SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. __)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[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
SoftNet Systems, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount previously paid:
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(4) Date filed:
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[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 8, 2000
TO THE STOCKHOLDERS OF SOFTNET SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
SoftNet Systems, Inc., a Delaware corporation (the "Company"), will be held on
February 8, 2000, at 10:00 a.m. local time, at the Company's corporate offices
located at 650 Townsend Street, San Francisco, California 94103, for the
following purposes, as more fully described in the proxy statement accompanying
this notice:
1. To elect directors;
2. To approve the adoption of the Company's 2000 Employee Stock
Purchase Plan under which 1,325,000 shares of common stock have
been reserved for issuance;
3. To approve certain amendments to the Company's 1998 Stock Incentive
Plan, the effect of which is to increase the number of shares
available for grant under such plan;
4. To appoint KPMG LLP as independent auditors of the Company for the
fiscal year ending September 30, 2000; and
5. To conduct such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on December 15,
1999 are entitled to notice of and to vote at this Annual Meeting. The stock
transfer books will not be closed between the record date and the date of the
meeting. A list of stockholders entitled to vote at this Annual Meeting will be
available for inspection at the executive offices of the Company.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed proxy as
promptly as possible in the envelope enclosed for your convenience. Should you
receive more than one proxy because your shares are registered in different
names and addresses, each proxy should be signed and returned to assure that all
your shares are voted. You may revoke your proxy at any time prior to this
Annual Meeting. If you attend this Annual Meeting and vote by ballot, your proxy
will be revoked automatically and only your vote by ballot at the meeting will
be counted.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND
MAIL THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE FOR
MAILING IN THE UNITED STATES. A PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION
WILL BE APPRECIATED.
BY ORDER OF THE BOARD OF DIRECTORS
Steven M. Harris
Vice President and Secretary
January 12, 2000
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SOFTNET SYSTEMS, INC.
650 Townsend Street, Suite 225
San Francisco, California 94103
PROXY STATEMENT
FOR THE 2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 8, 2000
General
The enclosed proxy is solicited on behalf of the Board of Directors
(the "Board of Directors" or the "Board") of SoftNet Systems, Inc., a Delaware
corporation (the "Company"), for use at the 2000 Annual Meeting of Stockholders
(the "Annual Meeting"). The Annual Meeting will be held at 10:00 a.m. on
February 8, 2000 at the Company's corporate offices located at 650 Townsend
Street, San Francisco, California 94103. These proxy solicitation materials were
mailed on or about January 13, 2000 to all stockholders entitled to vote at the
Annual Meeting.
Voting
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying notice and are described in more
detail in this proxy statement. On December 15, 1999, the record date for
determination of stockholders entitled to notice of and to vote at the Annual
Meeting (the "Record Date"), 23,768,843 shares of the Company's common stock,
$.01 par value ("Common Stock"), were issued and outstanding. Each stockholder
is entitled to one vote for each share of Common Stock held by such stockholder
on December 15, 1999.
A majority of the outstanding shares entitled to vote at the Annual
Meeting will constitute a quorum. Each share has one vote on all matters to be
voted upon at the Annual Meeting. If choices are not specified on the proxy, the
shares will be voted for the proposals described herein. Under Delaware law,
abstentions and broker non-votes will be counted towards determining the
presence of a quorum. With respect to all proposals, abstentions and broker
non-votes will have the effect of a negative vote. A broker non-vote occurs when
a nominee holding shares for a beneficial owner does not vote for a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner. Thus, abstentions and broker non-votes can have the effect of preventing
approval of a proposal where the number of affirmative votes, though a majority
of the votes cast, does not constitute a majority of the required quorum.
The following outlines the vote required to approve each proposal set
forth in this proxy:
o Proposal One, to elect directors, requires approval by a
plurality of the shares of Common Stock present in person or
by proxy at the Annual Meeting.
o Proposal Two, to approve the adoption of the Company's 2000
Employee Stock Purchase Plan under which 1,325,000 shares of
Common Stock have been reserved for issuance, requires
approval by at least a majority of the shares of Common Stock
present in person or by proxy at the Annual Meeting.
o Proposal Three, to approve certain amendments to the Company's
1998 Stock Incentive Plan, the effect of which is to increase
the number of shares available for
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grant under such plan, requires approval by at least a
majority of the shares of Common Stock present in person or by
proxy at the Annual Meeting.
o Proposal Four, to appoint KPMG LLP as independent auditors of
the Company for the fiscal year ending September 30, 2000,
requires approval by at least a majority of the shares of
Common Stock present in person or by proxy at the Annual
Meeting.
As of the Record Date, the current Directors and executive officers of
the Company have the right to vote 408,727 shares, representing 1.72% of the
outstanding Common Stock, and have advised the Company that their present intent
is to vote in favor of each proposal and all persons nominated as directors.
The Board of Directors recommends a vote FOR each proposal.
Revocability of Proxies
You may revoke or change your proxy at any time before the Annual
Meeting by filing with the Secretary of the Company at the Company's principal
executive offices, a notice of revocation or another signed proxy with a later
date. You may also revoke your proxy by attending the Annual Meeting and voting
in person.
Solicitation
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional soliciting materials furnished to stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by a solicitation by
telephone, telegram, or other means by directors, officers, employees or a
professional solicitation company. Except as described above, the Company does
not presently intend to solicit proxies other than by mail.
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RISK FACTORS
The Company faces certain risks in operating its business, and the
Company's securityholders face certain risks in holding the Company's
securities. Please see the Company's Annual Report on Form 10-K for the year
ended September 30, 1999, which is incorporated by reference herein.
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE
ELECTION OF DIRECTORS
The number of directors has been fixed by the Board of Directors at
nine. At the Annual Meeting, eight directors are to be elected to hold office
until the next annual meeting of stockholders or until their successors are
elected and qualified. Pacific Century Cyberworks Limited has the right to
nominate the ninth director pursuant to a stock purchase agreement between the
Company and Pacific Century Cyberworks Limited. Pacific Century Cyberworks
Limited is expected to exercise such right after the Annual Meeting. Such
nominee will fill the vacancy on the Board of Directors until the 2001 annual
meeting of stockholders or until such other time as his or her successor is
elected and qualified. Mr. Chan was nominated to the Board pursuant to the stock
purchase agreement between the Company and Pacific Century Cyberworks Limited.
Mr. Commisso was nominated to the Board pursuant to a stockholder agreement
between the Company and Mediacom, LLC. In the event Mr. Commisso is not elected
to the Board of Directors at the Annual Meeting, the Company is obligated under
the stockholder agreement with Mediacom to issue to Mediacom one share of
preferred stock which will carry certain rights regarding representation on the
Board of Directors, including the right to elect one director so long as
Mediacom owns more then 5% of the outstanding Common Stock. It is intended that
the proxies (except proxies marked to the contrary) will be voted for the
nominees listed below. It is expected that the nominees will serve, but if any
nominee declines or is unable to serve for any unforeseen cause, the proxies
will be voted to fill any vacancy so arising in accordance with the
discretionary authority of the persons named in the proxies.
Nominees
The following table set forth certain information concerning the
nominees, all of whom are members of the present Board of Directors:
Name of Nominee Age Position
--------------- --- --------
Lawrence B. Brilliant........ 55 Chairman of the Board and Chief Executive
Officer
Ronald I. Simon.............. 61 Vice Chairman of the Board
Ian B. Aaron................. 39 Director, President
Edward A. Bennett............ 53 Director
George C. Chan............... 47 Director
Rocco B. Commisso............ 49 Director
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Name of Nominee Age Position
--------------- --- --------
Sean P. Doherty.............. 42 Director
Robert C. Harris, Jr......... 53 Director
Lawrence B. Brilliant has served as a member of SoftNet's Board of
Directors since January 1998, Chairman of the Board since April 1999 and Chief
Executive Officer since April 1998. In addition, Dr. Brilliant served as Vice
Chairman of the Board and President from April 1998 until April 1999. Prior to
joining SoftNet, Dr. Brilliant served as President and Chief Executive Officer
of Brilliant Color Cards, a telephone debit/calling card company, from 1989 to
1998. Dr. Brilliant is a founder of MultiVox Communications, a switched
telephone reseller. Dr. Brilliant is also a founder of the International
Telecard Association and has served as Director and Chairman Emeritus since
1992. Dr. Brilliant was also a founder of The Well in 1984 when he was CEO of
Network Technologies, Inc. Dr. Brilliant has also been a professor at the
University of Michigan and has served as a medical officer with the United
Nations
Ronald I. Simon has served as a member of SoftNet's Board of Directors
since September 1995, Chairman of the Board from August 1997 until April 1999
and Vice Chairman of the Board since April 1999. Mr. Simon has served as
Director (since September 1999) Executive Vice President (since April 1999) and
Chief Financial Officer (since May 1997) of Western Water Company, a developer
and marketer of water and water rights. Mr. Simon has also served as Director of
Westcorp Investments, a wholly-owned subsidiary of Westcorp, Inc., a holding
company for Western Financial Bank, Director of Citadel Corporation, a real
estate investment company, since 1995 and a Director of Collateral Therapeutics
Inc., a developer of non-surgical gene therapy procedures for the treatment of
cardiovascular diseases, since May 1999. In addition, Mr. Simon served as
Chairman and Chief Financial Officer of Sonant Corporation, an interactive voice
response equipment company, from 1993 to 1997.
Ian B. Aaron has served as a member of SoftNet's Board of Directors
since October 1994 and President since April 1999. In addition, Mr. Aaron has
served as President of the Company's wholly-owned subsidiary, ISP Channel, Inc.,
since June 1996 and Vice President of SoftNet from December 1997 until April
1999. Prior to joining SoftNet, Mr. Aaron served as President of Communicate
Direct, Inc., a telecommunications company, from 1988 to October 1994 and as
Director of Marketing, Sales and Product Development at GTE Business
Communications.
Edward A. Bennett has served as a member of SoftNet's Board of
Directors since January 1998. Mr. Bennett has served as President and Chief
Executive Officer of Bennett Media Collaborative, a new media, Internet and
technology consulting company, since June 1997, Director and Vice Chairman of
methodfive LLC, an Internet services company, since June 1997, Director of
Engage Technologies Inc. since January 1999 and Director of Real Names Corp. Mr.
Bennett also served as President and Chief Executive Officer of Prodigy
Ventures, an Internet/technology investment firm from June 1996 to June 1997 and
as President and Chief Executive Officer of Prodigy Services Corporation, an
Internet services company from 1995 to June 1996. Furthermore, Mr. Bennett
served as President and Chief Executive Officer of VH-1 Network, a television
programming company, from 1989 to 1994.
George C. Chan has served as a member of the Company's Board of
Directors since December 1999. Mr. Chan has been an Executive Vice President of
Pacific Century Group, a diversified holding company located in Hong Kong, since
January 1994. Mr. Chan is a director of several companies, both affiliated and
not affiliated with Pacific Century Group, in the investment, financial
services, consultancy, administrative and management services, technology and
property, advertising, and interactive data services industries.
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Rocco B. Commisso has served as a member of the Company's Board of
Directors since December 1999. Mr. Commisso has 21 years of experience with the
cable television industry and has served as Chairman and Chief Executive Officer
of Mediacom LLC since its founding in July 1995. From August 1986 to March 1995,
he served as Executive Vice President, Chief Financial Officer and Director of
Cablevision Industries Corporation, the eighth largest cable television company
in the United States before its sale to Time Warner. Prior to that time, Mr.
Commisso served as Senior Vice President of Royal Bank of Canada's affiliate in
the United States from 1981 to August 1986, where he founded and directed a
specialized lending group to media and communications companies. Mr. Commisso
began his association with the cable television industry in 1978 at The Chase
Manhattan Bank, where he was assigned to manage the bank's lending activities to
communications firms including the cable television industry. He serves on the
board of directors of the National Cable Television Association.
Sean P. Doherty has served as a member of SoftNet's Board of Directors
since May 1998. Mr. Doherty is currently an owner and Managing Partner of
Shoreline Associates I, LLC, a private Silicon Valley investment firm that
invests in management buyouts, special equity and venture capital for companies
in the telecommunications and broadcasting industries. From 1995 to 1997, Mr.
Doherty was a co-founder of @Home, serving as @Home's Chief Operating Officer
and later as the President of @Home's business-to-business services division,
@Work. Mr. Doherty was previously the founder and Chief Executive Officer of
TEAM Software, a developer of workgroup applications for the Internet and
corporate networks. Mr. Doherty has also served as President of TradeNet, Inc.,
an on-line transaction network for commodities traders.
Robert C. Harris, Jr. has served as a member of SoftNet's Board of
Directors since May 1998. Mr. Harris has served as a Senior Managing Director
and Head of Investment Banking in the San Francisco office of Bear, Stearns &
Co. Inc. since November 1997. Mr. Harris also serves as Director of MDSI Mobile
Data Solutions, Inc. and Xoom.com. From 1989 to 1997, Mr. Harris was a
co-founder and a Managing Director of Unterberg Harris, a registered
broker-dealer and investment advisory firm. From 1984 to 1989, Mr. Harris was a
General Partner, Managing Director, and Director of Alex. Brown & Sons.
Board Meetings and Committees
The Board of Directors held 13 meetings and took action by written
consent 10 times during the fiscal year ended September 30, 1999. Each director
attended at least 75% of the meetings of the Board of Directors and the
Committees on which he served.
The Board of Directors has four standing committees: the Audit
Committee, the Compensation Committee, the Secondary Stock Committee and the
Executive Committee. There is no nominating committee, however, the Executive
Committee performed the tasks of the nominating committee during the fiscal
year.
The Audit Committee, currently consisting of Messrs. Bennett, Doherty
and Simon, held one meeting during the fiscal year ended September 30, 1999. The
Audit Committee meets with the Company's financial management and its
independent accountants and reviews internal control conditions, audit plans and
results, and financial reporting procedures.
The Compensation Committee, currently consisting of Messrs. Bennett,
Harris and Simon, held one meeting and took action by written consent three
times during the fiscal year. The Compensation Committee reviews and approves
the Company's compensation arrangements for key employees and has co-authority
with the Secondary Stock Committee to administer the Company's 1998 Stock
Incentive Plan and 1999 Supplemental Stock Incentive Plan.
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The Secondary Stock Committee, currently consisting of Dr. Brilliant,
took action by written consent 11 times during the fiscal year. The Secondary
Stock Committee has primary authority to administer the Company's 1998 Stock
Incentive Plan and the 1999 Supplemental Stock Incentive Plan.
The Executive Committee, currently consisting of Dr. Brilliant, Mr.
Bennett and Mr. Simon, took action by written consent twice during the fiscal
year. The Executive Committee has all the authority of the Board, except with
respect to items requiring stockholder approval or submission, the filling of
Board or Committee vacancies, fixing director compensation, amending or adopting
Bylaws or amending or appealing Board resolutions that are not amenable or
repealable.
Director Compensation
Members of the Board who are not employees of the Company or of a
subsidiary of the Company are each paid a monthly retainer fee of $1,000 in
connection with their attendance and participation at board meetings. Mr. Simon
is paid an additional $1,500 per month for his services as Vice Chairman of the
Board. In addition, Board members are reimbursed for certain reasonable expenses
incurred in attending Board or committee meetings.
Upon joining the Board, each non-employee Board member also receives a
purchase option grant for shares of Common Stock under the 1998 Plan. In
addition, existing non-employee directors will each receive options to purchase
20,000 shares of Common Stock at the annual stockholders meeting to be held
during 2001 and additional options to purchase 20,000 shares of Common Stock at
each third Annual Stockholders Meeting thereafter if such person continues to be
a director.
Dr. Brilliant and Mr. Aaron each receive compensation for their
services as executive officers of the Company. A description of these
compensation arrangements are set forth under "Executive Compensation --
Employment and Change of Control Agreements."
A description of other transactions between directors and the Company
is set forth below in "Certain Relationships and Related Transactions."
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE ELECTION
OF THE NAMED NOMINEES.
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PROPOSAL TWO
TO APPROVE THE ADOPTION OF THE COMPANY'S 2000 EMPLOYEE STOCK
PURCHASE PLAN UNDER WHICH 1,325,000 SHARES OF COMMON STOCK HAVE BEEN
RESERVED FOR ISSUANCE
On October 29, 1999, the Board of Directors unanimously adopted the
SoftNet Systems, Inc. 2000 Employee Stock Purchase Plan (the "Purchase Plan").
The following is a summary of the Purchase Plan, as adopted by the
Board. This summary is not intended to be complete, and reference should be made
to the Purchase Plan (a copy of which was filed with the Commission as an
Appendix to this Proxy Statement and is available from the Company at 650
Townsend Street, Suite 225, San Francisco, California 94103, Attn: Mr. Steven M.
Harris, Secretary) for a complete statement of the Purchase Plan's terms.
Purpose of the Purchase Plan
The purpose of the Purchase Plan is to assist eligible employees of the
Company and its designated subsidiary corporations in acquiring stock ownership
in the Company pursuant to a plan which is intended to qualify as an "employee
stock purchase plan," within the meaning of Section 423(b) of the Internal
Revenue Code of 1986, as amended (the "Code"). Another purpose of the Purchase
Plan is to help employees provide for their future security and to encourage
them to remain in the employment of the Company and its subsidiary corporations.
Under the Purchase Plan, an eligible employee who elects to participate will be
granted options to purchase shares of the Common Stock through payroll
deductions at a discount from the then current market price without payment of
commissions or other charges. Through employee ownership of the Common Stock,
the Company intends to help to further align the employees' interests with those
of the Company's stockholders generally. The proceeds received by the Company
from the sale of shares of Common Stock pursuant to the Purchase Plan will be
used for general corporate purposes.
The Purchase Plan will become effective on April 1, 2000. The Purchase
Plan is not subject to the provisions of the Employee Retirement Income Security
Act of 1974, as amended, and is not a qualified plan under Section 401(a) of the
Code.
Description of the Purchase Plan
Securities Subject to the Purchase Plan
The total number of shares of Common Stock that initially may be sold
under the Purchase Plan is 1,325,000. During the term of the Purchase Plan, this
amount will be increased by 100,000 shares on January 1 of each year, beginning
on January 1, 2001. The shares of Common Stock sold may be unissued or treasury
shares or shares purchased on the open market. The Purchase Plan provides for
appropriate adjustment in the number and kind of shares of stock for which
options may be granted, and the number and kind of shares of stock which may be
sold pursuant to the Purchase Plan, in the event of a stock split, stock
dividend, reorganization or other specified changes in the capitalization of the
Company.
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Eligible Persons
Employees of the Company and the subsidiary corporations of the Company
designated by the Board generally will be eligible to participate in the
Purchase Plan and will receive options to purchase shares of Common Stock under
the Purchase Plan.
An employee will not be eligible to participate in the Purchase Plan if
such employee: (i) immediately after an option is granted under the Purchase
Plan, owns (or is treated as owning) shares of Common Stock or other stock
possessing 5% or more of the total voting power or value of all classes of stock
of the Company (and any parent corporation and subsidiary corporation of the
Company), or (ii) whose customary employment is for 20 hours or less per week.
Directors of the Company (or any parent corporation or subsidiary
corporation of the Company) who are not employees will not be eligible to
participate in the Purchase Plan.
Grant of Options
The Company will grant options under the Purchase Plan to all eligible
employees who elect to participate in the Purchase Plan commencing on April 1,
2000. This first offering period will end on June 30, 2000. Commencing with July
1, 2000, the Company will grant options under the Purchase Plan to all eligible
employees who elect to participate in the Purchase Plan in successive six-month
offering periods. The offering periods will be: (i) July 1 through and including
the following December 31, and (ii) January 1 through and including the
following June 30, of each year. The Company will grant an option to each
eligible employee on the first day of an offering period. The Company will grant
options under the Purchase Plan until the number of shares of Common Stock
available under the Purchase Plan have been sold.
As required under Section 423(b)(8) of the Code, no employee may be
granted an option under the Purchase Plan that permits his or her rights to
purchase shares of Common Stock or other stock under the Purchase Plan (and
under all other employee stock purchase plans of the Company, any parent
corporation and any subsidiary corporation of the Company) to accrue at a rate
which exceeds $25,000 of the fair market value (determined as of the date of
grant of the option) of such Common Stock or other stock for any calendar year.
Election to Participate; Payroll Deductions
Each participating employee will participate in the Purchase Plan by
means of payroll deductions. A participating employee will be required to
deliver a completed and executed written payroll deduction authorization to the
Company during the three-week period immediately prior to the commencement of
the offering period. The payroll deduction authorization will be the employee's
election to participate in the offering period and subsequent offering periods.
The payroll deduction authorization will designate the percentage of
the participating employee's base compensation to be deducted for purposes of
the Purchase Plan, and will authorize payroll deductions by his or her employer.
The payroll deductions will occur on each payday during the offering period and
may be in any whole percentage of base compensation not exceeding 15%. Base
compensation is the total gross pay received by an employee and will include
overtime payments, incentive compensation, bonuses, and the like.
An eligible employee may change his or her payroll deduction
authorization during an offering period to any whole percentage of base
compensation not exceeding 15%. A participating employee may also withdraw from
participation during an offering period. See "Withdrawal from the Purchase
Plan."
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A participating employee's payroll deduction authorization will remain
in effect for subsequent offering periods, unless the employee delivers a new
authorization to the Company no later than the date which is two weeks prior to
the commencement of the subsequent offering period, withdraws from participation
during a prior offering period, or is not an eligible employee on the first day
of the subsequent offering period.
Exercise of Options
Each employee participating in the Purchase Plan, automatically and
without any act on such employee's part, will be deemed to have exercised his or
her option on the last day of the offering period for which the option was
granted. A participating employee's option will be exercised to the extent that
the employee's cumulative payroll deductions for the offering period are
sufficient to purchase, at the applicable option price, whole shares of Common
Stock. A participating employee may not purchase more than 200,000 shares of
Common Stock upon the exercise of the option with respect to any offering
period. No fractional shares of Common Stock will be sold under the Purchase
Plan. Any payroll deductions not applied to purchase of whole shares of Common
Stock will remain credited to such participating employee's account and carried
forward for purchase of shares of Common Stock pursuant to the exercise of the
option on the last day of the subsequent offering period.
Following the end of an offering period, each participating employee
will be provided with a report showing the amount of his or her cumulative
payroll deductions and the number of shares of Common Stock purchased upon the
exercise of the option for the offering period.
Option Price; Discount to Fair Market Value
The option price for a share of Common Stock purchased under the
Purchase Plan for an offering period will be 85% of the Lesser Of: (i) the Fair
Market Value of a Share of the Common Stock On the Date of Option Exercise
(i.e., the last day of the offering period with respect to which the option was
granted), and (ii) the fair market value of a share of the Common Stock on the
date of option grant (i.e., the first day of the offering period with respect to
which the option was granted).
The fair market value of a share of Common Stock as of a given date
will be: (i) the closing price of a share of Common Stock on the principal
exchange on which the Common Stock is then trading on such date (or the next
preceding trading day, if the Common Stock is not traded on that date); (ii) if
the Common Stock is not traded on an exchange, but is quoted on the Nasdaq or a
successor quotation system, the last sale price for a share of Common Stock, as
reported by the Nasdaq National Market (if listed as a National Market Issue),
or the mean between the closing representative bid and asked prices for a share
of Common Stock, as reported by Nasdaq or such successor quotation system (if
not listed as a National Market Issue), on such date (or the next preceding
trading day, if the Common Stock is not traded on that date); (iii) if the
Common Stock is not publicly traded on an exchange, Nasdaq or a successor
quotation system, the mean between the closing bid and asked prices for a share
of Common Stock on such date (or the next preceding trading day, if the Common
Stock is not traded on that date), as determined by the Board of Directors
acting in good faith; or (iv) if the Common Stock is not publicly traded, the
fair market value of a share of Common Stock established by the Board of
Directors acting in good faith.
Withdrawal From the Purchase Plan
An participating employee may withdraw from participation under the
Purchase Plan during an offering period at any time other than the last two
weeks of the offering period. Upon withdrawal, the employee's cumulative payroll
deductions will be refunded to the employee without interest. An
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employee who withdraws from the Purchase Plan and is eligible for a subsequent
offering period may participate in such offering period by delivering a payroll
deduction authorization to the Company during the three-week period immediately
prior to the commencement of the subsequent offering period.
Expiration of Options
Each option granted for an offering period will expire on the last day
of the offering period, immediately after the automatic exercise of the option
pursuant to the terms of the Purchase Plan. Except in the case of death or
retirement of an employee, an employee's participation in the Purchase Plan will
automatically terminate on the date of termination of employment with the
Company and its subsidiary corporations. Upon such termination, the employee's
cumulative payroll deductions will be refunded to the employee without interest.
In the case of retirement or death, the employee (or the employee's
estate) may notify the Company of such employee's (or employee's estate's)
desire to have the cumulative payroll deductions refunded. Upon receipt of such
notice, the employee's cumulative payroll deductions will be refunded to the
employee without interest. If the Company does not receive such notice prior to
the next date of the exercise under the Purchase Plan, the employee's option
will be exercised on such date.
Non-Transferability of Options
A participating employee's option under the Purchase Plan will not be
transferable, other than by will or the laws of descent and distribution, and
will be exercisable during a employee's lifetime only by the employee.
Rights as Stockholders
A participating employee will not be deemed to be a stockholder of the
Company solely as a result of participation in the Purchase Plan. The
participating employee will not have any of the rights or privileges of a
stockholder with respect to shares of Common Stock offered under the Purchase
Plan until the employee's option is exercised and the Company issues a
certificate for the shares of Common Stock covered by the option.
Administration
The Purchase Plan will be administered by the Company, acting through
its Chief Executive Officer or his or her delegate. The Company, acting through
its Chief Executive Officer or his or her delegate, will have full power to
interpret the Purchase Plan and to establish and amend rules for the
administration of the Purchase Plan.
Amendment and Termination of the Purchase Plan
The Board may amend, suspend or terminate the Purchase Plan at any time
and from time to time, provided that the approval by a vote of the holders of
more than 50% of the outstanding shares of the Company's capital stock entitled
to vote will be required to amend the Purchase Plan to: (i) increase the maximum
number of shares of the Common Stock reserved for issuance under the Purchase
Plan, (ii) in any manner change the eligibility requirements of the Purchase
Plan (other than change the designation of the subsidiary corporations
participating in the Purchase Plan); (iii) materially increase the benefits
accruing to eligible employees under the Purchase Plan or (iv) any degree which
would cause the Purchase Plan to no longer be an employee stock purchase plan
under Section 423 of the Code.
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Federal Income Tax Consequences
The following summarizes the Federal income tax consequences of an
employee's participation in the Purchase Plan and is not intended to be a
complete description of the tax consequences. This summary does not address
Federal employment taxes, state and local income taxes and other taxes that may
be applicable.
Grant of Option; Exercise of Option
A participating employee will not recognize taxable income on the date
the employee is granted an option under the Purchase Plan (i.e., the first day
of the offering period). In addition, the employee will not recognize taxable
income on the date the option is exercised (i.e., the last day of the offering
period).
Sale of Common Stock After the Holding Period
If an employee does not sell or otherwise dispose of the shares of
Common Stock purchased upon exercise of his or her option under the Purchase
Plan within two years after the date on which the option is granted or within
one year after the date on which the shares of Common Stock are purchased (the
"Holding Period"), or if the employee dies while owning the shares of Common
Stock, the employee will be taxed in the year in which he or she sells or
disposes of the shares of Common Stock, or the year closing with his or her
death, whichever applies, as follows:
o The employee will recognize ordinary income in an amount equal to
the lesser of:
-- the excess, if any, of the fair market value of the shares
of Common Stock on the date on which such shares are sold
or otherwise disposed, or the date on which the employee
died, over the amount paid for the shares of Common Stock,
or
-- the excess of the fair market value of the shares of
Common Stock on the date the option was granted, over the
option price (determined assuming that the option was
exercised on the date granted) for such shares of Common
Stock; and
o The employee will recognize as capital gain any further gain
realized (after increasing the tax basis in the shares of Common
Stock by the amount of ordinary income recognized as described
above).
Sale of Common Stock During the Holding Period
If the employee sells or otherwise disposes of the shares of the Common
Stock purchased upon exercise of his or her option under the Purchase Plan
before the Holding Period expires, and the amount realized is greater than or
equal to the fair market value of the shares of Common Stock on the date of
exercise, the employee will be taxed in the year in which he or she sells or
disposes of the shares of Common Stock as follows:
o The employee will recognize ordinary income to the extent of the
excess of the fair market value of the shares of Common Stock on
the date on which the option was exercised, over the option price
for such shares of Common Stock; and
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o The employee will recognize as capital gain any further gain
realized (after increasing the tax basis in the shares of Common
Stock by the amount of ordinary income recognized as described
above).
If the employee sells or otherwise disposes of the shares of Common
Stock before the Holding Period expires, and the amount realized is less than
the fair market value of the shares of Common Stock on the date of exercise, the
employee will be taxed in the year in which he or she sells or disposes of the
shares of Common Stock as follows:
o The employee will recognize ordinary income to the extent of the
excess of the fair market value of the shares of Common Stock on
the date on which the option was exercised, over the option price
for such shares of Common Stock; and
o The employee will recognize capital loss to the extent the fair
market value of the shares of Common Stock on the exercise date
exceeds the amount realized on the sale or other disposition.
The Company's Deduction
The Company (or the subsidiary corporation that employs the employee)
is entitled to a tax deduction only to the extent that the employee recognizes
ordinary income because the employee sells or otherwise disposes of the shares
of Common Stock before the Holding Period expires.
Vote Required
The affirmative vote of a majority of the outstanding shares of the
Company's Common Stock entitled to vote at the Annual Meeting is required to
approve this Proposal Two. Abstentions and broker non-votes will have the effect
of votes against this proposal.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THIS PROPOSAL TWO: TO APPROVE THE ADOPTION OF THE COMPANY'S 2000
EMPLOYEE STOCK PURCHASE PLAN UNDER WHICH 1,325,000 SHARES OF COMMON STOCK HAVE
BEEN RESERVED FOR ISSUANCE.
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PROPOSAL THREE
TO APPROVE CERTAIN AMENDMENTS TO THE COMPANY'S 1998 STOCK INCENTIVE
PLAN, THE EFFECT OF WHICH IS TO INCREASE THE NUMBER OF SHARES AVAILABLE
FOR GRANT UNDER SUCH PLAN
The Company's stockholders are being asked to approve certain
amendments to the Company's 1998 Stock Incentive Plan (the "1998 Plan") which
will increase the number of shares reserved for issuance under the 1998 Plan.
The first amendment is to increase the base amount reserved under the 1998 plan
by 2,000,000 shares, from 3,350,668 to 5,350,668 shares. The second amendment is
to increase the number of shares reserved for issuance under the 1998 Plan for
2000 by an additional 3% of the amount of Common Stock outstanding as of
December 31, 1999. The third amendment is to increase the percentage amount of
the automatic yearly increases from 4% to 7%, subject to a 4,000,000 share per
year cap. Each of these amendments is described in more detail below.
The primary purpose of the amendment is to ensure that the Company will
have a sufficient reserve of Common Stock available under the 1998 Plan to
attract quality employees and encourage employees, and non-employee directors to
remain in the Company's service and more closely align their interests with
those of the stockholders. The increase being made based on the advice of an
independent compensation consultant and is necessary to satisfy anticipated
hiring requirements in light of the Company's expansion both domestically and
internationally.
The 1998 Plan was originally adopted by the Board of Directors on
October 8, 1998 and approved by the Company's stockholders in April 1999. The
Board of Directors approved the amendments to the 1998 Plan which is the subject
of this proposal on October 29, 1999 and December 13, 1999.
The following is a summary of the principal features of the 1998 Plan.
Any stockholder of the Company who wishes to obtain a copy of the actual plan
document may do so upon written request to the Company at 650 Townsend Street,
Suite 225, San Francisco, California 94103, Attn: Mr. Steven M. Harris,
Secretary.
Equity Incentive Programs
The 1998 Plan consists of five (5) separate equity incentive programs:
(i) the Discretionary Option Grant Program, (ii) the Stock Issuance Program,
(iii) the Salary Investment Option Grant Program, (iv) the Automatic Option
Grant Program and (v) the Director Fee Option Grant Program. The principal
features of each program are described below. The Compensation Committee has the
exclusive authority to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to option grants and stock issuances made to the
Company's executive officers and non-employee Board members. Both the
Compensation Committee and the full Board have separate but concurrent authority
to make option grants and stock issuances under those programs to all other
eligible individuals. The Board has delegated this authority to the Secondary
Stock Committee. The Compensation Committee also has complete discretion to
select the individuals who are to participate in the Salary Investment Option
Grant Program, but all grants made to the selected individuals will be governed
by the express terms of that program.
The term Plan Administrator, as used in this summary, means either the
Compensation Committee, the Secondary Stock Committee or the Board, to the
extent each such entity is acting within the scope of its administrative
jurisdiction under the 1998 Plan. However, neither the Compensation
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Committee, the Secondary Stock Committee nor the Board exercises any
administrative discretion under the Automatic Option Grant and Director Fee
Option Grant Programs for the non-employee Board members. All grants under those
latter programs will be made in strict compliance with the express provisions of
each such program.
Share Reserve
Currently, a total of 3,350,668 shares of Common Stock have been
authorized for issuance over the term of the 1998 Plan. In addition, the number
of shares of Common Stock reserved for issuance under the 1998 Plan will
automatically be increased on the first trading day of each calendar year,
beginning in calendar year 2000, by an amount equal to 4% of the total number of
shares of Common Stock outstanding on the last trading day of the preceding
calendar year, but in no event will any such annual increase exceed 2,000,000
shares, subject to adjustment for subsequent stock splits, stock dividends and
similar transactions.
By this proposal, the Company is asking the stockholders to increase
the base number of shares of Common Stock authorized under the 1998 Plan by
2,000,000 to 5,350,668. The Company is also asking the stockholders to increase
the automatic yearly reserve increase from 4% to 7% per year and increase the
cap on this annual increase from 2,000,000 shares to 4,000,000 shares. If the
stockholders approve this proposal, the number of shares reserved for issuance
under the 1998 Plan will automatically be increased on the first trading day of
each calendar year, beginning in calendar year 2001, by 7% of the total number
of shares of Common Stock outstanding on the last trading day of the preceding
calendar year, but in no event will any such annual increase exceed 4,000,000
shares, subject to adjustment for subsequent stock splits, stock dividends and
similar transactions. Finally, the Company is asking the stockholders to
increase the number of shares reserved for issuance under the 1998 Plan for the
calendar year 2000 by an additional 3% of the amount of Common Stock outstanding
as of December 31, 1999.
In addition, all outstanding options under the Company's 1995 Long
Term Incentive Plan (the "1995 Plan") were incorporated into the 1998 Plan. The
incorporated options will continue to be governed by their existing terms,
unless the Stock Option Committee as administrator of the 1998 Plan elects to
extend one or more features of the 1998 Plan to those options. Each such option
granted under the 1995 Plan has an exercise price per share equal to the fair
market value of the Common Stock on the grant date and does not have a term in
excess of ten years measured from the grant date. The option generally becomes
exercisable in a series of installments over the optionee's period of service
with the Company. Upon an acquisition of the Company pursuant to a merger or
asset sale, the option will, at the discretion of the Stock Option Committee,
either be assumed by any successor entity, with or without accelerated vesting
of the option shares, or terminate upon the acquisition following a thirty
(30)-day period during which the option will be exercisable in full on an
accelerated basis.
No participant in the 1998 Plan may receive option grants, separately
exercisable stock appreciation rights or direct stock issuances for more than
500,000 shares of Common Stock in the aggregate per calendar year, subject to
adjustment for subsequent stock splits, stock dividends and similar
transactions.
The shares of Common Stock issuable under the 1998 Plan may be drawn
from shares of the Company's authorized but unissued Common Stock or from shares
of Common Stock reacquired by the Company, including shares repurchased on the
open market.
Shares subject to any outstanding options under the 1998 Plan
(including options incorporated from the predecessor 1995 Plan) which expire or
otherwise terminate prior to exercise will be available for subsequent issuance.
Unvested shares issued under the 1998 Plan and subsequently repurchased by the
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Company pursuant to its repurchase rights under the 1998 Plan will also be
available for subsequent issuance.
Eligibility
Employees, non-employee Board members and independent consultants in
the service of the Company or its parent and subsidiaries (whether now existing
or subsequently established) will be eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs. The Company's executive
officers and other highly paid employees will also be eligible to participate in
the Salary Investment Option Grant Program, and non-employee members of the
Board will also be eligible to participate in the Automatic Option Grant and
Director Fee Option Grant Programs.
As of October 31, 1999, five executive officers, four non-employee
Board members and approximately 250 other employees and consultants were
eligible to participate in the Discretionary Option Grant and Stock Issuance
Programs. The five executive officers and approximately 130 other individuals
were eligible to participate in the Salary Investment Option Grant Program, and
the four non-employee Board members were also eligible to participate in the
Automatic Option Grant and Director Fee Option Grant Programs.
Valuation
The fair market value per share of Common Stock on any relevant date
under the 1998 Plan is currently deemed to be equal to the closing selling price
per share on that date on NASDAQ. On December 15, 1999, the closing selling
price per share on NASDAQ was $26.00.
Discretionary Option Grant Program
The options granted under the Discretionary Option Grant Program may be
either incentive stock options under the federal tax laws or non-statutory
options. Each granted option will have an exercise price per share not less than
one hundred percent (100%) of the fair market value per share of Common Stock on
the option grant date, and no granted option will have a term in excess of ten
(10) years. The shares subject to each option will generally vest in one or more
installments over a specified period of service measured from the grant date.
Upon cessation of service, the optionee will have a limited period of
time in which to exercise any outstanding option to the extent exercisable for
vested shares. The Plan Administrator will have complete discretion to extend
the period following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability or
vesting of such options in whole or in part. Such discretion may be exercised at
any time while the options remain outstanding, whether before or after the
optionee's actual cessation of service.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
Tandem stock appreciation rights which provide the holders
with the right to surrender their options for an appreciation
distribution from the Company equal in amount to the excess of (a) the
fair market value of the vested shares of Common Stock subject to the
surrendered option over (b) the aggregate exercise price payable for
such shares. Such appreciation distribution may, at the discretion of
the Plan Administrator, be made in cash or in shares of Common Stock.
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Limited stock appreciation rights which may be granted to
officers of the Company as part of their option grants. Any option with
such a limited stock appreciation right may (whether or not the option
is at the time exercisable for vested shares) be surrendered to the
Company upon the successful completion of a hostile tender offer for
more than fifty percent (50%) of the Company's outstanding voting
securities. In return for the surrendered option, the officer will be
entitled to a cash distribution from the Company in an amount per
surrendered option share equal to the excess of (a) the tender offer
price paid per share over (b) the exercise price payable per share
under such option.
The Plan Administrator will have the authority to effect the
cancellation of outstanding options under the Discretionary Option Grant Program
which have exercise prices in excess of the then current market price of Common
Stock and to issue replacement options with an exercise price based on the
market price of Common Stock at the time of the new grant.
Salary Investment Option Grant Program
The Plan Administrator will have complete discretion in implementing
the Salary Investment Option Grant Program for one or more calendar years and in
selecting the executive officers and other eligible individuals who are to
participate in the program for those years. As a condition to such
participation, each selected individual must, prior to the start of the calendar
year of participation, file with the Plan Administrator an irrevocable
authorization directing the Company to reduce his or her base salary for the
upcoming calendar year by a specified dollar amount not less than $10,000 nor
more than $50,000 and apply that amount to the acquisition of a special option
grant under the program.
Each selected individual who files such a timely election will
automatically be granted, on the first trading day in January of the calendar
year for which that salary reduction is to be in effect, a non-statutory option
to purchase that number of shares of Common Stock determined by dividing the
salary reduction amount by two-thirds of the fair market value per share of
Common Stock on the grant date. The option will be exercisable at a price per
share equal to one-third of the fair market value of the option shares on the
grant date. As a result, the total spread on the option shares at the time of
grant (the fair market value of the option shares on the grant date less the
aggregate exercise price payable for those shares) will be equal to the salary
reduction amount. The option will become exercisable in a series of twelve (12)
equal monthly installments over the calendar year for which the salary reduction
is to be in effect and will become exercisable in full on an accelerated basis
upon certain changes in the ownership or control of the Company. Each option
will remain exercisable for any vested shares subject to the option until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the end
of the three (3)-year period measured from the date of the optionee's cessation
of service.
Stock Issuance Program
Shares may be issued under the Stock Issuance Program for such valid
consideration under the Delaware General Corporation Law as the Plan
Administrator deems appropriate, provided the value of such consideration is not
less than the fair market value of the issued shares on the date of issuance.
Shares may also be issued solely as a bonus for past services.
The shares issued as a bonus for past services will be fully vested
upon issuance. All other shares issued under the program will be subject to a
vesting schedule tied to the performance of service or the attainment of
performance goals. The Plan Administrator will have the sole and exclusive
authority, exercisable upon a participant's termination of service, to vest any
or all unvested shares of Common
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Stock at the time held by that participant, to the extent the Plan Administrator
determines that such vesting provides an appropriate severance benefit under the
circumstances.
Automatic Option Grant Program
Each individual who is first elected or appointed as a non-employee
Board member at any time on or after the October 8, 1998 (the "Effective Date")
will automatically be granted, on the date of such initial election or
appointment, a non-statutory option to purchase 20,000 shares of Common Stock,
provided that individual has not previously been in the employ of the Company
(or any parent or subsidiary). In addition, each such individual will
automatically be granted one or more additional non-statutory options for 20,000
shares of Common Stock, with the first such additional 20,000-share grant to be
made at the Annual Stockholders Meeting which is held in the third calendar year
after the calendar year in which he or she received the initial 20,000-share
grant, and each such additional 20,000-share grants to be made at every third
Annual Stockholders Meeting held thereafter. However, such additional
20,000-share option grants will only be made to each non-employee Board member
who is to continue to serve as such after the Annual Meeting at which the
additional 20,000-share option grant is to be made.
Each individual who is serving as a non-employee Board member as of the
Effective Date will automatically be granted a non-statutory option for 20,000
shares of Common Stock at the Annual Stockholders Meeting held in 2001 and will
automatically be granted an additional 20,000-share option at every third Annual
Stockholders Meeting held thereafter. However, these 20,000-share automatic
option grants will only be made to non-employee Board members who are to
continue to serve as such following the Annual Meeting at which such option
grants are made.
There will be no limit on the number of such additional 20,000-share
option grants any one non-employee Board member may receive over his or her
period of Board service, and non-employee Board members who have previously been
in the employ of the Company (or any parent or subsidiary) or who have otherwise
received a stock option grant from the Company prior to the Effective Date will
be eligible to receive one or more such additional 20,000-share option grants
over their period of continued Board service.
Each option under the Automatic Option Grant Program will have an
exercise price per share equal to 100% of the fair market value per share of
Common Stock on the option grant date and a maximum term of ten years measured
from the grant date. The option will be immediately exercisable for all the
option shares, but any purchased shares will be subject to repurchase by the
Company, at the exercise price paid per share, upon the optionee's cessation of
Board service prior to vesting in those shares. The shares subject to each
automatic option grant will vest (and the Company's repurchase rights will
lapse) in six (6) successive equal semi-annual installments upon the optionee's
completion of each six (6) months of Board service over the thirty-six
(36)-month period measured from the option grant date.
The shares subject to each outstanding automatic option grant will
immediately vest should the optionee die or become permanently disabled while a
Board member or should any of the following events occur while the optionee
continues in Board service: (i) an acquisition of the Company by merger or asset
sale, (ii) the successful completion of a tender offer for more than fifty
percent (50%) of the outstanding voting securities or (iii) a change in the
majority of the Board occasioned by one or more contested elections for Board
membership. Each automatic option grant held by an optionee upon his or her
termination of Board service will remain exercisable, for any or all of the
option shares in which the optionee is vested at the time of such termination,
for up to a twelve (12)-month period following such termination date.
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Each option granted under the program will have a limited stock
appreciation right which will allow the optionee to surrender that option to the
Company upon the successful completion of a hostile tender offer for more than
fifty percent (50%) of the Company's outstanding voting securities. In return
for the surrendered option, the optionee will be entitled to a cash distribution
from the Company in an amount per surrendered option share equal to the excess
of (a) the tender offer price paid per share over (b) the exercise price payable
per share under such option. Stockholder approval of this proposal will also
constitute pre-approval of the grant of each such limited stock appreciation
right and the subsequent exercise of that right in accordance with the foregoing
provisions.
Director Fee Option Grant Program
For each calendar year that the Director Fee Option Grant Program is in
effect, as determined by the Plan Administrator, each non-employee Board member
may elect to apply all or a portion of his or her annual retainer fee otherwise
payable in cash that year (currently $12,000 for directors and $30,000 for the
Vice Chairman) to the acquisition of a special option grant under the Director
Fee Option Grant Program. The election must be made prior to the start of the
calendar year for which such election will be in effect, and the grant will
automatically be made on the first trading day in January following the filing
of such election. The option will have an exercise price per share equal to
one-third of the fair market value of the option shares on the grant date, and
the number of option shares will be determined by dividing the dollar amount of
the retainer fee subject to the election by two-thirds of the fair market value
per share of Common Stock on the option grant date. As a result, the total
spread on the option (the fair market value of the option shares on the grant
date less the aggregate exercise price payable for those shares) will be equal
to the portion of the retainer fee subject to the non-employee Board member's
election. Stockholder approval of this proposal will also constitute approval of
each option grant made pursuant to the provisions of the Director Fee Option
Grant Program and the subsequent exercise of that option in accordance with the
terms of such program.
Each option granted under the program will become exercisable for the
option shares in a series of twelve (12) successive equal monthly installments
upon the optionee's completion of each month of Board service during the
calendar year of the option grant. In the event the optionee ceases Board
service for any reason (other than death or permanent disability), the option
will immediately terminate with respect to any option shares for which the
option is not otherwise at that time exercisable. Should the optionee's service
as a Board member ceases by reason of death or permanent disability, then the
option will immediately become exercisable for all the shares of Common Stock
subject to the option. Each option may be exercised, for any or all of the
shares for which that option is at the time exercisable, until the earlier of
(i) the expiration of the ten (10)-year option term or (ii) the end of the three
(3)-year period measured from the date of the optionee's cessation of Board
service.
Each option granted under the program will have a limited stock
appreciation right which will allow the optionee to surrender that option to the
Company upon the successful completion of a hostile tender offer for more than
fifty percent (50%) of the Company's outstanding voting securities. In return
for the surrendered option, the optionee will be entitled to a cash distribution
from the Company in an amount per surrendered option share equal to the excess
of (a) the tender offer price paid per share over (b) the exercise price payable
per share under such option.
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General Provisions
Acceleration
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program will
automatically accelerate in full, unless assumed by the successor corporation or
replaced with a cash incentive program which preserves the spread existing on
the unvested option shares (the excess of the fair market value of those shares
over the option exercise price payable for such shares) and provides for
subsequent payout in accordance with the same vesting schedule in effect for the
option. In addition, all unvested shares outstanding under the Discretionary
Option Grant and Stock Issuance Programs will immediately vest, except to the
extent the Company's repurchase rights with respect to those shares are to be
assigned to the successor corporation. The Plan Administrator will have complete
discretion to grant one or more options under the Discretionary Option Grant
Program which will become fully exercisable for all the option shares in the
event those options are assumed in the acquisition and the optionee's service
with the Company or the acquiring entity terminates within a designated period
following such acquisition. The vesting of outstanding shares under the Stock
Issuance Program may also be structured to accelerate upon similar terms and
conditions.
The Plan Administrator will also have the authority to grant options
which will immediately vest upon an acquisition of the Company, whether or not
those options are assumed by the successor corporation. As of the date of this
proxy statement, the Plan Administrator has adopted a proposal whereby options
with respect to any employee will fully vest in the event there is an
acquisition of the company and such employee is terminated without cause within
one year of such acquisition. The Plan Administrator is also authorized under
the Discretionary Option Grant and Stock Issuance Programs to grant options and
to structure repurchase rights so that the shares subject to those options or
repurchase rights will immediately vest in connection with a change in control
of the Company (whether by successful tender offer for more than fifty percent
(50%) of the outstanding voting stock or a change in the majority of the Board
by reason of one or more contested elections for Board membership), with such
vesting to occur either at the time of such change in control or upon the
subsequent termination of the individual's service within a designated period
(not to exceed eighteen months) following such change in control.
Each option outstanding under the Salary Investment Option Grant,
Automatic Option Grant and Director Fee Option Grant Programs will also
automatically accelerate in the event the Company should be acquired or other
change in control of the Company occur.
The outstanding options under the 1995 Plan which are to be
incorporated into the 1998 Plan will, at the discretion of the Stock Option
Committee, either be assumed by the successor entity in any acquisition of the
Company, with or without accelerated vesting of the option shares, or terminate
upon the acquisition following a thirty (30)-day period during which the option
will be exercisable in full on an accelerated basis. In addition, the Plan
Administrator will have the discretion to extend one or more of the vesting
acceleration provisions of the 1998 Plan to those options.
The acceleration of vesting in the event of a change in the ownership
or control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
Financial Assistance
The Plan Administrator may institute a loan program to assist one or
more participants in financing the exercise of outstanding options or the
purchase of shares under the 1998 Plan. The Plan Administrator will determine
the terms of any such assistance. However, the maximum amount of
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financing provided any participant may not exceed the cash consideration payable
for the issued shares plus all applicable taxes incurred in connection with the
acquisition of the shares.
Changes in Capitalization
In the event any change is made to the outstanding shares of Common
Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to (i) the maximum number and/or class of securities issuable under
the 1998 Plan, (ii) the number and/or class of securities for which any one
person may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances under the 1998 Plan per calendar year, (iii)
the maximum number and/or class of securities by which the share reserve is to
increase each calendar year by reason of the automatic share increase provisions
of the 1998 Plan, (iv) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members and (v) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option (including the options incorporated from the 1995 Plan) in order to
prevent the dilution or enlargement of benefits thereunder.
Amendment and Termination
The Board may amend or modify the 1998 Plan in any or all respects
whatsoever subject to any required stockholder approval. The Board may terminate
the 1998 Plan at any time, and the 1998 Plan will in all events terminate on
October 8, 2008.
Federal Income Tax Consequences
Option Grants
Options granted under the 1998 Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code or non-statutory options which are not intended to meet such requirements.
The Federal income tax treatment for the two types of options differs as
follows:
Incentive Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise disposed
of. For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. A qualifying disposition occurs if the sale
or other disposition is made after the optionee has held the shares for more
than two (2) years after the option grant date and more than one (1) year after
the exercise date. If either of these two holding periods is not satisfied, then
a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized upon
the disposition will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the
20
<PAGE>
excess of (i) the fair market value of such shares on the option exercise date
over (ii) the exercise price paid for the shares. If the optionee makes a
qualifying disposition, the Company will not be entitled to any income tax
deduction.
Non-statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
Stock Appreciation Rights
No taxable income is recognized upon receipt of an SAR. The holder will
recognize ordinary income, in the year in which the SAR is exercised, in an
amount equal to the excess of the fair market value of the underlying shares of
Common Stock on the exercise date over the base price in effect for the
exercised right, and the holder will be required to satisfy the tax withholding
requirements applicable to such income.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the holder in connection with the
exercise of an SAR. The deduction will be allowed for the taxable year in which
such ordinary income is recognized.
Direct Stock Issuances
The tax principles applicable to direct stock issuances under the 1998
Plan will be substantially the same as those summarized above for the exercise
of non-statutory option grants.
Accounting Treatment
Under current accounting principles, neither the grant nor the exercise
of options granted under the 1998 Plan with exercise prices equal to the fair
market value of the option shares on the grant date will generally result in any
charge to the Company's reported earnings. However, the Company must disclose,
in footnotes and pro-forma statements to the Company's financial statements, the
impact those options would have upon the Company's reported earnings were the
fair value of those options at the time
21
<PAGE>
of grant treated as a compensation expense. In addition, the number of
outstanding options under the 1998 Plan may be a factor in determining the
Company's earnings per share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights under
the 1995 Plan that have no conditions upon exercisability other than a service
or employment requirement, then such rights would result in a compensation
expense to be charged against the Company's reported earnings. Accordingly, at
the end of each fiscal quarter, the amount (if any) by which the fair market
value of the shares of Common Stock subject to such outstanding stock
appreciation rights has increased from the prior quarter-end would be accrued as
compensation expense, to the extent such fair market value is in excess of the
aggregate exercise price in effect for those rights.
Stock Awards
<TABLE>
The table below shows, as to Company's Chief Executive Officer ("CEO"),
the four most highly compensated executive officers of the Company other than
the CEO (with base salary and bonus for the past fiscal year in excess of
$100,000), and the other individuals and groups indicated, the number of shares
of Common Stock subject to options granted under the 1998 Plan and the
predecessor 1995 Plan between the date of the adoption of the 1995 Plan,
September 15, 1995, and October 31, 1999, together with the weighted average
exercise price payable per share. The Company has not made any direct stock
issuances or granted any SARs to date under either the 1998 Plan or the 1995
Plan.
OPTION TRANSACTIONS
<CAPTION>
WEIGHTED
NUMBER OF SHARES AVERAGE
UNDERLYING OPTIONS EXERCISE PRICE
NAME AND POSITION GRANTED (#) PER SHARE ($)
----------------- ------------------ --------------
<S> <C> <C>
Dr. Lawrence B. Brilliant........................... 555,000 $10.55
Chairman and Chief Executive Officer
Garrett J. Girvan................................... 240,000 $10.61
Chief Operating Officer
Ian B. Aaron........................................ 360,000 $8.68
President
Douglas S. Sinclair.................................. 180,000 $11.50
Chief Financial Officer
Steven M. Harris..................................... 120,000 $10.18
Vice President and Secretary
All current executive officers as a group (five)(1).. 1,455,000 $10.18
All current non-employee directors as a group
(four)(2)....................................... 390,000 $14.39
All current employees, including
current officers who are not
executive officers, as a group(3)............... 1,634,020 $19.54
22
<PAGE>
<FN>
- --------------
(1) On December 16, 1999, the Compensation Committee approved a grant of stock
options to the executive offcers and other members of management. On
January 3, 2000, Lawrence Brilliant, Garrett Girvan, Ian Aaron and Steven
Harris will receive, respectively, options to purchase 400,000, 175,000,
140,000 and 15,000 shares of Common Stock. On February 9, 2000, subject to
stockholder approval of this proposal three, Lawrence Brilliant, Garrett
Girvan, Ian Aaron and Steven Harris will receive, respectively, options to
purchase 50,000, 50,000, 35,000, and 10,000 shares of Common Stock. The
exercise price of these options will be equal to the closing price of the
Common Stock as reported on NASDAQ on the date of their issuance.
(2) Does not include options granted to Rocco Commisso or George Chan, who
became directors as of December 25, 1999, which is after the date this
proxy statement was printed. Under the 1998 Plan, they will each receive
options to purchase 20,000 shares of Common Stock with an exercise price
equal to the closing price of the Common Stock as reported on NASDAQ on
January 3, 2000.
(3) Includes options under the 1999 Supplemental Stock Incentive Plan, in which
directors and executive officers are not eligible to participate, and
certain non-plan employee options.
</FN>
</TABLE>
As of October 31, 1999, 2,868,233 shares of Common Stock were subject
to outstanding options under the 1998 Plan (including those shares rolled into
the 1998 Plan from the 1995 Plan), 33,043 shares remained available for future
option grants and 449,392 shares have been issued in connection with option
exercises.
New Plan Benefits
The following table lists the number of shares subject to options
granted to the CEO, the four most highly compensated executive officers of the
Company other than the CEO (with base salary and bonus for the last fiscal year
in excess of $100,000) and the other groups indicated which will not become
exercisable unless the stockholders approve this proposal. In the event that the
stockholders do not approve the amendments to the 1998 Plan, the following
options will not be issued.
AMENDED 1998 STOCK INCENTIVE PLAN
WEIGHTED
NUMBER OF AVERAGE
NAME AND POSITION OPTION SHARES (#) EXERCISE PRICE ($)
----------------- ----------------- ------------------
Dr. Lawrence B. Brilliant ................... 50,000 *
Chief Executive Officer
Garrett J. Girvan ........................... 50,000 *
Chief Operating Officer
Ian B. Aaron ................................ 35,000 *
President
Steven M. Harris ............................ 10,000 *
Vice President and Secretary
All current executive officers as a
group (five) ................................ 145,000 *
All current non-employee directors as
a group (five) .............................. 0 *
All employees, including current officers
who are not executive officers, as a group .. 40,000 *
- ---------
* If this proposal three is approved, the exercise price will be equal to the
closing price of the Common Stock as reported on NASDAQ on February 9,
2000.
Deductibility of Executive Compensation
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options will qualify as performance-based
compensation for purposes of Code Section 162(m) and will not have to be taken
into account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain executive officers of the
Company. Accordingly, all compensation deemed paid with respect to those options
will remain deductible by the Company without limitation under Code Section
162(m).
Vote Required
The affirmative vote of at least a majority of the shares of Common
Stock present in person or by proxy at the Annual Meeting is required for
approval of the amendments to the 1998 Plan.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS UNANAMOUSLY RECOMMENDS THE STOCKHOLDERS VOTE "FOR" THIS
PROPOSAL THREE: TO APPROVE CERTAIN AMENDMENTS TO THE COMPANY'S 1998 STOCK
INCENTIVE PLAN, THE EFFECT OF WHICH IS TO INCREASE THE NUMBER OF SHARES
AVAILABLE FOR GRANT UNDER SUCH PLAN.
23
<PAGE>
PROPOSAL FOUR
CONFIRMATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG LLP to audit the financial
statements of the Company for the year ending September 30, 2000, and recommends
that the stockholders confirm the selection. Confirmation of this selection
requires approval by at least a majority of the shares of Common Stock present
in person or by proxy at the Annual Meeting. In the event of a negative vote,
the Board will reconsider its selection.
Representatives of KPMG LLP are expected to be present at the Annual
Meeting, will have the opportunity to make a statement if they so desire, and
are expected to be available to respond to appropriate questions.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
CONFIRMATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
24
<PAGE>
BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Common Stock as of October 31, 1999 by (i)
each person known by the Company to be the beneficial owner of more than five
percent of the outstanding shares of the Common Stock, (ii) each current
director of the Company, (iii) the Chief Executive Officer and each of the other
executive officers of the Company and (iv) all executive officers and directors
of the Company as a group. All shares are subject to the named person's sole
voting and investment power except where otherwise indicated.
Beneficial ownership is determined in accordance with the rules of the
Commission. Shares of Common Stock which are issued and outstanding are deemed
to be beneficially owned by any person who has or shares voting or investment
power with respect to such shares. Shares of Common Stock which are issuable
upon exercise of options or warrants are deemed to be issued and outstanding and
beneficially owned by any person who has or shares voting or investment power
over such shares only if the options or warrants in question are exercisable
within 60 days of October 31, 1999 and, in any event, solely for purposes of
calculating that person's percentage ownership of SoftNet's Common Stock (and
not for purposes of calculating the percentage ownership of any other person).
The number of shares of Common Stock deemed outstanding and used in the
denominator for determining percentage ownership for each person equals (i)
18,042,834 shares of Common Stock outstanding as of October 31, 1999 plus (ii)
such number of shares of Common Stock as are issuable pursuant to options,
warrants or convertible securities held by that person (and excluding options
held by other persons) which may be exercised within 60 days of October 31,
1999.
<TABLE>
The pro forma percentage information assumes that the Company has
issued, as of October 31, 1999, to Mediacom, LLC and Pacific Century Cyberworks
Limited 3,500,000 and 5,000,000 shares of Common Stock, respectively, which the
Company issued in several tranches during November and December 1999.
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Pro Forma
Percentage of Percentage of
Outstanding Outstanding
Name of Beneficial Owner Number of Shares Shares Shares
of Common Stock Beneficially Beneficially
Beneficially Owned Owned Owned
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Executive Lawrence B. Brilliant (1) 183,538 1.0 *
Officers and Ian B. Aaron (2) 330,559 1.8 1.2
Directors: Garrett J. Girvan (3) 71,456 * *
Douglas S. Sinclair (4) 38,999 * *
Steven M. Harris (5) 35,874 * *
Ronald I. Simon (6) 18,499 * *
Edward A. Bennett (7) 76,666 * *
George C. Chan (8) -- -- --
Rocco B. Commisso (8) -- -- --
Sean P. Doherty (9) 91,471 * *
Robert C. Harris, Jr. (10) 23,334 * *
As a Group (Eleven): 870,396 4.7 3.2
- -------------------------------------------------------------------------------------------------------------------
5% Owners: Pacific Century Cyberworks Limited 5,000,000 -- 18.8
Mediacom, LLC 3,500,000 -- 13.2
Dresdner RCM Capital Management 1,404,600 7.8 5.3
- -------------------------------------------------------------------------------------------------------------------
<FN>
* Less than 1%
25
<PAGE>
(1) Includes 69,147 shares issuable pursuant to options exercisable within 60
days of October 31, 1999.
(2) Includes 142,644 shares issuable pursuant to options exercisable within 60
days of October 31, 1999.
(3) Includes 61,456 shares issuable pursuant to options exercisable within 60
days of October 31, 1999.
(4) Includes 38,999 shares issuable pursuant to options exercisable within 60
days of October 31, 1999.
(5) Includes 31,874 shares issuable pursuant to options exercisable within 60
days of October 31, 1999.
(6) Includes 5,833 shares issuable pursuant to options exercisable within 60
days of October 31, 1999.
(7) Includes 61,666 shares issuable pursuant to options exercisable within 60
days of October 31, 1999.
(8) Messrs. Chan and Commisso each received an option to purchase 20,000 shares
of Common Stock on January 3, 2000 under the automatic option grant program
of the 1998 Plan. The options are immediately exercisable for restricted
shares of Common Stock that are subject to certain repurchase rights by the
Company.
(9) Includes 32,341 shares issuable pursuant to options exercisable within 60
days of October 31, 1999,
(10) Includes 23,334 shares issuable pursuant to options exercisable within 60
days of October 31, 1999.
</FN>
</TABLE>
26
<PAGE>
EXECUTIVE COMPENSATION
Executive Officers
<TABLE>
The executive officers and certain other key employees of the Company
are listed below:
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
Lawrence B. Brilliant...... 55 Chairman of the Board and Chief Executive Officer
Garrett J. Girvan.......... 54 Chief Operating Officer
Ian B. Aaron............... 39 President
Douglas S. Sinclair........ 45 Chief Financial Officer
Steven M. Harris........... 45 Vice President, Secretary, and General Counsel
Carol Sorrick.............. 43 Vice President and General Manager, Intelligent Communications, Inc.
Kevin Gavin................ 40 Senior Vice President, Marketing
Jonathan B. Marx........... 48 Senior Vice President, Customer Sales
</TABLE>
Dr. Brilliant's and Mr. Aaron's backgrounds are summarized under
"Election of Directors - Nominees" above.
Garrett J. Girvan has served as SoftNet's Chief Operating Officer since
April 1998 and also served as SoftNet's Chief Financial Officer from April 1998
to November 1998. Prior to joining SoftNet, Mr. Girvan held various positions at
Viacom Cable over a 13-year period, including Chief Financial Officer and Chief
Operating Officer. While at Viacom, Mr. Girvan was involved in the development
of Viacom's broadband services.
Douglas S. Sinclair has served as SoftNet's Chief Financial Officer
since November 1998. Prior to joining SoftNet, Mr. Sinclair served as Chief
Financial Officer of Silicon Valley Networks, Inc., a provider of test
management software to telecommunications and networking companies, from April
1998 to November 1998, Chief Financial Officer of International Wireless
Communications, Inc., an international cellular business operator, from 1995 to
April 1998, Chief Financial Officer of Pittencrieff Communications Inc., then a
leading provider of trunked radio services in the southwest United States, from
1993 to 1995 and Chief Financial Officer of Pittencrieff plc., an oil and gas
company based in the United Kingdom, from 1990 to 1993. Mr. Sinclair took both
Pittencrieff plc and Pittencrieff Communications Inc. public during his tenures
as Chief Financial Officer. International Wireless Communications, Inc. filed
for protection under the bankruptcy laws of the United States in September 1998.
Steven M. Harris has served as SoftNet's Vice President, Secretary and
General Counsel since August 1998. Prior to joining SoftNet, Mr. Harris worked
at Pacific Telesis Group, most recently as Vice President of Broadband Services,
where he was responsible for external affairs and policy planning for video
services and broadband networks. Previously, he was Executive Director of
Regulatory Planning and Policy for Pacific Bell with responsibility for federal
and state regulatory policies relating to competition, corporate structure,
interconnection, privacy and new technologies. He began with Pacific Telesis
Group in 1983 as Executive Director of Regulatory Relations, in Washington, D.C.
Mr. Harris was Commissioner's Assistant and Special Assistant to the General
Counsel at the Federal Communications Commission and was previously in private
practice.
Carol Sorrick has served as SoftNet's Vice President and Intelligent
Communications' General Manager since August 1999. Prior to joining SoftNet, she
was Vice President of Marketing for Centigram Communications. From September
1997 to May 1998, she was Vice President of
27
<PAGE>
International Marketing for Unisys Corporation. From October 1979 to August 1997
she served in various capacities at Pacific Bell, including Vice President of
Marketing.
Kevin Gavin has served as SoftNet's Senior Vice President, Marketing
since November 1998. Prior to joining SoftNet, he served as Regional Vice
President of Teligent, Inc. From November 1991 to January 1996, he was Vice
President of Marketing and Product Development at Nextel Communications. From
1981 to 1991, Mr. Gavin held various marketing and sales positions at Warner
Cable Communications, Inc., American Cablesystems, Inc., and McCaw Cellular
Communications, Inc.
Jonathan B. Marx has served as SoftNet's Senior Vice President,
Customer Sales and Service since March 1999. Prior to joining SoftNet, he served
as Vice President, Service Operations of TiVo, Inc. From 1996-1997, he was Vice
President, Strategy and Business Development for the Smart Yellow Pages division
of Pacific Bell Directory, Inc. From 1982 to 1996, he served in various
capacities at Viacom Cable, including Senior Vice President and Vice President,
Operations.
Summary of Cash and Certain Other Compensation
<TABLE>
The following table sets forth information for the last three fiscal
years concerning compensation paid or accrued by the Company to (i) the current
and former Chief Executive Officer of the Company and (ii) the four other most
highly compensated executive officers of the Company whose total annual salary
and incentive compensation for fiscal year 1999 exceeded $100,000 (collectively,
the "Named Officers").
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------- ------------
Other Annual Securities
Compensation Underlying
Name and Principal Position Year Salary ($) Bonus ($) ($) Options (#)
- --------------------------- ---- ---------- --------- --- -----------
<S> <C> <C> <C> <C> <C>
Lawrence B. Brilliant (1) 1999 $322,523 $150,000 $6,600 355,000
Chairman and Chief Executive Officer 1998 128,396 -- -- 200,000
1997 -- -- -- --
Garrett J. Girvan (2) 1999 $253,458 $75,000 $7,200 165,000
Chief Operating Officer 1998 $89,623 -- -- 75,000
1997 -- -- -- --
Ian B. Aaron (3) 1999 $226,971 $75,000 $6,600 138,500
President 1998 $202,889 -- -- 174,500
1997 $156,000 -- -- 16,000
Douglas Sinclair (4) 1999 $196,971 0 $5,400 180,000
Chief Financial Officer 1998 -- -- -- --
1997 -- -- -- --
Steven M. Harris 1999 $175,000 $25,000 0 120,000
General Counsel and Secretary 1998 $22,212 -- -- --
1997 --
<FN>
- ---------------------
(1) Dr. Brilliant's annual salary was increased effective January 1, 1999 from
$250,000 to $350,000.
(2) Mr. Girvan's annual salary was increased effective January 1, 1999 from
$200,000 to $275,000.
(3) Mr. Aaron's annual salary was increased effective January 1, 1999 from
$200,000 to $237,500.
28
<PAGE>
(4) Mr. Sinclair joined the Company as Chief Financial Officer on November 13,
1998. Mr. Sinclair's annual salary was increased effective January 1, 1999
from $200,000 to $237,500.
</FN>
</TABLE>
Stock Option Information
<TABLE>
Option Grants in Fiscal 1999. The following table sets forth
information with respect to stock options granted by the Company to the Named
Officers during Fiscal 1999. No stock appreciation rights were granted in Fiscal
1999.
Individual Grants
<CAPTION>
Potential Realizable
Number of Value at Assumed
Securities Percent of Total Exercise Annual Rates of Stock Price
Underlying Options Granted or Base Appreciation for
Options to Employees in Price Expiration Option Term(5)
Name Granted(#)(1) Fiscal Year(2) ($/Sh)(3) Date(4) 5%($) 10%($)
------ ------------- -------------- --------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Lawrence B. Brilliant ................. 255,000 10.52 7.38 10/8/08 1,182,715 2,997,232
100,000 4.13 24.19 6/24/09 1,521,139 3,854,864
Garrett J. Girvan ..................... 125,000 5.16 7.38 10/8/08 579,762 1,469,231
40,000 1.65 24.19 6/24/09 608,456 1,541,946
Ian B. Aaron .......................... 98,500 4.06 7.38 10/8/08 456,853 1,157,754
40,000 1.65 24.19 6/24/09 608,456 1,541,946
Douglas S. Sinclair ................... 180,000 7.43 11.50 11/13/08 1,301,812 3,299,047
Steven M. Harris ...................... 100,000 4.13 7.38 10/8/08 463,810 1,175,385
20,000 0.83 24.19 6/24/09 304,228 770,973
<FN>
- --------------------
(1) Options granted under the 1995 Long-Term Incentive Plan generally become
exercisable at a rate of one-third of the shares of Common Stock underlying
to the option at the end of each year until fully vested or the employee
leaves the Company. Options granted under the 1998 Stock Incentive Plan
generally become exercisable for 25% of the option shares upon completion
of one (1) year of service measured from the grant date and for the balance
of the option shares in a series of 36 successive equal monthly
installments over the three (3) year period of service thereafter.
(2) The Company granted options to employees to purchase 2,423,200 shares of
Common Stock during Fiscal 1999. In addition, options to purchase 90,500
shares were granted to non-employee consultants during Fiscal 1999.
(3) The exercise price may be paid in (a) cash, (b) shares of Common Stock held
for the requisite period to avoid a charge to the Company's earnings for
financial reporting purposes, (c) through a same-day sale program or (d)
subject to the discretion of the Plan Administrator, by delivery of a
full-recourse, secured promissory note payable to the Company. Numbers are
rounded to the nearest tenth.
(4) The term of the options is typically 10 years.
(5) Potential realizable value is based on the assumption that the price of the
Common Stock underlying the option appreciates at the annual rate shown,
compounded annually from the date of grant until the end of the option
term. The values are calculated in accordance with rules promulgated by the
SEC and do not reflect the Company's estimate of future stock appreciation.
</FN>
</TABLE>
<TABLE>
Aggregated Year-end Option Values. The following table sets forth
certain information concerning the number of options exercised by the Named
Officers during the fiscal year ended September 30, 1999, and the number of
shares covered by both exercisable and unexercisable stock options held by the
Named Officers as of September 30, 1999. Also reported are values for
"in-the-money" options that represent the positive spread between the respective
exercise prices of outstanding options and the fair market value of the
Company's Common Stock as of September 30, 1999 ($24.375).
29
<PAGE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options at
at September 30, 1999 (#) September 30, 1999 ($)
------------------------------ -----------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence B. Brilliant .............. 100,832 2,225,957 2,500 451,668 43,750 5,917,314
Garrett J. Girvan .................. 0 0 25,000 215,000 390,625 2,913,750
Ian B. Aaron ....................... 41,666 1,455,706 109,166 209,168 1,910,405 2,929,025
Douglas S. Sinclair ................ 0 0 0 180,000 0 2,317,500
Steven M. Harris ................... 0 0 17,603 102,397 299,251 1,404,499
</TABLE>
Ten-Year Option Repricings. On November 15, 1996, the
Compensation/Stock Option Committee approved a stock option repricing program to
provide employee option holders additional opportunity and incentive to achieve
business plan goals. All options held by employees on that date were repriced to
$4.94 per share, which was the market price on such date. All other terms of the
options remained the same and, accordingly, there was no change to the vesting
or term of any option.
<TABLE>
The table below presents the required disclosure with respect to any
repricing of options held by any Named Officers during the last ten completed
years.
<CAPTION>
Length of Original
Number of Securities Market Price of Exercise Price Option Term
Underlying Options Stock at Time at Time of Remaining at Date
Repriced or of Repricing or Repricing or New Exercise of Repricing or
Name Date Amended (#) Amendment ($) Amendment ($) Price ($) Amendment (Years)
- ---- ---- ----------- ------------- ------------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Ian B. Aaron .......... 2/28/96 31,000 $ 8.25 $ 12.75 $ 8.25 9.6
11/15/96 31,000(1) $ 4.94 $ 8.25 $ 4.94 8.9
<FN>
(1) Options repriced on February 28, 1996 at the then current market price of
$8.25 and were further repriced on November 15, 1996 at the then current
market price of $4.94.
</FN>
</TABLE>
Employment and Change of Control Agreements
On April 7, 1998, the Company entered into an employment agreement with
Lawrence B. Brilliant, a director of the Company, pursuant to which Dr.
Brilliant was appointed Vice Chairman of the Board, President and Chief
Executive Officer of the Company for a term of three years. Under the terms of
this employment agreement, Dr. Brilliant was granted an annual salary of
$250,000 per year plus such bonuses as the Compensation Committee may establish
from time to time. Concurrently with the signing of this employment agreement,
Dr. Brilliant received a Non-Qualified Stock Option to purchase from the Company
a total of 125,000 shares of Common Stock under the terms of the Long Term
Incentive Plan. In addition, Dr. Brilliant would receive $1.1 million in the
event of a change of control involving the Company's valuation at greater than
$12 per share.
Under the Company's 1998 Stock Incentive Plan, in the event that the
Company is acquired by merger or sale of substantially all of its assets, each
outstanding option or other award under either the 1998 Stock Incentive Plan
will immediately vest, except to the extent the Company's obligations under that
option or award assumed by the successor corporation or such successor
corporation substitutes an award with substantially the same economic value.
Under the options issued pursuant to the Company's Amended 1995
Long-Term Incentive Plan, which were incorporated into the 1998 Stock Incentive
Plan, upon an acquisition of the Company pursuant to a merger or asset sale, the
option will, at the discretion of the Stock Option Committee, either be assumed
by any successor entity, with or without accelerated vesting of the option
shares, or terminate upon
30
<PAGE>
the acquisition following a thirty (30)-day period during which the option will
be exercisable in full on an accelerated basis.
In the event of a change of control, (1) each employee of the Company
would be credited with 12 months of service in addition to their actual time of
service for purposes of option vesting, (2) in the event an employee or director
is terminated without cause or is removed as a director within 12 months of a
change of control, all of the options granted to such employee or director,
whether granted under the Company's stock option plans or otherwise, will
automatically vest, (3) in the event an executive officer (other than the Chief
Executive Officer) or certain key employees are terminated without cause within
12 months of a change of control, such executive officer or key employee will be
entitled to a lump sum payment equal to 1.5 times the sum of his or her salary
prior to such termination and his or her last annual bonus, and (4) in the event
the Chief Executive Officer is terminated without cause within 12 months of a
change of control, such Chief Executive Officer will be entitled to a lump sum
payment equal to 2 times the sum of his or her salary prior to such termination
and his or her last annual bonus.
Indemnification of Directors and Limitation of Liability
The Company's Bylaws provide that the Company may indemnify its
directors, officers and other employees and agents to the fullest extent
permitted by law. The Company has also entered into agreements to indemnify its
directors and executive officers, in addition to the indemnification provided
for in the Company's Bylaws. The Company believes that these provisions and
agreements are necessary to attract and retain qualified directors and executive
officers. At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that might result in a claim for such indemnification. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
31
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for the Company's executive
compensation policies and for annually determining the compensation to be paid
to the executive officers of the Company.
Overview and Philosophy
The executive compensation program of the Company is intended to
provide overall levels of compensation for the executive officers which are
competitive for the industries and the geographic areas within which they
operate, the individual's experience and contribution to long-term success of
the Company. The Board believes that its task of determining fair and
competitive compensation is ultimately judgmental.
The program is composed of base salary, annual incentive compensation,
equity based incentives and other benefits generally available to all employees.
As of September 30, 1999, options on 3,392,903 shares of the Common Stock were
outstanding and 2,423,200 options were granted to employees during the fiscal
year ended September 30, 1999.
Base Salary
The base salary for each executive is intended primarily to be
competitive with companies in the industries and geographic areas in which the
Company competes. In making annual adjustments to base salary, the Board also
considers the individual's performance over a period of time as well as any
other information which may be available as to the value of the particular
individual's past and prospective future services to the Company. This
information includes comments and performance evaluations by the Company's Chief
Executive Officer and Chief Operating Officer. The Board considers all such
data; it does not prescribe the relative weight to be given to any particular
component.
Annual Incentive Compensation
Annual incentive compensation is ordinarily determined by a formula
which considers the overall operations and financial performance of the Company
and its subsidiaries.
Long-Term Incentives
In general, the Board believes that equity based compensation should
form a part of an executive's total compensation package. Stock options are
granted to executives because they directly relate the executive's earnings to
the stock price appreciation realized by the Company's stockholders over the
option period. Stock options also provide executives the opportunity to acquire
an ownership interest in the Company. The number of shares covered by each
executive's option is determined by factors similar to those considered in
establishing base salary.
Stock Option Repricing Program
On February 28, 1996, the Board of Directors approved a stock option
repricing program to provide employee option holders additional opportunity and
incentive to achieve business plan goals. The exercise prices for all options
held by employees on that date were repriced to $8.25 per share, which was the
market price on that date. All other terms of the options remained the same and,
accordingly, there was no change to the vesting or term of any option. In
addition, on November 15, 1996, the Board of Directors approved an additional
stock option repricing program to further provide employee option holders with
additional opportunity and incentive to achieve business plan goals. All options
held by
32
<PAGE>
employees on November 15, 1996 were repriced to $4.94 per share, which was the
market price on that date.
Other
Other benefits are generally those available to all other employees in
the Company, or a subsidiary, as appropriate. Together with perquisites, these
benefits did not exceed 10% of any executive's combined salary and bonus in
Fiscal 1999.
Compensation for Chief Executive Officer
The Board applies the same standard in establishing the compensation of
the Company's Chief Executive Officer as are used for other executives. However,
there are procedural differences. The Chief Executive Officer does not
participate in setting the amount and nature of the compensation.
Deduction Limit for Executive Compensation
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to publicly held companies for compensation exceeding $1 million paid
to certain of the corporation's executive officers. The limitation applies only
to compensation which is not considered to be performance-based compensation.
Compensation which qualifies as performance-based compensation will not have to
be taken into account for purposes of this limitation. The non-performance based
compensation to be paid to the Company's executive officers for Fiscal 1999 did
not exceed the $1 million limit per officer, nor is it expected that the
non-performance based compensation to be paid to the Company's executive
officers for Fiscal 2000 will exceed that limit. Because it is very unlikely
that the compensation payable to any of the Company's executive officers in the
foreseeable future will approach the $1 million limit, the Board has not taken
any action to limit or restructure the elements of cash compensation payable to
the Company's executive officers. The Board will reconsider this matter should
the individual compensation of any executive officer ever approach the $1
million level.
This report is submitted by the Compensation Committee of the Board of
Directors of the Company, as of the fiscal year ended September 30, 1999.
Edward Bennett
Robert Harris, Jr.
Ronald Simon
33
<PAGE>
PERFORMANCE GRAPH
Set forth below is a comparison of the total stockholder return on the
Company's Common Stock for the period beginning September 30, 1994 and ending
September 30, 1999 with the total stockholder return for the same period for the
indicated indices. The total stockholder return reflects the annual change in
share price, assuming an investment of $100.00 on September 30, 1994 plus the
reinvestment of dividends, if any. No dividends were paid on the Common Stock
during the period shown. The return shown is based on the annual percentage
change during each fiscal year in the five year period ended September 30, 1999.
The stock price performance shown below is not necessarily indicative of future
stock price performance.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG SOFTNET SYSTEMS, INC., THE AMEX MARKET VALUE INDEX,
THE NASDAQ STOCK MARKET (U.S.) INDEX, THE RUSSELL 2000 INDEX
AND A PEER GROUP
[ GRAPHIC OMITTED ]
* $100 INVESTED ON 9/30/94 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30, 1999.
SOFTNET SYS INC
Cumulative Total Return
--------------------------------------------------
9/94 9/95 9/96 9/97 9/98 9/99
SOFTNET SYSTEMS, INC. 100 219 94 104 156 375
PEER GROUP 100 141 221 250 281 545
AMEX MARKET VALUE 100 119 125 157 141 182
NASDAQ STOCK MARKET (U.S.) 100 138 164 225 229 372
RUSSELL 2000 100 123 140 186 154 177
34
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mediacom, LLC
The Company's wholly-owned subsidiary, ISP Channel, Inc., has an
Affiliate Agreement with Medicom, LLC, a more than five percent stockholder of
the Company. Mediacom received the shares of the Company's Common Stock owned by
it in connection with, and as an inducement to enter into and perform under, the
Affiliate Agreement. The Affiliate Agreement grants ISP Channel the exclusive
right to provide Internet access and related services over Mediacom's cable
infrastructure for the next seven years and provides for a revenue split between
ISP Channel and Mediacom. As a result of this transaction, Mediacom has the
right to nominate members to the Board of Directors in proportion to its
ownership interest of the Common Stock, and has the right to nominate at least
one member to the Board of Directors if Mediacom owns more than 5% of the
outstanding Common Stock.
Sale of Certain CDI Assets
During Fiscal 1997, Communicate Direct, Inc., a wholly-owned subsidiary
of the Company ("CDI"), sold the portion of its operations that support its
Fujitsu maintenance base in the Chicago metropolitan area to a new company
formed by John I. Jellinek, a former president and Chief Executive Officer and a
then director of the Company, and Philip Kenny, a then director of the Company.
The buyers acquired certain assets of CDI in exchange for a $209,000 promissory
note and the assumption of trade payables of approximately $750,000. In
addition, at the closing the buyers repaid $438,000 of existing Company bank
debt and entered into a sub-lease of CDI's facility in Buffalo Grove, Illinois.
At the closing, the buyer merged with Telcom Midwest, LLC. and Messrs. Jellinek
and Kenny and two other stockholders of the merged company personally guaranteed
obligations arising out of the promissory note, the sub-lease arrangement and
trade payables. The personal guarantees of the promissory note are several. The
personal guarantees of the sub-lease are limited to $400,000 and are on a joint
and several basis. The personal guarantees of trade payables are on a joint and
several basis but are limited to Messrs. Jellinek and Kenny. Concurrent with
this transaction, Messrs. Jellinek and Kenny resigned from the Company's board.
The transaction was approved by the disinterested members of the Company's
board.
Strategic Investments
The Company's wholly-owned subsidiary, SoftNet Ventures, Inc, has made
strategic investments of $250,000 each in YourDay.com, Inc. and YourStuff.com,
Inc., which represents less than 5% of the voting power of each company. Edward
A. Bennett, a director of the Company and Chairman of SoftNet Ventures, Inc.,
serves on the Board of Directors of both YourDay.com and YourStuff.com.
Investment Banking Services
Robert Harris, Jr., a director of the Company, is a senior managing
director of Bear, Stearns & Co., Inc., which, from time to time, provides the
Company with investment banking services. During the year ended September 30,
1999, the Company paid approximately $53,000 to Bear, Stearns for such services.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Company's
directors, its executive (and certain other) officers, and any person holding
more than ten percent of the Common Stock are required
35
<PAGE>
to report their ownership of Common Stock and any changes in that ownership to
the Commission and any exchange or quotation system on which the Common Stock is
listed or quoted. Specific due dates for these reports have been established and
the Company is required to report in this proxy statement any failure to file by
these dates. During the fiscal year ended September 30, 1999, to the knowledge
of the Company, all of these filings were satisfied by its directors and
officers. In making this statement, the Company has relied on the written
representations of its directors and officers and copies of the reports they
have filed with the Commission. During the fiscal year ended September 30, 1999,
the Company did not have any ten percent stockholders.
STOCKHOLDERS' PROPOSALS
Stockholders are entitled to present proposals for action at a
forthcoming meeting if they comply with the requirements of the proxy rules
promulgated by the Securities and Exchange Commission. Proposals of stockholders
of the Company intended to be presented for consideration at the Company's 2000
Annual Meeting of Stockholders must have been received by the Company no later
than October 1, 1999, in order that they may be included in the proxy statement
and form of proxy related to that meeting.
The attached proxy card grants the proxy holders discretionary
authority to vote on any matter raised at the Annual Meeting. If a stockholder
intends to submit a proposal at the 2001 Annual Meeting, which is not eligible
for inclusion in the proxy statement and form of proxy relating to that meeting,
the stockholder must do so no later than December 15, 2000. If such stockholder
fails to comply with the foregoing notice provision, the proxy holders will be
allowed to use their discretionary voting authority when the proposal is raised
at the 2001 Annual Meeting.
OTHER MATTERS
Management knows of no matters, other than those referred to in this
proxy statement, which will be presented to the Annual Meeting. However, if any
other matters properly come before the Annual Meeting or any adjournment, the
persons named in the accompanying proxy will vote it in accordance with their
best judgment on such matters.
The Company has furnished its financial statements to stockholders in
its 1999 Annual Report which accompanies this proxy statement. The 1999 Annual
Report contains a complete copy of the Company's Form 10-K for the year ended
September 30, 1999. In addition, the Company will provide, for a fee, on the
request of such stockholder, copies of exhibits to the Form 10-K. Requests for
copies of such exhibits should be directed to Steven M. Harris, Secretary, 650
Townsend Street, Suite 225, San Francisco, California 94103; telephone number
(415) 365-2500.
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<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission (File
No. 1-5270) pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1999.
2. The Company's Current Report on Form 8-K filed with the
Commission on October 15, 1999.
3. The Company's Current Report on Form 8-K filed with the
Commission on October 21, 1999.
The Company will provide, without charge, a copy of any document hereby
incorporated by reference to each stockholder who requests copies of such
documents. Requests should be made to the Company at 650 Townsend Street, Suite
225, San Francisco, California, 94103; ATTN: Steven M. Harris, Secretary.
37
<PAGE>
Appendix A
SOFTNET SYSTEMS, INC.
PROXY
Annual Meeting of Stockholders, February 8, 2000
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Lawrence B. Brilliant and Steven M.
Harris, and each of them, attorneys and proxies of the undersigned, with full
power of substitution, and hereby authorizes them to represent the undersigned
at the Annual Meeting of Stockholders (the "Annual Meeting") of SoftNet Systems,
Inc. to be held on February 8, 2000 and at any adjournments thereof, and to
vote, as designated below, all of the shares of Common Stock of the Company held
of record by the undersigned on December 15, 1999, which the undersigned is
entitled to vote, either on his own behalf or on behalf of any entity or
entities, with the same force and effect as the undersigned might or could do if
personally present thereat.
<TABLE>
<CAPTION>
This proxy, when properly executed, will be voted in the manner
directed by the undersigned. If not otherwise specified, this proxy will be
voted FOR all proposals. This proxy will be voted at the discretion of the proxy
holders on such other matters as may come before the Annual Meeting.
<S> <C>
1. To Elect Directors: Ian B. Aaron, Edward A. Bennett, Dr. Lawrence B. Brilliant, George C. Chan,
Rocco B. Commisso, Sean P. Doherty, Robert C. Harris, Jr., and Ronald I.
Simon.
[ ] FOR [ ] WITHHELD FOR, except vote withheld For the following nominees:
-----------------------------------------------------
2. To approve the adoption of the Company's 2000 Employee Stock Purchase
Plan under which 1,325,000 shares of common stock have been reserved
for issuance.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve certain amendments to the Company's 1998 Stock Incentive
Plan, the effect of which is to increase the number of shares available
for grant under such plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To appoint KPMG LLP as independent auditors of the Company for the
fiscal year ending September 30, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Each of the proxies or their substitutes as shall be present
and acting at the Annual Meeting shall have and may exercise all of the powers
of all of said proxies hereunder.
Date: ______________________________ Please print the name(s) appearing on each
certificate over which you have voting
authority:
---------------------------------------------
Please sign your name:
---------------------------------------------
</TABLE>
<PAGE>
Appendix B
SOFTNET SYSTEMS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
SOFTNET SYSTEMS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SoftNet Systems, Inc. a Delaware corporation (the "Company"), hereby
adopts the SoftNet Systems, Inc. 2000 Employee Stock Purchase Plan (the "Plan"),
effective as of the Effective Date (as defined herein).
1. Purpose. The purpose of the Plan is to assist employees of the Company
and its Designated Subsidiary Corporations (as defined below) in acquiring stock
ownership interests in the Company, pursuant to a plan which is intended to
qualify as an "employee stock purchase plan" within the meaning of Code Section
423. The Plan is intended to help employees provide for their future security
and to encourage them to remain in the employ of the Company and its Subsidiary
Corporations.
2. Definitions. Whenever one of the following terms is used in the Plan
with the first letter or letters capitalized, it shall have the following
meaning, unless the context clearly indicates to the contrary (such definitions
to be equally applicable to the singular and plural forms of the terms defined):
(a)"Administrator" shall mean the Company, acting through its Chief
Executive Officer or his or her delegate.
(b)"Authorization Card" shall mean the form prescribed by the
Administrator, which shall include a form of stock purchase agreement pursuant
to which an Eligible Employee shall purchase shares of Stock under the Plan and
a form of payroll deduction authorization pursuant to which such Eligible
Employee shall authorize the Company or a Designated Subsidiary Corporation to
deduct such Eligible Employee's contributions under the Plan.
(c) "Base Pay" shall mean total gross pay received by an Employee on
each Payday as cash compensation for services to the Company or any Designated
Subsidiary Corporation.
(d) "Board of Directors" shall mean the Board of Directors of the
Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Company" shall mean SoftNet Systems, Inc., a Delaware
corporation.
(g) "Designated Subsidiary Corporation" means any Subsidiary
Corporation designated by the Board in accordance with Section 2(u).
<PAGE>
(h) "Effective Date" shall mean the first day of the first Offer
Period, which shall be April 1, 2000.
(i) "Eligible Employee" shall mean any Employee who satisfies the
requirements of Section 4.
(j) "Employee" shall mean any person who renders services to the
Company or any Designated Subsidiary Corporation in the status of an employee
within the meaning of Code Section 3121(d). "Employee" shall not include any
director of the Company or any Subsidiary Corporation who does not render
services to the Company or any Subsidiary Corporation in the status of an
employee within the meaning of Code Section 3121(d).
(k) "Enrollment Period" shall mean, for each Offer Period, the two or
three week period (as applicable) determined in accordance with Section 6(b) or
such other period as determined by the Administrator in its discretion.
(l) "Entry Date" shall mean the date an Eligible Employee is granted
an Option during the Offer Period. The first Entry Date under the Plan shall be
the Effective Date. Subsequent Entry Dates under the Plan shall be each July 1
and January 1 during the period that the Plan is in effect.
(m) "Offer Period" shall mean the period beginning on each Entry Date
and ending on the date which is the six-month anniversary of such date;
provided, however, that the first Offer Period shall commence on the Effective
Date and end on June 30, 2000.
(n) "Option" shall mean a right granted to an Eligible Employee to
purchase shares of Stock under Section 8(a) of the Plan.
(o) "Option Price" shall mean the per share exercise price of shares
of Stock to be purchased pursuant to an Option, as provided in Section 9.
(p) "Parent Corporation" shall mean any corporation, other than the
Company, in an unbroken chain of corporations ending with the Company if, at the
time of the granting of the Option, each of the corporations other than the
Company own 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.
(q) "Participant" shall mean an Eligible Employee who elects to
participate in the Plan and complies with the provisions of Section 6.
(r) "Payday" of an Employee shall mean the regular and recurring
established day for payment of cash compensation to Employees in the same
classification or position.
2
<PAGE>
(s) "Plan" shall mean this SoftNet Systems, Inc. 2000 Employee Stock
Purchase Plan.
(t) "Purchase Date" shall mean the last day of each Offer Period on
which shares of Stock are automatically purchased for Participants under the
Plan.
(u) "Subsidiary Corporation" shall mean any corporation, other than
the Company, in an unbroken chain of corporations beginning with the Company if,
at the time of the granting of the Option, 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. Any corporation that is a Subsidiary Corporation as
of the Effective Time shall be a Designated Subsidiary Corporation for purposes
of this Plan, and such corporation's Employees shall be eligible to be granted
Options under the Plan; provided, however, that after the Effective Time, the
Board may designate from among any Subsidiary Corporations, as determined from
time to time, the Subsidiary Corporation or Subsidiary Corporations whose
Employees shall be eligible to be granted Options under the Plan. The Board may
designate a Subsidiary Corporation, or terminate the designation of a Subsidiary
Corporation, without the approval of the stockholders of the Company.
(v) "Stock" shall mean the shares of the Company's Common Stock, $.01
par value.
3. Stock Subject to the Plan.
(a) The maximum aggregate number of shares of Common Stock subject to
any Option shall not exceed 200,000 shares.
(b) The Company shall reserve for issuance under the Plan 1,325,000
shares of the Company's authorized but unissued Stock; provided, however, that
during the term of the Plan, such number of shares shall be increased by 100,000
shares on each January 1, commencing with January 1, 2001.
(c) If any Option expires or is canceled without having been fully
exercised, the number of shares subject to such Option but as to which such
Option was not exercised before its expiration or cancellation may again be
optioned hereunder, subject to the limitations of subsection (a).
(d) Any adjustment to the number of shares of Stock reserved for
issuance under the Plan shall be made only in accordance with Sections 14
(relating to recapitalization) and 17 (relating to amendments of the Plan).
4. Eligibility. Each Employee of the Company or any Designated Subsidiary
Corporation who on the first day of any Enrollment Period is customarily
employed by the Company or any Designated Subsidiary Corporation for more than
twenty (20) hours per week, shall become an Eligible Employee on such day.
3
<PAGE>
5. Purchase Rights.
(a) Options shall be granted under the Plan until the earlier of the
maximum number of shares of Stock subject to sale pursuant to Options have been
sold, or the Plan is terminated.
(b) The Plan shall be implemented under successive Offer Periods.
Subject to subsection (c), the first Offer Period will begin on the Effective
Date and will end on June 30, 2000.
(c) Under no circumstances shall any shares of Stock be issued
hereunder until such time as (i) the Plan shall have been approved by the
Company's stockholders and (ii) the Company shall have complied with all
applicable requirements of the Securities Act of 1933 (as amended), all
applicable listing requirements of any securities exchange on which shares of
the Stock are listed and all other applicable statutory and regulatory
requirements.
(d) Each Eligible Employee shall be granted a separate Option for each
Offer Period. The Option shall be granted on the Entry Date for the relevant
Offer Period and shall be automatically exercised on the last day of such Offer
Period.
6. Participation in the Plan.
(a) Each Eligible Employee may elect to participate in the Plan by
submitting to the Administrator a completed and executed Authorization Card in
accordance with subsection (b). An Eligible Employee who elects to participate
in the Plan shall elect on such Authorization Card any whole percentage of Base
Pay (such percentage not to exceed fifteen percent (15%)) to be withheld by
payroll deduction, which upon an exercise of the Option granted to such Eligible
Employee with respect to the Offer Period, shall be contributed to the Company
as payment for shares of Stock purchased pursuant to such Option. The deduction
rate authorized by any Eligible Employee shall continue in effect for the
remainder of the Offer Period and for successive Offer Periods, except to the
extent such rate is changed in accordance with the following:
(i) Each Eligible Employee may, at any one time during the period
commencing two weeks prior to a Purchase Date, increase (not to exceed fifteen
percent (15%)) or reduce his or her percentage of payroll deduction to any whole
percentage by filing a new completed and executed Authorization Card with the
Administrator (or his or her designate); provided, however, that any such
increase or reduction shall only be effective beginning on the first day of the
subsequent Offer Period.
(ii) Notwithstanding subsection (i), any Eligible Employee may
cease payroll deductions and/or withdraw from participation under the Plan at
any time by reducing his or her percentage of payroll deduction to zero percent
(0%), except that no Eligible Employee may cease payroll deductions and/or
withdraw during the period commencing two weeks prior to a Purchase Date. An
Eligible Employee electing to cease payroll deductions
4
<PAGE>
and/or withdraw from the Plan must deliver to the Administrator a notice of
withdrawal approved by the Administrator (the "Cessation/Withdrawal Election")
not later than the date which is two weeks prior to a Purchase Date. Upon
receipt of an Eligible Employee's Cessation/Withdrawal Election pursuant to
which the Eligible Employee provides notice of his or her intent to withdraw
from the Plan, the Company or Designated Subsidiary Corporation will as soon as
practicable thereafter pay to such Eligible Employee in cash in one lump sum the
balance of payroll deductions credited to such Eligible Employee's account under
the Plan, without the payment of any interest thereon, and the Eligible Employee
will at that time be deemed to have ceased to participate in the Plan and may
only recommence active participation in the Plan by submitting to the
Administrator a new completed and executed Authorization Card in accordance with
subsection (b). Upon receipt of an Eligible Employee's Cessation/Withdrawal
Election pursuant to which the Eligible Employee indicates his or her intention
to cease participation but does not provide notice of his or her intent to
withdraw from the Plan, such Eligible Employee's payroll deductions shall cease
as soon as administratively practicable following the Administrator's receipt of
his or her Cessation/Withdrawal Election, and his or her Option shall be
exercised on the Purchase Date in accordance with Section 8(b).
(b) Except as permitted otherwise by the Administrator in its
discretion, an Employee who is an Eligible Employee on the Effective Date must
submit his or her Authorization Card to the Administrator during the three week
period immediately prior to the Effective Date in order to participate in the
first Offer Period under the Plan. Except as permitted otherwise by the
Administrator in its discretion, an Employee who is an Eligible Employee on the
Effective Date but who does not submit his or her Authorization Card to the
Administrator during such three week period or an Employee who becomes an
Eligible Employee subsequent to the Effective Date must submit his or her
Authorization Card to the Administrator during the two week period commencing
one month prior to such Eligible Employee's Entry Date, or during such other
period designated by the Administrator in its sole discretion.
(c) An Eligible Employee's Authorization Card shall include express
written authorization by the Eligible Employee to the Company to issue shares of
Stock purchased under the Plan to an account in the name of such Eligible
Employee with a brokerage firm to be designated by the Administrator.
7. Payroll Deductions.
(a) Cash compensation payable to an Eligible Employee who elects to
participate in the Plan for an Offer Period shall be reduced each Payday during
such Offer Period through payroll deductions by an amount equal to the whole
percentage of Base Pay payable on such Payday elected by the Eligible Employee
under Section 6.
(b) The amount of each Eligible Employee's payroll deduction shall be
held by the Company or Designated Subsidiary Corporation and credited to an
account established for such Eligible Employee. Neither the Company nor any
Subsidiary Corporation shall pay any interest on the funds credited to an
Eligible Employee's account under the Plan.
5
<PAGE>
(c) During a leave of absence from the Company or any Designated
Subsidiary Corporation which is approved by the Company or Designated
Corporation and which meets the requirements of Treasury Regulation Section
1.421-7(h)(2), an Eligible Employee may continue to participate in the Plan by
making cash payments to the Company or Designated Subsidiary Corporation on each
Payday equal to the dollar amount of the payroll deduction made for such
Eligible Employee for the Payday next preceding the first day of such Eligible
Employee's leave of absence.
8. Grant of Options; Exercise of Options.
(a) Each Eligible Employee shall be granted an Option on his or her
Entry Date for the Offer Period. Each Eligible Employee's Option shall be
automatically exercised on the Purchase Date for the Offer Period to which such
Option relates. The number of shares of Stock subject to an Option shall be the
quotient of the total payroll deductions made for the Eligible Employee during
the Offer Period divided by the Option Price with respect to such Offer Period,
excluding fractional shares of Stock; provided, however, that the number of
shares of Stock subject to each Option shall not exceed 200,000 shares.
(b) Except as otherwise provided in subsection (e) and Sections
6(a)(i) and (ii), each Eligible Employee participating in the Plan shall be
deemed to have exercised his or her Option on the Purchase Date for each Offer
Period in which the Eligible Employee is participating in the Plan, to the
extent that the balance of payroll deductions credited to such Eligible
Employee's account under the Plan is sufficient to purchase, at the Option
Price, whole shares of Stock. No fractional shares of Stock shall be purchased
upon the exercise of an Option and any funds credited to such Eligible
Employee's account remaining after the purchase of whole shares of Stock upon
exercise of an Option shall remain credited to such Eligible Employee's account
and carried forward for purchase of shares of Stock pursuant to the exercise of
the Option on the Purchase Date relating to the next following Offer Period.
(c) Upon exercise of an Option, the Company shall as soon as
practicable thereafter issue to the Eligible Employee such shares of Stock
purchased pursuant to subsection (b). Such Stock is initially to be held in the
brokerage account established by the Eligible Employee at such brokerage firm as
designated by the Administrator and as authorized by the Eligible Employee upon
enrollment in the Plan.
(d) If the total number of shares of Stock for which Options are to be
exercised on any date exceeds the number of shares remaining unsold under the
Plan (after deduction of all shares for which Options have theretofore been
exercised), the Administrator shall make a pro rata allocation of the available
remaining shares in as nearly a uniform manner as shall be practicable and any
balance of payroll deductions credited to the accounts of Eligible Employees
which have not been applied to the purchase of shares of Stock shall be paid to
such Eligible Employees by the Company or Designated Subsidiary Corporation in
cash in one lump sum as soon as practicable, without payment of any interest
thereon.
(e) Notwithstanding any provision in the Plan to the contrary, an
Eligible Employee shall not be granted an Option:
6
<PAGE>
(i) if, immediately after the Option is granted, such Employee
would own stock possessing 5% or more of the total combined voting power or
value of all classes of stock of the Company, any Parent Corporation or any
Subsidiary Corporations. For purposes of determining stock ownership under this
paragraph, the rules of Code Section 424(d) shall apply and Stock which an
Eligible Employee may purchase under outstanding options held by such Eligible
Employee shall be treated as stock owned by such Eligible Employee; or
(ii) which permits such Eligible Employee's rights to purchase
stock under the Plan and all other employee stock purchase plans of the Company,
any Parent Corporation, or any Subsidiary Corporations subject to Code Section
423, to accrue at a rate which exceeds $25,000 of the fair market value of such
Stock or other stock (determined at the time such Option is granted) for each
calendar year in which such option is outstanding at any time. For purpose of
the limitations imposed by this subsection, the right to purchase Stock or other
stock under an Option or other option accrues when the Option or other option
(or any portion thereof) first becomes exercisable during the calendar year, the
right to purchase Stock or other stock under an Option or other option accrues
at the rate provided in the Option or other option (but in no case may such rate
exceed $25,000 of fair market value of such Stock or other stock determined at
the time such Option or other option is granted) for any one calendar year, and
a right to purchase Stock or other stock which has accrued under the Option or
other option may not be carried over to any other Option or other option.
(f) Any Employee who is an officer subject to Section 16(b) under the
Securities Exchange Act of 1934, as amended, shall not sell, transfer, or
otherwise dispose of any shares of Stock received upon the exercise of the
Option granted hereunder for a period of six months after the purchase of such
shares.
9. Option Price.
(a) The per share exercise price of each Option (the "Option Price")
shall be an amount equal to the lesser of:
(i) 85% of the "Fair Market Value" (as defined below) of a share
of Stock on the Participant's Entry Date into the Plan for the relevant Offer
Period; or
(ii) 85% of the Fair Market Value of a share of Stock on the
Purchase Date corresponding to the Offer Period for which a Participant
exercises his or her Option.
(b) For purposes of subsection (a), the Fair Market Value of a share
of Stock as of a given date shall be: (A) the closing price of a share of Stock
on the principal exchange on which the Stock is then trading, if any, on such
date, or, if shares of Stock were not traded on such date, then on the next
preceding trading day during which a sale occurred; (B) if the Stock is not
traded on an exchange, but is quoted on Nasdaq or a successor quotation system,
(X) the last sales price (if the Stock is then listed as a National Market Issue
under the NASD National Market System) or (Y) the mean between the closing
representative bid and asked prices (in all other cases) for a share of Stock on
such date, or, if shares of Stock were not traded
7
<PAGE>
on such date, then on the next preceding trading day during which a sale
occurred, as reported by Nasdaq or such successor quotation system; (iii) if the
Stock is not publicly traded on an exchange and not quoted on Nasdaq or a
successor quotation system, the mean between the closing bid and asked prices
for a share of Stock on such date, or, if shares of Stock were not traded on
such date, then on the next preceding trading day during which a sale occurred,
as determined in good faith by the Board of Directors; or (iv) if the Stock is
not publicly traded, the fair market value of a share of Stock established by
the Board of Directors acting in good faith.
10. Issuance of Certificates.
(a) In the event the Administrator is required to obtain authority to
issue certificates for any shares of Stock purchased by an Eligible Employee
under the Plan from any commissioner or agency, the Administrator shall seek to
obtain such authority. If the Administrator is unable, after reasonable efforts,
to obtain such authority, the Administrator, the Company, and any Subsidiary
Corporations shall be relieved from all liability and shall pay to each such
Eligible Employee the balance of payroll deductions credited to each such
Eligible Employee's account under the Plan in cash in one lump sum as soon as
practicable, without the payment of any interest thereon.
11. Cessation of Participation.
(a) An Eligible Employee shall cease to participate in the Plan in the
event that:
(i) the Eligible Employee reduces his or her percentage of
payroll deduction to zero percent (0%); or
(ii) the Eligible Employee terminates employment with the Company
or any Designated Subsidiary Corporation for any reason.
(b) Upon cessation of participation by an Eligible Employee, such
Eligible Employee's payroll deductions shall cease. If such cessation of
participation occurs during the last two weeks of an Offer Period or if such
cessation of participation is not accompanied by the Eligible Employee's notice
of withdrawal from participation in the Plan, such Eligible Employee's Option
shall be exercised on the next Purchase Date in accordance with Section 8(b).
Upon cessation of participation at any other time which is accompanied by the
Eligible Employee's notice of withdrawal from participation in the Plan or which
is the result of the Eligible Employee's termination of employment within the
Company or any Designated Subsidiary Corporation, any balance of payroll
deductions credited to such Eligible Employee's account under the Plan shall be
paid to the Employee (or his or her estate, in the event of the Eligible
Employee's death) in cash in one lump sum as soon as practicable after cessation
of participation, without payment of any interest thereon.
12. Transfer of Option. Options granted pursuant to the Plan shall not be
transferable by an Eligible Employee, other than by will or the laws of descent
and distribution, and shall be exercisable during the Eligible Employee's
lifetime only by such Eligible Employee.
8
<PAGE>
13. Beneficiary.
(a) Each Eligible Employee shall designate on his or her Authorization
Card a beneficiary or beneficiaries and may, without such beneficiaries'
consent, change such designation. Any designation shall be effective only after
it is received by the Administrator and shall be controlling over any
disposition by will or otherwise. Upon the death of an Eligible Employee, except
as provided in Section 11(b), the balance of payroll deductions credited to such
Eligible Employee's account shall be paid or distributed to the designated
beneficiary or beneficiaries, or in the absence of such designation, to the
executor or administrator of the Eligible Employee's estate, and in either event
the Administrator, the Company, and any Subsidiary Corporations shall not be
under any further liability to anyone.
14. Recapitalization. If there shall be any change in the Stock subject to
the Plan or the Stock subject to any Option, through merger, consolidation,
reorganization, recapitalization, reincorporation, stock split, stock dividend
(in excess of 2% of the fair market value of the Stock) or other change in the
corporate structure of the Company, appropriate adjustments shall be made by the
Board of Directors to the aggregate number of shares subject to the Plan and the
number of shares and the price per share subject to outstanding Options in order
to preserve, but not to increase, the benefits of the Eligible Employees
hereunder; provided, however, that subject to any required action by the
stockholders, if the Company shall not be the surviving corporation in any such
merger, consolidation or reorganization, every Option outstanding shall
terminate, unless the surviving corporation shall (subject to applicable
provisions of the Code) issue a new Option therefor or assume (with appropriate
changes) the existing Option in a manner complying with Code Section 424(a). If
the Option shall terminate by reason of such merger, consolidation, or
reorganization, then any provision herein to the contrary notwithstanding, any
Option held by an Eligible Employee may be exercised, in whole or in part, by
such Eligible Employee at any time designated by the Board of Directors which is
prior to or concurrent with the consummation of such merger, consolidation, or
reorganization.
15. Rights as a Stockholder. An Eligible Employee shall have no rights as a
stockholder with respect to any shares of Stock covered by Options until the
date of the issuance of a certificate for such shares of Stock. No adjustments
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for which the
record date is prior to the date such certificate is issued, except as otherwise
expressly provided herein.
16. Costs; Indemnifications.
(a) The Company shall pay all costs and expenses incurred in
administering the Plan.
(b) In addition to such other rights of indemnification as the
Administrator may have as a director or officer of the Company, the Company
shall indemnify and hold the Administrator harmless against any and all
liability, loss, costs, damages, attorneys' fees and other expenses the
Administrator may sustain or incur in connection with administration of the
Plan, except for liability, loss, costs, damages, attorneys' fees and other
expenses caused
9
<PAGE>
by the negligence of the Administrator or his or her agent; provided, that
within 60 days after the institution of any action, suit or proceeding the
Administrator shall in writing offer the Company the opportunity to handle,
prosecute or defend the same, at the Company's own expense. The Administrator
shall have the right, but not the obligation, to adjust, settle, or compromise
any claim, obligation, debt, demand, suit or judgment against the Administrator,
and if such settlement is approved by independent legal counsel selected by the
Company then the Company shall reimburse the Administrator for all sums of money
the Administrator may pay or become liable to pay against which the
Administrator is indemnified hereunder.
17. Amendment or Termination of the Plan. The Board of Directors may at any
time, with respect to any shares of Stock not then subject to Options, suspend
or terminate the Plan, and may amend the Plan from time to time as the Board of
Directors may deem advisable; provided, however, that except as provided in
Section 14 hereof, the Board of Directors shall not amend the Plan in the
following respects without the affirmative vote of approval by a majority of the
outstanding shares of Stock of the Company:
(a) To increase the maximum number of shares of Stock subject to the
Plan;
(b) To change the designation or class of employees eligible to
receive Options under the Plan;
(c) To materially increase the benefits accruing to Employees under
the Plan; or
(d) In any manner which would cause the Plan to no longer be an
employee stock purchase plan under Code Section 423.
18. Application of Funds. The proceeds received by the Company from the
sale of Stock pursuant to the exercise of Options shall be deposited in the
account of the general corporate funds of the Company.
19. Approval of Stockholders. The Plan shall become effective on the
Effective Date subject to the affirmative vote by a majority of the outstanding
shares of Stock of the Company approving the Plan (which approval must occur
within twelve (12) months before or after the date the Plan is adopted by the
Board of Directors).
20. No Rights as an Employee. Nothing in the Plan shall be construed to
give any person the right to remain in the employ of the Company or any
Subsidiary Corporation or to affect the Company or any Subsidiary Corporation's
right to terminate the employment of any person at any time with or without
cause.
21. Titles. Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of the Plan.
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I hereby certify that the foregoing Plan was adopted by the
Board of Directors of SoftNet Systems, Inc. on this ____ day of _________, 1999.
_____________________________________
________________, Secretary
I hereby certify that the foregoing Plan was duly approved by
affirmative vote of a majority of the outstanding shares of Stock of the Company
on ___________ ___, 2000.
_____________________________________
________________, Secretary
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Appendix C
SOFTNET SYSTEMS, INC.
AMENDED 1998 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This Amended 1998 Stock Incentive Plan is intended to promote
the interests of SoftNet Systems, Inc., a Delaware corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity
programs:
- the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock,
- the Salary Investment Option Grant Program under
which eligible employees may elect to have a portion of their base salary
invested each year in special option grants,
- the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such shares or
as a bonus for services rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which
eligible non-employee Board members shall automatically receive option grants at
periodic intervals to purchase shares of Common Stock, and
- the Director Fee Option Grant Program under which
non-employee Board members may elect to have all or any portion of their annual
retainer fee otherwise payable in cash applied to a special option grant.
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
<PAGE>
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive
authority to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders. Administration of the
Discretionary Option Grant and Stock Issuance Programs with respect to all other
persons eligible to participate in those programs may, at the Board's
discretion, be vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to administer those programs with respect to all such
persons. However, any discretionary option grants or stock issuances made to
members of the Primary Committee shall require the approval of a disinterested
majority of the Board.
B. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option grant or stock issuance thereunder.
D. The Primary Committee shall have the sole and exclusive
authority to determine which Section 16 Insiders and other highly compensated
Employees shall be eligible for participation in the Salary Investment Option
Grant Program for one or more calendar years. However, all option grants under
the Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant and Director
Fee Option Grant Programs shall be self-executing in accordance with the terms
of those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
2.
<PAGE>
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or
the board of directors of any Parent or Subsidiary, and
(iii) consultants who provide services to
the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants made under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances made under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when those issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
for such shares.
D. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Discretionary Option Grant
Program or to effect stock issuances in accordance with the Stock Issuance
Program.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members after the Plan Effective Date, whether
through appointment by the Board or election by the Corporation's stockholders,
and (ii) those individuals who continue to serve as non-employee Board members
at one or more Annual Stockholders Meetings held after the 1999 Annual
Stockholders Meeting. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant under the Automatic Option Grant Program at the time he
or she first becomes a non-employee Board member, but shall be eligible to
receive periodic option grants under the Automatic Option Grant Program while he
or she continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to
participate in the Director Fee Option Grant Program.
3.
<PAGE>
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock initially reserved for issuance over the term of the Plan shall not exceed
5,350,668 shares, which shall consist of (i) the estimated number of shares to
remain available for issuance, as of the 1999 Annual Stockholders Meeting, under
the Predecessor Plan as last approved by the Corporation's stockholders,
including the shares subject to outstanding options under that Predecessor Plan,
(ii) an additional increase of approximately 2,000,000 shares authorized by the
Board, subject to stockholder approval at the 1999 Annual Meeting, and (iii) an
additional increase of approximately 2,000,000 shares authorized by the Board,
subject to stockholder approval at the 2000 Annual Meeting.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically be increased on the first trading day in
January each calendar year during the term of the Plan, beginning in calendar
year 2000, by an amount equal to four percent (4%) of the total number of shares
of Common Stock outstanding on the last trading day in December of the
immediately preceding calendar year, but in no event shall any such annual
increase exceed 2,000,000 shares (subject to adjustment in accordance with
Section V.G. of this Article One). Upon stockholder approval at the 2000 Annual
Meeting, this Section V.B. will be superseded by Section V.C. of this Article
One.
C. Subject to approval at the 2000 Annual Meeting, the number
of shares of Common Stock available for issuance under the Plan shall
automatically be increased on the first trading day in January each calendar
year during the term of the Plan, beginning in calendar year 2001, by an amount
equal to four percent (7%) of the total number of shares of Common Stock
outstanding on the last trading day in December of the immediately preceding
calendar year, but in no event shall any such annual increase exceed 4,000,000
shares (subject to adjustment in accordance with Section V.G. of this Article
One). Upon stockholder approval at the 2000 Annual Meeting, this Section V.C.
will supersede Section V.B. of this Article One.
D. Subject to approval at the 2000 Annual Meeting, the number
of shares of Common Stock available for issuance under the Plan shall
automatically be increased on the day after the 2000 Annual Meeting, by an
amount equal to three percent (3%) of the total number of shares of Common Stock
outstanding on the last trading day in December 1999, but in no event shall such
increase exceed 2,000,000 shares (subject to adjustment in accordance with
Section V.G. of this Article One).
E. No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 500,000 shares of Common Stock in the aggregate per
calendar year, beginning with the 1998 calendar year.
F. Shares of Common Stock subject to outstanding options
(including options incorporated into this Plan from the Predecessor Plan) shall
be available for subsequent issuance under the Plan to the extent (i) those
options expire or terminate for any reason prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation-regrant provisions of
Article Two. Unvested shares issued under the Plan and subsequently cancelled or
4.
<PAGE>
repurchased by the Corporation, at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. Should the
exercise price of an option under the Plan be paid with shares of Common Stock
or should shares of Common Stock otherwise issuable under the Plan be withheld
by the Corporation in satisfaction of the withholding taxes incurred in
connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised pursuant to the provisions of Section IV of Article Two,
Section III of Article Three, Section II of Article Five and Section III of
Article Six shall not be available for subsequent issuance under the Plan.
G. If any change is made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the maximum number and/or class of securities by which the
share reserve is to increase automatically each calendar year pursuant to the
provisions of Section V.B, Section V.C. and Section V.D. of this Article One,
(iii) the number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan per calendar year, (iv) the number and/or
class of securities for which grants are subsequently to be made under the
Automatic Option Grant Program to new and continuing non-employee Board members,
(v) the number and/or class of securities and the exercise price per share in
effect under each outstanding option under the Plan and (vi) the number and/or
class of securities and price per share in effect under each outstanding option
incorporated into this Plan from the Predecessor Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
5.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the
Plan Administrator but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due
upon exercise of the option and shall, subject to the provisions of Section I of
Article Seven and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(iii) to the extent the option is exercised
for vested shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide irrevocable
instructions to (a) a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
purchased shares plus all applicable Federal, state and local income
and employment taxes required to be withheld by the Corporation by
reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. Exercise and Term of Options. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in excess
of ten (10) years measured from the option grant date.
6.
<PAGE>
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise
of any options held by the Optionee at the time of cessation of Service or
death:
(i) Any option outstanding at the time of
the Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing the
option, but no such option shall be exercisable after the expiration of
the option term.
(ii) Any option held by the Optionee at the
time of death and exercisable in whole or in part at that time may
subsequently be exercised by the personal representative of the
Optionee's estate or by the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution or by the Optionee's designated
beneficiary or beneficiaries of that option.
(iii) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and cease
to be outstanding for any vested shares for which the option has not
been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding
to the extent the option is not otherwise at that time exercisable for
vested shares.
2. The Plan Administrator shall have complete
discretion, exercisable either at the time an option is granted or at any time
while the option remains outstanding, to:
(i) extend the period of time for which the
option is to remain exercisable following the Optionee's cessation of
Service from the limited exercise period otherwise in effect for that
option to such greater period of time as the Plan Administrator shall
deem appropriate, but in no event beyond the expiration of the option
term, and/or
(ii) permit the option to be exercised,
during the applicable post-Service exercise period, not only with
respect to the number of vested shares of Common Stock for which such
option is exercisable at the time of the Optionee's cessation of
Service but also with respect to one or more additional installments in
which the Optionee would have vested had the Optionee continued in
Service.
7.
<PAGE>
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of
the Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. Non-Statutory Options
shall be subject to the same restrictions, except that a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate. Notwithstanding the foregoing, the Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Two, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to
Employees.
B. Exercise Price. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
8.
<PAGE>
C. Dollar Limitation. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive
Option is granted is a 10% Stockholder, then the exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for the total number of shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. However, an outstanding option shall not
become exercisable on such an accelerated basis if and to the extent: (i) such
option is, in connection with the Corporate Transaction, to be assumed by the
successor corporation (or parent thereof) or (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread existing at the time of the Corporate Transaction on any shares for which
the option is not otherwise at that time exercisable and provides for subsequent
payout in accordance with the same exercise/vesting schedule applicable to those
option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically
terminate, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such
9.
<PAGE>
Corporate Transaction. Appropriate adjustments to reflect such Corporate
Transaction shall also be made to (i) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same, (ii) the maximum number and/or class of
securities available for issuance over the remaining term of the Plan, (iii) the
maximum number and/or class of securities by which the share reserve is to
increase automatically each calendar year and (iv) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year.
E. The Plan Administrator shall have the discretionary
authority to structure one or more outstanding options under the Discretionary
Option Grant Program so that those options shall, immediately prior to the
effect date of such Corporate Transaction, become fully exercisable for the
total number of shares of Common Stock at the time subject to those options and
may be exercised for any or all of those shares as fully vested shares of Common
Stock, whether or not those options are to be assumed in the Corporate
Transaction. In addition, the Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Discretionary Option Grant Program so that those rights shall not be
assignable in connection with such Corporate Transaction and shall accordingly
terminate upon the consummation of such Corporate Transaction, and the shares
subject to those terminated rights shall thereupon vest in full.
F. The Plan Administrator shall have full power and authority
to structure one or more outstanding options under the Discretionary Option
Grant Program so that those options shall become fully exercisable for the total
number of shares of Common Stock at the time subject to those options in the
event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which those
options are assumed and do not otherwise accelerate. Any options so accelerated
shall remain exercisable for fully vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1) year period
measured from the effective date of the Involuntary Termination. In addition,
the Plan Administrator may structure one or more of the Corporation's repurchase
rights so that those rights shall immediately terminate with respect to any
shares held by the Optionee at the time of his or her Involuntary Termination,
and the shares subject to those terminated repurchase rights shall accordingly
vest in full at that time.
G. The Plan Administrator shall have the discretionary
authority to structure one or more outstanding options under the Discretionary
Option Grant Program so that those options shall, immediately prior to the
effect date of a Change in Control, become fully exercisable for the total
number of shares of Common Stock at the time subject to those options and may be
exercised for any or all of those shares as fully vested shares of Common Stock.
In addition, the Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the
Discretionary Option Grant Program so that those rights shall terminate
automatically upon the consummation of such Change in Control, and the shares
subject to those terminated rights shall thereupon vest in full. Alternatively,
the Plan Administrator may condition the automatic acceleration of one or more
outstanding options
10.
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under the Discretionary Option Grant Program and the termination of one or more
of the Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control. Each option so
accelerated shall remain exercisable for fully vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one (1)
year period measured from the effective date of Optionee's cessation of Service.
H. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One Hundred
Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Discretionary
Option Grant Program (including outstanding options incorporated from the
Predecessor Plan) and to grant in substitution new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority
to grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of
tandem stock appreciation rights:
(i) One or more Optionees may be granted the
right, exercisable upon such terms as the Plan Administrator may
establish, to elect between the exercise of the underlying option for
shares of Common Stock and the surrender of that option in exchange for
a distribution from the Corporation in an amount equal to the excess of
(a) the Fair Market Value (on the option surrender date) of the number
of shares in which the Optionee is at the time vested under the
surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares.
11.
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(ii) No such option surrender shall be
effective unless it is approved by the Plan Administrator, either at
the time of the actual option surrender or at any earlier time. If the
surrender is so approved, then the distribution to which the Optionee
shall be entitled may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in shares
and partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.
(iii) If the surrender of an option is not
approved by the Plan Administrator, then the Optionee shall retain
whatever rights the Optionee had under the surrendered option (or
surrendered portion thereof) on the option surrender date and may
exercise such rights at any time prior to the later of (a) five (5)
business days after the receipt of the rejection notice or (b) the last
day on which the option is otherwise exercisable in accordance with the
terms of the documents evidencing such option, but in no event may such
rights be exercised more than ten (10) years after the option grant
date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be
granted limited stock appreciation rights with respect to their
outstanding options.
(ii) Each individual holding one or more
options with such a limited stock appreciation right shall have the
unconditional right, exercisable for a thirty (30)-day period
immediately following a Hostile Take-Over, to surrender each such
option to the Corporation for a cash distribution in an amount equal to
the excess of (A) the Take-Over Price of the shares of Common Stock
which are at the time subject to each surrendered option (whether or
not the option is otherwise vested and exercisable for those shares)
over (B) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the
option surrender date.
(iii) At the time such limited stock
appreciation right is granted, the Plan Administrator shall
automatically pre-approve any subsequent exercise of that right in
accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Plan Administrator or the Board shall be required at
the time of the actual option surrender and cash distribution.
(iv) The balance of the option (if any)
shall remain outstanding and exercisable in accordance with the
documents evidencing such option.
12.
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ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive
authority to determine the calendar year or years (if any) for which the Salary
Investment Option Grant Program is to be in effect and to select the Section 16
Insiders and other highly compensated Employees eligible to participate in the
Salary Investment Option Grant Program for such calendar year or years. Each
selected individual who elects to participate in the Salary Investment Option
Grant Program must, prior to the start of each calendar year of participation,
file with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one
or more documents in the form approved by the Plan Administrator; provided,
however, that each such document shall comply with the terms specified below.
A. Exercise Price.
1. The exercise price per share shall be thirty-three
and one-third percent (33-1/3%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due
upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. Number of Option Shares. The number of shares of Common
Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):
X = A divided by (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the reduction in the
Optionee's base salary for the calendar year to be in effect
pursuant to this program, and
13.
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B is the Fair Market Value per share of Common Stock
on the option grant date.
C. Exercise and Term of Options. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution
or by the designated beneficiary or beneficiaries of such option. Such right of
exercise shall lapse, and the option shall terminate, upon the earlier of (i)
the expiration of the ten (10)-year option term or (ii) the three (3)-year
period measured from the date of the Optionee's cessation of Service. However,
the option shall, immediately upon the Optionee's cessation of Service for any
reason, terminate and cease to remain outstanding with respect to any and all
shares of Common Stock for which the option is not otherwise at that time
exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the
Optionee remains in Service, each outstanding option held by such Optionee under
this Salary Investment Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable for the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. Each such
outstanding option shall terminate immediately following the Corporate
Transaction, except to the extent assumed by the successor corporation (or
parent thereof) in such Corporate Transaction. Any option so assumed and shall
remain exercisable for the fully-vested shares until the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the expiration of the three
(3)-year period measured from the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall immediately become fully exercisable for the total number
of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
14.
<PAGE>
The option shall remain so exercisable until the earliest to occur of (i) the
expiration of the ten (10)-year option term, (ii) the expiration of the three
(3)-year period measured from the date of the Optionee's cessation of Service,
(iii) the termination of the option in connection with a Corporate Transaction
or (iv) the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee
shall have a thirty (30)-day period in which to surrender to the Corporation
each outstanding option granted him or her under the Salary Investment Option
Grant Program. The Optionee shall in return be entitled to a cash distribution
from the Corporation in an amount equal to the excess of (i) the Take-Over Price
of the shares of Common Stock at the time subject to the surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. The Primary Committee shall, at the time the option
with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Salary Investment Option
Grant Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
VI. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
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ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below. Shares of Common Stock
may also be issued under the Stock Issuance Program pursuant to share right
awards which entitle the recipients to receive those shares upon the attainment
of designated performance goals.
A. Purchase Price.
1. The purchase price per share shall be fixed by the
Plan Administrator, but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article
Seven, shares of Common Stock may be issued under the Stock Issuance Program for
any of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the
Corporation (or any Parent or Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.
2. Any new, substituted or additional securities or
other property (including money paid other than as a regular cash dividend)
which the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
16.
<PAGE>
3. The Participant shall have full stockholder rights
with respect to any shares of Common Stock issued to the Participant under the
Stock Issuance Program, whether or not the Participant's interest in those
shares is vested. Accordingly, the Participant shall have the right to vote such
shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service
while holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive
the surrender and cancellation of one or more unvested shares of Common Stock
which would otherwise occur upon the cessation of the Participant's Service or
the non-attainment of the performance objectives applicable to those shares.
Such waiver shall result in the immediate vesting of the Participant's interest
in the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock
Issuance Program shall automatically terminate, and no shares of Common Stock
shall actually be issued in satisfaction of those awards, if the performance
goals established for such awards are not attained. The Plan Administrator,
however, shall have the discretionary authority to issue shares of Common Stock
under one or more outstanding share right awards as to which the designated
performance goals have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights
under the Stock Issuance Program shall terminate automatically, and all the
shares of Common Stock subject to those terminated rights shall immediately vest
in full, in the event of any Corporate Transaction, except to the extent (i)
those repurchase rights are to be assigned to the successor corporation (or
parent thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.
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B. The Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase rights are assigned
to the successor corporation (or parent thereof).
C. The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
18.
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ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates
specified below:
1. Each individual serving as a non-employee Board
member on the Plan Effective Date shall automatically be granted a Non-Statutory
Option to purchase 20,000 shares of Common Stock at the Annual Stockholders
Meeting held in calendar year 2001, provided he or she continues in Board
service, and each such individual shall, over his or her period of continued
Board service, automatically be granted an additional Non-Statutory Option to
purchase 20,000 shares of Common Stock at every third Annual Stockholders
Meeting thereafter at which he or she continues to serve as a non-employee Board
member.
2. Each individual who is first elected or appointed
as a non-employee Board member at any time on or after the Plan Effective Date
shall automatically be granted, on the date of such initial election or
appointment, a Non-Statutory Option to purchase 20,000 shares of Common Stock,
provided that individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary. In addition, each such individual
shall, over his or her period of continued Board service, automatically be
granted one or more additional Non-Statutory Options to purchase 20,000 shares
of Common Stock, with the first such additional 20,000-share grant to be made at
the Annual Stockholders Meeting held in the third calendar year following the
calendar year in which he or she received the initial 20,000-share grant and
each such additional 20,000-share grants to be made at every third Annual
Stockholders Meeting held thereafter during such individual's period of
continued service as a non-employee Board member.
3. There shall be no limit on the number of such
additional 20,000-share option grants any one Eligible Director may receive over
his or her period of Board service, and non-employee Board members who have
previously been in the employ of the Corporation (or any Parent or Subsidiary)
shall be eligible to receive one or more such additional 20,000-share option
grants over their period of continued Board service.
4. Stockholder approval of this Plan at the 1999
Annual Stockholders Meeting shall constitute pre-approval of each option grant
made under this Automatic Option Grant Program on or after the date of such
Annual Meeting and the subsequent exercise of that option in accordance with the
terms and conditions of this Article Five and the stock option agreement
evidencing such grant.
B. Exercise Price.
1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.
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2. The exercise price shall be payable in one or more
of the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
C. Option Term. Each option shall have a term of ten (10)
years measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each automatic option grant shall
vest, and the Corporation's repurchase right shall lapse, in a series of six (6)
successive equal semi-annual installments upon the Optionee's completion of each
six (6) month period of Board service over the thirty-six (36)-month period
measured from the option grant date.
E. Limited Transferability of Options. Each option under this
Article Five may, in connection with the Optionee's estate plan, be assigned in
whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Five, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
F. Termination of Board Service. The following provisions
shall govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of
Optionee's death, the personal representative of the Optionee's estate
or the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and
distribution or by the designated beneficiary or beneficiaries of such
option) shall have a twelve (12)-month period following the date of
such cessation of Board service in which to exercise each such option.
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(ii) During the twelve (12)-month exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares of Common Stock for which the option is
exercisable at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as
a Board member by reason of death or Permanent Disability, then all
shares at the time subject to the option shall immediately vest so that
such option may, during the twelve (12)-month exercise period following
such cessation of Board service, be exercised for all or any portion of
those shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain
exercisable after the expiration of the option term. Upon the
expiration of the twelve (12)-month exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service for any reason other than death
or Permanent Disability, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Change in Control, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Each such option shall remain exercisable
for such fully-vested option shares until the expiration or sooner termination
of the option term or the surrender of the option in connection with a Hostile
Take-Over.
21.
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C. All outstanding repurchase rights shall automatically
terminate, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction or
Change in Control.
D. Upon the occurrence of a Hostile Take-Over, the Optionee
shall have a thirty (30)-day period in which to surrender to the Corporation
each of his or her outstanding automatic option grants. The Optionee shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the shares of Common Stock at
the time subject to each surrendered option (whether or not the Optionee is
otherwise at the time vested in those shares) over (ii) the aggregate exercise
price payable for such shares. Such cash distribution shall be paid within five
(5) days following the surrender of the option to the Corporation. Stockholder
approval of the Plan shall constitute pre-approval of the grant of each such
limited cash-out right and the subsequent exercise of that right in accordance
with the terms of this Paragraph D. Accordingly, no approval or consent of the
Board or any Plan Administrator shall be required at the time of the actual
option surrender and cash distribution.
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
F. The grant of options under the Automatic Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
22.
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ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive
authority to determine the calendar year or years for which the Director Fee
Option Grant Program is to be in effect. For each such calendar year the program
is in effect, each non-employee Board member may elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to first day of the calendar year
for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the
terms and conditions specified below.
A. Exercise Price.
1. The exercise price per share shall be thirty-three
and one-third percent (33-1/3%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due
upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. Number of Option Shares. The number of shares of Common
Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):
X = A divided by (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject
to the non-employee Board member's election, and
B is the Fair Market Value per share of Common Stock
on the option grant date.
23.
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C. Exercise and Term of Options. The option shall become
exercisable in a series of twelve (12) equal monthly installments upon the
Optionee's completion of each month of Board service over the twelve (12)-month
period measured from the grant date. Each option shall have a maximum term of
ten (10) years measured from the option grant date.
D. Limited Transferability of Options. Each option under this
Article Six may, in connection with the Optionee's estate plan, be assigned in
whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Six, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
E. Termination of Board Service. Should the Optionee cease
Board service for any reason (other than death or Permanent Disability) while
holding one or more options under this Director Fee Option Grant Program, then
each such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Board service,
until the earlier of (i) the expiration of the ten (10)-year option term or (ii)
the expiration of the three (3)-year period measured from the date of such
cessation of Board service. However, each option held by the Optionee under this
Director Fee Option Grant Program at the time of his or her cessation of Board
service shall immediately terminate and cease to remain outstanding with respect
to any and all shares of Common Stock for which the option is not otherwise at
that time exercisable.
F. Death or Permanent Disability. Should the Optionee's
service as a Board member cease by reason of death or Permanent Disability, then
each option held by such Optionee under this Director Fee Option Grant Program
shall immediately become exercisable for all the shares of Common Stock at the
time subject to that option, and the option may be exercised for any or all of
those shares as fully-vested shares until the earlier of (i) the expiration of
the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of such cessation of Board service.
Should the Optionee die after cessation of Board service but
while holding one or more options under this Director Fee Option Grant Program,
then each such option may be exercised, for any or all of the shares for which
the option is exercisable at the time of the Optionee's cessation of Board
service (less any shares subsequently purchased by Optionee prior to death), by
the personal representative of the Optionee's estate or by the person or persons
to
24.
<PAGE>
whom the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution or by the designated beneficiary or
beneficiaries of such option. Such right of exercise shall lapse, and the option
shall terminate, upon the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Board service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the
Optionee remains a Board member, each outstanding option held by such Optionee
under this Director Fee Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable for the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. Each such
outstanding option shall terminate immediately following the Corporate
Transaction, except to the extent assumed by the successor corporation (or
parent thereof) in such Corporate Transaction. Any option so assumed and shall
remain exercisable for the fully-vested shares until the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the expiration of the three
(3)-year period measured from the date of the Optionee's cessation of Board
service.
B. In the event of a Change in Control while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall immediately become fully exercisable for the total number of
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. The
option shall remain so exercisable until the earliest to occur of (i) the
expiration of the ten (10)-year option term, (ii) the expiration of the three
(3)-year period measured from the date of the Optionee's cessation of Board
service, (iii) the termination of the option in connection with a Corporate
Transaction or (iv) the surrender of the option in connection with a Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee
shall have a thirty (30)-day period in which to surrender to the Corporation
each outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. Stockholder approval of the Plan shall constitute
pre-approval of the grant of each such limited cash-out right and the subsequent
exercise of that right in accordance with the terms of this Paragraph C.
Accordingly, no approval or consent of the Board or any Plan Administrator shall
be required at the time of the actual option surrender and cash distribution.
25.
<PAGE>
D. The grant of options under the Director Fee Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director
Fee Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
26.
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ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Discretionary Option Grant Program or
the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one or
more installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common
Stock upon the exercise of options or the issuance or vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any
or all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan (other than the options granted or the shares issued under the
Automatic Option Grant or Director Fee Option Grant Program) with the right to
use shares of Common Stock in satisfaction of all or part of the Taxes incurred
by such holders in connection with the exercise of their options or the vesting
of their shares. Such right may be provided to any such holder in either or both
of the following formats:
Stock Withholding: The election to have the
Corporation withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%)) designated by
the holder.
Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised or the shares
vest, one or more shares of Common Stock previously acquired by such holder
(other than in connection with the option exercise or share vesting triggering
the Taxes) with an aggregate Fair Market Value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
27.
<PAGE>
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately at the Plan
Effective Date. However, the Salary Investment Option Grant Program and the
Director Fee Option Grant Program shall not be implemented until such time as
the Primary Committee may deem appropriate. Options may be granted under the
Discretionary Option Grant Program at any time on or after the Plan Effective
Date. However, no options granted under the Plan may be exercised, and no shares
shall be issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the Plan Effective Date, then all options previously granted under
this Plan shall terminate and cease to be outstanding, and no further options
shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor
Plan, and no further option grants or direct stock issuances shall be made under
the Predecessor Plan after the date of the 1999 Annual Stockholders Meeting. All
options outstanding under the Predecessor Plan on the date of the 1999 Annual
Stockholders Meeting shall be incorporated into the Plan at that time and shall
be treated as outstanding options under the Plan. However, each outstanding
option so incorporated shall continue to be governed solely by the terms of the
documents evidencing such option, and no provision of the Plan shall be deemed
to affect or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i)
October 7, 2008, (ii) the date on which all shares available for issuance under
the Plan shall have been issued as fully-vested shares or (iii) the termination
of all outstanding options in connection with a Corporate Transaction. Should
the Plan terminate on October 7, 2008, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to stock options or unvested stock issuances at the time outstanding
under the Plan unless the Optionee or the Participant consents to such amendment
or modification. In addition, certain amendments may require stockholder
approval pursuant to applicable laws or regulations.
28.
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B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant and Salary Investment Option Grant Programs
and shares of Common Stock may be issued under the Stock Issuance Program that
are in each instance in excess of the number of shares then available for
issuance under the Plan, provided any excess shares actually issued under those
programs shall be held in escrow until there is obtained stockholder approval of
an amendment sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan. If such stockholder approval is not
obtained within twelve (12) months after the date the first such excess
issuances are made, then (i) any unexercised options granted on the basis of
such excess shares shall terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees and the Participants the
exercise or purchase price paid for any excess shares issued under the Plan and
held in escrow, together with interest (at the applicable Short Term Federal
Rate) for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock
option under the Plan and the issuance of any shares of Common Stock (i) upon
the exercise of any granted option or (ii) under the Stock Issuance Program
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the stock
options granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued
or delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws, including
the filing and effectiveness of the Form S-8 registration statement for the
shares of Common Stock issuable under the Plan, and all applicable listing
requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
29.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic
option grant program in effect under the Plan.
B. Board shall mean the Corporation's Board of Directors.
C. Change in Control shall mean a change in ownership or
control of the Corporation effected through either of the following
transactions:
(i) the acquisition, directly or indirectly by any
person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
D. Code shall mean the Internal Revenue Code of 1986, as
amended.
E. Common Stock shall mean the Corporation's common stock.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
A-1.
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G. Corporation shall mean SoftNet Systems, Inc., a New York
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of SoftNet Systems, Inc. which shall by appropriate
action adopt the Plan.
H. Director Fee Option Grant Program shall mean the special
stock option grant in effect for non-employee Board members under Article Six of
the Plan.
I. Discretionary Option Grant Program shall mean the
discretionary option grant program in effect under the Plan.
J. Eligible Director shall mean a non-employee Board member
eligible to participate in the Automatic Option Grant Program in accordance with
the eligibility provisions of Articles One and Five.
K. Employee shall mean an individual who is in the employ of
the Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
L. Exercise Date shall mean the date on which the Corporation
shall have received written notice of the option exercise.
M. Fair Market Value per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market. If there is no closing selling
price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding
date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
N. Hostile Take-Over shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
A-2.
<PAGE>
O. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.
P. Involuntary Termination shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation
following (A) a change in his or her position with the Corporation
which materially reduces his or her duties and responsibilities or the
level of management to which he or she reports, (B) a reduction in his
or her level of compensation (including base salary, fringe benefits
and target bonus under any corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual's place of employment by more than fifty
(50) miles, provided and only if such change, reduction or relocation
is effected by the Corporation without the individual's consent.
Q. Misconduct shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 Act shall mean the Securities Exchange Act of 1934, as
amended.
S. Non-Statutory Option shall mean an option not intended to
satisfy the requirements of Code Section 422.
T. Optionee shall mean any person to whom an option is granted
under the Discretionary Option Grant, Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.
U. Parent shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the Corporation,
provided each corporation in the unbroken chain (other than the Corporation)
owns, at the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
V. Participant shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
A-3.
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W. Permanent Disability or Permanently Disabled shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
X. Plan shall mean the Corporation's 1998 Stock Incentive
Plan, as set forth in this document.
Y. Plan Administrator shall mean the particular entity,
whether the Primary Committee, the Board or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to one or more classes of eligible persons, to the extent
such entity is carrying out its administrative functions under those programs
with respect to the persons under its jurisdiction.
Z. Plan Effective Date shall mean October 8, 1998, the date
the Plan was adopted by the Board.
AA. Predecessor Plan shall mean the Corporation's pre-existing
1995 Long Term Incentive Plan.
BB. Primary Committee shall mean the committee of two (2) or
more non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
CC. Salary Investment Option Grant Program shall mean the
salary investment option grant program in effect under the Plan.
DD. Secondary Committee shall mean a committee of one or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
EE. Section 16 Insider shall mean an officer or director of
the Corporation subject to the short-swing profit liabilities of Section 16 of
the 1934 Act.
FF. Service shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
GG. Stock Exchange shall mean either the American Stock
Exchange or the New York Stock Exchange.
A-4.
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HH. Stock Issuance Agreement shall mean the agreement entered
into by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
II. Stock Issuance Program shall mean the stock issuance
program in effect under the Plan.
JJ. Subsidiary shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
KK. Take-Over Price shall mean the greater of (i) the Fair
Market Value per share of Common Stock on the date the option is surrendered to
the Corporation in connection with a Hostile Take-Over or (ii) the highest
reported price per share of Common Stock paid by the tender offeror in effecting
such Hostile Take-Over. However, if the surrendered option is an Incentive
Option, the Take-Over Price shall not exceed the clause (i) price per share.
LL. Taxes shall mean the Federal, state and local income and
employment withholding taxes incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
MM. 10% Stockholder shall mean the owner of stock (as
determined under Code Section 424(d)) possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Corporation (or
any Parent or Subsidiary).
A-5.
