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded, earned or paid for
services rendered in all capacities to the Company and its subsidiaries during
each of 1995 and 1996 to the Company's Chief Executive Officer and the Company's
four other most highly compensated executive officers who were serving as
executive officers at the end of 1996 (together, the "Named Executive
Officers"). This information includes the dollar values of base salaries, bonus
awards, the number of shares subject to stock options granted and certain other
compensation, if any, whether paid or deferred. The Company does not grant stock
appreciation rights and has no long-term compensation benefits other than the
stock options.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) OPTIONS
- --------------------------------------- ---- -------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Jeffrey M. Crowe....................... 1996 $158,683 $ 45,200 $ -- --
President and Chief Executive Officer 1995 130,500 10,440 -- 100,000
Terrance A. Shough..................... 1996 120,746 146,993(3) -- 13,000
Vice President of Sales 1995 120,000 170,353(3) 5,654 23,000
Martin G. Lane-Smith................... 1996 140,000 19,341 -- --
Vice President of Engineering 1995 140,000 11,200 1,615 40,000
Alvin S. Begun......................... 1996 140,000 37,991(4) -- --
Vice President of Professional Services 1995 102,398 44,754(4) -- 100,000
Thomas M. Glassanos.................... 1996 140,107 24,416 -- --
Vice President of Marketing 1995 130,000 10,400 -- 40,000
</TABLE>
- ---------------
(1) Bonus is paid pursuant to the Company's Executive Incentive Compensation
Plan, which provides for bonus based on a percentage of salary provided that
certain objectives are met. The percentage of salary and objectives to be
met are established by management and approved by the Compensation Committee
of the Board and are reviewed every six months.
(2) Represents payment for unused vacation time.
(3) Represents commissions. Amount for 1995 excludes $20,789 bonus paid in 1995
for services rendered in 1994.
(4) Represents commissions.
17
<PAGE> 20
The following table sets forth further information regarding option grants
pursuant to the Company's 1990 Stock Option Plan or the Incentive Plan during
1996 to each of the Named Executive Officers. In accordance with the rules of
the Securities and Exchange Commission, the table sets forth the hypothetical
gains or "option spreads" that would exist for the options at the end of their
respective ten-year terms. These gains are based on assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted to the end of the option term.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL
RATES OF STOCK
NUMBER OF PERCENTAGE OF PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES PRICE EXPIRATION -------------------
NAME GRANTED(1) IN 1996 PER SHARE DATE 5% 10%
- ------------------------------------------ ------------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey M. Crowe................ -- --% $ -- -- $ -- $ --
Terrance A. Shough.............. 3,000 0.47 5.00 1/16/06 9,430 23,896
2,000 0.31 7.00 4/10/06 8,801 22,303
8,000 1.26 19.50 7/14/06 98,074 248,518
Martin G. Lane-Smith............ -- -- -- -- -- --
Alvin S. Begun.................. -- -- -- -- -- --
Thomas M. Glassanos............. -- -- -- -- -- --
</TABLE>
- ---------------
(1) The options shown in the table were granted at fair market value, are
incentive stock options and will expire ten years from the date of grant,
subject to earlier termination upon termination of the optionee's
employment. The options become exercisable over a four-year period, with 25%
of the shares vesting on the first anniversary of the date of grant and
thereafter 2.083% of the shares vesting for each full month that the
optionee renders services to the Company.
(2) The 5% and 10% assumed annual compound rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock
prices.
18
<PAGE> 21
The following table sets forth certain information concerning the exercise
of options by each of the Named Executive Officers during 1996, including the
aggregate amount of gains on the date of exercise. In addition, the table
includes the number of shares covered by both exercisable and unexercisable
stock options as of December 31, 1996. Also reported are values of
"in-the-money" options that represent the positive spread between the respective
exercise prices of outstanding stock options and $16.00 per share, which was the
closing price of the Company's Common Stock as reported on the Nasdaq National
Market on December 31, 1996, the last day of trading for 1996.
AGGREGATED OPTION EXERCISES IN 1996 AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END(1) AT FISCAL YEAR-END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(1) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey M. Crowe................ -- $ -- 89,993 140,007 $1,342,140 $ 1,992,360
Terrance A. Shough.............. 99,438 273,132 42,892 86,170 664,627 1,171,419
Martin G. Lane-Smith............ 97,000 281,300 68,989 44,011 1,062,726 610,974
Alvin S. Begun.................. 25,000 166,250 16,666 58,334 260,823 912,927
Thomas M. Glassanos............. 125,964 376,555 37,003 57,033 556,647 817,121
</TABLE>
- ---------------
(1) "Value Realized" represents the fair market value of the shares of Common
Stock underlying the option on the date of exercise less the aggregate
exercise price of the option.
(2) These values, unlike the amounts set forth in the column entitled "Value
Realized," have not been, and may never be, realized and are based on the
positive spread between the respective exercise prices of outstanding
options and the closing price of the Company's Common Stock on December 31,
1996, the last day of trading for 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Coxe and Schuster. For a
description of transactions between the Company and members of the Compensation
Committee and entities affiliated with such members, see the discussion under
"Certain Relationships and Related Transactions" below.
REPORT ON EXECUTIVE COMPENSATION
Final decisions regarding executive compensation and stock option grants to
executives are made by the Compensation Committee of the Board (the
"Committee"). Prior to the Company's initial public offering in May 1996, the
Board participated in compensation decisions and granted stock options. The
Committee is composed of two independent non-employee directors, neither of whom
have any interlocking relationships as defined by the Securities and Exchange
Commission ("SEC").
GENERAL COMPENSATION POLICY
The Committee acts on behalf of the Board to establish the general
compensation policy of the Company for all employees of the Company. The
Committee typically reviews base salary levels and target bonuses for the Chief
Executive Officer ("CEO") and other executive officers and employees of the
Company at or about the beginning of each year. The Committee administers the
Company's incentive and equity plans, including the Incentive Plan, the Stock
Purchase Plan and the Executive Incentive Compensation Plan (the "Bonus Plan").
The Committee's philosophy in compensating executive officers, including
the CEO, is to relate compensation directly to corporate performance. Thus, the
Company's compensation policy, which applies to
19
<PAGE> 22
management and other key employees of the Company, relates a portion of each
individual's total compensation to the Company-wide management and individual
objectives and profit objectives set forth at the beginning of the year.
Consistent with this policy, a designated portion of the compensation of the
executive officers of the Company is contingent on corporate performance and, in
the case of certain executive officers, adjusted based on the individual
officer's performance as measured against personal objectives established under
the Bonus Plan, as determined by the Committee in its discretion. Long-term
equity incentives for executive officers are effected through the granting of
stock options under the Incentive Plan. Stock options generally have value for
the executive only if the price of the Company's stock increases above the fair
market value on the grant date and the executive remains in the Company's employ
for the period required for the options to vest.
The base salaries, incentive compensation and stock option grants of the
executive officers are determined in part by the Committee informally reviewing
data on prevailing compensation practices in technology companies with whom the
Company competes for executive talent, and by their evaluating such information
in connection with the Company's corporate goals. To this end, the Committee
attempted to compare the compensation of the Company's executive officers with
the compensation practices of comparable companies to determine base salary,
target bonuses and target total cash compensation. In addition to their base
salaries, the Company's executive officers, including the CEO, are each eligible
to receive a cash bonus under the Bonus Plan and are entitled to participate in
the Incentive Plan.
In preparing the performance graph for this Proxy Statement, the Company
used the Hambrecht & Quist Computer Software Index ("H&Q Software Sector Index")
as its published line of business index. The compensation practices of most of
the companies in the H&Q Software Sector Index were not reviewed by the Company
when the Committee reviewed the compensation information described above because
such companies were determined not to be competitive with the Company for
executive talent.
1996 EXECUTIVE COMPENSATION
Base Compensation. The Committee reviewed the recommendations and
performance and market data outlined above and established a base salary level
to be effective January 1, 1997 for each executive officer, including the CEO.
Incentive Compensation. Under the Bonus Plan, cash bonuses are awarded
only if an executive officer achieved predetermined individual performance goals
and the Company met predetermined corporate objectives set by the Committee
every six months. The CEO's subjective judgment of executives' performance
(other than his own) is taken into account in determining whether those goals
have been satisfied. For the first six months of 1996, the objectives used by
the Company as the basis for incentive compensation were the Company's
achievement of financial performance targets and the executive's achievement of
both corporate and functional objectives. For the last six months of 1996, the
objectives used by the Company as the basis for incentive compensation were the
same as those for the first half of the year. The target amount of bonus and the
actual amount of bonus are determined by the Committee, in its discretion.
Stock Options. Stock options are an essential element of the Company's
executive compensation package. The Compensation Committee believes that
equity-based compensation in the form of stock options links the interests of
management and stockholders by focusing employees and management on increasing
stockholder value. The actual value of such equity-based compensation depends
entirely on appreciation of the Company's stock. Approximately 100% of the
Company's full-time employees participate in the Incentive Plan.
In 1996, stock options were granted to one executive officer. Stock options
typically have been granted to executive officers when the executive first joins
the Company, in connection with a significant change in responsibilities and,
occasionally, to achieve equity within a peer group. The Committee may, however,
grant additional stock options to executives for other reasons. The number of
shares subject to each stock option granted is within the discretion of the
Committee and is based on anticipated future contribution and ability to impact
corporate and/or business unit results, past performance or consistency within
the executive's peer group. In 1996, the Committee considered these factors, as
well as the number of options held by such
20
<PAGE> 23
executive officers that remained unvested. In the discretion of the Committee,
executive officers may also be granted stock options to provide greater
incentives to continue their employment with the Company and to strive to
increase the value of the Company's Common Stock. The stock options generally
become exercisable over a four-year period and are granted at a price that is
equal to the fair market value of the Company's Common Stock on the date of
grant.
For 1997, the Committee will be considering whether to grant future options
under the Incentive Plan to executive officers based on the factors described
above, with particular attention to the Company-wide management objectives and
the executive officers' success in obtaining specific individual financial and
operational objectives established or to be established for 1997 and to the
number of options currently held by the executive officers that remain unvested.
Company Performance and CEO Compensation. Mr. Crowe was responsible for
the Company obtaining a significant portion of its objectives for 1996. These
objectives included satisfactorily managing the Company's initial public
offering and overall corporate business plan, such as meeting the Company's
profitability projections and the Company's sales targets, and significantly
strengthening the Company's market position. Based upon the criteria set forth
under the discussion of Incentive Compensation above, the Committee awarded Mr.
Crowe incentive compensation of $45,200. This figure represents 95% of the
target bonus for Mr. Crowe. Mr. Crowe was not granted any stock options in 1996,
after consideration of his prior outstanding option grants and the number of
options that remained unexercisable, and the number of shares Mr. Crowe already
owns. The Committee reviewed the compensation practices of the comparable
companies in determining Mr. Crowe's compensation.
Compliance with Section 162(m) of the Internal Revenue Code of 1986. The
Company intends to comply with the requirements of Section 162(m) of the
Internal Revenue Code of 1986. The Incentive Plan is already in compliance with
Section 162(m) by limiting stock awards to named executive officers. The Company
does not expect cash compensation for 1996 to be in excess of $1,000,000 or
consequently affected by the requirements of Section 162(m).
COMPENSATION COMMITTEE
TENCH COXE
STEWART A. SCHUSTER
21
<PAGE> 24
COMPANY STOCK PRICE PERFORMANCE
The stock price performance graph below is required by the SEC and shall
not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933, as amended, or under the Securities Exchange Act of
1934, as amended, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
soliciting material or filed under such Acts.
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company from May 2, 1996 (the effective date of the
Company's registration statement with respect to the Company's initial public
offering) to December 31, 1996 with the cumulative total return of the CRSP
Total Return Index for the Nasdaq Stock Market (U.S.) and the Hambrecht & Quist
Computer Software Index over the same period (assuming the investment of $100 in
the Common Stock of the Company and in each of the other indices on the date of
the Company's initial public offering, and reinvestment of all dividends).
The comparisons in the graph below are based on historical data and are not
intended to forecast the possible future performance of the Company's Common
Stock.
Comparison of Cumulative Total Return*
Among Edify Corporation, the Nasdaq Stock Market-U.S. Index
and the H&Q Software Sector Index
MEASUREMENT PERIOD Edify Nasdaq Stock H&Q Software
(FISCAL YEAR COVERED) Corporation Market-US Sector
5/2/96 100 100 100
6/28/96 177 101 100
9/30/96 135 105 103
12/31/96 107 110 102
*$100 INVESTED ON 5/2/96 IN STOCK OR INDEX.
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
22
<PAGE> 25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From January 1, 1996 to the present, there are no currently proposed
transactions in which the amount involved exceeds $60,000 to which the Company
or any of its subsidiaries was (or is to be) a party and in which any executive
officer, director, 5% beneficial owner of the Company's Common Stock or member
of the immediate family of any of the foregoing persons had (or will have) a
direct or indirect material interest, except for: (i) payments set forth under
"Executive Compensation" above; and (ii) indemnification agreements entered into
by the Company with each of its directors and executive officers that provide
the maximum indemnity available to directors and executive officers under
Section 145 of the Delaware General Corporation Law and the Company's Bylaws, as
well as certain additional procedural protections. Such indemnity agreements
provide generally that the Company will advance expenses incurred by directors
and executive officers in any action or proceeding as to which they may be
indemnified, and require the Company to indemnify such individuals to the
fullest extent permitted by law.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Company's 1998
Annual Meeting of Stockholders must be received by the Company at its principal
executive offices no later than December 1, 1997 in order to be included in the
Company's Proxy Statement and form of proxy relating to that meeting.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16 of the Exchange Act requires the Company's directors and
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. Such persons are required by SEC regulation
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors of
the Company, the Company believes that all Section 16(a) filing requirements
were met during 1996, except that the Form 3, Initial Statement of Beneficial
Ownership of Securities, and one Form 4, reporting an option exercise, for
Daniel Caserza, the Company's Controller, were filed late.
OTHER BUSINESS
The Board does not intend to bring any other business before the Meeting,
and, so far as is known to the Board, no matters are to be brought before the
Meeting except as specified in the notice of the Meeting. As to any business
that may properly come before the Meeting, however, it is intended that proxies,
in the form enclosed, will be voted in respect thereof in accordance with the
judgment of the persons voting such proxies.
Dated: April 1, 1997
By Order of the Board of Directors
/s/ Stephanie A. Vinella
Stephanie A. Vinella
Vice President of Finance and
Administration,
Chief Financial Officer and Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
SO THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING.
23
<PAGE> 26
EDIFY CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
As Adopted on February 29, 1996
Amended July 15, 1996 and March 13, 1997
1. ESTABLISHMENT OF PLAN. Edify Corporation (the "COMPANY") proposes
to grant options for purchase of the Company's Common Stock to eligible
employees of the Company and its Subsidiaries (as hereinafter defined) pursuant
to this Employee Stock Purchase Plan (this "PLAN"). For purposes of this Plan,
"PARENT CORPORATION" and "SUBSIDIARY" (collectively, "SUBSIDIARIES") shall have
the same meanings as "parent corporation" and "subsidiary corporation" in
Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986,
as amended (the "CODE"). The Company intends this Plan to qualify as an
"employee stock purchase plan" under Section 423 of the Code (including any
amendments to or replacements of such Section), and this Plan shall be so
construed. Any term not expressly defined in this Plan but defined for
purposes of Section 423 of the Code shall have the same definition herein. A
total of 600,000 shares of the Company's Common Stock is reserved for issuance
under this Plan. Such number shall be subject to adjustments effected in
accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide employees of the
Company and Subsidiaries designated by the Board of Directors of the Company
(the "BOARD") as eligible to participate in this Plan with a convenient means
of acquiring an equity interest in the Company through payroll deductions, to
enhance such employees' sense of participation in the affairs of the Company
and Subsidiaries, and to provide an incentive for continued employment.
3. ADMINISTRATION. This Plan shall be administered by a committee
appointed by the Board (the "COMMITTEE") consisting of at least two (2) members
of the Board, each of whom is a Disinterested Person as defined in Rule
16b-3(c) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT"). As used
in this Plan, references to the "Committee" shall mean either such committee or
the Board if no committee has been established. After registration of the
Company under the Exchange Act, Board members who are not Disinterested Persons
may not vote on any matters affecting the administration of this Plan, but any
such member may be counted for determining the existence of a quorum at any
meeting of the Board. Subject to the provisions of this Plan and the
limitations of Section 423 of the Code or any successor provision in the Code,
all questions of interpretation or application of this Plan shall be determined
by the Board and its decisions shall be final and binding upon all
participants. Members of the Board shall receive no compensation for their
services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred
in connection with the administration of this Plan shall be paid by the
Company.
4. ELIGIBILITY. Any employee of the Company or the Subsidiaries is
eligible to participate in an Offering Period (as hereinafter defined) under
this Plan except the following:
(a) employees who are not employed by the Company or Subsidiaries
five days before the beginning of such Offering Period, except that employees
who are employed on the effective date of the registration statement filed by
the Company with the Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, as amended (the "SECURITIES ACT") registering the
initial public offering of the Company's Common Stock is declared effective by
the SEC shall be eligible to participate in the first Offering Period under the
Plan;
(b) employees who are customarily employed for less than twenty (20)
hours per week;
(c) employees who are customarily employed for less than five (5)
months in a calendar year;
(d) employees who, together with any other person whose stock would
be attributed to such employee pursuant to Section 424(d) of the Code, own
stock or hold options to purchase stock possessing five percent (5%) or
<PAGE> 27
more of the total combined voting power or value of all classes of stock of the
Company or any of its Subsidiaries or who, as a result of being granted an
option under this Plan with respect to such Offering Period, would own stock or
hold options to purchase stock 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 Subsidiaries.
5. OFFERING DATES. The offering periods of this Plan (each, an
"OFFERING PERIOD") shall be of twenty-four (24) months duration commencing on
February 1 and August 1 of each year and ending on July 31 and January 31 of
each year; provided, however, that notwithstanding the foregoing, the first
such Offering Period shall commence on the first business day on which price
quotations for the Company's Common Stock are available on the Nasdaq National
Market (the "FIRST OFFERING DATE") and shall end on January 31, 1998. Except
for the first Offering Period, each Offering Period shall consist of four (4)
six-month purchase periods (individually, a "PURCHASE PERIOD") during which
payroll deductions of the participants are accumulated under this Plan. The
first business day of each Offering Period is referred to as the "OFFERING
DATE". The last business day of each Purchase Period is referred to as the
"PURCHASE DATE". The Board shall have the power to change the duration of
Offering Periods or Purchase Periods with respect to offerings without
stockholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period or Purchase
Period to be affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company's treasury department (the "TREASURY DEPARTMENT") not
later than the 26th day of the month before such Offering Date unless a later
time for filing the subscription agreement authorizing payroll deductions is
set by the Board for all eligible employees with respect to a given Offering
Period. An eligible employee who does not deliver a subscription agreement to
the Treasury Department by such date after becoming eligible to participate in
such Offering Period shall not participate in that Offering Period or any
subsequent Offering Period unless such employee enrolls in this Plan by filing
a subscription agreement with the Treasury Department not later than the 26th
day of the month preceding a subsequent Offering Date. Once an employee
becomes a participant in an Offering Period, such employee will automatically
participate in the Offering Period commencing immediately following the last
day of the prior Offering Period unless the employee withdraws or is deemed to
withdraw from this Plan or terminates further participation in the Offering
Period as set forth in Section 11 below. Such participant is not required to
file any additional subscription agreement in order to continue participation
in this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee
in this Plan with respect to an Offering Period will constitute the grant (as
of the Offering Date) by the Company to such employee of an option to purchase
on the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i)
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the Offering Date, or (ii) eighty-five percent (85%) of the
fair market value of a share of the Company's Common Stock on the Purchase
Date, provided, however, that the number of shares of the Company's Common
Stock subject to any option granted pursuant to this Plan shall not exceed the
lesser of (a) the maximum number of shares set by the Board pursuant to Section
10(c) below with respect to the applicable Offering Period, or (b) the maximum
number of shares which may be purchased pursuant to Section 10(b) below with
respect to the applicable Offering Period. The fair market value of a share of
the Company's Common Stock shall be determined as provided in Section 8 hereof.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty- five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date;
For purposes of this Plan, the term "FAIR MARKET VALUE" means,
as of any date, the value of a share of the Company's Common Stock determined
as follows:
-2-
<PAGE> 28
Edify Corporation
1996 Employee Stock Purchase Plan
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded and is then listed on
a national securities exchange, its closing price on the date of determination
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on the
date of determination as reported in The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Board in good
faith, which in the case of the First Offering Period will be the price
determined by the Pricing Committee of the Board for the Common Stock to be
sold to the Company's underwriters.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE
OF SHARES.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made
as a percentage of the participant's compensation in one percent (1%)
increments not less than two percent (2%), nor greater than ten percent (10%)
or such lower limit set by the Committee. Compensation shall mean all W-2
compensation, including, but not limited to base salary, wages, commissions,
overtime, shift premiums and bonuses, plus draws against commissions; provided,
however, that for purposes of determining a participant's compensation, any
election by such participant to reduce his or her regular cash remuneration
under Sections 125 or 401(k) of the Code shall be treated as if the participant
did not make such election. Payroll deductions shall commence on the first
payday following the Offering Date and shall continue to the end of the
Offering Period unless sooner altered or terminated as provided in this Plan.
(b) A participant may lower (but not increase) the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than fifteen (15)
days after the Treasury Department's receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one (1) change may be made
effective during any Offering Period. A participant may increase or decrease
the rate of payroll deductions for any subsequent Offering Period by filing
with the Treasury Department a new authorization for payroll deductions not
later than the 15th day of the month before the beginning of such Offering
Period.
(c) All payroll deductions made for a participant are credited to his
or her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.
(d) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the
participant wishes to withdraw from that Offering Period under this Plan and
have all payroll deductions accumulated in the account maintained on behalf of
the participant as of that date returned to the participant, the Company shall
apply the funds then in the participant's account to the purchase of whole
shares of Common Stock reserved under the option granted to such participant
with respect to the Offering Period to the extent that such option is
exercisable on the Purchase Date. The purchase price per share shall be as
specified in Section 8 of this Plan. Any cash remaining in a participant's
account after such purchase of shares shall be refunded to such participant in
cash, without interest; provided, however, that any amount remaining in such
participant's account on a Purchase Date which is less than the amount
necessary to purchase a full share of Common Stock of the Company shall be
carried forward, without interest, into the next Purchase Period or Offering
Period, as the case may be. In the event that this Plan has been
oversubscribed,
-3-
<PAGE> 29
Edify Corporation
1996 Employee Stock Purchase Plan
all funds not used to purchase shares on the Purchase Date shall be returned to
the participant, without interest. No Common Stock shall be purchased on a
Purchase Date on behalf of any employee whose participation in this Plan has
terminated prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the Company
shall arrange the delivery to each participant of a certificate representing
the shares purchased upon exercise of his option.
(f) During a participant's lifetime, such participant's option to
purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until such option has been exercised. Shares to be delivered to a participant
under this Plan will be registered in the name of the participant or in the
name of the participant and his or her spouse.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No employee shall be entitled to purchase stock under this Plan
at a rate which, when aggregated with his or her rights to purchase stock under
all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No employee shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Not less than
thirty (30) days prior to the commencement of any Offering Period, the Board
may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the "MAXIMUM
SHARE AMOUNT"). In no event shall the Maximum Share Amount exceed the amounts
permitted under Section 10(b) above. If a new Maximum Share Amount is set,
then all participants must be notified of such Maximum Share Amount not less
than fifteen (15) days prior to the commencement of the next Offering Period.
Once the Maximum Share Amount is set, it shall continue to apply with respect
to all succeeding Purchase Dates and Offering Periods unless revised by the
Board as set forth above.
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then
available for issuance under this Plan, then the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
reasonably practicable and as the Board shall determine to be equitable. In
such event, the Company shall give written notice of such reduction of the
number of shares to be purchased under a participant's option to each
participant affected thereby.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of
the applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Treasury Department a written notice to
that effect on a form provided for such purpose. Such withdrawal may be
elected at any time at least fifteen (15) days prior to the end of an Offering
Period.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest,
and his or her interest in this Plan shall terminate. In the event a
participant voluntarily elects to withdraw from this Plan, he or she may not
resume his or her participation in this Plan during the same Offering Period,
but he or she may participate in any Offering Period under this Plan which
commences on a date subsequent to such withdrawal by filing a new authorization
for payroll deductions in the same manner as set forth above for initial
participation in this Plan.
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1996 Employee Stock Purchase Plan
(c) If the purchase price on the first day of any current Offering
Period in which a participant is enrolled is higher than the purchase price on
the first day of any subsequent Offering Period, the Company will automatically
enroll such participant in the subsequent Offering Period. A participant does
not need to file any forms with the Company to automatically be enrolled in the
subsequent Offering Period.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's
employment for any reason, including retirement, death or the failure of a
participant to remain an eligible employee, immediately terminates his or her
participation in this Plan. In such event, the payroll deductions credited to
the participant's account will be returned to him or her or, in the case of his
or her death, to his or her legal representative, without interest. For
purposes of this Section 12, an employee will not be deemed to have terminated
employment or failed to remain in the continuous employ of the Company in the
case of sick leave, military leave, or any other leave of absence approved by
the Board; provided that such leave is for a period of not more than ninety
(90) days or reemployment upon the expiration of such leave is guaranteed by
contract or statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's
interest in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall promptly deliver to the participant all payroll deductions credited to
such participant's account. No interest shall accrue on the payroll deductions
of a participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each option under this Plan which has not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under this Plan
but have not yet been placed under option (collectively, the "RESERVES"), as
well as the price per share of Common Stock covered by each option under this
Plan which has not yet been exercised, shall be proportionately adjusted for
any increase or decrease in the number of issued and outstanding shares of
Common Stock of the Company resulting from a stock split or the payment of a
stock dividend (but only on the Common Stock) or any other increase or decrease
in the number of issued and outstanding shares of Common Stock effected without
receipt of any consideration by the Company; provided, however, that conversion
of any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration". Such adjustment shall be made by
the Board, whose determination shall be final, binding and conclusive. Except
as expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the
Company, the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.
The Board may, in the exercise of its sole discretion in such instances,
declare that the options under this Plan shall terminate as of a date fixed by
the Board and give each participant the right to exercise his or her option as
to all of the optioned stock, including shares which would not otherwise be
exercisable. In the event of a proposed sale of all or substantially all of
the assets of the Company, or the merger or consolidation of the Company with
or into another corporation, each option under this Plan shall be assumed or an
equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the participant shall have the right to
exercise the option as to all of the optioned stock. If the Board makes an
option exercisable in lieu of assumption or substitution in the event of a
merger, consolidation or sale of assets, the Board shall notify the participant
that the option shall be fully exercisable for a period of twenty (20) days
from the date of such notice, and the option will terminate upon the expiration
of such period.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the
price per share of Common Stock covered by each outstanding option, in the
event that the Company effects one or more reorganizations, recapitalizations,
rights offerings or other increases or reductions of shares of its outstanding
Common Stock, or in the event of the Company being consolidated with or merged
into any other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 hereof) by
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1996 Employee Stock Purchase Plan
the participant. Any such attempt at assignment, transfer, pledge or other
disposition shall be void and without effect.
16. REPORTS. Individual accounts will be maintained for each
participant in this Plan. Each participant shall receive promptly after the
end of each Purchase Period a report of his or her account setting forth the
total payroll deductions accumulated, the number of shares purchased, the per
share price thereof and the remaining cash balance, if any, carried forward to
the next Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company
if the participant disposes of any of the shares purchased in any Offering
Period pursuant to this Plan if such disposition occurs within two (2) years
from the Offering Date or within one (1) year from the Purchase Date on which
such shares were purchased (the "NOTICE PERIOD"). Unless such participant is
disposing of any of such shares during the Notice Period, such participant
shall keep the certificates representing such shares in his or her name (and
not in the name of a nominee) during the Notice Period. The Company may, at
any time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the
grant of any option hereunder shall confer any right on any employee to remain
in the employ of the Company or any Subsidiary, or restrict the right of the
Company or any Subsidiary to terminate such employee's employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have
equal rights and privileges with respect to this Plan so that this Plan
qualifies as an "employee stock purchase plan" within the meaning of Section
423 or any successor provision of the Code and the related regulations. Any
provision of this Plan which is inconsistent with Section 423 or any successor
provision of the Code shall, without further act or amendment by the Company or
the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
20. NOTICES. All notices or other communications by a participant to
the Company under or in connection with this Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the
Board, this Plan will become effective on the date that is the First Offering
Date (as defined above); provided, however, that if the First Offering Date
does not occur on or before December 31, 1996, this Plan will terminate having
never become effective. This Plan shall be approved by the stockholders of the
Company, in any manner permitted by applicable corporate law, within twelve
(12) months before or after the date this Plan is adopted by the Board. No
purchase of shares pursuant to this Plan shall occur prior to such stockholder
approval. Thereafter, no later than twelve (12) months after the Company
becomes subject to Section 16(b) of the Exchange Act, the Company will comply
with the requirements of Rule 16b-3 with respect to stockholder approval. This
Plan shall continue until the earlier to occur of (a) termination of this Plan
by the Board (which termination may be effected by the Board at any time), (b)
issuance of all of the shares of Common Stock reserved for issuance under this
Plan, or (c) ten (10) years from the adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
this Plan in the event of such participant's death subsequent to the end of an
Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under this Plan who is
living at the time of such participant's death, the Company shall deliver such
shares or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed (to the
knowledge of the
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1996 Employee Stock Purchase Plan
Company), the Company, in its discretion, may deliver such shares or cash to
the spouse or to any one or more dependents or relatives of the participant, or
if no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of
such option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange or automated quotation system upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive
laws (excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 hereof within twelve (12) months of the adoption of such amendment
(or earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan;
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan; or
(c) constitute an amendment for which stockholder approval is
required in order to comply with Rule 16b-3 (or any successor rule) of the
Exchange Act.
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EDIFY CORPORATION
1996 EQUITY INCENTIVE PLAN
As Adopted February 29, 1996
and Amended December 18, 1996 and March 13, 1997
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent,
Subsidiaries and Affiliates, by offering them an opportunity to participate in
the Company's future performance through awards of Options, Restricted Stock
and Stock Bonuses. Capitalized terms not defined in the text are defined in
Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2
and 18, the total number of Shares reserved and available for grant and
issuance pursuant to this Plan will be 2,300,000 Shares. Subject to Sections
2.2 and 18, Shares that: (a) are subject to issuance upon exercise of an Option
but cease to be subject to such Option for any reason other than exercise of
such Option; (b) are subject to an Award granted hereunder but are forfeited or
are repurchased by the Company at the original issue price; or (c) are subject
to an Award that otherwise terminates without Shares being issued will again be
available for grant and issuance in connection with future Awards under this
Plan. Any authorized shares not issued or subject to outstanding grants under
the Edify Corporation 1990 Stock Option Plan (the "PRIOR PLAN") on the
Effective Date (as defined below) and any shares that: (a) are issuable upon
exercise of options granted pursuant to the Prior Plan that expire or become
unexercisable for any reason without having been exercised in full; (b) are
subject to an award granted pursuant to the Prior Plan but are forfeited or are
repurchased by the Company at the original issue price; or (c) are subject to
an award granted pursuant to the Prior Plan that otherwise terminates without
shares being issued will no longer be available for grant and issuance under
the Prior Plan, but will be available for grant and issuance under this Plan.
At all times the Company shall reserve and keep available a sufficient number
of Shares as shall be required to satisfy the requirements of all outstanding
Options granted under this Plan and all other outstanding but unvested Awards
granted under this Plan.
2.2 Adjustment of Shares. In the event that the number
of outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be
proportionately adjusted, subject to any required action by the Board or the
shareholders of the Company and compliance with applicable securities laws;
provided, however, that fractions of a Share will not be issued but will either
be replaced by a cash payment equal to the Fair Market Value of such fraction
of a Share or will be rounded up to the nearest whole Share, as determined by
the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be
granted only to employees (including officers and directors who are also
employees) of the Company or of a Parent or Subsidiary of the Company. All
other Awards may be granted to employees, officers, directors, consultants,
independent contractors and advisors of the Company or any Parent, Subsidiary
or Affiliate of the Company; provided such consultants, contractors and
advisors render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction. No person will be eligible to
receive more than 500,000 Shares in any calendar year under this Plan pursuant
to the grant of Awards hereunder, other than new employees of the Company or of
a Parent, Subsidiary or Affiliate of the Company (including new employees who
are also officers and directors of the
<PAGE> 34
Edify Corporation
1996 Equity Incentive Plan
Company or any Parent, Subsidiary, or Affiliate of the Company) who are
eligible to receive up to a maximum of 800,000 Shares in the calendar year in
which they commence their employment. A person may be granted more than one
Award under this Plan.
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered
by the Committee or by the Board acting as the Committee. Subject to the
general purposes, terms and conditions of this Plan, and to the direction of
the Board, the Committee will have full power to implement and carry out this
Plan. Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject
to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or compensation plan of the
Company or any Parent, Subsidiary or Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company
the authority to grant an Award under this Plan to Participants who are not
Insiders of the Company.
4.3 Exchange Act Requirements. If two or more members of
the Board are Outside Directors, the Committee will be comprised of at least
two (2) members of the Board, all of whom are Outside Directors and
Disinterested Persons. During all times that the Company is subject to Section
16 of the Exchange Act, the Company will take appropriate steps to comply with
the disinterested administration requirements of Section 16(b) of the Exchange
Act, which will consist of the appointment by the Board of a Committee
consisting of not less than two (2) members of the Board, each of whom is a
Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible persons
and will determine whether such Options will be Incentive Stock Options within
the meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"), the
number of Shares subject to the Option, the Exercise Price of the Option, the
period during which the Option may be exercised, and all other terms and
conditions of the Option, subject to the following:
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Edify Corporation
1996 Equity Incentive Plan
5.1 Form of Option Grant. Each Option granted under this
Plan will be evidenced by an Award Agreement which will expressly identify the
Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such
form and contain such provisions (which need not be the same for each
Participant) as the Committee may from time to time approve, and which will
comply with and be subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will
be the date on which the Committee makes the determination to grant such
Option, unless otherwise specified by the Committee. The Stock Option
Agreement and a copy of this Plan will be delivered to the Participant within a
reasonable time after the granting of the Option.
5.3 Exercise Period. Options may be exercisable
immediately (subject to repurchase pursuant to Section 12 of this Plan) or may
be exercisable within the times or upon the events determined by the Committee
as set forth in the Stock Option Agreement governing such Option; provided,
however, that no Option will be exercisable after the expiration of ten (10)
years from the date the Option is granted; and provided further that no ISO
granted to a person who directly or by attribution owns more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any Parent or Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") will
be exercisable after the expiration of five (5) years from the date the ISO is
granted. The Committee also may provide for the exercise of Options to become
exercisable at one time or from time to time, periodically or otherwise, in
such number of Shares or percentage of Shares as the Committee determines.
5.4 Exercise Price. The Exercise Price of an Option will
be determined by the Committee when the Option is granted and may be not less
than 85% of the Fair Market Value of the Shares on the date of grant; provided
that: (i) the Exercise Price of an ISO will be not less than 100% of the Fair
Market Value of the Shares on the date of grant; and (ii) the Exercise Price of
any ISO granted to a Ten Percent Shareholder will not be less than 110% of the
Fair Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be
the same for each Participant), stating the number of Shares being purchased,
the restrictions imposed on the Shares purchased under such Exercise Agreement,
if any, and such representations and agreements regarding Participant's
investment intent and access to information and other matters, if any, as may
be required or desirable by the Company to comply with applicable securities
laws, together with payment in full of the Exercise Price for the number of
Shares being purchased.
5.6 Termination. Notwithstanding the exercise periods
set forth in the Stock Option Agreement, exercise of an Option will always be
subject to the following:
(a) If the Participant is Terminated for any reason except death
or Disability, then the Participant may exercise such Participant's Options
only to the extent that such Options would have been exercisable upon the
Termination Date no later than three (3) months after the Termination Date (or
such shorter or longer time period not exceeding five (5) years as may be
determined by the Committee, with any exercise beyond three (3) months after
the Termination Date deemed to be an NQSO), but in any event, no later than the
expiration date of the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three (3) months after a
Termination other than because of Participant's death or disability), then
Participant's Options may be exercised only to the extent that such Options
would have been exercisable by Participant on the Termination Date and must be
exercised by Participant (or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination Date (or such
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Edify Corporation
1996 Equity Incentive Plan
shorter or longer time period not exceeding five (5) years as may be determined
by the Committee, with any such exercise beyond (a) three (3) months after the
Termination Date when the Termination is for any reason other than the
Participant's death or Disability, or (b) twelve (12) months after the
Termination Date when the Termination is for Participant's death or Disability,
deemed to be an NQSO), but in any event no later than the expiration date of
the Options.
5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Affiliate, Parent or Subsidiary of the Company) will not exceed $100,000. If
the Fair Market Value of Shares on the date of grant with respect to which ISOs
are exercisable for the first time by a Participant during any calendar year
exceeds $100,000, then the Options for the first $100,000 worth of Shares to
become exercisable in such calendar year will be ISOs and the Options for the
amount in excess of $100,000 that become exercisable in that calendar year will
be NQSOs. In the event that the Code or the regulations promulgated thereunder
are amended after the Effective Date of this Plan to provide for a different
limit on the Fair Market Value of Shares permitted to be subject to ISOs, such
different limit will be automatically incorporated herein and will apply to any
Options granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee
may modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not,
without the written consent of a Participant, impair any of such Participant's
rights under any Option previously granted. Any outstanding ISO that is
modified, extended, renewed or otherwise altered will be treated in accordance
with Section 424(h) of the Code. The Committee may reduce the Exercise Price
of outstanding Options without the consent of Participants affected by a
written notice to them; provided, however, that the Exercise Price may not be
reduced below the minimum Exercise Price that would be permitted under Section
5.4 of this Plan for Options granted on the date the action is taken to reduce
the Exercise Price.
5.10 No Disqualification. Notwithstanding any other
provision in this Plan, no term of this Plan relating to ISOs will be
interpreted, amended or altered, nor will any discretion or authority granted
under this Plan be exercised, so as to disqualify this Plan under Section 422
of the Code or, without the consent of the Participant affected, to disqualify
any ISO under Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of
Shares the person may purchase, the price to be paid (the "PURCHASE PRICE"),
the restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under
a Restricted Stock Award made pursuant to this Plan will be evidenced by an
Award Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such
form (which need not be the same for each Participant) as the Committee will
from time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If
such person does not execute and deliver the Restricted Stock Purchase
Agreement along with full payment for the Shares to the Company within thirty
(30) days, then the offer will terminate, unless otherwise determined by the
Committee.
6.2 Purchase Price. The Purchase Price of Shares sold
pursuant to a Restricted Stock Award will be determined by the Committee and
will be at least 85% of the Fair Market Value of the Shares on the
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Edify Corporation
1996 Equity Incentive Plan
date the Restricted Stock Award is granted, except in the case of a sale to a
Ten Percent Shareholder, in which case the Purchase Price will be 100% of the
Fair Market Value. Payment of the Purchase Price may be made in accordance
with Section 8 of this Plan.
6.3 Restrictions. Restricted Stock Awards will be
subject to such restrictions (if any) as the Committee may impose. The
Committee may provide for the lapse of such restrictions in installments and
may accelerate or waive such restrictions, in whole or part, based on length of
service, performance or such other factors or criteria as the Committee may
determine.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an award
of Shares (which may consist of Restricted Stock) for services rendered to the
Company or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus
may be awarded for past services already rendered to the Company, or any
Parent, Subsidiary or Affiliate of the Company pursuant to an Award Agreement
(the "STOCK BONUS AGREEMENT") that will be in such form (which need not be the
same for each Participant) as the Committee will from time to time approve, and
will comply with and be subject to the terms and conditions of this Plan. A
Stock Bonus may be awarded upon satisfaction of such performance goals as are
set out in advance in the Participant's individual Award Agreement (the
"PERFORMANCE STOCK BONUS AGREEMENT") that will be in such form (which need not
be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of
this Plan. Stock Bonuses may vary from Participant to Participant and between
groups of Participants, and may be based upon the achievement of the Company,
Parent, Subsidiary or Affiliate and/or individual performance factors or upon
such other criteria as the Committee may determine.
7.2 Terms of Stock Bonuses. The Committee will determine
the number of Shares to be awarded to the Participant and whether such Shares
will be Restricted Stock. If the Stock Bonus is being earned upon the
satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee will determine: (a) the nature, length and
starting date of any period during which performance is to be measured (the
"PERFORMANCE PERIOD") for each Stock Bonus; (b) the performance goals and
criteria to be used to measure the performance, if any; (c) the number of
Shares that may be awarded to the Participant; and (d) the extent to which such
Stock Bonuses have been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Stock Bonuses that
are subject to different Performance Periods and different performance goals
and other criteria. The number of Shares may be fixed or may vary in
accordance with such performance goals and criteria as may be determined by the
Committee. The Committee may adjust the performance goals applicable to the
Stock Bonuses to take into account changes in law and accounting or tax rules
and to make such adjustments as the Committee deems necessary or appropriate to
reflect the impact of extraordinary or unusual items, events or circumstances
to avoid windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus
may be paid currently or on a deferred basis with such interest or dividend
equivalent, if any, as the Committee may determine. Payment may be made in the
form of cash, whole Shares, including Restricted Stock, or a combination
thereof, either in a lump sum payment or in installments, all as the Committee
will determine.
7.4 Termination During Performance Period. If a
Participant is Terminated during a Performance Period for any reason, then such
Participant will be entitled to payment (whether in Shares, cash or otherwise)
with respect to the Stock Bonus only to the extent earned as of the date of
Termination in accordance with the Performance Stock Bonus Agreement, unless
the Committee will determine otherwise.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to
this Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
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Edify Corporation
1996 Equity Incentive Plan
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for within the
meaning of SEC Rule 144 (and, if such shares were purchased from the Company by
use of a promissory note, such note has been fully paid with respect to such
shares); or (2) were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms
as may be approved by the Committee and bearing interest at a rate sufficient
to avoid imputation of income under Sections 483 and 1274 of the Code;
provided, however, that Participants who are not employees or directors of the
Company will not be entitled to purchase Shares with a promissory note unless
the note is adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant
for services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD DEALER") whereby the Participant irrevocably
elects to exercise the Option and to sell a portion of the Shares so purchased
to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price directly to the
Company; or
(2) through a "margin" commitment from the Participant
and a NASD Dealer whereby the Participant irrevocably elects to exercise the
Option and to pledge the Shares so purchased to the NASD Dealer in a margin
account as security for a loan from the NASD Dealer in the amount of the
Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the
Participant pay for Shares purchased under this Plan by authorizing a guarantee
by the Company of a third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 Withholding Generally. Whenever Shares are to be
issued in satisfaction of Awards granted under this Plan, the Company may
require the Participant to remit to the Company an amount sufficient to satisfy
federal, state and local withholding tax requirements prior to the delivery of
any certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding
tax requirements.
9.2 Stock Withholding. When, under applicable tax laws,
a Participant incurs tax liability in connection with the exercise or vesting
of any Award that is subject to tax withholding and the Participant is
obligated to pay the Company the amount required to be withheld, the Committee
may in its sole discretion allow the Participant to satisfy the minimum
withholding tax obligation by electing to have the Company withhold from the
Shares to be issued that number of Shares having a Fair Market Value equal to
the minimum amount required to be withheld, determined on the date that the
amount of tax to be withheld is to be determined (the "TAX DATE"). All
elections by a Participant to have Shares withheld for this purpose will be
made in writing in a form acceptable to the Committee and will be subject to
the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
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Edify Corporation
1996 Equity Incentive Plan
(b) once made, then except as provided below, the election will be
irrevocable as to the particular Shares as to which the election is made;
(c) all elections will be subject to the consent or disapproval of
the Committee;
(d) if the Participant is an Insider and if the Company is subject
to Section 16(b) of the Exchange Act: (1) the election may not be made within
six (6) months of the date of grant of the Award, except as otherwise permitted
by SEC Rule 16b-3(e) under the Exchange Act, and (2) either (A) the election to
use stock withholding must be irrevocably made at least six (6) months prior to
the Tax Date (although such election may be revoked at any time at least six
(6) months prior to the Tax Date) or (B) the exercise of the Option or election
to use stock withholding must be made in the ten (10) day period beginning on
the third day following the release of the Company's quarterly or annual
summary statement of sales or earnings; and
(e) in the event that the Tax Date is deferred until six (6)
months after the delivery of Shares under Section 83(b) of the Code, the
Participant will receive the full number of Shares with respect to which the
exercise occurs, but such Participant will be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 Voting and Dividends. No Participant will have any
of the rights of a shareholder with respect to any Shares until the Shares are
issued to the Participant. After Shares are issued to the Participant, the
Participant will be a shareholder and have all the rights of a shareholder with
respect to such Shares, including the right to vote and receive all dividends
or other distributions made or paid with respect to such Shares; provided, that
if such Shares are Restricted Stock, then any new, additional or different
securities the Participant may become entitled to receive with respect to such
Shares by virtue of a stock dividend, stock split or any other change in the
corporate or capital structure of the Company will be subject to the same
restrictions as the Restricted Stock; provided, further, that the Participant
will have no right to retain such stock dividends or stock distributions with
respect to Shares that are repurchased at the Participant's original Purchase
Price pursuant to Section 12.
10.2 Financial Statements. The Company will provide
financial statements to each Participant prior to such Participant's purchase
of Shares under this Plan, and to each Participant annually during the period
such Participant has Awards outstanding; provided, however, the Company will
not be required to provide such financial statements to Participants whose
services in connection with the Company assure them access to equivalent
information.
11. TRANSFERABILITY. Awards granted under this Plan, and any
interest therein, will not be transferable or assignable by Participant, and
may not be made subject to execution, attachment or similar process, otherwise
than by will or by the laws of descent and distribution or as consistent with
the specific Plan and Award Agreement provisions relating thereto. During the
lifetime of the Participant an Award will be exercisable only by the
Participant, and any elections with respect to an Award, may be made only by
the Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee,
the Company may reserve to itself and/or its assignee(s) in the Award Agreement
(a) a right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, and/or (b) a
right to repurchase a portion of or all Shares held by a Participant following
such Participant's Termination at any time within ninety (90) days after the
later of Participant's Termination Date and the date Participant purchases
Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at: (A) with respect to Shares that are "Vested" (as defined in
the Award Agreement), the higher of: (l) Participant's original Purchase
Price, or (2) the Fair Market Value of such Shares on Participant's Termination
Date, provided, that such right of repurchase (i) must be exercised as to all
such "Vested" Shares unless a Participant consents to the Company's repurchase
of only a portion of such "Vested" Shares and (ii) terminates when the
Company's securities become publicly traded; or (B) with respect to Shares that
are not "Vested" (as defined in the Award Agreement), at the Participant's
original Purchase Price,
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<PAGE> 40
Edify Corporation
1996 Equity Incentive Plan
provided, that the right to repurchase at the original Purchase Price lapses at
the rate of at least 20% per year over five (5) years from the date the Shares
were purchased (or from the date of grant of options in the case of Shares
obtained pursuant to a Stock Option Agreement and Stock Option Exercise
Agreement), and if the right to repurchase is assignable, the assignee must pay
the Company, upon assignment of the right to repurchase, cash equal to the
excess of the Fair Market Value of the Shares over the original Purchase Price.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders,
legends and other restrictions as the Committee may deem necessary or
advisable, including restrictions under any applicable federal, state or
foreign securities law, or any rules, regulations and other requirements of the
SEC or any stock exchange or automated quotation system upon which the Shares
may be listed or quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause
a legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will
be required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to
the Company under the promissory note; provided, however, that the Committee
may require or accept other or additional forms of collateral to secure the
payment of such obligation and, in any event, the Company will have full
recourse against the Participant under the promissory note notwithstanding any
pledge of the Participant's Shares or other collateral. In connection with any
pledge of the Shares, Participant will be required to execute and deliver a
written pledge agreement in such form as the Committee will from time to time
approve. The Shares purchased with the promissory note may be released from
the pledge on a pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time
or from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. The Committee may at any time
buy from a Participant an Award previously granted with payment in cash, Shares
(including Restricted Stock) or other consideration, based on such terms and
conditions as the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will
not be effective unless such Award is in compliance with all applicable federal
and state securities laws, rules and regulations of any governmental body, and
the requirements of any stock exchange or automated quotation system upon which
the Shares may then be listed or quoted, as they are in effect on the date of
grant of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior
to: (a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any
registration or other qualification of such Shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register
the Shares with the SEC or to effect compliance with the registration,
qualification or listing requirements of any state securities laws, stock
exchange or automated quotation system, and the Company will have no liability
for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or
limit in any way the right of the Company or any Parent, Subsidiary or
Affiliate of the Company to terminate Participant's employment or other
relationship at any time, with or without cause.
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Edify Corporation
1996 Equity Incentive Plan
18. CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by Successor. In
the event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the shareholders of the Company or their relative
stock holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the shareholders of the Company (other than any shareholder
which merges (or which owns or controls another corporation which merges) with
the Company in such merger) cease to own their shares or other equity interests
in the Company, (d) the sale of substantially all of the assets of the Company,
or (e) any other transaction which qualifies as a "corporate transaction" under
Section 424(a) of the Code wherein the shareholders of the Company give up all
of their equity interest in the Company (except for the acquisition, sale or
transfer of all or substantially all of the outstanding shares of the Company
from or by the shareholders of the Company), any or all outstanding Awards may
be assumed, converted or replaced by the successor corporation (if any), which
assumption, conversion or replacement will be binding on all Participants. In
the alternative, the successor corporation may substitute equivalent Awards or
provide substantially similar consideration to Participants as was provided to
shareholders (after taking into account the existing provisions of the Awards).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In
the event such successor corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 18.1, such Awards will expire on such transaction at such time and
on such conditions as the Board will determine.
18.2 Other Treatment of Awards. Subject to any greater
rights granted to Participants under the foregoing provisions of this Section
18, in the event of the occurrence of any transaction described in Section
18.1, any outstanding Awards will be treated as provided in the applicable
agreement or plan of merger, consolidation, dissolution, liquidation, sale of
assets or other "corporate transaction."
18.3 Assumption of Awards by the Company. The Company,
from time to time, also may substitute or assume outstanding awards granted by
another company, whether in connection with an acquisition of such other
company or otherwise, by either; (a) granting an Award under this Plan in
substitution of such other company's award; or (b) assuming such award as if it
had been granted under this Plan if the terms of such assumed award could be
applied to an Award granted under this Plan. Such substitution or assumption
will be permissible if the holder of the substituted or assumed award would
have been eligible to be granted an Award under this Plan if the other company
had applied the rules of this Plan to such grant. In the event the Company
assumes an award granted by another company, the terms and conditions of such
award will remain unchanged (except that the exercise price and the number and
nature of Shares issuable upon exercise of any such option will be adjusted
appropriately pursuant to Section 424(a) of the Code). In the event the
Company elects to grant a new Option rather than assuming an existing option,
such new Option may be granted with a similarly adjusted Exercise Price.
19. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become
effective on the date on which the registration statement filed by the Company
with the SEC under the Securities Act registering the initial public offering
of the Company's Common Stock is declared effective by the SEC (the "EFFECTIVE
DATE"); provided, however, that if the Effective Date does not occur on or
before December 31, 1996, this Plan will terminate having never become
effective. This Plan shall be approved by the shareholders of the Company
(excluding Shares issued pursuant to this Plan), consistent with applicable
laws, within twelve (12) months before or after the date this Plan is adopted
by the Board. Upon the Effective Date, the Board may grant Awards pursuant to
this Plan; provided, however, that: (a) no Option may be exercised prior to
initial shareholder approval of this Plan; (b) no Option granted pursuant to an
increase in the number of Shares subject to this Plan approved by the Board
will be exercised prior to the time such increase has been approved by the
shareholders of the Company; and (c) in the event that shareholder approval of
such increase is not obtained within the time period provided herein, all
Awards granted hereunder will be canceled, any Shares issued pursuant to any
Award will be canceled, and any purchase of Shares hereunder will be rescinded.
So long as the Company is subject to Section 16(b) of the Exchange
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<PAGE> 42
Edify Corporation
1996 Equity Incentive Plan
Act, the Company will comply with the requirements of Rule 16b-3 (or its
successor), as amended, with respect to shareholder approval.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as
provided herein, this Plan will terminate ten (10) years from the date this
Plan is adopted by the Board or, if earlier, the date of shareholder approval.
This Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
of the shareholders of the Company, amend this Plan in any manner that requires
such shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or (if the Company is subject
to the Exchange Act or Section 16(b) of the Exchange Act) pursuant to the
Exchange Act or Rule 16b-3 (or its successor), as amended, thereunder,
respectively.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan
by the Board, the submission of this Plan to the shareholders of the Company
for approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will
have the following meanings:
"AFFILIATE" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct
or indirect, of the power to cause the direction of the management and policies
of the corporation, whether through the ownership of voting securities, by
contract or otherwise.
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the
signed written agreement between the Company and the Participant setting forth
the terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to
administer this Plan, or if no such committee is appointed, the Board.
"COMPANY" means Edify Corporation or any successor
corporation.
"DISABILITY" means a disability, whether temporary or
permanent, partial or total, within the meaning of Section 22(e)(3) of the
Code, as determined by the Committee.
"DISINTERESTED PERSON" means a director who has not, during
the period that person is a member of the Committee and for one year prior to
commencing service as a member of the Committee, been granted or awarded equity
securities pursuant to this Plan or any other plan of the Company or any
Parent, Subsidiary or Affiliate of the Company, except in accordance with the
requirements set forth in Rule 16b- 3(c)(2)(i) (and any successor regulation
thereto) as promulgated by the SEC under Section 16(b) of the Exchange Act, as
such rule is amended from time to time and as interpreted by the SEC.
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Edify Corporation
1996 Equity Incentive Plan
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an
Option may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a
share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded and is then listed on
a national securities exchange, its closing price on the date of determination
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on the
date of determination as reported in The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Committee in
good faith.
"INSIDER" means an officer or director of the Company or any
other person whose transactions in the Company's Common Stock are subject to
Section 16 of the Exchange Act.
"OUTSIDE DIRECTOR" means any director who is not; (a) a
current employee of the Company or any Parent, Subsidiary or Affiliate of the
Company; (b) a former employee of the Company or any Parent, Subsidiary or
Affiliate of the Company who is receiving compensation for prior services
(other than benefits under a tax-qualified pension plan); (c) a current or
former officer of the Company or any Parent, Subsidiary or Affiliate of the
Company; or (d) currently receiving compensation for personal services in any
capacity, other than as a director, from the Company or any Parent, Subsidiary
or Affiliate of the Company; provided, however, that at such time as the term
"Outside Director", as used in Section 162(m) of the Code is defined in
regulations promulgated under Section 162(m) of the Code, "Outside Director"
will have the meaning set forth in such regulations, as amended from time to
time and as interpreted by the Internal Revenue Service.
"OPTION" means an award of an option to purchase Shares
pursuant to Section 5.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if at the time of the
granting of an Award under this Plan, each of such corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this
Plan.
"PLAN" means this Edify Corporation 1996 Equity Incentive
Plan, as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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<PAGE> 44
Edify Corporation
1996 Equity Incentive Plan
"SHARES" means shares of the Company's Common Stock reserved
for issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and
any successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
granting of the Award, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased
to provide services as an employee, director, consultant, independent
contractor or advisor to the Company or a Parent, Subsidiary or Affiliate of
the Company, except in the case of sick leave, military leave, or any other
leave of absence approved by the Committee, provided that such leave is for a
period of not more than ninety (90) days, or reinstatement upon the expiration
of such leave is guaranteed by contract or statute. The Committee will have
sole discretion to determine whether a Participant has ceased to provide
services and the effective date on which the Participant ceased to provide
services (the "TERMINATION DATE").
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<PAGE> 45
EDIFY CORPORATION
2840 San Tomas Expressway
Santa Clara, California 95051
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jeffrey M. Crowe and Stephanie A.
Vinella as proxies, each with full powers of substitution, and hereby authorizes
them to represent and to vote, as designated below, all shares of Common Stock,
$0.001 par value, of Edify Corporation (the "Company") held of record by the
undersigned on March 14, 1997, at the Annual Meeting of Stockholders of the
Company to be held on Thursday, May 8, 1997, and at any continuations or
adjournments thereof.
This Proxy, when properly executed and returned in a timely manner,
will be voted at the Annual Meeting and any adjournments thereof in the manner
described herein. If no contrary indication is made, the proxy will be voted FOR
the Board of Director nominees, FOR Proposals 2, 3 and 4 and in accordance with
the judgment of the persons named as proxies herein on any other matters that
may properly come before the Annual Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE
-------------------
SEE REVERSE SIDE
-------------------
- --------------------------------------------------------------------------------
[X] Please mark
votes as in this
example.
The Board of Directors unanimously recommends that you vote FOR the Board of
Director nominees and FOR Proposals 2, 3 and 4.
1. Election of Directors.
Nominees: Jeffrey M. Crowe, Stephen M. Berkley, Tench Coxe, and
Stewart A. Schuster
[ ] FOR
[ ] WITHHELD
[ ] ______________________________________
For all nominees except as noted above
2. Proposal to approve the amendment to FOR AGAINST ABSTAIN
the 1996 Equity Incentive Plan. [ ] [ ] [ ]
3. Proposal to approve the amendment to FOR AGAINST ABSTAIN
the 1996 Employee Stock Purchase Plan. [ ] [ ] [ ]
4. Proposal to ratify the appointment of FOR AGAINST ABSTAIN
KPMG Peat Marwick LLP as independent
auditors for 1997. [ ] [ ] [ ]
In accordance with their judgment, the proxies are authorized to vote
upon such other matters as may properly come before the Annual Meeting
or any adjournment thereof.
[ ] Mark here for address change and note below
This Proxy must be signed exactly as your name appears hereon. If more than one
name appears, all persons so designated should sign. Attorneys, executors,
administrators, trustees and guardians should indicate their capacities. If the
signer is a corporation, please print full corporate name and indicate capacity
of duly authorized officer executing on behalf of the corporation. If the signer
is a partnership, please print full partnership name and indicate capacity of
duly authorized person executing on behalf of the partnership.
Signature: ____________________________________ Date: __________________, 1997
Signature: ____________________________________ Date: __________________, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THIS PROXY CARD AND RETURN IT PRIOR TO THE MEETING IN THE ENCLOSED ENVELOPE.
