------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 18, 2000
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The 2000 Annual Meeting of the Stockholders of FileNET Corporation (the
"Company") will be held at 9:00 a.m. local time, on May 18, 2000, at The Mondavi
Center, 1570 Scenic Avenue, Costa Mesa, California 92626, for the following
purposes:
1. To elect six directors for the ensuing year or until the election and
qualification of their respective successors;
2. To approve an amendment to the Company's 1995 Stock Option Plan to
increase the number of shares of Common Stock available for issuance
thereunder by an additional 1,350,000 shares;
3. To approve an amendment to the Company's 1998 Employee Stock Purchase
Plan to increase the number of shares of Common Stock available for
issuance thereunder by an additional 340,000 shares; and
4. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on March 20, 2000, the
record date, will be entitled to notice of, and to vote at, the 2000 Annual
Meeting and any adjournment thereof.
By Order of the Board of Directors,
/s/ MARY K. CARRINGTON
Mary K. Carrington
Secretary
Costa Mesa, California
Dated: April 7, 2000
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU EXPECT TO
ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A
POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. YOU MAY VOTE YOUR PROXY
ELECTRONICALLY OR BY TELEPHONE. PLEASE REFER TO PAGE 2 OF THE FOLLOWING PROXY
STATEMENT AND THE ENCLOSED VOTING FORM FOR INSTRUCTIONS. YOUR PROXY MAY BE
REVOKED AT ANY TIME PRIOR TO THE ANNUAL MEETING. IF YOU DECIDE TO ATTEND THE
ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU MAY DO SO AUTOMATICALLY
BY VOTING IN PERSON AT THE ANNUAL MEETING.
3565 Harbor Boulevard
Costa Mesa, California 92626
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
MAY 18, 2000
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PROXY STATEMENT
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SOLICITATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors of
FileNET Corporation (the "Company") for use at the Annual Meeting of
Stockholders to be held at The Mondavi Center, 1570 Scenic Avenue, Costa Mesa,
California 92626, on May 18, 2000 at 9:00 a.m. local time, and at any and all
adjournments or postponements thereof (the "Meeting").
All shares represented by each properly executed, unrevoked proxy received
in time for the Meeting will be voted in the manner specified therein. If the
manner of voting is not specified in an executed proxy received by the Company,
the proxy will be voted FOR (i) the election of the six nominees for election to
the Board of Directors listed in the proxy, (ii) the approval of the amendment
to the Company's 1995 Stock Option Plan to increase the share reserve under such
plan and (iii) the approval of the amendment to the Company's 1998 Employee
Stock Purchase Plan to increase the share reserve under that plan.
Any stockholder has the power to revoke his or her proxy at any time before
it is voted. A proxy may be revoked by delivering a written notice of revocation
to the Secretary of the Company, by presenting a later-dated proxy executed by
the person who executed the prior proxy, or by attendance at the meeting and
voting in person by the person who executed the proxy. Attendance at the meeting
will not, by itself, revoke a proxy.
This proxy statement is being mailed to the Company's stockholders on or
about April 7, 2000. The expense of soliciting proxies will be borne by the
Company. Expenses include reimbursement paid to brokerage firms and others for
their expenses incurred in forwarding solicitation material regarding the
Meeting to beneficial owners of the Company's Common Stock. Solicitation of
proxies will be made by mail. Further solicitation of proxies may be made by
telephone or oral communication by the Company's regular employees, who will not
receive additional compensation for such solicitation.
OUTSTANDING SHARES AND VOTING RIGHTS
Voting
Only holders of record of the approximately 34,004,009 shares of the
Company's Common Stock outstanding at the close of business on the record date,
March 20, 2000, will be entitled to notice of and to vote at the Meeting or any
adjournment or postponement thereof. On each matter to be considered at the
Meeting, each stockholder will be entitled to cast one vote for each share of
the Company's Common Stock held of record by such stockholder on March 20, 2000.
In order to constitute a quorum for the conduct of business at the Meeting,
a majority of the outstanding shares of the Common Stock of the Company entitled
to vote at the Meeting must be present or represented at the Meeting. Pursuant
to Delaware law, directors are elected by a plurality vote. The other matters
submitted for stockholder approval at the Meeting will be decided by the
affirmative vote of a majority of shares present in person or represented by
proxy at the Meeting and entitled to vote on each matter. With regard to the
election of directors, votes may be cast in favor of or withheld from each
nominee; votes that are withheld will be excluded entirely from the vote and
will have no effect. Abstentions may be specified on all proposals except the
election of directors and will be counted as present for purposes of determining
the existence of a quorum regarding the item on which the abstention is noted
and will also be counted for purposes of determining whether stockholder
approval of that item has been obtained. If shares are not voted by the broker
who is the record holder of the shares, or if shares are not voted in other
circumstances in which proxy authority is defective or has been withheld, with
respect to any matter, those non-voted shares will not be deemed to be entitled
to vote for purposes of determining whether stockholder approval of that matter
has been obtained, but the shares will be counted for quorum purposes.
Voting Electronically via the Internet or Telephone
Stockholders whose shares are registered directly with EquiServe may vote
either via the Internet or by calling EquiServe. Specific instructions to be
followed by any registered stockholder interested in voting via Internet or
telephone are set forth on the enclosed proxy card. The Internet and telephone
voting procedures are designed to authenticate the stockholder's identity and to
allow stockholders to vote their shares and confirm that their instructions have
been properly recorded.
If your shares are registered in the name of a bank or brokerage firm, you
may be eligible to vote your shares electronically over the Internet or by
telephone. A large number of banks and brokerage firms are participating in the
ADP Investor Communication Services online program. This program provides
eligible stockholders who receive a paper copy of the Annual Report and Proxy
Statement the opportunity to vote via the Internet or by telephone. If your bank
or brokerage firm is participating in ADP's program, your voting form will
provide instructions. If your voting form does not reference Internet or
telephone information, please complete and return the paper Proxy in the
self-addressed postage paid envelope provided.
2
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth as of March 20, 2000 the amount and
percentage of the outstanding shares of the Common Stock of the Company which,
according to the information supplied to the Company, are beneficially owned by
(i) each person who, to the knowledge of the Company, is the beneficial owner of
more than 5% of the Company's outstanding Common Stock, (ii) each person who is
currently a director of the Company or is a nominee for election as a director
of the Company, (iii) each named executive officer in the Summary Compensation
Table that appears below and (iv) all current directors and executive officers
of the Company as a group. Except to the extent indicated in the footnotes to
the following table, the person or entity listed has sole voting or dispositive
power with respect to the shares that are deemed beneficially owned by such
person or entity, subject to community property laws, where applicable.
Total Percent of
Outstanding Shares of
Common Stock Common Stock
Beneficially Beneficially
Name(1) Owned (2) Owned (2)
- -------- ---------------- --------------
Directors and 5% Holders:
FMR Corp.
82 Devonshire Street
Boston, MA 02109(3) .......................... 3,140,100 9.70%
Theodore J. Smith(4).......................... 334,388 *
Lee D. Roberts(5) ............................ 91,357 *
John C. Savage(6)............................. 55,562 *
William P. Lyons(7)........................... 36,600 *
L. George Klaus(5)............................ 1,750 *
Roger S. Siboni(5)............................ 1,250
Named Executive Officers:
Bruce A. Waddington(8)........................ 20,026 *
Mark S. St. Clare............................. 2,324 *
David D. Despard(9)........................... 1 *
Ron L. Ercanbrack............................. - *
All executive officers and directors as a group
(18 persons)(10) 597,830 1.74%
- --------------------
* less than 1%
(1) The address of each individual named is 3565 Harbor Boulevard, Costa Mesa,
California 92626, unless otherwise indicated.
(2) Beneficial ownership and percentage of beneficial ownership as of March 20,
2000 for each person includes shares for which options held by such person
are currently exercisable or will become exercisable within 60 days after
March 20, 2000, as if such option shares were outstanding on March 20,
2000.
3
(3) FMR Corp. (on behalf of Fidelity Management & Research Company )
(collectively, "FMR") has represented to the Company that as of March 20,
2000 it had sole dispositive power of 3,140,000 shares, but holds no voting
power over such shares. The voting of such shares is carried out under the
written guidelines of the Boards of Trustees of several of FMR's funds.
(4) Consists of (i) 198,330 shares held by the Theodore J. Smith Family Trust
as to which shares Mr. Smith, as co-trustee for this trust, has voting and
dispositive power, and (ii) 136,058 shares issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after March 20, 2000.
(5) Consists of shares issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days after March 20, 2000.
(6) Includes 48,998 shares that are currently exercisable for vested shares or
will become exercisable for vested shares within 60 days after March 20,
2000.
(7) Consists of (i) 2,000 shares held by the William P. Lyons Family Trust as
to which shares Mr. Lyons, as co-trustee for this trust, has shared voting
and dispositive power, and (ii) 34,600 shares that are currently
exercisable for vested shares or will become exercisable for vested shares
within 60 days after March 20, 2000.
(8) Includes 20,000 shares issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days after March 20, 2000.
(9) Consists of a share issuable upon exercise of an option that is currently
exercisable or will become exercisable within 60 days after March 20, 2000.
(10) Includes shares held by the Theodore J. Smith Family Trust and William P.
Lyons Family Trust (see footnotes 4 and 7). Also includes an aggregate of
361,935 shares issuable upon exercise of options that are currently
exercisable or which will become exercisable within 60 days after March 20,
2000.
4
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth, as of March 20, 2000, those
executive officers of the Company who were subject to the reporting requirements
of Section 16 of the Securities and Exchange Act of 1934, as amended:
Name Age Position
- -------------------------------------------------------------------------------------------------------------
Lee D. Roberts 47 Chief Executive Officer since April 1998, and President of the Company
since May 1997. Mr. Roberts has also served as a director of the Company
since May 1998. Mr. Roberts also served as Chief Operating Officer of the
Company from May 1997 until April 1998. Prior to joining the Company in
May 1997, Mr. Roberts was with International Business Machines Corporation
("IBM") for over 20 years, serving most recently as General Manager and
Vice President, Worldwide Marketing and Sales for the Networking Division
of IBM. Mr. Roberts also currently serves on the Board of Directors of
Onyx Software.
Brian T. Anderson 38 Vice President, Worldwide Corporate Marketing since November 1998. From
September 1996 to November 1998 Mr. Anderson served as Director, Solutions
Marketing; from May 1996 to September 1996 he served as Senior Program
Manager, Marketing; and from October 1993 to May 1996 he served as
Manager, Product Marketing.
Mary K. Carrington 47 Senior Vice President and General Counsel since October 1998, and
Secretary since February 1999. Prior to October 1998, Ms. Carrington
served as the Company's consulting legal counsel since 1990 and was
previously associated with McKittrick, Jackson, DeMarco & Peckenpaugh.
Brian A. Colbeck 34 Vice President since June 1999 and Controller, Chief Accounting Officer
and Assistant Secretary since February 1999. From May 1998 to February
1999, Mr. Colbeck served as Treasurer. From October 1997 to May 1998, he
served as Director, Corporate Tax and Treasury, from March 1996 to October
1997 he was Director, Corporate Tax and from 1994 to March 1996 he served
as Tax Manager.
David D. Despard 44 Senior Vice President, Worldwide Professional Services since July 1998.
Prior to joining the Company, Mr. Despard was with Wall Data, Inc., where
he served as Vice President, Customer Services, from 1995.
Frederick P. Dillon 50 Vice President, Worldwide Sales Operations since January 1999. From
December 1997 to January 1999 he was Director, Worldwide Sales Operations
and from January 1993 to December 1997 he was Director, Sales Operations.
Ron L. Ercanbrack 45 Executive Vice President, Worldwide Sales and Marketing since April 1999.
He served as Senior Vice President, Worldwide Sales from October 1997
until April 1999. From June 1997 to October 1997, Mr. Ercanbrack served
as Senior Vice President, International. Prior to joining the Company in
June 1997, Mr. Ercanbrack was with IBM for over 19 years, serving most
recently as Vice President, Worldwide Sales, Channel and OEM for the
Networking Hardware Division of IBM.
Antoine Granatino 56 Senior Vice President, International Sales since August 1, 1999. Prior to
joining the Company, Mr. Granatino was with IBM for 29 years, serving most
recently as Vice President Mid Range Server Sales for Europe, Middle East
and Africa.
William J. Kreidler 55 Senior Vice President, Worldwide Support and Operations since July 1997.
From August 1992 to July 1997, Mr. Kreidler served as Vice President,
Operations. From 1993 to July 1998, he was also responsible for
Professional Services.
5
Audrey N. Schaeffer 55 Vice President, Human Resources since January 1993, and Assistant
Secretary since April 1988.
Bruce A. Waddington 49 Executive Vice President since April 1999 and Chief Technology Officer,
Products and Strategy since March 1996. Mr. Waddington served as Senior
Vice President, Engineering from June 1993 until April 1999.
Michael J. Wallrich 48 Senior Vice President, North America Sales since September 1999. From
January 1996 to September 1999, Mr. Wallrich served as Vice President,
Sales, Eastern Region; and previously served as District Manager for the
Midwest area since joining the Company in 1991.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
the annual and long-term compensation earned for services rendered in all
capacities to the Company for the fiscal year ended December 31, 1999
(designated as the 1999 year below), the fiscal year ended December 31, 1998
(designated as the 1998 year below) and the fiscal year ended December 31, 1997
(designated as the 1997 year below), respectively, by the Company's Chief
Executive Officer and each of the other four most highly compensated executive
officers of the Company whose annual salary and bonuses exceeded $100,000 for
the fiscal year ended December 31, 1999 (collectively, the "Named Executive
Officers").
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------------------------------------------
Stock All Other
Other Annual Option Compen-
Name and Principal Position Year Salary(1) Bonus(2) Compensation (Shares) sation(3)
- ----------------------------------------------------------------------------------------------------------------
Lee D. Roberts 1999 419,613 200,000 -- -- 4,228
1998 373,750 -- $ 28,000(4) 150,000 3,660
President, Chief Executive Officer 1997 190,000 188,500 472,143(5) 660,000 417
and Director
Ron L. Ercanbrack(6) 1999 336,780 150,000 36,000(7) 25,000 3,114
Executive Vice President, Worldwide 1998 259,457 -- 93,514(8) 40,000 2,673
Sales and Marketing 1997 135,089 124,400 74,194(9) 240,000 1,240
Bruce A. Waddington 1999 258,230 136,500 -- -- 3,430
Executive Vice President and Chief 1998 260,121 -- -- 40,000 3,087
Technology Officer, Products and 1997 216,897 83,520 -- 348,000(10) 3,004
Strategy
Mark S. St. Clare(11) 1999 262,854 99,330 -- -- 7,387
Senior Vice President, Finance and 1998 238,444 -- -- 30,000 4,592
Chief Financial Officer 1997 210,514 76,560 -- 210,000(10) 4,483
David D. Despard(12) 1999 247,394 112,500 -- 25,000 4,369
Senior Vice President, Worldwide 1998 103,846 80,000 -- 200,000 582
Professional Services 1997 -- -- -- -- --
- -------------------------------------
(1) Includes amounts deferred under (a) the Company's Employee Savings and
Investment Plan, a tax-qualified plan under Section 401(k) of the Internal
Revenue Code, and (b) the Company's Deferred Compensation Plan.
6
(2) Annual bonus amounts are earned and accrued for the fiscal year in which
reported, but are paid after the close of that fiscal year.
(3) Includes (a) the following premiums paid by the Company for fiscal 1999 on
certain term-life insurance policies maintained for the Named Executive
Officers under which such individuals designate their own beneficiaries:
$4,228, $1,114, $1,430, $5,387, and $2,369 for Messrs. Roberts, Ercanbrack,
Waddington, St. Clare and Despard, respectively, and (b) a contribution of
$2,000 by the Company on behalf of each of Messrs. Ercanbrack, Waddington,
St. Clare, and Despard to the Company's Section 401(k) Plan which matches a
portion of such individuals' contributions to the same Plan. Also includes
(a) premiums of $3,660, $1,073, $1,487 and $2,992 paid by the Company for
fiscal 1998 on certain term-life insurance policies maintained for Messrs.
Roberts, Ercanbrack, Waddington and St. Clare, respectively, under which
such individuals designate their own beneficiaries, and (b) a $1,600
contribution on behalf of each of Messrs. Ercanbrack, Waddington and St.
Clare, and a $582 contribution on behalf of Mr. Despard, made by the
Company for fiscal 1998 to the Section 401(k) Plan which matches a portion
of such officers' contributions to that plan.
(4) Such amount represents a housing allowance paid to Mr. Roberts for fiscal
1998.
(5) Consists of (a) $1,999 in reimbursed relocation expenses plus the tax
gross-up for the portion includable as taxable income, (b) a housing
allowance in the amount of $21,000 and (c) the aggregate amount of $449,144
paid in part as reimbursement of the settlement costs and legal fees
incurred by Mr. Roberts in connection with a lawsuit commenced by his
former employer and in part as a tax gross-up on the portion of such
reimbursement includable in his taxable income. See "Employment Contracts
and Change in Control Arrangements" for further information.
(6) Mr. Ercanbrack joined the Company and was first appointed an executive
officer in June 1997.
(7) Such amount represents a housing allowance paid to Mr. Ercanbrack for
fiscal 1999.
(8) Consists of (a) $57,514 in reimbursed relocation expenses plus the tax
gross-up for the portion includable as taxable income, and (b) a housing
allowance in the amount of $36,000 paid to Mr. Ercanbrack. See "Employment
Contracts and Change in Control Arrangements" for further information.
(9) Consists of (a) $60,258 in reimbursed relocation expenses plus the tax
gross-up for the portion includable as taxable income, and (b) a housing
allowance in the amount of $13,936 paid to Mr. Ercanbrack. See "Employment
Contracts and Change in Control Arrangements" for further information.
(10) Each of the option grants indicated for fiscal 1997 include the following
options regranted on July 11, 1997 in exchange for the cancellation of
preexisting options for the same number of shares but with a higher
exercise price per share: 54,000 shares and 70,000 option shares for
Messrs. Waddington and St. Clare, respectively.
(11) Mr. St. Clare resigned his employment with the Company effective February
25, 2000.
(12) Mr. Despard joined the Company and was first appointed an executive officer
in July 1998.
7
Option Grants in Last Fiscal Year
The following table provides information on option grants made in the 1999
fiscal year to the Named Executive Officers. No stock appreciation rights were
granted during such fiscal year to the Named Executive Officers.
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term(1)
---------------------------------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise
Granted in Fiscal Price Expiration
Name (#)(2) Year ($/Sh) Date 5% 10%
- --------------------------------------------------------------------------------------------------------------------
Lee D. Roberts.............. -- -- -- -- -- --
Ron L. Ercanbrack........... 25,000 1.8% $ 8.88 5/20/09 $139,536 $353,612
Bruce A. Waddington......... -- -- -- -- -- --
Mark S. St. Clare........... -- -- -- -- -- --
David D. Despard............ 25,000 1.8% $11.09 7/16/09 $174,424 $442,024
- ------------------------------
(1) The assumed 5% and 10% annual rates of stock price appreciation are for
illustrative purposes only. Actual stock prices will vary from time to time
based upon market factors and the Company's financial performance. No
assurance can be given that such rates will be achieved. Unless the market
price of the Common Stock appreciates over the option term, no value will
be realized from the option grants made to the Named Executive Officers.
(2) Each option was granted under the Company's 1995 Stock Option Plan and will
become exercisable for the option shares in four successive equal annual
installments upon the optionee's completion of each year of service over
the four-year period measured from the grant date (May 20, 1999 for Mr.
Ercanbrack's option, and July 16, 1999 for Mr. Despard's options). Each
option will become immediately exercisable for all the option shares in the
event the Company is acquired by merger or asset sale, unless the option is
to be assumed by the successor entity. Should the option be assumed in the
acquisition, then that option will subsequently become exercisable for all
the option shares in the event the optionee's employment is terminated
(whether involuntarily or through a forced resignation) within 12 months
after the acquisition. The option will also accelerate in full in the event
the optionee's employment is terminated within 12 months after a change of
control of the Company (whether by tender offer for more than 50% of the
Company's outstanding voting securities or a change in the composition of
the Board effected through one or more contested elections for Board
membership). Each option has a maximum term of 10 years, subject to earlier
termination following the optionee's termination of employment.
8
Aggregated Option Exercises in Last Fiscal Year and Year End Option Value
The following table sets forth certain information with respect to the
Named Executive Officers concerning their exercise of options during fiscal 1999
and the unexercised options held by them at the close of such fiscal year. No
stock appreciation rights were held or exercised by the Named Executive Officers
at any time during the 1999 fiscal year.
Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money
Year End Options at
(Number of Shares) Fiscal Year End(1)
Shares ---------------------- -------------------------
Acquired Value Exercisable / Exercisable /
Name on Exercise(#) Realized ($)(2) Unexercisable Unexercisable
- -------------------------- --------------- ----------------- ---------------------- -------------------------
Lee D. Roberts............ 0 0 242,500 / 442,500 $3,822,682 / $6,671,782
Ron L. Ercanbrack......... 0 0 105,000 / 175,000 $1,733,995 / $2,923,300
Bruce A. Waddington....... 0 0 241,180 / 183,500 $4,215,263 / $3,160,161
Mark S. St. Clare......... 0 0 116,667 / 99,333 $1,869,574 / $1,585,190
David D. Despard.......... 0 0 50,000 / 175,000 $ 332,356 / $1,356,444
- --------------------------
(1) Calculated on the basis of the average of the high and low selling prices
of the Company's Common Stock on December 31, 1999 ($25.469), the last
trading day in fiscal 1999, minus the exercise price of the option,
multiplied by the number of shares subject to the option.
(2) The excess of the fair market value of the purchased shares on the date of
exercise over the exercise price paid for such shares.
Compensation Committee Report on Executive Compensation
It is the duty of the Compensation Committee to review and determine the
salaries and bonuses of executive officers of the Company, including the Chief
Executive Officer, and to establish the general compensation policies for such
individuals. The Compensation Committee also has the sole and exclusive
authority to make discretionary option grants to the Company's executive
officers under the 1995 Stock Option Plan.
The Compensation Committee believes that the compensation programs for the
Company's executive officers should reflect the Company's performance and the
value created for the Company's stockholders. In addition, the compensation
programs should support the short-term and long-term strategic goals and values
of the Company and should reward individual contribution to the Company's
success. The Company is engaged in a very competitive industry, and the
Company's success depends upon its ability to attract and retain qualified
executives through the competitive compensation packages it offers to such
individuals.
General Compensation Policy. The Compensation Committee's policy is to
provide the Company's executive officers with compensation opportunities that
are based upon their personal performance, the financial performance of the
Company and their contribution to that performance, and which are competitive
enough to attract and retain highly skilled individuals. Each executive
officer's compensation package is comprised of three elements: (i) base salary
that is competitive with the market and reflects individual performance, (ii)
annual variable performance awards payable in cash and tied to the Company's
achievement of annual financial performance goals and (iii) long-term
stock-based incentive awards designed to strengthen the mutuality of interests
between the executive officers and the Company's stockholders. As an officer's
level of responsibility increases, a greater proportion of his or her total
compensation will be dependent upon the Company's financial performance and
stock price appreciation.
The Company has, at such times in the past as it deemed necessary, retained
the services of an independent compensation consulting firm to advise the
9
Compensation Committee as to how the Company's executive compensation compares
to that of companies within and outside of the industry. The Company also
subscribes to and participates in compensation surveys of the companies in its
industry.
Factors. The principal factors that were taken into account in establishing
each executive officer's compensation package for the 1999 fiscal year are
described below. However, the Compensation Committee may in its discretion apply
entirely different factors, such as different measures of financial performance,
for future fiscal years.
Base Salary. In setting base salaries, the Compensation Committee reviews
published compensation survey data for its industry. The Committee has also
identified a group of companies for comparative compensation purposes, and it
reviews detailed compensation data incorporated into each such company's proxy
statements. This group is comprised of approximately 20 companies. The base
salary for each officer reflects the salary levels for comparable positions in
the published surveys and the comparative group of companies, as well as the
individual's personal performance and internal alignment considerations. The
relative weight given to each factor varies with each individual in the sole
discretion of the Compensation Committee. Each executive officer's base salary
is adjusted each year on the basis of (i) the Compensation Committee's
evaluation of the officer's personal performance for the year, and (ii) the
competitive marketplace for persons in comparable positions. The Company's
performance and profitability may also be a factor in determining the base
salaries of executive officers. For the 1999 fiscal year, the base salary of the
Company's executive officers ranged from approximately the 40th percentile to
the 75th percentile of the base salary levels in effect for comparable positions
in the surveyed compensation data.
Annual Incentives. The annual incentive bonus for the Chief Executive
Officer is based on a percentage of his base pay (50% for the 1999 fiscal year)
but is adjusted to reflect the actual financial performance of the Company in
comparison to the Company's business plan. No bonus is paid if the Company's
attainment of the target earnings per share (EPS) is less than 70% of plan; 100%
of the bonus is paid if the Company's attainment of the target goal is 100% of
plan and 200% of the bonus is paid if the Company's attainment of the target
goal is equal to or greater than 125% of plan. The actual bonus is calculated on
a pro rata basis between these points. Most of the other executive officers of
the Company are also eligible to receive annual incentive bonuses equal to a
percentage of base salary (30-50% for fiscal 1999) on the basis of the Company's
performance to plan as measured in terms of achievement of the Company's target
EPS. On the basis of the foregoing, bonuses in the aggregate amount of
$1,056,093 were awarded to 11 executive officers for fiscal 1999. Two executive
officers were awarded an aggregate of $184,697 in quarterly incentive bonuses
based on Company sales for fiscal 1999.
Long Term Incentives. Generally, stock option grants are made annually by
the Compensation Committee to each of the Company's executive officers. Each
grant is designed to align the interests of the executive officer with those of
the stockholders and provide each individual with a significant incentive to
manage the Company from the perspective of an owner with an equity stake in the
business. Each grant allows the officer to acquire shares of the Company's
Common Stock at a fixed price per share (the market price on the grant date)
over a specified period of time (up to ten years). Each option granted prior to
October 21, 1999 is to become exercisable in successive annual installments over
a four-year period, contingent upon the officer's continued employment with the
Company. Each option granted after October 21, 1999 will become exercisable in
installments equal to 25% of the option shares on the first anniversary of
grant, and for the balance of the option shares in 36 successive equal monthly
installments thereafter. Accordingly, the options will provide a return to the
executive officer only if he or she remains employed by the Company during the
vesting periods, and then only if the market price of the shares appreciates
over the option term.
The size of the option grant to each executive officer, including the Chief
Executive Officer, is set by the Compensation Committee at a level that is
intended to create a meaningful opportunity for stock ownership based upon the
individual's current position with the Company, the individual's personal
performance in recent periods and his or her potential for future responsibility
and promotion over the option term. The Compensation Committee also takes into
account the number of unvested options held by the executive officer in order to
maintain an appropriate level of equity incentive for that individual. The
relevant weight given to each of these factors varies from individual to
individual.
CEO Compensation. In setting the total compensation payable to Mr. Roberts
who served as the Company's Chief Executive Officer for the 1999 fiscal year,
the Compensation Committee sought to make his compensation competitive with
other companies in the surveyed group, while at the same time assuring that a
10
significant percentage of his total compensation package was tied to Company
performance, as measured in terms of the achievement of the Company's target
EPS.
The Compensation Committee established Mr. Roberts' base salary for the
1999 fiscal year with the objective of maintaining his base salary at a
competitive level when compared with the base salary levels in effect for
similarly situated chief executive officers. With respect to Mr. Robert's base
salary, it is the Compensation Committee's intent to provide him with a level of
stability and certainty each year and not have this particular component of
compensation affected to any significant degree by Company performance factors.
For the 1999 fiscal year, Mr. Roberts' base salary was set at approximately the
median of the base salary levels of other chief executive officers at the
surveyed companies.
The balance of Mr. Roberts' compensation package for the 1999 fiscal year
was primarily dependent upon corporate performance. Mr. Roberts was awarded a
cash bonus based on the Company's attainment of its target EPS goal for the 1999
fiscal year. The Compensation Committee did not award stock options to Mr.
Roberts in fiscal 1999.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code disallows a tax deduction to
publicly held companies for compensation paid to certain of their executive
officers, to the extent that compensation exceeds $1 million per covered officer
in any fiscal year. The limitation applies only to compensation which is not
considered to be performance-based. The non-performance based compensation paid
in cash to the Company's executive officers for the 1999 fiscal year did not
exceed the $1 million limit per officer, and the Compensation Committee does not
anticipate that the non-performance based compensation to be paid in cash to the
Company's executive officers for fiscal 2000 will exceed that limit. The
Company's 1995 Stock Option Plan has been structured so that any compensation
deemed paid in connection with the exercise of option grants made under that
plan with an exercise price equal to the fair market value of the option shares
on the grant date will qualify as performance-based compensation which will not
be subject to the $1 million limitation. However, the option grants made to
Messrs. Roberts and Ercanbrack at the time they joined the Company were not made
under the 1995 Stock Option Plan, and the deductibility of the compensation
deemed paid by the Company in connection with the exercise of those options will
be subject to the $1 million limitation. Because it is unlikely that the cash
compensation payable to any of the Company's executive officers, including
Messrs. Roberts and Ercanbrack, in the foreseeable future will approach the $1
million limit, the Compensation Committee has decided at this time not to take
any action to limit or restructure the elements of cash compensation payable to
the Company's executive officers. The Compensation Committee will reconsider
this decision should the individual cash compensation of any executive officer
ever approach the $1 million level.
It is the opinion of the Compensation Committee that the executive
compensation policies and plans provide the necessary total remuneration program
to properly align the Company's performance and the interests of the Company's
stockholders through the use of competitive and equitable executive compensation
in a balanced and reasonable manner, for both the short and long-term.
Submitted by the Compensation Committee of the Company's Board of Directors:
Compensation Committee
L. George Klaus
William P. Lyons
11
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is composed of Messrs. Klaus and Lyons. Mr.
Savage resigned from the Committee in April 1999. No member of the Compensation
Committee was at any time during the 1999 fiscal year, or at any other time, an
officer or employee of the Company. No executive officer of the Company served
on the board of directors or compensation committee of any entity which has one
or more executive officers serving as members of the Company's Board of
Directors or Compensation Committee.
Stock Price Performance Graph
The following graph compares the five year cumulative total stockholder
return on the Company's Common Stock against the cumulative total return of the
Nasdaq Stock Market Index and the Nasdaq Computer and Data Processing Services
Index for the period from December 30, 1994 to December 31, 1999.
[GRAPH APPEARS HERE]
Measurement period FILENET NASDAQ NASDAQ
(Fiscal year covered) CORPORATION STOCK MARKET C&DPS INDEX
- --------------------- ----------- ------------ -----------
Measurement Pt - 12/31/94 $100 $100 $ 100
FYE 12/31/95 $219 $138 $ 185
FYE 12/31/96 $149 $170 $ 228
FYE 12/31/97 $140 $209 $ 280
FYE 12/31/98 $107 $293 $ 502
FYE 12/31/99 $237 $531 $1058
Assumes $100 invested on December 30, 1994 in the Company's Common Stock
and in the stock of each of the other Indices.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 which might incorporate future filings made by the Company under those
statutes, neither the preceding Compensation Committee Report on Compensation
nor the Stock Price Performance Graph will be incorporated by reference into any
of those prior filings, nor will such report or graph be incorporated by
reference into any future filings made by the Company under those statutes.
12
Employment Contracts and Change in Control Agreements
None of the Company's Named Executive Officers have employment agreements
currently in effect with the Company, and the employment of each Named Executive
Officer may be terminated at any time at the discretion of the Board of
Directors.
Pursuant to an employment agreement which the Company entered into with Mr.
Lee D. Roberts, the Company's President and Chief Executive Officer, in May 1997
in connection with his commencement of employment, Mr. Roberts was granted an
option at that time to purchase 300,000 shares of the Company's Common Stock at
an exercise price of $7.16 per share. The option vests in four successive equal
annual installments over his period of continued employment with the Company.
Pursuant to that agreement, the Company also agreed to (i) reimburse Mr. Roberts
for all legal fees incurred by him in connection with a lawsuit brought against
him by his former employer for the repayment of any profit realized by him in
connection with the exercise of his options to purchase shares of that
employer's common stock and the subsequent sale of those shares, and (ii) pay
him an amount equal to any after-tax loss he incurred (based upon the excess of
the amount received by him upon the sale of the shares purchased under his
former employer's options over the option exercise price paid for those shares)
in the event that he was requested by the Company to settle the suit or did not
prevail in the suit. During the 1997 fiscal year, the Company paid Mr. Roberts
an aggregate of $449,144 in connection with the settlement of such suit and the
reimbursement of the tax liability arising from such payment. Mr. Roberts'
employment agreement terminated in May 1999 upon the expiration of the two-year
term.
In June 1997, the Company entered into an employment agreement with Mr. Ron
L. Ercanbrack, the Company's Senior Vice President, Worldwide Sales. Mr.
Ercanbrack's agreement had a two-year term which expired on June 10, 1999.
Pursuant to such agreement, Mr. Ercanbrack was granted an option to purchase
200,000 shares of the Company's Common Stock at an exercise price of $7.53 per
share. The option vests in four successive equal annual installments over a
four-year period measured from the grant date, subject to Mr. Ercanbrack's
continued employment with the Company. Pursuant to the agreement, Mr. Ercanbrack
was entitled to an initial annual base salary of $225,000, an annual incentive
bonus tied to the financial performance of the Company and reasonable relocation
expenses.
In December 1999, the Compensation Committee of the Company's Board of
Directors approved and adopted a CEO Severance Program (the "Program") under
which the Company's Chief Executive Officer (the "CEO") would be entitled to
receive certain severance benefits and option acceleration upon the involuntary
termination of the CEO's employment subject to certain conditions being met. The
benefits under the Program include a cash lump sum severance payment equal to
the CEO's annual base salary, together with any bonus which would otherwise be
earned by the CEO for the year of termination but for the occurrence of the
termination (which bonus is limited to 50% of the eligible annual award if the
CEO has completed less than six months of service during the bonus year). The
Program also provides for the continuation of certain health and life insurance
benefits and provides for the acceleration of certain outstanding unvested
options held by the CEO at the time of termination.
In October 1998, the Compensation Committee of the Board of Directors
approved and adopted a Severance Program for the Company's Chief Executive
Officer and certain other executive officers of the Company. Under the Severance
Program, each eligible executive officer will be entitled to certain benefits in
the event his or her employment with the Company is involuntarily terminated,
other than for Cause (as defined in the Severance Program), or if such executive
officer resigns for "Good Reason" (as defined in the Severance Program), within
12 months following a change in control of the Company. The benefits to be
provided to an eligible executive officer upon such involuntary termination
(other than for Cause) or resignation for Good Reason include (i) a lump sum
payment equal to (A) the annual base salary in effect for such executive officer
immediately before the change in control or, if greater, at the time of
termination, plus (B) the annual incentive bonus that such executive officer
would have been entitled to receive under the Company's bonus plan if the
Company's goals were at 100% of target for the calendar year in which the
termination occurs or, if greater, the annual incentive bonus which such
executive officer would have received if the Company's goals were at 100% of
target for the calendar year in which the change in control occurs, plus the
pro-rata portion of the bonus earned by such executive officer during the
calendar year in which the change of control occurs and (ii) continued health
care coverage under the Company's medical plan for a period of up to 12 months.
In addition, under the Severance Program, any shares of Common Stock that
are subject to outstanding options held by an eligible executive officer or any
unvested shares of Common Stock actually held by such officer under the
Company's 1995 Stock Option Plan will automatically vest in full on an
13
accelerated basis in the event such executive officer's employment is terminated
(whether involuntarily or through a forced resignation) within 12 months
following a change in control of the Company. The option grants made to the
Named Executive Officers during the 1999 fiscal year, together with all prior
option grants held by such individuals, contain such acceleration provisions.
For purposes of the Severance Program, a change in control is defined as
(i) the acquisition of the Company by merger or asset sale, (ii) a successful
tender for more than 50% of the Company's outstanding Common Stock or (iii) a
change in the majority of the Board as a result of one or more contested
elections for Board membership.
Substantially all of the executive officers who report directly to the
Chief Executive Officer participate in the Severance Program.
COMPLIANCE WITH SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and persons who own more than 10% of
a registered class of the Company's equity securities to file initial reports of
ownership and reports of changes in ownership with the SEC and the Nasdaq
National Market. Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of copies of such forms received by it with
respect to fiscal year 1999 and the written representations received from
certain reporting persons that no other reports were required, the Company
believes that all directors, executive officers and persons who own more than
10% of the Company's Common Stock have complied with the reporting requirements
of Section 16(a), except that the following transactions were reported late: the
grant of options for 44,000 shares in May 1998 to each of Mr. Lyons and Savage
pursuant to the Company's 1995 Stock Option Plan and the acquisition of 1,220
shares by Mr. Savage in January 1999 pursuant to the Company's Directors Fee
Option Grant Program. In addition, the ownership of shares purchased by Mr.
Klaus' family trust in December 1998 was incorrectly reported as purchased by
Mr. Klaus directly, and 1,691 and 962 shares held by Mr. Anderson and Mr.
Wallrich, respectively, at the time they were named executive officers of the
Company were not included in their Form 3's filed in April and September 1999,
respectively. All of such Forms 3 and 4 have now been correctly amended.
14
Proposal 1
ELECTION OF DIRECTORS
Directors are elected at each Annual Meeting of Stockholders
and hold office until their successors are duly elected and qualified at
the
next Annual Meeting of Stockholders. Pursuant to the Company's Bylaws and a
resolution adopted by a majority of the authorized number of directors, the
authorized number of members of the Board of Directors has been set at six.
The following table sets forth certain information concerning the nominees
for election to the Board of Directors.
Name, Age, Principal Occupation or Position, Year First
Director and Directorships of Other Publicly Became a
Owned Companies Director
- --------------------------------------------- -----------
William P. Lyons, 55, President, Chief Executive Officer
and a director of Finjan Software, Ltd. since February 1998. 1992
From April 1992 until June 1997, Mr.Lyons served as President,
Chief Executive Officer and a director of ParcPlace Systems, Inc.
L. George Klaus, 59, Chairman and Chief Executive Officer of
Epicor Software Corporation (formerly Platinum Software Corporation) 1998
since February 1996. From July 1993 to November 1995, Mr. Klaus
served as President, Chief Executive Officer and Chairman of the
Board of Frame Technology Corp. Mr. Klaus currently serves as a
director of Blaze Software.
Lee D.Roberts, 47, Chief Executive Officer since April 1998,
and President and Chief Operating Officer since May 1997. Mr. 1998
Roberts has also served as a director of the Company since
May 1998. Prior to joining the Company in May 1997, Mr.Roberts
was with IBM for over 20 years, serving most recently as General
Manager and Vice President, Worldwide Marketing and Sales for the
Networking Division of IBM. Mr. Roberts also currently serves as
a director of Onyx Software.
John C. Savage, 52, Partner of Alliant Partners, an investment
banking firm, since June 1998. From 1990 to July 1998, Mr. Savage 1982
served as a Managing Partner of Glenwood Capital Partners and
Managing Director of its successor, Redwood Partners, LLC, both
venture buy-out firms. Mr. Savage currently serves as a
director of Mattson Technology, Inc.
Roger S. Siboni, 45, President, Chief Executive Officer and a
director of Epiphany, Inc. since August 1998. From October 1996 1998
to August 1998, Mr. Siboni was Deputy Chairman and Chief Operating
Officer of KPMG Peat Marwick LLP, a member firm of KPMG
International. From 1993 to October 1996, Mr. Siboni was Managing
Partner of KMPG Peat Marwick LLP, Information, Communication and
Entertainment practice. Mr. Siboni currently serves as a director
of Pivotal Software, Inc. and Active Software, Inc.
and Corio
Theodore J. Smith, 70, Chairman of the Board of the Company.
Mr. Smith served as the Chief Executive Officer of the Company 1982
since its inception in 1982 to April 1998, and President of
the Company from 1982 to May 1997. Mr. Smith is currently a
director of Intershop Communications, A.G.
Except as otherwise indicated, during the past five years, each of the
nominees has held the same position with the same entities as listed above.
15
The Board of Directors held eight meetings (in addition to three unanimous
written consents in lieu of a meeting) during the fiscal year ended December 31,
1999. Each director attended or participated in at least 75% of the aggregate
number of meetings of the Board of Directors, or those committees of the Board
of Directors on which such person served, which were held during such period.
The Company has standing Audit and Compensation Committees, but has not
established a Nominating Committee. During fiscal year 1999, Messrs. Lyons,
Savage and Siboni comprised the Audit Committee. The Audit Committee met four
times during the fiscal year ended December 31, 1999. Mr. Siboni was appointed
to the Audit Committee in February 1999. The Audit Committee's responsibilities
include recommending the selection of the Company's independent public
accountants to the Board of Directors, as well as reviewing the (i) scope and
results of the audit engagement with the independent public accountants and
management, (ii) adequacy of the Company's internal accounting control
procedures, (iii) independence of the independent public accountants, and (iv)
the range of audit and non-audit fees charged by the independent public
accountants.
During fiscal year 1999, Messrs. Lyons, Klaus and Savage comprised the
Compensation Committee, until Mr. Savage resigned from that committee in April
1999. The Compensation Committee held eight meetings (in addition to two actions
by unanimous written consent in lieu of a meeting) during the fiscal year ended
December 31, 1999. The Compensation Committee reviews and approves executive
salaries, considers awards to be granted under the Company's officer bonus plan,
has the exclusive authority to make stock option grants under the 1995 Stock
Option Plan to the Company's executive officers and performs other related
functions upon request of the Board of Directors. Either the Compensation
Committee or the full Board of Directors may award option grants to all other
eligible individuals under the 1995 Stock Option Plan. In addition, in December
1999, the Board of Directors appointed Mr. Roberts as the sole member of a
Special Stock Option Committee which is to have separate but concurrent
authority with the Compensation Committee to make discretionary option grants to
eligible individuals under the Company's 1995 Stock Option Plan, other than
executive officers and non-employee Board members, subject to a limitation of
20,000 shares per individual employee grant.
Board Compensation and Benefits
Each director who is not an employee of the Company is reimbursed for
actual expenses incurred in attending Board meetings. In addition, each
non-employee director received the following compensation for his Board service
during fiscal 1999: (i) an annual retainer fee of $12,000; (ii) a fee of $1,500
for each Board meeting attended; and (iii) a fee of $1,000 for each Committee
meeting attended which was not held on the same day as a Board meeting. The
annual retainer fee was recently increased to $24,000 for fiscal 2000.
At the 1999 Annual Stockholders Meeting held on May 20, 1999, Messrs.
Lyons, Klaus, Savage, Smith and Siboni each received, upon their reelection to
the Board, a stock option for 7,000 shares of the Company's Common Stock under
the Automatic Option Grant Program in effect for non-employee Board members
under the 1995 Stock Option Plan. Each option has an exercise price of $8.875
per share, representing the fair market value per share of Common Stock on the
grant date. Each of the options is immediately exercisable for all the option
shares, but any shares purchased under those options will be subject to
repurchase by the Company, at the option exercise price paid per share, upon the
optionee's cessation of Board service prior to vesting in those shares. The
shares subject to each option will vest in a series of four successive equal
annual installments upon the optionee's completion of each year of Board service
over the four-year period measured from the grant date. The option has a maximum
term of 10 years measured from the grant date, subject to earlier termination
following the optionee's cessation of Board service.
Each non-employee Board member reelected to the Board at the Meeting will
receive an option grant for 7,000 shares of the Company's Common Stock under the
Automatic Option Grant Program in effect under the 1995 Stock Option Plan.
For further information concerning the term of these option grants, please
see the description of the Automatic Option Grant and Director Fee Option Grant
Programs in Proposal 2 below entitled "Approval of Amendment to the 1995 Stock
Option Plan."
Stockholder Approval
Directors will be elected by an affirmative vote of a plurality of the
shares of voting stock present and entitled to vote, in person or by proxy, at
the Meeting. Abstentions or broker non-votes as to the election of directors
16
will not affect the election of the candidates receiving the plurality of votes.
Unless instructed to the contrary, the shares represented by the proxies will be
voted FOR the election of the six nominees named above as directors. Although it
is anticipated that each nominee will be able to serve as a director, should any
nominee become unavailable to serve, the proxies will be voted for such other
person or persons as may be designated by the Company's Board of Directors. As
of the date of this Proxy Statement, the Board of Directors is not aware of any
nominee who is unable or will decline to serve as a director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL SIX
NOMINEES NAMED ABOVE.
17
Proposal 2
APPROVAL OF AMENDMENT TO THE 1995 STOCK OPTION PLAN
The Company's stockholders are being asked to approve an amendment to the
Company's 1995 Stock Option Plan (the "1995 Plan") that will increase the number
of shares of Common Stock issuable under the 1995 Plan by an additional
1,350,000 shares.
The share increase to the 1995 Plan will assure that the Company will have
a sufficient reserve of Common Stock to provide a comprehensive equity incentive
program for the Company's officers, employees and non-employee Board members in
order to encourage those individuals to remain in the Company's service and more
closely align their interests with those of the stockholders. The number of
shares for which options will be granted to each newly-hired or continuing
employee will be based both on competitive market conditions and individual
performance.
The 1995 Plan became effective on May 24, 1995 upon approval by the
stockholders at the 1995 Annual Meeting and serves as the successor to the
Company's predecessor 1986 Stock Option Plan. The amendment to the 1995 Plan
that is the subject of this Proposal was adopted by the Board as of March 20,
2000. The following is a summary of the principal features of the 1995 Plan, as
most recently amended. The summary, however, does not purport to be a complete
description of all the provisions of the 1995 Plan. Any stockholder of the
Company who wishes to obtain a copy of the actual plan document may do so upon
written request to the Company's Secretary at the Company's principal executive
offices in Costa Mesa, California.
Equity Incentive Programs
The 1995 Plan contains five separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) a Salary Reduction Option Grant
Program, (iii) a Stock Issuance Program, (iv) an Automatic Option Grant Program,
and (v) a Director Fee Option Grant Program. The principal features of each
program are described below. The Compensation Committee has the exclusive
authority to administer the Discretionary Option Grant Program and Stock
Issuance Program with respect to option grants and stock issuances made to the
Company's executive officers and non-employee Board members. The Compensation
Committee, the Special Stock Option Committee and the full Board each have
separate but concurrent authority to make option grants and stock issuances
under those programs to all other eligible individuals. The term Plan
Administrator, as used in this summary, will mean the Compensation Committee,
the Special Stock Option Committee or the Board, to the extent each such entity
is acting within the scope of its administrative jurisdiction under the 1995
Plan. The Compensation Committee will also have the exclusive authority to
select the executive officers and other highly compensated employees who may
participate in the Salary Reduction Option Grant Program, but no other
administrative discretion will be exercised by the Compensation Committee or by
the Special Stock Option Committee or the Board under that program or under the
Automatic Option Grant or Director Fee Option Grant Program for the non-employee
Board members. All grants under these three latter programs will be made in
strict compliance with the express provisions of each such program, and
stockholder approval of the 1,350,000-share increase subject to this Proposal
will also constitute pre-approval of all option grants subsequently made
pursuant to the express provisions of those programs on the basis of such share
increase and the subsequent exercise of those options in accordance with their
terms.
Share Reserve
The maximum number of shares of the Company's Common Stock available for
issuance over the term of the 1995 Plan may not exceed 11,174,830 shares,
including the 1,350,000-share increase for which stockholder approval is sought
under this Proposal. However, not more than 7,087,351 shares may be issued under
the 1995 Plan after March 20, 2000. In no event may any individual participant
in the 1995 Plan be granted stock options and direct stock issuances for more
than 400,000 shares in the aggregate per calendar year. Stockholder approval of
this Proposal will also constitute re-approval of such limitation for purposes
of Internal Revenue Code Section 162(m).
18
The shares of Common Stock issuable under the 1995 Plan may be drawn from
shares of the Company's authorized but unissued Common Stock or from shares of
Common Stock reacquired by the Company, including shares repurchased on the open
market.
Shares subject to any outstanding options under the 1995 Plan (including
options incorporated from the predecessor 1986 Stock Option Plan) which expire
or otherwise terminate prior to exercise will be available for subsequent
issuance. Unvested shares issued under the 1995 Plan and subsequently
repurchased by the Company, at the option exercise or direct issue price paid
per share, pursuant to the Company's repurchase rights under the 1995 Plan will
also be available for reissuance.
Eligibility
Employees, non-employee Board members, and independent consultants and
advisors in the service of the Company or its parent and subsidiaries (whether
now existing or subsequently established) will be eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs. Executive officers and
other highly compensated employees will also be eligible to participate in the
Salary Reduction Option Grant Program, and non-employee members of the Board
will also be eligible to participate in the Automatic Option Grant and Director
Fee Option Grant Programs.
As of March 20, 2000, 12 executive officers, five non-employee Board
members and approximately 1,700 other employees and consultants were eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs, no
executive officers elected to participate in the Salary Investment Option Grant
Program for fiscal year 2000, and five non-employee Board members were eligible
to participate in the Automatic Option Grant and Director Fee Option Grant
Programs.
Valuation
The fair market value per share of Common Stock on any relevant date under
the 1995 Plan will be the average between the high and low selling prices per
share on that date on the Nasdaq National Market. On March 20, 2000, the fair
market value per share determined on such basis was $32.69.
Discretionary Option Grant Program
The options granted under the Discretionary Option Grant Program may be
either incentive stock options under the federal tax laws or non-statutory
options. Each granted option will have an exercise price per share not less than
one hundred percent (100%) of the fair market value per share of Common Stock on
the option grant date, and no granted option will have a term in excess of ten
years. The shares subject to each option will generally vest in a series of
installments over a specified period of service measured from the grant date.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent exercisable for vested
shares. The Plan Administrator will have complete discretion to extend the
period following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability or
vesting of such options in whole or in part. Such discretion may be exercised at
any time while the options remain outstanding, whether before or after the
optionee's actual cessation of service.
Salary Reduction Option Grant Program
The Compensation Committee will have complete discretion in implementing
the Salary Reduction Option Grant Program for one or more calendar years and in
selecting the executive officers and other highly compensated individuals who
are to participate in the program for those years. As a condition to such
participation, each selected individual must, prior to the start of the calendar
year of participation, file with the Compensation Committee an irrevocable
authorization directing the Company to reduce, by a designated multiple of one
percent (1%), his or her base salary for the upcoming calendar year. The salary
reduction amount must not be less than the greater of (i) five percent (5%) of
the participant's base salary for the year or (ii) Ten Thousand Dollars
($10,000.00), and may not be more than the lesser of (i) twenty-five percent
(25%) of his or her base salary or (ii) Seventy Five Thousand Dollars
($75,000.00). Each individual who files a proper salary reduction authorization
will be granted a stock option under the Salary Reduction Option Grant Program
on the first trading day in January of the calendar year for which that salary
reduction is to be in effect. Stockholder approval of the 1,350,000-share
19
increase which is the subject of this Proposal will constitute pre-approval of
each option subsequently granted pursuant to the provisions of the Salary
Reduction Option Grant Program on the basis of such share increase and the
subsequent exercise of that option in accordance with its terms.
Each option will be subject to substantially the same terms and conditions
applicable to option grants made under the Discretionary Option Grant Program,
except for the following differences:
- Each option will be a non-statutory option.
- The exercise price per share will be equal to one-third of the fair
market value per share of Common Stock on the option grant date, and
the number of option shares will be determined by dividing the total
dollar amount of the authorized reduction in the participant's base
salary by two-thirds of the fair market value per share of Common
Stock on the option grant date. As a result, the total spread on the
option (the fair market value of the option shares on the grant date
less the aggregate exercise price payable for those shares) will equal
the dollar amount of the reduction to the optionee's base salary to be
in effect for the calendar year for which the option grant is made.
- The option will become exercisable for the option shares in a series
of twelve (12) successive equal monthly installments upon the
optionee's completion of each calendar month of service in the
calendar year for which the salary reduction is in effect.
- Each option will remain outstanding for vested shares until the
earlier of (i) the expiration of the ten (10)-year option term or (ii)
the expiration of the three (3)-year period measured from the date the
optionee's service terminates.
Stock Issuance Program
Shares may be issued under the Stock Issuance Program for such valid
consideration under the Delaware General Corporation Law as the Plan
Administrator deems appropriate, provided the value of such consideration is not
less than the fair market value of the issued shares on the date of issuance.
Shares may also be issued as a bonus for past services.
The shares issued as a bonus for past services will be fully vested upon
issuance. All other shares issued under the program will be subject to a vesting
schedule tied to the performance of service or the attainment of performance
goals. The following requirements will govern the applicable vesting schedule:
- For any shares which are to vest solely through the participant's
performance of services, the Plan Administrator will impose a minimum
service period of at least three (3) years before any of the shares
will vest.
- For any shares which are to vest upon the participant's performance of
services and the Company's attainment of one or more prescribed
performance milestones, the Plan Administrator will impose a minimum
service period of at least one (1) year.
The Plan Administrator will have the sole and exclusive authority,
exercisable upon a participant's termination of service, to vest any or all
unvested shares of Common Stock at the time held by that participant, to the
extent the Plan Administrator determines that such vesting provides an
appropriate severance benefit under the circumstances.
Automatic Option Grant Program
Under the Automatic Option Grant Program, each individual will receive, at
the time he or she first becomes a non-employee Board member, whether through
election by the stockholders or appointment by the Board, an option grant for
25,000 shares of Common Stock, provided such individual was not previously in
20
the Company's employ. In addition, at each annual stockholders meeting,
including the 2000 Annual Meeting, each individual who is reelected to the Board
as a non-employee Board member will automatically be granted a stock option to
purchase 7,000 shares of Common Stock, provided such individual has served as a
non-employee Board member for at least six months. There will be no limit on the
number of such 7,000-share options which any one non-employee Board member may
receive over his or her period of Board service, and non-employee Board members
who have previously served in the Company's employ will be fully eligible for
one or more 7,000-share option grants over their period of Board service.
Stockholder approval of the 1,350,000-share increase which is the subject of
this Proposal will constitute pre-approval of each option granted on or after
the date of the 2000 Annual Meeting pursuant to the provisions of the Automatic
Option Grant Program on the basis of such share increase and the subsequent
exercise of that option in accordance with its terms.
Each option under the Automatic Option Grant Program will have an exercise
price per share equal to one hundred percent (100%) of the fair market value per
share of Common Stock on the option grant date and a maximum term of ten (10)
years measured from such grant date. The option will be immediately exercisable
for all the option shares, but any purchased shares will be subject to
repurchase by the Company, at the exercise price paid per share, upon the
optionee's cessation of Board service prior to vesting in those shares. The
shares subject to each option will vest (and the Company's repurchase rights
will lapse) in four (4) successive equal annual installments over the optionee's
period of Board service, with the first such installment to vest upon the
completion of one (1) year of Board service measured from the option grant date.
The shares subject to each outstanding automatic option grant
will immediately vest should the optionee die or become permanently disabled
while a Board member or should any of the following events occur while the
optionee continues in Board service: (i) an acquisition of the Company by merger
or asset sale, (ii) the successful completion of a tender offer for more than
fifty percent (50%) of the outstanding voting securities or (iii) a change in
the majority of the Board occasioned by one or more contested elections for
Board membership. Each automatic option grant held by an optionee upon his or
her termination of Board service will remain exercisable, for any or all of the
option shares in which the optionee is vested at the time of such termination,
for up to a twelve (12)-month period following such termination date.
Director Fee Option Grant Program
Each non-employee Board member will have the right to apply all or a
portion of his total retainer fee otherwise payable in cash each year (currently
$24,000) to the acquisition of a special option grant under the Director Fee
Option Grant Program. The grant will automatically be made on the first trading
day in January following the filing of the retainer fee election on or before
the last day of the immediately preceding calendar year and will have an
exercise price per share equal to one-third of the fair market value of the
option shares on the grant date. The number of option shares will be determined
by dividing the dollar amount of the retainer fee subject to the director's
election by two-thirds of the fair market value per share of Common Stock on the
option grant date. As a result, the total spread on the option (the fair market
value of the option shares on the grant date less the aggregate exercise price
payable for those shares) will be equal to the portion of the retainer fee
subject to the director's election. Stockholder approval of the 1,350,000-share
increase which is the subject of this Proposal will constitute pre-approval of
each option subsequently granted pursuant to the provisions of the Director Fee
Option Grant Program on the basis of that share increase and the subsequent
exercise of that option in accordance with its terms.
The option will become exercisable for the option shares in a series of
twelve (12) successive equal monthly installments upon the optionee's completion
of each month of Board service during the calendar year for which the retainer
fee election is in effect. 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 shares for which the option is not
exercisable at the time. However, to the extent the option is exercisable for
any option shares at the time of the optionee's cessation of Board service, the
option will remain exercisable for those shares until the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the end of the three
(3)-year period measured from the date of the optionee's cessation of Board
service. Should the optionee's service as a Board member cease 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 and may be
exercised for such shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the end of the three (3)-year period measured from
the date of the optionee's cessation of Board service.
21
Stock Awards
The table below shows, as to each of the Named Executive Officers in the
Summary Compensation Table and the various indicated individuals and groups, the
number of shares of Common Stock subject to options granted under the 1995 Plan
during the period from January 1, 1999 through March 20, 2000, together with the
weighted average exercise price payable per share. No direct stock issuances
have been made to date under the 1995 Plan.
===========================================================================================
OPTION TRANSACTIONS
- -------------------------------------------------------------------------------------------
Options Granted Weighted Average
Name (Number of Shares) Exercise Price
- ------------------------------------------ ---------------------- ---------------------
Lee D. Roberts
President, Chief Executive Officer
and Director 80,000 $23.94
- ------------------------------------------ ---------------------- ---------------------
Ron L. Ercanbrack
Executive Vice President,
Worldwide Sales & Marketing 165,000 $28.46
- ------------------------------------------ ---------------------- ---------------------
Bruce A. Waddington
Executive Vice President and
Chief Technology Officer,
Products and Strategy 40,000 $23.94
- ------------------------------------------ ---------------------- ---------------------
Mark S. St. Clare
Senior Vice President-Finance and
Chief Financial Officer 30,000 $23.94
- ------------------------------------------ ---------------------- ---------------------
David D. Despard
Senior Vice President,
Worldwide Professional Services 60,000 $18.59
- ------------------------------------------ ---------------------- ---------------------
All non-employee directors as a group (6) 39,596 $ 9.21
- ------------------------------------------ ---------------------- ---------------------
All employees, including current officers
who are not executive officers, as a group 1,283,625 $17.98
========================================== ====================== =====================
As of March 20, 2000, 5,461,140 shares of Common Stock were subject to
outstanding options under the 1995 Plan, and 1,626,211 shares remained available
for future issuance, including the 1,350,000-share increase for which
stockholder approval is sought under this Proposal.
New Plan Benefits
As of March 20, 2000, no option grants or direct stock issuances have been
made under the 1995 Plan on the basis of the 1,350,000-share increase for which
stockholder approval is sought under this Proposal. However, Messrs. Lyons,
Klaus, Savage, Siboni, and Smith will each receive an option grant for 7,000
shares, under the Automatic Option Grant Program upon their reelection to the
Board at the 2000 Annual Meeting. Each such option will have an exercise price
per share equal to the average of the high and low selling prices per share on
the Nasdaq National Market on the date of the 2000 Annual Meeting.
Acceleration
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed or replaced by the successor corporation will automatically
accelerate in full, and all unvested shares under the Stock Issuance Program
will immediately vest, except to the extent the Company's repurchase rights with
respect to those shares are transferred to the successor corporation. The Plan
Administrator will have complete discretion to grant one or more options under
the Discretionary Option Grant Program which will become fully exercisable for
all option shares in the event those options are assumed in the acquisition and
the optionee's service with the Company or the acquiring entity is involuntarily
terminated within a designated period following such acquisition. The Plan
Administrator will have similar discretion to grant options that will become
fully exercisable for all the option shares should the optionee's service
terminate, whether involuntarily or through a resignation for good reason,
within a designated period following a change in control of the Company (whether
by successful tender offer for more than fifty percent (50%) of the outstanding
voting stock or by proxy contest for the election of Board members). The Plan
22
Administrator may also provide for the automatic vesting of any outstanding
shares under the Stock Issuance Program upon similar terms and conditions.
Each option outstanding under the Salary Reduction Option Grant, Automatic
Option Grant and Director Fee Option Grant Programs will also automatically
accelerate in the event of an acquisition or change in control of the Company.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
Financial Assistance
The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options or the purchase of
shares under the 1995 Plan. The Plan Administrator will determine the terms of
any such assistance. However, the maximum amount of financing provided any
participant may not exceed the cash consideration payable for the issued shares
plus all applicable taxes incurred in connection with the acquisition of the
shares.
Changes in Capitalization
In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the maximum number and/or class of securities issuable under the
1995 Plan, (ii) the number and/or class of securities for which any one person
may be granted stock options and direct stock issuances under the 1995 Plan per
calendar year, (iii) the number and/or class of securities for which grants are
subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members and (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits thereunder.
Amendment and Termination
The Board may amend or modify the 1995 Plan in any or all respects
whatsoever, subject to any required stockholder approval under applicable law or
regulation. The Board may terminate the 1995 Plan at any time, and the 1995 Plan
will in all events terminate on May 24, 2005.
23
FEDERAL INCOME TAX CONSEQUENCES
Option Grants
Options granted under the 1995 Plan may be either incentive stock options
that satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options that are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition. For Federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. A qualifying disposition
occurs if the sale or other disposition is made more than two (2) years after
the date the option for the shares involved in such sale or disposition was
granted and more than one (1) year after the date the option was exercised for
those shares. If the sale or disposition occurs before these two periods are
satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized upon
the disposition will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
Direct Stock Issuance
The tax principles applicable to direct stock issuances under the 1995 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
24
Deductibility of Executive Compensation
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options granted under the 1995 Plan with exercise
prices equal to the fair market value of the option shares on the grant date
will qualify as performance-based compensation for purposes of Section 162(m) of
the Internal Revenue Code and will not have to be taken into account for
purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company. Accordingly, all compensation deemed paid with respect to those option
grants under the 1995 Plan will remain deductible by the Company without
limitation under Section 162(m) of the Internal Revenue Code.
Accounting Treatment
Under current accounting principles, neither the grant nor the exercise of
options granted under the 1995 Plan with exercise prices equal to the fair
market value of the option shares on the grant date will result in a direct
charge to the Company's reported earnings. However, the fair value of those
options is required to be disclosed in the notes to the Company's financial
statements, and the Company must also disclose, in pro-forma statements to the
Company's financial statements, the impact those options would have upon the
Company's reported earnings were the fair value of those options at the time of
grant treated as compensation expense. Whether or not granted at a discount, the
number of outstanding options may be a factor in determining the Company's
earnings per share on a fully-diluted basis.
Option grants with exercise prices less than the fair market value of the
shares on the grant date will result in a direct compensation expense to the
Company's earnings equal to the difference between the exercise price and the
fair market value of the shares on the grant date. Such expense will be
accruable by the Company over the period that the option shares are to vest.
On March 31, 1999, the Financial Accounting Standards Board issued an
Exposure Draft of a proposed interpretation of APB Opinion No. 25, "Accounting
for Stock Issued to Employees." Under the proposed interpretation, as modified
on August 11, 1999, option grants made to non-employee consultants (but not
non-employee board members) after December 15, 1998 will result in a direct
charge to the Company's reported earnings based upon the fair value of the
option measured initially as of the grant date and then subsequently on the
vesting date of each installment of the underlying option shares. Such charge
will accordingly include the appreciation in the value of the option shares over
the period between the grant date of the option (or, if later, the effective
date of the final interpretation) and the vesting date of each installment of
the option shares.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Meeting is required
for approval of the amendment to 1995 Plan. Should such stockholder approval not
be obtained, then any stock options granted under the 1995 Plan on the basis of
the 1,350,000-share increase which is the subject of this Proposal will
terminate without ever becoming exercisable for any of the shares of Common
Stock subject to those options, and no further options will be granted on the
basis of that increase. However, in the absence of such stockholder approval,
stock options and direct stock issuances may continue to be made under the 1995
Plan until the share reserve as last approved by the stockholders is issued.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE 1995 PLAN.
25
Proposal 3
APPROVAL OF AMENDMENT TO THE 1998 EMPLOYEE STOCK PURCHASE PLAN
The Company's stockholders are being asked to approve an amendment to the
1998 Employee Stock Purchase Plan (the "1998 Purchase Plan") that will increase
the number of shares of Common Stock issuable under the 1998 Purchase Plan by an
additional 340,000 shares.
The purpose of the share increase is to ensure that the Company will
continue to have a sufficient reserve of Common Stock available under the 1998
Purchase Plan to provide eligible employees of the Company and its participating
affiliates with the opportunity to acquire a proprietary interest in the Company
through participation in a payroll-deduction based employee stock purchase
program designed to operate in compliance with Section 423 of the Internal
Revenue Code.
The 1998 Purchase Plan, which serves as the successor to the Company's
predecessor 1988 Employee Qualified Stock Purchase Plan (the "Predecessor
Plan"), was adopted by the Board of Directors on March 17, 1998 and became
effective on October 1, 1998 (the "Effective Date"). The amendment to the 1998
Purchase Plan that is the subject of this Proposal was adopted by the Board as
of March 20, 2000. The following is a summary of the principal features of the
1998 Purchase Plan, as most recently amended. The summary, however, does not
purport to be a complete description of all the provisions of the 1998 Purchase
Plan. Any stockholder of the Company who wishes to obtain a copy of the actual
plan document may do so upon written request to the Corporate Secretary at the
Company's principal executive offices in Costa Mesa, California.
Share Reserve
The maximum number of shares of the Company's Common Stock available for
issuance over the term of the 1998 Purchase Plan may not exceed 1,032,278,
including the 340,000-share increase for which stockholder approval is sought
under this Proposal. This share reserve will also be used to fund all stock
purchases under the International Employee Stock Purchase Plan which the Company
has established for the employees of its foreign subsidiaries. The provisions of
the International Employee Stock Purchase Plan are substantially the same as
those in effect for the 1998 Purchase Plan, except for certain modifications
that were made to satisfy legal or regulatory requirements of the applicable
foreign jurisdictions.
In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the class and maximum number of securities issuable under the 1998
Purchase Plan, including the class and maximum number of securities issuable per
participant or in the aggregate on any one purchase date, and (ii) the class and
maximum number of securities subject to each outstanding purchase right and the
purchase price payable per share thereunder.
Administration
The 1998 Purchase Plan is currently administered by the Compensation
Committee of the Board of Directors. Such committee, as Plan Administrator, has
full authority to adopt such rules and procedures as it may deem necessary for
proper plan administration and to interpret the provisions of the 1998 Purchase
Plan. All costs and expenses incurred in plan administration will be paid by the
Company without charge to participants.
Offering Periods
Shares will be issued through a series of successive offering periods, each
of six (6) months duration. Each participant will be granted a separate option
to purchase shares of Common Stock for each offering period in which he or she
participates. Offering periods under the 1998 Purchase Plan will run from the
first business day of May to the last business day of October each year and from
the business day of November each year to the last business day of April in the
immediately succeeding year. Each option entitles the participant to purchase
the whole number of shares of Common Stock obtained by dividing the
participant's payroll deductions for the offering period by the purchase price
in effect for such period.
26
Eligibility
Any individual who customarily works for more than twenty (20) hours per
week for more than five (5) months per calendar year in the employ of the
Company or any participating affiliate will be eligible to participate in one or
more offering periods. An eligible employee may only join an offering period on
the start date of that period.
Participating affiliates include any parent or subsidiary corporations of
the Company, whether now existing or hereafter organized, which elect, with the
approval of the Plan Administrator, to extend the benefits of the 1998 Purchase
Plan to their eligible employees.
As of March 20, 2000, approximately 1,650 employees, including 12 executive
officers, were eligible to participate in the 1998 Purchase Plan.
Purchase Provisions
Each participant may authorize periodic payroll deductions in any multiple
of one percent (1%) of his or her cash earnings, up to a maximum of ten percent
(10%). A participant may not increase his or her rate of payroll deduction for
an offering period after the start of that period, but he or she may decrease
the rate once per offering period.
On the last business day of each offering period, the accumulated payroll
deductions of each participant will automatically be applied to the purchase of
whole shares of Common Stock at the purchase price in effect for that period.
Purchase Price
The purchase price per share at which Common Stock will be purchased on the
participant's behalf for each offering period will be equal to eighty-five
percent (85%) of the lower of (i) the fair market value per share of Common
Stock on the start date of that offering period or (ii) the fair market value
per share of Common Stock on the last day of that offering period.
Valuation
The fair market value per share of Common Stock on any relevant date will
be deemed equal to the average of the high and low selling prices per share on
such date on the Nasdaq National Market. On March 20, 2000, the fair market
value per share determined on such basis was $32.69.
Special Limitations
The 1998 Purchase Plan imposes certain limitations upon a participant's
rights to acquire Common Stock, including the following limitations:
- No purchase right may be granted to any individual who owns stock
(including stock purchasable under any outstanding options or purchase
rights) possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or any of
its affiliates.
- No purchase right granted to a participant may permit such individual
to purchase Common Stock at a rate greater than $25,000 worth of such
Common Stock (valued at the time such purchase right is granted) for
each calendar year the purchase right remains outstanding at any time.
- No participant may purchase more than 800 shares of Common Stock on
any one purchase date.
- No more than 170,000 shares of Common Stock may be purchased in the
aggregate by all participants on any one purchase date.
27
The Plan Administrator will have the discretionary authority, exercisable
prior to the start of any offering period, to increase or decrease the 800-share
and 170,000-share limitations to be in effect for the number of shares
purchasable per participant or in the aggregate by all participants on each
purchase date during that offering period.
Termination of Purchase Rights
A participant's purchase right will immediately terminate upon such
participant's loss of eligible employee status, and his or her accumulated
payroll deductions for the offering period in which the purchase right
terminates will be promptly refunded. A participant may withdraw from an
offering period at any time prior to the last fifteen (15) days of that period
and elect to have his or her accumulated payroll deductions for the offering
period in which such withdrawal occurs either refunded or applied to the
purchase of shares of Common Stock on the next purchase date.
Stockholder Rights
No participant will have any stockholder rights with respect to the shares
of Common Stock covered by his or her purchase right until the shares are
actually purchased on the participant's behalf. No adjustment will be made for
dividends, distributions or other rights for which the record date is prior to
the date of such purchase.
Assignability
No purchase right will be assignable or transferable and will be
exercisable only by the participant.
Acquisition
Should the Company be acquired by merger or asset sale during an offering
period, all outstanding purchase rights will automatically be exercised
immediately prior to the effective date of such acquisition. The purchase price
will be equal to eighty-five (85%) of the lower of (i) the fair market value per
share of Common Stock on the start date of that offering period or (ii) the fair
market value per share of Common Stock immediately prior to such acquisition.
The limitation on the maximum number of shares purchasable in the aggregate on
any one purchase date will not apply to the share purchases effected in
connection with such acquisition.
Amendment and Termination
The 1998 Purchase Plan will terminate upon the earliest to occur of (i)
October 31, 2008, (ii) the date on which all available shares are issued or
(iii) the date on which all outstanding purchase rights are exercised in
connection with an acquisition of the Company.
The Board of Directors may at any time alter, suspend or discontinue the
1998 Purchase Plan. However, the Board of Directors may not, without stockholder
approval, (i) increase the number of shares issuable under the 1998 Purchase
Plan, except in connection with certain changes in the Company's capital
structure, (ii) alter the purchase price formula so as to reduce the purchase
price or (iii) modify the requirements for eligibility to participate in the
1998 Purchase Plan.
28
Plan Benefits
The following table shows, as to each of the Named Executive Officers in
the Summary Compensation Table and the various indicated groups, the following
information with respect to transactions under the 1998 Purchase Plan and the
Predecessor Plan effected during the period from January 1, 1999 to December 31,
1999: (i) the number of shares of Common Stock purchased under the two plans
during that period and (ii) the weighted average purchase price paid per share
of Common Stock in connection with such purchases.
======================================================================================
PURCHASE PLAN TRANSACTIONS
- --------------------------------------------------------------------------------------
Weighted
Average
Name Number of Shares Purchase Price
- --------------------------------------------- ------------------ -------------------
Lee D. Roberts
President, Chief Executive Officer
and Director -- --
- --------------------------------------------- ------------------ -------------------
Ron L. Ercanbrack
Executive Vice President,
Worldwide Sales & Marketing -- --
- --------------------------------------------- ------------------ -------------------
Bruce A. Waddington
Executive Vice President and
Chief Technology Officer,
Products and Strategy -- --
- --------------------------------------------- ------------------ -------------------
Mark S. St. Clare
Senior Vice President-Finance
and Chief Financial Officer 648 $7.65
- --------------------------------------------- ------------------ -------------------
David D. Despard
Senior Vice President-Worldwide
Professional Services -- --
- --------------------------------------------- ------------------ -------------------
All current executive officers
as a group (13 persons) 6,009 $7.65
- --------------------------------------------- ------------------ -------------------
All employees, including current officers
who are not executive officers as a group
(714 persons) 333,107 $7.65
============================================= ================== ===================
Federal Tax Consequences
The 1998 Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant, and
no deductions will be allowable to the Company, in connection with the grant or
the exercise of an outstanding purchase right.
Taxable income will not be recognized until there is a sale or other
disposition of the shares acquired under the 1998 Purchase Plan or in the event
the participant should die while still owning the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after the start date of the offering period in which such
shares were acquired or within one (1) year after the actual purchase date of
those shares, then the participant will recognize ordinary income in the year of
sale or disposition equal to the amount by which the fair market value of the
shares on the purchase date exceeded the purchase price paid for those shares,
and the Company will be entitled to an income tax deduction, for the taxable
year in which such sale or disposition occurs, equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than two
(2) years after the start date of the offering period in which such shares were
acquired and more than one (1) one year after the actual purchase date of those
shares, then the participant will recognize ordinary income in the year of sale
or disposition equal to the lesser of (i) the amount by which the fair market
value of the shares on the sale or disposition date exceeded the purchase price
paid for those shares or (ii) fifteen percent (15%) of the fair market value of
29
the shares on the start date of the offering period, and any additional gain
upon the disposition will be taxed as a long-term capital gain. The Company will
not be entitled to any income tax deduction with respect to such sale or
disposition.
If the participant still owns the purchased shares at the time of death,
the lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) fifteen percent (15%) of the
fair market value of the shares on the start date of the offering period in
which those shares were acquired will constitute ordinary income in the year of
death.
Accounting Treatment
Under current accounting rules, the issuance of Common Stock under the 1998
Purchase Plan will not result in a direct charge to the Company's reported
earnings. However, the Company must disclose, in footnotes and pro-forma
statements to the Company's financial statements, the impact the purchase rights
granted under the 1998 Purchase Plan would have upon the Company's reported
earnings were the fair value of those purchase rights treated as compensation
expense.
Stockholder Approval
The affirmative vote of a majority of the Company's voting stock present or
represented and entitled to vote at the Meeting is required for approval of the
340,000-share increase to the 1998 Purchase Plan. Should such stockholder
approval not be obtained, then the 340,000-share increase will not be
implemented, and any purchase rights granted on the basis of that increase will
immediately terminate. No additional purchase rights will be granted on the
basis of such share increase, and the 1998 Purchase Plan will terminate once the
existing share reserve has been issued.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE 1998 PURCHASE PLAN.
30
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The firm of Deloitte & Touche LLP, the Company's independent accountants
for the fiscal year ended December 31, 1999, was selected by the Board of
Directors, upon recommendation of the Audit Committee, to act in the same
capacity for the fiscal year ending December 31, 2000. Neither the firm nor any
of its members has any relationship with the Company or any of its affiliates
except in the firm's capacity as the Company's auditor.
Representatives of Deloitte & Touche LLP are expected to be present at the
Meeting and will have the opportunity to make statements if they so desire and
respond to appropriate questions from the stockholders.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
All proposals of stockholders intended to be presented at the Company's
2001 Annual Meeting of Stockholders must be directed to the attention of the
Secretary of the Company, at the address of the Company set forth on the first
page of this Proxy Statement, by December 7, 2000 if they are to be considered
for possible inclusion in the Proxy Statement and form of proxy used in
connection with such meeting.
In addition, the proxy solicited for the 2001 Annual Meeting will confer
discretionary authority to vote on any stockholder proposals presented at that
meeting, unless the Company is provided with notice of such proposal no later
than February 21, 2001.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no
other matters which may be presented for consideration at the Meeting. However,
if any other matter is presented properly for consideration and action at the
Meeting, or any adjournment or postponement thereof, it is intended that the
Proxies will be voted with respect thereto in accordance with the best judgment
and in the discretion of the proxy holders.
By Order of the Board of Directors,
/s/ MARY K. CARRINGTON
Mary K. Carrington
Secretary
Dated: April 7, 2000
31
FILENET CORPORATION
1995 STOCK OPTION PLAN
AS AMENDED AND RESTATED THROUGH MARCH 31, 2000
ARTICLE One
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option Plan is intended to promote the interests of FileNET
Corporation, a Delaware corporation, by providing eligible persons with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
This Plan shall serve as the successor to the Corporation's existing Second
Amended and Restated Stock Option Plan (the "Predecessor Plan"), and no further
option grants or share issuances shall be made under the Predecessor Plan from
and after the Effective Date of this Plan. All outstanding stock options under
the Predecessor Plan on the Effective Date shall be incorporated into this Plan
and shall accordingly be treated as outstanding stock options under this Plan.
However, each outstanding option grant so incorporated shall continue to be
governed solely by the express terms and conditions of the agreement evidencing
such grant, and no provision of this Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of the Corporation's Common Stock
thereunder.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
All share numbers in this March 31, 2000 restatement reflect the 2-for-1
split of the Common Stock effective June 12, 1998.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock,
- the Salary Reduction Option Grant Program under which eligible
employees may elect to have a portion of their base salary
reduced each year in return for options to purchase shares of
Common Stock,
- the Stock Issuance Program under which eligible persons may, at
the discretion of the Plan Administrator, be issued shares of
Common Stock directly without any intervening option grant,
- the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option
grants at periodic intervals to purchase shares of Common Stock,
and
- the Director Fee Option Grant Program under which non-employee
Board members may elect to have all or any portion of their
annual retainer fee otherwise payable in cash applied to a
special option grant.
B. The provisions of Articles One and Seven shall apply to all equity
programs under the Plan and shall govern the interests of all persons
under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have the sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs
with respect to Section 16 Insiders. Except to the extent the Primary
Committee is granted sole and exclusive authority under one or more
specific provisions of the Plan, administration of the Discretionary
Option Grant and Stock Issuance Programs with respect to all other
persons eligible to participate in these programs may, at the Board's
discretion, be vested in the Primary Committee or a Secondary
Committee, or the Board may retain the power to administer these
programs with respect to such persons. The members of the Secondary
Committee may be individuals who are Employees.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time
terminate the functions of any Secondary Committee and reassume all
powers and authority previously delegated to such committee.
C. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to
the provisions of the Plan) to establish such rules and regulations as
it may deem appropriate for proper administration of the Discretionary
Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock
issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties who
have an interest in the Discretionary Option Grant or Stock Issuance
Program under its jurisdiction or any option or stock issuance
thereunder.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No
member of the Primary Committee or the Secondary Committee shall be
liable for any act or omission made in good faith with respect to the
Plan or any option grants or stock issuances under the Plan.
2
E. The Primary Committee shall have the sole and exclusive authority to
select the eligible individuals who are to participate in the Salary
Reduction Option Grant Program, but all option grants under the Salary
Reduction Option Grant Program shall be made in accordance with
express terms of that program and the Primary Committee shall exercise
no discretion with respect to the terms of those grants.
Administration of the Automatic Option Grant and Director Fee Option
Grant Programs shall be self-executing in accordance with the terms of
that program, and no Plan Administrator shall exercise any
discretionary functions with respect to any option grants or stock
issuances made under those programs.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee Board members, and
(iii)consultants and other independent advisors who provide services
to the Corporation (or any Parent or Subsidiary).
B. Only the Company's executive officers and other highly-compensated
Employees shall be eligible to participate in the Salary Reduction
Option Grant Program.
C. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine, (i)
with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time
or times when such option grants are to be made, the number of shares
to be covered by each such grant, the status of the granted option as
either an Incentive Option or a Non-Qualified Option, the time or
times when each option is to become exercisable, the vesting schedule
(if any) applicable to the option shares and the maximum term for
which the option is to remain outstanding and (ii) with respect to
stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such
issuances are to be made, the number of shares to be issued to each
Participant, the vesting schedule (if any) applicable to the issued
shares and the consideration for such shares.
D. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant or to
effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the Effective
Date, whether through appointment by the Board or election by the
Corporation's stockholders, and (ii) those individuals who are
re-elected to serve as non-employee Board members at one or more
Annual Stockholders Meetings beginning with the 1996 Annual Meeting. A
non-employee Board member who has previously been in the employ of the
3
Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant under the Automatic Option Grant Program at
the time he or she first becomes a non-employee Board member, but
shall be eligible to receive periodic option grants under the
Automatic Option Grant Program upon his or her subsequent re-election
to the Board.
F. All non-employee Board members shall be eligible to participate in the
Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by
the Corporation on the open market. The maximum number of shares of
Common Stock which may be issued over the term of the Plan shall not
exceed 11,174,830 shares. Such share reserve is comprised of (i) the
4,224,830 shares of Common Stock which remained available for issuance
under the Predecessor Plan as of the Effective Date, including the
shares subject to the outstanding option grants under the Predecessor
Plan which have been incorporated into this Plan and the additional
shares of Common Stock available for future grant under the
Predecessor Plan, (ii) an additional increase of 700,000 shares of
Common Stock previously authorized by the Board and approved by the
Corporation's stockholders at the 1995 Annual Meeting, (iii) an
additional increase of 1,300,000 shares of Common Stock authorized by
the Board in March 1996 and approved by the stockholders at the 1996
Annual Meeting, (iv) a further increase of 1,200,000 shares of Common
Stock authorized by the Board on March 20, 1997 and approved by the
stockholders at the 1997 Annual Meeting, (v) a further increase of
1,200,000 shares of Common Stock authorized by the Board on March 17,
1998 and approved by the stockholders at the 1998 Annual Meeting, (vi)
a further increase of 1,200,000 shares of Common Stock authorized by
the Board on March 31, 1999 and approved by the stockholders at the
1999 Annual Meeting plus (vii) an additional increase of 1,350,000
shares authorized by the Board on March 20, 2000, subject to
stockholder approval at the 2000 Annual Meeting. In no event, however,
shall any person participating in the Plan receive stock options and
direct stock issuances under this Plan for more than 400,000 shares of
Common Stock per calendar year, beginning with the 1995 calendar year.
B. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall
be available for subsequent issuance under the Plan to the extent
those options expire or terminate for any reason prior to exercise in
full. Unvested shares issued under the Plan and subsequently cancelled
or repurchased by the Corporation at the option exercise or direct
issue price paid per share pursuant to the Corporation's repurchase
rights under the Plan shall also be available for subsequent issuance
under the Plan. However, should the exercise price of an option under
the Plan be paid with shares of Common Stock or should shares of
Common Stock otherwise issuable under the Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in
connection with the exercise of an option or the vesting of a stock
issuance under the Plan, then the number of shares of Common Stock
available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised or which vest under
the stock issuance, and not by the net number of shares of Common
Stock issued to the holder of such option or stock issuance.
4
C. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number and/or
class of securities issuable under the Plan, (ii) the number and/or
class of securities for which any one person may be granted stock
options and direct stock issuances under this Plan per calendar year,
(iii) the number and/or class of securities for which grants are
subsequently to be made under the Automatic Option Grant Program to
new and continuing non-employee Board members, (iv) the number and/or
class of securities and the exercise price per share in effect under
each outstanding option under the Plan and (v) the number and/or class
of securities and price per share in effect under each outstanding
option incorporated into this Plan from the Predecessor Plan. Such
adjustments to the outstanding options are to be effected in a manner
which shall preclude the enlargement or dilution of rights and
benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
5
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of
Article Six and the documents evidencing the option, be payable
in one or more of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(iii)to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable
written instructions to (a) a Corporation-designated
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds
to cover the aggregate exercise price payable for the
purchased shares plus all applicable Federal, state and
local income and employment taxes required to be withheld by
the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete
the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at such
time or times, during such period and for such number of shares as
shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term
in excess of ten (10) years measured from the option grant date.
6
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or
death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable
for such period of time thereafter as shall be determined by
the Plan Administrator and set forth in the documents
evidencing the option, but no such option shall be
exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the Optionee
at the time of death may be subsequently exercised by the
personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of
descent and distribution.
(iii)Should the Optionee's Service be terminated for Misconduct,
then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than
the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of
Service. Upon the expiration of the applicable exercise
period or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be outstanding
for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be
outstanding to the extent the option is not otherwise at
that time exercisable for vested shares.
(v) In the event of a Corporate Transaction, the provisions of
Section III of this Article Two shall govern the period for
which the outstanding options are to remain exercisable
following the Optionee's cessation of Service and shall
supersede any provisions to the contrary in this section.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any
time while the option remains outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service
from the limited exercise period otherwise in effect for
that option to such greater period of time as the Plan
Administrator shall deem appropriate, but in no event beyond
the expiration of the option term, and/or
7
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such
option is exercisable at the time of the Optionee's
cessation of Service but also with respect to one or more
additional installments in which the Optionee would have
vested had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the
exercise price paid per share, any or all of those unvested shares.
The terms upon which such repurchase right shall be exercisable
(including the period and procedure for exercise and the appropriate
vesting schedule for the purchased shares) shall be established by the
Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee
and shall not be assignable or transferable other than by will or by
the laws of descent and distribution following the Optionee's death.
However, a Non-Qualified Option may, in connection with the Optionee's
estate plan, be assigned in whole or in part during the Optionee's
lifetime to one or more members of the Optionee's immediate family or
to a trust established exclusively for one or more such family
members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be
the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Seven shall be applicable to Incentive Options. Options
which are specifically designated as Non-Qualified Options when issued under the
Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Dollar Limitation. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan
(or any other option plan of the Corporation or any Parent or
Subsidiary) may for the first time become exercisable as Incentive
Options during any one calendar year shall not exceed the sum of One
Hundred Thousand Dollars ($100,000).
8
To the extent the Employee holds two (2) or more such options which
become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as
Incentive Options shall be applied on the basis of the order in which
such options are granted.
C. 10% Stockholder. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the option grant date, and the
option term shall not exceed five (5) years measured from the option
grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
under this Discretionary Option Grant Program shall automatically
accelerate so that each such option shall, immediately prior to the
effective date of the Corporate Transaction, become fully exercisable
with respect to the total number of shares of Common Stock at the time
subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, an outstanding
option shall not so accelerate if and to the extent: (i) such option
is, in connection with the Corporate Transaction, either to be assumed
by the successor corporation (or parent thereof) or to be replaced
with a comparable option to purchase shares of the capital stock of
the successor corporation (or parent thereof), (ii) such option is to
be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested option shares at
the time of the Corporate Transaction and provides for subsequent
payout in accordance with the same vesting schedule applicable to such
option or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the
option grant. The determination of option comparability under clause
(i) above shall be made by the Plan Administrator, and its
determination shall be final, binding and conclusive.
B. All outstanding repurchase rights under this Discretionary Option
Grant Program shall also terminate automatically, and the shares of
Common Stock subject to those terminated rights shall immediately vest
in full, in the event of any Corporate Transaction, except to the
extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such
Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction,
all outstanding options under this Discretionary Option Grant Program
shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior
to such Corporate Transaction. Appropriate adjustments to reflect such
Corporate Transaction shall also be made to (i) the exercise price
payable per share under each outstanding option, provided the
9
aggregate exercise price payable for such securities shall remain the
same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan, (iii) the maximum number
and/or class of securities for which any one person may be granted
stock options and direct stock issuances under the Plan per calendar
year and (iv) the maximum number and/or class of securities which may
be issued pursuant to Incentive Options granted under the Plan
following the consummation of the Corporate Transaction.
E. The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service
subsequently terminates by reason of an Involuntary Termination within
a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those options are
assumed or replaced and do not otherwise accelerate. Any options so
accelerated shall remain exercisable for fully-vested shares until the
earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1)-year period measured from the effective date
of the Involuntary Termination. In addition, the Plan Administrator
may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the
time of such Involuntary Termination shall immediately terminate, and
the shares subject to those terminated repurchase rights shall
accordingly vest in full.
F. The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service
subsequently terminates by reason of an Involuntary Termination within
a designated period (not to exceed eighteen (18) months) following the
effective date of any Change in Control. Each option so accelerated
shall remain exercisable for fully-vested shares until the earlier of
(i) the expiration of the option term or (ii) the expiration of the
one (1)-year period measured from the effective date of the
Involuntary Termination. In addition, the Plan Administrator may
provide that one or more of the Corporation's outstanding repurchase
rights with respect to shares held by the Optionee at the time of such
Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest
in full.
G. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as
an Incentive Option only to the extent the applicable One Hundred
Thousand Dollar limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall
be exercisable as a Non-Qualified Option under the Federal tax laws.
H. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or
assets.
10
ARTICLE THREE
SALARY REDUCTION OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Reduction
Option Grant Program is to be in effect and to select the Employees eligible to
participate in the Salary Reduction Option Grant Program for those calendar year
or years. Each selected Employee who elects to participate in the Salary
Reduction Option Grant Program must, prior to the start of each calendar year of
participation, file with the Plan Administrator (or its designate) an
irrevocable authorization directing the Corporation to reduce his or her base
salary for that calendar year by a designated multiple of one percent (1%).
However, the minimum amount of such salary reduction must be not less than the
greater of (i) five percent (5%) of his or her rate of base salary for that
calendar year or (ii) Ten Thousand Dollars ($10,000.00) and must not be more
than the lesser of (i) twenty five percent (25%) of his or her rate of base
salary for the calendar year or (ii) Seventy Five Thousand Dollars ($75,000.00).
Each individual who files a proper salary reduction authorization shall
automatically be granted an option under this Salary Reduction Option Grant
Program on the first trading day in January of the calendar year for which that
salary reduction is to be in effect. Stockholder approval of this March 2000
Restatement at the 2000 Annual Stockholders Meeting shall constitute
pre-approval of each option subsequently granted pursuant to the express terms
of this Salary Reduction Option Grant Program and the subsequent exercise of
that option in accordance with its terms.
II. OPTION TERMS
Each option shall be a Non-Qualified Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below.
A. Exercise Price.
1. The exercise price per share shall be thirty-three and one-third
percent (33-1/3%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the
purchased shares must be made on the Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock subject
to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
11
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount by which the Optionee's base salary
is to be reduced for the calendar year pursuant to the
Salary Reduction Option Grant Program, and
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. Exercise and Term of Options. The option shall become exercisable in a
series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the
calendar year for which the salary reduction is in effect. Each option
shall have a maximum term of ten (10) years measured from the option
grant date.
D. Effect of Termination of Service. Should the Optionee cease Service
for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all
of the shares for which the option is exercisable at the time of such
cessation of Service, until the earlier of (i) the expiration of the
ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of such cessation of Service. Should the
Optionee die while holding one or more options under this Article
Three, then each such option may be exercised, for any or all of the
shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently
purchased by Optionee prior to death), by the personal representative
of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution. Such right of exercise
shall lapse, and the option shall terminate, upon the earlier of (i)
the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of
Service. However, the option shall, immediately upon the Optionee's
cessation of Service for any reason, terminate and cease to remain
outstanding with respect to any and all shares of Common Stock for
which the option is not otherwise at that time exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee remains
in Service, each outstanding option held by such Optionee under this
Salary Reduction Option Grant Program shall automatically accelerate
so that each such option shall, immediately prior to the effective
date of the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time
subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. Each such outstanding
option shall be assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the
ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service.
12
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this
Salary Reduction Option Grant Program shall automatically accelerate
so that each such option shall immediately become fully exercisable
with respect to the total number of shares of Common Stock at the time
subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. The option shall remain
so exercisable until the earlier or (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service.
C. The grant of options under the Salary Reduction Option Grant Program
shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Reduction
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
13
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
directly without any intervening option grants. Each such stock issuance shall
be evidenced by a Stock Issuance Agreement which complies with the terms
specified below.
A. Issue Price. The shares shall be issued for such valid consideration
under the Delaware General Corporation Law as the Plan Administrator
may deem appropriate, but the value of such consideration as
determined by the Plan Administrator shall not be less than one
hundred percent (100%) of the Fair Market Value of the issued shares
of Common Stock on the issuance date.
B. Vesting Provisions.
1. The Primary Committee shall have the sole and exclusive authority
to issue shares of Common Stock under the Stock Issuance Program
as a bonus for past services rendered to the Corporation (or any
Parent or Subsidiary). All such bonus shares shall be fully and
immediately vested upon issuance.
2. All other shares of Common Stock authorized for issuance under
the Stock Issuance Program by the applicable Plan Administrator
shall have a minimum vesting schedule determined in accordance
with the following requirements:
(i) For any shares which are to vest solely by reason of Service
to be performed by the Participant, the Plan Administrator
shall impose a minimum Service period of at least three (3)
years measured from the issue date of such shares.
(ii) For any shares which are to vest upon the Participant's
completion of a designated Service requirement and the
Corporation's attainment of one or more prescribed
performance milestones, the Plan Administrator shall impose
a minimum Service period of at least one (1) year measured
from the issue date of such shares.
3. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend)
which the Participant may have the right to receive with respect
to the Participant's unvested shares of Common Stock by reason of
any stock dividend, stock split, recapitalization, combination of
shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested
shares of Common Stock and (ii) such escrow arrangements as the
Plan Administrator shall deem appropriate.
14
4. The Participant shall have full stockholder rights with respect
to any shares of Common Stock issued to the Participant under the
Stock Issuance Program, whether or not the Participant's interest
in those shares is vested. Accordingly, the Participant shall
have the right to vote such shares and to receive any regular
cash dividends paid on such shares.
5. Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock issued under the
Stock Issuance Program or should the performance objectives not
be attained with respect to one or more such unvested shares of
Common Stock, then those shares shall be immediately surrendered
to the Corporation for cancellation, and the Participant shall
have no further stockholder rights with respect to those shares.
To the extent the surrendered shares were previously issued to
the Participant for consideration paid in cash or cash equivalent
(including the Participant's purchase-money promissory note), the
Corporation shall repay to the Participant the cash consideration
paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the
Participant attributable to such surrendered shares.
6. The Primary Committee shall have the sole and exclusive
authority, exercisable upon a Participant's termination of
Service, to waive the surrender and cancellation of any or all
unvested shares of Common Stock (or other assets attributable
thereto) at the time held by that Participant, if the Primary
Committee determines such waiver to be an appropriate severance
benefit for the Participant.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the Stock
Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest
in full, in the event of any Corporate Transaction, except to the
extent (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other
limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the
Stock Issuance Program in such manner that those repurchase rights
shall automatically terminate, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in
the event the Participant's Service should subsequently terminate by
reason of an Involuntary Termination within eighteen (18) months
following the effective date of any Corporate Transaction in which
those repurchase rights are assigned to the successor corporation (or
parent thereof).
C. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the
Stock Issuance Program in such manner that those repurchase rights
shall automatically terminate, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in
the event the Participant's Service should subsequently terminate by
reason of an Involuntary Termination within eighteen (18) months
following the effective date of any Change in Control.
15
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.
16
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
The provisions of the Automatic Option Grant Program have been revised as
of March 17, 1998 and have been approved by the stockholders at the 1998 Annual
Meeting.
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified below:
1. Each individual who is re-elected to the Board as a non-employee
Board member at the 1998 Annual Stockholders Meeting shall
automatically be granted at that time a Non-Qualified Option to
purchase 15,000 shares of Common Stock.
2. Each individual who is first elected or appointed as a
non-employee Board member at the 1998 Annual Stockholders Meeting
or at any time thereafter shall automatically be granted, upon
his or her initial election or appointment (as the case may be),
a Non-Qualified Option to purchase 25,000 shares of Common Stock,
provided that individual has not previously been in the employ of
the Corporation or any Parent or Subsidiary.
3. On the date of each Annual Stockholders Meeting, beginning with
the 1998 Annual Meeting, each individual who is re-elected to
serve as a non-employee Board member at such meeting shall
automatically be granted a Non-Qualified Option to purchase an
additional 7,000 shares of Common Stock, provided such individual
has served as a non-employee Board member for a period of at
least six (6) months. There shall be no limit on the number of
such 7,000-share option grants any one non-employee Board member
may receive over his or her period of Board service, and
non-employee Board members who have previously been in the employ
of the Corporation or any Parent or Subsidiary shall be eligible
to receive such annual option grants upon their re-election as
non-employee Board members at one or more Annual Stockholders
Meetings.
Only the 15,000-share and 7,000-share option grants made at the 1998 Annual
Meeting have been adjusted to 30,000 shares and 14,000 shares, respectively, to
reflect the June 12, 1998 split of the Common Stock. All other share numbers in
this Article Five remain in effect after such split.
Stockholder approval of this March 2000 Restatement at the 2000 Annual
Stockholders Meeting shall constitute pre-approval of each option granted at or
after that Annual Meeting pursuant to the express terms of this Automatic Option
Grant Program and the subsequent exercise of that option in accordance with its
terms.
B. Exercise Price.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock
on the option grant date.
17
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure
specified thereunder is utilized, payment of the exercise price
for the purchased shares must be made on the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years measured
from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. Each
option grant shall vest, and the Corporation's repurchase right shall
lapse, in a series of four (4) successive equal annual installments
over the Optionee's period of continued service as a Board member,
with the first such installment to vest upon the Optionee's completion
of one (1) year of Board service measured from the option grant date.
E. Effect of Termination of Board Service. The following provisions shall
govern the exercise of any outstanding options held by the Optionee
under this Automatic Option Grant Program at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the personal
representative of the Optionee's estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will
or in accordance with the laws of descent and distribution) shall
have a twelve (12)-month period following the date of such
cessation of Board service in which to exercise each such option.
However, each option shall, immediately upon the Optionee's
cessation of Board service, terminate and cease to remain
outstanding with respect to any option shares in which the
Optionee is not otherwise at that time vested.
(ii) During the twelve (12)-month exercise period, the option may not
be exercised in the aggregate for more than the number of vested
shares for which the option is exercisable at the time of the
Optionee's cessation of Board service. However, should the
Optionee cease to serve as a Board member by reason of death or
Permanent Disability, then all shares at the time subject to the
option shall immediately vest so that such option may, during the
twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of such shares
as fully-vested shares.
(iii)In no event shall the option remain exercisable after the
expiration of the option term.
II. SPECIAL ACCELERATION EVENTS
A. In the event of any Corporate Transaction while the Optionee remains a
Board member, the shares of Common Stock at the time subject to each
outstanding option held by such Optionee under this Automatic Option
Grant Program but not otherwise vested shall automatically vest in
full so that each such option shall, immediately prior to the
18
specified effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject
to that option and may be exercised for all or any portion of such
shares as fully-vested shares of Common Stock.
B. Immediately following the consummation of the Corporate Transaction,
each option grant outstanding under this Automatic Option Grant
Program shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation or its parent company.
C. In the event of any Change in Control of the Corporation while the
Optionee remains a Board member, the shares of Common Stock at the
time subject to each outstanding option held by such Optionee under
this Automatic Option Grant Program but not otherwise vested shall
automatically vest in full so that each such option shall, immediately
prior to the specified effective date for the Change in Control,
become fully exercisable for all of the shares of Common Stock at the
time subject to that option and may be exercised for all or any
portion of those shares as fully-vested shares of Common Stock. Each
such option shall remain exercisable for such fully-vested option
shares until the expiration or sooner termination of the option term.
D. The automatic option grants outstanding under the Plan shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option Grant
Program shall be the same as the terms in effect for option grants made under
the Discretionary Option Grant Program.
19
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
Each non-employee Board member may elect to apply all or any portion of the
annual retainer fee otherwise payable in cash for his or her service on the
Board to the acquisition of a special option grant under this Director Fee
Option Grant Program. Such election must be filed with the Corporation's Chief
Financial Officer on or before the last day of December in the calendar year
immediately preceding the calendar year for which the annual retainer fee which
is the subject of that election is otherwise payable. Once filed, the election
shall be irrevocable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable. Stockholder approval of the March 2000 Restatement at the 2000 Annual
Stockholders Meeting shall constitute pre-approval of each option subsequently
granted pursuant to the express terms of this Director Fee Option Grant Program
and the subsequent exercise of that option in accordance with its terms.
II. OPTION TERMS
Each option shall be a Non-Qualified Option governed by the terms and
conditions specified below.
A. Exercise Price.
1. The exercise price per share shall be thirty-three and one-third
percent (33-1/3%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the
purchased shares must be made on the Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock subject
to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
20
X = A / (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.
C. Exercise and Term of Options. The option shall become exercisable in a
series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Board service in the
calendar year for which the retainer fee election under this Article
Six 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 Board
service for any reason (other than death or Permanent Disability)
while holding one or more options under this Article Six, then each
such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Board
service, until the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service. However,
each option held by the Optionee under this Article Six at the time of
his or her cessation of Board service shall immediately terminate and
cease to remain outstanding with respect to any and all shares of
Common Stock for which the option is not otherwise at that time
exercisable.
E. Death or Permanent Disability. Should the Optionee's service as a
Board member cease by reason of death or Permanent Disability, then
each option held by such Optionee under this Article Six shall
immediately become exercisable for all the shares of Common Stock at
the time subject to that option, and the option may, during the three
(3)-year period following such cessation of Board service, be
exercised for any or all of those shares as fully-vested shares.
Should the Optionee die while holding one or more options under this
Article Six, then each such option may be exercised, for any or all of
the shares for which the option is exercisable at the time of the
Optionee's cessation of Board service (less any shares subsequently
purchased by Optionee prior to death), by the personal representative
of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution. Such right of exercise
shall lapse, and the option shall terminate, upon the earlier of (i)
the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of
Board service.
21
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee remains a
Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date
of the Corporate Transaction, become fully exercisable with respect to
the total number of shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. Each such outstanding option
shall be assumed by the successor corporation (or parent thereof) in
the Corporate Transaction and shall remain exercisable for the
fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Board
service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so
that each such option shall immediately become fully exercisable with
respect to the total number of shares of Common Stock at the time
subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. The option shall remain
so exercisable until the earlier or (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service.
C. The grant of options under the Director Fee Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to
merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
22
ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay the
option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
promissory note payable in one or more installments. The terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion. Promissory
notes may be authorized with or without security or collateral. In all events,
the maximum credit available to the Optionee or Participant may not exceed the
sum of (i) the aggregate option exercise price or purchase price payable for the
purchased shares plus (ii) any Federal, state and local income and employment
tax liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
II. TAX WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon the
exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
III. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan became effective upon approval by the Corporation's
stockholders at the 1995 Annual Stockholders Meeting.
B. The Plan was amended and restated by the Board in March 1996 (the
"March 1996 Restatement") to effect the following revisions: (i)
increase the maximum number of shares of Common Stock authorized for
issuance over the term of the Plan by an additional 1,300,000 shares
to 6,224,830 shares and (ii) increase the limit on the maximum number
of shares of Common Stock which may be issued under the Plan prior to
the required cessation of further Incentive Option grants by an
additional 1,300,000 shares to a total of 6,100,000 shares of Common
Stock. The March 1996 Restatement became effective immediately upon
adoption by the Board and was approved by the Corporation's
stockholders at the 1996 Annual Meeting.
C. The Plan was again amended and restated on March 20, 1997 (the "1997
Amendment") to effect the following changes: (i) increase the number
of shares of Common Stock authorized for issuance over the term of the
Plan by an additional 1,200,000 shares, (ii) render the non-employee
Board members eligible to receive option grants and direct stock
issuances under the Discretionary Option Grant and Stock Issuance
Programs, (iii) eliminate the plan limitation which precluded the
grant of additional Incentive Options once the number of shares of
Common Stock issued under the Plan, whether as vested or unvested
shares, exceeded 6,100,000 shares, (iv) eliminate certain restrictions
on the eligibility of non-employee Board members to serve as Plan
Administrator and (v) effect a series of technical changes to the
provisions of the Plan (including the stockholder approval
23
requirements) in order to take advantage of the recent amendments to
Rule 16b-3 of the Securities and Exchange Commission which exempts
certain officer and director transactions under the Plan from the
short-swing liability provisions of the Federal securities laws. The
1997 Amendment became effective immediately upon adoption by the Board
and was approved by the Corporation's stockholders at the 1997 Annual
Meeting.
D. The Plan was further amended and restated on March 17, 1998 (the "1998
Restatement") to increase the number of shares of Common Stock
authorized for issuance over the term of the Plan by an additional
1,200,000 shares and to effect the following changes to the Automatic
Option Grant Program in effect under Article Five:
(i) Each individual reelected to the Board as a non-employee Board
member at the 1998 Annual Meeting shall receive at that time an
option grant for 15,000 shares of the Company's Common Stock.
(ii) Each individual who first joins the Board as a non-employee Board
member at the 1998 Annual Meeting or at any time thereafter
shall, upon his or her initial election or appointment to the
Board, receive an option grant for 25,000 shares of the Company's
Common Stock, provided such individual has not previously been in
the Company's employ.
(iii)On the date of each Annual Stockholders Meeting, beginning with
the 1998 Annual Meeting, each individual reelected to the Board
as a non-employee Board member will receive an option grant for
7,000 shares of the Company's Common Stock, provided such
individual has served as a non-employee Board member for at least
six months.
The 1998 Restatement was approved by the stockholders at the 1998 Annual
Meeting, and no option grants made on the basis of the 600,000-share increase
under the 1998 Restatement became exercisable in whole or in part until the 1998
Restatement was so approved. All option grants made prior to the 1998
Restatement shall remain outstanding in accordance with the terms and conditions
of the respective instruments evidencing those options or issuances, and nothing
in the 1998 Restatement shall be deemed to modify or in any way affect those
outstanding options or issuances.
E. The Plan was further amended and restated on March 31, 1999 (the "1999
Restatement") to increase the number of shares of Common Stock
authorized for issuance over the term of the Plan by an additional
1,200,000 shares, and the 1999 Restatement was approved by the
stockholders at the 1999 Annual Meeting. No option grants or direct
stock issuances were made on the basis of the 1,200,000-share increase
authorized by the 1999 Restatement until the Restatement was approved
by the stockholders at the 1999 Annual Meeting. All option grants made
prior to the 1999 Restatement shall remain outstanding in accordance
with the terms and conditions of the respective instruments evidencing
those options or issuances, and nothing in the 1999 Restatement shall
be deemed to modify or in any way affect those outstanding options or
issuances.
24
F. The Plan was further amended and restated on March 20, 2000 (the
"March 2000 Restatement") to increase the number of shares of Common
Stock authorized for issuance over the term of the Plan by an
additional 1,350,000 shares, subject to stockholder approval at the
2000 Annual Meeting. No option grants or direct stock issuances shall
be made on the basis of the 1,350,000-share increase authorized by the
March 2000 Restatement unless and until the Restatement is approved by
the stockholders at the 2000 Annual Meeting. All option grants made
prior to the March 2000 Restatement shall remain outstanding in
accordance with the terms and conditions of the respective instruments
evidencing those options or issuances, and nothing in the March 2000
Restatement shall be deemed to modify or in any way affect those
outstanding options or issuances. Subject to the foregoing
limitations, the Plan Administrator may make option grants under the
Plan at any time before the date fixed herein for the termination of
the Plan.
G. The Plan Administrator shall have full power and authority,
exercisable in its sole discretion, to extend one or more provisions
of the Discretionary Option Grant Program, including (without
limitation) the vesting acceleration provisions of Section III of
Article Two relating to Corporate Transactions and Changes in Control,
to one or more outstanding stock options under the Predecessor Plan
which are incorporated into this Plan on the Effective Date but which
do not otherwise contain such provisions.
H. The Plan shall terminate upon the earliest of (i) May 24, 2005, (ii)
the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination
of all outstanding options in connection with a Corporate Transaction.
Upon a clause (i) plan termination, all outstanding option grants and
unvested stock issuances shall thereafter continue to have force and
effect in accordance with the provisions of the documents evidencing
such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and
obligations with respect to stock options or unvested stock issuances
at the time outstanding under the Plan unless the Optionee or the
Participant consents to such amendment or modification. In addition,
certain amendments may require stockholder approval pursuant to
applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant and Salary Reduction Option Grant Programs
and shares of Common Stock may be issued under the Stock Issuance
Program that are in each instance in excess of the number of shares
then available for issuance under the Plan, provided any excess shares
actually issued under those programs shall be held in escrow until
there is obtained stockholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance
under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are
made, then (i) any unexercised options granted on the basis of such
excess shares shall terminate and cease to be outstanding and (ii) the
25
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.
26
APPENDIX
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option grant
program in effect under Article Five of the Plan.
B. Board shall mean the Corporation's Board of Directors.
C. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or related
group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under
common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities pursuant
to a tender or exchange offer made directly to the Corporation's
stockholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority
of the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals
who either (A) have been Board members continuously since the
beginning of such period or (B) have been elected or nominated
for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were
still in office at the time the Board approved such election or
nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. Common Stock shall mean the Corporation's common stock.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) 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
G. Corporation shall mean FileNET Corporation, a Delaware corporation.
H. Director Fee Option Grant Program shall mean the special stock option
grant in effect for non-employee Board members under Article Six of
the Plan.
I. Discretionary Option Grant Program shall mean the discretionary option
grant program in effect under Article Two of the Plan.
J. Effective Date shall mean the date of the 1995 Annual Stockholders
Meeting, provided the Plan is approved by the stockholders at that
meeting.
K. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed
and the manner and method of performance.
L. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.
M. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the average of the
high and low selling prices per share of Common Stock on the date
in question, as such prices are reported by the National
Association of Securities Dealers on the Nasdaq National Market
and published in The Wall Street Journal. If there are no high or
low selling prices for the Common Stock on the date in question,
then the Fair Market Value shall be the average of the high and
low selling prices on the last preceding date for which such
quotations exist.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the average of the high and
low selling prices per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as
such prices are officially quoted in the composite tape of
transactions on such exchange and published in The Wall Street
Journal. If there are no high and low selling prices for the
Common Stock on the date in question, then the Fair Market Value
shall be the average of the high and low selling prices on the
last preceding date for which such quotations exist.
N. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
O. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:
A-2
(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 level of responsibility, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and
participation in any corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual's place of employment by more than
fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without the
individual's consent.
P. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or
disclosure by such person of confidential information or trade secrets
of the Corporation (or any Parent or Subsidiary), or any other
intentional misconduct by such person adversely affecting the business
or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be
inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or
discharge of any Optionee, Participant or other person in the Service
of the Corporation (or any Parent or Subsidiary).
Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
R. Non-Qualified Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. Optionee shall mean any person to whom an option is granted under the
Discretionary Option Grant, Salary Reduction Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.
T. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided
each corporation in the unbroken chain (other than the Corporation)
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
U. Participant shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
V. Permanent Disability or Permanently Disabled shall mean the inability
of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous
duration of twelve (12) months or more. However, solely for purposes
of the Automatic Option Grant and Director Fee Option Grant Programs,
Permanent Disability or Permanently Disabled shall mean the inability
of the non-employee Board member to perform his or her usual duties as
a Board member by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous
duration of twelve (12) months or more.
A-3
W. Plan shall mean the Corporation's 1995 Stock Option Plan, as set forth
in this document.
X. Plan Administrator shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to one or more classes of eligible
persons, to the extent such entity is carrying out its administrative
functions under those programs with respect to the persons under its
jurisdiction.
Y. Predecessor Plan shall mean the Corporation's Second Amended and
Restated Stock Option Plan, pursuant to which 3,250,000 shares of
Common Stock have been authorized for issuance.
Z. Primary Committee shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to
Section 16 Insiders.
AA. Salary Reduction Option Grant Program shall mean the salary reduction
grant program in effect under Article Three of the Plan.
BB. Secondary Committee shall mean a committee of one (1) or more Board
members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons
other than Section 16 Insiders.
CC. Section 16 Insider shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section
16 of the 1934 Act.
DD. Service shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee,
a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically
provided in the documents evidencing the option grant or stock
issuance.
EE. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
FF. Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
GG. Stock Issuance Program shall mean the stock issuance program in effect
under Article Four of the Plan.
HH. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation,
provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
A-4
II. 10% Stockholder shall mean the owner of stock (as determined under
Code Section 424(d)) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Corporation (or
any Parent or Subsidiary).
A-5
FILENET CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
AS AMENDED AND RESTATED THROUGH MARCH 31, 2000
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests of
FileNet Corporation by providing eligible employees with the opportunity to
acquire a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan designed to qualify under
Section 423 of the Code.
This Plan shall serve as the successor to the Corporation's existing 1988
Employee Stock Purchase Plan (the "Predecessor Plan"), and no further shares of
Common Stock will be issued under the Predecessor Plan from and after the
Effective Date.
Capitalized terms herein shall have the meanings assigned to such terms in
the attached Appendix.
All share numbers in this Plan reflect the 2-for-1 split of the Common
Stock effective on June 12, 1998
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and construe
any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The maximum number of shares of Common
Stock which may be issued over the term of the Plan and the
International Plan shall not exceed One Million Thirty Two Thousand
Two Hundred and Seventy Eight (1,032,278) shares in the aggregate and
shall be limited to the following components: (i) the actual number of
shares of Common Stock remaining for issuance under the Predecessor
Plan on the Effective Date (Ninety Two Thousand Two Hundred Seventy
Eight (92,278) shares plus (ii) an additional Three Hundred Thousand
(300,000) shares of Common Stock approved by the stockholders at the
1998 Annual Meeting in connection with the implementation of the Plan
plus (iii) an additional increase of Three Hundred Thousand (300,000)
shares authorized by the Board on March 22, 1999 and approved by the
stockholders at the 1999 Annual Meeting plus (iv) an additional
increase of Three Hundred Forty Thousand (340,000) shares authorized
by the Board on March 20, 2000, subject to stockholder approval at the
2000 Annual Meeting.
B. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number and
class of securities issuable under the Plan and the International
Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and
class of securities purchasable by all Participants in the aggregate
on any one Purchase Date and (iv) the number and class of securities
and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits
thereunder.
IV. PURCHASE PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive purchase periods until such time as (i)
the maximum number of shares of Common Stock available for issuance
under the Plan shall have been purchased or (ii) the Plan shall have
been sooner terminated.
B. Each purchase period shall have a duration of six (6) months. Purchase
periods shall run from the first business day in May to the last
business day in October each year and from the first business day in
November each year to the last business day in April of the following
year. However, the initial purchase period under the Plan shall begin
on October 1, 1998 and end on the last business day in April 1999.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of any
purchase period shall be eligible to participate in the Plan for that
purchase period.
B. To participate in the Plan for a particular purchase period, the
Eligible Employee must complete the enrollment form prescribed by the
Plan Administrator and file such form with the Plan Administrator (or
its designate) on or before the start date of the purchase period.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock under the Plan may be any multiple of
one percent (1%) of the Cash Earnings paid to the Participant during
each purchase period, up to a maximum of ten percent (10%). The
deduction rate so authorized shall continue in effect for the entire
purchase period and for each subsequent purchase period the
Participant remains in the Plan. The Participant may not increase his
or her rate of payroll deduction during a purchase period, but may
2.
effect such increase as of the start date of any subsequent purchase
period following the filing of a new payroll deduction authorization
with the Plan Administrator. However, the Participant may, at any time
during the purchase period, reduce his or her rate of payroll
deduction to become effective as soon as possible after filing the
appropriate form with the Plan Administrator. The Participant may not,
however, effect more than one (1) such reduction per purchase period.
B. Payroll deductions shall begin on the first pay day following the
start date of the purchase period and shall (unless sooner terminated
by the Participant) continue through the pay day ending with or
immediately prior to the last day of the purchase period. The amounts
so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to
time outstanding in such account. The amounts collected from the
Participant shall not be required to be held in any segregated account
or trust fund and may be commingled with the general assets of the
Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination of
the Participant's purchase right in accordance with the provisions of
the Plan.
D. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date.
VII. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be granted a separate
purchase right on the start date of each purchase period in which he
or she participates. The purchase right shall provide the Participant
with the right to purchase shares of Common Stock on the Purchase Date
upon the terms set forth below. The Participant shall execute a stock
purchase agreement embodying such terms and such other provisions (not
inconsistent with the Plan) as the Plan Administrator may deem
advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold
outstanding options or other rights to purchase, stock possessing five
percent (5%) or more of the total combined voting power or value of
all classes of stock of the Corporation or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall be
automatically exercised on the Purchase Date, and shares of Common
Stock shall accordingly be purchased on behalf of each Participant on
such date. The purchase shall be effected by applying the
Participant's payroll deductions for the purchase period ending on
such Purchase Date to the purchase of shares of Common Stock at the
purchase price in effect for that purchase period.
3.
C. Purchase Price. The purchase price per share at which Common Stock
will be purchased on the Participant's behalf on each Purchase Date
shall be equal to eighty-five percent (85%) of the lower of (i) the
Fair Market Value per share of Common Stock on the start date of the
purchase period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.
D. Number of Purchasable Shares. The number of shares of Common Stock
purchasable by a Participant on each Purchase Date shall be the number
of whole shares obtained by dividing the amount collected from the
Participant through payroll deductions during the purchase period
ending with that Purchase Date by the purchase price in effect for
that period. However, the maximum number of shares of Common Stock
purchasable per Participant on any one Purchase Date shall not exceed
eight hundred (800) shares, subject to periodic adjustments in the
event of certain changes in the Corporation's capitalization. In
addition, the maximum number of shares of Common Stock purchasable by
all Participants in the aggregate on any one Purchase Date under the
Plan and the International Plan shall not exceed One Hundred Seventy
Thousand (170,000) shares, subject to periodic adjustments in the
event of certain changes in the Corporation's capitalization. However,
the Plan Administrator shall have the discretionary authority,
exercisable prior to the start of any purchase period under the Plan,
to increase or decrease the limitations to be in effect for the number
of shares purchasable per Participant and in the aggregate by all
Participants on the Purchase Date in effect for that period.
E. Excess Payroll Deductions. Any payroll deductions not applied to the
purchase of shares of Common Stock on any Purchase Date because they
are not sufficient to purchase a whole share of Common Stock shall be
held for the purchase of Common Stock on the next Purchase Date.
However, any payroll deductions not applied to the purchase of Common
Stock by reason of the limitation on the maximum number of shares
purchasable by the Participant on the Purchase Date or the limitation
on the maximum number of shares purchasable in the aggregate on the
Purchase Date by all Participants shall be promptly refunded.
F. Termination of Purchase Right. The following provisions shall govern
the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the last fifteen (15)
days of the purchase period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll
deductions shall be collected from the Participant with respect
to the terminated purchase right. Any payroll deductions
collected during the purchase period in which such termination
occurs shall, at the Participant's election, be immediately
refunded or held for the purchase of shares on the next Purchase
Date. If no such election is made at the time the purchase right
is terminated, then the payroll deductions collected with respect
to the terminated right shall be refunded as soon as possible.
4.
(ii) The termination of such purchase right shall be irrevocable, and
the Participant may not subsequently rejoin the purchase period
for which the terminated purchase right was granted. In order to
resume participation in any subsequent purchase period, such
individual must re-enroll in the Plan (by making a timely filing
of the prescribed enrollment forms) before the start date of the
new purchase period.
(iii)Should the Participant cease to remain an Eligible Employee for
any reason (including death, disability or change in status)
while his or her purchase right remains outstanding, then that
purchase right shall immediately terminate, and all of the
Participant's payroll deductions for the purchase period in which
the purchase right so terminates shall be immediately refunded.
However, should the Participant cease to remain in active service
by reason of an approved unpaid leave of absence, then the
Participant shall have the right, exercisable up until the last
business day of the purchase period in which such leave
commences, to (a) withdraw all the payroll deductions collected
to date on his or her behalf during such purchase period or (b)
have such funds held for the purchase of shares on the next
scheduled Purchase Date. In no event, however, shall any further
payroll deductions be collected on the Participant's behalf
during such leave. Upon the Participant's return to active
service (i) within ninety (90) days after the start of the leave
or (ii) prior to the expiration of any longer period during his
or her re-employment rights are guaranteed by law or contract,
his or her payroll deductions under the Plan shall automatically
resume at the rate in effect at the time the leave began.
G. Corporate Transaction. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of
any Corporate Transaction, by applying the payroll deductions of each
Participant for the purchase period in which such Corporate
Transaction occurs to the purchase of whole shares of Common Stock at
a purchase price per share equal to eighty-five percent (85%) of the
lower of (i) the Fair Market Value per share of Common Stock on the
start date of the purchase period in which such Corporate Transaction
occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Corporate Transaction.
However, the applicable limitation on the number of shares of Common
Stock purchasable per Participant shall continue to apply to any such
purchase, but not the limitation on the aggregate number of shares
purchasable by all Participants.
The Corporation shall use its best efforts to provide at least ten
(10) days prior written notice of the occurrence of any Corporate
Transaction, and Participants shall, following the receipt of such
notice, have the right to terminate their outstanding purchase rights
prior to the effective date of the Corporate Transaction.
5.
H. Proration of Purchase Rights. Should the total number of shares of
Common Stock which are to be purchased pursuant to outstanding
purchase rights on any particular date exceed either (i) the number of
shares then available for issuance under the Plan or (ii) the maximum
number of shares purchasable by all Participants (and all participants
in the International Plan) in the aggregate on that Purchase Date,
then the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the
payroll deductions of each Participant (and each participant in the
International Plan), to the extent in excess of the aggregate purchase
price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. Assignability. The purchase right shall be exercisable only by the
Participant and shall not be assignable or transferable by the
Participant.
J. Stockholder Rights. A Participant shall have no stockholder rights
with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in
accordance with the provisions of the Plan and the Participant has
become a holder of record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if
and to the extent such accrual, when aggregated with (i) rights to
purchase Common Stock accrued under any other purchase right granted
under this Plan and (ii) similar rights accrued under other employee
stock purchase plans (within the meaning of Code Section 423) of the
Corporation or any Corporate Affiliate, would otherwise permit such
Participant to purchase more than Twenty-Five Thousand Dollars
($25,000) worth of stock of the Corporation or any Corporate Affiliate
(determined on the basis of the Fair Market Value of such stock on the
date or dates such rights are granted) for each calendar year such
rights are at any time outstanding.
B. For purposes of applying such accrual limitations, the following
provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding purchase
right shall accrue on the Purchase Date in effect for the
purchase period for which such right is granted.
(ii) No right to acquire Common Stock under any outstanding purchase
right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common
Stock under one (1) or more other purchase rights at a rate equal
to Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
(determined on the basis of the Fair Market Value per share on
the date or dates of grant) for each calendar year such rights
were at any time outstanding.
6.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular purchase period, then the
payroll deductions which the Participant made during that purchase
period with respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument
issued thereunder, the provisions of this Article shall be
controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on March 17, 1998 and approved by
the Corporation's stockholders at the 1998 Annual Meeting held on May
15, 1998. The Plan .shall become effective on the Effective Date.
However, no purchase rights granted under the Plan shall be exercised,
and no shares of Common Stock shall be issued hereunder, until the
Corporation shall have complied with all applicable requirements of
the 1933 Act (including the registration of the shares of Common Stock
issuable under the Plan on a Form S-8 registration statement filed
with the Securities and Exchange Commission), all applicable listing
requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is listed for trading and all
other applicable requirements established by law or regulation.
B. The Plan was amended and restated on March 22, 1999 (the "1999
Restatement") to increase the number of shares of Common Stock
authorized for issuance over the term of the Plan by an additional
Three Hundred Thousand (300,000) shares, and the 1999 Restatement was
approved by the stockholders at the 1999 Annual Meeting. No purchase
rights were granted, and no shares were issued, on the basis of the
Three Hundred Thousand (300,000)-share increase authorized by the 1999
Restatement until such Restatement was approved by the stockholders at
the 1999 Annual Meeting.
C. The Plan was amended and restated on March 20, 2000 (the "March 2000
Restatement") to increase the number of shares of Common Stock
authorized for issuance over the term of the Plan by an additional
Three Hundred Forty Thousand (340,000) shares, subject to stockholder
approval at the 2000 Annual Meeting. No purchase rights shall be
granted, and no shares shall be issued, on the basis of the Three
Hundred Forty Thousand (340,000)-share increase authorized by the
March 2000 Restatement unless and until the Restatement is approved by
the stockholders at the 2000 Annual Meeting.
D. Unless sooner terminated by the Board, the Plan shall terminate upon
the earliest to occur of (i) the last business day in October 2008,
(ii) the date on which all shares available for issuance under the
Plan (and the International Plan) shall have been sold pursuant to
purchase rights exercised under the Plan (and the International Plan)
or (iii) the date on which all purchase rights are exercised in
connection with a Corporate Transaction. No further purchase rights
shall be granted or exercised, and no further payroll deductions shall
be collected, under the Plan following such termination.
7.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any time to
become effective immediately following the close of any purchase period.
However, the Board may not, without the approval of the Corporation's
stockholders, (i) increase the number of shares of Common Stock issuable under
the Plan, except for permissible adjustments in the event of certain changes in
the Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan, or (iii) modify the requirements for eligibility to participate
in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate
for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Corporate
Affiliate employing such person) or of the Participant, which rights
are hereby expressly reserved by each, to terminate such person's
employment at any time for any reason, with or without cause.
C. The provisions of the Plan shall be governed by the laws of the State
of California without resort to that State's conflict-of-laws rules.
8.
Schedule A
Corporations Participating in
Employee Stock Purchase Plan
As of October 1, 1998
FileNet Corporation, a Delaware corporation
APPENDIX
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
B. Cash Earnings shall mean the (i) base salary payable to a Participant
by one or more Participating Companies during such individual's period
of participation in one or more purchase periods under the Plan plus
(ii) all overtime payments, bonuses, commissions and other
incentive-type payments received during such period. Such Cash
Earnings shall be calculated before deduction of (A) any income or
employment tax withholdings or (B) any pre-tax contributions made by
the Participant to any Code Section 401(k) salary deferral plan or any
Code Section 125 cafeteria benefit program now or hereafter
established by the Corporation or any Corporate Affiliate. However,
Cash Earnings shall not include any contributions (other than Code
Section 401(k) or Code Section 125 contributions) made on the
Participant's behalf by the Corporation or any Corporate Affiliate to
any employee benefit or welfare plan now or hereafter established.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
D. Common Stock shall mean the Corporation's common stock.
E. Corporate Affiliate shall mean any parent or subsidiary corporation of
the Corporation (as determined in accordance with Code Section 424),
whether now existing or subsequently established.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing fifty
percent (50%) or more of the total combined voting power of the
Corporation's outstanding securities are transferred to a person
or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation.
G. Corporation shall mean FileNet Corporation, a Delaware corporation and
any corporate successor to all or substantially all of the assets or
voting stock of FileNet Corporation which shall by appropriate action
adopt the Plan.
H. Effective Date shall mean the October 1, 1998 effective date of the
Plan.
A-1
I. Eligible Employee shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is
regularly expected to render more than twenty (20) hours of service
per week for more than five (5) months per calendar year for earnings
considered wages under Code Section 3401(a).
J. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the average of the
high and low selling prices per share of Common Stock on the date
in question, as those prices are reported by the National
Association of Securities Dealers on the Nasdaq National Market
and published in The Wall Street Journal. If there are no selling
prices for the Common Stock on the date in question, then the
Fair Market Value shall be the average of the high and low
selling prices on the last preceding date for which such
quotations exist.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the average of the high and
low selling prices per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as
those prices are officially quoted in the composite tape of
transactions on such exchange and published in The Wall Street
Journal. If there are no selling prices for the Common Stock on
the date in question, then the Fair Market Value shall be the
average of the high and low selling prices on the last preceding
date for which such quotations exist.
K. International Plan shall mean the FileNet Corporation International
Employee Stock Purchase Plan.
L. 1933 Act shall mean the Securities Act of 1933, as amended.
M. Participant shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
N. Participating Corporation shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to
time by the Board to extend the benefits of the Plan to their Eligible
Employees. The Participating Corporations in the Plan as of the
Effective Date are listed in attached Schedule A.
O. Plan shall mean the Corporation's Employee Stock Purchase Plan, as set
forth in this document.
P. Plan Administrator shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Plan.
Q. Predecessor Plan shall mean the Corporation's 1988 Employee Stock
Purchase Plan.
A-2
R. Purchase Date shall mean the last business day of each purchase
period. The initial Purchase Date shall be April 30, 1999.
S. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
A-3
Dear Stockholder:
Please fill out, sign and return your Proxy card promptly or use our new
telephone or Internet voting capabilities. Your vote is very important.
Thank you for your cooperation.
FileNET Corporation
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DETACH HERE
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PROXY
FILENET CORPORATION
3565 Harbor Boulevard
Costa Mesa, CA 92626
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Mary K. Carrington and Audrey N. Schaeffer
as Proxy holders, or either of them acting alone, each with the power to appoint
his substitute, and hereby authorizes them to represent and vote, as designated
below, all of the shares of Common Stock of FileNET Corporation (the "Company"),
held of record by the undersigned on March 20, 2000 at the 2000 Annual Meeting
of Stockholders to be held at 9:00 a.m., local time, on May 18, 2000, at The
Mondavi Center, 1570 Scenic Avenue, Costa Mesa, California 92626, and any
adjournment thereof ("the Meeting").
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT
THE MEETING. A POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. EVEN IF
YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE
MEETING.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE (SEE REVERSE SIDE)
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DETACH HERE
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Vote by Telephone Vote by Internet
It's fast, convenient, and immediate! It's fast, convenient, and your vote
Call Toll-Free on a Touch-Tone Phone is immediately confrimed and posted.
1-877-PRX-VOTE (1-877-779-8683)
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement/Prospectus and Proxy Statement/Prospectus and Proxy
Card. Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/file
3. Enter your 14-digit Voter Control 3. Enter your 14-digit Voter Control
Number located on your Proxy Card Number located on your Proxy Card
above your name. above your name.
4. Follow the recorded instructions. 4. Follow the instructions provided.
YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT!
Call 1-877-ORX-VOTE anytime! Go to http://www.epoxyvote.com/file
anytime!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET
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DETACH HERE
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Please mark
[X] votes as in
this example
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is given, this Proxy will be voted
FOR the election to the Board of ALL the nominees listed below and FOR proposals
2 and 3. In their discretion, the Proxy holders are authorized to vote upon such
other business as may properly come before the meeting or any adjournment or
postponement thereof.
1. Election of Directors
Nominees: (01)William P. Lyons, (02)L. George Klaus, (03)Lee D. Roberts,
(04)John C. Savage, (05)Roger S. Siboni, and (06)Theodore J. Smith
FOR ALL NOMINEES [_] WITHHELD FROM ALL NOMINEES [_]
[_] _______________________________________ [_] MARK HERE FOR ADDRESS
For all nominees except as noted above CHANGE AND NOTE BELOW
2. To approve an amendment to the Company's 1995 Stock Option Plan to increase
the number of shares of Common Stock available for issuance thereunder by an
additional 1,350,000 shares.
FOR [_] AGAINST[_] ABSTAIN [_]
3. To approve an amendment to the Company's 1998 Employee Stock Purchase Plan
to increase the number of shares of Common Stock available for issuance
thereunder by an additional 340,000 shares.
FOR [_] AGAINST[_] ABSTAIN [_]
4. To transact such other business as may properly come before the meeting.
Please date this Proxy and sign it exactly as your name or names appear. When
shares are held by joint tenants, both should sign. When signing as an attorney,
executor, administrator, trustee or guardian, please give full title as such. If
shares are held by a corporation, please sign in full corporate name by the
president or other authorized officer. If shares are held by a partnership,
please sign in full partnership name by an authorized person.
Signature: _____________________________________________ Date:__________
Signature: _____________________________________________ Date:__________