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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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
[X]Definitive Proxy Statement 14a-6(e)(2))
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to
[_]Rule 14a-11 (c) or rule 14a-12
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SCC COMMUNICATIONS CORP.
(Name of Registrant as Specified In Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)Title of each class of securities to which transaction applies:
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(2)Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4)Proposed maximum aggregate value of transaction:
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(5)Total fee paid:
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Fee paid previously with preliminary materials:
[_]Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1)Amount previously paid:
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(2)Form, Schedule or Registration Statement no.:
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(3)Filing Party:
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(4)Date Filed:
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[LOGO OF SCC COMMUNICATIONS CORP.]
SCC COMMUNICATIONS CORP.
Notice of 2000 Annual Meeting of Stockholders
Dear Stockholder:
We invite you to attend our 2000 Annual Meeting of Stockholders, which is
being held as follows:
Date: Tuesday, June 27, 2000
Time: 8:30 A.M.
Location: DoubleTree Hotel-Denver
3203 Quebec St.
Denver, Colorado
At the Annual Meeting, we will ask you and our other stockholders to:
. create a classified Board of Directors;
. elect seven directors to one, two or three-year terms;
. increase the shares reserved for use in the 1998 Stock Option Plan;
. ratify the appointment of Arthur Andersen LLP as our independent
auditors; and
. consider any other business properly presented at the Annual Meeting.
You may vote on these matters in person or by proxy. Whether or not you plan
to attend the Annual Meeting, we ask that you complete and return the enclosed
proxy card promptly in the enclosed addressed, stamped envelope, so that your
shares will be represented and voted at the meeting in accordance with your
wishes. If you attend the Annual Meeting, you may withdraw your proxy and vote
your shares in person. Only stockholders of record at the close of business on
April 27, 2000 may vote at the Annual Meeting.
By order of the board of directors,
/s/ George K. Heinrichs
George K. Heinrichs
President and Chief Executive
Officer
Boulder, Colorado
May 10, 2000
PROXY STATEMENT
FOR THE
SCC COMMUNICATIONS CORP.
2000 ANNUAL MEETING OF STOCKHOLDERS
Table of Contents
Page
----
Information About the Annual Meeting:
This Proxy Solicitation.................................................. 1
How to Vote.............................................................. 1
Quorum Required to Transact Business..................................... 1
1999 Annual Report on Form 10-K.......................................... 2
Discussion of Proposals:
Proposal to Create a Classified Board of Directors....................... 2
Proposal to Elect Seven Directors........................................ 4
Proposal to Increase Shares Reserved for Use in the 1998 Stock Incentive
Plan.................................................................... 5
Proposal to Ratify Independent Auditors.................................. 9
Other Matters............................................................ 9
Stockholder Proposals for 2001 Annual Meeting............................ 9
Information About Directors:
Meetings of the Board of Directors....................................... 10
Committees of the Board of Directors..................................... 10
Compensation of Directors................................................ 10
Information About Executive Officers:
Background Information About Executive Officers.......................... 11
Compensation of Executive Officers....................................... 11
Compensation Earned..................................................... 11
Options Granted During Last Fiscal Year................................. 12
Option Exercises and Holdings........................................... 12
Employment and Severance Arrangements................................... 12
Compensation Committee Interlocks and Insider Participation............. 13
Management Incentive Compensation Plan.................................. 13
1998 Employee Stock Purchase Plan....................................... 13
1998 Stock Incentive Plan............................................... 13
Compensation Committee Report on Executive Compensation................. 13
Information About Related-Party Transactions............................. 16
Information About Common Stock Ownership and Performance:
Stock Owned by Directors, Executive Officers and Greater-than-5%
Stockholders............................................................ 17
Compliance with Reporting Requirements................................... 18
Stock Performance Graph.................................................. 19
Exhibit I................................................................ 20
Exhibit II............................................................... 21
Information about the Annual Meeting
This Proxy Solicitation
We have sent you this proxy statement and the enclosed proxy card because our
board of directors is soliciting your proxy to vote at the Annual Meeting,
including any adjournment or postponement of the Annual Meeting.
. This proxy statement summarizes information about the proposals to be
considered at the Annual Meeting and other information you may find
useful in determining how to vote.
. The proxy card is the means by which you actually authorize another
person to vote your shares in accordance with your instructions.
We will pay the cost of soliciting these proxies. Our directors, officers and
employees may solicit proxies in person or by mail, telephone or telegraph. We
will reimburse brokers and other nominee holders of shares for expenses they
incur in forwarding proxy materials to beneficial owners of those shares. We
have not retained the services of any proxy solicitation firm to assist us in
this solicitation.
We mailed this proxy statement and the enclosed proxy card to stockholders for
the first time on or about May 10, 2000.
How to Vote
You are entitled to one vote at the Annual Meeting for each share of common
stock registered in your name at the close of business on April 27, 2000.
You may vote your shares at the Annual Meeting in person or by proxy:
. To vote in person, you must attend the Annual Meeting, and then complete
and submit the ballot provided at the Annual Meeting.
. To vote by proxy, you must complete and return the enclosed proxy card.
Your proxy will be valid only if you sign, date and return it before the
Annual Meeting. By completing and returning the proxy card, you will
direct the designated persons to vote your shares at the Annual Meeting
in the manner you specify in the proxy card. If you complete all of the
proxy card except the voting instructions, then the designated persons
will vote your shares for each of the proposals. If any other business
properly comes before the meeting, then the designated persons will have
the discretion to vote in any manner.
If you complete and return a proxy, you may revoke it at any time before it is
exercised by taking one of the following actions:
. send written notice to Carol Nelson, our Chief Financial Officer, at our
address set forth on the Notice we have sent with this proxy statement;
. send us another signed proxy with a later date; or
. attend the Annual Meeting, notify Ms. Nelson that you are present, and
then vote in person.
Quorum Required to Transact Business
At the close of business on April 27, 2000, 11,230,045 shares of common stock
were outstanding. Our by-laws require that a majority of the common stock be
represented, in person or by proxy, at the Annual Meeting in order to
constitute the quorum we need to transact business. We will count abstentions
and broker non-votes in determining whether a quorum exists.
1
1999 Annual Report on Form 10-K
We filed our Annual Report on Form 10-K for the year ended December 31, 1999
with the SEC on March 28, 2000. We filed an amendment to our 1999 Annual Report
on April 28, 2000 to include the information required by Part II. Stockholders
may obtain a copy of this report, without charge, by writing to Carol Nelson,
Chief Financial Officer, at our address set forth on the Notice appearing
before this proxy statement.
Discussion of Proposals
Proposal to Create a Classified Board of Directors
APPROVAL OF AMENDMENTS TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
AND BYLAWS TO ESTABLISH A CLASSIFIED BOARD OF DIRECTORS
General
The Company currently has a Board of Directors consisting of seven (7) members
elected to one-year terms at each annual meeting of stockholders. The Company
seeks to establish a classified board of directors by dividing the Board of
Directors into three (3) classes with staggered terms.
A classified board is one in which a certain number, but not all, of the
directors are elected on a rotating basis each year. The Board of Directors
believes that dividing the directors into three classes is in the best
interests of the Company and its stockholders because the likelihood of
continuity and stability in the policies formulated by the Board of Directors
will be enhanced by providing that directors will serve three-year terms rather
than one-year terms. Two annual elections would, in general, be required to
replace a majority of the classified Board of Directors and effect a forced
change in the control of the Company. This method of electing directors makes
changes in the composition of a company's board of directors more difficult,
and thus a potential change in control of that company a more lengthy and
difficult process. Delaware law permits companies to adopt a classified board
of directors, pursuant to which the directors can be divided into as many as
three classes with staggered terms of office, with only one class of directors
standing for election each year. The Company's Board of Directors recommends
that the Company's stockholders approve the adoption of a classified Board,
dividing the directors into three classes. After the classified Board is fully
implemented, the directors of each class will serve three-year terms and the
term of one class will expire each year.
The Classified Board
The proposed addition of amended Article VI to the Company's Certificate of
Incorporation and Section 1 of Article III of the Bylaws (the "Amendment")
would divide the Board of Directors into three classes: Class A, Class B and
Class C. If the Amendment is adopted and if all current nominees are elected as
described in the next Proposal, (relating to the election of directors) each
director will be elected to the class described below:
Class A: Mary Beth Vitale and Stephen James
Class B: David Kronfeld and Philip Livingston
Class C: George Heinrichs, Winston Wade and Darrell Williams
Initially, the term of the Class A Directors would expire at the next annual
meeting in 2001, and the terms of Class B and Class C Directors would expire at
the 2002 and 2003 annual meetings of stockholders, respectively. Thereafter,
successors to the directors in each class would be elected for three-year
terms. In the event of a vacancy, the remaining directors may appoint a
replacement director to serve until the remainder of the original term that was
vacated. The Amendments to the Certificate and Bylaws would thus have the
effect of causing only one class of directors to be elected each year, with the
directors in the other two classes remaining in office until the elections held
in the two following years, respectively.
2
In the event that the stockholders do not approve the Amendment, each director
elected at the Meeting will continue to serve for a one-year term, only until
his successor is duly elected and qualified at the next annual meeting in 2001
or until his earlier death, resignation or removal.
If the Amendment is adopted, any further amendment to new Article III of the
Bylaws will require the affirmative vote of a majority of stockholders.
The Board of Directors believes that dividing the directors into three classes
is in the best interests of the Company and its stockholders because the
likelihood of continuity and stability in the policies formulated by the Board
of Directors will be enhanced by providing that directors will serve three-year
terms rather than one-year terms. Two annual elections would, in general, be
required to replace a majority of the classified Board of Directors and effect
a forced change in the control of the Company.
The Board of Directors also believes that a classified Board would effectively
reduce the possibility that a third party could effect a hostile, non-
negotiated change in control of the Company. A classified Board would serve to
ensure that the Board of Directors and management, if confronted by a hostile,
non-negotiated proposal from a third party who has acquired a block of the
Common Stock, will have sufficient time to review the proposal and appropriate
alternatives to the proposal and to attempt to negotiate a better transaction,
if possible, for the stockholders, thereby facilitating the Board's objective
to maximize stockholder value.
The Board of Directors believes that if a potential acquiror were to purchase a
significant or controlling interest in the Company, the potential acquiror's
ability to remove the Company's Board of Directors and obtain control of the
Board and thereby remove the Company's management would severely curtail the
Company's ability to properly evaluate the proposal and negotiate effectively
with the potential acquiror. The threat of obtaining control of the Board of
Directors would deprive the Board of the time and information necessary to
evaluate the proposal, to study alternative proposals and to help ensure that
the best price is obtained for the Company's stockholders in any transaction
involving the Company which may ultimately be undertaken. A classified Board is
designed to reduce the vulnerability of the Company to an unsolicited takeover
proposal, particularly a proposal that does not contemplate the acquisition of
all of the outstanding Common Stock, or an unsolicited proposal for the
restructuring or sale of all or part of the Company.
Although the Board of Directors believes that this Proposal is in the best
interests of the Company and its stockholders for the foregoing reasons,
stockholders should be aware of the following possible effects of the adoption
of a classified Board. Because the creation of a classified Board will increase
the amount of time and effort required for a bidder to obtain control of the
Company without the cooperation of the Board of Directors, even if the bidder
were to acquire a majority of the Company's outstanding Common Stock, the
existence of a classified Board could tend to discourage certain tender offers
which stockholders might feel would be in their best interests. Because tender
offers for control usually involve a purchase price higher than the current
market price, the creation of a classified Board could also discourage open
market purchases by a potential bidder. Such tender offers or open market
purchases could increase the market price of the Common Stock, enabling
stockholders to sell their shares at a price higher than that which otherwise
would prevail. In addition, the creation of a classified Board could make the
Common Stock less attractive to persons who invest in securities in
anticipation of an increase in price if a takeover bid develops. Finally,
because these provisions will make the removal of directors more difficult, it
will increase the directors' security in their positions and, since the Board
of Directors has the power to retain and discharge management, could increase
the likelihood that current management will retain their positions for longer
periods of time than might otherwise be the case in the absence of a classified
Board.
Takeovers or changes in management of the Company which are proposed and
effected without prior negotiation with the Company's Board or management are
not necessarily detrimental to the Company and its stockholders. However, the
Board believes that the benefits of seeking to protect its ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to take over or
restructure the Company outweigh the disadvantages of discouraging such
proposals.
3
The Amendment is not being submitted as the result of, and the Board is unaware
of, any specific effort by any person to obtain control of the Company or to
accumulate significant amounts of its Common Stock as of the date of this Proxy
Statement.
The foregoing discussion of the Amendment is qualified in its entirety by
reference to the full text of the Amendment attached to this Proxy Statement as
Exhibit I.
Under Delaware law, once a Bylaw proposal has been approved by the
Stockholders, only the Stockholders can amend, modify or repeal it in a manner
that would defeat the purpose of the Bylaw.
Vote required
Approval of the Proposed Amendments to the Certificate of Incorporation and
Bylaws to establish a classified Board of Directors will require the
affirmative vote of the majority of the outstanding shares of Common Stock. As
a result, abstentions, broker non-votes and Specified Non-Votes will have the
same effect as a vote against the Proposal. Because the directors will be
directly affected by the institution of a classified Board, they may be deemed
to have an interest in the outcome of this Proposal. As of March 31, 2000, the
Company's directors and executive officers as a group beneficially owned
approximately 17.5% of the outstanding Common Stock entitled to vote at the
Meeting. See " Information About Common Stock Ownership and Performance." The
Company expects that its directors and executive officers will vote their
respective shares of Common Stock in favor of this Proposal.
The board of directors unanimously recommends a vote FOR the amendment to
establish a classified board.
Proposal to Elect Seven Directors
Pursuant to the approval of the proposal to create a classified Board of
Directors, one of the proposals on the agenda for the Annual Meeting is the
election of two persons to serve as directors for initial one-year terms, two
persons to serve as directors for initial two-year terms and three persons to
serve as directors for three-year terms beginning at the Annual Meeting and
ending at the 2001, 2002 and 2003 Annual Meeting of Stockholders, respectively.
Specific directors will be elected to the classes and for the terms described
in the proposal to establish a classified board (assuming that proposal is
approved by stockholders). In the event that the stockholders do not approve
the board classification proposal, each director elected at the Meeting will
continue to serve for a one-year term, only until his successor is duly elected
and qualified at the next annual meeting in 2001 or until his earlier death,
resignation or removal.
The board of directors has nominated George Heinrichs, Stephen James, David
Kronfeld, Philip Livingston, Mary Beth Vitale, Winston Wade and Darrell
Williams for election as directors. Brief biographies of the nominees, as of
March 31, 2000, follow. Additional information concerning nominees, including a
discussion about meetings, committees, compensation, related party
transactions, stock ownership and comparitive stock performance can be found on
page 10 of this proxy statement.
George K. A co-founder of SCC, Mr. Heinrichs has served as our
Heinrichs President and one of our directors since 1979 and as our
Chief Executive Officer since 1995. Mr. Heinrichs is 42
years old.
Stephen O. Mr. James has served as one of our directors since October
James 1999. Mr. James has been an independent executive business
consultant since 1993. Mr. James is 56 years old.
David Kronfeld Mr. Kronfeld has served as one of our directors since March
1998, and previously served as one of our directors from
February 1992 to June 1996. Mr. Kronfeld is the founder and
Manager of JK&B Capital L.L.C. since its founding in October
1995. Since 1989, Mr. Kronfeld has been a general partner of
Boston Capital Ventures Limited Partnership, Boston Capital
Ventures II Limited Partnership, Boston Capital
4
Ventures III L.P. and Boston Capital Ventures, all of which
are venture capital funds. Mr. Kronfeld currently serves as
a director of MPower Communications, Inc. and Phone.com,
Inc. Mr. Kronfeld is 52 years old.
Philip B. Mr. Livingston has served as one of our directors since
Livingston April 2000. Since January 1999, Mr. Livingston has been the
President and Chief Executive Officer of Financial
Executives Institute. From August 1995 to November 1998, Mr.
Livingston was the Senior Vice President and Chief Financial
Officer for Catalina Marketing Corporation. From March 1993
to July 1995, Mr. Livingston was the Vice President and
Chief Financial Officer for Celestial Seasonings, Inc. Mr.
Livingston is 43 years old.
Mary Beth Ms. Vitale has served as one of our directors since October
Vitale 1999. Since March 2000, Ms. Vitale has been the CEO and
President of Westwind Media. Ms. Vitale was the President
and Chief Operating Officer of RMI.NET from December 1998
through February 2000. Ms. Vitale was the President--Western
States for AT&T in 1997 and held several positions,
including Vice President and Corporate Officer, Local
Service Organization, Western Region for AT&T from 1994 to
1996. Ms. Vitale is 46 years old.
Winston J. Wade Mr. Wade has served as one of our directors since October
1999. Mr. Wade was the Chief Executive Officer of MediaOne
Malaysia from 1997 to 1999 and the Managing Director of
MediaOne India, BPL/US West from 1996 to 1997. From 1981
through 1995, Mr. Wade held several positions with US West,
including Vice President--Network Operations, Vice
President--Network Infrastructure, Vice President--Technical
Services and President--Information Technologies Group. Mr.
Wade currently serves as a director of Transcrypt
International, Inc. Mr. Wade is 61 years old.
Darrell A. Mr. Williams has served as one of our directors from
Williams February 1998 to December 2, 1999 and from January 18, 2000
to the present. Since January 2000, Mr. Williams has been
Chief Investment Officer of the Telecommunications
Development Fund. From 1992 to December 1999, Mr. Williams
was with Ameritech Development Corporation, last serving as
Vice President, Venture Capital. Mr. Williams is 40 years
old.
If for any reason any of the nominees becomes unavailable for election, the
persons designated in the proxy card may vote the proxy for the election of a
substitute. All of the nominees have consented to serve as directors if
elected, and the board of directors has no reason to believe that any of the
nominees will become unavailable for election.
The seven nominees receiving the greatest number of votes cast will be elected
as directors. We will not count abstentions or broker non-votes when we
tabulate votes cast for the election of directors.
The board of directors recommends that you vote FOR the election of each of the
nominees named above.
Proposal to Increase Shares Reserved for Use in the 1998 Stock Incentive Plan
The Board of Directors has approved, and recommends that stockholders approve,
an amendment to our 1998 Stock Incentive Plan (the "Plan") to increase the
number of shares of Common Stock underlying incentives that may be issued under
the Plan (including stock options) from its present number of 2,560,768 shares
to 4,010,330 shares. In addition to this one-time increase, the number of
shares reserved under the Plan would continue to be automatically increased on
the first trading day of each fiscal year by adding the lesser of three percent
(3%) of the number of outstanding shares of Common Stock as of the last trading
day on or before December 31 of the preceding year, or 731,000 shares pursuant
to an already existing term of the Plan.
5
Reasons for the Proposed Amendment
The Plan was originally adopted in 1998 for the purpose of encouraging
employees, directors and others in a position to contribute to the Company's
success by providing for various stock-based incentive compensation awards to
these people, including granting them a right to participate in the Company
through exercise of stock options. As of April 19, 2000, there remained only
550,438 shares available for use under the various components of the Plan, as a
result of the grant of options pursuant to the Plan. Consequently, the Board of
Directors has adopted a proposed amendment to the Plan to increase the number
of shares reserved under it by 1,449,562, to a total of 4,010,330 shares. The
Board also approved submission of that amendment to stockholders for their
approval at the next Annual Meeting.
The Board believes that the additional 1,449,562 shares that it has approved
for use in the Plan are necessary to give it the ability and flexibility to
continue to attract and retain competent people as employees of the Company.
The Board feels that it would be seriously constrained in its ability to
attract and retain qualified personnel without additional shares for use under
the Plan.
Description of the Plan
The Plan is described in the section below entitled "Summary of the 1998 Plan."
A copy of the Plan has also been filed with the SEC as Appendix A to this Proxy
Statement. Stockholders may obtain a copy of the Plan, without charge, by
writing to Carol Nelson, Chief Financial Officer, at our address set forth on
the Notice included with this proxy statement.
Need for Shareholder Approval of the Amendment to the Plan
In order to allow the options that may be issued as incentive stock options to
receive the favorable tax treatment such options are allowed, as well as to
obtain certain exemptions from Exchange Act Section 16 "short-swing profits"
rules that would otherwise apply, and to comply with the Company's NASDAQ
listing requirements, stockholders of the Company must approve the amendment to
the Plan prior to implementation of the Board's proposed amendment.
Vote Required
Approval of the amendment to the Plan requires the affirmative vote of a
majority of the shares of Common Stock present and voting at a meeting if a
quorum is present.
New Plan Benefits
The benefits or amounts that will be distributed to officers, directors or
employees assuming adoption of the proposed amendment to the Plan, are not
determinable at this time. No benefits other than those granted in 1999 would
have been granted in 1999 had the proposed amendment been in effect.
Summary of the 1998 Plan
The Company's 1998 Stock Incentive Plan (the "1998 Plan") is intended to serve
as the successor equity incentive program to the Company's 1990 Stock Option
Plan, as amended (the "Predecessor Plan"). The 1998 Plan was adopted by the
Board and the stockholders on April 7, 1998 (the "Plan Effective Date").
A total of 2,560,768 shares of Common Stock are currently reserved for issuance
under the 1998 Plan, including automatic increases to date. The amendment would
increase this share reserve to 4,010,330 shares. The share reserve is
automatically increased on the first trading day of each calendar year,
beginning with the 1999 calendar year, by an amount equal to 3% of the total
number of shares of Common Stock outstanding on the last trading day in
December of the immediately preceding calendar year, but in no event shall any
such annual increase exceed 731,000 shares. To the extent any unvested shares
of Common Stock issued under the Predecessor Plan are repurchased by the
Company after the date on which the Common Stock is first registered
6
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), at the exercise price paid per share, in connection with the
holder's termination of service, those repurchased shares will be added to the
reserve of Common Stock available for issuance under the 1998 Plan, but in no
event shall more than 476,776 shares be added to the reserve from such
repurchases. In no event may any one participant in the 1998 Plan receive
option grants, separately exercisable stock appreciation rights or direct stock
issuances for more than 500,000 shares of Common Stock in the aggregate per
calendar year.
On the date on which the Common Stock was first registered under Section 12 of
the Exchange Act, outstanding options issued under the Predecessor Plan were
incorporated into the 1998 Plan. No further option grants will be made under
the Predecessor Plan. The incorporated options will continue to be governed by
their existing terms, unless the Plan Administrator elects to extend one or
more features of the 1998 Plan to those options. Except as otherwise noted
below, the incorporated options have substantially the same terms as will be in
effect for grants made under the Discretionary Option Grant Program of the 1998
Plan.
The 1998 Plan is divided into five separate components: (i) the Discretionary
Option Grant Program, under which eligible individuals in the Company's employ
or service (including officers, non-employee Board members and consultants)
may, in the Plan Administrator's discretion, be granted options to purchase
shares of Common Stock at an exercise price not less than their fair market
value on the grant date; (ii) the Stock Issuance Program, under which such
individuals may, in the Plan Administrator's discretion, be issued shares of
Common Stock directly, through the purchase of such shares at a price not less
than their fair market value at the time of issuance or as a bonus tied to the
performance of services; (iii) the Salary Investment Option Grant Program,
which may, in the Plan Administrator's discretion, be activated for one or more
calendar years and thereby allow executive officers and other highly
compensated employees the opportunity to invest a portion of their base salary
in special below-market stock option grants; (iv) the Automatic Option Grant
Program, under which option grants will automatically be made at periodic
intervals to eligible non-employee Board members to purchase shares of Common
Stock at an exercise price equal to their fair market value on the grant date;
and (v) the Director Fee Option Grant Program, which may, in the Plan
Administrator's sole discretion, be activated for one or more calendar years
and thereby allows non-employee Board members the opportunity to apply all or
any portion of the annual retainer fee otherwise payable to them in cash each
year to the acquisition of special below-market option grants. The
Discretionary Option Grant and Stock Issuance Program are effective. The
implementation date of the Automatic Option Program, the Salary Investment
Option Grant Program and the Director Fee Option Program will be decided by the
Compensation Committee.
The Discretionary Option Grant Program and the Stock Issuance Program are
administered by the Compensation Committee. The Compensation Committee as Plan
Administrator has complete discretion to determine which eligible individuals
are to receive option grants or stock issuances under those programs, the time
or times when such option grants or stock issuances are to be made, the number
of shares subject to each such grant or issuance, the status of any granted
option as either an incentive stock option or a non-statutory stock option
under the Federal tax laws, the vesting schedule to be in effect for the option
grant or stock issuance, and the maximum term for which any granted option is
to remain outstanding. The Compensation Committee also has the exclusive
authority to select the executive officers and other highly compensated
employees who may participate in the Salary Investment Option Grant Program in
the event that program is activated for one or more calendar years, but neither
the Compensation Committee nor the Board will exercise any administrative
discretion with respect to option grants made under the Salary Investment
Option Grant Program or under the Automatic Option Grant or Director Fee Option
Grant Program for the non-employee Board members.
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 $50,000. 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 that number of shares of
Common Stock determined by dividing the salary reduction amount by two-thirds
of
7
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 in a series of 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.
Should the Automatic Option Grant Program be activated in the future, each
individual who first becomes a non-employee Board member will automatically be
granted an option to purchase 15,000 shares of Common Stock on the date such
individual joins the Board, provided such individual has not been in the prior
employ of the Company. In addition, on the date of each Annual Stockholders
Meeting, each non-employee Board member who is to continue to serve as a non-
employee Board member will automatically be granted an option to purchase
3,000 shares of Common Stock, provided such individual has served on the Board
for at least six months.
Each automatic grant for the non-employee Board members will have a term of 10
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 unvested shares purchased under the option
will be subject to repurchase by the Company at the exercise price paid per
share should the optionee cease Board service prior to vesting in those
shares. The shares subject to each initial 15,000 share automatic option grant
will vest over a four-year period, as follows: (i) 25% of the option shares
upon the optionee's completion of one year of Board service measured from the
grant date and (ii) the balance of the option shares in a series of 36
successive equal monthly installments upon the optionee's completion of each
additional month of service measured from the first anniversary of the grant
date. The shares subject to each annual 3,000 share grant will vest upon the
optionee's completion of one year of Board service measured from the grant
date. However, the shares subject to each automatic option grant will
immediately vest in full upon certain changes in control or ownership of the
Company or upon the optionee's death or disability while a Board member.
Should the Director Fee Option Grant Program be activated in the future, each
non-employee Board member will have the opportunity to apply all or a portion
of the annual retainer fee otherwise payable in cash to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January in the calendar year for which the retainer fee
would otherwise be payable in cash. The option will have an exercise price per
share equal to one-third of the fair market value of the option shares on the
grant date, and the number of shares subject to the option will be determined
by dividing the amount of the retainer fee applied to the program by two-
thirds of the fair market value per share of Common Stock on the grant date.
As a result, the total spread on the option (the fair market value of the
option shares on the grant date less the aggregate exercise price payable for
those shares) will be equal to the portion of the retainer fee invested in
that option. The option will become exercisable for the option shares in a
series of twelve (12) equal monthly installments over the calendar year for
which the election is to be in effect. However, the option will become
immediately exercisable for all the option shares upon (i) certain changes in
the ownership or control of the Company or (ii) the death or disability of the
optionee while serving as a Board member.
The federal income tax consequences of the issuance and exercise of options
under the 1998 Plan are summarized below. The summary is based on federal
income tax laws in effect as of he date hereof. The summary does not
constitute tax advice and, among other things, does not address possible
state, local or foreign tax consequences.
The grant of an option will have not tax consequences for the grantee or SCC.
In general, the grantee will have no taxable income upon the exercise of an
incentive stock option if the applicable incentive stock option holding period
is satisfied (except that the alternative minimum tax may apply) and SCC will
have no deduction upon exercise of the incentive stock option. Upon exercising
a non-qualified option, the grantee will recognize ordinary income in the
amount equal to the difference between the fair market value on the date of
exercise of the stock acquired on exercise and the option exercise price; SCC
will be entitled to a deduction in the same amount, subject to the possible
applicability of the $1,000,000 limitation on deductibility under Section
162(m) of the
8
Code. Generally, there will be no tax consequence to SCC in connection with a
disposition of shares acquired on exercise of an option, except that SCC may
be entitled to a deduction upon disposition of shares acquired on exercise of
an incentive stock option before the applicable holding period has been
satisfied.
Under current rulings of the IRS, a grantee who pays the exercise price for an
option with SCC Common Stock does not recognize gain or loss with respect to
the disposition of the stock transferred in payment of the option price.
However, the grantee normally will recognize ordinary income upon the exercise
of a non-qualified option in the manner discussed above. The grantee's basis
in a number of acquired shares equal to the number surrendered will be the
same as the grantee's basis in the surrendered shares; the grantee's basis in
any additional shares received will be equal to the amount of income the
grantee recognizes upon exercise of the option.
The Board may amend or modify the 1998 Plan at any time, subject to any
required stockholder approval. The 1998 Plan will terminate on the earliest of
(i) April 30, 2008, (ii) the date on which all shares available for issuance
under the 1998 Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.
The foregoing discussion of the Amendment is qualified in its entirety by
reference to the full text of the Amendment attached to this Proxy Statement
as Exhibit II.
The board of directors recommends that you vote FOR the proposal to increase
the shares reserved for use in the 1998 Plan.
Proposal to Ratify Independent Auditors
The board of directors has appointed the firm of Arthur Andersen LLP, our
current independent auditors, to serve in the same capacity for the year
ending December 31, 2000, and is asking the stockholders to ratify this
appointment. The affirmative vote of a majority of the shares represented and
voting at the Annual Meeting is required to ratify the selection of Arthur
Andersen LLP.
In the event the stockholders fail to ratify the appointment, the board of
directors will reconsider its selection. Even if the selection is ratified,
the board in its discretion may direct the appointment of a different
independent auditing firm at any time during the year if the board of
directors believes that such a change would be in the best interests of SCC
and our stockholders.
A representative of Arthur Andersen LLP is expected to be present at the
Annual Meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
The board of directors recommends that you vote FOR the ratification of the
selection of Arthur Andersen LLP to serve as our independent auditors for the
year ending December 31, 2000.
Other Matters
Neither we nor the board of directors intends to propose any matters at the
Annual Meeting other than the election of directors and the ratification of
our independent auditors. Neither we nor our board knows of any matters to be
proposed by others at the Annual Meeting.
Stockholder Proposals for 2001 Annual Meeting
A stockholder who intends to present a proposal at the 2001 Annual Meeting of
Stockholders for inclusion in our 2001 proxy statement must submit the
proposal by February 25, 2001. In order for the proposal to be included in the
proxy statement, the stockholder submitting the proposal must meet certain
eligibility standards and must comply with certain procedures established by
the SEC, and the proposal must comply with the requirements as to form and
substance established by applicable laws and regulations. The proposal must be
mailed to our Secretary at our address set forth on the Notice appearing
before this proxy statement.
9
In addition, in accordance with our by-laws, a stockholder wishing to bring an
item of business before the 2001 Annual Meeting must deliver notice of the item
of business to us at our principal offices by no later than February 25, 2001
even if the item is not to be included in our proxy statement.
Information About Directors
Meetings of the Board of Directors
The board of directors held 6 meetings during 1999. Each director attended at
least 75% of the board meetings during their term.
Committees of the Board of Directors
The board of directors has appointed an audit committee, a compensation
committee and an executive staffing committee. It has not appointed a standing
nominating committee.
The audit committee met once during 1999. The audit committee:
. reviews the scope and results of the annual audit of our consolidated
financial statements conducted by our independent accountants;
. reviews the scope of other services provided by independent auditors;
. reviews proposed changes in our financial and accounting standards and
principles and in our policies and procedures for our internal
accounting, auditing and financial controls; and
. makes recommendations to the board of directors on the engagement of the
independent accountants.
The audit committee currently consists of Darrell Williams, Winston Wade and
Mary Beth Vitale. Prior to December 2, 1999, the committee consisted of David
Kronfeld and Darrell Williams, each of whom attended the meeting of the audit
committee in 1999.
The compensation committee met once during 1999. The compensation committee:
. reviews and acts on matters relating to compensation levels and benefits
plans for our executive officers and key employees; and
. is responsible for granting stock options and other awards to be made
under our existing incentive compensation plans.
The compensation committee currently consists of George Heinrichs, Darrell
Williams, Winston Wade and Mary Beth Vitale. From April 1998 through June 1999,
the compensation committee was composed of two directors, Mr. Williams and John
G. Hill, each of whom attended the meeting of the compensation committee in
1999. Mr. Hill retired from the board of directors in June 1999.
Compensation of Directors
We reimburse our directors for all reasonable and necessary travel and other
incidental expenses incurred in connection with their attendance at meetings of
the board and committees of the board. In addition, all board members are
eligible for compensation equal to $1,000 for each board and committee meeting
attended in person and $500 for each telephonic board and committee meeting.
Such compensation is payable in cash or stock at the director's discretion.
Board members may be paid additional amounts for consulting services that
extend beyond their normal board duties, although no such payments were made to
date.
Under the Discretionary Option Grant Program, each individual who first became
a non-employee Board member was automatically granted an option to purchase
30,000 shares of Common Stock on the date such individuals joined the Board.
10
Information About Executive Officers
Background Information About Executive Officers
Brief biographies of our executive officers, as of March 31, 2000, follow. You
will find information about their holdings of common stock on page 17.
George K. Heinrichs You will find background information
President and Chief Executive Officer about Mr. Heinrichs on page 4.
Carol L. Nelson Ms. Nelson has served as our Chief
Chief Financial Officer Financial Officer since July 1999. From
May 1994 to July 1999, Ms. Nelson was
our Controller and then Director of
Finance, except during the period
October 1996 to October 1997, when she
was the Director of Accounting at Coram
Healthcare. From June 1987, to May 1994,
Ms. Nelson worked at Arthur Andersen LLP
in various roles, the last of which was
Audit Manager. Ms. Nelson is 34 years
old and is a CPA.
Compensation of Executive Officers
Compensation Earned
The following table sets forth the compensation earned during the year ended
December 31, 1999 by our named officers, who consist of our chief executive
officer and our two other executive officers who earned more than $100,000 in
salary and bonus in 1999.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
------------
Awards
------------
Annual
Compensation Securities
------------------ Underlying
Name and Principal Position Year Salary($) Bonus($) Option(#)
- ------------------------------------- ---- --------- -------- ------------
George K. Heinrichs 1999 $245,000 $120,000(2) 66,667
President and Chief Executive Officer 1998 233,333 84,812(1) --
Nancy K. Hamilton 1999 185,000 -- --
Senior Vice President and Chief 1998 179,167 47,118(1) --
Financial Officer
Carol Nelson 1999 106,750 1,052(2) 61,766
Chief Financial Officer
(1) Bonuses included in 1998 were earned in 1998 but paid in 1999.
(2) Bonuses included in 1999 were earned in 1999 but paid in 2000.
Ms. Hamilton resigned in May 1999. Ms. Nelson became Chief Financial Officer in
July 1999.
Options listed in the table were granted under the 1998 Stock Option Plan. See
"--Option Grants During Last Fiscal Year."
Option Grants During Last Fiscal Year
The following table sets forth information regarding the stock option grants
made to each of the Named Officers in the 1999 fiscal year.
11
OPTION GRANTS DURING LAST FISCAL YEAR
Potential
Realizable Value
at Assumed Annual
Percent Rates of Stock
Number of Total Price
of Securities Options Appreciation for
Underlying Granted to Option Term(2)
Options Employees in Exercise Price Expiration -----------------
Name Granted(1) Fiscal Year Per Share Date 5% 10%
- ---- ------------- ------------ -------------- ---------- -------- --------
George K. Heinrichs 66,667 9.0% $4.938 7/29/2009 $207,033 $524,663
Nancy K. Hamilton -- -- -- -- -- --
Carol Nelson 11,766 1.6 4.938 7/29/2009 36,539 92,597
Carol Nelson 50,000 6.7 6.125 12/2/2009 192,599 488,084
- --------
(1) The options were granted to each of the Named Officers pursuant to the 1998
Stock Option Plan. Each option vests 24% one year from the date of grant
and 2% each month thereafter.
(2) The five percent and ten percent assumed annual rates of compounded stock
price appreciation are mandated by the rules of the Securities and Exchange
Commission. There can be no assurance provided to the option holder or any
other holder of the Company's securities that the actual stock price
appreciation over the ten-year option term will be at the assumed five
percent and ten percent levels or at any other defined level.
Option Exercises and Holdings
The following table sets forth information regarding exercises of stock options
during the year ended December 31, 1999 and exercisable and unexercisable
options held as of December 31, 1999 by each of the named officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Fiscal Year-End(#) at Fiscal Year-End($)
Acquired on Value -------------------------------- -------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- -------------- --------------- ----------- -------------
George K. Heinrichs -- $ -- 296,567 106,399 $1,254,813 $84,696
Nancy K. Hamilton 20,001 61,670 140,149 -- 368,654 --
Carol Nelson -- -- 8,452 73,314 5,249 23,273
The value realized by each option exercised equals the total market price of
the shares purchased, based on the last sale price of the common stock on the
Nasdaq National Market on the exercise date, minus the total exercise price
paid for those shares.
The value of each unexercised option is based on a market price of $5.875 per
share, the last sale price of the common stock on the Nasdaq National Market on
December 31, 1999, minus the per share exercise price, multiplied by the number
of shares underlying the option.
Employment and Severance Arrangements
Until her resignation in May 1999, Nancy Hamilton was employed as our Senior
Vice President and Chief Financial Officer pursuant to an employment agreement
with us dated February 9, 1999. Under the employment agreement, Ms. Hamilton is
working as a part-time employee of SCC until May 2000, in exchange for the
continuation of her base salary and benefits. Under the agreement, Ms.
Hamilton's options vested in full as of May 1999.
12
Compensation Committee Interlocks and Insider Participation
The compensation committee currently consists of Darrell Williams, Winston
Wade and Mary Beth Vitale. Mr. Williams, Mr. Wade and Ms. Vitale have never
been officers or employees of SCC. From April 1998 through June 1999, the
compensation committee consisted of Mr. Williams and John Hill, who resigned
from the board in June 1999.
None of the named officers have 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 our board or
compensation committee.
1998 Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted
by the Board of Directors in March 1998 and approved by the Company's
stockholders in April 1998. A total of 200,000 shares of Common Stock have
been reserved for issuance under the Purchase Plan. There is automatically
added to the Purchase Plan in March of each year (i) that number of shares
needed to restore the maximum aggregate shares available to 200,000 shares or
(ii) a lesser amount determined by the Board. The Purchase Plan, which is
intended to qualify under Section 423 of the Code, provides for two six-month
offering periods each year beginning on the first of January and the first of
July, respectively; however, the initial offering period began on March 1,
1998 and continued through December 31, 1998. The Purchase Plan is
administered by a committee of at least two disinterested Directors appointed
by the Board. Employees (including officers and employee directors) of the
Company are eligible to participate if they are employed by the Company on a
regular full time or part time basis and if they are regularly scheduled to
work more than 20 hours per week. The Purchase Plan permits eligible employees
to purchase shares of Common Stock through periodic payroll deductions at a
price equal to the lower of 85% of the fair market value of the Company's
Common Stock at the beginning or end of the offering period. Employees may end
their participation in the offering at any time during the offering period,
and participation ends automatically on termination of employment with the
Company. The Board of Directors has the power to amend or terminate the
Purchase Plan as long as such action does not adversely affect any outstanding
rights to purchase stock thereunder.
1998 Stock Incentive Plan
A description of our 1998 Stock Incentive Plan can be found under the
discussion of the proposal concerning amendment of the Plan, above.
Management Incentive Compensation Plan
No formal plan was in place during 1999; however, on April 19, 2000, the Board
approved a discretionary bonus of $120,000 for Mr. Heinrichs for 1999.
Compensation Committee Report on Executive Compensation
The compensation committee reviews and acts on matters relating to
compensation levels and benefits plans for our executive officers and key
employees. The compensation committee also provides for grants of stock
awards, stock options, stock appreciation rights and other awards to be made
under our existing incentive compensation plans.
General Compensation Policy. The fundamental policy of the compensation
committee is to provide our executive officers with competitive compensation
opportunities based upon their contribution to our development and financial
success and their personal performance. The compensation committee's objective
is to have a portion of each executive officer's compensation contingent on
our performance as well as on the executive officer's own level of
performance. Accordingly, the compensation package for each executive officer
is comprised of three elements: (1) base salary, which principally reflects an
executive officer's performance
13
and is designed primarily to be competitive with salary levels in the industry;
(2) bonus, which principally reflects our performance; and (3) long-term
incentive compensation, which strengthens the mutuality of interests between
our executive officers and stockholders.
Factors. The principal factors that the compensation committee considered in
ratifying the components of each executive officer's compensation package for
1999 are summarized below. The compensation committee may apply entirely
different factors in advising the chief executive officer and the board of
directors with respect to executive compensation for future years.
. Base Salary. The suggested base salary for each executive officer is
determined on the basis of experience, personal performance, the salary
levels in effect for comparable positions within and outside the
industry, and internal base salary comparability considerations. The
weight given to each of these factors differs from individual to
individual, as the compensation committee deems appropriate.
. Bonus. The compensation committee may suggest a bonus for each executive
officer determined on the basis of our performance, personal
performance, and the bonus levels in effect for comparable positions
within and outside the industry. The compensation committee establishes
maximum annual bonus amounts for each executive officer based on the
bonus levels for comparable positions, and earned bonus amounts are
based on performance results. The weight given to each of these factors
differs from individual to individual, as the compensation committee
deems appropriate. In addition, the compensation committee may from time
to time award additional cash bonuses when it determines those bonuses
to be in our best interest.
. Long-Term Incentive Compensation. Long-term incentives are provided
primarily through grants of stock options. The grants are designed to
align the interests of each executive officer with those of the
stockholders and to provide each individual with a significant incentive
to manage SCC from the perspective of an owner with an equity stake.
Each option grant allows the executive officer to acquire shares of the
common stock at a fixed price per share, typically equal to the market
price on the grant date, over a specified period of time of up to ten
years. Options generally become exercisable in installments over a 50-
month period, contingent upon an executive officer's continued
employment with SCC. Accordingly, an option grant generally provides a
return to the executive officer only if the executive officer remains
employed by us during the vesting period, and then only if the market
price of the underlying shares appreciates. The number of shares subject
to each option grant is set at a level intended to create a meaningful
opportunity for stock ownership based on the executive officer's current
position, the base salary associated with that position, the size of
comparable awards made to individuals in similar positions within the
industry, the executive officer's potential for increased responsibility
and promotion over the option term, and the executive officer's personal
performance in recent periods. The compensation committee also considers
the number of unvested options held by the executive officer in order to
maintain an appropriate level of equity incentive for that executive
officer. The compensation committee does not adhere to any specific
guidelines as to the relative option holdings of our executive officers.
Both Mr. Heinrichs and Ms. Nelson were granted options in 1999 as shown
in the Summary Compensation Table.
CEO Compensation. SEC regulations require the board of directors to disclose
the basis for compensation paid to George Heinrichs, our President and Chief
Executive Officer, in 1999 and to discuss the relationship between our
performance factors and Mr. Heinrichs' performance in 1999. In advising the
board with respect to Mr. Heinrichs' compensation, the compensation committee
seeks to establish a level of base salary competitive with that paid by
companies of comparable size within the industry and by companies outside of
the industry with which we compete for executive talent. The base salary
established for Mr. Heinrichs for 1999 on the basis of the foregoing criteria
was intended to provide a level of stability and certainty each year.
Accordingly, this element of compensation was not affected to any significant
degree by our performance factors.
14
Although the Company incurred losses during 1999, the Company was very
successful in a number of areas. Management completed several major strategic
objectives that provide a strong foundation for SCC's future success. These
include market demonstration and acceptance of the Direct Services model,
launch of EWE, closure of several key contracts, growth in subscribers
managed, creation of the 2000 Initiative Strategy and the passage of key
Federal legislation which was important for the Company. Based on these
accomplishments, the Compensation Committee awarded Mr. Heinrichs a bonus and
granted options.
Compliance with Internal Revenue Code Section 162(m). As a result of Section
162(m) of the Internal Revenue Code, we are not allowed a federal income tax
deduction for compensation paid to certain executive officers to the extent
that compensation exceeds $1,000,000 per officer in any year. This limitation
applies to all compensation paid to the covered executive officers that is not
considered to have been performance based. The management incentive
compensation plan contains provisions intended to ensure that any compensation
deemed paid in connection with the exercise of stock options granted under the
plan with an exercise price equal to the market price of the common stock on
the grant date will qualify as performance-based compensation. The
compensation committee does not expect that the compensation that will be paid
to either of our executive officers during 2000 will exceed $1,000,000.
COMPENSATION COMMITTEE
Mary Beth Vitale
Winston J. Wade
Darrell A. Williams
15
Information About Related-Party Transactions
Our certificate of incorporation generally eliminates directors' personal
liability to us and our stockholders for monetary damages for breaches of
fiduciary duties. The certificate of incorporation does not eliminate or limit
the personal liability of a director for (1) any breach of the director's duty
of loyalty to us or our stockholders, (2) any act or omission not in good faith
or involving intentional misconduct or a knowing violation of law, (3) any
unlawful payment of dividends or unlawful stock repurchase or redemption or (4)
any transaction from which the director derived an improper personal benefit.
Our by-laws provide that we shall indemnify our directors and executive
officers to the fullest extent permitted under the Delaware General Corporation
Law and that we may indemnify our other officers, employees and agents as set
forth in the Delaware General Corporation Law. In addition, we have entered
into indemnification agreements with each of our directors and executive
officers. The indemnification agreements require us to indemnify our directors
and executive officers against specified liabilities that may arise by reason
of their status or service as directors or executive officers of SCC or other
entities to which they provide service at our request. The indemnification
agreements also require that we advance expenses to our directors and executive
officers incurred as a result of any proceeding against them as to which they
could be indemnified. The indemnification agreements do not provide
indemnification for liabilities arising from intentional or knowing and
culpable violations of law. We intend to execute similar indemnification
agreements in the future with other individuals who become directors or
executive officers of SCC. We believe the indemnification agreements are
desirable to attract and retain qualified directors and executive officers. We
have obtained an insurance policy covering our directors and officers for
claims that they may otherwise be required to pay or for which we are required
to indemnify them.
We provide 9-1-1 operations support systems, or OSS, services pursuant to a 9-
1-1 service agreement dated August 31, 1994 with Ameritech Information Systems.
Under a master lease dated March 11, 1996, we lease personal property from
Ameritech Credit Corporation. Ameritech Information Systems and Ameritech
Credit Corporation are affiliates of Ameritech Development Corp., which
beneficially owned approximately 14.8% of our common stock as of March 31,
2000. Under these agreements, we received net proceeds of approximately
$6,979,000 in 1999.
We believe that the terms of the transactions described above were no less
favorable to us than would have been obtained from an unaffiliated third party.
Any further transactions between us and any of our officers, directors or
principal stockholders will be on terms no less favorable to us than could be
obtained from unaffiliated third parties and will be approved by a majority of
the independent and disinterested members of the board of directors.
16
Information About Common Stock Ownership and Performance
Stock Owned by Directors, Executive Officers and Greater-than-5% Stockholders
The following table sets forth certain information as of March 31, 2000, with
respect to the beneficial ownership of the common stock by (1) each person that
we know owns of record or beneficially more than 5% of the outstanding common
stock, (2) each of the named officers, (3) each director, and (4) all current
executive officers and directors as a group.
In accordance with SEC rules, beneficial ownership includes any shares as to
which a person or entity has sole or shared voting power or investment power
and any shares as to which the person or entity has the right to acquire
beneficial ownership within 60 days after March 31, 2000 through the exercise
of any stock option. Except as noted below, we believe that the persons named
in the table have sole voting and investment power with respect to the shares
of common stock set forth opposite their names. Percentage of beneficial
ownership is based on 11,472,569 shares of common stock outstanding as of March
31, 2000. Except as noted, the address of each of our executive officers and
directors is in care of SCC Communications Corp., 6285 Lookout Road, Boulder,
Colorado 80301.
Shares Beneficially Owned
-----------------------------
Name and Address of Beneficial Owner Number Percent
- ------------------------------------ --------------- -------------
David Kronfeld (1)............................. 1,492,327 13.0%
Boston Capital Ventures Limited Partnership
(2)........................................... 1,219,626 10.6
45 School Street
Boston, Massachusetts 02109
SBC Communications Inc. (3).................... 1,645,214 14.3
175 E. Houston Street
San Antonio, Texas 78205
George A. Heinrichs (4)........................ 485,257 4.2
Nancy K. Hamilton (5).......................... 123,791 1.1
5755 Central Avenue
Boulder, Colorado 80301
Carol L. Nelson (6)............................ 16,748 *
Stephen O. James............................... 10,330 *
Darrell A. Williams (3)........................ 740 *
Winston J. Wade................................ 403 *
Mary Beth Vitale............................... 330 *
Philip B. Livingston........................... -- *
All directors and executive officers as a group
(6 persons) (7)............................... 1,990,598 17.5
- --------
* Less than 1%.
(1) Includes 1,219,626 shares held by Boston Capital Ventures III Limited
Partnership, 171,223 shares held by JK&B Capital Limited Partnership,
85,611 shares held by JK&B Capital II Limited Partnership and 15,867 shares
held by Mr. Kronfeld. The general partner of Boston Capital Ventures III
Limited Partnership is BD Partners Limited Partnership. David Kronfeld, a
director of SCC, is a general partner of certain of the entities associated
with the Boston Capital Ventures entities. The general partner of JK&B
Capital Limited Partnership and of JK&B Capital II Limited Partnership is
JK&B Management LLC and Mr. Kronfeld is the manager of JK&B Management LLC.
Mr. Kronfeld disclaims beneficial ownership of any of the shares owned
Boston Capital Ventures III Limited Partnership, JK&B Capital Limited
Partnership and JK&B Capital II Limited Partnership, except to the extent
of his pecuniary interest in certain of such entities.
(2) Includes 1,219,626 shares held by Boston Capital Ventures III Limited
Partnership. The general partner of Boston Capital Ventures III Limited
Partnership is BD Partners Limited Partnership. David Kronfeld, a
17
director of SCC, is a general partner of certain of the entities associated
with the Boston Capital Ventures entities. Mr. Kronfeld disclaims
beneficial ownership of any of the shares owned Boston Capital Ventures III
Limited Partnership, except to the extent of his pecuniary interest in
certain of such entities.
(3) SBC Venture Capital Corporation (formerly known as Ameritech Development
Corporation) is a wholly owned subsidiary of Ameritech Corporation which
was acquired by SBC Communications Inc. in 1999. Darrell Williams, a
director of SCC, was a Vice President of SBC Venture Capital Corporation
until December 1999. Ameritech Corporation, as the sole stockholder of SBC
Venture Capital Corporation, has voting and investment control over the
shares held by SBC Venture Capital Corporation. Mr. Williams disclaims
beneficial ownership of such shares.
(4) Includes options to purchase 310,966 shares of common stock exercisable
within 60 days of March 31, 2000. Includes 1,539 shares held by Mr.
Heinrichs' minor daughter and 1,539 shares held by Mr. Heinrichs' minor
son.
(5) Includes options to purchase 108,792 shares of common stock exercisable
within 60 days of March 31, 2000. Ms. Hamilton resigned as our Chief
Financial Officer effective May 20, 1999.
(6) Includes options to purchase 10,452 shares of common stock exercisable
within 60 days of March 31, 2000.
(7) Includes options to purchase 321,418 shares of common stock which are
exercisable within 60 days of March 31, 2000. See Notes (1), (3), (4) and
(6).
Compliance with Reporting Requirements
Section 16(a) of the Securities Exchange Act requires our executive officers,
our directors and persons who own more than ten percent of a registered class
of our equity securities, to file initial ownership reports on Form 3 and
changes in ownership on Form 4 or 5 with the SEC. These executive officers,
directors and ten-percent stockholders are also required by SEC rules to
furnish us with copies of all Section 16(a) reports they file. Based solely on
our review of the copies of these forms together with written representation
from reporting persons that all reports required of them during the year were
filed, we believe that all Section 16(a) reports applicable to our executive
officers, directors and ten-percent stockholders with respect to reportable
transactions during the fiscal year ended December 31, 1999 were filed on a
timely basis.
18
Stock Performance Graph
The graph depicted below shows a comparison of cumulative total stockholder
returns for us, the Nasdaq Stock Market-US Index and a stock index comprised of
companies in a line of business similar to our during the same period.
6/24/98 6/30/98 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99
Nasdaq US 100.000 100.992 91.440 118.316 132.494 144.964 148.270 213.986
Nasdaq Computer
Data Processing
Services Stocks 100.000 101.615 95.820 124.219 148.859 154.894 159.998 261.564
SCCX 100.000 89.908 22.018 34.407 22.481 32.110 40.367 43.119
The graph covers the period from June 24, 1998, the initial date of the
registration of our common stock under the Securities Exchange Act, to December
31, 1999. The graph assumes that $100 was invested on June 24, 1998 in our
common stock and in each index, and that any dividends were reinvested. No cash
dividends have been declared on our common stock.
THE BOARD OF DIRECTORS
SCC COMMUNICATIONS CORP.
Dated: May 10, 2000
19
Exhibit I
PROPOSED RESOLUTIONS FOR ADOPTION BY THE BOARD OF DIRECTORS
OF
SCC COMMUNICATIONS, INC.
Re: Creation of a Classified Board of Directors
April 19, 2000
RESOLVED, that the Board of Directors hereby proposes the following amendments
to the Corporation's Certificate of Incorporation and Bylaws, said amendments
to be submitted submission to the stockholders of the Corporation at the next
Annual Meeting of Stockholders, to take effect only following approval by the
Stockholders at such meeting;
RESOLVED, that Article VI of the Certificate of Incorporation of the
Corporation shall be amended by the addition of a new, initial Paragraph
thereto, as follows:
ARTICLE VI.
The number of directorships shall be as set forth in the bylaws of the
corporation from time to time in accordance with Section 141, Delaware
General Corporation Law, but in no event shall the number of directorships
be less than three (3) nor more than nine (9). The directors shall be
qualified in accordance with the Bylaws. The term of office of the
directors shall be as set forth in the bylaws of the corporation from time
to time.
RESOLVED, that Articles III, Section 1, of the Bylaws of the Corporation is
hereby amended in its entirety as follows:
Section 1. Number, Election, Tenure and Qualifications. The Board shall be
composed of three classes designated as Class A, Class B and Class C. If
possible, each class shall consist of the same number of directors. In the
event the number of directors is not susceptible of dividing the directors
into classes of the same number of directors, then any additional directors
shall be added sequentially to each class beginning with Class A, then
Class B, and then Class C. Class A is initially composed of two (2)
directors serving initially for a term of one year; thereafter, elected for
terms of three (3) years. Class B is initially composed of two (2)
directors serving initially for a term of two years; thereafter, elected
for terms of three (3) years. Class C is composed of three (3) Directors
serving initially for a term of three (3) years; thereafter, elected for
terms of three (3) years. The directors shall be elected at the annual
meeting of the Stockholders by a plurality vote of the shares represented
in person or by proxy and each director elected shall hold office until his
or her successor is elected and qualified unless he or she shall resign,
become disqualified, disabled, or otherwise removed. Directors need not be
Stockholders.
20
Exhibit II
PROPOSED RESOLUTION FOR INCREASING SHARES
AVAILABLE FOR THE 1998 STOCK INCENTIVE PLAN
OF
SCC COMMUNICATIONS, INC.
RESOLVED, that the Board of Directors hereby proposes the following amendments
to the 1998 Stock Incentive Plan, said amendments to be submitted submission to
the stockholders of the Corporation at the next Annual Meeting of Stockholders,
to take effect only following approval by the Stockholders at such meeting;
RESOLVED, that Article One of the SCC Communications Corp. 1998 Stock
Incentive Plan shall be amended as follows:
SECTION 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 number of shares of Common Stock reserved for issuance
over the term of the Plan as of June 27, 2000 (the date of approval of an
amendment to the Plan by Stockholders at the Annual Meeting of the Corporation
for the fiscal year ended December 31, 1999) shall be 4,010,330 shares (which
includes all shares reserved for issuance under the Plan prior to June 27, 2000
plus 1,449,562 additional shares reserved for issuance under the Plan as
approved by Stockholders at such meeting). In addition, the share reserve will
automatically be increased on the first trading day in January of each calendar
year, beginning with the 2001 calendar year, by an amount equal to 3% of the
total number of shares of Common Stock outstanding on the last trading day in
December of the immediately preceding calendar year, but in no event shall any
such annual increase exceed 731,000 shares. To the extent any unvested shares
of Common Stock outstanding under the Predecessor Plan as of the Plan Effective
Time are subsequently repurchased by the Corporation, at the option exercise
price paid per share, in connection with the holder's termination of service
prior to vesting in the shares, those repurchased shares shall be added to the
reserve of Common Stock available for issuance under the Plan, but in no event
shall more than 476,776 shares be added to the reserve from such repurchases.
21
Appendix A
-------------
SCC COMMUNICATIONS CORP.
1998 STOCK INCENTIVE PLAN
[As proposed to be amended at the 2000 Annual Meeting of Stockholders]
-------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1998 Stock Incentive Plan is intended to promote the interests of
SCC Communications Corp., a Delaware corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- the Discretionary Option Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted options to purchase
shares of Common Stock,
- the Salary Investment Option Grant Program, which may, in the Plan
Administrator's discretion, be activated for one or more calendar years and
thereby allow eligible employees the opportunity to invest a portion of their
base salary invested each year in special option grants,
- the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock directly,
either through the immediate purchase of such shares or as a bonus for services
rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which eligible non-employee
Board members shall automatically receive option grants at periodic intervals to
purchase shares of Common Stock, and
- the Director Fee Option Grant Program, which may, in the Plan
Administrator's discretion, be activated for one or more calendar years and
thereby allow the non-employee Board members the opportunity to apply all or any
portion of their annual retainer fee otherwise payable in cash to a special
option grant.
B. The provisions of Articles One and Seven shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons.
B. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of any
Secondary Committee and reassume all powers and authority previously delegated
to such committee.
C. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any stock option or stock issuance thereunder.
D. The Primary Committee shall have the sole and exclusive authority to
determine which Section 16 Insiders and other highly compensated Employees shall
be eligible for participation in the Salary Investment Option Grant Program for
one or more calendar years. However, all option grants under the Salary
Investment Option Grant Program shall be made in accordance with the express
terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant and Director Fee Option
Grant Programs shall be self-executing in accordance with the terms of those
programs, and no Plan Administrator shall exercise any discretionary functions
with respect to any option grants or stock issuances made under those programs.
2
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors of
any Parent or Subsidiary, and
(iii) consultants 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.
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 on or after the Underwriting Date, whether through
appointment by the Board or election by the Corporation's stockholders, and (ii)
those individuals who continue to serve as non-employee Board members at one or
more Annual Stockholders Meetings held after the Underwriting Date, including
individuals who first joined the Board prior to 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 option grants under the Automatic Option Grant Program while he or she
continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to participate in
the Director Fee Option Grant Program.
3
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
reserved for issuance over the term of the Plan as of _____, 2000 (the date of
approval of an amendment to the Plan by Stockholders at the Annual Meeting of
the Corporation for the fiscal year ended December 31, 1999) shall be 4,010,330
shares, which includes all shares reserved for issuance under the Plan prior to
____, 2000 plus 1,449,562 additional shares reserved for issuance under the Plan
as approved by Stockholders at such meeting). In addition, the share reserve
will automatically be increased on the first trading day in January of each
calendar year, beginning with the 1999 calendar year, by an amount equal to 3%
of the total number of shares of Common Stock outstanding on the last trading
day in December of the immediately preceding calendar year, but in no event
shall any such annual increase exceed 731,000 shares. To the extent any unvested
shares of Common Stock outstanding under the Predecessor Plan as of the Plan
Effective Time are subsequently repurchased by the Corporation, at the option
exercise price paid per share, in connection with the holder's termination of
service prior to vesting in the shares, those repurchased shares shall be added
to the reserve of Common Stock available for issuance under the Plan, but in no
event shall more than 476,776 shares be added to the reserve from such
repurchases.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1998 calendar year.
C. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently repurchased by the
Corporation (including unvested shares issued under the Predecessor Plan and
repurchased by the Corporation at or after the Plan Effective Time), 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. However, should the exercise price of an option under
the Plan be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Corporation in satisfaction
of the withholding taxes incurred in connection with the exercise of an option
or the vesting of a stock issuance under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised or which vest under the stock
issuance, and not by the net number of shares of Common Stock issued to the
holder of such option or stock issuance. Shares of Common Stock underlying one
or more stock appreciation rights exercised under Section IV of Article Two of
the Plan shall not be available for subsequent issuance under the Plan.
4
D. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the maximum number and/or class of securities by which the share
reserve may increase each calendar year pursuant to the automatic share increase
provisions of the Plan, (iii) the number and/or class of securities for which
any one person may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under the Plan per calendar year,
(iv) the number and/or class of securities for which grants are subsequently to
be made under the Automatic Option Grant Program to new and continuing non-
employee Board members, (v) the number and/or class of securities and the
exercise price per share in effect under each outstanding option under the Plan
and (vi) the number and/or class of securities and price per share in effect
under each outstanding option incorporated into this Plan from the Predecessor
Plan. Such adjustments to the outstanding options are to be effected in a manner
which shall preclude the enlargement or dilution of rights and benefits under
such options. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Six
and the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
5
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at
----------------------------
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. Effect of Termination of Service.
--------------------------------
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution.
(iii) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease
to be outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
6
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.
D. Stockholder Rights. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion
-----------------
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-Statutory Option may, in
connection with the Optionee's estate plan, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
-----------
7
B. Exercise Price. The exercise price per share shall not be less
--------------
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the shares
-----------------
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable 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 Class A Common Stock. However, an outstanding
option shall not become exercisable on such an accelerated basis if and to the
extent: (i) such option is, in connection with the Corporate Transaction, to be
assumed by the successor corporation (or parent thereof) or (ii) such option is
to be replaced with a cash incentive program of the successor corporation which
preserves the spread existing at the time of the Corporate Transaction on any
shares for which the option is not otherwise at that time exercisable and
provides for subsequent payout in accordance with the same exercise/vesting
schedule applicable to those option shares or (iii) the acceleration of such
option is subject to other limitations imposed by the Plan Administrator at the
time of the option grant.
B. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the
8
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.
E. The Plan Administrator shall have the discretionary authority to
provide for the automatic acceleration of one or more outstanding options under
the Discretionary Option Grant Program upon the occurrence of a Corporate
Transaction, whether or not those options are to be assumed in the Corporate
Transaction, so that each such option shall, immediately prior to the effect
date of such Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to that option and
may be exercised for any or all of those shares as fully vested shares of Common
Stock. In addition, the Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Discretionary Option Grant Program so that those rights shall not be
assignable in connection with such Corporate Transaction and shall accordingly
terminate upon the consummation of such Corporate Transaction, and the shares
subject to those terminated rights shall thereupon vest in full.
F. The Plan Administrator shall have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under the Discretionary Option Grant Program in the
event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which those
options are assumed and do not otherwise accelerate. Any options so accelerated
shall remain exercisable for fully vested shares until the earlier of (i) the
-------
expiration of the option term or (ii) the expiration of the one (1) year period
measured from the effective date of the Involuntary Termination. In addition,
the Plan Administrator may provide that one or more of the Corporation's
outstanding repurchase rights with respect to shares held by the Optionee at the
time of such Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest in full.
G. The Plan Administrator shall have the discretionary authority to
provide for the automatic acceleration of one or more outstanding options under
the Discretionary Option Grant Program upon the occurrence of a Change in
Control so that each such option shall, immediately prior to the effect date of
such Change in Control, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to that option and may be
exercised for any or all of those shares as fully vested shares of Common Stock.
In addition, the Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the
Discretionary Option Grant Program so that those rights shall terminate
automatically upon the consummation of such Change in Control, and the shares
subject to those terminated rights shall thereupon vest in full. Alternatively,
the Plan
9
Administrator may condition the automatic acceleration of one or more
outstanding options under the Discretionary Option Grant Program and the
termination of one or more of the Corporation's outstanding repurchase rights
under such program upon the subsequent termination of the Optionee's Service by
reason of an Involuntary Termination within a designated period (not to exceed
eighteen (18) months) following the effective date of such Change in Control.
Each option so accelerated shall remain exercisable for fully vested shares
until the earlier of (i) the expiration of the option term or (ii) the
-------
expiration of the one (1) year period measured from the effective date of
Optionee's cessation of Service.
H. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant
to selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution from
the Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable for such
shares.
(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
10
Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
(iii) If the surrender of an option is not approved by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
later of (a) five (5) business days after the receipt of the rejection
-----
notice or (b) the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option, but in
no event may such rights be exercised more than ten (10) years after the
option grant date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
(ii) 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, at the time the option with
such limited stock appreciation right is granted under the Discretionary
Option Grant Program, pre-approve any subsequent exercise of that right in
accordance with the terms of this Paragraph C. Accordingly, no further
approval of the 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
--------------------------------------
VI. OPTION GRANTS
The Primary Committee shall have the sole and exclusive
authority to determine the calendar year or years (if any) for which the Salary
Investment Option Grant Program is to be in effect and to select the Section 16
Insiders and other highly compensated Employees eligible to participate in the
Salary Investment Option Grant Program for such calendar year or years. Each
selected individual who elects to participate in the Salary Investment Option
Grant Program must, prior to the start of each calendar year of participation,
file with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). 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 automatically be granted an option
under the Salary Investment Grant Program on the first trading day in January of
the calendar year for which the salary reduction is to be in effect.
VII. 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.
VIII. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable 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
13
Common Stock. The option shall remain so exercisable until the earlier of (i)
-------
the expiration of the ten (10)-year option term, (ii) the expiration of the
three (3)-year period measured from the date of the Optionee's cessation of
Service or (iii) the surrender of the option in connection with a Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have
a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. The Primary Committee shall, at the time the option
with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
D. 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.
IX. 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.
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below. Shares of Common Stock
may also be issued under the Stock Issuance Program pursuant to share right
awards which entitle the recipients to receive those shares upon the attainment
of designated performance goals.
A. Purchase Price.
--------------
14
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).
B. Vesting Provisions.
------------------
1. The Plan Administrator may issue shares of Common Stock under
the Stock Issuance Program which are fully and immediately vested upon issuance
or which are to vest in one or more installments over the Participant's period
of Service or upon attainment of specified performance objectives.
Alternatively, the Plan Administrator may issue share right awards under the
Stock Issuance Program which shall entitle the recipient to receive a specified
number of shares of Common Stock upon the attainment of one or more performance
goals established by the Plan Administrator. Upon the attainment of such
performance goals, fully-vested shares of Common Stock shall be issued in
satisfaction of those share right awards.
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 stockholder rights with respect
to any shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant's interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect to one
or more such unvested shares of Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation, and the Participant
shall have no further stockholder rights with respect to those shares. To the
extent the surrendered shares were previously issued to the Participant for
consideration paid in cash or cash equivalent (including the Participant's
purchase-money indebtedness), the Corporation shall repay to the Participant the
cash consideration paid for the
15
surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to the
surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance Program
shall automatically terminate, and no shares of Common Stock shall actually be
issued in satisfaction of those awards, if the performance goals established for
such awards are not attained. The Plan Administrator, however, shall have the
discretionary authority to issue shares of Common Stock in satisfaction of one
or more outstanding share right awards as to which the designated performance
goals are not attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
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 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 subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase 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 subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control.
16
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.
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified
-----------
below:
1. Each individual who is first elected or appointed as a non-
employee Board member at any time on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 15,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, 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 3,000 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 annual 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) or who first joined the Board prior to
the Underwriting Date 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.
17
D. Exercise and Vesting of Options. Each option shall be immediately
-------------------------------
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. The shares subject to each initial
15,000-share option grant shall vest, and the Corporation's repurchase right
shall lapse with respect to those shares, as follows: (i) twenty-five percent
(25%) upon Optionee's completion of one (1) year of Board service measured from
the grant date and (ii) the balance in a series of thirty-six (36) successive
equal monthly installments upon the Optionee's completion of each additional
month of Board service over the thirty-six (36)-month period measured from the
first anniversary of the option grant date. The shares subject to each annual
3,000-share option grant shall vest, and the Corporation's repurchase right
shall lapse with respect to those shares, upon the Optionee's completion of one
(1) year of Board service measured from the grant date.
E. 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 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.
18
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 those Option Shares as fully-vested shares of Common
Stock and may be exercised for all or any portion of those vested shares.
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 those Option Shares as fully-vested shares of Common Stock and may be
exercised for all or any portion of those vested shares. 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. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction or Change in
Control.
D. Upon the occurrence of a Hostile Take-Over, the Optionee shall have
a thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or consent
of the Board or any Plan Administrator shall be required in connection with such
option surrender and cash distribution.
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
--------
payable for such securities shall remain the same.
F. The grant of options under the Automatic Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
19
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.
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
---------------------------------
I. OPTION GRANTS
The Plan Administrator shall have the sole and exclusive authority to
determine the calendar year or years (if any) the Director Fee Option Grant
Program is to be in effect. Once the Director Fee Option Grant Program is in
effect, each non-employee Board member may elect to apply all or any portion of
the annual retainer fee otherwise payable in cash for his or her service on the
Board to the acquisition of a special option grant under this Director Fee
Option Grant Program. Such election must be filed with the Corporation's Chief
Financial Officer prior to first day of the calendar year for which the annual
retainer fee which is the subject of that election is otherwise payable. Each
non-employee Board member who files such a timely election shall automatically
be granted an option under this Director Fee Option Grant Program on the first
trading day in January in the calendar year for which the annual retainer fee
which is the subject of that election would otherwise be payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
20
X is the number of option shares,
A is the portion of the annual retainer fee subject to the non-
employee Board member's election, and
B is the Fair Market Value per share of Common Stock on the option
grant date.
C. Exercise and Term of Options. The option shall become exercisable
----------------------------
in a series of twelve (12) equal monthly installments upon the Optionee's
completion of each month of Board service over the twelve (12)-month period
measured from the grant date. Each option shall have a maximum term of ten (10)
years measured from the option grant date.
D. Termination of Board Service. Should the Optionee cease Board
----------------------------
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
- -------
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
E. Death or Permanent Disability. Should the Optionee's service as a
-----------------------------
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
-------
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service.
Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior to death), by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution. Such right of exercise shall lapse,
and the option shall terminate, upon the earlier of (i) the expiration of the
-------
ten (10)-year option term or (ii) the three (3)-year period measured from the
date of the Optionee's cessation of Board service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to
21
the effective date of the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. Each such outstanding option shall be assumed by the
successor corporation (or parent thereof) in the Corporate Transaction and shall
remain exercisable for the fully-vested shares until the earlier of (i) the
-------
expiration of the ten (10)-year option term or (ii) the expiration of the three
(3)-year period measured from the date of the Optionee's cessation of Board
service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. The
option shall remain so exercisable until the earlier or (i) the expiration of
-------
the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. No approval or consent of the Board or any Plan
Administrator shall be required in connection with such option surrender and
cash distribution.
D. The grant of options under the Director Fee Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director
Fee Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
22
ARTICLE SEVEN
MISCELLANEOUS
-------------
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price under the Discretionary Option Grant Program or
the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one or
more installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan (other than the options granted or the shares issued under the
Automatic Option Grant or Director Fee Option Grant Program) with the right to
use shares of Common Stock in satisfaction of all or part of the Taxes incurred
by such holders in connection with the exercise of their options or the vesting
of their shares. Such right may be provided to any such holder in either or both
of the following formats:
Stock Withholding: The election to have the Corporation
-----------------
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at
--------------
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
23
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Discretionary Option Grant, Stock Issuance and Automatic
Option Grant Programs shall become effective on the Underwriting Date. The
Salary Investment Option Grant Program and the Director Fee Option Grant Program
shall not be implemented until such time as the Primary Committee may deem
appropriate. Options may be granted under the Discretionary Option Grant or
Automatic Option Grant Program at any time on or after the Underwriting Date.
However, no options granted under the Plan may be exercised, and no shares shall
be issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the Plan Effective Time, 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 to occur of (i)
--------
April 30, 2008 (ii) the date on which all shares available for issuance under
the Plan shall have been issued as fully-vested shares or (iii) the termination
of all outstanding options in connection with a Corporate Transaction. Should
the Plan terminate on April 30, 2008, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to stock options or unvested stock issuances at the time outstanding
under the Plan unless the Optionee or the Participant consents to such amendment
or modification. In addition, certain amendments may require stockholder
approval pursuant to applicable laws or regulations.
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
24
Common Stock may be issued under the Stock Issuance Program that are in each
instance in excess of the number of shares then available for issuance under the
Plan, provided any excess shares actually issued under those programs shall be
held in escrow until there is obtained stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock
option under the Plan and the issuance of any shares of Common Stock (i) upon
the exercise of any granted option or (ii) under the Stock Issuance Program
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the stock
options granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
25
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Activation Date shall mean the date on which the Automatic Option
---------------
Grant Program is activated by the Board.
B. Automatic Option Grant Program shall mean the automatic option grant
------------------------------
program that may be in effect under the Plan.
C. Board shall mean the Corporation's Board of Directors.
-----
D. Change in Control shall mean a change in ownership or control of the
-----------------
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
E. Code shall mean the Internal Revenue Code of 1986, as amended.
----
F. Common Stock shall mean the Corporation's common stock.
------------
G. Corporate Transaction shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
H. Corporation shall mean SCC Communications Corp., a Delaware
-----------
corporation, and its successors.
I. Director Fee Option Grant Program shall mean the special stock
---------------------------------
option grant that may be in effect for non-employee Board members under Article
Six of the Plan.
J. Discretionary Option Grant Program shall mean the discretionary
----------------------------------
option grant program in effect under the Plan.
K. 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.
L. 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.
M. Exercise Date shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
N. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
(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.
2
O. Hostile Take-Over shall mean the acquisition, directly or
-----------------
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
P. Incentive Option shall mean an option which satisfies the
----------------
requirements of Code Section 422.
Q. Involuntary Termination shall mean the termination of the Service
-----------------------
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her duties and responsibilities or the level of management to which
he or she reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonus under any
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the
individual's consent.
R. 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).
S. 1934 Act shall mean the Securities Exchange Act of 1934, as
--------
amended.
T. Non-Statutory Option shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
U. Optionee shall mean any person to whom an option is granted under
--------
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
V. 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
3
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.
W. Participant shall mean any person who is issued shares of Common
-----------
Stock under the Stock Issuance Program.
X. Permanent Disability or Permanently Disabled shall mean the
--------------------------------------------
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
Y. Plan shall mean the Corporation's 1998 Stock Incentive Plan, as
----
set forth in this document.
Z. Plan Administrator shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
AA. Plan Effective Date shall mean the date the Plan is adopted by the
-------------------
Board.
BB. Predecessor Plan shall mean the Corporation's pre-existing Stock
----------------
Option Plan in effect immediately prior to the Section 12 Registration Date.
CC. Primary Committee shall mean the committee of two (2) or more
-----------------
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
DD. Salary Investment Option Grant Program shall mean the salary
--------------------------------------
investment option grant program that may be in effect under the Plan.
EE. Secondary Committee shall mean a committee of one or more Board
-------------------
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
FF. Section 12 Registration Date shall mean the date on which the
----------------------------
Common Stock is first registered under Section 12 of the 1934 Act.
GG. 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.
4
HH. Service shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
II. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
JJ. 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.
KK. Stock Issuance Program shall mean the stock issuance program in
----------------------
effect under the Plan.
LL. 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.
MM. 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.
NN. 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.
OO. 10% Stockholder shall mean the owner of stock (as determined under
---------------
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
PP. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
QQ. 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
SCC COMMUNICATIONS CORP. proxy
- --------------------------------------------------------------------------------
Annual Meeting of Stockholders, June 27, 2000
This Proxy is Solicited on Behalf of the Board of Directors of
SCC Communications Corp.
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the 2000 Annual Meeting of Stockholders of SCC Communications Corp.
("SCC") to be held on June 27, 2000 and the related proxy statement, and
appoints George K. Heinrichs and Carol Nelson, and each of them, the proxy of
the undersigned, with full power of substitution, to vote all shares of common
stock of SCC that the undersigned is entitled to vote, either on his or her own
behalf or on behalf of any entity or entities, at the 2000 Annual Meeting of
Stockholders of SCC to be held at the DoubleTree Hotel-Denver on Tuesday, June
27, 2000 at 8:30 a.m. Mountain Time and at any adjournment or 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 for voting instructions.
Please detach here
1. To create a classified board of [_] FOR [_] AGAINST
directors by dividing the Board of
Directors into three (3) classes
with staggered terms.
2. To elect the following directors to [_] Vote FOR [_] Vote WITHHELD
serve for one-year (Class A), two- all nominees from all nominees
year (Class B) or three-year (Class
C) terms ending in the year 2000,
2001 and 2002, respectively or until
successors are duly elected and
qualified;
01 George K. Heinrichs, Class C
02 Stephen O. James, Class A
03 David Kronfeld, Class B
04 Philip B. Livingston, Class B
05 Mary Beth Vitale, Class A
06 Winston J. Wade, Class C
07 Darrell A. Williams, Class C
3. To increase the authorized shares [_] FOR [_] AGAINST
for the 1998 Stock Incentive Plan.
4. To ratify the appointment of Arthur [_] FOR [_] AGAINST
Andersen LLP as independent auditors
of the Company for the fiscal year
ending December 31, 2000.
5. In accordance with the discretion of [_] FOR [_] AGAINST
the proxy holders, to act upon all
matters incident to the conduct of
the meeting and upon other matters
as may properly come before the
meeting.
The Board of Directors recommends a vote IN FAVOR OF the classified Board of
Directors, a vote IN FAVOR OF the directors listed above, a vote IN FAVOR OF
the increase in authorized shares and a vote IN FAVOR OF the ratification of
independent auditors. This proxy, when properly executed, will be voted as
specified above. If no specification is made, this proxy will be voted IN FAVOR
OF the classified Board of Directors, IN FAVOR OF the election of the directors
listed above, IN FAVOR OF the increase in authorized shares and IN FAVOR OF the
ratification of the independent auditors.
Please print the name(s) appearing
on each share certificate(s) over
which you have voting authority:
----------------------------------
(Print name(s) on certificate)
Please sign your name:
----------------------------------
(Authorized Signature(s))
Date: ____________________________