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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] 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 Section 240.14a-11(c) or Section 240.14a-12
Genesys Telecommunications Laboratories, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
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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
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Notes:
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
April 28, 1999
TO THE SHAREHOLDERS OF GENESYS TELECOMMUNICATIONS LABORATORIES, INC.:
You are invited to attend the Annual Meeting of Shareholders ("Annual
Meeting") of Genesys Telecommunications Laboratories, Inc. (the "Company")
which will be held at the Ramada Plaza Hotel, located at 1231 Market Street,
San Francisco, California 94103 on Friday, May 21, 1999, at 10:00 a.m.
Details of the business to be conducted at the Annual Meeting are given in
the attached Notice of Annual Meeting and Proxy Statement.
If you do not plan to attend the Annual Meeting, please sign, date and
return the enclosed proxy promptly in the accompanying reply envelope. If you
decide to attend the Annual Meeting and wish to change your proxy vote, you
may do so automatically by voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
Ori Sasson
Chief Executive Officer
San Francisco, California
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are requested
to complete, sign, and date the enclosed proxy as promptly as possible and
return it in the enclosed envelope (to which no postage need be affixed if
mailed in the United States).
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
1155 Market Street
San Francisco, California 94103
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 1999
TO THE SHAREHOLDERS OF GENESYS TELECOMMUNICATIONS LABORATORIES, INC.:
You are invited to attend the Annual Meeting of Shareholders ("Annual
Meeting") of Genesys Telecommunications Laboratories, Inc. (the "Company"),
which will be held at the Ramada Plaza Hotel, located at 1231 Market Street,
San Francisco, California 94103, on Friday, May 21, 1999, at 10:00 a.m. for
the following purposes:
1. To elect five directors to the Board of Directors to serve until the
next Annual Meeting and until their successors have been elected and
qualified;
2. To ratify the selection of Arthur Andersen, LLP as the Company's
independent public accountants for the fiscal year ending June 30, 1999;
3. To approve an amendment to the Company's 1997 Stock Incentive Plan (the
"1997 Plan") to increase the number of shares of Common Stock authorized
for issuance under the 1997 Plan by 2,500,000 shares; and
4. To act upon such other matters as may properly come before the meeting
or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The record date for determining those
shareholders who will be entitled to notice of, and to vote at, the meeting
and at any adjournment thereof is March 24, 1999. The stock transfer books
will not be closed between the record date and the date of the meeting. A list
of shareholders entitled to vote at the Annual Meeting will be available for
inspection at the offices of the Company.
Whether or not you plan to attend the meeting, please complete, date, sign
and return the enclosed proxy promptly in the accompanying reply envelope.
Your proxy may be revoked at any time prior to the Annual Meeting. If you
decide to attend the Annual Meeting and wish to change your proxy vote, you
may do so automatically by voting in person at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Richard DeGolia
Vice President and Corporate
Secretary
San Francisco, California
April 28, 1999
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
These proxy materials are furnished in connection with the solicitation of
proxies by the Board of Directors of Genesys Telecommunications Laboratories,
Inc., a California corporation (the "Company"), for the Annual Meeting of the
Shareholders (the "Annual Meeting") to be held at 10:00 a.m. on Friday, May
21, 1999, at the Ramada Plaza Hotel, located at 1231 Market Street, San
Francisco, California 94103, and at any adjournment or postponement of the
Annual Meeting. These proxy materials were first mailed to shareholders on or
about April 28, 1999.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice of Annual Meeting of Shareholders.
Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION
Voting
The Company's Common Stock is the only type of security entitled to vote at
the Annual Meeting. On March 24, 1999, the record date for determination of
shareholders entitled to vote at the Annual Meeting, there were 23,964,003
shares of Common Stock outstanding. Each shareholder of record on March 24,
1999, is entitled to one vote for each share of Common Stock held by such
shareholder on March 24, 1999. A majority of the outstanding shares of Common
Stock must be present or represented at the Annual Meeting in order to have a
quorum. Abstentions and broker non-votes are counted as present for the
purpose of determining the presence of a quorum for the transaction of
business. In the election of directors, the five candidates receiving the
highest number of affirmative votes will be elected. As is more fully
described in Proposal 1, shareholders may cumulate votes with respect to the
election of directors. Proposals 2 and 3 require for approval the affirmative
vote of a majority of those shares present or represented and voting at the
Annual Meeting, provided such vote also constitutes the affirmative vote of a
majority of the required quorum. Thus, abstentions and broker non-votes can
have the effect of preventing approval of a proposal where the number of
affirmative votes, though a majority of the votes cast, does not constitute a
majority of the required quorum.
Proxies
Whether or not you are able to attend the Company's Annual Meeting, you are
urged to complete and return the enclosed proxy, which is solicited by the
Company's Board of Directors and which will be voted as you direct on your
proxy when properly completed. In the event no directions are specified, such
proxies will be voted FOR Proposal No. 1--Election of Directors, FOR Proposal
No. 2--Ratification of Independent Public Accountants, FOR Proposal No. 3--
Amendment to the 1997 Plan and, in the discretion of the proxy holders, as to
other matters that may properly come before the Annual Meeting. You may revoke
or change your proxy at any time before the Annual Meeting. To do this, send a
written notice of revocation or another signed proxy with a later date to the
Secretary of the Company at the Company's principal executive offices before
the beginning of the Annual Meeting. You may also revoke your proxy by
attending the Annual Meeting and voting in person.
Solicitation of Proxies
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the proxy
and any additional soliciting material furnished to shareholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs of
forwarding the solicitation material to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram or other means by directors, officers, employees, or
agents of the Company. No additional compensation will be paid to these
individuals for any such services. Except as described above, the Company does
not presently intend to solicit proxies other than by mail.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
General
The names of persons who are nominees for director and their positions and
offices with the Company are set forth in the table below. The proxy holders
intend to vote all proxies received by them in the accompanying form for the
nominees listed below unless otherwise instructed. In the event any nominee is
unable or declines to serve as a director at the time of the Annual Meeting,
the proxies will be voted for any nominee who may be designated by the present
Board of Directors to fill the vacancy. As of the date of this Proxy
Statement, the Board of Directors is not aware of any nominee who is unable or
will decline to serve as a director. The five (5) nominees receiving the
highest number of affirmative votes of the shares entitled to vote at the
Annual Meeting will be elected directors of the Company to serve until the
next Annual Meeting and until their successors have been elected and
qualified.
Nominees Age Positions and Offices Held with the Company
- -------- --- -------------------------------------------
Gregory Shenkman........ 37 Chairman of the Board of Directors
Alec Miloslavsky........ 35 Vice Chairman of the Board of Directors and Chief Technical Officer
Ori Sasson.............. 37 Chief Executive Officer and Director
Bruce Dunlevie.......... 42 Director
Paul Levy............... 43 Director
Business Experience of Directors
Mr. Shenkman co-founded the Company and has served as a director since
January 1993. Mr. Shenkman has served as the Chairman of the Board of
Directors since December 1998. Mr. Shenkman served as the Company's President
and Chief Executive Officer from its formation in October 1990 until July
1998.
Mr. Miloslavsky co-founded the Company and has served as its Chief Technical
Officer since the Company's formation in October 1990. He has also served as a
director since January 1993 and as Vice Chairman of the Board of Directors
since March 1997.
Mr. Sasson has served as the Company's Chief Executive Officer and a member
of the Board of Directors since December 1998. Prior to joining the Company,
Mr. Sasson served as the Chief Executive Officer and President of Scopus
Technology, Inc. ("Scopus"), a provider of customer relationship management
software systems, from March 1991 through July 1998, when Scopus was acquired
by Siebel Systems, Inc., a provider of customer relationship management
software systems.
Mr. Dunlevie has served as director of the Company since July 1996. Mr.
Dunlevie is a General Partner of Benchmark Capital LLC, a venture capital firm
founded by Mr. Dunlevie in May 1995. Mr. Dunlevie is also a General Partner of
Merrill, Pickard, Anderson & Eyre. Mr. Dunlevie has also served as Vice
President and
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General Manager of the Personal Computer Division of Everex Systems, Inc., a
personal computer manufacturer, and as an investment banker with Goldman,
Sachs & Co. He is also a director of Rambus, Inc.
Mr. Levy has served as director of the Company since February 1997. In 1981,
Mr. Levy co-founded and currently serves as Chairman of Rational Software
Corporation ("Rational"), a software company providing products that automate
component-based development of software. Prior to April 1999, Mr. Levy served
as Chief Executive Officer of Rational and prior to September 1996, he served
as President of Rational. Since August 1996, he has served as a director of
Peerless Systems Corporation, a provider of software-based imaging systems for
the digital document product marketplace.
Board Committees and Meetings
During the fiscal year ended June 30, 1998, the Board of Directors held five
meetings (and acted by unanimous written consent two times). During this
period, each of the directors attended or participated in more than 75% of the
aggregate of (i) the total number of meetings of the Board of Directors and
(ii) the total number of meetings held by all Committees of the Board on which
each such director served.
The Company has two standing Committees, the Audit Committee and the
Compensation Committee.
The Audit Committee is responsible for reviewing the scope and results of
audits and other services provided by the Company's independent public
accountants. This Committee held three meetings during the last fiscal year.
This Committee currently consists of Messrs. Dunlevie and Levy.
The Compensation Committee is responsible for reviewing the compensation
arrangements in effect for the Company's senior management and for
administering all the Company's employee benefit plans, including the 1997
Plan and the Employee Stock Purchase Plan. This Committee held four meetings
during the last fiscal year. This Committee currently consists of Messrs.
Dunlevie and Levy.
Director Compensation
Except for grants of stock options, directors of the Company generally do
not receive compensation for services rendered as directors. In addition, the
Company does not pay cash compensation for committee participation or special
assignments of the Board of Directors. Non-employee Board members receive
option grants at periodic intervals under the Automatic Option Grant Program
of the 1997 Plan and are also eligible to receive discretionary option grants
under the Discretionary Option Grant Program of such plan.
Under the Automatic Option Grant Program of the 1997 Plan, each individual
who first becomes a non-employee Board member, whether through appointment by
the Board or upon election by the shareholders, will receive two option grants
at the time of his or her initial appointment or election, provided such
individual has not otherwise been previously employed by the Company. One such
option grant will be for 30,000 shares of Common Stock and the other for
20,000 shares of Common Stock. In addition, at each Annual Shareholders
Meeting, each individual who is to continue to serve as a non-employee Board
member will receive an option grant for 7,500 shares of Common Stock, whether
or not such individual has been previously employed by the Company.
Each automatic option grant will have an exercise price per share equal to
the fair market value per share of Common Stock on the grant date and will
have a maximum term of ten years, subject to earlier termination following the
optionee's cessation of Board service. Each automatic option will be
immediately exercisable for all of the option shares; however, any shares
purchased upon exercise of the option will be subject to repurchase by the
Company, at the option exercise price paid per share, should the optionee's
service as a non-employee Board member cease prior to vesting in those shares.
The shares subject to each 30,000-share grant will vest as to 25% of the
option shares on each of the first, second, third and fourth anniversaries of
the option grant date, provided the optionee continues to serve as a non-
employee Board member. The shares subject to each 20,000-share grant will vest
as to 25% of the option shares on each of the fifth, sixth, seventh and eighth
anniversaries
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of the option grant date, provided the optionee continues to serve as a non-
employee Board member. However, vesting of the shares subject to each 20,000-
share grant will be subject to acceleration after the close of each fiscal
year, beginning with the 1998 fiscal year, in the event that the optionee has
served on a committee of the Board of Directors in such fiscal year. Vesting
of 2,500 shares will accelerate with respect to each committee of the Board of
Directors on which the optionee has served, up to a maximum of two committees,
and will be conditioned on the optionee having attended at least 75% of the
meetings held by such committee during the fiscal year. The shares to be
accelerated will be those shares which would otherwise have been the first
shares to vest in accordance with the four (4)-year vesting schedule described
above. The shares subject to each annual 7,500-share grant will vest upon the
optionee's completion of one year of Board service measured from the grant
date. For further information concerning the terms and conditions of these
automatic option grants, see the summary of the Automatic Option Grant Program
in Proposal No. 3 of this Proxy Statement.
Recommendation of the Board of Directors
The Board of Directors recommends a vote FOR the election of each of the
above nominees.
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PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Company is asking the shareholders to ratify the selection of Arthur
Andersen, LLP as the Company's independent public accountants for the fiscal
year ending June 30, 1999. The affirmative vote of the holders of a majority
of shares present or represented and voting at the Annual Meeting, together
with the affirmative vote of a majority of the required quorum, will be
required to ratify the selection of Arthur Andersen, LLP.
In the event the shareholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified,
the Board of Directors, in its discretion, may direct the appointment of a
different independent accounting firm at any time during the year if the Board
of Directors feels that such a change would be in the best interest of the
Company and its shareholders.
In February 1997, the Company's Board of Directors retained Arthur Andersen,
LLP as its independent public accountants and dismissed the Company's former
public accountants, Coopers and Lybrand LLP. Arthur Andersen, LLP audited the
Company's financial statements for fiscal 1996 and 1997. The decision to
change independent public accountants was approved by resolution of the Board
of Directors. The former independent public accountants' report on the
Company's financial statements at and for the years ended June 30, 1994 and
1995 did not contain an adverse opinion, a disclaimer of opinion or any
qualifications or modifications related to uncertainty, limitation of audit
scope or application of accounting principles. Coopers & Lybrand LLP did not
issue an audit report on the Company's financial statements for any other
period. There were no disagreements with the former public accountants on any
matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure with respect to the Company's consolidated
financial statements up through the time of dismissal that, if not resolved to
the former public accountants' satisfaction, would have caused them to make
reference to the subject matter of the disagreement in connection with their
report. Prior to retaining Arthur Andersen, LLP, the Company had not consulted
with Arthur Andersen, LLP regarding accounting principles.
Recommendation of the Board of Directors
The Board of Directors recommends that the shareholders vote FOR the
ratification of the selection of Arthur Andersen, LLP to serve as the
Company's independent auditors for the fiscal year ending June 30, 1999.
5
PROPOSAL NO. 3
AMENDMENT TO THE 1997 STOCK INCENTIVE PLAN
The Company's shareholders are being asked to approve an amendment to the
Company's 1997 Stock Incentive Plan (the "1997 Plan") that will increase the
number of shares of Common Stock reserved under the 1997 Plan by 2,500,000
shares to 13,647,968 shares. As of March 24, 1999, there were outstanding
options to purchase 7,656,975 shares under the 1997 Plan and 70,266 shares
remained available for future option grants and stock issuances under the 1997
Plan. The share increase will assure that a sufficient reserve of Common Stock
is available under the 1997 Plan to attract and retain the services of key
individuals essential to the Company's long-term growth and success.
The 1997 Plan became effective on March 27, 1997 (the "Effective Date") upon
its adoption by the Board and serves as the successor to the Company's 1995
Stock Option Plan (the "1995 Plan"). On the Effective Date, all outstanding
options under the 1995 Plan were incorporated into the 1997 Plan and the 1995
Plan accordingly terminated. The amendment to the 1997 Plan that is the
subject of this Proposal was adopted by the Board on March 15, 1999. The
following is a summary of the principal features of the 1997 Plan, as amended.
The summary, however, does not purport to be a complete description of all the
provisions of the 1997 Plan. Any shareholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to
the Company's Secretary at the Company's principal executive offices in San
Francisco, California.
Equity Incentive Programs
The 1997 Plan contains four (4) separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) a Salary Investment Option Grant
Program, (iii) an Automatic Option Grant Program and (iv) a Stock Issuance
Program. The principal features of each of these programs are described below.
Administration
The 1997 Plan (other than the Automatic Option Grant Program) is
administered by the Compensation Committee of the Board. The Compensation
Committee acting in such administrative capacity (the "Plan Administrator")
has complete discretion (subject to the provisions of the 1997 Plan) to
authorize option grants and direct stock issuances under the 1997 Plan.
Pursuant to provisions in the 1997 Plan, the Board may appoint a secondary
committee of one or more Board members, including employee directors, to
authorize option grants and direct stock issuances to eligible persons other
than executive officers and Board members subject to the short-swing liability
provisions of the federal securities laws ("Section 16 Insiders"). The
Compensation Committee has the exclusive authority to determine which Section
16 Insiders and other highly compensated individuals are eligible to
participate in the Salary Investment Option Grant Program for one or more
calendar years, but no administrative discretion may be exercised by the
Compensation Committee with respect to the grants made under the Automatic
Option Grant and Salary Investment Option Grant Programs. All grants under the
Automatic Option Grant and Salary Investment Option Grant Programs are made in
strict compliance with the express provisions of each program.
Share Reserve
Prior to adoption by the Board of the 2,500,000-share increase which is the
subject of this Proposal, a total of 11,147,968 shares of Common Stock had
been authorized for issuance under the 1997 Plan. As of March 24, 1999, there
were outstanding options to purchase 7,656,975 shares under the 1997 Plan and
70,266 shares remained available for future option grants and stock issuances
under the 1997 Plan. Assuming approval of the 2,500,000-share increase
pursuant to this Proposal, the new share reserve for the 1997 Plan will be
13,647,968 shares of Common Stock.
6
The share reserve increases automatically on the first trading day of each
fiscal year, beginning with the 1999 fiscal year, by the number of shares
equal to five percent (5%) of the total number of shares of Common Stock
outstanding on the last trading day of the immediately preceding fiscal year.
As of July 1, 1998, the first such automatic increase in the share reserve
resulted in the addition of 1,120,761 shares of Common Stock to the share
reserve. In addition to the shares of Common Stock reserved for issuance under
the 1997 Plan, as of March 24, 1999, the Company had granted options to
purchase an aggregate of 2,340,000 shares of Common Stock outside of the 1997
Plan to newly appointed officers and key employees of the Company, including
an option to purchase 900,000 shares which was granted in February 1999 to Mr.
Sasson, the Company's new Chief Executive Officer. In no event may any one
participant in the 1997 Plan be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances for more than 750,000
shares in the aggregate per calendar year under the 1997 Plan.
Should an option (including options incorporated from the 1995 Plan) expire
or terminate for any reason prior to exercise in full or be canceled in
accordance with the provisions of the 1997 Plan, the shares subject to the
portion of the option not so exercised or canceled will be available for
subsequent issuance under the 1997 Plan. Unvested shares issued under the 1997
Plan and subsequently repurchased by the Company at the original option
exercise or direct issue price paid per share will also be added back to the
share reserve and will accordingly be available for subsequent issuance under
the 1997 Plan. Shares subject to any option surrendered in accordance with the
stock appreciation right provisions of the 1997 Plan will not be available for
subsequent issuance.
Changes in Capitalization
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will
be made to the securities issuable (in the aggregate and to each participant)
under the 1997 Plan and to the securities and exercise price under each
outstanding option.
Eligibility
Employees of the Company or any parent or subsidiary, non-employee members
of the Board or the board of directors of any parent or subsidiary
corporation, and consultants and other independent advisors in the service of
the Company or its parent or subsidiary corporations are eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs.
Only employees who are Section 16 Insiders or other highly compensated
individuals will be eligible to participate in the Salary Investment Option
Grant Program. Non-employee members of the Board are also eligible to
participate in the Automatic Option Grant Program. On March 24, 1999, (7)
executive officers, three (3) non-employee Board members and approximately 593
other employees were eligible to participate in the 1997 Plan.
Valuation
The fair market value per share of Common Stock on any relevant date under
the 1997 Plan is the closing price per share on that date on the Nasdaq
National Market. On March 24, 1999, the closing price per share was $12.68.
Discretionary Option Grant Program
Options granted under the Discretionary Option Grant Program have an
exercise price per share not less than the fair market value per share of
Common Stock on the option grant date. No granted option has a term in excess
of ten (10) years. The options generally become exercisable in a series of
installments over the optionee's period of service with the Company.
7
Upon cessation of service, the optionee has a limited period of time in
which to exercise his or her outstanding options for any shares for which the
option is exercisable at the time of the optionee's termination of service.
The Plan Administrator has complete discretion to extend the period following
the optionee's cessation of service during which his or her outstanding
options may be exercised and/or to accelerate the exercisability or vesting of
such options in whole or in part. Such discretion may be exercised at any time
while the options remain outstanding, whether before or after the optionee's
actual cessation of service.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
(i) Tandem stock appreciation rights provide the holders with the right
to surrender their options for an appreciation distribution from the
Company equal in amount to the excess of (a) the fair market value of the
vested shares of Common Stock subject to the surrendered option over (b)
the aggregate exercise price payable for those shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in
cash or in shares of Common Stock; and
(ii) Limited stock appreciation rights may be provided to one or more
non-employee Board members or officers of the Company as part of their
option grants. Any option with such a limited stock appreciation right may
be surrendered to the Company upon the successful completion of a hostile
tender offer for more than 50% of the Company's outstanding voting stock.
In return for the surrendered option, the officer will be entitled to a
cash distribution from the Company in an amount per surrendered option
share equal to the excess of (a) the highest price paid per share of Common
Stock in connection with the tender offer over (b) the exercise price
payable for such share.
The shares of Common Stock acquired upon the exercise of one or more options
may be unvested and subject to repurchase by the Company, at the original
exercise price paid per share, if the optionee ceases service with the Company
prior to vesting in those shares. The Plan Administrator has complete
discretion to establish the vesting schedule to be in effect for any such
unvested shares and, in certain circumstances, may cancel the Company's
outstanding repurchase rights with respect to those shares and thereby
accelerate the vesting of those shares.
The Plan Administrator also has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program and to issue
replacement options with an exercise price based on the market price of the
Common Stock at the time of the new grant. On October 13, 1998, the
Compensation Committee exercised this authority and implemented a stock option
cancellation/regrant program to restore value to a large number of outstanding
stock options which had exercise prices considerably in excess of the fair
market value of the Company's Common Stock on that date. Pursuant to the
option cancellation/regrant program, employees, other than the Company's
executive officers, were given an opportunity to elect to cancel their
outstanding options having an exercise price in excess of $12.50 per share
(each a "Higher-Priced Option") and receive, for each cancelled Higher-Priced
Option, a new replacement option (a "New Option") for the same number of
shares with an exercise price of $12.50 per share, the fair market value per
share of Common Stock on October 13, 1998. The New Options did not become
exercisable for any of the option shares until April 13, 1999. They then
became exercisable for 50% of the total number of option shares which would
otherwise have been exercisable as of April 13, 1999 under the cancelled
Higher-Priced Option. No additional option shares will become exercisable
between April 13, 1999 and October 13, 1999. As of October 13, 1999, each New
Option will be exercisable for all of the option shares which would otherwise
have been exercisable as of that date under the cancelled Higher-Priced Option
and, thereafter, the New Option will continue to vest and become exercisable
in accordance with the vesting schedule which applied to the Higher-Priced
Option such option replaced. Options covering a total of 2,418,769 shares of
Common Stock were cancelled and regranted pursuant to the option
cancellation/regrant program.
8
Salary Investment Option Grant Program
In the event the Plan Administrator elects to activate the Salary Investment
Option Grant Program for one or more calendar years, each executive officer
and other highly compensated employee of the Company selected for
participation may elect, prior to the start of the calendar year, to reduce
his or her base salary for that calendar year by a specified dollar amount not
less than $10,000 nor more than $150,000. If such election is approved by the
Plan Administrator, the individual will automatically be granted, on the first
trading day in January of the calendar year for which that salary reduction is
to be in effect, a non-statutory option to purchase the number of shares of
Common Stock determined by dividing the salary reduction amount by two-thirds
of the fair market value per share of Common Stock on the grant date. The
option will be exercisable at a price per share equal to one-third of the fair
market value of the option shares on the grant date. As a result, the total
spread on the option shares at the time of grant (the fair market value of the
option shares on the grant date less the aggregate exercise price payable for
those shares) will be equal to the amount of salary invested in that option.
The option will vest and become exercisable in a series of twelve (12) equal
monthly installments over the calendar year for which the salary reduction is
to be in effect and will be subject to full and immediate vesting upon certain
changes in the ownership or control of the Company.
The shares subject to each option under the Salary Investment Option Program
will immediately vest upon (i) an acquisition of the Company by merger or
asset sale or (ii) the successful completion of a tender offer for more than
50% of the Company's outstanding voting stock or a change in the majority of
the Board effected through one or more contested elections for Board
membership.
Limited stock appreciation rights will automatically be included as part of
each grant made under the Salary Investment Option Grant Program. Options with
such a limited stock appreciation right may be surrendered to the Company upon
the successful completion of a hostile tender offer for more than 50% of the
Company's outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from the Company in an amount
per surrendered option share equal to the excess of (i) the highest price per
share of Common Stock paid in connection with the tender offer over (ii) the
exercise price payable for such share.
Automatic Option Grant Program
Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member, whether through election by the shareholders or
appointment by the Board, will automatically be granted, at the time of such
initial election or appointment, two non-statutory options to purchase shares
of Common Stock, provided such individual has not previously been in the
employ of the Company or any parent or subsidiary corporation. One such
automatic option grant will be for 30,000 shares of Common Stock and the other
for 20,000 shares of Common Stock. In addition, on the date of each Annual
Meeting, each individual who continues to serve as a non-employee Board member
will automatically be granted a non-statutory option to purchase 7,500 shares
of the Company's Common Stock, provided such individual has served as a non-
employee Board member for at least six (6) months. There will be no limit on
the number of such annual option grants that any one non-employee Board member
may receive over his or her period of Board service.
Each option granted under the Automatic Option Grant Program will have an
exercise price per share equal to one hundred percent (100%) of the fair
market value per share of Common Stock on the option grant date and a maximum
term of ten (10) years measured from the grant date, subject to earlier
termination upon the expiration of the twelve (12)-month period measured from
the date of the optionee's cessation of Board service. Each automatic option
is immediately exercisable for all the option shares; however, any shares
purchased under the option will be subject to repurchase by the Company, at
the option exercise price paid per share, upon the optionee's cessation of
Board service prior to vesting in those shares. The shares subject to each
30,000-share automatic option grant vest in a series of four (4) successive
equal annual installments on each of the first, second, third and fourth
anniversaries of the option grant date. The shares subject to each 20,000-
share automatic option grant vest in a series of four (4) successive equal
annual installments on each of the fifth, sixth, seventh
9
and eighth anniversaries of the option grant date. However, vesting of the
shares subject to each 20,000-share grant will be subject to acceleration
after the close of each fiscal year, beginning with the 1998 fiscal year, in
the event that the optionee has served on a committee of the Board in such
fiscal year. Vesting of 2,500 shares will accelerate with respect to each
committee of the Board on which the optionee has served, up to a maximum of
two committees, and will be conditioned on the optionee having attended at
least 75% of the meetings held by such committee during the fiscal year. The
shares to be accelerated will be those shares which wold otherwise have been
the first shares to vest in accordance with the four (4)-year vesting schedule
described above. The shares subject to each annual 7,500-share grant will vest
upon the optionee's completion of one (1) year of Board service measured from
the grant date. Should the optionee cease to serve as a Board member, the
optionee will generally have until the earlier of (i) the expiration of the
twelve (12)-month period following such cessation of service or (ii) the
expiration date of the option term in which to exercise the option for the
number of shares that are vested at the time of such individual's cessation of
Board service.
The shares subject to each automatic option grant will immediately vest in
full upon (i) the optionee's death or permanent disability while a Board
member or (ii) certain changes in the ownership or control of the Company. In
the event of a hostile tender offer for more than 50% of the Company's
outstanding voting stock, each automatic option grant may be surrendered to
the Company for a cash distribution per surrendered option share in an amount
equal to the excess of (a) the highest price per share of Common Stock paid in
connection with such tender offer over (b) the exercise price payable for such
share. Shareholder approval of this Proposal will also constitute pre-approval
of each option granted on or after the date of the Annual Meeting with such a
surrender right and the subsequent surrender of that option in accordance with
the foregoing provisions.
Stock Issuance Program
Shares may be sold under the Stock Issuance Program at a price per share not
less than the fair market value on the issuance date, payable in cash or
through a promissory note payable to the Company. Shares may also be issued
solely as a bonus for past services.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. The Plan Administrator, however, has the discretionary
authority at any time to accelerate the vesting of any and all unvested shares
outstanding under the 1997 Plan.
General Provisions
Acquisition of Company
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program held by an
individual who has been in the service of the Company for at least one (1)
year prior to the effective date of the acquisition, which is not to be
assumed by the successor corporation, will automatically accelerate in full,
and all unvested shares under the Discretionary Option Grant and Stock
Issuance Programs held by such individual will immediately vest, except to the
extent the Company's repurchase rights with respect to those shares are to be
assigned to the successor corporation. In the event that the Company is
acquired by merger or asset sale, each outstanding option under the
Discretionary Option Grant Program held by an individual who has not been in
the service of the Company for at least one (1) year prior to the effective
date of the acquisition, which is not to be assumed by the successor
corporation, will terminate and cease to be outstanding on the effective date
of the acquisition. Any options assumed in connection with such acquisition
may, in the Plan Administrator's discretion, be subject to immediate
acceleration, and any unvested shares which do not vest at the time of such
acquisition may be subject to full and immediate vesting, in the event the
individual's service with the successor entity is terminated within eighteen
(18) months following the acquisition. In connection with a change in control
of the Company (whether by successful tender offer for more than 50% of the
outstanding voting stock or a change in the majority of the Board by one or
more contested elections for Board membership), the Plan Administrator has the
discretionary authority to provide for automatic
10
acceleration of outstanding options under the Discretionary Option Grant
Program and the automatic vesting of all unvested shares outstanding under the
Discretionary Option Grant and Stock Issuance Programs, in the event an
individual's service with the successor entity is terminated within eighteen
(18) months following the change in control.
The acceleration of vesting upon a change in the ownership or control of the
Company may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company.
Financial Assistance
The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options or the purchase
of shares under the Discretionary Option Grant and Stock Issuance Programs.
The Plan Administrator has complete discretion to determine the terms of any
such financial assistance. However, any such financing will be full-recourse
and interest bearing. In addition, the maximum amount of financing provided
any individual may not exceed the cash consideration payable for the issued
shares plus all applicable taxes.
Stock Awards
The table below shows, as to (i) each of the Company's executive officers
named in the Summary Compensation Table and (ii) the various indicated groups
as of March 24, 1999, the number of shares of Common Stock subject to options
granted under the 1997 Plan between June 17, 1997, the date on which the
Common Stock was first registered under Section 12 of the Securities Exchange
Act of 1934, as amended, and March 24, 1999, together with the weighted
average exercise price payable per share.
11
OPTION TRANSACTIONS
Weighted
Number of Average
Name Option Shares Exercise Price
- ---- ------------- --------------
Ori Sasson...................................... (1) (1)
Chief Executive Officer(1)
Alec Miloslavsky................................ -- --
Vice Chairman of the Board of Directors and
Chief Technical Officer
Richard DeGolia................................. 100,000 $11.4375
Vice President, Business Development and
Strategic Planning
William Wesemann................................ -- --
Vice President
Gregory Shenkman................................ -- --
Chairman of the Board of Directors(2)
Michael J. McCloskey............................ 150,000 $ 12.50
Former Chief Financial Officer
John McNulty.................................... 100,000 $ 12.50
Former Vice President, Sales
John Metcalfe................................... -- --
Former Vice President, Marketing
All current executive officers as a group (7
persons) ...................................... 265,000(3) $ 11.70(3)
All current non-employee directors as a group (3
persons) ......................................
All employees, including current officers who
are not executive officers
as a group (593 persons) ...................... 7,160,619(4) $ 17.87
- --------
(1) Mr. Sasson joined the Company as Chief Executive Officer in December 1998.
In February 1999, Mr. Sasson received an option to purchase 900,000 shares
of Common Stock, at an exercise price of $14.75 per share, which option
was granted outside of the 1997 Plan.
(2) Mr. Shenkman was the Company's President and Chief Executive Officer as of
the end of fiscal 1998.
(3) This number does not include (i) the option granted to Mr. Sasson which is
described in footnote (1) above or (ii) options for a total of an
additional 650,000 shares of Common Stock which were granted outside of
the 1997 Plan to newly-appointed executive officers on March 23, 1999, at
an exercise price of $11.4375 per share.
(4) This number includes options for a total of 2,418,769 shares of Common
Stock which were granted on October 13, 1998 pursuant to the stock option
cancellation/regrant program. Each such option has an exercise price of
$12.50 per share and was granted in replacement of a previously granted
option for the same number of shares, with an exercise price in excess of
$12.50 per share, which was cancelled as of that date. For further
information on the option cancellation/regrant program, see Proposal No.
3--Amendment to the 1997 Stock Incentive Plan --Discretionary Option Grant
Program.
As of March 24, 1999, options covering 7,656,975 shares of Common Stock were
outstanding under the 1997 Plan, 70,266 shares remained available for future
option grants, and 3,413,706 shares had been issued under the 1997 Plan in
connection with option exercises. In addition, options to purchase an
aggregate of 2,340,000 shares of Common Stock which were granted to newly
appointed officers and key employees outside of the 1997 Plan were outstanding
as of such date.
Amendment and Termination
The Board may amend or modify the 1997 Plan in any or all respects
whatsoever, subject to any shareholder approval required under applicable law
or regulation. The Board may terminate the 1997 Plan at any time, and the 1997
Plan will in all events terminate on March 26, 2007.
12
Federal Income Tax Consequences
Option Grants
Options granted under the 1997 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made
the subject of a taxable disposition. For Federal tax purposes, dispositions
are divided into two categories: (i) qualifying and (ii) disqualifying. A
qualifying disposition occurs if the sale or other disposition is made after
the optionee has held the shares for more than two (2) years after the option
grant date and more than one (1) year after the exercise date. If either of
these two (2) holding periods is not satisfied, then a disqualifying
disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term capital
gain in an amount equal to the excess of (i) the amount realized upon the sale
or other disposition of the purchased shares over (ii) the exercise price paid
for the shares. If there is a disqualifying disposition of the shares, then
the excess of (i) the fair market value of those shares on the exercise date
over (ii) the exercise price paid for the shares will be taxable as ordinary
income to the optionee. Any additional gain or loss recognized upon the
disposition will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee will not recognize any taxable income at the time of exercise but
will have to report as ordinary income, as and when the Company's repurchase
right lapses, an amount equal to the excess of (i) the fair market value of
the shares on the date the repurchase right lapses over (ii) the exercise
price paid for the shares. The optionee may, however, elect under Section
83(b) of the Internal Revenue Code to include as ordinary income in the year
of exercise of the option an amount equal to the excess of (i) the fair market
value of the purchased shares on the exercise date over (ii) the exercise
price paid for such shares. If the Section 83(b) election is made, the
optionee will not recognize any additional income as and when the repurchase
right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the
optionee.
Stock Appreciation Rights
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the
appreciation distribution. The Company will be entitled to an income tax
deduction equal to such distribution for the taxable year in which the
ordinary income is recognized by the optionee.
13
Direct Stock Issuances
The tax principles applicable to direct stock issuances under the 1997 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
Deductibility of Executive Compensation
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options granted under the 1997 Plan will qualify as
performance-based compensation for purposes of Internal Revenue Code Section
162(m) and will not have to be taken into account for purposes of the $1
million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company. Accordingly,
all compensation deemed paid with respect to those options will remain
deductible by the Company without limitation under Internal Revenue Code
Section 162(m).
Accounting Treatment
Option grants or stock issuances made under the 1997 Plan will not result in
any charge to the Company's earnings, but the Company must disclose in the
notes to the Company's financial statements the fair value of options granted
under the 1997 Plan and the pro forma impact on the Company's annual net
income and earnings per share as though the computed fair value of such
options had been treated as compensation expense. In addition, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis.
Under a recently-proposed amendment to the current accounting principles,
option grants made to non-employee Board members or consultants after December
15, 1998 will result in a direct charge to the Company's reported earnings
based upon the fair value of the option measured on the vesting date of each
installment of the underlying option shares. Such charge will accordingly
include the appreciation in the value of the option shares over the period
between the grant date of the option (or, if later, the effective date of the
final amendment) and the vesting date of each installment of the option
shares. In addition, if the proposed amendment is adopted, any options which
are repriced after December 15, 1998 will also trigger a direct charge to
Company's reported earnings measured by the appreciation in the value of the
underlying shares over the period between the grant date of the option (or, if
later, the effective date of the final amendment) and the date the option is
exercised for those shares.
Should one or more optionees be granted stock appreciation rights which have
no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings.
New Plan Benefits
As of March 24, 1999, no option grants or direct stock issuances have been
made under the 1997 Plan on the basis of the 2,500,000-share increase to the
maximum number of shares authorized for issuance under the 1997 Plan, which is
the subject of this Proposal.
Shareholder Approval
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and voting at the Annual Meeting, together with
the affirmative vote of a majority of the required quorum, is required for
approval of the amendment to the 1997 Plan. Should such shareholder approval
not be obtained, then any options granted under the 1997 Plan on the basis of
the 2,500,000-share increase to the number of shares authorized for issuance
under the 1997 Plan will terminate without ever becoming exercisable for any
of the shares of Common Stock subject to those options, and no further options
will be granted on the basis of that 2,500,000-share increase.
14
Recommendation of the Board of Directors
The Board of Directors recommends that the shareholders vote FOR the
proposed amendment to the 1997 Plan.
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of April 8,
1999 for (i) all persons who are beneficial owners of more than five percent
of the Company's Common Stock, (ii) each director and nominee for director,
(iii) each of the executive officers named in the Summary Compensation Table
of the section of this Proxy Statement entitled "Executive Compensation and
Related Information," and (iv) all current executive officers and directors as
a group.
Number of
Shares
Beneficially Percent
Owned(1) Owned(2)
------------ --------
Gregory Shenkman(3).................................. 2,994,250 12.5%
1155 Market Street
San Francisco, CA 94103
Alec Miloslavsky(4).................................. 2,834,625 11.8%
1155 Market Street
San Francisco, CA 94103
Ori Sasson(5)........................................ 230,668 1.0%
Richard DeGolia(6)................................... 134,131 *
William Wesemann(7).................................. 210,612 *
Paul Levy(8)......................................... 65,000 *
Bruce Dunlevie(9).................................... 832,758 3.5%
Michael J. McCloskey(10)............................. 284,635 1.2%
John McNulty(11)..................................... 105,000 *
John Metcalfe........................................ 39,583 *
All current officers and directors as a group(10
persons)(12)........................................ 7,659,557 35.1%
- --------
* Less than one percent.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock. The number of shares beneficially owned includes Common Stock of
which such individual has the right to acquire beneficial ownership either
currently or within 60 days after April 8, 1999, including, but not
limited to, upon the exercise of an option.
(2) Percentage of beneficial ownership is based upon 23,977,677 shares of
Common Stock, all of which were outstanding on April 8, 1999. For each
individual, this percentage includes Common Stock of which such individual
has the right to acquire beneficial ownership either currently or within
60 days of April 8, 1999, including, but not limited to, upon the exercise
of an option; however, such Common Stock shall not be deemed outstanding
for the purpose of computing the percentage owned by any other individual.
Such calculation is required by General Rule 13d-3(d)(1)(i) under the
Securities Exchange Act of 1934.
(3) Includes (i) 350,000 shares held by Dmitry Shenkman, Trustee of the
Michelle Shenkman 1996 Trust u/t/a dated March 18, 1996, (ii) 350,000
shares held by Dmitry Shenkman, Trustee of the Nikita Anthony Shenkman
1996 Trust u/t/a dated March 18, 1996, (iii) 928,000 shares held by
Gregory and Yelena Shenkman, Trustees of the Shenkman Family Trust u/t/a
dated March 7, 1996, and (iv) 500,000 shares held by Shenkman Partners.
(4) Includes (i) 360,000 shares held by Larry Miloslavsky and Anatoly
Elkinbard, Trustees of the Miloslavsky 1996 Irrevocable Trust u/t/a dated
March 13, 1996, and (ii) 350,000 shares held by Miloslavsky Partners. Also
includes 84,375 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
April 8, 1999.
15
(5) Includes (i) 78,000 shares held by Shiram Sasson, Trustee of the EYS Trust
u/t/a dated May 19, 1997, of which Mr. Sasson disclaims beneficial
ownership, and (ii) 93,750 shares issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days after
April 8, 1999.
(6) Includes 134,131 shares held by Richard C. DeGolia or Jennifer H. DeGolia,
as Trustees of the RJ Family Trust u/t/a dated June 16, 1995 of which
96,000 unvested shares which are subject to repurchase by the Company as
of April 8, 1999, at the purchase price paid per share, in the event of
Mr. DeGolia's early termination of service with the Company.
(7) Includes 140,000 unvested shares which are subject to repurchase by the
Company as of April 8, 1999, at the purchase price paid per share, in the
event of Mr. Wesemann's early termination of service with the Company.
(8) Includes 30,000 unvested shares which are subject to repurchase by the
Company as of April 8, 1999, at the purchase price paid per share, in the
event of Mr. Levy's early termination of service with the Company.
(9) Includes (i) 740,472 shares beneficially owned by entities affiliated with
Benchmark Capital, LLC, of which Mr. Dunlevie is a General Partner, and
(ii) 50,000 shares issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days after April 8, 1999.
(10) Includes 30,000 unvested shares which are subject to repurchase by the
Company as of April 8, 1999, at the purchase price paid per share, in the
event of Mr. McCloskey's early termination of service with the Company.
(11) Includes 100,000 unvested shares which are subject to repurchase by the
Company as of April 8, 1999, at the purchase price paid per share, in the
event of Mr. McNulty's early termination of service with the Company.
(12) Includes (i) 328,125 shares issuable upon exercise of stock options that
are exercisable or will become exercisable within 60 days after April 8,
1999 and (ii) 206,000 unvested shares which are subject to repurchase by
the Company as of April 8, 1999, at the purchase price paid per share, in
the event of the officer's early termination of service with the Company.
Compliance with SEC Reporting Requirements
Under the securities laws of the United States, the Company's directors,
executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report initial ownership of the
Company's Common Stock and any subsequent changes in ownership to the
Securities and Exchange Commission ("SEC"). Specific due dates have been
established by the SEC, and the Company is required to disclose in this Proxy
Statement any failure to file by these dates. Based upon (i) the copies of
Section 16(a) reports that the Company received from such persons for their
1998 fiscal year transactions and (ii) the written representations received
from one or more of such persons that no annual Form 5 reports were required
to be filed for them for the 1998 fiscal year, the Company believes that there
has been compliance with all Section 16(a) filing requirements applicable to
such officers, directors, and ten percent beneficial owners.
16
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Report of the Compensation Committee of the Board of Directors on Executive
Compensation
The Compensation Committee of the Board of Directors (the "Committee")
currently is comprised of the two non-employee directors, Bruce Dunlevie and
Paul D. Levy. James Jordan served as a member of the Committee until his
resignation from the Board in December 1998.
The Committee administers the Company's compensation policies and programs
and has primary responsibility for executive compensation matters, including
the establishment of the base salaries of the Company's executive officers,
the approval of individual bonuses and bonus programs for executive officers
and the administration of certain employee benefit programs. In addition, the
Committee has responsibility for administering the Company's 1997 Stock
Incentive Plan (the "1997 Plan"), under which stock option grants and direct
stock issuances may be made to executive officers and other employees. The
following is a summary of policies which the Committee applies in setting the
compensation levels for the Company's executive officers.
General Compensation Policy. The overall policy of the Committee is to offer
the Company's executive officers competitive compensation opportunities based
upon their personal performance, the financial performance of the Company and
their contribution to that performance. One of the primary objectives is to
have a substantial portion of each executive officer's compensation contingent
upon the Company's financial success as well as upon such executive officer's
own level of performance. Each executive officer's compensation package is
comprised of two principal elements: (i) base salary, which is determined on
the basis of the individual's position and responsibilities with the Company,
the level of his or her performance, and the financial performance of the
Company, and (ii) long-term stock-based incentive awards designed to
strengthen the mutuality of interests between the executive officer and the
Company's shareholders. Generally, as an executive officer's level of
responsibility increases, a greater portion of that individual's total
compensation will be dependent upon the Company's performance and stock price
appreciation rather than base salary. In a limited number of cases the
Committee may also make incentive performance awards payable in cash, based
upon a formula which takes into account the Company's and individual's
performance.
Factors. The primary factors which were taken into consideration in
establishing the components of each executive officer's compensation package
for the 1998 fiscal year are summarized below. However, the Committee may, in
its discretion, apply entirely different factors, such as different measures
of financial performance, for future fiscal years.
Base Salary. In setting the base salary for each executive officer, the
Committee reviewed published compensation survey data for its industry. The
base salary for each executive officer reflects the salary levels for
comparable positions in published surveys as well as the individual's personal
performance and internal alignment considerations. The relative weight given
to each factor varies with each individual in the sole discretion of the
Committee. Each executive officer's base salary is adjusted each year on the
basis of (i) the Committee's evaluation of the executive officer's personal
performance for the year and (ii) the competitive marketplace for persons in
comparable positions. The Company's performance and profitability may also be
a factor in determining the base salaries of executive officers.
Long-Term Stock-Based Incentive Compensation. From time to time, the
Committee makes option grants to the Company's executive officers under the
1997 Plan. The grants are designed to align the interests of each executive
officer with those of the shareholders and provide each individual with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. Each grant allows the executive officer
to acquire shares of the Company's Common Stock at a fixed price per share
(the market price on the grant date) over a specified period of time (up to
ten (10) years), thus providing a return to the executive officer only if the
market price of the shares appreciates over the option term and the executive
officer continues in the Company's employ. The Committee takes into account
the number of vested and unvested options and restricted shares held by the
executive officer in order to maintain an appropriate level of equity
incentive for that individual. No stock options were awarded to the Company's
executive officers in the 1998 fiscal year.
17
CEO Compensation. Mr. Shenkman's base salary for the 1998 fiscal year was
increased to $180,000 to make it competitive with the compensation paid to the
chief executive officers of similarly-sized companies. No stock options were
awarded to Mr. Shenkman in the 1998 fiscal year.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code generally disallows a tax deduction to publicly-held
companies for compensation paid to certain executive officers, to the extent
that compensation exceeds $1 million per executive officer in any year. The
compensation paid to the Company's executive officers for the 1998 fiscal year
did not exceed the $1 million limit per executive officer. In addition, the
Company's 1997 Plan is structured so that any compensation deemed paid to an
executive officer in connection with the exercise of his or her outstanding
options under such plan will qualify as performance-based compensation which
will not be subject to the $1 million limitation. However, compensation deemed
paid to an executive officer in connection with the exercise of options
granted outside the 1997 Plan will not qualify as performance-based
compensation for purposes of Section 162(m) and accordingly will be included
in the calculation of the $1 million limitation for that executive officer.
The Committee has decided at this time not to take any other action to limit
or restructure the elements of cash or equity compensation payable to the
Company's executive officers. The Committee will reconsider this decision
should the individual compensation of any executive officer approach the $1
million level.
Submitted by the Compensation Committee of the Company's Board of Directors:
Bruce Dunlevie
Paul Levy
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of the Company's Board of
Directors are named as above in the Compensation Committee Report. No member
of the Committee was at any time during the 1998 fiscal year or at any other
time an officer or employee of the Company.
No current executive officer of the Company has ever served as a member of
the board of directors or compensation committee of any other entity that has
or has had one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee.
18
STOCK PERFORMANCE GRAPH
The graph depicted below shows the Company's stock price as an index
assuming $100 invested on June 16, 1997, along with the composite prices of
companies listed in the Nasdaq Stock Market (U.S.) Index and the Hambrecht &
Quist Technology Index.
[PERFORMANCE GRAPH APPEARS HERE]
Cumulative Total Return
----------------------------------------
6/17/97 6/97 6/98
GENESYS TELECOMMUNICATIONS
LABORATORIES, INC. 100.00 154.17 183.68
NASDAQ STOCK MARKET (U.S.) 100.00 100.00 131.96
HAMBRECHT & QUIST TECHNOLOGY 100.00 95.53 121.02
- --------
NOTES
(1) The Company's fiscal year ended on June 30, 1998.
(2) No cash dividends have been declared on the Company's Common Stock.
Shareholder returns over the indicated period should not be considered
indicative of future shareholder returns.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934 that might incorporate future filings made by the Company under
those statutes, the preceding Report of the Compensation Committee of the
Board of Directors on Executive Compensation and the Company Stock Performance
Graph will not be incorporated by reference into any of those prior filings,
nor will such report or graph be incorporated by reference into any future
filings made by the Company under those statutes.
19
Summary of Cash and Certain Other Compensation
The following table provides certain summary information regarding the
compensation earned in each of the 1996, 1997 and 1998 fiscal years, for
services rendered in all capacities to the Company and its subsidiaries during
each such fiscal year, by Mr. Shenkman, who served as the Company's Chief
Executive Officer for the 1998 fiscal year, and each of the other four most
highly compensated executive officers of the Company who were serving as such
on the last day of the 1998 fiscal year and whose salary and bonus for such
fiscal year exceeded $100,000. In addition, included in the table are two
individuals who would have been among the four most highly compensated
executive officers of the Company on the last day of the 1998 fiscal year had
each continued to serve as an executive officer through such date. The
individuals included in the table will be collectively referred to as the
"Named Officers".
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation Awards
---------------- ----------------------
Name and Principal Position Year Salary($) Awards($) Options(#)
- --------------------------- ----- --------- --------- ----------
Ori Sasson........................ 1998 -- -- --
Chief Executive Officer(1) 1997 -- -- --
1996 -- -- --
Alec Miloslavsky.................. 1998 $180,000 -- --
Vice Chairman of the Board of
Directors and 1997 133,333 -- --
Chief Technical Officer 1996 86,538 $ 0(2) 150,000
Richard DeGolia................... 1998 180,000 -- --
Vice President, Business
Development and 1997 142,500 0(3) --
Strategic Planning 1996 -- 0(3) --
William Wesemann.................. 1998 247,460(5) -- --
Vice President(4) 1997 180,000(5) -- --
1996 29,397(5) 0(6) --
Gregory Shenkman.................. 1998 180,000 -- --
Chairman of the Board of
Directors(7) 1997 135,510 -- --
1996 88,885 0(2) 150,000
Michael J. McCloskey.............. 1998 180,000 -- --
Former Chief Financial Officer(8) 1997 142,645 0(9) --
1996 -- -- --
John McNulty...................... 1998 185,000 -- --
Former Vice President, Sales(10) 1997 69,375 -- (11) 240,000(11)
1996 -- -- --
John Metcalfe..................... 1998 180,000 -- --
Former Vice President,
Marketing(12) 1997 25,700 -- 290,000
1996 -- -- --
- --------
(1) Mr. Sasson joined the Company as Chief Executive Officer in December 1998.
(2) In August 1995, each of Messrs. Shenkman and Miloslavsky purchased
1,206,000 shares of Common Stock at $0.0167 per share, the fair market
value per share of the Common Stock on the purchase date, and payment of
the purchase price was made through the issuance of full-recourse,
interest-bearing promissory notes secured by the purchased shares. The
shares were subject to repurchase by the Company, at the purchase price
paid per share, upon the purchaser's termination of service with the
Company prior to vesting in the shares. Each of Messrs. Shenkman and
Miloslavsky vested in 25% of the shares as of October 15, 1995 and the
balance in a series of 36 equal monthly installments thereafter. Both Mr.
Shenkman and Mr. Miloslavsky repaid their notes in full in fiscal 1997. As
of the last day of the 1998 fiscal year, each of Messrs. Shenkman and
Miloslavsky held 100,500 unvested shares of Common Stock. The value of
those shares (the market price as of June 30, 1998 less the consideration
paid by each purchaser) was $3,321,103. Dividends will be payable on the
shares if and to the extent paid on the Common Stock generally.
20
(3) In March 1996, Mr. DeGolia purchased 360,000 shares of Common Stock at
$0.0167 per share, the fair market value per share of the Common Stock on
the purchase date, and payment of the purchase price was made through the
issuance of a full-recourse, interest-bearing promissory note, secured by
the purchased shares. The shares are subject to repurchase by the Company,
at the purchase price paid per share, upon Mr. DeGolia's termination of
service with the Company prior to vesting in the shares. Mr. DeGolia vests
in 25% of the shares as of March 1, 1997 and the balance in a series of 36
equal monthly installments thereafter. In September 1996, Mr. DeGolia was
awarded the right to purchase an additional 36,000 shares of Common Stock
at $0.375 per share, the fair market value per share of the Common Stock
on such date, which right was exercised by him in November 1996, through
the issuance of a full-recourse, interest-bearing promissory note for the
amount of the purchase price, secured by the purchased shares. The shares
are subject to repurchase by the Company, at the purchase price paid per
share, upon Mr. DeGolia's termination of service with the Company prior to
vesting in the shares. Mr. DeGolia vested in 25% of the shares as of
September 30, 1997 and vests in the balance in a series of 36 equal
monthly installments thereafter. Mr. DeGolia repaid both of the promissory
notes described above in full in fiscal 1998. As of the last day of the
1998 fiscal year, Mr. DeGolia held 177,750 unvested shares of Common
Stock. The value of those shares (the market price as of June 30, 1998
less the consideration paid by Mr. DeGolia) was $5,866,636. Dividends will
be payable on the shares if and to the extent paid on the Common Stock
generally.
(4) In January 1998, Mr. Wesemann resigned his position as an executive
officer of the Company and accepted a non-executive position.
(5) Mr. Wesemann's salary for the 1998, 1997 and 1996 fiscal years included
sales commissions of $97,460, $30,000 and $11,667, respectively.
(6) In March 1996, Mr. Wesemann purchased 480,00 shares of Common Stock at
$0.0167 per share, the fair market value per share of the Common Stock on
the purchase date. The shares were subject to repurchase by the Company,
at the purchase price paid per share, upon Mr. Wesemann's termination of
service with the Company prior to vesting in the shares. Mr. Wesemann
vested in 25% of his shares as of May 23, 1997 and the balance in a series
of 36 equal monthly installments thereafter. As of the last day of the
1998 fiscal year, Mr. Wesemann held 230,000 unvested shares of Common
Stock. The value of those shares (the market price as of June 30, 1998
less the consideration paid by Mr. Wesemann for such shares) was
$7,600,534. Dividends will be payable on the shares if and to the extent
paid on the Common Stock generally.
(7) Mr. Shenkman resigned as President and Chief Executive Officer in July
1998. Mr. Shenkman continues to serve as Chairman of the Board of the
Directors of the Company.
(8) In February 1999, Mr. McCloskey resigned his position as an executive
officer of the Company .
(9) In September 1996, Mr. McCloskey was awarded the right to purchase 480,000
shares of Common Stock at $0.375 per share, the fair market value per
share of the Common Stock on the grant date, which right was exercised by
him in November 1996 and January 1997 through the issuance of full-
recourse promissory notes in an aggregate principal amount of $180,000,
bearing interest at the rate of 6.1% per annum and secured by the
purchased shares. Mr. McCloskey repaid $33,750 of the principal amount due
under the note in June 1998 and $146,250 in January 1999. The shares were
subject to repurchase by the Company, at the purchase price paid per
share, upon Mr. McCloskey's termination of service with the Company prior
to vesting in the shares. Mr. McCloskey vested in 25% of the shares as of
July 17, 1997, and the balance in a series of 36 equal monthly
installments thereafter. On December 11, 1998, vesting was accelerated for
130,000 of Mr. McCloskey's then-unvested shares in connection with the
execution of his employment and severance agreement. See "--Employment
Contracts, Termination of Employment and Change in Control Agreements." As
of the last day of the 1998 fiscal year, Mr. McCloskey held 250,000
unvested shares of Common Stock. The value of those shares (the market
price as of June 30, 1998 less the consideration paid by Mr. McCloskey)
was $8,171,875. Dividends will be payable on the shares if and to the
extent paid on the Common Stock generally.
(10) In January 1999, Mr. McNulty resigned his position as an executive
officer of the Company and accepted a non-executive position.
(11) No restricted stock awards were made to Mr. McNulty during the past three
fiscal years. However, in February 1997, Mr. McNulty exercised the option
granted him in November 1996 to purchase 240,000 shares of Common Stock
at an exercise price of $0.375 per share. Payment of the option exercise
price was made through the issuance of a full-recourse promissory note
for the amount of the purchase price, bearing interest at the rate of
6.1% per annum and secured by the purchased shares. The shares are
subject to repurchase by the Company, at the exercise price paid per
share, upon Mr. McNulty's termination of service with the Company prior
to vesting in the shares. Mr. McNulty vested in 25% of the shares as of
November 30, 1997 and vests in the balance in a series of 36 monthly
installments thereafter. As of the last day of the 1998 fiscal year, Mr.
McNulty held 145,000 unvested shares of Common Stock. The value of those
shares (the market price as of June 30, 1998 less the consideration paid
by Mr. McNulty) was $4,739,688. Dividends will be payable on the shares
if and to the extent paid on the Common Stock generally.
(12) In October 1998, Mr. Metcalfe resigned his position as an executive
officer of the Company.
21
Stock Options
No stock options or stock appreciation rights were granted to the Named
Officers during the 1998 fiscal year.
Stock Option Exercises and Year-End Holdings
The table below sets forth information with respect to the Named Officers
concerning the unexercised options held by them as of the end of the 1998
fiscal year. No stock options were exercised by the Named Officers during the
1998 fiscal year and no stock appreciation rights were exercised or
outstanding at the end of such fiscal year.
AGGREGATED FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
June 30, 1998 June 30, 1998(1)
------------------------------- -------------------------------
Name Exercisable(#) Unexercisable(#) Exercisable($) Unexercisable($)
- ---- -------------- ---------------- -------------- ----------------
Ori Sasson(1)........... -- -- -- --
Alec Miloslavsky........ 50,000 100,000 $1,278,125 $2,556,250
Richard DeGolia......... -- -- -- --
William Wesemann........ -- -- -- --
Gregory Shenkman........ 50,000 100,000 1,278,125 2,556,250
Michael J. McCloskey.... -- -- -- --
John McNulty............ -- -- -- --
John Metcalfe........... 62,500 227,500 1,128,906 4,109,219
- --------
(1) Mr. Sasson joined the Company as Chief Executive Officer in December 1998.
(2) Based upon the market price of $33.0625 per share, the closing selling
price per share of Common Stock on the Nasdaq National Market on the last
day of the 1998 fiscal year, less the option exercise price payable per
share.
Employment Contracts, Termination of Employment and Change in Control
Agreements
The Company entered into an employment agreement with Mr. Sasson in
connection with his employment as Chief Executive Officer of the Company,
effective December 9, 1998. Pursuant to such agreement, Mr. Sasson will be
provided with the following compensation: a base salary of $300,000 per year,
an annual target bonus for each fiscal year, based upon attainment of certain
performance objectives, equal to 40% of his base salary, health care coverage,
life insurance and a disability policy. In addition, Mr. Sasson was granted an
option to purchase 900,000 shares of Common Stock on February 17, 1999 at an
exercise price of $14.75 per share, the fair market value per share of Common
Stock on that date. The option becomes exercisable in a series of 48 equal
monthly installments measured from December 9, 1998. The option will
accelerate in full in connection with an acquisition of the Company by merger
or asset sale, unless such option is to be assumed by the successor entity. If
Mr. Sasson's employment is terminated by the Company or if Mr. Sasson resigns
due to a change in his title or a material reduction in his duties or level of
compensation, he will become entitled to payment of two times the base salary
and target bonus in effect for the fiscal year of his termination and
acceleration of two years of stock option vesting. However, if such
termination or resignation occurs within 12 months after a change in control
of the Company, whether by merger, asset sale, tender or exchange offer for
more than 50% of the Company's outstanding voting securities, then, in
addition to receiving the salary and bonus payments described above, all of
Mr. Sasson's outstanding options will immediately vest. Should Mr. Sasson
resign voluntarily within six months following a change in control of the
Company, he will become entitled to payment of two times the base salary and
target bonus in effect for the fiscal year of his termination and acceleration
of two years of stock option vesting. Should Mr. Sasson's employment terminate
due to death or disability, then he will
22
become entitled to acceleration of two years of stock option vesting. In
addition, should Mr. Sasson's employment terminate for any of the reasons
described above, he will have an extended period of one year following such
termination in which to exercise his outstanding stock options and he will be
entitled to continued life insurance coverage and health insurance coverage
for so long as is permitted by law, with the COBRA payments for the first 18
months of such health insurance coverage to be paid by the Company. Mr. Sasson
agreed not to compete with the Company or solicit customers, suppliers or
employees of the Company for a period of two years following his termination
of employment with the Company.
In July 1998, Mr. Shenkman resigned from his position as Chief Executive
Officer of the Company but, pursuant to a separation agreement entered into
with the Company, agreed to continue to provide services to the Company as a
consultant for a period of up to six months during which period Mr. Shenkman
received monthly compensation comparable to his compensation as an employee
and continued to vest in his outstanding stock options and restricted shares
in accordance with their original terms. Mr. Shenkman ceased to serve as a
consultant to the Company in January 1999 but continues to serve as the
Chairman of the Board of Directors.
Mr. Metcalfe resigned from his position as Vice President, Marketing, in
October 1998 but agreed to continue to provide services to the Company under a
consulting arrangement for a period of six months during which period he
received monthly compensation comparable to his compensation as an employee
and continued to vest in his outstanding stock options pursuant to the
original terms of such options. In addition, at the time of his employment by
the Company, the Company entered into an agreement with Mr. Metcalfe whereby,
upon his exercise of the options granted to him in June 1996 to purchase an
aggregate of 290,000 shares of Common Stock, he would receive a cash bonus
from the Company in the amount of $2.00 per share of Common Stock purchased
pursuant to the exercise of such option.
In December 1998, Mr. McCloskey entered into an employment and separation
agreement with the Company. Pursuant to that agreement, Mr. McCloskey resigned
from his position as Chief Financial Officer of the Company but agreed to
serve as President until the earlier to occur of (i) June 30, 1999, (ii) the
date on which the Company engaged an individual or individuals who would act
as Vice President, Finance and Chief Financial Officer and Vice President,
World-Wide Sales or (iii) termination of the agreement for any other reason.
As of December 11, 1998, the effective date of the agreement, 130,000
restricted shares held by Mr. McCloskey which were otherwise unvested as of
that date accelerated and became fully vested shares of Common Stock. During
the period of the employment agreement, Mr. McCloskey would continue to
receive the base salary and other employee benefits previously paid to him and
would continue to vest in his outstanding stock options pursuant to their
original terms. In the event Mr. McCloskey's employment terminated by reason
of death or disability prior to June 30, 1999, the base salary which would
otherwise have been paid to him in the period between such termination date
and June 30, 1999 would become payable and the number of option shares and
restricted shares which would otherwise have vested in that period would vest.
In the event of an involuntary termination of Mr. McCloskey's employment prior
to June 30, 1999, including a resignation for good reason, Mr. McCloskey would
continue to receive his base salary and health benefits through such date. In
the event of an early termination of the employment agreement by reason of Mr.
McCloskey's voluntary resignation, Mr. McCloskey would continue to provide
services to the Company under a consulting arrangement until June 30, 1999,
pursuant to which he would receive monthly compensation comparable to his
compensation as an employee and would continue to vest in his outstanding
stock options in accordance with their original terms. In February 1999, Mr.
McCloskey's employment agreement terminated by reason of Mr. McCloskey's
voluntary resignation.
Messrs. McNulty and DeGolia each hold unvested shares of the Company's
Common Stock. In connection with an acquisition of the Company by merger or
asset sale, in the event that either such officer is not provided by the
acquiring company with both cash compensation and operational responsibility
that is at least equal in terms of salary and benefits and operating duties,
respectively, to that which he was receiving from the Company at the time of
the acquisition, any unvested shares of the Company's Common Stock held by him
as of such date will immediately vest in full as of the closing date of such
acquisition. As administrator of the Company's 1997 Stock Incentive Plan, the
Compensation Committee has the authority to provide for accelerated vesting of
the
23
shares of Common Stock subject to any outstanding options held by the
Company's executive officers or any unvested shares held by those individuals
under such plan, in the event their employment were to be terminated (whether
involuntarily or through a forced resignation) following (i) an acquisition of
the Company by merger or asset sale or (ii) a change in control of the Company
effected through a successful tender offer for more than 50% of the Company's
outstanding voting securities or through a change in the majority of the Board
as a result of one or more contested elections for Board membership.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 30, 1998, the Company completed the acquisition of Plato
Software Corporation ("Plato") pursuant to an Agreement and Plan of
Reorganization dated as of December 9, 1998 (the "Merger Agreement"). Ori
Sasson, the Company's Chief Executive Officer and member of the Board of
Directors of the Company, was a principal shareholder of Plato. Pursuant to
the Merger Agreement, the Company issued 250,000 shares of its Common Stock,
50,000 of which shares have been placed into an escrow subject to the
satisfaction of all representations and warranties under the terms and
conditions of the Merger Agreement. As a result of the merger, Plato has
become a wholly-owned subsidiary of the Company. The acquisition of Plato was
consummated in connection with the election of Ori Sasson as Chief Executive
Officer and a member of the Board of Directors of the Company and,
accordingly, the Company recorded as expense the portion of the purchase price
that represented compensation to Mr. Sasson. In addition, the Company recorded
as expense its reimbursements to Mr. Sasson of the tax liabilities associated
with this compensation. The total amount of compensation expense and related
tax reimbursements expensed in the quarter ended December 31, 1998 was
approximately $12.4 million dollars.
SHAREHOLDER PROPOSALS FOR 1999 PROXY STATEMENT
Shareholder proposals that are intended to be presented at the Company's
annual meeting of shareholders to be held in 1999 must be received by the
Company no later than July 15, 1999 in order to be included in the proxy
statement and related proxy materials.
OTHER MATTERS
The Board of Directors knows of no other matters to be presented for
shareholder action at the Annual Meeting. However, if other matters do
properly come before the Annual Meeting or any adjournments or postponements
thereof, the Board of Directors intends that the persons named in the proxies
will vote upon such matters in accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
Ori Sasson
Chief Executive Officer
24
1648-PS-99
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
1997 STOCK INCENTIVE PLAN
-------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1997 Stock Incentive Plan is intended to promote the interests of
Genesys Telecommunications Laboratories, Inc., a California corporation, by
providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four separate equity programs:
(i) the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock,
(ii) the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary
invested each year in special option grants,
(iii) the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common
Stock directly, either through the immediate purchase of such shares or as
a bonus for services rendered the Corporation (or any Parent or
Subsidiary), and
(iv) the Automatic Option Grant Program under which eligible non-
employee Board members shall automatically receive option grants at
periodic intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Six shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12 Registration Date, the Discretionary Option
Grant and Stock Issuance Programs shall be administered by the Board. Beginning
with the Section 12
Registration Date, the Primary Committee shall have sole and exclusive authority
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders and shall have sole and exclusive authority to
administer the Salary Investment Option Grant Program with respect to all
eligible individuals.
B. Administration of the Discretionary Option Grant and Stock Issuance
Programs with respect to all other persons eligible to participate in those
programs may, at the Board's discretion, be vested in the Primary Committee or a
Secondary Committee, or the Board may retain the power to administer those
programs with respect to all such persons.
C. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of any
Secondary Committee and reassume all powers and authority previously delegated
to such committee.
D. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Discretionary Option Grant, Salary
Investment Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of such
programs and any outstanding options or stock issuances thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator within the
scope of its administrative functions under the Plan shall be final and binding
on all parties who have an interest in the Discretionary Option Grant, Salary
Investment Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant Program shall be self-
executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to any
option grants or stock issuances made under such program.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors of
any Parent or Subsidiary, and
2
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly compensated
individuals shall be eligible to participate in the Salary Investment Option
Grant Program. The Primary Committee shall have the discretion to determine the
calendar years in which the Salary Investment Option Grant Program is to be in
effect, the individuals who may participate in such program and the specific
date on which the option grants thereunder are to be awarded.
C. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine, (i) with respect
to the option grants under the Discretionary Option Grant Program, which
eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a Non-
Statutory Option, the time or times when each option is to become exercisable,
the vesting schedule (if any) applicable to the option shares and the maximum
term for which the option is to remain outstanding and (ii) with respect to
stock issuances under the Stock Issuance Program, which eligible persons are to
receive stock issuances, the time or times when such issuances are to be made,
the number of shares to be issued to each Participant, the vesting schedule (if
any) applicable to the issued shares and the consideration for such shares.
D. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals who first become
non-employee Board members after the Underwriting Date, whether through
appointment by the Board or election by the Corporation's shareholders, and (ii)
those individuals who continue to serve as non-employee Board members at one or
more Annual Shareholders Meetings held after the Underwriting Date. A non-
employee Board member who has previously been in the employ of the Corporation
(or any Parent or Subsidiary) shall not be eligible to receive an option grant
under the Automatic Option Grant Program at the time he or she first becomes a
non-employee Board member, but shall be eligible to receive periodic annual
option grants under the Automatic Option Grant Program while he or she continues
to serve as a non-employee Board member.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
13,647,968 shares. Such authorized share reserve is comprised of (i) the number
of shares which remained available for issuance, as of the Plan Effective Date,
under the Predecessor Plan as last approved by the Corporation's shareholders,
including the shares subject to the outstanding options to be incorporated into
the Plan and the additional shares which would otherwise be available for future
grant, (ii) an increase of 2,400,000 shares authorized by the Board and approved
by the shareholders prior to the Section 12 Registration
3
Date, (iii) an increase of 1,120,761 shares effected on July 1, 1998 pursuant to
the automatic share increase provision of Section V.B and (iv) an increase of
2,500,000 shares approved by the Board an March 15, 199, subject to approval by
the shareholders at the 1999 Annual Meeting.
B. The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first trading day of each fiscal year
during the term of the Plan, beginning with the 1999 fiscal year, by an amount
equal to five percent (5%) of the shares of Common Stock outstanding on the last
trading day of the immediately preceding fiscal year. No Incentive Options may
be granted on the basis of the additional shares of Common Stock resulting from
such annual increases.
C. No one person participating in the Plan may receive options, separately
exercisable stock appreciation rights and direct stock issuances for more than
750,000 shares of Common Stock in the aggregate per calendar year, beginning
with the 1997 calendar year.
D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original issue price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants or direct stock issuances under the Plan. Shares subject to any stock
appreciation rights exercised under the Plan shall reduce on a share-for-share
basis the number of shares of Common Stock available for subsequent issuance
under the Plan. In addition, should the exercise price of an option under the
Plan be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Corporation in satisfaction
of the withholding taxes incurred in connection with the exercise of an option
or the vesting of a stock issuance under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised or which vest under the stock
issuance, and not by the net number of shares of Common Stock issued to the
holder of such option or stock issuance.
E. If any change is made to the Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be made to
(i) the maximum number and/or class of securities issuable under the Plan, (ii)
the number and/or class of securities for which any one person may be granted
stock options, separately exercisable stock appreciation rights and direct stock
issuances under this Plan per calendar year, (iii) the number and/or class of
securities for which grants are subsequently to be made under the Automatic
Option Grant Program to new and continuing non-employee Board members, (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option under the Plan and (v) the number and/or class of
securities and price per share in effect under each outstanding option
incorporated into this Plan from the Predecessor Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
4
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Six and
the documents evidencing the option, be payable in cash or check made payable to
the Corporation. Should the Common Stock be registered under Section 12(g) of
the 1934 Act at the time the option is exercised, then the exercise price may
also be paid as follows:
(i) in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(ii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to (a)
a Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at such
----------------------------
time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
5
C. Effect of Termination of Service.
--------------------------------
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the Optionee at
the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease
to be outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
(iv) Should the Optionee's Service be terminated for Misconduct,
then all outstanding options held by the Optionee shall terminate
immediately and cease to be outstanding.
2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the limited
exercise period otherwise in effect for that option to such greater period
of time as the Plan Administrator shall deem appropriate, but in no event
beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested had the
Optionee continued in Service.
6
D. Shareholder Rights. The holder of an option shall have no shareholder
------------------
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion to
-----------------
grant options which are exercisable for unvested shares of Common Stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the exercise price paid per share, any or
all of those unvested shares. The terms upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right.
F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section II.
---
A. Eligibility. Incentive Options may only be granted to Employees.
-----------
B. Dollar Limitation. The aggregate Fair Market Value of the shares of
-----------------
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
C. 10% Shareholder. If any Employee to whom an Incentive Option is granted
---------------
is a 10% Shareholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date, and the option term shall not exceed five (5)
years measured from the option grant date.
7
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, the treatment of the
outstanding options shall be as follows:
1. Individuals in Service for at least One Year. If an Optionee has
--------------------------------------------
been in Service for at least one year prior to the effective date of the
Corporate Transaction, then each outstanding option held by such individual
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable
with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as fully-
vested shares of Common Stock. However, an outstanding option shall not so
accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation (or
parent thereof) or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation (or parent thereof), (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested option shares at
the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to those option shares or
(iii) the acceleration of such option is subject to other limitations imposed by
the Plan Administrator at the time of the option grant.
All outstanding repurchase rights shall also terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
2. Individuals in Service for less than One Year. If an Optionee has
---------------------------------------------
been in Service for less than one year prior to the effective date of the
Corporate Transaction, then no acceleration of such individual's outstanding
options shall occur in connection with such Corporate Transaction and each such
outstanding option shall terminate and cease to be outstanding on the effective
date of such Corporate Transaction except to the extent such option is to be
either (i) assumed by the successor corporation (or parent thereof) or replaced
with a comparable option to purchase shares of the capital stock of the
successor corporation (or parent thereof), or (ii) replaced with a cash
incentive program of the successor corporation which preserves the spread
existing on the unvested option shares at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to those option shares.
All outstanding repurchase rights shall be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction.
8
3. The determination of option comparability under this Paragraph A
shall be made by the Plan Administrator, and its determination shall be final,
binding and conclusive.
B. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments to reflect such Corporate Transaction shall also be made to (i) the
exercise price payable per share under each outstanding option, provided the
--------
aggregate exercise price payable for such securities shall remain the same, (ii)
the maximum number and/or class of securities available for issuance over the
remaining term of the Plan and (iii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year.
C. The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate in the event the Optionee's Service terminates by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which those
options are assumed or replaced and do not otherwise accelerate. Any options so
accelerated shall remain exercisable for fully-vested shares until the earlier
-------
of (i) the expiration of the option term or (ii) the expiration of the one (1)-
year period measured from the effective date of the Involuntary Termination. In
addition, the Plan Administrator may provide that one or more of the
Corporation's outstanding repurchase rights with respect to shares held by the
Optionee at the time of such Involuntary Termination shall immediately
terminate, and the shares subject to those terminated repurchase rights shall
accordingly vest in full.
D. The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate in the event the Optionee's Service terminates by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Change in Control. Each option so
accelerated shall remain exercisable for fully-vested shares until the earlier
-------
of (i) the expiration of the option term or (ii) the expiration of the one (1)-
year period measured from the effective date of the Involuntary Termination. In
addition, the Plan Administrator may provide that one or more of the
Corporation's outstanding repurchase rights with respect to shares held by the
Optionee at the time of such Involuntary Termination shall immediately
terminate, and the shares subject to those terminated repurchase rights shall
accordingly vest in full.
E. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
9
F. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant to
selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem stock
appreciation rights:
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to elect between
the exercise of the underlying option for shares of Common Stock and the
surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (a) the Fair Market Value
(on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable for such
shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual option
surrender or at any earlier time. If the surrender is so approved, then the
distribution to which the Optionee shall be entitled may be made in shares
of Common Stock valued at Fair Market Value on the option surrender date,
in cash, or partly in shares and partly in cash, as the Plan Administrator
shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
later of (a) five (5) business days after the receipt of the rejection
-----
notice or (b) the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option, but in
no event may such rights be exercised more than ten (10) years after the
option grant date.
10
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each individual
holding one or more options with such a limited stock appreciation right
shall have the unconditional right (exercisable for a thirty (30)-day
period following such Hostile Take-Over) to surrender each such option to
the Corporation, to the extent the option is at the time exercisable for
vested shares of Common Stock. In return for the surrendered option, the
Optionee shall receive a cash distribution from the Corporation in an
amount equal to the excess of (A) the Take-Over Price of the shares of
Common Stock which are at the time vested under each surrendered option (or
surrendered portion thereof) over (B) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the option surrender date.
(iii) The Plan Administrator shall pre-approve, at the time the
limited right is granted or at any time prior to exercise, the subsequent
exercise of that right in accordance with the terms of the grant and the
provisions of this Section V. No additional approval of the Plan Administrator
or the Board shall be required at the time of the actual option surrender and
cash distribution.
(iv) The balance of the option (if any) shall remain outstanding
and exercisable in accordance with the documents evidencing such option.
11
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
--------------------------------------
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for those calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
One Hundred Fifty Thousand Dollars ($150,000.00). The Primary Committee shall
have complete discretion to determine whether to approve the filed authorization
in whole or in part. To the extent the Primary Committee approves the
authorization, the individual who filed that authorization shall be granted an
option under the Salary Investment Grant Program on or before the last trading
day in January for the calendar year for which the salary reduction is to be in
effect. All grants under the Salary Investment Option Grant Program shall be
at the sole discretion of the Primary Committee.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
--------
that each such document shall comply with the terms specified below.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and one-third
percent (33-1/3%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock subject
-----------------------
to the option shall be determined pursuant to the following formula (rounded
down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
12
A is the dollar amount of the approved reduction in the
Optionee's base salary for the calendar year, and
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. Exercise and Term of Options. The option shall become exercisable in a
----------------------------
series of twelve (12) successive equal monthly installments upon the Optionee's
completion of each calendar month of Service in the calendar year for which the
salary reduction is in effect. Each option shall have a maximum term of ten
(10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease Service for
any reason while holding one or more options under this Article Three, then each
such option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
- -------
expiration of the three (3)-year period measured from the date of such cessation
of Service. Should the Optionee die while holding one or more options under this
Article Three, then each such option may be exercised, for any or all of the
shares for which the option is exercisable at the time of the Optionee's
cessation of Service (less any shares subsequently purchased by Optionee prior
to death), by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution. Such right of
exercise shall lapse, and the option shall terminate, upon the earlier of (i)
-------
the expiration of the ten (10)-year option term or (ii) the three (3)-year
period measured from the date of the Optionee's cessation of Service. However,
the option shall, immediately upon the Optionee's cessation of Service for any
reason, terminate and cease to remain outstanding with respect to any and all
shares of Common Stock for which the option is not otherwise at that time
exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. Each such
outstanding option shall be assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and shall remain exercisable for the
fully-vested shares until the earlier of (i) the expiration of the ten (10)-year
-------
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
The option shall remain so exercisable until the earlier or (i) the expiration
-------
of
13
the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding option grants. The Optionee shall in return be entitled to a
cash distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the shares of Common Stock at the time subject to each
surrendered option (whether or not the Optionee is otherwise at the time vested
in those shares) over (ii) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation.
The Plan Administrator shall pre-approve, at the time the surrender
right is granted or at any time prior to exercise, the subsequent exercise of
that right in accordance with the terms of the grant and the provisions of this
Section III. No additional approval of the Plan Administrator or the Board
shall be required at the time of the actual option surrender and cash
distribution.
D. The grant of options under the Salary Investment Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
14
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. Purchase Price.
--------------
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Six, shares of
Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance Program may,
in the discretion of the Plan Administrator, be fully and immediately vested
upon issuance or may vest in one or more installments over the Participant's
period of Service or upon attainment of specified performance objectives. The
elements of the vesting schedule applicable to any unvested shares of Common
Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant or the
performance objectives to be attained,
(ii) the number of installments in which the shares are to vest,
(iii) the interval or intervals (if any) which are to lapse between
installments, and
(iv) the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
15
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full shareholder rights with respect to any
shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant's interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding one or
more unvested shares of Common Stock issued under the Stock Issuance Program or
should the performance objectives not be attained with respect to one or more
such unvested shares of Common Stock, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the Participant shall have
no further shareholder rights with respect to those shares. To the extent the
surrendered shares were previously issued to the Participant for consideration
paid in cash or cash equivalent (including the Participant's purchase-money
indebtedness), the Corporation shall repay to the Participant the cash
consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender and
cancellation of one or more unvested shares of Common Stock which would
otherwise occur upon the cessation of the Participant's Service or the non-
attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. Unless otherwise provided in the Stock Issuance Agreement, all of the
Corporation's outstanding repurchase/cancellation rights under the Stock
Issuance Program shall terminate automatically, and all the shares of Common
Stock subject to those terminated rights shall immediately vest in full in the
event of any Corporate Transaction, except to the extent those
repurchase/cancellation rights are to be assigned to the successor corporation
(or parent thereof) in connection with such Corporate Transaction.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's
16
Service should terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase/cancellation rights
are assigned to the successor corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should terminate by reason of an Involuntary Termination within a designated
period (not to exceed eighteen (18) months) following the effective date of any
Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
17
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified below:
-----------
1. Initial Grants. Each individual who is first elected or appointed
--------------
as a non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment,
two (2) Non-Statutory Options to purchase shares of Common Stock, one for 30,000
shares of Common Stock and the other for 20,000 shares of Common Stock, provided
such individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
2. Annual Grant. On the date of each Annual Shareholders Meeting,
------------
beginning with the 1998 Annual Meeting, each individual who is to continue to
serve as an Eligible Director, whether or not that individual is standing for
re-election to the Board at that particular Annual Meeting, shall automatically
be granted a Non-Statutory Option to purchase 7,500 shares of Common Stock,
provided such individual has served as a non-employee Board member for at least
six (6) months. There shall be no limit on the number of such 7,500-share option
grants any one Eligible Director may receive over his or her period of Board
service, and non-employee Board members who have previously been in the employ
of the Corporation (or any Parent or Subsidiary) shall be eligible to receive
one or more such annual option grants over their period of continued Board
service.
B. Exercise Price.
--------------
1. The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option grant
date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years measured
-----------
from the option grant date.
D. Exercisability of Options. Each option shall be immediately exercisable
-------------------------
for any or all of the option shares. However, any shares purchased under the
option shall be subject to repurchase by the Corporation, at the exercise price
paid per share, upon the Optionee's cessation of Board service prior to vesting
in those shares.
18
E. Vesting of Options.
------------------
1. Initial Grants. Each initial 30,000-share grant shall vest, and the
--------------
Corporation's repurchase right shall lapse, in a series of four (4) successive
equal annual installments upon the Optionee's completion of each year of Board
service over the four (4)-year period measured from the option grant date. Each
20,000-share grant shall vest as to twenty-five percent (25%) of the option
shares on each of the fifth, sixth, seventh and eighth anniversaries of the
option grant date. However, vesting of the shares under the 20,000-share grant
shall be subject to acceleration after the close of each fiscal year, beginning
with the 1998 fiscal year, in the event that the Optionee has served on a
committee of the Board in such fiscal year. Vesting of 2,500 of the option
shares shall accelerate with respect to each committee of the Board on which the
Optionee has served during the fiscal year, up to a maximum of two (2) such
committees, and shall be conditioned upon the Optionee having attended at least
75% of the meetings held by such committee during the fiscal year. The shares to
be accelerated shall be those shares which would otherwise have been the first
shares to vest in accordance with the regular four (4)-year vesting schedule
described above.
2. Annual Grants. Each annual 7,500-share grant shall vest, and the
-------------
Corporation's repurchase right shall lapse, upon the Optionee's completion of
one (1) year of Board service measured from the automatic grant date.
F. Termination of Board Service. The following provisions shall govern the
----------------------------
exercise of any options held by the Optionee at the time the Optionee ceases to
serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution) shall have a twelve
(12)-month period following the date of such cessation of Board service in
which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option may
not be exercised in the aggregate for more than the number of vested shares
of Common Stock for which the option is exercisable at the time of the
Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by reason
of death or Permanent Disability, then all shares at the time subject to
the option shall immediately vest so that such option may, during the
twelve (12)-month exercise period following such cessation of Board
service, be exercised for all or any portion of those shares as fully-
vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve (12)-month
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the
19
Optionee's cessation of Board service for any reason other than death or
Permanent Disability, terminate and cease to be outstanding to the extent
the option is not otherwise at that time exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common Stock
at the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Immediately following the consummation of the Corporate
Transaction, each automatic option grant shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common Stock at
the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Change in Control, become fully exercisable for all of
the shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. Shareholder approval
of the Plan shall constitute pre-approval of the grant of each such option
surrender right under this Automatic Option Grant Program and the subsequent
exercise of such right in accordance with the terms and provisions of this
Section II.C. No additional approval or consent of the Board or any Plan
Administrator shall be required at the time of the actual option surrender and
cash distribution.
D. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
--------
securities shall remain the same.
20
E. The grant of options under the Automatic Option Grant Program shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
21
ARTICLE SIX
MISCELLANEOUS
-------------
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon the
exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their options or the vesting of their
shares. Such right may be provided to any such holder in either or both of the
following formats:
1. Stock Withholding: The election to have the Corporation withhold,
-----------------
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
2. Stock Delivery: The election to deliver to the Corporation, at the
--------------
time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the Plan Effective
Date. However, the Automatic Option Grant Program shall not become effective
until the
22
Underwriting Date and the Salary Investment Option Grant Program shall not be
implemented until such time as the Primary Committee may deem appropriate.
Options may be granted under the Discretionary Option Grant Program at any time
on or after the Plan Effective Date. However, no options granted under the Plan
may be exercised, and no shares shall be issued under the Plan, until the Plan
is approved by the Corporation's shareholders. If such shareholder approval is
not obtained within twelve (12) months after the Plan Effective Date, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and no
further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Section 12 Registration Date. All options
outstanding under the Predecessor Plan on the Section 12 Registration Date shall
be incorporated into the Plan at that time and shall be treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without limitation) the
option/vesting acceleration provisions of Article Two relating to Corporate
Transactions and Changes in Control, may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the Predecessor
Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest of (i) March 26, 2007, (ii)
--------
the date on which all shares available for issuance under the Plan shall have
been issued as fully-vested shares or (iii) the termination of all outstanding
options in connection with a Corporate Transaction. Upon such plan termination,
all outstanding option grants and unvested stock issuances shall thereafter
continue to have force and effect in accordance with the provisions of the
documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require shareholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained shareholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such shareholder approval is not obtained
within
23
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option under
the Plan and the issuance of any shares of Common Stock (i) upon the exercise of
any granted option or (ii) under the Stock Issuance Program shall be subject to
the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
24
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option
------------------------------
grant program in effect under the Plan.
B. Board shall mean the Corporation's Board of Directors.
-----
C. Change in Control shall mean a change in ownership or control of
-----------------
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's shareholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
----
E. Common Stock shall mean the Corporation's common stock.
------------
F. Corporate Transaction shall mean either of the following
---------------------
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
25
G. Corporation shall mean Genesys Telecommunications Laboratories,
-----------
Inc., a California corporation, and its successors.
H. Discretionary Option Grant Program shall mean the discretionary
----------------------------------
option grant program in effect under the Plan.
I. Eligible Director shall mean a non-employee Board member eligible
-----------------
to participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
J. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. Exercise Date shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
L. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in question, as
such price is reported on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be deemed equal to the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding date
for which such quotation exists.
(iii) For purposes of any option grants made on the Underwriting
Date, the Fair Market Value shall be deemed to be equal to the price per
share at which the Common Stock is to be sold in the initial public
offering pursuant to the Underwriting Agreement.
(iv) For purposes of any option grants made prior to the
Underwriting Date, the Fair Market Value shall be determined by the Plan
Administrator, after taking into account such factors as it deems
appropriate.
M. Hostile Take-Over shall mean the acquisition, directly or
-----------------
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or
2
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's shareholders which
the Board does not recommend such shareholders to accept.
N. Incentive Option shall mean an option which satisfies the
----------------
requirements of Code Section 422.
O. Involuntary Termination shall mean the termination of the Service
-----------------------
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
any corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the
individual's consent.
P. Misconduct shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 Act shall mean the Securities Exchange Act of 1934, as
--------
amended.
R. Non-Statutory Option shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
S. Optionee shall mean any person to whom an option is granted under
--------
the Discretionary Option Grant, Salary Investment Option Grant or Automatic
Option Grant Program.
T. Parent shall mean any corporation (other than the Corporation) in
------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
3
U. Participant shall mean any person who is issued shares of Common
-----------
Stock under the Stock Issuance Program.
V. Permanent Disability or Permanently Disabled shall mean the
--------------------------------------------
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
Program, Permanent Disability or Permanently Disabled shall mean the inability
of the non-employee Board member to perform his or her usual duties as a Board
member by reason of any medically determinable physical or mental impairment
expected to result in death or to be of continuous duration of twelve (12)
months or more.
W. Plan shall mean the Corporation's 1997 Stock Incentive Plan, as
----
set forth in this document.
X. Plan Administrator shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant, Salary Investment Option Grant and
Stock Issuance Programs with respect to one or more classes of eligible persons,
to the extent such entity is carrying out its administrative functions under
those programs with respect to the persons under its jurisdiction.
Y. Plan Effective Date shall mean March 27, 1997, the date on which
-------------------
the Plan was adopted by the Board.
Z. Predecessor Plan shall mean the Corporation's pre-existing 1995
----------------
Stock Option Plan in effect immediately prior to the Plan Effective Date
hereunder.
AA. Primary Committee shall mean the committee of two (2) or more non-
-----------------
employee Board members appointed by the Board to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to Section 16 Insiders and
to administer the Salary Investment Option Grant Program with respect to all
eligible individuals.
BB. Salary Investment Option Grant Program shall mean the salary
--------------------------------------
investment grant program in effect under the Plan.
CC. Secondary Committee shall mean a committee of two (2) or more
-------------------
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
DD. Section 12 Registration Date shall mean the date on which the
----------------------------
Common Stock is first registered under Section 12(g) of Section 16 of the 1934
Act.
EE. Section 16 Insider shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. Service shall mean the performance of services for the Corporation
-------
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member
4
of the board of directors or a consultant or independent advisor, except to the
extent otherwise specifically provided in the documents evidencing the option
grant or stock issuance.
GG. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
HH. Stock Issuance Agreement shall mean the agreement entered into by
------------------------
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
II. Stock Issuance Program shall mean the stock issuance program in
----------------------
effect under the Plan.
JJ. Subsidiary shall mean any corporation (other than the Corporation)
----------
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
KK. Take-Over Price shall mean the greater of (i) the Fair Market
--------------- -------
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
LL. Taxes shall mean the Federal, state and local income and
-----
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
MM. 10% Shareholder shall mean the owner of stock (as determined under
---------------
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
NN. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
OO. Underwriting Date shall mean the date on which the Underwriting
-----------------
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
5
DETACH HERE
- --------------------------------------------------------------------------------
PROXY
GENESYS TELECOMMUNICATIONS LABORATORIES
Annual Meeting of Shareholder May 21, 1999
This Proxy is Solicited on Behalf of the Board of Directors of
Genesys Telecommunications Laboratories, Inc.
The undersigned revokes all previous proxies, acknowledges receipt of the
notice of annual meeting of shareholders to be held on May 21, 1999 and the
proxy statement, and appoints Ori Sasson and Richard DeGolia or either of them
the proxy of the undersigned, with full power of substitution, to vote
all shares of Common Stock of Genesys Telecommunications Laboratories, Inc.
that the undersigned is entitled to vote, either on his or her own behalf or on
behalf of an entity or entities, at the Annual Meeting of Shareholders of the
Company to be held at The Ramada Plaza Hotel located at 1231 Market Street, San
Francisco, California 94103 on Friday, May 21, 1999 at 10:00 a.m., and any
adjournment of postponement thereof, with the same force and effect as the
undersigned might or could do if personally present thereat. The shares
represented by this proxy shall be voted in the manner set forth on the reverse
side.
- ----------- -----------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
- ----------- -----------
[1648-GENESYS TELECOMMUNICATION LABORATORIES INC.] [FILE NAME:GENSAA.ELX]
[VERSION-2] [04/22/99]
GENSAA DETACH HERE
- --------------------------------------------------------------------------------
Please mark
[X] votes as in
this example.
1. Election of all nominees listed below to the Board
of Directors to serve until the next Annual Meeting
and until their successor's have been duly elected
and qualified, except as noted (write the names, if
any of nominee for whom you withhold authority to
vote) 2. Proposed to ratify the selection of Arthur FOR AGAINST ABSTAIN
Andersen, LLP, as the Company's independent [ ] [ ] [ ]
Nominees: Gregory Shenkman, Alec Miloslavsky, Ori accountants for the fiscal year ending
Sasson, Bruce Dunlevie, Paul Levy June 30, 1999.
FOR WITHHELD
ALL [ ] [ ] FROM ALL 3. Approval of Amendment to the Company's
NOMINEES NOMINEES 1997 Stock Incentive Plan. [ ] [ ] [ ]
[ ] _________________________________________
For all nominees except as noted above
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign exactly as your name appears hereon. If acting as
attorney, executor, trustee, or in other representative
capacity sign name and title.
Signature: _____________ Date: Signature: Date: