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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. ____)
Filed by the Registrant [X]
Filed by the 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
EDIFY CORPORATION
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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LOGO
April 13, 1999
To Our Stockholders:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of Edify Corporation to be held at Edify's headquarters located at 2840 San
Tomas Expressway, Santa Clara, California, on Wednesday, May 26, 1999, at 2:00
p.m., local time.
The matters expected to be acted upon at the meeting are described in
detail in the accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement.
It is important that you use this opportunity to take part in the affairs
of your Company by voting on the business to come before this meeting. WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND PROMPTLY
RETURN THE ACCOMPANYING PROXY IN THE IN THE ENCLOSED POSTAGE-PAID ENVELOPE
BEFORE THE MEETING. Returning the Proxy does not deprive you of your right to
attend the meeting and to vote your shares in person.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Jeffrey M. Crowe
Jeffrey M. Crowe
President and Chief Executive Officer
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EDIFY CORPORATION
2840 SAN TOMAS EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Edify
Corporation (the "Company") will be held at Edify's headquarters located at 2840
San Tomas Expressway, Santa Clara, California, on Wednesday, May 26, 1999, at
2:00 p.m., local time, for the following purposes:
1. To elect six directors, each to serve until the next Annual Meeting of
Stockholders and until his successor has been elected and qualified or
until his earlier resignation or removal. The Company's Board of
Directors intends to present the following nominees for election as
directors:
Jeffrey M. Crowe Tench Coxe
Stephen M. Berkley Donald R. Hollis
Kelly D. Conway Stewart A. Schuster
2. To approve an amendment to the Company's 1996 Equity Incentive Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder from 3,525,000 to 4,375,000 shares.
3. To approve an amendment to the Company's 1996 Employee Stock Purchase
Plan to increase the number of shares of Common Stock reserved for
issuance thereunder from 900,000 to 1,650,000 shares and to provide that
the number of shares of Common Stock reserved for issuance thereunder
will be automatically increased each January 1 by an amount equal to 2%
of the total number of shares outstanding on the immediately preceding
December 31.
4. To approve an amendment to the Company's 1996 Directors Stock Option
Plan to increase the number of shares of Common Stock reserved for
issuance thereunder from 175,000 to 225,000 shares.
5. To ratify the selection of KPMG LLP as the Company's independent
auditors for 1999.
6. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 29, 1999 are
entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof. A complete list of stockholders entitled to vote at the
Meeting will be open to the examination of any stockholder, for any purpose
relevant to the Meeting, at the Company's offices at 2840 San Tomas Expressway,
Santa Clara, California, during the Company's ordinary business hours for ten
days before the Meeting.
By Order of the Board of Directors
/s/ Stephanie A. Vinella
Stephanie A. Vinella
Vice President of Finance and
Administration,
Chief Financial Officer and Secretary
Santa Clara, California
April 13, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
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EDIFY CORPORATION
2840 SAN TOMAS EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
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PROXY STATEMENT
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April 13, 1999
The accompanying proxy is solicited on behalf of the Board of Directors
(the "Board") of Edify Corporation, a Delaware corporation (the "Company" or
"Edify"), for use at the Annual Meeting of Stockholders of the Company to be
held at Edify's headquarters, located at 2840 San Tomas Expressway, Santa Clara,
California, on Wednesday, May 26, 1999, at 2:00 p.m., local time (the
"Meeting"). This Proxy Statement and the accompanying form of proxy were first
mailed to stockholders on or about April 13, 1999. An annual report for the year
ended December 31, 1998 is enclosed with this Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Only holders of record of the Company's Common Stock at the close of
business on March 29, 1999 (the "Record Date") are entitled to vote at the
Meeting. A majority of the shares outstanding on the Record Date will constitute
a quorum for the transaction of business at the Meeting. At the close of
business on the Record Date, the Company had 17,659,886 shares of Common Stock
outstanding and entitled to vote.
Holders of the Company's Common Stock are entitled to one vote for each
share held as of the Record Date. Shares of Common Stock may not be voted
cumulatively.
If a broker, bank, custodian, nominee or other record holder of the
Company's Common Stock indicates on a proxy that it does not have discretionary
authority to vote certain shares on a particular matter (a "broker non-vote"),
those shares will not be considered present and entitled to vote with respect to
that matter, although they will be counted in determining the presence of a
quorum.
Directors will be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Meeting and
entitled to vote on the election of directors. Approval of Proposals No. 2, 3, 4
and 5 requires the affirmative vote of the majority of shares of Common Stock
present in person or represented by proxy at the Meeting that are voted "for" or
"against" the proposal. Neither an abstention nor a broker non-vote will be
counted as a vote "for" or "against" Proposal No. 2, 3, 4 or 5. All votes will
be tabulated by the inspector of elections appointed for the Meeting.
The proxy accompanying this Proxy Statement is solicited on behalf of the
Board for use at the Meeting. Stockholders are requested to complete, date and
sign the accompanying proxy card and promptly return it in the enclosed
envelope. All signed, returned proxies that are not revoked will be voted in
accordance with the instructions contained therein; however, returned signed
proxies that give no instructions as to how they should be voted on a particular
proposal will be counted as votes "for" such proposal (or, in the case of the
election of directors, as a vote "for" election to the Board of all the nominees
presented by the Board).
In the event that sufficient votes in favor of the proposals are not
received by the date of the Meeting, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitations of
proxies. Any such adjournment would require the affirmative vote of the majority
of the shares present in person or represented by proxy at the Meeting and
entitled to vote.
The Company will pay the expenses of soliciting proxies for the Meeting.
The Company has retained Corporate Investor Communications, Inc. to aid in the
solicitation of proxies from brokers, banks, nominees and intermediaries at a
cost of approximately $3,000, plus out-of-pocket expenses. Following the
original mailing of the proxies and other soliciting materials, the Company will
request that brokers, custodians, nominees and other record holders of the
Company's Common Stock forward copies of the proxy and other soliciting
materials to persons for whom they hold shares of Common Stock and request
authority for the
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exercise of proxies. In such cases, the Company, upon the request of the record
holders, will reimburse such holders for their reasonable expenses. The original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers and regular employees of the
Company.
REVOCABILITY OF PROXIES
Any person signing a proxy in the form accompanying this Proxy Statement
has the power to revoke it before the Meeting or at the Meeting before the vote
pursuant to the proxy. A proxy may be revoked by a writing delivered to the
Company stating that the proxy is revoked, by a subsequent proxy that is signed
by the person who signed the earlier proxy and is presented at the Meeting, or
by attendance at the Meeting and voting in person. Please note, however, that if
a stockholder's shares are held of record by a broker, bank or other nominee and
that stockholder wishes to vote at the Meeting, the stockholder must bring to
the Meeting a letter from the broker, bank or other nominee confirming that
stockholder's beneficial ownership of the shares.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board currently consists of six directors, all of whom are to be
elected at the Meeting. Each director will be elected to hold office until the
next annual meeting of stockholders or until a successor is duly elected and
qualified or until such director's earlier resignation or removal. Shares
represented by the accompanying proxy will be voted for the election of each of
the six nominees named below unless the proxy is marked in such a manner as to
withhold authority so to vote. If any nominee for any reason is unable to serve
or for good cause will not serve, the proxies may be voted for such substitute
nominee as the proxy holder may determine. The Company is not aware of any
nominee who will be unable to or for good cause will not serve as a director.
NOMINEES
The names of the nominees, each of whom is currently a director of the
Company, and certain information about them are set forth below:
NAME OF DIRECTOR AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
---------------- --- -------------------- --------------
Jeffrey M. Crowe 42 President and Chief Executive Officer of 1990
the Company
Stephen M. Berkley(1)(3) 54 President, SMB Associates 1990
Kelly D. Conway 42 Executive Vice President, Technology 1998
Solutions Company
Tench Coxe(1)(2)(3) 41 General Partner, Sutter Hill Ventures 1990
Donald R. Hollis 63 President, DRH Strategic Consulting Inc. 1997
Stewart A. Schuster(2) 53 Partner, Brentwood Associates 1995
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(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Nominating Committee.
Mr. Crowe has been President, Chief Executive Officer and a director of the
Company since co-founding the Company in 1990. From 1982 to 1990, he held
various management and marketing positions at Rolm Corporation, a
telecommunications equipment manufacturing company, most recently as General
Manager. Mr. Crowe received a Bachelor of Arts degree in History from Dartmouth
College in 1978 and a Masters degree in Business Administration from Stanford
University in 1982.
Mr. Berkley has served as a director of the Company since December 1990.
Since June 1992 he has served as President of SMB Associates, an investment and
consulting group. From August 1995 to May 1998 and from June 1992 to June 1993,
he served as Chairman of Quantum Corporation, a disk drive company and from May
1987 to May 1992, he served as Chairman and Chief Executive Officer of Quantum
Corporation. Mr. Berkley received a Bachelor of Arts degree in Economics from
Colgate University in 1966 and a Masters degree in Business Administration from
Harvard University in 1968. He has pursued additional studies at the London
School of Economics. He serves as a director of Quantum Corporation.
Mr. Conway has served as a director of the Company since January 1998.
Since July 1995, he has been Executive Vice President of Technology Solutions
Company ("TSC"), a consulting and systems integration company. From November
1993 to July 1995 he served as Senior Vice President of TSC. From 1991 to 1993,
Mr. Conway was a partner in the management consulting firm of Spencer, Shenk and
Capers. Prior to that, he was President of Telcom Technologies, a leading
manufacturer of automatic call distribution equipment. Mr. Conway received a
Bachelor of Arts degree in Economics from the University of California, Los
Angeles in 1978 and a Masters degree in Business Administration from the
University of Southern California in 1980.
Mr. Coxe has served as a director of the Company since July 1990. Since
1989, he has served as a managing director of the general partner of Sutter Hill
Ventures, a venture capital company. Mr. Coxe received a Bachelor of Arts degree
in Economics from Dartmouth College in 1980 and a Masters degree in
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Business Administration from Harvard University in 1984. Mr. Coxe serves as a
director of Clarus Corporation and NVidia Corporation.
Mr. Hollis has served as a director of the Company since December 1997. He
has been President of DRH Strategic Consulting, Inc., a consulting firm, since
March 1996. Prior to January 1996, Mr. Hollis served as an Executive Vice
President of First Chicago Corporation/First National Bank of Chicago, where he
was employed for 15 years. Prior to joining First Chicago, Mr. Hollis spent 10
years as Vice President of Chase Manhatten Bank. Mr. Hollis received a Bachelor
degree in Business Administration from Kent State University in 1959. Mr. Hollis
serves as a director of Deluxe Corporation, Teltrend, Inc., Information
Advantage Software, Inc. and a privately-held company.
Mr. Schuster has served as a director of the Company since September 1995.
Since December 1995, he has been a Venture Partner of Brentwood Associates. From
July 1986 to July 1995, he was at Sybase, a database software company, where he
served most recently as Executive Vice President of Marketing. Mr. Schuster
received a Bachelor of Science degree in Applied Mathematics and Computer
Science from Washington University in 1967, a Master of Science degree in
Mathematics from the University of Illinois in 1969 and a Ph.D. in Computer
Science from the University of Illinois in 1973. He currently serves as a
director of several privately-held companies.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
During 1998, the Board met eight times, including telephone conference
meetings. No director attended fewer than 75% of the aggregate of the total
number of meetings of the Board (held during the period for which he was a
director) and the total number of meetings held by all committees of the Board
on which such director served (during the period that such director served).
Standing committees of the Board include an Audit Committee, Compensation
Committee and a Nominating Committee.
The current members of the Audit Committee are Messrs. Berkley and Coxe.
The Audit Committee met four times during 1998. The Audit Committee meets with
the Company's independent auditors to review the adequacy of the Company's
internal control systems and financial reporting procedures; reviews the general
scope of the Company's annual audit and the fees charged by the independent
auditors; reviews and monitors the performance of non-audit services by the
Company's auditors, reviews the fairness of any proposed transaction between any
officer, director or other affiliate of the Company and the Company, and after
such review, makes recommendations to the full Board; and performs such further
functions as may be required by any stock exchange or over-the-counter market
upon which the Company's Common Stock may be listed.
The current members of the Compensation Committee are Messrs. Coxe and
Schuster. The Compensation Committee met four times during 1998. The
Compensation Committee recommends compensation for officers and employees of the
Company, grants options and stock awards under the Company's employee benefit
plans and reviews and recommends adoption of and amendments to stock option and
employee benefit plans.
The current members of the Nominating Committee are Messrs. Berkley and
Coxe. The Nominating Committee did not meet separately from the Board in 1998.
The Nominating Committee will consider stockholder recommendations for director
sent to the Nominating Committee, c/o Stephanie A. Vinella, at the Company's
executive offices.
DIRECTOR COMPENSATION
The Company pays each outside director $1,000 for each Board meeting
attended and $500 for each committee meeting attended and reimburses outside
directors for their reasonable expenses in attending Board meetings. Members of
the Board who are not employees, consultants or independent contractors of the
Company, or any parent, subsidiary or affiliate of the Company, are eligible to
participate in the Company's 1996 Directors Stock Option Plan. For a discussion
of the provisions of the 1996 Directors Stock Option Plan, see "Proposal No.
4 -- Amendment of 1996 Directors Stock Option Plan."
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The Company entered into a Consulting Agreement with DRH Strategic
Consulting Inc. dated January 15, 1998 pursuant to which Donald R. Hollis, a
director of the Company and the President of DRH Strategic Consulting Inc., will
perform consulting services for the Company for up to ten days per year at a
retainer of $50,000 per year, plus expenses. The daily fee for any additional
days during a year is $5,000 plus expenses.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE NOMINATED DIRECTORS.
PROPOSAL NO. 2
AMENDMENT OF 1996 EQUITY INCENTIVE PLAN
Stockholders are being asked to approve an amendment to the Company's 1996
Equity Incentive Plan (the "Incentive Plan") to increase the number of shares of
Common Stock reserved for issuance thereunder by 850,000 shares, from 3,525,000
shares to 4,375,000 shares.
The Board believes that the increase in the number of shares reserved for
issuance under the Incentive Plan is in the best interests of the Company
because of the continuing need to provide stock options to attract and retain
quality employees and remain competitive in the industry. The granting of equity
incentives under the Incentive Plan plays an important role in the Company's
efforts to attract and retain employees of outstanding ability. Competition for
skilled engineers and other key employees in the software industry is intense
and the use of significant stock options for retention and motivation of such
personnel is pervasive in the high technology industries. The Board believes
that the additional reserve of shares with respect to which equity incentives
may be granted will provide the Company with adequate flexibility to ensure that
the Company can continue to meet those goals and facilitate the Company's
expansion of its employee base.
The Board approved the proposed amendment on January 20, 1999, to be
effective upon stockholder approval. Below is a summary of the principal
provisions of the Incentive Plan, assuming stockholder approval of the
amendment. The summary is not necessarily complete, and reference is made to the
full text of the Incentive Plan.
INCENTIVE PLAN HISTORY
The Incentive Plan, covering 1,000,000 shares of Common Stock, was adopted
by the Board in February 1996 and approved by the stockholders in March 1996.
Amendments to the Incentive Plan to increase the number of shares reserved for
issuance under the Incentive Plan to 2,300,000 shares and later to 3,525,000
shares were adopted by the Board in December 1996 and April 1998, respectively,
and approved by the stockholders in May 1997 and May 1998, respectively. The
purpose of the Incentive Plan is to offer eligible persons an opportunity to
participate in the Company's future performance through awards of stock options,
restricted stock and stock bonuses.
From inception of the Incentive Plan in May 1996 to December 31, 1998,
options to purchase an aggregate of 4,081,034 shares of the Company's Common
Stock were granted under the Incentive Plan. Of these, options were granted to
the Named Executive Officers, as follows: Jeffrey M. Crowe, 150,000 shares;
Alvin S. Begun, 70,000 shares; Stephanie A. Vinella, 70,000 shares; Patricia A.
Tomlinson, 70,000 shares; and Joseph G. Brown, 100,000 shares. During the same
period, the Company's executive officers as of December 31, 1998 as a group (9
persons) had been granted options to purchase a total of 807,000 shares and the
current directors or nominees for election as a director who are not executive
officers as a group (5 persons) had been granted no options. No options were
granted during the period under the Incentive Plan to any associate of any
executive officer or director of the Company, and no other person received 5% or
more of such options. In July 1998, the Board approved the repricing of all
outstanding stock options except for those granted to the Company's officers or
Board members. Under the option repricing program, employees could exchange an
option eligible for repricing for a new option having an exercise price of
$8.625, the then current fair market value of the Company's Common Stock. Each
repriced option vests on the same schedule as the option it replaced. Repriced
options generally cannot be exercised until July 24, 1999. Options to purchase
1,096,393 shares of Common Stock were exchanged under this option repricing
program.
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SHARES SUBJECT TO THE INCENTIVE PLAN
The stock subject to issuance under the Incentive Plan consists of shares
of the Company's authorized but unissued Common Stock. The Board has reserved an
aggregate of 4,375,000 shares of Common Stock for issuance under the Incentive
Plan. In addition, any shares remaining unissued under the Company's 1990 Stock
Option Plan (the "Prior Plan") on the effective date of the Incentive Plan,
including any shares issuable upon exercise of options granted pursuant to the
Prior Plan that expire or become unexercisable for any reason without having
been exercised in full, are no longer available for distribution under the Prior
Plan but are available for distribution under the Incentive Plan. Shares subject
to an option granted pursuant to the Incentive Plan that expires or terminates
for any reason without being exercised or shares subject to an award granted
pursuant to the Incentive Plan that are forfeited or are repurchased by the
Company at the original issue price or are subject to an award granted pursuant
to the Incentive Plan that otherwise terminates without shares being issued,
will again become available for grant and issuance pursuant to awards under the
Incentive Plan. This number of shares is subject to proportional adjustment to
reflect stock splits, stock dividends and other similar events.
ELIGIBILITY
Employees, officers, directors, consultants, independent contractors and
advisors of the Company (and of any subsidiaries and affiliates) are eligible to
receive awards under the Incentive Plan (the "Participants"). No Participant is
eligible to receive more than 500,000 shares of Common Stock in any calendar
year under the Incentive Plan, other than new employees of the Company
(including directors and officers who are also new employees) who are eligible
to receive up to a maximum of 800,000 shares of Common Stock in the calendar
year in which they commence their employment with the Company. As of December
31, 1998, approximately 482 persons were eligible to participate in the
Incentive Plan, 14,811 shares had been issued upon exercise of options,
2,492,608 shares were subject to outstanding options and 6,775 shares had been
issued pursuant to stock bonus awards. As of that date, 2,471,213 shares were
available for future grant pursuant to the Incentive Plan, after taking into
account the proposed amendment to the Incentive Plan and the shares originally
reserved for issuance under the Prior Plan that have become available for
distribution under the Incentive Plan. The closing price of the Company's Common
Stock on the Nasdaq National Market was $5.8125 per share on March 26, 1999, the
last trading day before the Record Date.
ADMINISTRATION
The Incentive Plan is administered by the Compensation Committee (the
"Committee"), the members of which are appointed by the Board. The Committee
currently consists of Tench Coxe and Stewart A. Schuster, both of whom are
"non-employee directors," as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and "outside
directors," as defined pursuant to Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code").
Subject to the terms of the Incentive Plan, the Committee determines the
persons who are to receive awards, the number of shares subject to each award
and the terms and conditions of awards. The Committee also has the authority to
construe and interpret any of the provisions of the Incentive Plan or any awards
granted thereunder.
STOCK OPTIONS
The Incentive Plan permits the granting of options that are intended to
qualify either as Incentive Stock Options ("ISOs") or Nonqualified Stock Options
("NQSOs"). ISOs may be granted only to employees (including officers and
directors who are also employees) of the Company or any parent or subsidiary of
the Company. The option exercise price for each ISO share must be no less than
100% of the "fair market value" (as defined in the Incentive Plan) of a share of
Common Stock at the time of grant. The per share exercise price of an ISO
granted to a 10% stockholder must be no less than 110% of the fair market value
of a share of Common Stock at the time of grant. The option exercise price for
each NQSO share must be no less than 85% of the fair market value of a share of
Common Stock at the time of grant. The Company has not granted
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options under the Incentive Plan at less than fair market value and does not
intend to do so in the foreseeable future. All options granted under the
Incentive Plan before April 1, 1998 have a term of up to ten years. After April
1, 1998, all options granted under the Incentive Plan have a term of up to eight
years.
The exercise price of options granted under the Incentive Plan may be paid
as approved by the Committee at the time of grant: (1) in cash (by check); (2)
by cancellation of indebtedness of the Company to the Participant; (3) by
surrender of shares of the Company's Common Stock owned by the Participant for
at least six months and having a fair market value on the date of surrender
equal to the aggregate exercise price of the option; (4) by tender of a full
recourse promissory note; (5) by waiver of compensation due to or accrued by the
Participant for services rendered; (6) by a "same-day sale" commitment from the
Participant and a National Association of Securities Dealers, Inc. ("NASD")
broker; (7) by a "margin" commitment from the Participant and an NASD broker; or
(8) by any combination of the foregoing.
RESTRICTED STOCK AWARDS
The Committee may grant Participants restricted stock awards to purchase
stock either in addition to, or in tandem with, other awards under the Incentive
Plan, under such terms, conditions and restrictions as the Committee may
determine. The purchase price for such awards must be no less than 85% of the
fair market value of the Company's Common Stock on the date of the award (and in
the case of an award granted to a 10% stockholder, the purchase price shall be
100% of fair market value) and can be paid for in any of the forms of
consideration listed in items (1) through (5) in "Stock Options" above, as are
approved by the Committee at the time of grant. The Company has not granted any
restricted stock awards under the Incentive Plan. In no event will the Company
grant restricted stock awards totaling more than 25% of the shares of Common
Stock reserved for issuance under the Incentive Plan.
STOCK BONUS AWARDS
The Committee may grant Participants stock bonus awards either in addition
to, or in tandem with, other awards under the Incentive Plan, under such terms,
conditions and restrictions as the Committee may determine. During 1998, 1,030
shares were issued pursuant to stock bonus awards. In no event will the Company
grant stock bonus awards totaling more than 10% of the shares of Common Stock
reserved for issuance under the Incentive Plan.
MERGERS, CONSOLIDATIONS, CHANGE OF CONTROL
In the event of a merger, consolidation, dissolution or liquidation of the
Company, the sale of substantially all of the assets of the Company or any other
similar corporate transaction, the successor corporation may assume, replace or
substitute equivalent awards in exchange for those granted under the Incentive
Plan or provide substantially similar consideration, shares or other property as
was provided to stockholders of the Company (after taking into account
provisions of the awards). In the event that the successor corporation does not
assume or substitute awards, such awards will expire upon the closing of such
transaction at the time and upon the conditions as the Board determines.
AMENDMENT OF THE INCENTIVE PLAN
The Board may at any time terminate or amend the Incentive Plan, including
amending any form of award agreement or instrument to be executed pursuant to
the Incentive Plan. However, the Board may not amend the Incentive Plan in any
manner that requires stockholder approval pursuant to the Code or the
regulations promulgated thereunder.
TERM OF THE INCENTIVE PLAN
Unless terminated earlier as provided in the Incentive Plan, the Incentive
Plan will expire in February 2006, ten years after the date the Board adopted
the Incentive Plan.
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FEDERAL INCOME TAX INFORMATION
The following is a general summary as of the date of this Proxy Statement
of the federal income tax consequences to the Company and Participants under the
Incentive Plan. Federal tax laws may change and the federal, state and local tax
consequences for any Participant will depend upon his or her individual
circumstances. Each Participant has been and is encouraged to seek the advice of
a qualified tax advisor regarding the tax consequences of participation in the
Incentive Plan.
Incentive Stock Options. A Participant will recognize no income upon grant
of an ISO and incur no tax on its exercise (unless the Participant is subject to
the alternative minimum tax ("AMT") as described below). If the Participant
holds shares acquired upon exercise of an ISO (the "ISO Shares") for more than
one year after the date the option was exercised and for more than two years
after the date the option was granted, the Participant generally will realize
capital gain or loss (rather than ordinary income or loss) upon disposition of
the ISO Shares. This gain or loss will be equal to the difference between the
amount realized upon such disposition and the amount paid for the ISO Shares.
If the Participant disposes of ISO Shares prior to the expiration of either
required holding period (a "disqualifying disposition"), the gain realized upon
such disposition, up to the difference between the fair market value of the ISO
Shares on the date of exercise (or, if less, the amount realized on a sale of
such shares) and the option exercise price, will be treated as ordinary income.
Any additional gain will be capital gain, taxed at a rate that depends upon the
amount of time the ISO Shares were held by the Participant.
Alternative Minimum Tax. The difference between the fair market value of
the ISO Shares on the date of exercise and the exercise price is an adjustment
to income for purposes of AMT. The AMT (imposed to the extent it exceeds the
taxpayer's regular tax) is 26% of an individual taxpayer's alternative minimum
taxable income (28% in the case of alternative minimum taxable income in excess
of $175,000). A maximum 20% AMT rate applies to the portion of alternative
minimum taxable income that would otherwise be taxable as net capital gain.
Alternative minimum taxable income is determined by adjusting regular taxable
income for certain items, increasing that income by certain tax preference items
(including the difference between the fair market value of the ISO Shares on the
date of exercise and the exercise price), and reducing this amount by the
applicable exemption amount ($45,000 in case of a joint return, subject to
reduction under certain circumstances). If a disqualifying disposition of the
ISO Shares occurs in the same calendar year as exercise of the ISO, there is no
AMT adjustment with respect to those ISO Shares. Also, upon a sale of ISO Shares
that is not a disqualifying disposition, alternative minimum taxable income is
reduced in the year of sale by the excess of the fair market value of the ISO
Shares at exercise over the amount paid for the ISO Shares.
Nonqualified Stock Options. A Participant will not recognize any taxable
income at the time an NQSO is granted. However, upon exercise of an NQSO, the
Participant must include in income as compensation an amount equal to the
difference between the fair market value of the shares on the date of exercise
and the Participant's exercise price. The included amount must be treated as
ordinary income by the Participant and may be subject to withholding by the
Company (either by payment in cash or withholding out of the Participant's
salary). Upon resale of the shares by the Participant, any subsequent
appreciation or depreciation in the value of the shares will be treated as
capital gain or loss.
Restricted Stock and Stock Bonus Awards. Restricted stock and stock bonus
awards will generally be subject to tax at the time of receipt, unless there are
restrictions that enable the Participant to defer tax. At the time the tax is
incurred, the tax treatment will be similar to that discussed above for NQSOs.
Maximum Tax Rates. The maximum tax rate applicable to ordinary income is
39.6%. Long-term capital gain is taxed at a maximum rate of 20%. To receive
long-term capital gain treatment, the stock must be held for more than one year.
Capital gains may be offset by capital losses and up to $3,000 of capital losses
may be offset annually against ordinary income.
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Tax Treatment of the Company. The Company generally will be entitled to a
deduction in connection with the exercise of an NQSO by a Participant or the
receipt of restricted stock or stock bonuses by a Participant to the extent that
the Participant recognizes ordinary income, provided that the Company timely
reports such income to the Internal Revenue Service. The Company will be
entitled to a deduction in connection with the disposition of ISO Shares only to
the extent that the Participant recognizes ordinary income on a disqualifying
disposition of the ISO Shares.
ERISA. The Incentive Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") and is not qualified
under Section 401(a) of the Code.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT OF THE 1996 EQUITY INCENTIVE PLAN
PROPOSAL NO. 3
AMENDMENT OF 1996 EMPLOYEE STOCK PURCHASE PLAN
Stockholders are being asked to approve an amendment to the Company's 1996
Employee Stock Purchase Plan (the "Stock Purchase Plan") to increase the number
of shares of Common Stock reserved for issuance thereunder by 750,000 shares,
from 900,000 shares to 1,650,000 shares and to provide for an automatic increase
each year in the pool of shares reserved for issuance thereunder equal to 2% of
the total shares outstanding at the end of the Company's fiscal year provided
that such annual increase will in no event exceed 1,650,000 shares per year. The
Board believes that the increase in the number of shares reserved for issuance
under the Stock Purchase Plan is in the best interests of the Company because of
the continuing need to provide equity participation to attract and retain
quality employees and remain competitive in the industry. The Stock Purchase
Plan plays an important role in the Company's efforts to attract and retain
employees of outstanding ability.
The Board approved the proposed amendment on January 20, 1999, to be
effective upon stockholder approval. Below is a summary of the principal
provisions of the Stock Purchase Plan, assuming stockholder approval of the
amendment. The summary is not necessarily complete, and reference is made to the
full text of the Stock Purchase Plan.
STOCK PURCHASE PLAN HISTORY
The Stock Purchase Plan, covering 300,000 shares of Common Stock, was
adopted by the Board in February 1996 and approved by the stockholders in March
1996. Amendments to the Stock Purchase Plan to increase the number of shares
reserved for issuance under the Stock Purchase Plan to 600,000 shares and later
to 900,000 shares were adopted by the Board in March 1997 and April 1998,
respectively, and approved by the stockholders in May 1997 and May 1998,
respectively. The purpose of the Stock Purchase Plan is to provide employees of
the Company and its subsidiaries and affiliates designated by the Board as
eligible to participate in the Stock Purchase Plan ("Participating Employees")
with a convenient means to acquire an equity interest in the Company through
payroll deductions and to provide an incentive for continued employment. The
Company intends that the Stock Purchase Plan will qualify as an "employee stock
purchase plan" under Section 423 of the Code.
SHARES SUBJECT TO THE STOCK PURCHASE PLAN
The stock subject to issuance under the Stock Purchase Plan consists of
shares of the Company's authorized but unissued Common Stock. The Board has
reserved an aggregate of 1,650,000 shares of Common Stock for issuance under the
Stock Purchase Plan subject to automatic annual increases equal to 2% of the
total shares outstanding at the end of the Company's fiscal year. This number of
shares is subject to proportional adjustment to reflect stock splits, stock
dividends and other similar events.
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ADMINISTRATION
The Stock Purchase Plan is administered by the Committee. The
interpretation or construction by the Committee of any provisions of the Stock
Purchase Plan will be final and binding on all Participating Employees.
ELIGIBILITY
All employees of the Company, or any parent or subsidiary, are eligible to
participate in an Offering Period (as defined below) under the Stock Purchase
Plan, except the following: (a) employees who are not employed by the Company
five days before the beginning of such Offering Period; (b) employees who are
customarily employed for less than 20 hours per week; (c) employees who are
customarily employed for less than five months in a calendar year; and (d)
employees who own stock or hold options to purchase stock or who, as a result of
participation in the Stock Purchase Plan, would own stock or hold options to
purchase stock, possessing 5% or more of the total combined voting power or
value of all classes of stock of the Company.
As of December 31, 1998, approximately 442 persons were eligible to
participate in the Stock Purchase Plan. At that date, 426,240 shares had been
issued pursuant to the Stock Purchase Plan and 473,760 shares were available for
future issuance under the Stock Purchase Plan, not including the proposed
amendment to the Stock Purchase Plan. The closing price of the Company's Common
Stock on the Nasdaq National Market was $5.8125 per share on March 26, 1999, the
last trading day before the Record Date.
Participating Employees participate in the Stock Purchase Plan through
payroll deductions. A Participating Employee sets the rate of such payroll
deductions, which may not be less than 2% nor more than 10% of the Participating
Employee's W-2 compensation, including, but not limited to, base salary, wages,
commissions, overtime, shift premiums, bonuses and draws against commissions,
before any deductions from the Participating Employee's salary pursuant to
Sections 125 or 401(k) of the Code. No Participating Employee is permitted to
purchase shares under the Stock Purchase Plan at a rate which, when aggregated
with such employee's rights to purchase stock under all similar purchase plans
of the Company, exceeds $25,000 in fair market value determined as of the
Offering Date for each calendar year.
OFFERING PERIODS
Each offering of Common Stock under the Stock Purchase Plan is for a period
of 24 months (the "Offering Period"). Offering Periods are planned to commence
approximately February 1 and August 1 of each year and end approximately January
31 and July 31 of each year, respectively. Each Offering Period consists of four
six-month purchase periods (individually, a "Purchase Period") during which
payroll deductions of the Participating Employees are accumulated under the
Stock Purchase Plan. The Board has the power to set the beginning of any
Offering Period and to change the dates or the duration of Offering Periods or
Purchase Periods without stockholder approval if such change is announced at
least 15 days before the scheduled beginning of the first Offering Period or
Purchase Period to be affected. The first day of each Offering Period is the
"Offering Date" for such Offering Period and the last business day of each
Purchase Period is the "Purchase Date" for such Purchase Period.
Participating Employees may elect to participate in any Offering Period by
enrolling as provided under the terms of the Stock Purchase Plan. Once enrolled,
a Participating Employee will automatically participate in each succeeding
Offering Period unless the Participating Employee withdraws from the Offering
Period or the Stock Purchase Plan is terminated. After the rate of payroll
deductions for an Offering Period is set by a Participating Employee, that rate
is effective for the remainder of the Offering Period (and for all subsequent
Offering Periods in which the Participating Employee is automatically enrolled)
unless otherwise changed by the Participating Employee. The Participating
Employee may increase or lower the rate of payroll deductions for any subsequent
Offering Period, but may only lower the rate of payroll deductions for an
ongoing Offering Period. No more than one change may be made during a single
Offering Period.
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PURCHASE PRICE
The purchase price of shares that may be acquired in any Purchase Period
under the Stock Purchase Plan is 85% of the lesser of: (i) the fair market value
of the shares on the Offering Date; or (ii) the fair market value of the shares
on the Purchase Date. The fair market value of a share of the Company's Common
Stock is deemed to be the closing price of the Company's Common Stock on the
Nasdaq National Market on the date of determination as reported by Nasdaq.
PURCHASE OF STOCK UNDER THE STOCK PURCHASE PLAN
The number of whole shares a Participating Employee will be able to
purchase in any Purchase Period will be determined by dividing the total payroll
amount withheld from the Participating Employee during the Purchase Period
pursuant to the Stock Purchase Plan by the purchase price for each share
determined as described above. The purchase will take place automatically on the
Purchase Date of such Purchase Period.
WITHDRAWAL
A Participating Employee may withdraw from any Offering Period. Upon
withdrawal, the accumulated payroll deductions will be returned to the withdrawn
Participating Employee, without interest, provided that the withdrawal occurs at
least 15 days before the related Purchase Date. If the withdrawal occurs less
than 15 days before such Purchase Date, payroll deductions will continue for the
remainder of that Purchase Period. No further payroll deductions for the
purchase of shares will be made for the succeeding Offering Period unless the
Participating Employee enrolls in the new Offering Period at least 15 days
before the Offering Date.
AMENDMENT OF THE STOCK PURCHASE PLAN
The Board may at any time amend, terminate or extend the term of the Stock
Purchase Plan, except that any such termination cannot affect the terms of
shares previously granted under the Stock Purchase Plan, nor may any amendment
make any change in the terms of shares previously granted which would adversely
affect the right of any participant, nor may any amendment be made without
stockholder approval if such amendment would: (a) increase the number of shares
that may be issued under the Stock Purchase Plan; or (b) change the designation
of the employees (or class of employees) eligible for participation in the Stock
Purchase Plan.
TERM OF THE STOCK PURCHASE PLAN
The Stock Purchase Plan will continue until the earlier to occur of: (a)
termination of the Stock Purchase Plan by the Board; (b) the issuance of all the
shares of Common Stock reserved for issuance under the Stock Purchase Plan; or
(c) February 2006, ten years after the date the Board adopted the Stock Purchase
Plan.
FEDERAL INCOME TAX INFORMATION
The following is a general summary as of the date of this Proxy Statement
of the federal income tax consequences to the Company and employees
participating in the Stock Purchase Plan. Federal tax laws may change and the
federal, state and local tax consequences for any Participating Employee will
depend upon his or her individual circumstances. Each Participating Employee has
been and is encouraged to seek the advice of a qualified tax adviser regarding
the tax consequences of participation in the Stock Purchase Plan.
The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code.
Tax Treatment of the Participating Employee. Participating Employees will
not recognize income for federal income tax purposes either upon enrollment in
the Stock Purchase Plan or upon the purchase of shares. All tax consequences are
deferred until a Participating Employee sells the shares, disposes of the shares
by gift or dies.
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If shares are held for more than one year after the date of purchase and
more than two years from the beginning of the applicable Offering Period, or if
the Participating Employee dies while owning the shares, the Participating
Employee realizes ordinary income on a sale (or a disposition by way of gift or
upon death) to the extent of the lesser of: (a) 15% of the fair market value of
the shares at the beginning of the Offering Period; or (b) the actual gain (the
amount by which the market value of the shares on the date of sale, gift or
death exceeds the purchase price). All additional gain upon the sale of shares
is treated as capital gain. If the shares are sold and the sale price is less
than the purchase price, there is no ordinary income and the Participating
Employee has a capital loss for the difference between the sale price and the
purchase price.
If the shares are sold or are otherwise disposed of including by way of
gift (but not death, bequest or inheritance) (in any case, a "disqualifying
disposition") within either the one-year or the two-year holding periods
described above, the Participating Employee realizes ordinary income at the time
of sale or other disposition, taxable to the extent that the fair market value
of the shares at the date of purchase is greater than the purchase price. This
excess will constitute ordinary income (not currently subject to withholding) in
the year of the sale or other disposition even if no gain is realized on the
sale or if a gratuitous transfer is made. The difference, if any, between the
proceeds of sale and the aggregate fair market value of the shares at the date
of purchase is a capital gain or loss. The maximum tax rate applicable to
ordinary income is 39.6%. Long-term capital gain is taxed at a maximum rate of
20%. To receive long-term capital gain treatment, the stock must be held for
more than one year. Capital gains may be offset by capital losses and up to
$3,000 of capital losses may be offset annually against ordinary income.
Tax Treatment of the Company. The Company will be entitled to a deduction
in connection with the disposition of shares acquired under the Stock Purchase
Plan only to the extent that the Participating Employee recognizes ordinary
income on a disqualifying disposition of the shares. The Company will treat any
transfer of record ownership of shares as a disposition, unless it is notified
to the contrary. In order to enable the Company to learn of disqualifying
dispositions and ascertain the amount of the deductions to which it is entitled,
Participating Employees are required to notify the Company in writing of the
date and terms of any disposition of shares purchased under the Stock Purchase
Plan.
ERISA. The Stock Purchase Plan is not subject to any of the provisions of
ERISA nor is it qualified under Section 401(a) of the Code.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT OF THE 1996 EMPLOYEE STOCK
PURCHASE PLAN
PROPOSAL NO. 4
AMENDMENT OF 1996 DIRECTORS STOCK OPTION PLAN
Stockholders are being asked to approve an amendment to the Company's 1996
Directors Stock Option Plan (the "Directors Plan") to increase the number of
shares of Common Stock reserved for issuance thereunder by 50,000 shares, from
175,000 shares to 225,000 shares. The Board believes that the increase in the
number of shares reserved for issuance under the Directors Plan is in the best
interests of the Company because of the continuing need to provide equity
participation to attract and retain quality outside directors. The Directors
Plan plays an important role in the Company's efforts to attract and retain
outside directors of outstanding ability.
The Board approved the proposed amendment on January 20, 1999, to be
effective upon stockholder approval. Below is a summary of the principal
provisions of the Directors Plan, assuming stockholder approval of the
amendment. The summary is not necessarily complete, and reference is made to the
full text of the Directors Plan.
DIRECTORS PLAN HISTORY
The Directors Plan was adopted by the Board in February 1996 and approved
by the stockholders in March 1996. An amendment to the Directors Plan to
increase the number of shares reserved for issuance
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under the Directors Plan to 175,000 shares was adopted by the Board in April
1998 and approved by the stockholders in May 1998. The purpose of the Directors
Plan is to enhance the Company's ability through the use of equity incentives to
attract and retain highly qualified outside directors.
STOCK SUBJECT TO OPTIONS
The stock subject to options under the Directors Plan consists of shares of
the Company's authorized but unissued Common Stock. The aggregate number of
shares that may be issued pursuant to the Directors Plan is 225,000 shares of
Common Stock, subject to proportional adjustment to reflect stock splits, stock
dividends and other similar events. In the event that any outstanding option
under the Directors Plan expires or is terminated for any reason, the shares of
Common Stock allocable to the unexercised portion of such option will again be
available for the grant of options under the Directors Plan.
ADMINISTRATION
The Directors Plan is administered by the Board. The interpretation by the
Board of any of the provisions of the Directors Plan or any option granted under
the Directors Plan will be final and conclusive.
ELIGIBILITY
Under the Directors Plan, the Company automatically grants options to each
director of the Company who is not an employee of the Company (or of any parent,
subsidiary or affiliate of the Company) (the "Outside Directors") in accordance
with the formula specified in the next paragraph. As of December 31, 1998, five
persons were eligible to receive options pursuant to the Directors Plan, no
shares had been issued upon exercise of options and the Company's current
non-employee directors, as a group, had been granted options to purchase an
aggregate of 120,000 shares under the Directors Plan. The closing price of the
Company's Common Stock on the Nasdaq National Market was $5.8125 per share on
March 26, 1999, the last trading day before the Record Date.
FORMULA FOR OPTION GRANTS
Each Outside Director will automatically be granted an option to purchase
15,000 shares of Common Stock on the date the Outside Director first becomes a
member of the Board (an "Initial Grant"). At each annual meeting of stockholders
thereafter, each Outside Director will automatically be granted an option to
purchase 7,500 shares of Common Stock, so long as he or she continuously remains
a director of the Company (a "Succeeding Grant").
TERMS OF OPTION GRANTS
Options granted pursuant to the Directors Plan are intended to be NQSOs.
Each Initial Grant and Succeeding Grant will have a term of ten years and be
exercisable in full immediately upon grant, subject to repurchase of unvested
shares. The shares subject to such option vest at the rate of 2.08% per month,
so long as the Outside Director continuously remains a director of the Company.
The option exercise price will be the "fair market value" (as defined in the
Directors Plan) of the Common Stock as of the date of the grant. The option
exercise price will be payable in cash (by check) and in a number of other forms
of consideration, including fully paid shares of Common Stock owned by the
Outside Director for more than six months, by waiver of compensation due or
accrued to the Outside Director for services rendered, through a "same day
sale," through a "margin commitment," or through any combination of the
foregoing.
MERGERS, CONSOLIDATIONS, CHANGE OF CONTROL
In the event of a merger, consolidation, dissolution or liquidation of the
Company, the sale of substantially all of the assets of the Company or any other
similar corporate transaction, the successor corporation may assume, replace or
substitute equivalent options in exchange for those granted under the Directors
Plan or provide substantially similar consideration, shares or other property as
was provided to stockholders of the Company (after taking into account
provisions of the options). In the event that the
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successor corporation does not assume or substitute the options, such options
will expire upon the closing of such transaction at the time and upon the
conditions as the Board determines.
AMENDMENT OF THE DIRECTORS PLAN
The Committee, to the extent permitted by law, and with respect to any
shares at the time not subject to options, may terminate or amend the Directors
Plan; provided, however, that the Committee may not, without stockholder
approval, increase the total number of shares of Common Stock available for
issuance under the Directors Plan or change the class of persons eligible to
receive options. In any case, no amendment of the Directors Plan may adversely
affect any then outstanding options or any unexercised portions thereof without
the written consent of the optionee.
TERM OF THE DIRECTORS PLAN
Unless terminated earlier as provided in the Directors Plan, options may be
granted pursuant to the Directors Plan from time to time up until February 2006,
ten years after the date the Board adopted the Directors Plan.
FEDERAL INCOME TAX INFORMATION
For the federal tax implications to the Outside Directors and the Company
for options granted under the Directors Plan, see the discussion of the tax
implications of NQSOs in "Proposal No. 2 -- Amendment of 1996 Equity Incentive
Plan -- Federal Income Tax Information" above.
ERISA
The Directors Plan is not subject to any of the provisions of ERISA nor is
it qualified under Section 401(a) of the Code.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT OF THE 1996 DIRECTORS STOCK OPTION
PLAN
NEW PLAN BENEFITS
The amounts of future option grants under the Incentive Plan are not
determinable because, under the terms of the Incentive Plan, such grants are
made in the discretion of the Committee. Future option exercise prices are not
determinable because they are based upon fair market value of the Company's
Common Stock on the date of grant. Similarly, the amounts of future stock
purchases under the Stock Purchase Plan are not determinable because, under the
terms of the Stock Purchase Plan, purchases are based upon elections made by
Participating Employees. Future purchase prices are not determinable because
they are based upon fair market value of the Company's Common Stock.
Only Outside Directors of the Company are eligible to participate in the
Directors Plan. The grant of options under the Directors Plan is not
discretionary. Under the Directors Plan, each outside director will
automatically be granted an option to purchase 7,500 shares of the Company's
Common Stock on the date of the Meeting. Any outside director who first joins
the Board before the next annual meeting will automatically be granted an option
to purchase 15,000 shares of the Company's Common Stock on the date of his or
her first appointment to the Board. The exercise prices of these options are not
determinable because they are equal to fair market value of the Company's Common
Stock on the date of grant.
PROPOSAL NO. 5
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Company has selected KPMG LLP as its independent auditors to perform
the audit of the Company's financial statements for 1999 and the stockholders
are being asked to ratify such selection. KPMG LLP has been the Company's
independent auditor since the inception of the Company. Representatives of
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KPMG LLP will be present at the Meeting, will have the opportunity to make a
statement at the Meeting if they desire to do so, and will be available to
respond to appropriate questions.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION OF KPMG LLP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 29, 1999,
with respect to the beneficial ownership of the Company's Common Stock by: (i)
each stockholder known by the Company to be the beneficial owner of more than 5%
of the Company's Common Stock; (ii) each director and nominee; (iii) each Named
Executive Officer; and (iv) all directors and executive officers as a group.
AMOUNT AND NATURE OF PERCENT OF OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) COMMON STOCK(1)
------------------------ ----------------------- ----------------------
Massachusetts Financial Services
Company(2)................................. 2,166,259 12.3%
Funds affiliated with The Goldman Sachs
Group, L.P.(3)............................. 1,161,855 6.6
Capital Research and Management Company(4)... 1,074,300 6.1
Entities and individuals affiliated with
Glynn Capital Management(5)................ 901,083 5.1
Jeffrey M. Crowe(6).......................... 714,761 4.0
Alvin S. Begun(7)............................ 175,296 1.0
Stephanie A. Vinella(8)...................... 165,023 *
Tench Coxe(9)................................ 151,230 *
Stephen M. Berkley(10)....................... 61,173 *
Patricia A. Tomlinson(11).................... 45,233 *
Stewart A. Schuster(12)...................... 34,299 *
Donald R. Hollis(13)......................... 9,186 *
Kelly D. Conway(14).......................... 8,499 *
Joseph G. Brown(15).......................... 7,472 *
All executive officers and directors as a
group (14 persons)(16)..................... 1,817,106 9.9
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* Less than 1%
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Common Stock subject to options that are currently exercisable or
exercisable within 60 days of March 29, 1999 are deemed to be outstanding
and to be beneficially owned by the person holding such options for the
purpose of computing the percentage ownership of such person but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Based on a Schedule 13G filed with the Commission on February 11, 1999. As
of December 31, 1998, Massachusetts Financial Services Company held sole
dispositive power with respect to all of these shares and sole voting power
with respect to 2,060,159 of these shares. The address of Massachusetts
Financial Services Company is 500 Boylston Street, Boston, Massachusetts
02116.
(3) Based on a Schedule 13D Amendment filed with the Commission on October 27,
1998. As of October 23, 1998, each of Goldman, Sachs & Co. and The Goldman
Sachs Group, L.P. had shared voting and dispositive power with respect to
all of these shares and GS Capital Partners II, L.P. and GS Advisors, L.P.
had shared voting and dispositive power with respect to 604,190 of these
shares; GS Capital Partners II Offshore, L.P. and GS Advisors II (Cayman),
L.P. had shared voting and dispositive power with respect to 240,190 of
these shares; Goldman, Sachs & Co. oHG and GS Capital Partners II (Germany)
Civil Law Partnership had shared voting and dispositive power with respect
to 22,286 of these shares; and certain other limited partnerships had
shared voting and dispositive power
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with respect to 96,297 of these shares. The general partner, managing
general partner or general manager of each fund is an affiliate of The
Goldman Sachs Group, L.P. ("GS Group"). Also includes 134,604 shares held
in client accounts over which Goldman, Sachs & Co. or its employees have
voting and/or investment discretion ("Managed Accounts") and 64,288 shares
acquired in ordinary course trading activities by Goldman, Sachs & Co. The
address of GS Group is 85 Broad Street, New York, New York 10004. GS Group
disclaims beneficial ownership of the shares beneficially owned by the
funds to the extent attributable to partnership interests therein held by
persons other than GS Group and its affiliates and to the shares
beneficially owned by the Managed Accounts.
(4) Based on a Schedule 13G Amendment filed with the Commission on February 11,
1999. As of December 31, 1998, Capital Research and Management Company held
dispositive power with respect to these shares and SMALLCAP World Fund,
Inc. held voting power with respect 1,055,000 of these shares. Capital
Research and Management Company, an investment advisor to SMALLCAP World
Fund, Inc. and other non-reporting entities, disclaims beneficial ownership
of these shares. The address of Capital Research and Management Company and
SMALLCAP World Fund, Inc. is 333 South Hope Street, Los Angeles, California
90071.
(5) Based on a Schedule 13G Amendment filed with the Commission on March 3,
1999 by a group consisting of 14 entities and seven individuals. Includes
40,800 shares as to which Crown Associates III, L.P. and Crown Partners
III, L.P, its general partner, share voting and dispositive power. Also
includes 20,100 shares as to which Crown-Glynn Associates, L.P. and
Crown-Glynn Partners, L.P., its general partner, share voting and
dispositive power. These entities also share voting and dispositive power
with Crown-Glynn Advisors, Ltd., the investment advisor to Crown Associates
III, L.P. and Crown-Glynn Associates, L.P. Also includes 225,600 shares as
to which The Crown Trust and Crown Capital Management, Ltd. share voting
and dispositive power. Crown Capital Management, Ltd. is the investment
advisor to The Crown Trust. All of the foregoing entities also share voting
and dispositive power with David F. Bellet, Chester A. Suida, Jeffrey S.
Hamren and Margaret S. McNamara. Also includes 533,935 shares as to which
Glynn Capital Management shares voting and dispositive power with the
following entities for which it is investment advisor, with respect to the
following shares: Glynn Emerging Opportunity Fund, 93,900 shares; Glynn
Buckley Investments, L.P., 47,000 shares; McMorgan Fund II, L.P., 89,400
shares; and Glynn Investment, L.P., 34,545 shares. Also includes 10,900
shares beneficially owned by Glynn Peterson and 44,444 shares beneficially
owned by Glynn Ventures III, L.P. All of the foregoing entities also share
voting and dispositive power with John W. Glynn, Jr., Daryl Messinger and
Steven Rosston, each of whom also has sole voting and dispositive power
with respect to 52,129 shares, 4,000 shares and 8,928 shares, respectively.
Also includes 15,591 shares with respect to which Chester A. Siuda has sole
voting and dispositive power. The address of Glynn Capital Management,
Glynn Buckley Investments, L.P., McMorgan Fund II, L.P., Glynn Emerging
Opportunity Fund, Glynn Investment, L.P., Glynn Peterson, Glynn Ventures,
III, L.P., John W. Glynn, Jr., Steven Rosston and Daryl Messinger is 3000
Sand Hill Road, Building 4, Suite 235, Menlo Park, California 94025. The
address of Crown Capital Management Ltd., Crown Associates III, L.P., Crown
Partners III, L.P., Crown-Glynn Associates, L.P., Crown-Glynn Partners,
L.P., Crown-Glynn Advisors Ltd., The Crown Trust, Chester A. Siuda,
Margaret S. McNamara and Jeffrey S. Hamren is 67 East Park Place, 8th
Floor, Morristown, New Jersey 07960. The address of David F. Bellet is 60
East 42nd Street, Suite 3405, New York, New York 10165.
(6) Includes 271,870 shares of Common Stock subject to options exercisable
within 60 days of March 29, 1999. Mr. Crowe is the President, Chief
Executive Officer and a director of the Company.
(7) Includes 93,435 shares of Common Stock subject to options exercisable
within 60 days of March 29, 1999. Mr. Begun is Vice President of Edify
Services.
(8) Includes 100 shares held of record by members of Ms. Vinella's immediate
family and 48,936 shares of Common Stock subject to options exercisable
within 60 days of March 29, 1999. Ms. Vinella is the Vice President of
Finance and Administration, Chief Financial Officer and Secretary of the
Company.
(9) Includes 83,659 shares held of record by Sutter Hill Ventures, a California
limited partnership, over which Mr. Coxe shares voting and investment power
with four other partners of the general partner.
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20
Mr. Coxe disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest therein. Also includes 11,173 shares of
Common Stock subject to options exercisable within 60 days of March 29,
1999. Mr. Coxe is a director of the Company.
(10) Includes 11,173 shares of Common Stock subject to options exercisable
within 60 days of March 29, 1999. Mr. Berkley is a director of the Company.
(11) Includes 39,162 shares of Common Stock subject to options exercisable
within 60 days of March 29, 1999. Ms. Tomlinson is the Vice President of
Human Resources of the Company.
(12) Includes 10,000 shares held of record by the Schuster Revocable Trust and
9,299 shares of Common Stock subject to options exercisable within 60 days
of March 29, 1999. Mr. Schuster is a director of the Company.
(13) Includes 7,186 shares of Common Stock subject to options exercisable within
60 days of March 29, 1999. Mr. Hollis is a director of the Company.
(14) Includes 4,999 shares of Common Stock subject to options exercisable within
60 days of March 29, 1999. Mr. Conway is a director of the Company.
(15) Represents 7,472 shares of Common Stock subject to options exercisable
within 60 days of March 29, 1999. Mr. Brown is the Vice President of
Worldwide Sales of the Company.
(16) Includes 633,030 shares of Common Stock subject to options exercisable
within 60 days of March 26, 1999, including the options described in
footnotes (6) through (15).
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21
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded, earned or paid for
services rendered in all capacities to the Company and its subsidiaries during
each of 1996, 1997 and 1998 to the Company's Chief Executive Officer and the
Company's four other most highly compensated executive officers who were serving
as executive officers at the end of 1998 (together, the "Named Executive
Officers"). This information includes the dollar values of base salaries, bonus
awards, the number of shares subject to stock options granted and certain other
compensation, if any, whether paid or deferred. The Company does not grant stock
appreciation rights and has no long-term compensation benefits other than stock
options.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) OPTIONS
--------------------------- ---- -------- -------- --------------- ------------
Jeffrey M. Crowe........................ 1998 $280,000 $61,250 $ -- --
President and Chief Executive Officer 1997 240,009 91,920 -- 75,000
1996 158,683 45,200 -- --
Alvin S. Begun.......................... 1998 171,882 84,460(3) -- --
Vice President of Edify Services 1997 150,006 78,795(3) -- 35,000
1996 140,000 73,802(3) -- --
Stephanie A. Vinella.................... 1998 175,000 40,775 -- --
Vice President of Finance and 1997 150,006 36,713 6,042 35,000
Administration and Chief Financial
Officer 1996 127,917 21,047 -- --
Patricia A. Tomlinson................... 1998 174,700 40,775 -- --
Vice President of Human Resources 1997 132,005 31,713 -- --
1996 86,648 13,060 -- --
Joseph G. Brown(4)...................... 1998 133,338 77,463(3) -- 100,000
Vice President of Worldwide Sales 1997 -- -- -- --
1996 -- -- -- --
- ---------------
(1) Bonus is paid based on a percentage of salary provided that certain
objectives are met. The percentage of salary and objectives to be met are
established by management and approved by the Compensation Committee of the
Board and are reviewed every six months.
(2) Represents payment for unused vacation time.
(3) Represents commissions.
(4) Joined the Company in May 1998.
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22
The following table sets forth further information regarding option grants
pursuant to the Incentive Plan during 1998 to each of the Named Executive
Officers. In accordance with the rules of the Commission, the table sets forth
the hypothetical gains or "option spreads" that would exist for the options at
the end of their respective ten-year terms. These gains are based on assumed
rates of annual compound stock price appreciation of 5% and 10% from the date
the option was granted to the end of the option term.
OPTION GRANTS IN 1998
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENTAGE OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO TERM(2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED(1) 1998 PER SHARE DATE 5% 10%
---- ---------- ------------- -------------- ---------- --------- -----------
Jeffrey M. Crowe............. 75,000 2.8% $ 9.00 6/4/06 $322,282 $ 771,922
Alvin S. Begun............... 35,000 1.3 9.00 6/4/06 150,398 360,230
Stephanie A. Vinella......... 35,000 1.3 9.00 6/4/06 150,398 360,230
Patricia A. Tomlinson........ 35,000 1.3 9.00 6/4/06 150,398 360,230
Joseph G. Brown.............. 100,000 3.8% 10.88 5/1/06 519,233 1,243,653
- ---------------
(1) The options shown in the table were granted at fair market value, are
incentive stock options (to the extent permitted under the Code) and will
expire eight years from the date of grant, subject to earlier termination
upon termination of the optionee's employment. The options, other than an
initial grant, become exercisable over a four-year period, with 2.083% of
the shares vesting for each full month that the optionee renders services to
the Company. An initial option grant becomes exercisable over a four year
period, with 25% of the shares vesting after one year of service and 2.083%
of the shares vesting for each full month thereafter that the optionee
renders services to the Company. Of the options granted to named executive
officers in 1998, only Joseph G. Brown's option to purchase 100,000 shares
is an initial grant. After December 31, 1998, the Company granted options to
purchase 40,000 shares, 20,000 shares, 15,000 shares and 20,000 shares to
Jeffrey M. Crowe, Alvin S. Begun, Patricia A. Tomlinson and Joseph G. Brown,
respectively, at a price of $8.375 per share.
(2) The 5% and 10% assumed annual compound rates of stock price appreciation are
mandated by the rules of the Commission and do not represent the Company's
estimate or projection of future Common Stock prices.
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The following table sets forth certain information concerning the exercise
of options by each of the Named Executive Officers during 1998, including the
aggregate amount of gains on the date of exercise. In addition, the table
includes the number of shares covered by both exercisable and unexercisable
stock options as of December 31, 1998. Also reported are values of
"in-the-money" options that represent the positive spread between the respective
exercise prices of outstanding stock options and $8.3125 per share, which was
the closing price of the Company's Common Stock as reported on the Nasdaq
National Market on December 31, 1998, the last day of trading for 1998.
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT YEAR-END YEAR-END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Jeffrey M. Crowe........... -- -- 242,500 137,500 $1,433,563 $132,813
Alvin S. Begun............. -- -- 84,166 60,834 530,828 66,359
Stephanie A. Vinella....... 30,538 285,714 45,500 62,500 148,750 53,125
Patricia A. Tomlinson...... -- -- 34,999 65,001 24,062 15,313
Joseph G. Brown............ -- -- -- 100,000 -- --
- ---------------
(1) "Value Realized" represents the fair market value of the shares of Common
Stock underlying the option on the date of exercise less the aggregate
exercise price of the option.
(2) These values, unlike the amounts set forth in the column entitled "Value
Realized," have not been, and may never be, realized and are based on the
positive spread between the respective exercise prices of outstanding
options and the closing price of the Company's Common Stock on December 31,
1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Coxe and Schuster. The
members of the Compensation Committee are independent outside directors. There
is no interlocking relationship between the Board or Compensation Committee and
the board of directors or compensation committee of any other company.
REPORT ON EXECUTIVE COMPENSATION
Final decisions regarding executive compensation and stock option grants to
executives are made by the Compensation Committee of the Board (the
"Committee"). The Committee is composed of two independent non-employee
directors, neither of whom have any interlocking relationships as defined by the
Commission.
GENERAL COMPENSATION POLICY
The Committee acts on behalf of the Board to establish the general
compensation policy of the Company for all employees of the Company. The
Committee typically reviews base salary levels and target bonuses for the Chief
Executive Officer ("CEO") and other executive officers and employees of the
Company at or about the beginning of each year. The Committee administers the
Company's incentive and equity plans, including the Incentive Plan and the Stock
Purchase Plan.
The Committee's philosophy in compensating executive officers, including
the CEO, is to relate compensation directly to corporate performance. Thus, the
Company's compensation policy, which applies to management and other key
employees of the Company, relates a portion of each individual's total
compensation to the Company-wide management and individual objectives and profit
objectives set forth at the beginning of the year. Consistent with this policy,
a designated portion of the compensation of the executive officers of the
Company is contingent on corporate performance and, in the case of certain
executive officers, adjusted based on the individual officer's performance as
measured against personal objectives, as determined by the Committee in its
discretion. Long-term equity incentives for executive officers are effected
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24
through the granting of stock options under the Incentive Plan. Stock options
generally have value for the executive only if the price of the Company's stock
increases above the fair market value on the grant date and the executive
remains in the Company's employ for the period required for the options to vest.
The base salaries, incentive compensation and stock option grants of the
executive officers are determined in part by the Committee informally reviewing
data on prevailing compensation practices in technology companies with whom the
Company competes for executive talent, and by their evaluating such information
in connection with the Company's corporate goals. To this end, the Committee
attempts to compare the compensation of the Company's executive officers with
the compensation practices of comparable companies to determine base salary,
target bonuses and target total cash compensation. In addition to their base
salaries, the Company's executive officers, including the CEO, are each eligible
to receive a cash bonus and to participate in the Incentive Plan.
In preparing the performance graph for this Proxy Statement, the Company
used the Hambrecht & Quist Computer Software Index ("H&Q Software Sector Index")
as its published line of business index. The compensation practices of most of
the companies in the H&Q Software Sector Index were not reviewed by the Company
when the Committee reviewed the compensation information described above because
such companies were determined not to be competitive with the Company for
executive talent.
1998 EXECUTIVE COMPENSATION
BASE COMPENSATION. The Committee reviewed the recommendations and
performance and market data outlined above and established a base salary level
to be effective January 1, 1999 for each executive officer, including the CEO.
INCENTIVE COMPENSATION. Cash bonuses are awarded only if an executive
officer achieved predetermined individual performance goals and the Company met
predetermined corporate objectives set by the Committee every six months. The
CEO's subjective judgment of executives' performance (other than his own) is
taken into account in determining whether those goals have been satisfied. For
the first six months of 1998, the objectives used by the Company as the basis
for incentive compensation were the Company's achievement of financial
performance targets and the executive's achievement of both corporate and
functional objectives. For the last six months of 1998, the objectives used by
the Company as the basis for incentive compensation were the same as those for
the first half of the year. The target amount of bonus and the actual amount of
bonus are determined by the Committee, in its discretion.
STOCK OPTIONS. Stock options are an essential element of the Company's
executive compensation package. The Committee believes that equity-based
compensation in the form of stock options links the interests of management and
stockholders by focusing employees and management on increasing stockholder
value. The actual value of such equity-based compensation depends entirely on
appreciation of the Company's stock. Approximately 100% of the Company's
full-time employees participate in the Incentive Plan.
In 1998, stock options were granted to each executive officer. Stock
options typically have been granted to executive officers when the executive
first joins the Company, in connection with a significant change in
responsibilities and, occasionally, to achieve equity within a peer group. The
Committee may, however, grant additional stock options to executives for other
reasons. The number of shares subject to each stock option granted is within the
discretion of the Committee and is based on anticipated future contribution and
ability to impact corporate and/or business unit results, past performance or
consistency within the executive's peer group. In 1998, the Committee considered
these factors, as well as the number of options held by such executive officers
that remained unvested. In the discretion of the Committee, executive officers
may also be granted stock options to provide greater incentives to continue
their employment with the Company and to strive to increase the value of the
Company's Common Stock. The stock options generally become exercisable over a
four-year period and are granted at a price that is equal to the fair market
value of the Company's Common Stock on the date of grant.
For 1999, the Committee will be considering whether to grant future options
under the Incentive Plan to executive officers based on the factors described
above, with particular attention to the Company-wide
21
25
management objectives and the executive officers' success in obtaining specific
individual financial and operational objectives established or to be established
for 1999 and to the number of options currently held by the executive officers
that remain unvested.
COMPANY PERFORMANCE AND CEO COMPENSATION. Mr. Crowe was responsible for the
Company achieving a significant portion of its objectives for 1998. These
objectives included satisfactorily managing the Company's overall corporate
business plan, such as meeting the Company's sales targets and significantly
strengthening the Company's market position. Based upon the criteria set forth
under the discussion of Incentive Compensation above, the Committee awarded Mr.
Crowe incentive compensation of $61,250. This figure represents 44% of the
target bonus for Mr. Crowe. Mr. Crowe was granted stock options in 1998 to
purchase 75,000 shares of Common Stock, after consideration of his prior
outstanding option grants and the number of options that remained unexercisable,
and the number of shares Mr. Crowe already owns. The Committee reviewed the
compensation practices of the comparable companies in determining Mr. Crowe's
compensation.
COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986. The
Company intends to comply with the requirements of Section 162(m) of the Code.
The Incentive Plan is already in compliance with Section 162(m) by limiting
stock awards to named executive officers. The Company does not expect cash
compensation for 1998 to be in excess of $1,000,000 or consequently affected by
the requirements of Section 162(m).
COMPENSATION COMMITTEE
TENCH COXE
STEWART A. SCHUSTER
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26
COMPANY STOCK PRICE PERFORMANCE
The stock price performance graph below is required by the Commission and
shall not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933, as amended, or under the Exchange Act, except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed soliciting material or filed under such Acts.
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company from May 2, 1996 (the effective date of the
Company's registration statement with respect to the Company's initial public
offering) to December 31, 1998 with the cumulative total return of the CRSP
Total Return Index for the Nasdaq Stock Market (U.S.) and the Hambrecht & Quist
Computer Software Index over the same period (assuming the investment of $100 in
the Common Stock of the Company and in each of the other indices on the date of
the Company's initial public offering, and reinvestment of all dividends).
The comparisons in the graph below are based on historical data and are not
intended to forecast the possible future performance of the Company's Common
Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG EDIFY CORPORATION, THE NASDAQ STOCK MARKET -- U.S. INDEX
AND THE H&Q SOFTWARE SECTOR INDEX
EDIFY CORPORATION NASDAQ STOCK MARKET-US H&Q SOFTWARE SECTOR
----------------- ---------------------- -------------------
5/2/96 100 100 100
6/28/96 177 101 100
9/30/96 135 104 103
12/31/96 107 110 102
3/31/97 73 104 94
6/30/97 98 123 111
9/30/97 96 143 133
12/31/97 125 134 124
3/31/98 135 157 161
6/30/98 68 162 167
9/30/98 45 146 139
12/31/98 55 189 162
* $100 INVESTED ON 5/2/96 IN STOCK OR INDEX,
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
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27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From January 1, 1998 to the present, there are no currently proposed
transactions in which the amount involved exceeds $60,000 to which the Company
or any of its subsidiaries was (or is to be) a party and in which any executive
officer, director, 5% beneficial owner of the Company's Common Stock or member
of the immediate family of any of the foregoing persons had (or will have) a
direct or indirect material interest, except for payments set forth under
"Proposal No. 1 -- Election of Directors -- Director Compensation" and
"Executive Compensation" above.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Company's 2000
Annual Meeting of Stockholders must be received by the Company at its principal
executive offices no later than December 15, 1999 in order to be included in the
Company's Proxy Statement and form of proxy relating to that meeting.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16 of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports of
changes in ownership with the Commission. Such persons are required by
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors of
the Company, the Company believes that all Section 16(a) filing requirements
were met during 1998, except that one Form 4, reporting an aggregate of two
exempt transactions, for Joseph G. Brown, the Company's Vice President of
Worldwide Sales, was filed late and one Form 4, reporting an aggregate of eight
transactions, for Jimmy Arthur Sutton, the Company's Vice President of
Engineering, was filed late.
OTHER BUSINESS
The Board does not intend to bring any other business before the Meeting,
and, so far as is known to the Board, no matters are to be brought before the
Meeting except as specified in the notice of the Meeting. As to any business
that may properly come before the Meeting, however, it is intended that proxies,
in the form enclosed, will be voted in respect thereof in accordance with the
judgment of the persons voting such proxies.
Dated: April 13, 1999 By Order of the Board of Directors
/s/ Stephanie A. Vinella
Stephanie A. Vinella
Vice President of Finance and
Administration,
Chief Financial Officer and Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
SO THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING.
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1518-PS-99
29
EDIFY CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
As Adopted on February 29, 1996
and Amended through May 26, 1999
1. ESTABLISHMENT OF PLAN. Edify Corporation (the "COMPANY") proposes to
grant options for purchase of the Company's Common Stock to eligible employees
of the Company and its Participating Subsidiaries (as hereinafter defined)
pursuant to this Employee Stock Purchase Plan (this "PLAN"). For purposes of
this Plan, "PARENT CORPORATION" and "SUBSIDIARY" shall have the same meanings as
"parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "CODE").
"PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries that the
Board of Directors of the Company (the "BOARD") designates from time to time as
corporations that shall participate in this Plan. The Company intends this Plan
to qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments to or replacements of such Section), and this Plan
shall be so construed. Any term not expressly defined in this Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein. A
total of 1,650,000 shares of the Company's Common Stock is reserved for issuance
under this Plan. In addition, on each January 1, the aggregate number of shares
of the Company's Common Stock reserved for issuance under the Plan shall be
increased automatically by a number of shares equal to two percent (2%) of the
total outstanding shares of the Company as of the immediately preceding December
31; provided that such increase shall in no event exceed 1,650,000 shares per
year. Such numbers shall be subject to adjustments effected in accordance with
Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide employees of the
Company and Participating Subsidiaries with a convenient means of acquiring an
equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. ADMINISTRATION. This Plan shall be administered by the Board or by a
committee of not less than two members of the Board appointed to administer this
Plan (the "COMMITTEE"). As used in this Plan, references to the "Committee"
shall mean either such committee or the Board if no committee has been
established. Subject to the provisions of this Plan and the limitations of
Section 423 of the Code or any successor provision in the Code, all questions of
interpretation or application of this Plan shall be determined by the Board and
its decisions shall be final and binding upon all participants. Members of the
Board shall receive no compensation for their services in connection with the
administration of this Plan, other than standard fees as established from time
to time by the Board for services rendered by Board members serving on Board
committees. All expenses incurred in connection with the administration of this
Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or Participating
Subsidiaries five days before the beginning of such Offering Period, except that
employees who are employed on the effective date of the registration statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "SECURITIES ACT") registering the
initial public offering of the Company's Common Stock is declared effective by
the SEC shall be eligible to participate in the first Offering Period under the
Plan;
(b) employees who are customarily employed for less than twenty (20)
hours per week;
(c) employees who are customarily employed for less than five (5)
months in a calendar year;
30
1996 Employee Stock Purchase Plan
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries or who, as a result of being granted an option
under this Plan with respect to such Offering Period, would own stock or hold
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries.
5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING
PERIOD") shall be of twenty-four (24) months duration commencing on February 1
and August 1 of each year and ending on July 31 and January 31 of each year;
provided, however, that notwithstanding the foregoing, the first such Offering
Period shall commence on the first business day on which price quotations for
the Company's Common Stock are available on the Nasdaq National Market (the
"FIRST OFFERING DATE") and shall end on January 31, 1998. Except for the first
Offering Period, each Offering Period shall consist of four (4) six-month
purchase periods (individually, a "PURCHASE PERIOD") during which payroll
deductions of the participants are accumulated under this Plan. The first
business day of each Offering Period is referred to as the "OFFERING DATE". The
last business day of each Purchase Period is referred to as the "PURCHASE DATE".
The Board shall have the power to change the duration of Offering Periods or
Purchase Periods with respect to offerings without stockholder approval if such
change is announced at least fifteen (15) days prior to the scheduled beginning
of the first Offering Period or Purchase Period to be affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company's treasury department (the "TREASURY DEPARTMENT") not
later than the 26th day of the month before such Offering Date unless a later
time for filing the subscription agreement authorizing payroll deductions is set
by the Board for all eligible employees with respect to a given Offering Period.
An eligible employee who does not deliver a subscription agreement to the
Treasury Department by such date after becoming eligible to participate in such
Offering Period shall not participate in that Offering Period or any subsequent
Offering Period unless such employee enrolls in this Plan by filing a
subscription agreement with the Treasury Department not later than the 26th day
of the month preceding a subsequent Offering Date. Once an employee becomes a
participant in an Offering Period, such employee will automatically participate
in the Offering Period commencing immediately following the last day of the
prior Offering Period unless the employee withdraws or is deemed to withdraw
from this Plan or terminates further participation in the Offering Period as set
forth in Section 11 below. Such participant is not required to file any
additional subscription agreement in order to continue participation in this
Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i)
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the Offering Date, or (ii) eighty-five percent (85%) of the fair
market value of a share of the Company's Common Stock on the Purchase Date,
provided, however, that the number of shares of the Company's Common Stock
subject to any option granted pursuant to this Plan shall not exceed the lesser
of (a) the maximum number of shares set by the Board pursuant to Section 10(c)
below with respect to the applicable Offering Period, or (b) the maximum number
of shares which may be purchased pursuant to Section 10(b) below with respect to
the applicable Offering Period. The fair market value of a share of the
Company's Common Stock shall be determined as provided in Section 8 hereof.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date;
For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of any
date, the value of a share of the Company's Common Stock determined as follows:
-2-
31
1996 Employee Stock Purchase Plan
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on
the date of determination as reported by Nasdaq on such
date;
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the
date of determination on the principal national securities
exchange on which the Common Stock is listed or admitted to
trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted
on the Nasdaq National Market nor listed or admitted to
trading on a national securities exchange, the average of
the closing bid and asked prices on the date of
determination as reported in The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Board in
good faith, which in the case of the First Offering Period
will be the price determined by the Pricing Committee of
the Board for the Common Stock to be sold to the Company's
underwriters.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular payroll
deductions made during each Offering Period. The deductions are made as a
percentage of the participant's compensation in one percent (1%) increments not
less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean all W-2 compensation,
including, but not limited to base salary, wages, commissions, overtime, shift
premiums and bonuses, plus draws against commissions; provided, however, that
for purposes of determining a participant's compensation, any election by such
participant to reduce his or her regular cash remuneration under Sections 125 or
401(k) of the Code shall be treated as if the participant did not make such
election. Payroll deductions shall commence on the first payday following the
Offering Date and shall continue to the end of the Offering Period unless sooner
altered or terminated as provided in this Plan.
(b) A participant may lower (but not increase) the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than fifteen (15)
days after the Treasury Department's receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one (1) change may be made
effective during any Offering Period. A participant may increase or decrease the
rate of payroll deductions for any subsequent Offering Period by filing with the
Treasury Department a new authorization for payroll deductions not later than
the 15th day of the month before the beginning of such Offering Period.
(c) All payroll deductions made for a participant are credited to his
or her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(d) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however, that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that this Plan has been oversub-
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32
1996 Employee Stock Purchase Plan
scribed, all funds not used to purchase shares on the Purchase Date shall be
returned to the participant, without interest. No Common Stock shall be
purchased on a Purchase Date on behalf of any employee whose participation in
this Plan has terminated prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the Company
shall arrange the delivery to each participant of a certificate representing the
shares purchased upon exercise of his option.
(f) During a participant's lifetime, such participant's option to
purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until such option has been exercised. Shares to be delivered to a participant
under this Plan will be registered in the name of the participant or in the name
of the participant and his or her spouse.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No employee shall be entitled to purchase stock under this Plan
at a rate which, when aggregated with his or her rights to purchase stock under
all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit,
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No employee shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Not less than
thirty (30) days prior to the commencement of any Offering Period, the Board
may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the "MAXIMUM
SHARE AMOUNT"). In no event shall the Maximum Share Amount exceed the amounts
permitted under Section 10(b) above. If a new Maximum Share Amount is set, then
all participants must be notified of such Maximum Share Amount not less than
fifteen (15) days prior to the commencement of the next Offering Period. Once
the Maximum Share Amount is set, it shall continue to apply with respect to all
succeeding Purchase Dates and Offering Periods unless revised by the Board as
set forth above.
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Board shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares to
be purchased under a participant's option to each participant affected thereby.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Treasury Department a written notice to
that effect on a form provided for such purpose. Such withdrawal may be elected
at any time at least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a date
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33
1996 Employee Stock Purchase Plan
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth above for initial participation in
this Plan.
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1996 Employee Stock Purchase Plan
(c) If the purchase price on the first day of any current Offering
Period in which a participant is enrolled is higher than the purchase price on
the first day of any subsequent Offering Period, the Company will automatically
enroll such participant in the subsequent Offering Period. A participant does
not need to file any forms with the Company to automatically be enrolled in the
subsequent Offering Period.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee, immediately terminates his or her participation in
this Plan. In such event, the payroll deductions credited to the participant's
account will be returned to him or her or, in the case of his or her death, to
his or her legal representative, without interest. For purposes of this Section
12, an employee will not be deemed to have terminated employment or failed to
remain in the continuous employ of the Company or of a Participating Subsidiary
in the case of sick leave, military leave, or any other leave of absence
approved by the Board; provided that such leave is for a period of not more than
ninety (90) days or reemployment upon the expiration of such leave is guaranteed
by contract or statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall promptly deliver to the participant all payroll deductions credited to
such participant's account. No interest shall accrue on the payroll deductions
of a participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "RESERVES"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that the options
under this Plan shall terminate as of a date fixed by the Board and give each
participant the right to exercise his or her option as to all of the optioned
stock, including shares which would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger or consolidation of the Company with or into another corporation,
each option under this Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the participant
shall have the right to exercise the option as to all of the optioned stock. If
the Board makes an option exercisable in lieu of assumption or substitution in
the event of a merger, consolidation or sale of assets, the Board shall notify
the participant that the option shall be fully exercisable for a period of
twenty (20) days from the date of such notice, and the option will terminate
upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, or
in the event of the Company being consolidated with or merged into any other
corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
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1996 Employee Stock Purchase Plan
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company if
the participant disposes of any of the shares purchased in any Offering Period
pursuant to this Plan if such disposition occurs within two (2) years from the
Offering Date or within one (1) year from the Purchase Date on which such shares
were purchased (the "NOTICE PERIOD"). Unless such participant is disposing of
any of such shares during the Notice Period, such participant shall keep the
certificates representing such shares in his or her name (and not in the name of
a nominee) during the Notice Period. The Company may, at any time during the
Notice Period, place a legend or legends on any certificate representing shares
acquired pursuant to this Plan requesting the Company's transfer agent to notify
the Company of any transfer of the shares. The obligation of the participant to
provide such notice shall continue notwithstanding the placement of any such
legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant
of any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company or the Board, be
reformed to comply with the requirements of Section 423. This Section 19 shall
take precedence over all other provisions in this Plan.
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board,
this Plan will become effective on the date that is the First Offering Date (as
defined above); provided, however, that if the First Offering Date does not
occur on or before December 31, 1996, this Plan will terminate having never
become effective. This Plan shall be approved by the stockholders of the
Company, in any manner permitted by applicable corporate law, within twelve (12)
months before or after the date this Plan is adopted by the Board. No purchase
of shares pursuant to this Plan shall occur prior to such stockholder approval.
This Plan shall continue until the earlier to occur of (a) termination of this
Plan by the Board (which termination may be effected by the Board at any time),
(b) issuance of all of the shares of Common Stock reserved for issuance under
this Plan, or (c) ten (10) years from the adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under this Plan in the event of such participant's death subsequent to the end
of an Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under this
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the
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36
1996 Employee Stock Purchase Plan
knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange or automated quotation system upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 hereof within twelve (12) months of the adoption of such amendment
(or earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this
Plan; or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
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37
EDIFY CORPORATION
1996 EQUITY INCENTIVE PLAN
As Adopted February 29, 1996
and Amended through May 26, 1999
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent,
Subsidiaries and Affiliates, by offering them an opportunity to participate in
the Company's future performance through awards of Options, Restricted Stock and
Stock Bonuses. Capitalized terms not defined in the text are defined in Section
23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and
18, the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 4,375,000 Shares. Subject to Sections 2.2 and 18,
Shares that: (a) are subject to issuance upon exercise of an Option but cease to
be subject to such Option for any reason other than exercise of such Option; (b)
are subject to an Award granted hereunder but are forfeited or are repurchased
by the Company at the original issue price; or (c) are subject to an Award that
otherwise terminates without Shares being issued will again be available for
grant and issuance in connection with future Awards under this Plan. Any
authorized shares not issued or subject to outstanding grants under the Edify
Corporation 1990 Stock Option Plan (the "PRIOR PLAN") on the Effective Date (as
defined below) and any shares that: (a) are issuable upon exercise of options
granted pursuant to the Prior Plan that expire or become unexercisable for any
reason without having been exercised in full; (b) are subject to an award
granted pursuant to the Prior Plan but are forfeited or are repurchased by the
Company at the original issue price; or (c) are subject to an award granted
pursuant to the Prior Plan that otherwise terminates without shares being issued
will no longer be available for grant and issuance under the Prior Plan, but
will be available for grant and issuance under this Plan. At all times the
Company shall reserve and keep available a sufficient number of Shares as shall
be required to satisfy the requirements of all outstanding Options granted under
this Plan and all other outstanding but unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the shareholders of the
Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent, Subsidiary or Affiliate of the
Company; provided such consultants, contractors and advisors render bona fide
services not in connection with the offer and sale of securities in a
capital-raising transaction. No person will be eligible to receive more than
500,000 Shares in any calendar year under this Plan pursuant to the grant of
Awards hereunder, other than new employees of the Company or of a Parent,
Subsidiary or Affiliate of the Company (including new employees who are also
officers and directors of the Company or any Parent, Subsidiary, or Affiliate of
the Company) who are eligible to receive up to a maximum of 800,000 Shares in
the calendar year in which they commence their employment. A person may be
granted more than one Award under this Plan.
38
1996 Equity Incentive Plan
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by
the Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and
any other agreement or document executed pursuant to this
Plan;
(b) prescribe, amend and rescind rules and regulations relating
to this Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or any other
incentive or compensation plan of the Company or any
Parent, Subsidiary or Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award
Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for
the administration of this Plan.
4.2 Committee Discretion. Any determination made by the
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company the
authority to grant an Award under this Plan to Participants who are not Insiders
of the Company.
5. OPTIONS. The Committee may grant Options to eligible persons and
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this
Plan will be evidenced by an Award Agreement which will expressly identify the
Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form
and contain such provisions (which need not be the same for each Participant) as
the Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be
the date on which the Committee makes the determination to grant such Option,
unless otherwise specified by the Committee. The Stock
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39
1996 Equity Incentive Plan
Option Agreement and a copy of this Plan will be delivered to the Participant
within a reasonable time after the granting of the Option.
5.3 Exercise Period. Options may be exercisable immediately
(subject to repurchase pursuant to Section 12 of this Plan) or may be
exercisable within the times or upon the events determined by the Committee as
set forth in the Stock Option Agreement governing such Option; provided,
however, that no Option will be exercisable after the expiration of ten (10)
years from the date the Option is granted; and provided further that no ISO
granted to a person who directly or by attribution owns more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any Parent or Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") will
be exercisable after the expiration of five (5) years from the date the ISO is
granted. The Committee also may provide for the exercise of Options to become
exercisable at one time or from time to time, periodically or otherwise, in such
number of Shares or percentage of Shares as the Committee determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Shareholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set
forth in the Stock Option Agreement, exercise of an Option will always be
subject to the following:
(a) If the Participant is Terminated for any reason except
death or Disability, then the Participant may exercise such
Participant's Options only to the extent that such Options
would have been exercisable upon the Termination Date no
later than three (3) months after the Termination Date (or
such shorter or longer time period not exceeding five (5)
years as may be determined by the Committee, with any
exercise beyond three (3) months after the Termination Date
deemed to be an NQSO), but in any event, no later than the
expiration date of the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three
(3) months after a Termination other than because of
Participant's death or disability), then Participant's
Options may be exercised only to the extent that such
Options would have been exercisable by Participant on the
Termination Date and must be exercised by Participant (or
Participant's legal representative or authorized assignee)
no later than twelve (12) months after the Termination Date
(or such shorter or longer time period not exceeding five
(5) years as may be determined by the Committee, with any
such exercise beyond (a) three (3) months after the
Termination Date when the Termination is for any reason
other than the Participant's death or Disability, or (b)
twelve (12) months after the Termination Date when the
Termination is for Participant's death or Disability,
deemed to be an NQSO), but in any event no later than the
expiration date of the Options.
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1996 Equity Incentive Plan
5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Affiliate, Parent or Subsidiary of the Company) will not exceed $100,000. If the
Fair Market Value of Shares on the date of grant with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year exceeds
$100,000, then the Options for the first $100,000 worth of Shares to become
exercisable in such calendar year will be ISOs and the Options for the amount in
excess of $100,000 that become exercisable in that calendar year will be NQSOs.
In the event that the Code or the regulations promulgated thereunder are amended
after the Effective Date of this Plan to provide for a different limit on the
Fair Market Value of Shares permitted to be subject to ISOs, such different
limit will be automatically incorporated herein and will apply to any Options
granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 No Disqualification. Notwithstanding any other
provision in this Plan, no term of this Plan relating to ISOs will be
interpreted, amended or altered, nor will any discretion or authority granted
under this Plan be exercised, so as to disqualify this Plan under Section 422 of
the Code or, without the consent of the Participant affected, to disqualify any
ISO under Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If such
person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer will terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold
pursuant to a Restricted Stock Award will be determined by the Committee and
will be at least 85% of the Fair Market Value of the Shares on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Shareholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8 of
this Plan.
6.3 Restrictions. Restricted Stock Awards will be subject
to such restrictions (if any) as the Committee may impose. The Committee may
provide for the lapse of such restrictions in installments and
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1996 Equity Incentive Plan
may accelerate or waive such restrictions, in whole or part, based on length of
service, performance or such other factors or criteria as the Committee may
determine.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of
Shares (which may consist of Restricted Stock) for services rendered to the
Company or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may
be awarded for past services already rendered to the Company, or any Parent,
Subsidiary or Affiliate of the Company pursuant to an Award Agreement (the
"STOCK BONUS AGREEMENT") that will be in such form (which need not be the same
for each Participant) as the Committee will from time to time approve, and will
comply with and be subject to the terms and conditions of this Plan. A Stock
Bonus may be awarded upon satisfaction of such performance goals as are set out
in advance in the Participant's individual Award Agreement (the "PERFORMANCE
STOCK BONUS AGREEMENT") that will be in such form (which need not be the same
for each Participant) as the Committee will from time to time approve, and will
comply with and be subject to the terms and conditions of this Plan. Stock
Bonuses may vary from Participant to Participant and between groups of
Participants, and may be based upon the achievement of the Company, Parent,
Subsidiary or Affiliate and/or individual performance factors or upon such other
criteria as the Committee may determine.
7.2 Terms of Stock Bonuses. The Committee will determine
the number of Shares to be awarded to the Participant and whether such Shares
will be Restricted Stock. If the Stock Bonus is being earned upon the
satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee will determine: (a) the nature, length and
starting date of any period during which performance is to be measured (the
"PERFORMANCE PERIOD") for each Stock Bonus; (b) the performance goals and
criteria to be used to measure the performance, if any; (c) the number of Shares
that may be awarded to the Participant; and (d) the extent to which such Stock
Bonuses have been earned. Performance Periods may overlap and Participants may
participate simultaneously with respect to Stock Bonuses that are subject to
different Performance Periods and different performance goals and other
criteria. The number of Shares may be fixed or may vary in accordance with such
performance goals and criteria as may be determined by the Committee. The
Committee may adjust the performance goals applicable to the Stock Bonuses to
take into account changes in law and accounting or tax rules and to make such
adjustments as the Committee deems necessary or appropriate to reflect the
impact of extraordinary or unusual items, events or circumstances to avoid
windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus
may be paid currently or on a deferred basis with such interest or dividend
equivalent, if any, as the Committee may determine. Payment may be made in the
form of cash, whole Shares, including Restricted Stock, or a combination
thereof, either in a lump sum payment or in installments, all as the Committee
will determine.
7.4 Termination During Performance Period. If a Participant
is Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Stock Bonus only to the extent earned as of the date of Termination in
accordance with the Performance Stock Bonus Agreement, unless the Committee will
determine otherwise.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to this
Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid
for within the meaning of SEC Rule 144 (and, if such shares
were purchased from the Company by use of a promissory
note, such note has been fully paid with respect to such
shares); or (2) were obtained by Participant in the public
market;
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1996 Equity Incentive Plan
(c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code; provided, however,
that Participants who are not employees or directors of the
Company will not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by
collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant
for services rendered;
(e) with respect only to purchases upon exercise of an Option,
and provided that a public market for the Company's stock
exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of
the National Association of Securities Dealers (an
"NASD DEALER") whereby the Participant irrevocably
elects to exercise the Option and to sell a portion
of the Shares so purchased to pay for the Exercise
Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the
Exercise Price directly to the Company; or
(2) through a "margin" commitment from the Participant
and a NASD Dealer whereby the Participant
irrevocably elects to exercise the Option and to
pledge the Shares so purchased to the NASD Dealer in
a margin account as security for a loan from the
NASD Dealer in the amount of the Exercise Price, and
whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the Exercise Price
directly to the Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant
pay for Shares purchased under this Plan by authorizing a guarantee by the
Company of a third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 Withholding Generally. Whenever Shares are to be issued
in satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee.
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 Voting and Dividends. No Participant will have any of
the rights of a shareholder with respect to any Shares until the Shares are
issued to the Participant. After Shares are issued to the Participant, the
Participant will be a shareholder and have all the rights of a shareholder with
respect to such Shares, including the right to vote and receive all dividends or
other distributions made or paid with respect to such Shares; provided, that if
such Shares are Restricted Stock, then any new, additional or different
securities the Participant may become entitled to receive with respect to such
Shares by virtue of a stock dividend, stock split or any other
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1996 Equity Incentive Plan
change in the corporate or capital structure of the Company will be subject to
the same restrictions as the Restricted Stock; provided, further, that the
Participant will have no right to retain such stock dividends or stock
distributions with respect to Shares that are repurchased at the Participant's
original Purchase Price pursuant to Section 12.
10.2 Financial Statements. The Company will provide
financial statements to each Participant prior to such Participant's purchase of
Shares under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any
interest therein, will not be transferable or assignable by Participant, and may
not be made subject to execution, attachment or similar process, otherwise than
by will or by the laws of descent and distribution or as consistent with the
specific Plan and Award Agreement provisions relating thereto. During the
lifetime of the Participant an Award will be exercisable only by the
Participant, and any elections with respect to an Award, may be made only by the
Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Shares held by a Participant which have
not vested in accordance with the schedule set forth in the Award Agreement
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time
or from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will
not be effective unless such Award is in compliance with all applicable federal
and state securities laws, rules and regulations of any governmental body, and
the requirements of any stock exchange or automated quotation system upon which
the Shares may then be listed or quoted, as they are in effect on the date of
grant of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have
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1996 Equity Incentive Plan
no obligation to issue or deliver certificates for Shares under this Plan prior
to: (a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit
in any way the right of the Company or any Parent, Subsidiary or Affiliate of
the Company to terminate Participant's employment or other relationship at any
time, with or without cause.
18. CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by Successor. In
the event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the shareholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the shareholders of the Company (other than any shareholder
which merges (or which owns or controls another corporation which merges) with
the Company in such merger) cease to own their shares or other equity interests
in the Company, (d) the sale of substantially all of the assets of the Company,
or (e) any other transaction which qualifies as a "corporate transaction" under
Section 424(a) of the Code wherein the shareholders of the Company give up all
of their equity interest in the Company (except for the acquisition, sale or
transfer of all or substantially all of the outstanding shares of the Company
from or by the shareholders of the Company), any or all outstanding Awards may
be assumed, converted or replaced by the successor corporation (if any), which
assumption, conversion or replacement will be binding on all Participants. In
the alternative, the successor corporation may substitute equivalent Awards or
provide substantially similar consideration to Participants as was provided to
shareholders (after taking into account the existing provisions of the Awards).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 18.1, such Awards will expire on such transaction at such time and on
such conditions as the Board will determine.
18.2 Other Treatment of Awards. Subject to any greater
rights granted to Participants under the foregoing provisions of this Section
18, in the event of the occurrence of any transaction described in Section 18.1,
any outstanding Awards will be treated as provided in the applicable agreement
or plan of merger, consolidation, dissolution, liquidation, sale of assets or
other "corporate transaction."
18.3 Assumption of Awards by the Company. The Company, from
time to time, also may substitute or assume outstanding awards granted by
another company, whether in connection with an acquisition of such other company
or otherwise, by either; (a) granting an Award under this Plan in substitution
of such other company's award; or (b) assuming such award as if it had been
granted under this Plan if the terms of such assumed award could be applied to
an Award granted under this Plan. Such substitution or assumption will be
permissible if the holder of the substituted or assumed award would have been
eligible to be granted an Award under this Plan if the other company had applied
the rules of this Plan to such grant. In the event the Company assumes an award
granted by another company, the terms and conditions of such award will remain
unchanged (except that the exercise price and the number and nature of Shares
issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code). In the event the Company elects to
grant a new Option rather than assuming an existing option, such new Option may
be granted with a similarly adjusted Exercise Price.
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1996 Equity Incentive Plan
19. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become
effective on the date on which the registration statement filed by the Company
with the SEC under the Securities Act registering the initial public offering of
the Company's Common Stock is declared effective by the SEC (the "EFFECTIVE
DATE"); provided, however, that if the Effective Date does not occur on or
before December 31, 1996, this Plan will terminate having never become
effective. This Plan shall be approved by the shareholders of the Company
(excluding Shares issued pursuant to this Plan), consistent with applicable
laws, within twelve (12) months before or after the date this Plan is adopted by
the Board. Upon the Effective Date, the Board may grant Awards pursuant to this
Plan; provided, however, that: (a) no Option may be exercised prior to initial
shareholder approval of this Plan; (b) no Option granted pursuant to an increase
in the number of Shares subject to this Plan approved by the Board will be
exercised prior to the time such increase has been approved by the shareholders
of the Company; and (c) in the event that shareholder approval of such increase
is not obtained within the time period provided herein, all Awards granted
hereunder will be canceled, any Shares issued pursuant to any Award will be
canceled, and any purchase of Shares hereunder will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as
provided herein, this Plan will terminate ten (10) years from the date this Plan
is adopted by the Board or, if earlier, the date of shareholder approval. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
of the shareholders of the Company, amend this Plan in any manner that requires
such shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan
by the Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will
have the following meanings:
"AFFILIATE" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
"AWARD" means any award under this Plan, including any
Option, Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the
signed written agreement between the Company and the Participant setting forth
the terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to
administer this Plan, or if no such committee is appointed, the Board.
"COMPANY" means Edify Corporation or any successor
corporation.
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1996 Equity Incentive Plan
"DISABILITY" means a disability, whether temporary or
permanent, partial or total, within the meaning of Section 22(e)(3) of the Code,
as determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"EXERCISE PRICE" means the price at which a holder of an
Option may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a
share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on
the date of determination as reported by Nasdaq on such
date;
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the
date of determination on the principal national securities
exchange on which the Common Stock is listed or admitted to
trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted
on the Nasdaq National Market nor listed or admitted to
trading on a national securities exchange, the average of
the closing bid and asked prices on the date of
determination as reported in The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Committee in
good faith.
"INSIDER" means an officer or director of the Company or
any other person whose transactions in the Company's Common Stock are subject to
Section 16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares
pursuant to Section 5.
"PARENT" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if at the time of the
granting of an Award under this Plan, each of such corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under
this Plan.
"PLAN" means this Edify Corporation 1996 Equity Incentive
Plan, as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant
to Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SHARES" means shares of the Company's Common Stock
reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and
18, and any successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 7.
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1996 Equity Incentive Plan
"SUBSIDIARY" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if, at the time
of granting of the Award, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this
Plan with respect to a Participant, that the Participant has for any reason
ceased to provide services as an employee, director, consultant, independent
contractor or advisor to the Company or a Parent, Subsidiary or Affiliate of the
Company, except in the case of sick leave, military leave, or any other leave of
absence approved by the Committee, provided that such leave is for a period of
not more than ninety (90) days, or reinstatement upon the expiration of such
leave is guaranteed by contract or statute. The Committee will have sole
discretion to determine whether a Participant has ceased to provide services and
the effective date on which the Participant ceased to provide services (the
"TERMINATION DATE").
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48
EDIFY CORPORATION
1996 DIRECTORS STOCK OPTION PLAN
As Adopted on February 29, 1996
and Amended through May 26, 1999
1. PURPOSE. This 1996 Directors Stock Option Plan (this "PLAN") is
established to provide equity incentives for nonemployee members of the Board of
Directors of Edify Corporation (the "COMPANY"), who are described in Section 6.1
below, by granting such persons options to purchase shares of stock of the
Company.
2. ADOPTION AND STOCKHOLDER APPROVAL. After this Plan is adopted by the
Board of Directors of the Company (the "BOARD"), this Plan will become effective
on the time and date (the "EFFECTIVE DATE") on which the registration statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), to register the
initial public offering of the Company's Common Stock is declared effective by
the SEC; provided, however, that if the Effective Date does not occur on or
before December 31, 1996, this Plan and any Options granted hereunder will
terminate. This Plan shall be approved by the stockholders of the Company,
consistent with applicable laws, within twelve (12) months after the date this
Plan is adopted by the Board. Options ("OPTIONS") may be granted under this Plan
after the Effective Date provided that, in the event that stockholder approval
is not obtained within the time period provided herein, this Plan, and all
Options granted hereunder, shall terminate. No Option that is issued as a result
of any increase in the number of shares authorized to be issued under this Plan
shall be exercised prior to the time such increase has been approved by the
stockholders of the Company and all such Options granted pursuant to such
increase shall similarly terminate if such stockholder approval is not obtained.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan shall be
nonqualified stock options ("NQSOS"). The shares of stock that may be purchased
upon exercise of Options granted under this Plan (the "SHARES") are shares of
the Common Stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan (the "MAXIMUM NUMBER") is 225,000
Shares, subject to adjustment as provided in this Plan. If any Option is
terminated for any reason without being exercised in whole or in part, the
Shares thereby released from such Option shall be available for purchase under
other Options subsequently granted under this Plan. At all times during the term
of this Plan, the Company shall reserve and keep available such number of Shares
as shall be required to satisfy the requirements of outstanding Options granted
under this Plan; provided, however that if the aggregate number of Shares
subject to outstanding Options granted under this Plan plus the aggregate number
of Shares previously issued by the Company pursuant to the exercise of Options
granted under this Plan equals or exceeds the Maximum Number of Shares, then
notwithstanding anything herein to the contrary, no further Options may be
granted under this Plan until the Maximum Number is increased or the aggregate
number of Shares subject to outstanding Options granted under this Plan plus the
aggregate number of Shares previously issued by the Company pursuant to the
exercise of Options granted under this Plan is less than the Maximum Number.
5. ADMINISTRATION. This Plan shall be administered by the Board or by a
committee of not less than two members of the Board appointed to administer this
Plan (the "COMMITTEE"). As used in this Plan, references to the Committee shall
mean either such Committee or the Board if no Committee has been established.
The interpretation by the Committee of any of the provisions of this Plan or any
Option granted under this Plan shall be final and binding upon the Company and
all persons having an interest in any Option or any Shares purchased pursuant to
an Option.
6. ELIGIBILITY AND AWARD FORMULA.
6.1 Eligibility. Options shall be granted only to directors of the
Company who are not employees of the Company or any Parent, Subsidiary or
Affiliate of the Company, as those terms are defined in Section 18 below (each
such person referred to as an "OPTIONEE").
49
1996 Directors Stock Option Plan
6.2 Initial Grant. Each Optionee who on or after the Effective Date
first becomes a member of the Board will automatically be granted an Option for
15,000 Shares (the "INITIAL GRANT") on the date such Optionee first becomes a
member of the Board.
6.3 Succeeding Grants. On the Effective Date and at each Annual
Meeting of the Company thereafter, if the Optionee is still a member of the
Board and has served continuously as a member of the Board since the date of the
Optionee's Initial Grant, or if the Optionee did not receive an Initial Grant,
the Optionee is a member of the Board on the Effective Date or has served
continuously as a member of the Board since the Effective Date, the Optionee
will automatically be granted an Option for 7,500 Shares (a "SUCCEEDING GRANT").
7. TERMS AND CONDITIONS OF OPTIONS. Subject to the following and to
Section 6 above:
7.1 Form of Option Grant. Each Option granted under this Plan shall
be evidenced by a written Stock Option Grant ("GRANT") in such form (which need
not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
7.2 Vesting. The date an Optionee receives an Initial Grant or a
Succeeding Grant is referred to in this Plan as the "START DATE" for such
Option.
(a) Initial Grants. Each Option that is an Initial Grant will
vest as to two and eight one-hundredths percent (2.08%) per month on the last
date of each month following the Initial Grant, so long as the Optionee
continuously remains a director or a consultant of the Company.
(b) Succeeding Grants. Each Succeeding Grant will vest as to
two and eight one-hundredths percent (2.08%) per month on the last date of each
month following the Succeeding Grant, so long as the Optionee continuously
remains a director or a consultant of the Company.
7.3 Exercise Price. The exercise price of an Option shall be the
Fair Market Value (as defined in Section 18.4) of the Shares, at the time that
the Option is granted.
7.4 Termination of Option. Except as provided below in this
Section, each Option shall expire ten (10) years after its Start Date (the
"EXPIRATION DATE"). The Option shall cease to vest and unvested Options shall
expire when the Optionee ceases to be a member of the Board or a consultant of
the Company. The date on which the Optionee ceases to be a member of the Board
or a consultant of the Company shall be referred to as the "TERMINATION DATE".
An Option may be exercised after the Termination Date only as set forth below:
(a) Termination Generally. If the Optionee ceases to be a
member of the Board or consultant of the Company for any reason except death or
disability, then each vested Option (as defined in Section 7.2 of this Plan)
then held by such Optionee may be exercised by the Optionee within seven (7)
months after the Termination Date, but in no event later than the Expiration
Date.
(b) Death or Disability. If the Optionee ceases to be a member
of the Board or consultant of the Company because of the death of the Optionee
or the disability of the Optionee within the meaning of Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended (the "CODE"), then each vested Option
(as defined in Section 7.2 of this Plan) then held by such Optionee may be
exercised by the Optionee (or the Optionee's legal representative) within twelve
(12) months after the Termination Date, but in no event later than the
Expiration Date.
8. EXERCISE OF OPTIONS.
8.1 Exercise Period. Subject to the provisions of Section 8.5 of
the Plan, Options shall be exercisable immediately (subject to repurchase
pursuant to Section 10 of the Plan).
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50
1996 Directors Stock Option Plan
8.2 Notice. Options may be exercised only by delivery to the
Company of an exercise agreement in a form approved by the Committee stating the
number of Shares being purchased, the restrictions imposed on the Shares and
such representations and agreements regarding the Optionee's investment intent
and access to information as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
8.3 Payment. Payment for the Shares purchased upon exercise of an
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by the Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
exercise price of the Option; (c) by waiver of compensation due or accrued to
the Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; or (f) by any combination of the foregoing.
8.4 Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable.
8.5 Limitations on Exercise. Notwithstanding the exercise periods
set forth in the Grant, exercise of an Option shall always be subject to the
following limitations:
(a) An Option shall not be exercisable until such time as this
Plan (or, in the case of Options granted pursuant to an amendment increasing the
number of shares that may be issued pursuant to this Plan, such amendment) has
been approved by the stockholders of the Company in accordance with Section 16
hereof.
(b) An Option shall not be exercisable unless such exercise is
in compliance with the Securities Act and all applicable state securities laws,
as they are in effect on the date of exercise.
(c) The Committee may specify a reasonable minimum number of
Shares that may be purchased upon any exercise of an Option, provided that such
minimum number will not prevent the Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or by the Optionee's
guardian or legal representative, unless otherwise permitted by the Committee.
No Option may be sold, pledged, assigned, hypothecated, transferred or disposed
of in any manner other than by will or by the laws of descent and distribution.
10. RESTRICTIONS ON SHARES. The Company shall reserve to itself and/or
its assignee(s) in the Grant a right to repurchase all unvested Shares held by
an Optionee if the Optionee ceases to be a member of the Board or a consultant
of the Company. The Company shall exercise such repurchase right within ninety
(90) days after the Optionee's Termination Date for cash at the Optionee's
original exercise price.
11. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
of exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial
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51
1996 Directors Stock Option Plan
statements of the Company, at such time after the close of each fiscal year of
the Company as they are released by the Company to its stockholders.
12. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such outstanding
Options shall be proportionately adjusted, subject to any required action by the
Board or stockholders of the Company and compliance with applicable securities
laws; provided, however, that no fractional shares shall be issued upon exercise
of any Option and any resulting fractions of a Share shall be rounded up to the
nearest whole Share.
13. NO OBLIGATION TO CONTINUE AS DIRECTOR. Nothing in this Plan or any
Option granted under this Plan shall confer on any Optionee any right to
continue as a director of the Company.
14. COMPLIANCE WITH LAWS. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the Securities Act, compliance with all other applicable state
securities laws and compliance with the requirements of any stock exchange or
national market system on which the Shares may be listed. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration or qualification requirement of any state securities laws,
stock exchange or national market system.
15. ASSUMPTION OR REPLACEMENT OF OPTIONS BY SUCCESSOR. In the event of
(a) a dissolution or liquidation of the Company, (b) a merger or consolidation
in which the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the stockholders of the Company or their relative stock
holdings and the Options granted under this Plan are assumed or replaced by the
successor corporation, which assumption will be binding on all Optionees), (c) a
merger in which the Company is the surviving corporation but after which the
stockholders of the Company (other than any stockholder which merges (or which
owns or controls another corporation which merges) with the Company in such
merger) cease to own their shares or other equity interests in the Company, (d)
the sale of substantially all of the assets of the Company, or (e) any other
transaction which qualifies as a "corporate transaction" under Section 424 of
the Code wherein the stockholders of the Company give up all of their equity
interests in the Company (except for the acquisition, sale or transfer of all or
substantially all of the outstanding shares of the Company from or by the
stockholders of the Company) any or all outstanding Options may be assumed,
converted or replaced by the successor corporation (if any), which assumption,
conversion or replacement will be binding on all Participants. In the
alternative, the successor corporation may substitute equivalent Options or
provide substantially similar consideration to Participants as was provided to
stockholders (after taking into account the existing provisions of the Options).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Options, as provided above, pursuant to a transaction described in this Section
15, such Options will expire on such transaction at such time and on such
conditions as the Committee will determine.
16. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan (but may not terminate or amend the terms of any
outstanding option without the consent of the Optionee); provided, however, that
the Committee shall not, without the approval of the stockholders of the
Company, increase the total number of Shares available under this Plan (except
by operation of the provisions of Sections 4 and 12 above) or change the class
of persons eligible to receive Options. In any case, no amendment of this Plan
may adversely affect any then outstanding Options or any unexercised portions
thereof without the written consent of the Optionee.
17. TERM OF PLAN. Options may be granted pursuant to this Plan from time
to time within a period of ten (10) years from the date this Plan is adopted by
the Board.
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52
1996 Directors Stock Option Plan
18. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
have the following meanings:
18.1 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
18.2 "SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
18.3 "AFFILIATE" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
18.4 "FAIR MARKET VALUE" means, as of any date, the value of a
share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on
the date of determination as reported by Nasdaq on such
date;
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the
date of determination on the principal national securities
exchange on which the Common Stock is listed or admitted to
trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted
on the Nasdaq National Market nor listed or admitted to
trading on a national securities exchange, the average of
the closing bid and asked prices on the date of
determination as reported in The Wall Street Journal; or
(d) in the case of an Initial Grant made on the Effective Date
or a Succeeding Grant made on the Effective Date, the price
determined by the Pricing Committee of the Board for the
Common Stock to be sold by the Company's underwriters; or
(e) if none of the foregoing is applicable, by the Committee in
good faith.
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53
PROXY
EDIFY CORPORATION
2840 San Tomas Expressway
Santa Clara, California 95051
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jeffrey M. Crowe and Stephanie A.
Vinella, and each of them, as proxies, each with full powers of substitution,
and hereby authorizes them to represent and to vote, as designated below, all
shares of Common Stock, $0.001 par value, of Edify Corporation (the "Company")
held of record by the undersigned on March 29, 1999, at the Annual Meeting of
Stockholders of the Company to be held on Wednesday, May 26, 1999, at 2:00 p.m.,
local time, and at any continuations or adjournments thereof.
This Proxy, when properly executed and returned in a timely manner, will
be voted at the Meeting and any adjournments or postponements thereof in the
manner described herein. If no contrary indication is made, the proxy will be
voted FOR the Board of Director nominees, FOR Proposals 2, 3, 4 and 5 and in
accordance with the judgment of the persons named as proxies herein on any other
matters that may properly come before the Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
- ------------------- -------------------
SEE RESERVE CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ------------------- -------------------
54
DETACH HERE
[X] Please mark
votes as in this
example.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE BOARD OF
DIRECTOR NOMINEES AND FOR PROPOSALS 2, 3, 4 AND 5.
1. Election of Directors.
NOMINEES: Jeffrey M. Crowe, Stephen M. Berkley, Kelly D. Conway,
Tench Coxe, Donald R. Hollis, Stewart A. Schuster
[ ] FOR all nominees [ ] WITHHOLD from all nominees.
MARK HERE [ ]
FOR ADDRESS
CHANGE AND
NOTE BELOW
[ ]
---------------------------------------------------------------
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON LINE ABOVE.
2. Proposal to approve an amendment to the Company's FOR AGAINST ABSTAIN
1996 Equity Incentive Plan to increase the number [ ] [ ] [ ]
of shares of Common Stock reserved for issuance
thereunder from 3,525,000 to 4,375,000 shares.
3. To approve an amendment to the Company's 1996 FOR AGAINST ABSTAIN
Employee Stock Purchase Plan to increase the [ ] [ ] [ ]
number of shares of Common Stock reserved for
issuance thereunder from 900,000 to 1,650,000
shares and to provide that the number of shares
of Common Stock reserved for issuance thereunder
will be automatically increased each January 1
by an amount equal to 2% of the total number of
shares outstanding on the immediately preceding
December 31.
4. To approve an amendment to the Company's 1996 FOR AGAINST ABSTAIN
Directors Stock Option Plan to increase the number [ ] [ ] [ ]
of shares of Common Stock reserved for issuance
thereunder from 175,000 to 225,000 shares.
5. Proposal to ratify the appointment of KPMG LLP FOR AGAINST ABSTAIN
as independent auditors for 1999. [ ] [ ] [ ]
In accordance with their judgment, the proxies are authorized to vote upon such
other matters as may properly come before the Annual Meeting or any adjournment
or postponement thereof.
This Proxy must be signed exactly as your name appears hereon. If more than one
name appears, all persons so designated should sign. Attorneys, executors,
administrators, trustees and guardians should indicate their capacities. If the
signer is a corporation, please print full corporate name and indicate capacity
of duly authorized officer executing on behalf of the corporation. If the signer
is a partnership, please print full partnership name and indicate capacity of
duly authorized person executing on behalf of the partnership.
Signature:____________Date:_____, 1999 Signature:____________Date:_____, 1999
2