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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CAERE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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CAERE CORPORATION
100 COOPER COURT
LOS GATOS, CALIFORNIA 95032
April 7, 1998
Dear Stockholder:
On behalf of Caere Corporation (the "Company"), I cordially invite you to
attend the Annual Meeting of Stockholders to be held at 9:00 a.m. on Wednesday,
May 13, 1998, at The Toll House Hotel, 140 South Santa Cruz Avenue, Los Gatos,
California. At the meeting, stockholders will be asked to elect one person to
the Company's Board of Directors to serve for a three-year term expiring on the
date of the Company's 2001 Annual Meeting of Stockholders, to approve amendments
to the 1992 Non-Employee Directors' Stock Option Plan and the 1981 Incentive and
Supplemental Stock Option Plans, and to ratify the selection of KPMG Peat
Marwick LLP as the Company's independent auditors for 1998. The accompanying
Notice and Proxy Statement describes these proposals. We urge you to read this
information carefully.
The Company's Board of Directors believes that a favorable vote on each of
the matters to be considered at the meeting is in the best interests of the
Company and its stockholders and unanimously recommends a vote "FOR" each such
matter. Accordingly, we urge you to review the accompanying material carefully
and to return the enclosed proxy card promptly.
The directors and officers of the Company hope that as many stockholders as
possible will be present at the meeting. Because the vote of each stockholder is
important, we ask that you sign, date, and return the enclosed proxy card in the
envelope provided, whether or not you now plan to attend the meeting. This will
not limit your right to change your vote at the meeting or to attend the
meeting.
We appreciate your cooperation and interest in the Company. To assist us in
preparation for the meeting, please return your proxy card at your earliest
convenience.
Sincerely yours,
ROBERT G. TERESI
Chairman of the Board,
Chief Executive Officer, and President
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CAERE CORPORATION
100 COOPER COURT
LOS GATOS, CALIFORNIA 95032
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 13, 1998
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To the Stockholders of Caere Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Caere Corporation, a Delaware corporation (the "Company"), will be
held on Wednesday, May 13, 1998, at 9:00 a.m., local time, at The Toll House
Hotel, 140 South Santa Cruz Avenue, Los Gatos, California, for the following
purposes:
1. To elect one director of the Company to serve for the ensuing three
years until the Company's 2001 Annual Meeting of Stockholders and until his
successor is elected and qualified;
2. To approve the 1992 Non-Employee Directors' Stock Option Plan, as
amended to increase the number of shares that may be issued under the Plan
from 230,000 to 330,000, an increase of 100,000 shares;
3. To approve the 1981 Incentive and Supplemental Stock Option Plans,
as amended to increase the number of shares that may be issued under the
Plans from 3,595,000 to 4,095,000, an increase of 500,000 shares;
4. To ratify the selection of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998; and
5. To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors of the Company has fixed the close of business on
March 19, 1998, as the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting and at any adjournment
or postponement thereof.
By Order of the Board of Directors
Blanche M. Sutter, Secretary
Los Gatos, California
April 7, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. 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 RETURN ENVELOPE (WHICH IS POSTAGE-PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK, OR
OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE
RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
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CAERE CORPORATION
100 COOPER COURT
LOS GATOS, CALIFORNIA 95032
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board of Directors" or the "Board") of Caere Corporation, a Delaware
corporation (the "Company"), for use at the Annual Meeting of Stockholders to be
held on May 13, 1998, at 9:00 a.m., local time (the "Annual Meeting"), or at any
adjournment or postponement thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting. The Annual Meeting will be held at
The Toll House Hotel, 140 South Santa Cruz Avenue, Los Gatos, California.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing, and mailing of this proxy statement, the proxy,
and any additional information furnished to stockholders. The Company has
engaged the firm of D. F. King & Co., Inc. to assist the Company in the
distribution and solicitation of proxies and has agreed to pay D. F. King & Co.,
Inc. a fee of $5,000 plus expenses for its services. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries, and
custodians holding in their names shares of the Company's common stock (the
"Common Stock") beneficially owned by others to forward to such beneficial
owners. The Company may reimburse persons representing beneficial owners of
Common Stock for their costs of forwarding solicitation materials to such
beneficial owners. Original solicitation of proxies by mail may be supplemented
by telephone, telegram, or personal solicitation by directors, officers, or
other employees of the Company and by D. F. King & Co., Inc. No additional
compensation will be paid to directors, officers, or other employees for such
services.
The Company intends to mail this proxy statement and accompanying proxy on
or about April 7, 1998, to all stockholders entitled to vote at the Annual
Meeting.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on March
19, 1998, will be entitled to notice of and to vote at the Annual Meeting. At
the close of business on March 19, 1998, the Company had outstanding and
entitled to vote 12,962,206 shares of Common Stock. Each holder of record of
Common Stock on such date will be entitled to one vote for each share held on
all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions, and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 100 Cooper
Court, Los Gatos, California 95032, a written notice of revocation or a duly
executed proxy bearing a later date, or it may be revoked by attending the
Annual Meeting and voting in person. Attendance at the meeting will not, by
itself, revoke a proxy.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation and Bylaws provide that the
Board of Directors shall be divided into three classes having staggered terms of
three years each, with each class consisting, as nearly as possible, of
one-third of the total number of directors. Vacancies on the Board may be filled
by persons elected by a majority of the remaining directors or by the
affirmative vote of the holders of a majority of the Company's outstanding
capital stock. A director elected to fill a vacancy (including a vacancy created
by an increase in the size of the Board of Directors) shall serve for the
remainder of the full term of the class of directors in which the vacancy
occurred and until such director's successor is elected and qualified.
The Company's Bylaws presently authorize a Board of Directors composed of
three directors. Thus, the Board is presently divided into three classes, each
of which has one director. The class whose term of office expires at the Annual
Meeting consists of one director. One of the purposes of the Annual Meeting is
the election of one director to this class, to serve until the 2001 Annual
Meeting of Stockholders and until his successor is elected and has qualified, or
until his earlier death, resignation, or removal. The nominee for election to
this class is currently a director of the Company previously elected by the
stockholders, whose term expires at the Annual Meeting.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote. Shares represented by executed
proxies will be voted, if authority to do so is not withheld, for the election
of the nominee named below. In the event that the nominee should be unavailable
for election as a result of an unexpected occurrence, such shares will be voted
for the election of such substitute nominee as management may propose. The
individual nominated for election has agreed to serve if elected, and management
has no reason to believe that the nominee will be unable to serve.
Set forth below is biographical information for the individual nominated
and for each person whose term of office as a director will continue after the
Annual Meeting.
NOMINEE FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2001 ANNUAL MEETING
ROBERT G. TERESI
Mr. Teresi, age 56, has been with the Company since 1976 and has served as
Chief Executive Officer and a director of the Company since May 1985. Mr. Teresi
served as President of the Company from May 1985 through May 1994 and since
February 1996. He was elected Chairman of the Board in October 1991.
DIRECTOR CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
JAMES K. DUTTON
Mr. Dutton, age 65, has been a director of the Company since 1979. He is
currently an independent consultant and private investor. From December 1979 to
May 1985, he served as the Company's President and Chief Executive Officer. From
1991 to May 1993, Mr. Dutton was a consultant to, and President of, Andor
America Corporation, a distributor of high-end mainframe computer equipment and
related software. He was a director of System Industries, Inc. from May 1985 to
July 1993 and served as its Chairman of the Board from March 1992 to July 1993.
He is also a director of ECCS, Inc. and Network Equipment Technologies, Inc.
DIRECTOR CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
ROBERT J. FRANKENBERG
Mr. Frankenberg, age 50, has been a director of the Company since December
1996. Since May 1997, Mr. Frankenberg has been President and Chief Executive
Officer of Encanto Networks, Inc., a developer of hardware and software designed
to enable creation of businesses on the Internet. From April 1994 to August
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1996, he was Chairman, President, and Chief Executive Officer of Novell, Inc., a
producer of network software. From April 1991 to April 1994, he was Vice
President and General Manager of the Personal Information Products Group at
Hewlett Packard Company, a leading manufacturer of computing, communications and
measurement products and services. He is also a director of America Online,
Inc., Electroglas, Inc., Wall Data, Inc., Daw Technologies, Inc., and Secure
Computing Corporation.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF THE ABOVE NOMINEE.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1997, the Board held eleven
meetings. The Board has a standing Compensation and Option Committee, a standing
Audit Committee, and a standing Nominating Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the auditors' comments as to controls, adequacy of staff,
and management performance and procedures in connection with audit and financial
controls. The Audit Committee, which in 1997 consisted of Messrs. Dutton,
Frankenberg, and Zuckerman, until the death of Mr. Zuckerman in September 1997,
met once during the fiscal year ended December 31, 1997. Currently the Committee
consists of Messrs. Dutton and Frankenberg.
The Compensation and Option Committee makes recommendations concerning
salaries, incentive compensation, and stock option grants to officers under the
Company's stock option plans, and otherwise determines compensation levels and
performs such other functions regarding compensation as the Board may delegate.
The Compensation and Option Committee, which in 1997 consisted of Messrs.
Dutton, Frankenberg, and Zuckerman, met once during the fiscal year ended
December 31, 1997. Currently the Committee consists of Messrs. Dutton and
Frankenberg.
The Nominating Committee interviews, evaluates, nominates, and recommends
individuals for membership on the Company's Board of Directors and committees
thereof. No procedure has been established for the consideration of nominees
recommended by stockholders. The Nominating Committee, which in 1997 consisted
of Messrs. Dutton, Frankenberg, and Zuckerman, did not meet during the fiscal
year ended December 31, 1997. Currently the Committee consists of Messrs. Dutton
and Frankenberg.
During the fiscal year ended December 31, 1997, each Board member attended
seventy-five percent or more of the aggregate of the meetings of the Board and
of the committees on which he served, held during the period for which he was a
director or committee member, respectively.
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE 1992
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
DESCRIPTION OF THE PROPOSED AMENDMENT
The Company's 1992 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") was originally adopted by the Board in February 1992 and
approved by the stockholders in May 1992. In February 1998, the Board adopted,
subject to stockholder approval, a proposal to amend the Directors' Plan to
increase the number of shares of Common Stock authorized for issuance under the
Directors' Plan from 230,000 shares to 330,000 shares, an increase of 100,000
shares. The Board adopted this amendment to facilitate the Company's goals of
increasing the compensation of its non-employee directors when stockholder value
(represented by the trading price of the Company's stock) is increased and of
attracting, over time, additional non-employee directors of the Company.
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As of March 19, 1997, the Company had granted options under the Directors'
Plan for an aggregate of 155,554 shares of Common Stock, all of which were
outstanding, with exercise prices ranging from $6.94 to $10.13 per share. As of
March 19, 1998, without taking into account the proposed amendment to the
Directors' Plan, 83,336 shares remained available for future grant under the
plan.
The affirmative vote of a majority of the shares of the Common Stock
present in person or represented by proxy and entitled to vote at the Annual
Meeting will be required for the approval of Proposal 2.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
DESCRIPTION OF THE DIRECTORS' PLAN
The essential features of the Directors' Plan are outlined below.
GENERAL
The Directors' Plan provides for the nondiscretionary grant of nonstatutory
stock options. Nonstatutory stock options granted under the Directors' Plan are
intended not to qualify as incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). See "Federal
Income Tax Information" below for a discussion of the tax treatment of
nonstatutory stock options. Without taking into account the proposed amendment
to the Directors' Plan, the maximum number of shares of Common Stock that may be
issued pursuant to options granted under the Directors' Plan currently is
230,000. As amended, such maximum number of shares under the Directors' Plan
would increase to 330,000.
PURPOSE
The Company, by means of the Directors' Plan, seeks to attract and retain
the best available personnel for service as directors of the Company, to provide
additional incentive for such persons to exert maximum efforts to promote the
success of the Company, and to encourage their continued service on the Board.
ADMINISTRATION
The Directors' Plan is administered by the Board, unless the Board
delegates administration to a committee composed of not fewer than two members
of the Board. As used herein with respect to the Directors' Plan, the term
"Board" refers to any committee to which the Board delegates administrative
authority with respect to the Directors' Plan, as well as to the Board of
Directors itself. Subject to the provisions of the Directors' Plan, the Board
has the power to construe and interpret the Directors' Plan and options granted
under it, to establish, amend, and revoke rules and regulations for its
administration, to amend the Directors' Plan, and generally to exercise such
powers and to perform such acts as the Board deems necessary or expedient to
promote the best interests of the Company.
ELIGIBILITY
Options may be granted under the Directors' Plan only to non-employee
directors of the Company. A "non-employee director" is defined in the Directors'
Plan as a director of the Company who is not otherwise an employee of the
Company or of any affiliate of the Company. The term "affiliate" as used in the
Directors' Plan means any parent or subsidiary corporation of the Company, as
those terms are defined in the Code. Two of the Company's three current
directors (all except Mr. Teresi) are eligible to participate in the Directors'
Plan.
STOCK SUBJECT TO THE DIRECTORS' PLAN
If options granted under the Directors' Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such options
again becomes available for issuance under the Directors' Plan. Subject to the
approval of Proposal 2, the number of shares authorized for issuance under the
Directors' Plan will be increased from 230,000 to 330,000, an increase of
100,000 shares.
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TERMS OF OPTIONS
Each option under the Directors' Plan is subject to the following terms and
conditions:
Non-Discretionary Grants. The option grants under the Directors' Plan are
nondiscretionary. Pursuant to the Directors' Plan, each person who after March
2, 1996, is elected for the first time by the Board or stockholders of the
Company to be a non-employee director of the Company shall automatically be
granted an option to purchase 30,000 shares of Common Stock (subject to
adjustment as provided in the Directors' Plan) upon the date of such election.
Thereafter, so long as any such person remains a non-employee director of the
Company and the Directors' Plan remains in effect, he or she shall, on each
three-year anniversary of such initial grant, automatically be granted an option
to purchase 30,000 shares of the Company's Common Stock (subject to adjustment
as provided in the Directors' Plan). Each non-employee director who was a non-
employee director on March 2, 1996, shall, on each three-year anniversary of
such non-employee director's most recent receipt of an option grant prior to
March 2, 1996 under the Directors' Plan, automatically be granted an option to
purchase 30,000 shares of Common Stock (subject to adjustment as provided in the
Directors' Plan).
Exercise Price; Payment. The exercise price of each option granted under
the Directors' Plan shall be equal to 100% of the fair market value of the
Common Stock subject to such option on the date such option is granted. The
exercise price of options granted under the Directors' Plan must be paid either:
(i) in cash at the time the option is exercised, (ii) by delivery to the Company
of shares of Common Stock of the Company that have been held for the requisite
period necessary to avoid a charge to the Company's reported earnings and valued
at the fair market value on the date of exercise; or (iii) by a combination of
such methods of payment.
Option Vesting. Options granted under the Directors' Plan generally vest
with respect to each optionee in three equal annual installments commencing on
the date one year after the date of grant of the option, provided that the
optionee has, during the entire one-year period prior to such vesting date,
continuously served as a non-employee director of the Company. The options of a
director who dies or voluntarily resigns from the Board after five continuous
years of service as a non-employee director shall be fully vested.
Termination of Options. Currently no option granted under the Directors'
Plan is exercisable after the expiration of ten years from the date the option
was granted.
Nontransferability of Options. Options granted under the Directors' Plan
are not transferable except by will or by the laws of descent and distribution,
and are exercisable during the lifetime of the person to whom the option is
granted only by such person or by his or her guardian or legal representative.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Directors' Plan or
subject to any option granted under the Directors' Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure, or otherwise), the
Directors' Plan and options outstanding thereunder will be appropriately
adjusted as to the class and maximum number of shares subject to the Directors'
Plan and the class, number of shares, and price per share of stock subject to
such outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
Options will be fully vested and will be exercisable immediately in the
event of: a dissolution or liquidation of the Company or sale of all or
substantially all of the assets of the Company; a reorganization, merger, or
consolidation with respect to which persons who were the stockholders of the
Company immediately prior to such reorganization, merger, or consolidation do
not, immediately thereafter, own more than 50% of the combined voting power of
the reorganized, merged, or consolidated company's then outstanding voting
securities; the acquisition (other than from the Company) by any person(s) of
50% or more of either the then outstanding shares of Common Stock of the Company
or the combined voting power of the resulting company's then outstanding voting
securities; or the date the incumbent board ceases for any reason to constitute
at least a majority of the Board. For this purpose, an incumbent director
includes certain
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persons approved by a majority of incumbent directors. In addition, in the case
of certain forms of corporate transactions, at the sole discretion of the Board
and to the extent permitted by applicable law, any surviving corporation other
than the Company may elect to assume outstanding options or may substitute
similar options, and outstanding options will terminate if not exercised or
assumed prior to such event.
DURATION, AMENDMENT, AND TERMINATION
The Board may suspend or terminate the Directors' Plan at any time. Unless
sooner terminated, the Directors' Plan shall terminate on February 27, 2002.
The Board also may amend the Directors' Plan at any time and from time to
time; provided however, that no amendment will be effective unless approved by
the stockholders of the Company within twelve months before or after the
adoption of the amendment, where the amendment would: (i) increase the number of
shares reserved for options under the Directors' Plan; (ii) modify the
requirements as to eligibility for participation in the Directors' Plan (to the
extent such modification requires stockholder approval in order for the
Directors' Plan to comply with the requirements of Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (iii)
modify the Directors' Plan in any other way if such modification requires
stockholder approval in order for the Directors' Plan to comply with the
requirements of Rule 16b-3 under the Exchange Act.
FEDERAL INCOME TAX INFORMATION
Stock options granted under the Directors' Plan are subject to federal
income tax treatment pursuant to rules governing options that are not incentive
stock options.
The following is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Directors' Plan, does not purport to be complete, and does not
discuss the income tax laws of any state or foreign country in which an optionee
may reside.
Options granted under the Directors' Plan are nonstatutory options. There
are no tax consequences to the optionee or the Company by reason of the grant of
a nonstatutory stock option. Upon exercise of a nonstatutory stock option, the
optionee generally will recognize taxable ordinary income equal to the excess of
the stock's fair market value on the date of exercise over the option exercise
price. Because the optionee is a director of the Company, under existing laws
the date of taxation (and the date of measurement of taxable ordinary income)
may in some instances be deferred unless the optionee files an election under
Section 83(b) of the Code. The filing of a Section 83(b) election with respect
to the exercise of an option may affect the time of taxation and the amount of
income recognized at each such time. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be long-
term, mid-term, or short-term depending on how long the stock had been held at
the time of disposition. Slightly different rules may apply to optionees who
acquire stock subject to a repurchase option or who are subject to Section 16(b)
of the Exchange Act.
PROPOSAL 3
APPROVAL OF AMENDMENTS TO THE 1981 OPTION PLANS
DESCRIPTION OF THE PROPOSED AMENDMENTS
In February 1998, the Board adopted, subect to stockholder approval, a
proposal to amend the 1981 Incentive Stock Option Plan and the 1981 Supplemental
Stock Option Plan (collectively, the "1981 Option Plans") to increase the number
of shares authorized for issuance under the 1981 Option Plans
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on a combined basis by 500,000 shares, to a total of 4,095,000 shares. The Board
adopted this amendment to ensure that the Company can continue to grant stock
options to employees at levels determined appropriate by the Board and the
Compensation and Option Committee of the Board.
The total number of shares currently authorized for issuance under the 1981
Option Plans on a combined basis is 3,595,000 shares. As of March 19, 1998, and
without taking into account the proposed amendment to the 1981 Option Plans,
options (net of canceled or expired options) covering an aggregate of 3,386,747
shares of the Company's Common Stock had been granted under the 1981 Option
Plans, and only 208,253 shares (plus any shares that might in the future be
returned to the 1981 Option Plans as a result of cancellations or expiration of
options) remained available for future grant under the 1981 Option Plans.
The affirmative vote of a majority of the shares of the Common Stock
present in person or represented by proxy and entitled to vote at the Annual
Meeting will be required for the approval of Proposal 3.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
DESCRIPTION OF THE 1981 OPTION PLANS
The essential features of the 1981 Option Plans are outlined below.
GENERAL
The 1981 Incentive Stock Option Plan (the "ISO Plan") provides for the
grant of incentive stock options. Incentive stock options granted under the ISO
Plan are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Code. The 1981 Supplemental Stock Option Plan (the
"Supplemental Plan") provides for the grant of nonstatutory stock options.
Nonstatutory stock options granted under the Supplemental Plan are intended not
to qualify as incentive stock options under the Code. See "Tax Information" for
a discussion of the tax treatment of incentive and nonstatutory stock options.
PURPOSE
The 1981 Option Plans were adopted to provide a means by which selected
officers and employees of and consultants to the Company and its affiliates
could be given an opportunity to purchase stock of the Company, to assist in
retaining the services of employees holding key positions, to secure and retain
the services of persons capable of filling such positions, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
ADMINISTRATION
The 1981 Option Plans provide that they will be administered by the Board
of Directors of the Company and authorize the Board to delegate such
administration to a committee of one or more members of the Board. All of the
members may be "non-employee directors" (a director who is receiving no
compensation from the Company other than for service on the Board of Directors
or who does not receive such additional compensation which exceeds the limits
specified in the definition of such term under Rule 16b-3 under the Exchange
Act), or "outside directors" (a director who is neither a current or former
officer of the Company nor a current employee of the Company, and who is
receiving no compensation from the Company other than for service on the Board
or who does not receive such additional compensation which exceeds the limits
specified in the definition of such term under Section 162(m) of the Code). If
administration is delegated to a committee, the committee has the power to
delegate administrative powers to a subcommittee of two or more outside
directors. As used herein with respect to the 1981 Option Plans, the "Board"
refers to the Compensation and Option Committee or, as applicable, the
subcommittee, as well as the Board of Directors itself. The Board has the power
to construe and interpret the 1981 Option Plans and, subject to the provisions
of the 1981 Option Plans, to determine the persons to whom and the dates on
which options will be granted, the number of shares to be subject to each
option, the time or times during the term of each option within which all or a
portion of such option may be exercised, the exercise price, the type of
consideration, and other terms of the option. The Board has delegated such
administration to the Compensation and Option
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Committee. Prior to the death of Mr. Zuckerman in September 1997, the
Compensation and Option Committee authorized a subcommittee consisting of
Messrs. Zuckerman and Frankenberg, the Company's two "outside directors," to
establish and administer grants of options under the 1981 Option Plans to key
employees of the Company, subject to ratification by the Compensation and Option
Committee. Currently, the Company only has one outside director within the
meaning of Section 162(m) of the Code, and the subcommittee therefore is no
longer constituted for purposes of the 1981 Option Plans.
ELIGIBILITY
Incentive stock options may be granted under the ISO Plan only to selected
key employees (including officers) of the Company and its affiliates. Options
may be granted to directors of the Company under the ISO Plan only if such
directors are also key employees of the Company or of any of its affiliates.
Nonstatutory stock options may be granted under the Supplemental Plan only to
key employees (including officers) of, directors of, or consultants to, the
Company or its affiliates.
No option may be granted under the ISO Plan to any person who, at the time
of the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant, and the term of the option
does not exceed five years from the date of grant. An option may be granted to
an eligible person under the ISO Plan only if the aggregate fair market value of
the stock with respect to which incentive stock options granted after 1986 are
exercisable for the first time by such person during any calendar year under all
incentive stock option plans of the Company and its affiliates does not exceed
$100,000. The 1981 Option Plans provide that the number of shares that can be
made subject to options granted to any individual under the 1981 Option Plans in
a calendar year is limited to 300,000. The principal purpose for such a
per-employee limitation is to comply with Internal Revenue Service regulations
that permit certain performance-based compensation, including compensation
attributable to stock options that meet specified criteria, to be exempt from
the $1 million limitation under Section 162(m) of the Code on the amount that
may be deducted by publicly held corporations for compensation paid to certain
employees. See "Federal Income Tax Information."
During the last fiscal year, under the 1981 Option Plans, the Company
granted to all executive officers as a group options to purchase 140,000 shares
of Common Stock at exercise prices of $8.38 to $9.19 per share and to all
employees (excluding executive officers) as a group options to purchase 510,725
shares at exercise prices of $6.50 to $9.88 per share. No non-employee director
was granted an option under the 1981 Option Plans in 1997.
STOCK SUBJECT TO THE 1981 OPTION PLANS
If options granted under the 1981 Option Plans expire or otherwise
terminate without being exercised, the Common Stock not purchased pursuant to
such options again becomes available for issuance under the 1981 Option Plans.
Subject to the approval of Proposal 3, the number of shares authorized for
issuance under the 1981 Option Plans will be increased from 3,595,000 to
4,095,000, an increase of 500,000 shares.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the 1981 Option Plans. Individual option grants may be more or, with respect to
certain provisions, less restrictive as to any or all of the permissible terms
described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the ISO Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The exercise price of nonstatutory options under the Supplemental Plan may not
be less than 85% of the fair market value of the Common Stock subject to the
option on the date of the option grant. In the event of a decline in the value
of the Company's Common Stock, the Board has the authority to offer employees
the opportunity to replace outstanding higher-priced options, whether incentive
or nonstatutory, with new lower-priced options.
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The exercise price of options granted under the 1981 Option Plans must be
paid either: (i) in cash at the time the option is exercised; or (ii) at the
discretion of the Board, (a) by delivery of other Common Stock of the Company,
(b) pursuant to a deferred payment arrangement, or (c) in any other form of
legal consideration acceptable to the Board.
Option Exercise. Options granted under the 1981 Option Plans may become
exercisable in cumulative increments ("vest") as determined by the Board. Shares
covered by options may be subject to different vesting terms. The Board has the
power to accelerate the time during which an option may be exercised. In
addition, options granted under the 1981 Option Plans may permit exercise prior
to vesting, but in such event the optionee may be required to enter into an
early exercise stock purchase agreement that allows the Company to repurchase
shares not yet vested should the optionee leave the employ of the Company before
vesting.
Term. The maximum term of options granted under the 1981 Option Plans is
ten years, except that in certain cases (see "Eligibility" above) the maximum
term is five years. Options granted under the 1981 Option Plans terminate three
months after the optionee ceases to be employed by the Company or any affiliate
of the Company, unless (a) the termination of employment is due to such person's
permanent and total disability (as defined in the Code), in which case the
option may, but need not, provide that it may be exercised at any time within
one year of such termination; (b) the optionee dies while employed by the
Company or any affiliate of the Company, or within three months after
termination of such employment, in which case the option may, but need not,
provide that it may be exercised (to the extent the option was exercisable at
the time of the optionee's death) within 18 months of the optionee's death by
the person or persons to whom the rights to such option pass by will or by the
laws of descent and distribution; or (c) the option by its terms specifically
provides otherwise. Individual options by their terms may provide for exercise
within a longer or shorter period of time following termination of employment or
the consulting relationship.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1981 Option Plans or
subject to any option granted under the 1981 Option Plans (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure, or otherwise), the
1981 Option Plans and options outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to such plan
and the class, number of shares, and price per share of stock subject to such
outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1981 Option Plans provide that, in the event of a dissolution or
liquidation of the Company, specified type of merger, or other corporate
reorganization, the Board of Directors may, in its sole discretion to the extent
permitted by law, (i) require any surviving corporation to either assume options
outstanding under the 1981 Option Plans or substitute similar options for those
outstanding, (ii) accelerate the time during which such options may be exercised
and terminate all options not exercised during that time, or (iii) continue
outstanding options in full force and effect.
DURATION, AMENDMENT, AND TERMINATION
The Board may suspend or terminate the 1981 Option Plans without
stockholder approval or ratification at any time or from time to time. Unless
terminated sooner, the 1981 Option Plans currently will terminate on January 31,
2000.
The Board also may amend the 1981 Option Plans at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within twelve months before or after its adoption by
the Board if the amendment would: (i) increase the number of shares reserved for
issuance under the 1981 Option Plans; (ii) materially modify the requirements as
to eligibility for participation in the 1981 Option Plans to the extent such
modification requires stockholder approval in order for the ISO Plan to satisfy
the requirements of Section 422(b) of the Code; or (iii) modify the 1981 Option
Plans in
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any other way if such modification requires stockholder approval in order for
the 1981 Option Plans to comply with the requirements of Rule 16b-3 under the
Exchange Act or to satisfy the requirements of Section 422(b) of the Code. The
Board may submit any other amendment to the 1981 Option Plans for stockholder
approval, including, but not limited to, amendments intended to satisfy the
requirements of Section 162(m) of the Code regarding the exclusion of
performance-based compensation from the limitation on the deductibility of
compensation paid to certain employees. The ISO Plan expressly contemplates that
the Board may adopt amendments in any respect to provide optionees with the
maximum benefits under the Code relating to incentive stock options or to bring
the ISO Plan into compliance with the Code.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the ISO Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may cause an optionee to
become subject to, or result in an increase in, liability for alternative
minimum tax.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will realize taxable
ordinary income equal to the lesser of (i) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (ii) the optionee's
actual gain, if any, on the purchase and sale. The optionee's additional gain,
or any loss, upon the disqualifying disposition will be a capital gain or loss,
which will be long-term capital gain if the stock is held for more than 18
months, mid-term capital gain if the stock is held for more than one year but
not more than 18 months, or short-term capital gain if the stock is held for one
year or less. Slightly different rules may apply to optionees who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company generally will be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code,
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
Supplemental Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of the
grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option price. Generally, with respect to employees, the Company is required to
withhold from regular wages or supplemental wage payments an amount based on the
ordinary income recognized. Subject to the requirement of reasonableness, the
provisions of Section 162(m) of the Code and the satisfaction of a tax reporting
obligation, the Company will generally be entitled to a business expense
deduction equal to the taxable ordinary income realized by the optionee. Upon
disposition of the stock, the optionee will recognize a capital gain or loss
equal to the difference between the selling price and the sum of the amount paid
for such stock plus any amount recognized as ordinary income upon exercise of
the option. Such gain or loss will be long-term, mid-term, or short-term
depending on how long the stock had been held at the time of disposition.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Potential Limitation on Company Deductions. Code Section 162(m) denies a
deduction to any publicly held corporation for compensation paid to certain
employees in a taxable year to the extent that compensation exceeds $1 million
for a covered employee. It is possible that compensation attributable to awards
under the 1981 Option Plans, when combined with all other types of compensation
received by a covered employee from the Company, may cause this limitation to be
exceeded in any particular year.
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Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m) of the Code,
compensation attributable to stock options will qualify as performance-based
compensation, provided that: (i) the stock option plan contains a per-employee
limitation on the number of shares for which stock options may be granted during
a specified period; (ii) the per-employee limitation is approved by the
stockholders; (iii) the award is granted by a compensation committee comprised
solely of two or more "outside directors"; and (iv) the exercise price of the
option is no less than the fair market value of the stock on the date of grant.
Options granted under the 1981 Option Plans between May 14, 1996, and September
20, 1997, that have an exercise price at least equal to the fair market value of
the Company's Common Stock on the date of grant should qualify as
performance-based compensation that is exempt from the $1 million deduction
limitation. Because only one of the Company's current directors satisfies the
criteria to qualify as an "outside director," options granted after September
20, 1997, will not qualify as performance-based compensation, unless and until
such option grants are approved by two "outside directors" as defined for
purposes of Section 162(m) of the Code.
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP ("KPMG") as the
Company's independent auditors for the fiscal year ending December 31, 1998, and
has further directed that management submit the selection of independent
auditors for ratification by the stockholders at the Annual Meeting. KPMG has
audited the Company's financial statements since 1976. Representatives of KPMG
are expected to be present at the Annual Meeting, will have an opportunity to
make a statement if they so desire, and will be available to respond to
appropriate questions.
Stockholder ratification of the selection of KPMG as the Company's
independent auditors is not required by the Company's Bylaws or otherwise.
However, the Board is submitting the selection of KPMG to the stockholders for
ratification as a matter of good corporate practice. If the stockholders fail to
ratify the selection, the Board will reconsider whether or not to retain that
firm. Even if the selection is ratified, the Board in its discretion may direct
the appointment of a different auditing firm at any time during the year if the
Board determines that such a change would be in the best interests of the
Company and its stockholders.
The affirmative vote of the holders of a majority of the shares of the
Common Stock present in person or represented by proxy and entitled to vote at
the Annual Meeting will be required to ratify the selection of KPMG.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of March 19, 1998, by: (i) each director and
nominee for director, (ii) each of the executive officers named in the Summary
Compensation Table; (iii) all officers and directors of the Company as a group;
and (iv) all those known by the Company to be beneficial owners of more than
five percent of its Common Stock.
BENEFICIAL OWNERSHIP(1)
--------------------------------------
BENEFICIAL OWNER NUMBER OF SHARES(2) PERCENT OF TOTAL
---------------- ------------------- ----------------
Wisconsin Investment Board................... 1,250,000 9.6%
P.O. Box 7842
Madison, WI 53707
Mellon Bank Corporation...................... 717,400 5.5%
One Mellon Bank Center
Pittsburgh, PA 15258
Robert G. Teresi............................. 343,242 2.6%
James K. Dutton.............................. 94,444 *
Robert J. Frankenberg........................ 10,000 *
Blanche M. Sutter............................ 159,832 1.2%
Wayne E. Rosing.............................. 121,944 *
Chad B. Kinzelberg........................... 102,250 *
Lawrence F. Lunetta.......................... 91,000 *
All executive officers and directors as a
group
(8 persons)................................ 953,762 7.0%
- ---------------
* Less than 1%
(1) This table is based upon information supplied by executive officers,
directors, and principal stockholders and Schedules 13G filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise indicated
in the footnotes to this table and subject to community property laws where
applicable, each of the stockholders named in this table has sole voting and
investment power with respect to the shares indicated as beneficially owned.
Applicable percentages are based on 12,962,206 shares outstanding on March
19, 1998, adjusted as required by rules promulgated by the SEC.
(2) Includes shares which certain executive officers and directors of the
Company have the right to acquire within 60 days after the date of this
table pursuant to outstanding options as follows: Robert G. Teresi, 231,000
shares; James K. Dutton, 64,444 shares; Robert J. Frankenberg, 10,000
shares; Blanche M. Sutter, 139,832 shares; Wayne E. Rosing, 49,444 shares;
Lawrence F. Lunetta, 79,127 shares; Chad B. Kinzelberg, 82,250 shares; and
all executive officers and directors as a group, 677,147 shares.
ADDITIONAL INFORMATION
MANAGEMENT
Executive officers are elected annually by the Board and serve at the
discretion of the Board. Set forth below is information regarding executive
officers of the Company who are not directors of the Company.
NAME AGE POSITION
---- ---- --------
Dan D. Borozan........ 61 Vice President, Operations
Chad B. Kinzelberg.... 30 Vice President, Marketing
Lawrence F. Lunetta... 46 Senior Vice President, Sales and Strategic
Partners
Wayne E. Rosing....... 51 Vice President, Engineering and Chief
Technical Officer
Blanche M. Sutter..... 51 Executive Vice President, Chief Financial
Officer, and Secretary
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Mr. Borozan joined the Company in January 1991 as Vice President,
Operations.
Mr. Kinzelberg joined the Company in September 1994 as Vice President,
Marketing. Prior to that, he was Senior Director, Fax and Messaging Software,
from 1992 to 1994, and Senior Director, Marketing, in 1994 at Delrina
Corporation, a designer and manufacturer of fax, forms, and content-based
software.
Mr. Lunetta has been the Company's Senior Vice President, Sales and
Strategic Partners, since September 1996. Previously, he had been the Company's
Vice President and General Manager, Desktop Products, since February 1996; Vice
President, Sales and Service, from April 1995 to February 1996; Vice President,
Strategic Relations, from November 1994 to April 1995, and Vice President,
Worldwide Marketing, from 1993 to 1994. From 1992 to 1993, he was Director of
International Markets.
Mr. Rosing has been the Company's Vice President, Engineering, and Chief
Technical Officer since August 1996. He was a director of the Company from June
1991 to August 1996. Mr. Rosing has been President of the Remote Telescope
Company, Inc., a corporation that is developing automatic telescopes with
Internet access, since September 1994. From 1988 to 1994, he was an officer of
Sun Microsystems, Inc., a manufacturer of UNIX-based professional work stations
and compatible software, or President or Vice President of one of its
subsidiaries, divisions, or groups.
Ms. Sutter has been the Company's Chief Financial Officer since April 1986.
She became Executive Vice President in September 1996. Previously, she had been
Senior Vice President, Finance, of the Company since April 1996, having been
Vice President, Finance, since April 1986. In June 1989, Ms. Sutter was also
appointed as the Company's Secretary.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors, and greater than ten
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors, and
greater than ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives an annual retainer of
$8,000 and a per meeting fee of $2,000 (plus $2,000 for each committee meeting
attended by committee members, if held on days other than Board meeting dates),
plus expenses. No compensation is paid for participation in telephone meetings.
In the fiscal year ended December 31, 1997, the total compensation and expense
reimbursement paid to three non-employee directors as a group was $61,410.
Each non-employee director of the Company also receives stock option grants
under the Directors' Plan. Only non-employee directors of the Company are
eligible to receive options under the Directors' Plan. See Proposal 2.
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SUMMARY OF COMPENSATION
The following table shows for the fiscal years ending December 31, 1997,
1996, and 1995, compensation awarded or paid to, or earned by the Company's
Chief Executive Officer and its other four most highly compensated executive
officers at December 31, 1997 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------ ------------
AWARDS
------------
SECURITIES
UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) (#) ($)(2)
--------------------------- ---- ------- ------- ------------ ------------
Mr. Robert G. Teresi......................... 1997 250,000 58,810 45,000 2,627
Chief Executive Officer and President 1996 250,000 121,371 40,000 11,077
1995 250,000 14,664 40,000 6,105
Ms. Blanche M. Sutter........................ 1997 180,000 42,577 25,000 1,810
Executive Vice President, 1996 173,754 85,217 65,000(3) 3,914
Chief Financial Officer, 1995 144,628 8,889 13,000 3,119
and Secretary
Mr. Wayne E. Rosing(4)....................... 1997 180,000 40,237 10,000 1,722
Vice President, Engineering, and 1996 37,500 0 -- --
Chief Technical Officer 1995 -- -- -- --
Mr. Lawrence F. Lunetta...................... 1997 150,000 35,285 10,000 1,640
Senior Vice President, Sales 1996 148,130 71,856 27,725 1,244
and Strategic Partners 1995 130,300 46,917 22,000 2,779
Mr. Chad Kinzelberg.......................... 1997 138,125 33,687 30,000 1,394
Vice President, Marketing 1996 135,000 65,792 5,000 998
1995 132,404 32,913 108,000 455
- ---------------
(1) Includes amounts earned but deferred at the election of the executive
officer.
(2) Includes the Company's matching payments for Messrs. Teresi, Lunetta, and
Kinzelberg, and Ms. Sutter under its 401(k) plan, length of service travel
awards, and term life insurance premiums paid by the Company for each
officer.
(3) Includes the grant of options in consideration for the cancellation of
options granted during fiscal year 1994.
(4) Employment commenced August 1996.
STOCK OPTION GRANTS AND EXERCISES
The Company grants stock options to its executive officers under the 1981
Option Plans. For the number of shares subject to outstanding options and a
description of the 1981 Option Plans, see Proposal 3. During the fiscal year
ended December 31, 1997, no options were exercised by the Named Executive
Officers.
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The following table shows for the fiscal year ended December 31, 1997,
certain information regarding options granted to the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED(#)(2) FISCAL YEAR(%)(3) ($/SH) DATE 5%($) 10%($)
---- ------------- ------------------ ----------- ---------- -------- --------
Mr. Teresi........... 45,000 7.1 8.375 12/17/07 236,933 600,386
Ms. Sutter........... 25,000 4.0 8.375 12/17/07 131,629 333,548
Mr. Rosing........... 10,000 1.6 8.375 12/17/07 52,652 133,419
Mr. Lunetta.......... 10,000 1.6 8.375 12/17/07 52,652 133,419
Mr. Kinzelberg....... 5,000 0.8 8.375 12/17/07 26,326 66,710
25,000 4.0 9.188 10/21/07 144,399 365,907
- ---------------
(1) The potential realizable value is based on the ten-year term of the option
at its time of grant. It is calculated by assuming that the stock price on
the date of grant appreciates at the indicated annual rate, compounded
annually for the entire term of the option, and that the option is exercised
and sold on the last day of its term for the appreciated stock price. No
gain to the optionee is possible unless the stock price increases over the
option term, which will benefit all stockholders.
(2) Options generally vest over a four-year period, 25% per year, with a
ten-year term. The options will fully vest upon a change of control, as
defined in the Company's 1981 Option Plans, unless the acquiring company
assumes the options or substitutes similar options.
(3) Based on 632,175 options granted in the fiscal year ended December 31, 1997.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In February 1991, the Board adopted the Company's Executive Officers'
Change-of-Control Severance Plan for its executive officers designated by the
Compensation and Option Committee (the "Severance Plan"). The Severance Plan was
amended and restated to add clarifying administrative provisions on August 27,
1997. Additional amendments were adopted on February 9, 1998, and the Severance
Plan was further amended and restated on March 31, 1998. The Severance Plan
provides that, in the event, within 36 months of a change of control, the
participant is involuntarily terminated, other than for death, disability, or
cause, or the participant voluntarily terminates his or her employment for good
reason, the terminated participant will be entitled to (i) a lump sum severance
payment equal to two times annual compensation if termination occurs within one
year of a change of control, or two times annual compensation, less 1/24 of such
amount for each full month which has passed since such anniversary of the change
of control if termination occurs beyond the one-year anniversary of a change of
control, (ii) continuation of health insurance benefits for up to 18 months at
Company expense, and (iii) acceleration of vesting of stock options ranging from
25% to 100% of unvested stock options, depending upon length of service with the
Company.
Effective March 31, 1998, the Severance Plan, as amended, provides for a
potential reduction in the benefits otherwise payable to the extent a payment
would result in an "excess parachute payment" under the Code's golden parachute
provisions, but only if such a reduction would result in the maximization of the
participant's change of control benefits from the Company after taking into
account the effects of the Code's 20% excise tax on excess parachute payments.
If a participant receives excess parachute payments and no reduction in benefits
is made, the participant will be subject to liability for the 20% excise tax,
and the Company will not be entitled to claim a tax deduction for excess
parachute payments that otherwise would be deductible. Effective January 1,
1999, the Severance Plan, as amended, provides that if payments due to a
participant would not be deductible pursuant to the $1 million annual deduction
limit of Section 162(m) of the Code, the Company may defer payment to one or
more calendar years in which such payments would be deductible.
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A "change of control" includes (i) acquisition by a person or group of 50%
or more of the voting power of the Company, (ii) individuals who constitute the
incumbent board cease to constitute a majority of the Board of Directors, (iii)
consummation of certain business combinations following which the Company's
stockholders immediately prior to the transaction do not own more than 50% of
the voting power of the surviving company, and (iv) any other event the
incumbent board determines constitutes a change of control. For purposes of the
Severance Plan, the incumbent board is defined to include not only the present
directors but subsequently elected directors, so long as their election or
nomination for election by the Company's stockholders was approved by a majority
of the then incumbent board (other than an approval in connection with an actual
or threatened election contest).
"Good reason" includes (i) reduction of compensation, (ii) failure to
provide a substantially similar welfare benefit package, (iii) change in the
participant's responsibilities, authority, titles, or offices, resulting in
diminution of position, (iv) a material reduction in duties, (v) a request that
the participant relocate to a worksite that is more than 35 miles from his or
her prior worksite, (vi) failure or refusal of the successor company to assume
the Severance Plan, or (vii) material breach of material provisions of the
Severance Plan.
The Severance Plan will continue until the Board terminates it. Effective
February 9, 1999, the Board may terminate or amend the Severance Plan at any
time, provided, however, that the Severance Plan may not be terminated or
amended in a manner adversely affecting any participant, without the written
consent of such affected participant, unless one year's prior notice of the
effectiveness of such termination or amendment is provided to such participant.
In February 1991, the Company also adopted a severance policy for executive
officers designated by the Compensation and Option Committee in the event of
involuntary termination (the "Standard Policy"). The Standard Policy was amended
on February 9, 1998 and was further amended and restated on March 31, 1998. The
Standard Policy provides that, in the event that the participant is
involuntarily terminated other than for death, disability, or cause, the
terminated participant will be entitled to (i) a lump sum severance payment
equal to one half of each participant's current annual compensation and (ii)
continuation of health insurance benefits for up to six months at Company
expense. Effective January 1, 1999, the Standard Policy, as amended, provides
that if payments due to a participant would not be deductible pursuant to the $1
million annual deduction limit of Section 162(m) of the Code, the Company may
defer payment to one or more calendar years in which such payments would be
deductible.
The Standard Policy will continue until the Board terminates it. Effective
February 9, 1999, the Board may terminate or amend the Standard Policy at any
time, provided, however, that the Standard Policy may not be terminated or
amended in a manner adversely affecting any participant, without the written
consent of such affected participant, unless one year's prior notice of the
effectiveness of such termination or amendment is provided to such participant.
In December 1994, the Company entered into an Executive Compensation and
Benefits Continuation Agreement with Mr. Teresi, the Company's Chairman, Chief
Executive Officer, and President, which remains in effect during the duration of
Mr. Teresi's employment by the Company. In the event of (i) the involuntary
termination of Mr. Teresi without cause, as defined in the agreement, or due to
the death or disability of Mr. Teresi; (ii) the voluntary termination of Mr.
Teresi for good cause, as defined in the agreement; or (iii) the part-time
employment of Mr. Teresi at the Company as a non-officer in certain
circumstances after voluntary termination of employment, then the agreement
provides that Mr. Teresi will be paid salary continuation benefits equal to
three years of his base salary, to be paid in equal monthly installments over a
period of five years. The Company also will continue Mr. Teresi's health
insurance benefits, including any medical, vision care, or dental insurance
coverage then in effect, for a period of up to five years, and will continue
medical benefits for Mr. Teresi's spouse and daughter for up to five years. In
addition, any outstanding unvested stock options held by Mr. Teresi at the
termination date of his employment will be subject to continued or accelerated
vesting, subject to certain criteria as set forth in the agreement. All the
benefits payable by the Company under the agreement cease immediately upon the
happening of certain events specified in the agreement, including in the event
that Mr. Teresi becomes employed by or provides consulting services to an entity
which is engaged in a business in which the Company is also engaged.
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COMPENSATION AND OPTION COMMITTEE REPORT(1)
Until September 1997, the Compensation and Option Committee of the Board of
Directors (the "Committee") consisted of James K. Dutton, Robert J. Frankenberg,
and Frederick W. Zuckerman. Following the death of Mr. Zuckerman in September
1997, the Committee has consisted of Messrs. Dutton and Frankenberg, neither of
whom are currently officers or employees of the Company. The Committee is
responsible for setting and administering the Company's policies governing
employee compensation and administering the Company's employee benefit plans,
including its Stock Option Plans, the Caere Savings and Retirement 401(k) Plan,
and the 1990 Employee Stock Purchase Plan.
General
The Company's executive compensation programs are designed to attract and
retain executives capable of leading the Company to meet its business objectives
and thereby enhance long-term stockholder value. Annual compensation for the
Company's executive officers consists of three elements: a cash salary, a cash
incentive bonus, and stock option grants.
The Committee evaluates the performance of management and determines
compensation policies, plans, and programs which seek to enhance the performance
of the Company, and thus stockholder value, by aligning closely the financial
interests of the Company's senior management with those of its stockholders.
Executive Officer Compensation
In December of 1996, the Committee established 1997 base salaries for
executive officers and determined not to make any increases over 1996 base
salaries. These salary levels were comparable to the mid-range of competitive
companies of comparable size in similar industries. Those companies include
some, but not all, of the companies included in the Hambrecht & Quist Technology
Stock Index used in the performance measurement comparison graph.
The Company's cash bonus plan is tied to financial performance versus plan
and the profitability of the Company. The total size of the bonus pool is
calculated using a formula based upon the Company's operating earnings as a
percentage of revenues. Performance is measured and bonuses are determined at
the end of each quarter independently, in order to encourage meeting plan
objectives on a quarterly basis. The salary and bonus plans are structured in a
highly leveraged manner, that is, potential bonus as a percentage of total
compensation, to provide a strong incentive for achieving short-term annual
performance objectives. Bonus amounts are allocated among the executive officers
based upon the individual's base salary as a percentage of the entire group's
base salaries. The maximum bonus allowable for an executive in any period is
100% of that person's base salary for the period. Based on the terms of the cash
bonus plan established at the beginning of the year, cash bonuses ranging from
22% to 25% of base compensation were awarded to executive officers for 1997.
In determining base salaries for 1997, the Committee considered
management's accomplishments during the prior year, including (i) increasing the
Company's software unit volume shipments by over 67% and expanding both the
retail and direct distribution channels; (ii) maintaining profitability while
managing a change in the Company's fundamental business model for desktop
products to a "bundle and upgrade" strategy, with higher volume but
significantly lower average selling prices; (iii) expanding the Company's
ability to provide global optical character recognition ("OCR") solutions by
acquiring Recognita Rt.; (iv) introducing OmniPage for Arabic and OmniPage Pro
version 6.0J, a Japanese OCR product jointly developed with Canon, Inc.; and (v)
successfully introducing OmniForm Internet Publisher, a paper to electronics
forms solution for intranets and the Internet.
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(1) The material in this report is not soliciting material, is not deemed filed
with the SEC, and is not incorporated by reference in any filing of the
Company under the Securities Act or the Exchange Act, whether made before or
after the date of this proxy statement and irrespective of any general
incorporation language in such filing.
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The Company uses its stock option program as a long-term incentive to
further align the interests of stockholders and management by creating common
incentives related to the possession by management of a substantial economic
interest in the long-term appreciation of the Company's Common Stock. Options
have been granted to existing members of management based on a plan of achieving
certain levels of predetermined ownership participation. Options are granted at
the then fair market value of the Company's Common Stock, are subject to
four-year vesting, and have a term of either five or ten years.
In December 1997, the Compensation and Option Committee awarded stock
option grants under the Company's 1981 Option Plans to all executive officers of
the Company. The size of individual option grants generally is intended to
reflect the officer's position with the Company and his or her contributions to
the Company. In awarding options, the committee also considered management's
accomplishments in 1997, including, (i) increasing the Company's software unit
sales volume over 48 percent and significantly expanding the installed base of
customers; (ii) expanding the strategic relationships with key top scanner
manufacturers for the bundling of limited featured OCR products and, with one
strategic partner, also bundling a limited feature document management product;
(iii) successfully launching OmniPage Pro for Windows version 8.0, which
incorporated material improvements over version 7.0, thus propelling the largest
upgrade cycle in the Company's history; (iv) expanding the Company's ability to
provide electronic forms solutions by acquiring Formonix, Inc.; and (v)
maintaining net profits, before one-time charges, in excess of 11 percent of net
revenues, while increasing the Company's investment in research and development
by 33 percent. Additionally, the Committee evaluated the year's specific
accomplishments in light of the Company's long-term objectives of maintaining
its position as the technology and market-leading provider of OCR products and
of driving OCR into mainstream markets. The Committee additionally looked at the
challenges for 1998 and the need to motivate and retain its executive officers
in a manner consistent with the Company's compensation philosophy. The
Compensation and Option Committee also considered the number of options held by
executive officers when awarding stock options grants in 1997 under the 1981
Option Plans.
The Company believes that this combination of short- and long-term
incentives in the form of salary and bonus plus stock option grants will focus
the Company's officers on the optimum balance of achieving short-term annual
objectives while building long-term stockholder value and will achieve the
Company's goals of properly motivating and retaining officers.
Limitation on Deduction of Compensation Paid to Certain Executive Officers
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
executive officers in a taxable year. Compensation above the $1 million
limitation may be deducted if it is "performance-based compensation" within the
meaning of the Code.
The Compensation and Option Committee has determined that stock options
granted under the 1981 Option Plans between May 14, 1997, and September 20,
1997, with an exercise price at least equal to the fair market value of the
Company's Common Stock on the date of grant should be treated as
"performance-based compensation." Because only one of the current directors of
the Company satisfies the requirements to qualify as an "outside director" for
purposes of Section 162(m) of the Code, grants of options after September 20,
1997, will not constitute "performance-based compensation" unless and until the
Company is able to comply with the requirement of Section 162(m) of the Code
that option grants be approved by a committee of two or more "outside
directors."
The Compensation and Option Committee intends to continue to evaluate the
effects of Code Section 162(m) and to comply with the requirements of that
statute if and when it is able to do so in the future to the extent consistent
with the best interest of the Company.
Chief Executive Compensation
In accordance with the compensation policies described above, the Chief
Executive Officer received a base salary of $250,000 in 1997, which did not
reflect any increase from his 1995 and 1996 base salaries. Consistent with the
Company's philosophy of rewarding and motivating its executive officers, the
Chief
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Executive Officer received a cash bonus of $58,810 for 1997 performance, which
met certain of management's revenue and profitability goals, compared to a cash
bonus of $121,371 for 1996. The Compensation Committee awarded a stock option
grant of 45,000 shares of Common Stock to Mr. Teresi in 1997 under the Company's
1981 Option Plans, taking into consideration stock and stock options currently
held by Mr. Teresi.
By the Compensation and Option
Committee
James K. Dutton
Robert J. Frankenberg
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the Company's Compensation and Option Committee consists of
Messrs. Dutton and Frankenberg. Mr. Dutton was an executive officer of the
Company from 1979 to 1985.
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PERFORMANCE MEASUREMENT COMPARISON(1)
The following chart shows the value of an investment of $100 on December
31, 1992, in cash of (i) the Company's Common Stock, (ii) the H&Q Technology
Stock Index, and (iii) the Nasdaq Market Index.
FIVE YEAR TOTAL RETURN CHART(1)
Measurement Period H&Q Technology NASDAQ Market
(Fiscal Year Covered) Caere Stock Index Index
12/31/92 $100.00 $100.00 $100.00
12/31/93 53.47 117.41 114.80
12/31/94 100.69 141.04 112.21
12/31/95 39.58 210.89 158.70
12/31/96 63.89 262.10 195.19
12/31/97 47.92 307.29 239.53
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(1) The material in this performance graph is not soliciting material, is not
deemed filed with the SEC, and is not incorporated by reference in any
filing of the Company under the Securities Act, or the Exchange Act, whether
made before or after the date of this proxy statement and irrespective of
any general incorporation language in such filing.
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CERTAIN TRANSACTIONS
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines, and settlements he or she may
be required to pay in actions or proceedings in which he or she is or may be
made a party by reason of his or her position as a director, officer, or other
agent of the Company, and otherwise to the full extent permitted under Delaware
law and the Company's Bylaws.
OTHER MATTERS
The Board does not know of any other matters which may come before the
Annual Meeting. If any other matters are properly presented at the meeting, it
is the intention of the persons named in the accompanying proxy to vote, or
otherwise to act, in accordance with their best judgment on such matters.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company no
later than December 8, 1998, in order to be included in the proxy statement and
proxy relating to, and in order to be presented at, the 1999 Annual Meeting.
The Board hopes that stockholders will attend the Annual Meeting. Whether
or not you plan to attend, you are urged to complete, sign and return the
enclosed proxy in the accompanying envelope. A prompt response will greatly
facilitate arrangements for the Annual Meeting, and your cooperation will be
appreciated. Stockholders who attend the Annual Meeting may vote their shares
personally even though they have sent in their proxies.
By Order of the Board of Directors
BLANCHE M. SUTTER, Secretary
Los Gatos, California
April 7, 1998
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1530-PS-98
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APPENDIX A
CAERE CORPORATION
1981 INCENTIVE STOCK OPTION PLAN
Adopted December 17, 1981
Approved by the Shareholders February 24, 1982
Amended July 12, 1983
Amendment Approved by the Shareholders September 21, 1983
Amended June 25, 1985
Amendment Approved by the Shareholders June 24, 1986
Amended October 21, 1986 and February 17, 1987
Amendments Approved by the Shareholders October 20, 1987
Amended April 19, 1989
Amendment Approved by the Stockholders September 26, 1989
Amended February 15, 1990
Amendment Approved by the Stockholders May 3, 1990
Amended February 27, 1992
Amendment Approved by the Stockholders May 5, 1992
Amended February 18, 1993
Amendment Approved by the Stockholders May 4, 1993
Amended February 10, 1994
Amendment Approved by the Stockholders May 25, 1994
Amended October 14, 1994
Amendment Approved by the Stockholders December 20, 1994
Amended February 21, 1996
Amendment Approved by the Stockholders May 14, 1996
Amended August 19, 1996
Amended February 9, 1998
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which selected key
employees of Caere Corporation (the "Company") and its Affiliates, as defined in
subparagraph l(b), may be given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now holding key positions, to secure and retain the services of persons
capable of filling such positions, and to provide incentives for such persons to
exert maximum efforts for the success of the Company.
(d) The Company intends that the options issued under the Plan be
incentive stock options as that term is used in Section 422 of the Code.
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2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted options; when and how the option shall
be granted; the provisions of each option granted (which need not be identical),
including the time or times during the term of each option within which all or
portions of such option may be exercised; and the number of shares for which an
option shall be granted to each such person.
(2) To construe and interpret the Plan and options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any option agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(3) To amend the Plan as provided in paragraph 10.
(4) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company.
(c) The Board may delegate administration of the Plan to a committee
composed of one (1) or more members of the Board, all of the members of which
committee may (but need not) be, in the discretion of the Board, non-employee
directors and/or outside directors, as defined by the provisions of
subparagraphs 2(d) and 2(e), respectively. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee of two or more outside directors any of the
administrative powers the committee is authorized to exercise, subject, however,
to such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan. Additionally,
prior to the date of the first registration of an equity security of the Company
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and notwithstanding anything to the contrary contained herein,
the Board may delegate administration of the Plan to any person or persons and
the term "Committee" shall apply to any person or persons to whom such authority
has been delegated.
(d) The term "non-employee director," as used in this Plan, shall mean a
director who either (i) is not a current employee or officer of the Company or
its parent or subsidiary, does not receive compensation (directly or indirectly)
from the Company or its parent or subsidiary for
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services rendered as a consultant or in any capacity other than as a director
(except for an amount as to which disclosure would not be required under Item
404(a) of Regulation S-K ("Regulation S-K") promulgated pursuant to the
Securities Act of 1933 (the "Securities Act"), does not possess an interest in
any other transaction as to which disclosure would be required under Item 404(a)
of Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(e) The term "outside director," as used in this Plan, shall mean a
director who either (i) is not a current employee of the Company or an
"affiliated corporation" (within the meaning of Treasury regulations promulgated
under Section 162(m) of the Code), is not a former employee of the Company or an
"affiliated corporation" receiving compensation for prior services (other than
benefits under a tax qualified pension plan), was not an officer of the Company
or an "affiliated corporation" at any time, and is not currently receiving
direct or indirect remuneration from the Company or an "affiliated corporation"
for services in any capacity other than as a director, or (ii) is otherwise
considered an "outside director" for purposes of Section 162(m) of the Code.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 9 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate four million ninety-five
thousand (4,095,000) shares of the Company's common stock; provided, however,
that such aggregate number of shares shall be reduced to reflect the number of
shares of the Company's common stock that have been sold pursuant to, or may be
sold pursuant to outstanding options granted under, the Company's 1981
Supplemental Stock Option Plan to the same extent as if such sales had been made
or options had been granted pursuant to this Plan. If any option granted under
the Plan shall for any reason expire or otherwise terminate without having been
exercised in full, the stock not purchased under such option shall again become
available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
(c) An option may be granted to an eligible person under the Plan only
if the aggregate fair market value (determined at the time the option is
granted) of the stock with respect to which incentive stock options (as defined
in the Code) granted after 1986 are exercisable for the first time by such
optionee during any calendar year under all incentive stock option plans of the
Company and its Affiliates does not exceed one hundred thousand dollars
($100,000). Should it be determined that an option granted under the Plan
exceeds such maximum for any reason other than the failure of a good faith
attempt to value the stock subject to the option, such option shall be
considered a nonstatutory stock option to the extent, but only to the extent, of
such excess; provided, however, that should it be determined that an entire
option or any portion thereof does not qualify for treatment as an incentive
stock option by reason of exceeding such maximum, such option or the applicable
portion shall be considered a nonstatutory stock option.
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(d) Subject to the provisions of paragraph 9 relating to adjustments
upon changes in stock, no person shall be eligible to be granted in any calendar
year options under this Plan covering more than an aggregate of three hundred
thousand (300,000) shares of the Company's common stock, when combined with
options granted in the same calendar year under the Company's 1981 Supplemental
Stock Option Plan. Shares subject to an option that is canceled shall continue
to be counted against the maximum number of shares that may be covered by
options granted to a person pursuant to this subparagraph 3(c). If an option is
amended, exchanged or otherwise altered in a manner that results in a reduction
of the exercise price, such transaction shall be deemed to be a cancellation of
the original option and the grant of a new option for purposes of this
subparagraph. In such event, both the original option and the new option shall
be counted in the applicable year against the maximum limitation specified by
this subparagraph in accordance with regulations promulgated under Section
162(m) of the Code.
4. ELIGIBILITY.
(a) Options may be granted only to key employees (including officers) of
the Company or its Affiliates. A director of the Company shall not be eligible
for the benefits of the Plan unless such director is also a key employee
(including an officer) of the Company or any Affiliate.
(b) No person shall be eligible for the grant of an option under the
Plan if, at the time of grant, such person owns (or is deemed to own pursuant to
the attribution rules of Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates unless the option price is at least one
hundred ten percent (110%) of the fair market value of such stock at the date of
grant and the term of the option does not exceed five (5) years from the date of
grant.
5. OPTION PROVISIONS.
Each option shall be in such form and shall contain such terms and
conditions as the Board or the Committee shall deem appropriate. The provisions
of separate options need not be identical, but each option shall include
(through incorporation of provisions hereof by reference in the option or
otherwise) the substance of each of the following provisions:
(a) The term of any option shall not be greater than ten (10) years from
the date it was granted.
(b) The exercise price of each option shall be not less than one hundred
percent (100%) of the fair market value of the stock subject to the option on
the date the option is granted.
(c) The purchase price of stock acquired pursuant to an option shall be
paid, to the extent permitted by applicable statutes and regulations, either (i)
in cash at the time the option is exercised, or (ii) at the discretion of the
Board or the Committee, either at the time of grant or exercise of the option
(A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person
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to whom the option is granted or to whom the option is transferred pursuant to
subparagraph 5(d), or (C) in any other form of legal consideration that may be
acceptable to the Board or Committee in their discretion.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) An option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person. Notwithstanding the
foregoing, the person to whom an option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the optionee, shall thereafter be
entitled to exercise the option.
(e) The total number of shares of stock subject to an option may, but
need not, be allotted in periodic installments (which may, but need not, be
equal). From time to time during each of such installment periods, the option
may be exercised with respect to some or all of the shares allotted to that
period, and/or with respect to some or all of the shares allotted to any prior
period as to which the option was not fully exercised. During the remainder of
the term of the option (if its term extends beyond the end of the installment
periods), the option may be exercised from time to time with respect to any
shares then remaining subject to the option. The provisions of this subparagraph
5(e) are subject to any option provisions governing the minimum number of shares
as to which an option may be exercised.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 5(d), as a condition of exercising any
such option: (1) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters and/or
to employ a purchaser representative reasonably satisfactory to the Company who
is knowledgeable and experienced in financial and business matters, and that he
or she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the option; and (2) to give
written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the option for such person's own account and not
with any present intention of selling or otherwise distributing the stock. These
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise of the option
has been registered under a then currently effective registration statement
under the Securities Act, or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws.
(g) An option shall terminate three (3) months after termination of the
optionee's employment with the Company or an Affiliate, unless (i) the
termination of employment of the optionee is due to such person's permanent and
total disability, within the meaning of Section 422(c)(6) of the Code, in which
case the option may, but need not, provide that it may be exercised at any time
within one (l) year following such termination of employment; or (ii) the
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optionee dies while in the employ of the Company or an Affiliate, or within not
more than three (3) months after termination of such employment, in which case
the option may, but need not, provide that it may be exercised at any time
within eighteen (18) months following the death of the optionee by the person or
persons to whom the optionee's rights under such option pass by will or by the
laws of descent and distribution; or (iii) the option by its terms specifies
either (a) that it shall terminate sooner than three (3) months after
termination of the optionee's employment, or (b) that it may be exercised more
than three (3) months after termination of the optionee's employment with the
Company or an Affiliate. This subparagraph 5(g) shall not be construed to extend
the term of any option or to permit anyone to exercise the option after
expiration of its term, nor shall it be construed to increase the number of
shares as to which any option is exercisable from the amount exercisable on the
date of termination of the optionee's employment.
(h) The option may, but need not, include a provision whereby the
optionee may elect at any time during the term of his or her employment with the
Company or any Affiliate to exercise the option as to any part or all of the
shares subject to the option prior to the stated vesting date of the option or
of any installment or installments specified in the option. Any shares so
purchased from any unvested installment or option may be subject to a repurchase
right in favor of the Company or to any other restriction the Board or the
Committee determines to be appropriate.
(i) To the extent provided by the terms of an option, the optionee may
satisfy any federal, state or local tax withholding obligation relating to the
exercise of such option by any of the following means or by a combination of
such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold from the shares of the common stock otherwise issuable to the
participant as a result of the exercise of the stock option a number of shares
having a fair market value less than or equal to the amount of the withholding
tax obligation; or (3) delivering to the Company owned and unencumbered shares
of the common stock having a fair market value less than or equal to the amount
of the withholding tax obligation.
6. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan or any stock issued or issuable pursuant to any such option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority that counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such options unless and until such authority is obtained.
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7. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
8. MISCELLANEOUS.
(a) The Board or the Committee shall have the power to accelerate the
time during which an option may be exercised, or the time during which an option
or any portion thereof will vest pursuant to subparagraph 5(e), notwithstanding
the provisions in the option stating the time during which it may be exercised
or the time during which it will vest.
(b) Neither an optionee nor any person to whom an option is transferred
under subparagraph 5(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(c) Throughout the term of any option granted pursuant to the Plan, the
Company shall make available to the holder of such option, not later than one
hundred twenty (120) days after the close of each of the Company's fiscal years
during the option term, upon request, such financial and other information
regarding the Company as comprises the annual report to the shareholders of the
Company provided for in the bylaws of the Company.
(d) Nothing in the Plan or any instrument executed or option granted
pursuant thereto shall confer upon any eligible employee or optionee any right
to continue in the employ of the Company or any Affiliate or shall affect the
right of the Company or any Affiliate to terminate the employment of any
eligible employee or optionee with or without cause.
9. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), appropriate adjustments
will be made in the class(es) and maximum number of shares subject to the Plan
pursuant to subparagraph 3(a), the class(es) and maximum number of shares that
may be subject to options pursuant to subparagraph 3(d) and the class(es) and
number of shares and price per share of stock subject to outstanding options.
(b) In the event of: (l) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's common stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) any other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged then, at the sole discretion of the Board
to the extent permitted by law, (i) any surviving corporation shall assume
options outstanding under the Plan or substitute similar
7
33
options for those outstanding under the Plan, (ii) the time during which options
outstanding under the Plan may be exercised shall be accelerated and the options
terminated if not exercised prior to such event, or (iii) options outstanding
under the Plan shall continue in full force and effect.
10. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 9 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders
within twelve (12) months before or after the adoption of the amendment, where
the amendment will:
(i) Increase the number of shares reserved for options
under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of the
Code); or
(iii) Modify the Plan in any other way if such
modification requires stockholder approval in order for the Plan to satisfy the
requirements of Section 422 of the Code or to comply with the requirements of
Rule 16b-3 promulgated under the Exchange Act.
(b) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee incentive stock
options and/or to bring the Plan and/or options granted under it into compliance
therewith.
(c) Rights and obligations under any option granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the option was
granted and (ii) such person consents in writing.
(d) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
11. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on January 31, 2000. No options may
be granted under the Plan while the Plan is suspended or after it is terminated.
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34
(b) Rights and obligations under any option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the option was granted.
12. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
options granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders and, if required, an appropriate permit has
been issued by the Commissioner of Corporations of the State of California.
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35
CAERE CORPORATION
1992 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Adopted on February 27, 1992
Approved by the Stockholders May 5, 1992
Amended by the Board of Directors August 25, 1994
Amended by the Board of Directors March 2, 1995
Approved by the Stockholders May 5, 1995
Amended by the Board of Directors February 21, 1996
Approved by the Stockholders May 14, 1996
Amended August 19, 1996
Amended February 9, 1998
1. PURPOSE.
(a) The purpose of the 1992 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which each director of Caere Corporation,
a Delaware corporation (the "Company"), who is not otherwise an employee of the
Company or of any Affiliate of the Company (each such person being hereafter
referred to as a "Non-Employee Director") will be given an opportunity to
purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the options issued under the Plan not be
incentive stock options as that term is used in Section 422 of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To construe and interpret the Plan and options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any
36
option agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(2) To amend the Plan as provided in paragraph 11.
(3) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee
composed of one (1) or more members of the Board (the "Committee"), all of the
members of which Committee may (but need not) be, in the discretion of the
Board, "non-employee directors" within the meaning of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate Three Hundred Thirty Thousand
(330,000) shares of the Company's common stock. If any option granted under the
Plan shall for any reason expire or otherwise terminate without having been
exercised in full, the stock not purchased under such option shall again become
available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who is, after March 2, 1996 (the "Amendment Effective
Date"), elected for the first time to be a Non-Employee Director of the Company
shall, upon the date of his or her initial election to be a Non-Employee
Director by the Board or stockholders of the Company, be automatically granted
an option to purchase Thirty Thousand (30,000) shares of common stock of the
Company on the terms and conditions set forth herein. Thereafter, so long as any
such person remains a Non-Employee Director of the Company and the Plan remains
in effect, he or she shall, on each three-year anniversary of such initial
grant, be automatically granted an option to purchase Thirty Thousand (30,000)
shares of common stock of the Company on the terms and conditions set forth
herein.
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37
(b) Each person who is, as of the Amendment Effective Date, a
Non-Employee Director of the Company shall, on each three-year anniversary of
such person's receipt of an option grant covering shares of common stock of the
Company that most recently preceded the Amendment Effective Date (the "Preceding
Option") , be automatically granted an option to purchase Thirty Thousand
(30,000) shares of common stock of the Company on the terms and conditions set
forth herein.
(c) Each person who is, on the Amendment Effective Date, a Non-Employee
Director of the Company shall, on the Amendment Effective Date, be automatically
granted an option to purchase, on the terms and conditions set forth herein, the
number of shares of common stock of the Company (rounded to the nearest whole
share) determined by multiplying Three Thousand Three Hundred Thirty-Three
(3,333) shares by a fraction (which may exceed one), the numerator of which is
the number of days remaining, as of the Amendment Effective Date, until the
third anniversary of such person's receipt of his or her Preceding Option and
the denominator of which is 365.
6. OPTION PROVISIONS.
Each option (including options outstanding on the Amendment Effective
Date) shall contain the following terms and conditions, to the extent
applicable:
(a) No option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) The exercise price of each option shall be one hundred percent
(100%) of the fair market value of the stock subject to such option on the date
such Ioption is granted.
(c) The purchase price of stock acquired pursuant to an option shall be
paid, to the extent permitted by applicable statutes and regulations, either in
cash at the time the option is exercised, or by delivery to the Company of
shares of common stock of the Company that have been held for the requisite
period necessary to avoid a charge to the Company's reported earnings and valued
at the fair market value on the date of exercise, or (3) by a combination of
such methods of payment.
(d) An option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person or by his or her
guardian or legal representative, unless otherwise specified in the option, in
which case the option may be transferred upon such terms and conditions as are
set forth in the option, as the Board or the Committee shall determine in its
discretion, including (without limitation) pursuant to a "domestic relations
order" within the meaning of such rules, regulations or interpretations of the
Securities and Exchange Commission as are applicable for purposes of Section 16
of the Exchange Act. Notwithstanding the foregoing, the person to whom an option
is granted may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the optionee, shall thereafter be entitled to exercise the option.
3
38
(e) Except as otherwise provided in this subparagraph 6(e), an option
shall vest with respect to each optionee in three (3) equal annual installments
commencing on the date one year after the date of grant of the option, provided
that the optionee has, during the entire one year period prior to such vesting
date, continuously served as a Non-Employee Director of the Company whereupon
such option shall become fully exercisable in accordance with its terms with
respect to that portion of the shares represented by that installment.
Notwithstanding the foregoing:
(1) An option granted on the Amendment Effective Date pursuant to
subparagraph 5(c) shall vest, subject to the service conditions specified above,
on the third anniversary of the optionee's Preceding Option as to 3,333 shares
and on the second anniversary of the optionee's Preceding Option as to the
remaining balance of the shares in excess of 3,333.
(2) In the event of the voluntary resignation from the Board of
Directors or the death of a Non-Employee Director, his or her options shall vest
in full and shall be exercisable in their entirety, provided that the optionee
has, during the entire five-year period prior to such voluntary resignation or
death, continuously served as a Non-Employee Director of the Company.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (1) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a then-currently-effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii), as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then-applicable securities laws.
(g) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If
4
39
the Company is unable to obtain from any such regulatory commission or agency
the authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock upon exercise of such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate or shall affect any right of the Company, its
Board or stockholders or any Affiliate to terminate the service of any
Non-Employee Director with or without cause.
(c) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through him or her, shall
have any right, title or interest in or to any option reserved for the purposes
of the Plan except as to such shares of common stock, if any, as shall have been
reserved for him or her pursuant to an option granted to him or her.
(d) In connection with each option made pursuant to the Plan, it shall
be a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or an affiliate of such Non-Employee Director, or to
evidence the removal of any restrictions on transfer, that such Non-Employee
Director make arrangements satisfactory to the Company to insure that the amount
of any federal or other withholding tax required to be withheld with respect to
such sale or transfer, or such removal or lapse, is made available to the
Company for timely payment of such tax.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
options will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding options.
5
40
(b) In the event of: (1) a dissolution or liquidation of the Company or
sale of all or substantially all of the assets of the Company; (2) a
reorganization, merger or consolidation with respect to which persons who were
the stockholders of the Company immediately prior to such reorganization, merger
or consolidation do not, immediately thereafter, own more than 50% of the
Combined Voting Power (as defined below) of the reorganized, merged or
consolidated company's then outstanding voting securities; (3) the acquisition
(other than from the Company) by any person, entity or "group," within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (excluding for this
purpose, the Company or its Affiliates, or any employee benefit plan of the
Company or its Affiliates), of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 50% or more of either (i) the then
outstanding shares of common stock of the Company or (ii) the Combined Voting
Power; or (4) individuals who, as of the Amendment Effective Date constitute the
Board (the "Incumbent Board") ceasing for any reason to constitute at least a
majority of the Board, then the time during which such options may be exercised
shall be automatically accelerated and such options shall be exercisable in
their entirety immediately prior to such event. In addition, in the case of a
dissolution or liquidation of the Company, or a reorganization, merger or
consolidation in which the Company is not the surviving corporation or in which
more than fifty percent (50%) of the shares of the Company's common stock
outstanding immediately preceding such transaction are converted into other
property (whether in the form of securities, cash or otherwise), at the sole
discretion of the Board and to the extent permitted by applicable law, any
surviving corporation may elect to assume such options outstanding under the
Plan or may substitute similar options for those outstanding under the Plan, and
any options outstanding hereunder will terminate if not exercised or assumed
prior to such event. For purposes of this subparagraph 10(b), "Combined Voting
Power" means the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors; and any
person who becomes a director subsequent to the Amendment Effective Date whose
election, or nomination for election by the Company's stockholders, was approved
by a vote of at least a majority of the directors then comprising the Incumbent
Board (other than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the directors of the Company, as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act)
shall be considered as though such person were a member of the Incumbent Board.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
Except as provided in paragraph 10 relating to adjustments upon changes in
stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for options under the
Plan;
(2) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to comply with the requirements of Rule 16b-3 promulgated
under the Exchange Act); or
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41
(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
(b) Rights and obligations under any option granted before any amendment
of the Plan shall not be altered or impaired by such amendment of the Plan
unless (i) the Company requests the consent of the person to whom the option was
granted and (ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on February 27, 2002. No options may
be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the option was granted.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective upon adoption by the Board of
Directors, subject to the condition subsequent that the Plan is approved by the
stockholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
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42
CAERE CORPORATION
1981 SUPPLEMENTAL STOCK OPTION PLAN
Adopted December 17, 1981
Approved by the Shareholders February 24, 1982
Amended June 25, 1985
Amended October 21, 1986
Amendment Approved by the Shareholders October 20, 1987
Amended April 19, 1989
Amendment Approved by the Stockholders September 26, 1989
Amended February 15, 1990
Amendment Approved by the Stockholders May 3, 1990
Amended February 27, 1992
Amendment Approved by the Stockholders May 5, 1992
Amended February 18, 1993
Amendment Approved by the Stockholders May 4, 1993
Amended February 10, 1994
Amendment Approved by the Stockholders May 25, 1994
Amended October 14, 1994
Amendment Approved by the Stockholders December 20, 1994
Amended February 21, 1996
Amendment Approved by the Stockholders May 14, 1996
Amended August 19, 1996
Amended February 9, 1998
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which selected key
employees and directors of and consultants to Caere Corporation, a California
corporation (the "Company"), and its affiliates, as defined in subparagraph
1(b), may be given an opportunity to purchase stock of the Company.
(b) The word "affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now holding key positions, to secure and retain the services of persons
capable of filling such positions, and to provide incentives for such persons to
exert maximum efforts for the success of the Company.
(d) The Company intends that the options issued under the Plan not be
incentive stock options as that term is used in Section 422 of the Code.
43
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted options; when and how the option shall
be granted; the provisions of each option granted (which need not be identical),
including the time or times during the term of each option within which all or
portions of such option may be exercised; and the number of shares for which an
option shall be granted to each such person.
(2) To construe and interpret the Plan and options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any option agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(3) To amend the Plan as provided in paragraph 10.
(4) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company.
(c) The Board may delegate administration of the Plan to a committee
composed of one (1) or more members of the Board, all of the members of which
committee may (but need not) be, in the discretion of the Board, non-employee
directors and/or outside directors, as defined by the provisions of
subparagraphs 2(d) and 2(e), respectively. If administration is delegated to a
committee, the committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee of two or more outside directors any of the
administrative powers the committee is authorized to exercise, subject, however,
to such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the committee at
any time and revest in the Board the administration of the Plan.
(d) The term "non-employee director," as used in this Plan, shall mean a
director who either (i) is not a current employee or officer of the Company or
its parent or subsidiary, does not receive compensation (directly or indirectly)
from the Company or its parent or subsidiary for services rendered as a
consultant or in any capacity other than as a director (except for an amount as
to which disclosure would not be required under Item 404(a) of Regulation S-K
("Regulation S-K") promulgated pursuant to the Securities Act of 1933 (the
"Securities Act"), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure
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44
would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise
considered a "non-employee director" for purposes of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
(e) The term "outside director," as used in this Plan, shall mean a
director who either (i) is not a current employee of the Company or an
"affiliated corporation" (within the meaning of Treasury regulations promulgated
under Section 162(m) of the Code), is not a former employee of the Company or an
"affiliated corporation" receiving compensation for prior services (other than
benefits under a tax qualified pension plan), was not an officer of the Company
or an "affiliated corporation" at any time, and is not currently receiving
direct or indirect remuneration from the Company or an "affiliated corporation"
for services in any capacity other than as a director, or (ii) is otherwise
considered an "outside director" for purposes of Section 162(m) of the Code.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 9 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate four million ninety-five
thousand (4,095,000) shares of the Company's common stock; provided, however,
that such aggregate number of shares shall be reduced to reflect the number of
shares of the Company's common stock that have been sold pursuant to, or may be
sold pursuant to outstanding options granted under, the Company's 1981 Incentive
Stock Option Plan to the same extent as if such sales had been made or options
had been granted pursuant to this Plan. If any option granted under the Plan
shall for any reason expire or otherwise terminate without having been exercised
in full, the stock not purchased under such option shall again become available
for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
(c) Subject to the provisions of paragraph 9 relating to adjustments
upon changes in stock, no person shall be eligible to be granted in any calendar
year options under this Plan covering more than an aggregate of three hundred
thousand (300,000) shares of the Company's common stock, when combined with
options granted in the same calendar year under the Company's 1981 Incentive
Stock Option Plan. Shares subject to an option that is canceled shall continue
to be counted against the maximum number of shares that may be covered by
options granted to a person pursuant to this subparagraph 3(c). If an option is
amended, exchanged or otherwise altered in a manner that results in a reduction
of the exercise price, such transaction shall be deemed to be a cancellation of
the original option and the grant of a new option for purposes of this
subparagraph. In such event, both the original option and the new option shall
be counted in the applicable year against the maximum limitation specified by
this subparagraph in accordance with regulations promulgated under Section
162(m) of the Code.
4. ELIGIBILITY.
Options may be granted only to key employees (including officers),
directors of or consultants to the Company or its affiliates.
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45
5. OPTION PROVISIONS.
Each option shall be in such form and shall contain such terms and
conditions as the Board or the committee shall deem appropriate. The provisions
of separate options need not be identical, but each option shall include
(through incorporation of provisions hereof by reference in the option or
otherwise) the substance of each of the following provisions:
(a) The term of any option shall not be greater than ten (10) years from
the date it was granted.
(b) The exercise price of each option shall be not less than eighty-five
percent (85%) of the fair market value of the stock subject to the option on the
date the option is granted.
(c) The purchase price of stock acquired pursuant to an option shall be
paid, as specified in the option, either (i) in cash at the time the option is
exercised, or (ii) at the discretion of the Board or the committee, (A) by
delivery to the Company of other common stock of the Company, (B) according to a
deferred payment or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other common stock of the Company) with
the person to whom the option is granted or to whom the option is transferred
pursuant to subparagraph 5(d), or (C) in any other form of legal consideration
that may be acceptable to the Board or the committee in their discretion, either
at the time of grant or exercise of the option.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) An option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person, unless otherwise
specified in the option, in which case the option may be transferred upon such
terms and conditions as are set forth in the option, as the Board or the
committee shall determine in its discretion, including (without limitation)
pursuant to a "domestic relations order" within the meaning of such rules,
regulations or interpretations of the Securities and Exchange Commission as are
applicable for purposes of Section 16 of the Exchange Act. Notwithstanding the
foregoing, the person to whom an option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the optionee, shall thereafter be
entitled to exercise the option.
(e) The total number of shares of stock subject to an option may, but
need not, be allotted in periodic installments (which may, but need not, be
equal). From time to time during each of such installment periods, the option
may be exercised with respect to some or all of the shares allotted to that
period, and/or with respect to some or all of the shares allotted to any prior
period as to which the option was not fully exercised. During the remainder of
the term of the option (if its term extends beyond the end of the installment
periods), the option may be exercised from time to time with respect to any
shares then remaining subject to the option. The
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provisions of this subparagraph 5(e) are subject to any option provisions
governing the minimum number of shares as to which an option may be exercised.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 5(d), as a condition of exercising any
such option to give written assurances satisfactory to the Company stating that
such person is acquiring the stock subject to the option for such person's own
account not with any present intention of selling or otherwise distributing the
stock. The requirement of providing written assurances and any assurances given
pursuant to the requirement, shall be inoperative if (i) the issuance of the
shares upon the exercise of the option has been registered under a then
currently effective registration statement under the Securities Act, or (ii) a
determination is made by counsel for the Company that such written assurances
are not required in the circumstances under the then applicable federal
securities laws.
(g) An option shall terminate three (3) months after termination of the
optionee's employment with the Company or an affiliate, unless (i) the
termination of employment of the optionee is due to such person's permanent and
total disability, within the meaning of Section 422(c)(6) of the Code, in which
case the option may, but need not, provide that it may be exercised at any time
within one (l) year following such termination of employment; or (ii) the
optionee dies while in the employ of the Company or an affiliate, or within not
more than three (3) months after termination of such employment, in which case
the option may, but need not, provide that it may be exercised at any time
within eighteen (18) months following the death of the optionee by the person or
persons to whom the optionee's rights under such option pass by will or by the
laws of descent and distribution; or (iii) the option by its terms specifies
either (a) that it shall terminate sooner than three (3) months after
termination of the optionee's employment, or (b) that it may be exercised more
than three (3) months after termination of the optionee's employment with the
Company or an affiliate. This subparagraph 5(g) shall not be construed to extend
the term of any option or to permit anyone to exercise the option after
expiration of its term, nor shall it be construed to increase the number of
shares as to which any option is exercisable from the amount exercisable on the
date of termination of the optionee's employment.
(h) The option may, but need not, include a provision whereby the
optionee may elect at any time during the term of his or her employment with the
Company or any affiliate to exercise the option as to any part or all of the
shares subject to the option prior to the stated vesting date of the option or
of any installment or installments specified in the option. Any shares so
purchased from any unvested installment or option may be subject to a repurchase
right in favor of the Company or to any other restriction the Board or the
committee determines to be appropriate.
(i) To the extent provided by the terms of an option, the optionee may
satisfy any federal, state or local tax withholding obligation relating to the
exercise of such option by any of the following means or by a combination of
such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold from the shares of the common stock otherwise issuable to the
participant as a result of the exercise of the stock option a number of shares
having a fair market value less than or equal to the amount of the withholding
tax obligation; or (3) delivering
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47
to the Company owned and unencumbered shares of the common stock having a fair
market value less than or equal to the amount of the withholding tax obligation.
6. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan or any stock issued or issuable pursuant to any such option. If the Company
is unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such options unless and until
such authority is obtained.
7. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
8. MISCELLANEOUS.
(a) The Board or the committee shall have the power to accelerate the
time during which an option may be exercised, or the time during which an option
or any portion thereof will vest pursuant to subparagraph 5(e), notwithstanding
the provisions in the option stating the time during which it may be exercised.
(b) Neither an optionee nor any person to whom an option is transferred
under subparagraph 5(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
9. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), appropriate adjustments
will be made in the class(es) and maximum number of shares subject to the Plan
pursuant to subparagraph 3(a), the class(es) and maximum number of shares that
may be subject to options pursuant to subparagraph 3(c) and the class(es) and
number of shares and price per share of stock subject to outstanding options.
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48
(b) In the event of: (l) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's common stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) any other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged then, at the sole discretion of the Board
to the extent permitted by law, (i) any surviving corporation shall either
assume options outstanding under the Plan or substitute similar options for
those outstanding under the Plan, (ii) the time during which options outstanding
under the Plan may be exercised shall be accelerated and the options terminated
if not exercised prior to such event, or (iii) options outstanding under the
Plan shall continue in full force and effect.
10. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 9 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders
within twelve (12) months before or after the adoption of the amendment, where
the amendment will:
(1) Increase the number of shares reserved for options under the
Plan; or
(2) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
(b) Rights and obligations under any option granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom the option was granted.
(c) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
11. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on January 31, 2000. No options may
be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the option was granted.
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49
12. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
options granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders and, if required, an appropriate permit has
been issued by the Commissioner of Corporations of the State of California.
50
PROXY
CAERE CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 13, 1998
The undersigned hereby appoints ROBERT G. TERESI and BLANCHE M. SUTTER,
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of Caere Corporation (the
"Company") which the undersigned may be entitled to vote at the Annual Meeting
of Stockholders of the Company to be held at the Toll House Hotel, 140 South
Santa Cruz Avenue, Los Gatos, California, on Wednesday, May 13, 1998, at 9:00
a.m., local time, and at any and all postponements, continuations and
adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
NOMINEE NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, AND 4 AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEE FOR DIRECTOR NAMED BELOW AND
A VOTE FOR PROPOSALS 2, 3, AND 4.
PROPOSAL 1: To elect one director of the Company to serve for the ensuing three
years until the Company's 2001 Annual Meeting of Stockholders and
until his successor is elected and qualified.
NOMINEE: Robert G. Teresi
[ ] FOR NOMINEE [ ] WITHHOLD FROM NOMINEE
(Continued and to be signed on other side)
51
(Continued from other side)
PROPOSAL 2: To approve the Company's 1992 Non-Employee Directors' Stock Option
Plan, as amended to increase the number of shares which may be
issued under the Plan from 230,000 to 330,000, an increase of
100,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 3: To approve the Company's 1981 Incentive and Supplemental Stock
Option Plans, as amended to increase the number of shares that may
be issued under the Plans from 3,595,000 to 4,095,000, an increase
of 500,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 4: To ratify selection of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATE:
-------------------------- --------------------------------------------
SIGNATURE
DATE:
-------------------------- --------------------------------------------
SIGNATURE
Please vote, date and promptly return this
proxy in the enclosed return envelope which
is postage prepaid if mailed in the United
States.
Please sign exactly as your name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators, trustees,
guardians and attorneys-in-fact should add
their titles. If signer is a corporation,
please give full corporate name and have a
duly authorized officer sign, stating title.
If signer is a partnership, please sign in
partnership name by authorized person.