SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED
BY RULE 14A-6(E)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
QRS CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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/X/ No fee required.
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and 0-11.
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applies:
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[LOGO]
QRS CORPORATION 1400 Marina Way South
Richmond, CA
94804 USA
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
QRS Corporation (the "Company") to be held May 10, 2001, at 1:30 p.m. local time
at the Company's headquarters, 1400 Marina Way South, Richmond, California
94804.
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals: (1) to elect three directors of the Company to serve for a
three-year term ending in the year 2004 or until their respective successor is
duly elected and qualified, (2) to approve an amendment to the QRS Corporation
1993 Stock Option/Stock Issuance Plan, (3) to approve an amendment and
restatement of the QRS Corporation Employee Stock Purchase Plan and (4) to
ratify the appointment of PricewaterhouseCoopers LLP as independent auditors of
the Company for the fiscal year ending December 31, 2001.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting. After careful consideration, the
Company's Board of Directors has unanimously approved each of the proposals and
recommends that you vote FOR each such proposal.
After reading the Proxy Statement, please mark, date, sign and return the
enclosed proxy card in the accompanying reply envelope. If you decide to attend
the Annual Meeting and would prefer to vote in person, please notify the
Secretary of the Company that you wish to vote in person and your proxy will not
be voted. YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THE
ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING IN PERSON.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
/s/ John S. Simon
John S. Simon
CHIEF EXECUTIVE OFFICER
Richmond, California
April 14, 2001
IMPORTANT
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED POSTAGE-PREPAID RETURN ENVELOPE SO THAT IF YOU ARE
UNABLE TO ATTEND THE ANNUAL MEETING, YOUR SHARES MAY BE VOTED.
QRS CORPORATION
1400 MARINA WAY SOUTH, RICHMOND, CALIFORNIA 94804
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 10, 2001
TO OUR STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders of
QRS Corporation, a Delaware corporation (the "Company"), to be held on May 10,
2001, at 1:30 p.m., local time, at the Company's headquarters, 1400 Marina Way
South, Richmond, California 94804, for the following purposes:
1. To elect three directors to serve for a three-year term ending in the year
2004 or until their respective successor is duly elected and qualified. The
nominees are John P. Dougall, Philip Schlein and John S. Simon;
2. To approve an amendment to the QRS Corporation 1993 Stock Option/Stock
Issuance Plan (the "1993 Plan") pursuant to which the number of shares of
Common Stock authorized for issuance over the term of the 1993 Plan will be
increased by an additional 750,000 shares to a total of 5,450,000 shares;
3. To approve an amendment and restatement of the QRS Corporation Employee
Stock Purchase Plan (the "Purchase Plan") to effect the following changes:
(i) increase the number of shares authorized for issuance under the Purchase
Plan by an additional 200,000 shares, (ii) implement a series of overlapping
twenty-four (24)-month offering periods beginning at semi-annual intervals
each year, (iii) establish a series of semi-annual purchase dates within
each such offering period, (iv) limit the number of shares of Common Stock
purchasable by any one participant on any one purchase date to a total of
750 shares, (v) limit the maximum number of shares of Common Stock
purchasable in total by all participants on any one purchase date to 100,000
shares, (vi) extend the term of the Purchase Plan to the last business day
in April 2011, and (vii) revise certain provisions of the plan document in
order to facilitate the administration of the Purchase Plan;
4. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending December 31, 2001; and
5. To transact such other business as may properly come before the meeting or
any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement that accompanies this Notice. Only stockholders of record at the close
of business on March 16, 2001 are entitled to notice of and to vote at the
Annual Meeting and at any adjournment thereof. A list of stockholders entitled
to vote at the Annual Meeting will be available for inspection at the executive
offices of the Company.
All stockholders are cordially invited and encouraged to attend the Annual
Meeting in person. In any event, to assure your representation at the meeting,
please carefully read the accompanying Proxy Statement which describes the
matters to be voted on at the Annual Meeting and sign, date and return
the enclosed proxy card in the reply envelope provided. Should you receive more
than one proxy because your shares are registered in different names and
addresses, each proxy should be returned to assure that all your shares will be
voted. If you attend the Annual Meeting and vote by ballot, your proxy will be
revoked automatically and only your vote at the Annual Meeting will be counted.
The prompt return of your proxy card will assist us in preparing for the Annual
Meeting. We look forward to seeing you at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John S. Simon
John S. Simon
CHIEF EXECUTIVE OFFICER
Richmond, California
April 14, 2001
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. IN ANY EVENT, TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU
ARE URGED TO VOTE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN
THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE.
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
QRS CORPORATION
TO BE HELD MAY 10, 2001
GENERAL
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of QRS Corporation, a Delaware corporation (the "Company" or
"QRS"), of proxies to be voted at the Annual Meeting of Stockholders to be held
on May 10, 2001, or at any adjournment thereof, for the purposes set forth in
the accompanying Notice of Annual Meeting of Stockholders. Stockholders of
record on March 16, 2001 will be entitled to vote at the Annual Meeting. The
Annual Meeting will be held at 1:30 p.m., local time, at the Company's
headquarters, 1400 Marina Way South, Richmond, California 94804.
VOTING RIGHTS
The close of business on March 16, 2001 was the record date for stockholders
entitled to notice of and to vote at the Annual Meeting and any adjournments
thereof. At the record date, the Company had 15,279,179 shares of its Common
Stock outstanding and entitled to vote at the Annual Meeting. These shares were
held by 243 stockholders of record and approximately 39,453 beneficial owners.
Holders of Common Stock are entitled to one vote for each share of Common Stock
held. Stockholders may not cumulate votes in the election of directors. A
majority of the outstanding shares of Common Stock will constitute a quorum for
the transaction of business at the Annual Meeting.
If any stockholder is unable to attend the Annual Meeting, such stockholder
may vote by proxy. The enclosed proxy is solicited by the Company's Board of
Directors (the "Board of Directors" or the "Board") and, when the proxy card is
returned properly completed, it will be voted as directed by the stockholder on
the proxy card. Stockholders are urged to specify their choices on the enclosed
proxy card. If a proxy card is signed and returned without choices specified, in
the absence of contrary instructions, the shares of Common Stock represented by
such proxy will be voted FOR Proposals 1, 2, 3 and 4 and will be voted in the
proxy holders' discretion as to other matters that may properly come before the
Annual Meeting. An automated system administered by the Company's transfer agent
tabulates stockholder votes.
Pursuant to Delaware law, directors are elected by plurality vote. With
regard to such election, votes may be cast in favor of, or withheld from, each
nominee. Withheld votes will be excluded from the vote and will have no effect.
Proposals 2, 3 and 4 will each require the approval of the affirmative vote of a
majority of the shares present or represented and entitled to vote at the Annual
Meeting. Abstentions and broker non-votes (I.E., where the broker or nominee
submits a proxy specifically indicating the lack of discretionary authority to
vote on a matter) will be counted as present for purposes of determining the
presence or absence of a quorum for the transaction of business. Abstentions
will be counted in the tabulation of votes cast on Proposals 2, 3, and 4 and
will have the same effect as negative votes, whereas broker non-votes will not
be counted for purposes of determining whether these proposals have been
approved.
REVOCABILITY OF PROXIES
Any person giving a proxy has the power to revoke it at any time before its
exercise. A proxy may be revoked by filing with the Secretary of the Company at
the Company's principal executive offices an instrument of revocation or a duly
executed proxy bearing a later date, or by attending the Annual Meeting and
voting in person.
SOLICITATION OF PROXIES
The Company will bear the cost of soliciting proxies, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to the stockholders. Copies
of solicitation material will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
to forward to such beneficial owners. The Company may reimburse such persons for
their costs of forwarding the solicitation material to such beneficial owners.
The original solicitation of proxies by mail may be supplemented by solicitation
by telephone, telegram or other means by directors, officers, employees or
agents of the Company. No additional compensation will be paid to these
individuals for any such services. The Company has also retained the services of
Mellon Investor Services LLC to solicit proxies by telephone, telegram or other
means for the Annual Meeting. The Company will pay Mellon Investor Services LLC
approximately $9,000 for such services.
THE ANNUAL REPORT OF THE COMPANY FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
IS ENCLOSED WITH THE MAILING OF THE NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TO ALL STOCKHOLDERS ENTITLED TO NOTICE OF AND TO VOTE AT THE ANNUAL MEETING. THE
ANNUAL REPORT IS NOT INCORPORATED INTO THIS PROXY STATEMENT AND IS NOT
CONSIDERED PROXY-SOLICITING MATERIAL.
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PROPOSAL NO. 1:
ELECTION OF DIRECTORS
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The Company's Certificate of Incorporation provides for a classified Board
of Directors consisting of three classes of directors with staggered three-year
terms, with each class consisting, as nearly as possible, of one-third of the
total number of directors. The Board currently consists of eight persons,
classified as follows: Class I, which will hold office until the year 2002,
consists of Peter R. Johnson and Tania Amochaev; Class II, which will hold
office until the year 2003, consists of David A. Cole, Garth Saloner and Garen
K. Staglin; and Class III, which will hold office until the year 2004, if this
Proposal No. 1 is approved, will consist of John P. Dougall, Philip Schlein and
John S. Simon.
At the Annual Meeting, the three directors (constituting all of the members
of Class III of the Board of Directors) are to be nominated for election to
serve until the Company's 2004 annual meeting of stockholders, or until their
respective successor is elected and qualified, or until the death, resignation
or removal of such director. It is intended that the proxies will be voted for
the three nominees named below for election to the Board of Directors unless
authority to vote for any such nominee is withheld. The three nominees to the
Board of Directors are John P. Dougall, Philip Schlein and John S. Simon.
Messrs. Dougall, Schlein and Simon are current members of the Board of Directors
and Mr. Simon also serves as the Company's Chief Executive Officer. Each person
nominated for election has agreed to serve if elected, and the Board of
Directors has no reason to believe that any nominee will be unavailable or will
decline to serve. In the event, however, that any nominee is unable or declines
to serve as a director at the time of the Annual Meeting, the proxies will be
voted for any nominee who shall be designated by the current Board of Directors
to fill the vacancy. Unless otherwise instructed, the proxy holders will vote
the proxies received by them for the nominees named below. The three candidates
receiving the highest number of the affirmative votes of the shares entitled to
vote at the Annual Meeting will be elected directors of the Company. The proxies
solicited by this Proxy Statement may not be voted for more than three nominees.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF
THE FOLLOWING NOMINEES FOR ELECTION AS DIRECTORS.
3
NOMINEES FOR TERM ENDING UPON THE
2004 ANNUAL MEETING OF STOCKHOLDERS
Set forth below is information regarding the nominees to be elected as
Class III directors that will serve until the Company's 2004 annual meeting of
stockholders, or until their respective successors are duly elected and
qualified.
SERVED AS
NAME POSITION(S) WITH THE COMPANY AGE DIRECTOR SINCE:
- ---- -------------------------------------- -------- ---------------
John P. Dougall (1)............... Director 57 1990
Philip Schlein (2)................ Director 67 1996
John S. Simon (1)................. Chief Executive Officer and Director 44 1997
- ------------------------
(1) Member of the Nominations Committee
(2) Member of the Compensation Committee
MR. DOUGALL has been a director of the Company since July 1990. In
February 1999, Mr. Dougall became Group Chief Executive Officer for Plessy Asia
Pacific, an Australian company providing road and air navigation technology.
Since October 2000, he has served as Chief Executive Officer of Commander
Communications Ltd., an Australian publicly listed company specializing in
integrated communications devices. From December 1997 to February 1999,
Mr. Dougall was a private investor. From November 1996 to November 1997,
Mr. Dougall served as Chairman and Chief Executive Officer for Aristocrat
Leisure Limited, an Australian publicly listed company and a supplier to
gambling and entertainment companies. From January 1992 to September 1996,
Mr. Dougall served as Chief Executive Officer of AWA Limited, an Australian
publicly listed company specializing in electronics and telecommunications.
Mr. Dougall held various executive positions with the Company from July 1990 to
January 1992, serving as President of the Company from February 1991 to
June 1991 and as President and Chief Executive Officer from June 1991 to
January 1992. From February 1988 to June 1990, Mr. Dougall was the Executive
Director of Paxus Corporation, a software services and outsourcing firm.
MR. SCHLEIN was named a director of the Company in February 1996.
Mr. Schlein has been a venture partner in U.S. Venture Partners, a venture
capital firm, since April 1985 where he has advised new companies on strategy,
recruiting and finance. Mr. Schlein held various executive positions with R.H.
Macy & Company, Inc. from September 1957 to December 1973 and was President and
Chief Executive Officer of its Macy's California division from January 1974 to
January 1985. Mr. Schlein currently serves as a director of Burnham Pacific
Incorporated, a commercial real estate development and leasing company, Ross
Stores, Inc., a clothing store chain, Bebe Stores, Inc., a producer of
contemporary women's apparel and accessories, NBC Internet, Inc., an internet
media company, and various private companies. Additionally, Mr. Schlein served
as a director of R.H. Macy Inc. from 1977 to 1985 and he served as a director of
Apple Computer, Inc. from 1979 to 1987.
MR. SIMON was named Chief Executive Officer in July 1998 and a director of
the Company in December 1997. Mr. Simon has held various positions with the
Company since 1988, including President from January 1998 until July 1998 and
Executive Vice President from January 1994 to December 1997. From 1980 to 1988,
Mr. Simon was employed by Carter Hawley Hale Stores, Inc., a
4
retail company, most recently as Senior Program Manager of its Information
Services Division, and prior to that held a number of merchandising, store
management and information services positions.
CONTINUING DIRECTORS FOR TERM ENDING UPON THE
2003 ANNUAL MEETING OF STOCKHOLDERS
Set forth below is information regarding the continuing directors that will
serve until the Company's 2003 annual meeting of stockholders or until their
respective successors are duly elected and qualified.
SERVED AS
NAME POSITION(S) WITH THE COMPANY AGE DIRECTOR SINCE:
- ---- -------------------------------------- -------- ---------------
David A. Cole (1)(2).............. Director 58 1999
Garth Saloner, Ph.D. (2)(3)....... Director, Chairman of the Compensation 46 1993
Committee
Garen K. Staglin (1)(4)........... Director, Chairman of the Executive 56 1991
Committee
- ------------------------
(1) Member of the Nominations Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
(4) Member of the Executive Committee
MR. COLE was named a director of the Company in December 1999. Mr. Cole
served as the Chairman of the Board and CEO of Kurt Salmon Associates, Inc.
("KSA"), a global management consulting firm that serves the retail, consumer
products, and health care industries, from 1988 until 1999. Throughout his
tenure as CEO, Mr. Cole played a leadership role in numerous projects, including
Strategy, Organization Development, Information Technology Operations and
Sourcing in the Retailing and Consumer Products industries. Mr. Cole is a
director of AMB Property Corporation, a publicly traded REIT which specializes
in high throughput logistics. He is also a frequent keynote speaker at major
industry conferences in North America, Europe and Asia.
DR. SALONER was named a director of the Company in December 1993.
Dr. Saloner is the Jeffrey S. Skoll Professor of Electronic Commerce, Strategic
Management and Economics at the Graduate School of Business at Stanford
University (the "Stanford GSB") where he has been on the faculty since 1990. He
also serves as a Co-Director of the Center for Electronic Business and Commerce
at the Stanford GSB. He served as Associate Dean for Academic Affairs and
Director of Research and Course Development at Stanford from 1993 to 1996. From
1982 to 1990, Dr. Saloner was a professor at the Massachusetts Institute of
Technology. Dr. Saloner is a director of Synthean, an enterprise software
company, Brilliant Digital Entertainment, a 3D animation firm, and Next Stage
Entertainment, a firm engaged in building a network of live entertainment
theaters. He also serves on the advisory boards of eOne Global LP, an electronic
payments infrastructure company, and Voxeo Corp., a web-based phone application
company.
5
MR. STAGLIN was named a director of the Company in 1991. Mr. Staglin is
President and Chief Executive Officer of eONE Global LP, an electronic payments
infrastructure company. From 1991 to March 2000, Mr. Staglin served as Chairman
of the Board of Directors of Safelite Glass Corporation, a replacement auto
glass manufacturing and retailing company, and was the Chief Executive Officer
of Safelite Glass Corporation from August 1991 until April 1997. From 1980 to
1991, Mr. Staglin was a Vice President and General Manager of Automatic Data
Processing, a computer networking services company. Since 1985, Mr. Staglin has
been the owner and manager of Staglin Vineyards. Mr. Staglin currently serves as
a director of First Data Corporation, a supplier of computer services for credit
card processing and other financial services, and from 1997 to September, 2000,
he served as a director of CyberCash, Inc., a provider of secure transaction
services for the Internet. In 1994, Mr. Staglin was named a member of the
Advisory Council to the Stanford Graduate School of Business. He currently
serves as Vice President--Trustee of the American Center for Wine, Food and the
Arts in Napa, California.
CONTINUING DIRECTORS FOR TERM ENDING UPON THE
2002 ANNUAL MEETING OF STOCKHOLDERS
Set forth below is information regarding the continuing directors that will
serve until the Company's 2002 annual meeting of stockholders, or until their
respective successors are duly elected and qualified.
SERVED AS
NAME POSITION(S) WITH THE COMPANY AGE DIRECTOR SINCE:
- ---- -------------------------------------- -------- ---------------
Peter R. Johnson (1)(2)(3)........ Chairman of the Board of Directors and 52 1985
Chairman of the Nominations
Committee
Tania Amochaev (2)................ Director 51 1992
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Executive Committee
(3) Member of the Nominations Committee
MR. JOHNSON founded the Company in 1985 and has been Chairman of the Board
since the Company's inception. Mr. Johnson served as Executive Chairman of the
Company from September 2000 to January 2001. Mr. Johnson served as CEO of the
Company from October 1985 to March 1991 and again from January 1992 to
May 1993. Before founding the Company, Mr. Johnson was a Corporate General
Manager of Myer Emporium Limited, a large retailer in Australia. From 1995 to
the present, Mr. Johnson has been a private investor in and a consultant to a
number of technology companies. Mr. Johnson served as Chairman of NSB Retail
Systems PLC, a publicly held company in the United Kingdom, from 1995 through
October 1999. From June 1999 through September 2000, Mr. Johnson served as
Chairman and CEO of Tradeweave, Inc., a subsidiary of the Company prior to its
merger into the Company in February, 2001. Mr. Johnson is Chairman of Credit
Management Services, Inc., a credit and software company and style365.com, an
Internet directory company.
6
MS. AMOCHAEV was named a director in May 1992. Ms. Amochaev served as
President of the Company from May 1992 until February 1997, and as Chief
Executive Officer from May 1993 until February 1997. Before joining the Company,
from 1988 to 1992, Ms. Amochaev was Chief Executive Officer of Natural
Language, Inc., a client server database tool software company. From 1984 to
1988, Ms. Amochaev was President and Chief Executive Officer of Comserv
Corporation, a manufacturing applications software company that was sold in 1987
to Management Science America. Ms. Amochaev currently serves as a director of
Walker Interactive Systems, Inc., a financial software company, and Symantec
Corporation, a software company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held six meetings during fiscal year 2000. Each of
the nine directors constituting the Board of Directors for fiscal year 2000
attended more than 75% of the aggregate of (i) the total number of Board
meetings held during that fiscal year, and (ii) the total number of meetings
held by all committees of the Board on which such director served, except for
Tania Amochaev, who attended four out of six Board meetings and four out of five
Executive Committee meetings. The Board of Directors has an Audit Committee, a
Compensation Committee, an Executive Committee and a Nominations Committee.
The Audit Committee of the Board of Directors held five meetings during
fiscal 2000. The Audit Committee, which during fiscal year 2000 was comprised of
Messrs. Steven Brooks (Chairman), Johnson and Saloner, recommends engagement of
the Company's independent auditors, reviews services performed by such auditors
and reviews and evaluates the Company's accounting system and its system of
internal controls. The Audit Committee operates under a written charter adopted
by the Audit Committee. A copy of the Audit Committee charter, as currently in
effect, is attached hereto as Appendix A.
Mr. Brooks resigned from the Board in March 2001, in consequence, the Audit
Committee currently consists of Messrs. Johnson and Saloner. Mr. Saloner
satisfies the independence requirement of the National Association of Securities
Dealers' ("NASD") listing standards. Mr. Johnson does not satisfy the
independence requirement because he previously acted as the Chief Executive
Officer of a former subsidiary of the Company and served as Executive Chairman
of the Company. The Company will ensure that by June 14, 2001, the Audit
Committee will comply with all applicable NASD rules and requirements governing
audit committee composition and membership.
The Compensation Committee of the Board of Directors held five meetings
during fiscal 2000. The Compensation Committee, which is currently comprised of
Messrs. Saloner (Chairman), Schlein and Cole, has overall responsibility for the
Company's compensation policies and determines the compensation payable to the
Company's executive officers, including their participation in certain of the
Company's employee benefit and stock option plans.
The Executive Committee of the Board of Directors held five meetings during
fiscal 2000. The Executive Committee, which during fiscal year 2000 was
comprised of Messrs. Staglin (Chairman), Brooks, Johnson and Amochaev, has, in
the intervals between meetings of the Board of Directors, to the full extent
allowed by Delaware law, all of the authority of the Board of Directors in the
management of the business and affairs of the Company, including, without
limitation, the power and authority to manage succession planning and evaluation
of strategic matters, including mergers and
7
acquisitions. However, the Executive Committee will not exercise its power and
authority in a manner inconsistent with any action, direction or instruction of
the Board of Directors. In early fiscal year 2001, the Executive Committee
consisted of Messrs. Staglin (Chairman), Johnson and Amochaev. In March 2001,
the Board determined to dissolve the Executive Committee.
The Nominations Committee of the Board of Directors held one meeting during
fiscal 2000. The Nominations Committee, which is currently comprised of Messrs.
Johnson (Chairman), Dougall, Cole, Staglin and Simon, reviews and recommends
candidates for membership on the Board.
DIRECTOR COMPENSATION
For fiscal year 2000, each non-employee director received a quarterly fee of
$3,750 for Board membership, as well as $1,000 per meeting attended. The
Executive Committee members each received $2,000 per meeting attended. Each
non-employee director who is not appointed to the Board pursuant to any
contractual or other right or arrangement is eligible for reimbursement, in
accordance with Company policy, for expenses incurred in connection with his
attendance at meetings of the Board of Directors and the committees thereof.
Under the Automatic Option Grant Program of the QRS Corporation 1993 Stock
Option/Stock Issuance Plan (the "1993 Plan"), as in effect on January 3, 2000,
each individual who was serving as a non-employee Board member on that date
received an option grant for 15,000 shares, provided such individual had served
as a non-employee Board member for at least six months. Accordingly,
Ms. Amochaev and Messrs. Brooks, Dougall, Johnson, Saloner, Schlein and Staglin
each received an automatic option grant for 15,000 shares of Common Stock on
January 3, 2000 in connection with their continued service as non-employee Board
members. In addition, each individual who was serving as the Chairperson of any
Board committee on January 3, 2000 received an additional option grant under the
Automatic Option Grant Program for another 15,000 shares of Common Stock.
Accordingly, Messrs. Brooks, Saloner, Staglin and Johnson each received a second
option grant for an additional 15,000 shares of Common Stock on that date in
connection with their respective service as Chairpersons of the Audit,
Compensation, Executive and Nominations Committees. Each such grant has an
exercise price of $103.00 per share, the fair market value per share of the
Common Stock on the grant date.
Pursuant to the terms of the Automatic Option Grant Program under the 1993
Plan as in effect on January 2, 2001, each individual who was serving as a
non-employee Board member on that date was granted an option to purchase 10,000
shares of Common Stock. Accordingly, Ms. Amochaev and Messrs. Brooks, Cole,
Dougall, Johnson, Saloner, Schlein and Staglin each received an automatic option
grant for 10,000 shares of Common Stock on January 2, 2001 in connection with
their continued service as non-employee Board members. In addition, each
individual who was serving as the Chairperson of any Board committee on
January 2, 2001 received an additional option grant under the Automatic Option
Grant Program for another 10,000 shares of Common Stock. Accordingly,
Messrs. Brooks, Saloner, Staglin and Johnson each received a second option grant
for an additional 10,000 shares of Common Stock on that date in connection with
their respective service as Chairpersons of the Audit, Compensation, Executive
and Nominations Committees. The exercise price of each of these options was
$12.75 per share, the fair market value per share of Common Stock on January 2,
2001.
8
Each option granted under the Automatic Option Grant Program has a maximum
term of ten (10) years, subject to earlier termination following the optionee's
cessation of Board service. Each option will become exercisable for 25% of the
option shares upon the optionee's completion of six (6) months of Board service
measured from the grant date and will become exercisable for the balance of the
option shares in a series of thirty-six (36) successive equal monthly
installments upon the optionee's completion of each of the next thirty-six
(36) months of continued Board service thereafter.
Each option under the Automatic Option Grant Program will become immediately
exercisable for all the option shares upon (i) certain changes in ownership or
control of the Company or (ii) the death or permanent disability of the optionee
while serving as a Board member. Upon the successful completion of a hostile
tender offer for more than 50% of the Company's outstanding voting stock, each
such option may be surrendered to the Company for a cash distribution per
surrendered option share in an amount equal to the excess of (a) the tender
offer price paid per share of Common Stock over (b) the exercise price payable
for such option share.
The Company entered into a consulting agreement with Mr. Staglin on May 3,
1999. Pursuant to this agreement, Mr. Staglin was required to provide consulting
services on merger and acquisition activity to the Company when requested, up to
15 hours per month until December 31, 2000. The Company agreed to pay
Mr. Staglin $3,000 per day plus expenses for these consulting services.
Additionally, Mr. Staglin received an option grant for 15,000 shares in
connection with his consulting agreement. The grant has an exercise price of
$36.667 per share, the fair market value per share of the Common Stock on the
grant date, and has a maximum term of ten (10) years, subject to earlier
termination following Mr. Staglin's cessation of consulting services. The option
is fully vested and immediately exercisable for all the option shares. No
payments were made by the Company to Mr. Staglin in respect of his consulting
agreement for the fiscal year ended December 31, 2000.
Mr. Cole received an option grant under the Discretionary Grant Program of
the 1993 Plan of 10,000 shares on May 11, 2000. The option has an exercise price
of $28.125 per share, the fair market value per share of the Common Stock on the
grant date. The option vested for 25% of the option shares upon Mr. Cole's
completion of six (6) months of Board service measured from the grant date and
the balance of the option shares vests in equal monthly installments over a
thirty-six (36) month period.
Mr. Johnson received an option grant under the Discretionary Grant Program
of the 1993 Plan of 50,000 shares on September 27, 2000 for his service as
Executive Chairman of the Company. The option has an exercise price of $15.313
per share, the fair market value per share of the Common Stock on the grant
date. The option vests in equal monthly installments over a twelve-month period.
9
MANAGEMENT
Set forth below is information regarding the executive officers of the
Company who are not members of the Board:
NAME AGE POSITION
- ---- -------- ---------------------------------------------
Samuel M. Hedgpeth III.................. 54 Chief Financial Officer
James Killough.......................... 65 Chief Administrative Officer
Brian Marsden........................... 43 Senior Vice President of International
Operations
Vince Morris............................ 44 Senior Vice President of Operations
Sean Salehi............................. 43 Senior Vice President of Global Products and
Chief Technology Officer
Gopi Sankarasubramani................... 37 Vice President of Architecture and Technology
Mark Self............................... 43 Senior Vice President of Sales
Andrew Sheehan.......................... 33 Senior Vice President of Corporate Strategy
and Business Development
Candy Smith............................. 42 Senior Vice President of Global Services
MR. HEDGPETH joined the Company in January 2001 as Chief Financial Officer.
From June 2000 to November 2000, Mr. Hedgpeth served as Chief Executive Officer
and President of Autoweb.com, Inc., a consumer automotive Internet service
company. He also served as President and Chief Operating Officer of Autoweb.com
from November 1999 to June 2000 and as a director of Autoweb.com from November
1999 until November 2000. He served as Secretary of Autoweb.com from September
1999 to January 2000 and as Vice President, Finance and Administration,
Treasurer and Chief Financial Officer from September 1997 to November 1999. From
April 1997 to September 1997, Mr. Hedgpeth served as a consultant to various
high technology companies, including Excite, Inc. From September 1994 to
April 1997, Mr. Hedgpeth was Vice President, Finance and Administration and
Chief Financial Officer for Prism Solutions, Inc., a data warehousing software
company. From July 1990 to July 1994, Mr. Hedgpeth was Vice President, Finance
and Administration of Versant Object Technology Corporation, a computer database
company. Mr. Hedgpeth's experience includes responsibility for strategy
development, restructuring efforts, and general administrative and operational
functions.
MR. KILLOUGH became Chief Administrative Officer of the Company in
January 2001, having been a consultant to management during the preceding
12 months. From August 1998 to January 2000, he served as the Chairman of Image
Info Inc., a provider of software and digital photography to the retail supply
chain, until its acquisition by the Company. Since January 1987, Mr. Killough
has been the principal owner of Hunting & Killough, a privately-held firm
providing advice to management on organizational performance for healthcare and
technology services companies. Mr. Killough currently serves as Chairman of
RunTime Technologies, a privately-held provider of web site management tools.
MR. MARSDEN has served as Senior Vice President of International Operations
of the Company since November 2000. From March 2000 through October 2000, he
served as Vice President and General Manager of the Company's European/Middle
East/Asia division. From November 1998 to February 2000, Mr. Marsden headed the
worldwide sales and marketing organization for RockPort Trade Systems, Inc., a
sourcing software company, before it was acquired by the Company in March 2000.
From 1991 to October 1998, Mr. Marsden held senior management and executive
positions to develop strategy and to build the international organizations at
Manugistics UK Ltd., a
10
software supply and consultancy company, where he served as Director of the
Strategic Business Unit, and at Infinium Software Ltd. (formally Software 2000
(UK) Ltd.), a software supply and consultancy company where he served as the
Managing Director of European Operation.
MR. MORRIS has served as Senior Vice President of Operations of the Company
since September 2000. From October 1999 through August 2000, Mr. Morris served
as Vice President of Customer Enabling and Support and from June 1999 to
October 1999 he served as Director of Sales Administration of the Company. From
1986 to 1999, Mr. Morris held a variety of positions in operations, sales and
marketing, including global director of marketing for the TE&I division, at
Raychem Corp. ("Raychem"), a company focused on providing technology solutions
for the telecommunications, OEM and industrial markets. From April 1991 to
November 1993, Mr. Morris was stationed in Belgium where he managed Raychem's
European sales and marketing units.
MR. SALEHI has served as Chief Technology Officer of the Company since
September 2000 and as Senior Vice President of Global Products since March 2001.
From July 1997 to August 2000, Mr. Salehi served as Senior Vice President and
Chief Information Officer of Fair Isaac and Company, Inc., a software company,
from August 1995 to July 1997, Mr. Salehi served as Vice President and Chief
Information Officer of Cypress Semiconductor Corporation, a semiconductor design
and manufacturer company, and from November 1991 to July 1995, Mr. Salehi served
as Chief Information Officer of MagneTek, Inc., a manufacturer of digital power
supplies, power systems and industrial controls where he obtained technology
experience in manufacturing, distribution, supply chain management and
execution, e-commerce and enterprise resource planning. From 1983 to 1991,
Mr. Salehi also held various consulting positions for Hewlett-Packard Company
where he advised Fortune 500 companies on information technology strategies.
MR. SANKARASUBRAMANI has served as Vice President of Architecture and
Technology of the Company since February 2001. From August 1999 to
February 2001, Mr. Sankarasubramani was Vice President of Technology at
Tradeweave, Inc., a subsidiary of the Company prior to its merger into the
Company in February 2001. From 1997 to 1999, Mr. Sankarasubramani was Vice
President of Architecture and Technology of the Company and from 1992 to 1997
held various positions in the research and development department of the
Company. From 1986 to 1992, Mr. Sankarasubramani worked as a senior consultant
for Tata Consultancy Services, an Asian software and services company, and
provided information technology consulting services to various companies,
including Scottish Equitable PLC., a pensions and life assurance products
company, Continental Data Center, the information technology arm of Continental
Insurance Company of UK, International Business Machines Corporation ("IBM") and
Gap, Inc., an international apparel company, at locations in the United Kingdom,
Asia and the United States. From 1985 to 1986, Mr. Sankarasubramani was a
systems analyst at Best & Crompton Engg. PLC, a heavy engineering, manufacturing
and services company.
MR. SELF joined the Company in January 2000 as Senior Vice President of
Sales and Marketing. Mr. Self currently serves as Senior Vice President of Sales
for the Company. From October 1998 to November 1999, Mr. Self was Vice President
of Sales and Marketing for KVLABS, Inc., a software company, where he was
responsible for sales execution and marketing strategy. From October 1997 to
October 1998, Mr. Self served as Senior Segment Manager for IBM's worldwide
distribution unit, where he was responsible for worldwide marketing and sales in
the small and medium business sector. From 1995 to 1997, Mr. Self worked at IBM
in London where he undertook sales and marketing responsibilities for a European
business unit.
11
MR. SHEEHAN has served as Senior Vice President of Corporate Strategy and
Business Development of the Company since February 2001. From August 1999 to
February 2001, Mr. Sheehan served as Vice President of Marketing for
Tradeweave, Inc., a subsidiary of the Company, and became its General Manager
and a director in September 2000. From October 1998 to August 1999, Mr. Sheehan
served as head of product marketing at Nonstop Solutions, Inc., a retail
demand-chain optimization solutions provider, where he gained systems and
process knowledge within the consumer package goods, mass merchandising and
pharmaceutical industries.
MS. SMITH has served as Senior Vice President of Global Services of the
Company since March 2001. From August 2000 to February 2001, Ms. Smith served as
Senior Vice President of eCommerce Services for the Company. From March 1999 to
February 2000, Ms. Smith served as Senior Vice President of Services for
Allenbrook, a software division of AMS Holding Group, where she was responsible
for the Professional Services Consulting Team and training for Allenbrook. From
February 1998 to March 1999, Ms. Smith served as Senior Global Manager of SAP AG
America, a computer software and services company, where she was responsible for
alliance partnerships, client relations and sales. From 1995 to 1997, Ms. Smith
served as the Chief Information Officer of General Electric Company's ("General
Electric") GE Capital Information Technology Solutions Group where she was
responsible for management of internal and external computer systems and
services. From 1985 to 1997, Ms. Smith also gained experience at General
Electric in general management, services management and technology.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation earned for services rendered in all capacities to the Company and
its subsidiaries for the 2000, 1999 and 1998 fiscal years by the Company's Chief
Executive Officer and each of the Company's four other most highly compensated
executive officers whose salary and bonus for the 2000 fiscal year was in excess
of $100,000. In addition, Shawn M. O'Connor is also included in the table
because he would have been among the four most highly compensated individuals of
the Company on the last day of the 2000 fiscal year had he not resigned as an
executive officer of the Company prior to the close of fiscal year 2000. All the
individuals named in such table will be hereafter referred to as the "Named
Executive Officers." No other executive officers of the Company who would have
otherwise been included in the table on the basis of their salary and bonus for
fiscal year 2000 has been excluded because of his or her termination of
employment or change in executive status for fiscal year 2000.
12
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
----------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS UNDERLYING OPTIONS(#) COMPENSATION(2)
- --------------------------- -------- --------- ----------- --------------------- ----------------
John S. Simon................................... 2000 $285,833 -- 40,000(3) $ 11,735
Chief Executive 1999 $238,333 $ 148,000 80,000(4) $ 9,955
Officer and Director 1998 $220,825 $ 213,811 60,000 8,186
Vince Morris(5)................................. 2000 $182,493 $ 25,000 30,000(3) $ 5,250
Senior Vice President, 1999 $ 83,761 $ 23,800 15,000(3) $ 2,125
Operations 1998 -- -- -- --
Allison Nelson(6)............................... 2000 $201,042 $ 25,000 40,000(3) $ 5,250
Former Senior Vice President, Global 1999 $177,917 $ 46,200 20,000(3) $ 5,000
Services and Business Development 1998 77,693 $ 50,000 37,500 $ 3,750
Shawn M. O'Connor(7)............................ 2000 $177,500 -- 35,000(11) $468,136
Former President and Chief 1999 $222,019 $ 134,200 50,000 $ 9,119
Operating Officer 1998 $210,925 $ 202,760 60,000 $ 9,119
Mark Self(8).................................... 2000 $215,910 -- 90,000(3) $ 5,250
Senior Vice President, Sales 1999 -- -- -- --
1998 -- -- -- --
Susan Welch(9).................................. 2000 $170,202 $ 84,292(10) 20,000(3) $ 2,665
Former Senior Vice President, 1999 -- -- -- --
Application Services 1998 -- -- -- --
- ------------------------------
(1) Includes salary deferred under the Company's 401(k) Plan and Non Qualified
Deferred Compensation Plan.
(2) The indicated amount for each Named Executive Officer is comprised of
(i) Company contributions made to the Company's 401(k) and Non Qualified
Deferred Compensation ("NQDC") Plans which match the salary deferral
contributions made by such officer to such plans, (ii) long-term disability
insurance premiums paid by the Company on behalf of such officer,
(iii) life insurance premiums paid by the Company on behalf of such officer,
(iv) reimbursed moving expenses, (v) severance and (vi) consulting fees. See
the table below for the dollar amount of each such item.
(3) Each of these options was surrendered to the Company on January 3, 2001 in
return for a restricted share award at an exchange ratio of three option
shares for every one share of Common Stock subject to the restricted share
award. See Compensation Committee Report on Restricted Share Award Program
for more information.
(4) Mr. Simon surrendered his option for 50,000 shares subject to this grant on
January 3, 2001 in return for a restricted share award. The remaining 30,000
shares subject to this grant were to become exercisable in two 15,000 share
grants based on certain performance goals. The first 15,000 share grant was
cancelled based on 2000 performance and the second grant of 15,000 has been
exchanged by Mr. Simon for a restricted share award.
(5) Mr. Morris joined the Company in June 1999. His annualized salary was
$170,000 for the 1999 fiscal year.
(6) Ms. Nelson joined the Company in March 1998 and resigned on March 9, 2001.
Her annualized salary was $100,000 for the 1998 fiscal year. Pursuant to the
terms of a Settlement Agreement and Release, dated March 9, 2001, between
the Company and Ms. Nelson, Ms. Nelson will receive $25,000 per month in
salary continuation payments for a period of six months.
(7) Mr. O'Connor joined the Company in February 1995 and resigned on
September 6, 2000. His annualized salary was $270,000 for the 2000 fiscal
year. Pursuant to the terms of a Settlement Agreement and Release, dated
October 20, 2000, between the Company and Mr. O'Connor, Mr. O'Connor will
receive $22,500 per month in salary continuation payments for a period of
thirteen months and a lump sum of $162,000, which will be paid to
Mr. O'Connor on September 30, 2001.
(8) Mr. Self joined the Company in January 2000. His annualized salary was
$220,000 for the 2000 fiscal year.
13
(9) Ms. Welch joined the Company in March 2000 and resigned on February 12,
2001. Her annualized salary was $215,000 for the 2000 fiscal year. Pursuant
to the terms of the Settlement Agreement and Release between the Company and
Ms. Welch, dated February 12, 2001, Ms. Welch will receive $26,250 per month
in salary continuation payments for a period of twelve months.
(10) Pursuant to Ms. Welch's employment agreement in effect for fiscal year
2000, this bonus was guaranteed.
(11) 24,062 of these options were forfeited upon Mr. O'Connor's resignation from
the Company in September 2000.
ALL OTHER COMPENSATION
MATCHING 401(K)
AND NQDC DISABILITY LIFE REIMBURSED
PLAN INSURANCE INSURANCE MOVING
NAME YEAR CONTRIBUTION PREMIUM PREMIUM EXPENSES SEVERANCE
- ---- -------- --------------- ---------- --------- ------------------ ----------
John S. Simon.......................... 2000 $5,250 $5,141 $1,344 -- --
Chief Executive Officer and 1999 $5,000 $1,963 $2,992 -- --
Director 1998 $5,000 $1,963 $1,223 -- --
Vince Morris........................... 2000 $5,250 -- -- -- --
Senior Vice President, 1999 $2,125 -- -- -- --
Operations 1998 -- -- -- -- --
Allison Nelson......................... 2000 $5,250 -- -- -- --(1)
Former Senior Vice President, 1999 $5,000 -- -- -- --
Global Services and Business 1998 $3,750 -- -- -- --
Development
Shawn M. O'Connor...................... 2000 $5,250 $6,196 $2,190 -- $ 454,500(2)
Former President and Chief 1999 $5,000 $1,929 $2,190 -- --
Operating Officer 1998 $5,000 $1,929 $2,190 -- --
Mark Self.............................. 2000 $5,250 -- -- -- --
Senior Vice President, 1999 -- -- -- -- --
Sales 1998 -- -- -- -- --
Susan Welch............................ 2000 $2,665 -- -- -- --(3)
Former Senior Vice President, 1999 -- -- -- -- --
Application Services 1998 -- -- -- -- --
CONSULTING
NAME FEES
- ---- ------------------
John S. Simon.......................... --
Chief Executive Officer and --
Director --
Vince Morris........................... --
Senior Vice President, --
Operations --
Allison Nelson......................... --
Former Senior Vice President, --
Global Services and Business --
Development
Shawn M. O'Connor...................... --
Former President and Chief --
Operating Officer --
Mark Self.............................. --
Senior Vice President, --
Sales --
Susan Welch............................ --
Former Senior Vice President, --
Application Services --
- ------------------------------
(1) Pursuant to the terms of a Settlement Agreement and Release, dated March 9,
2001, between the Company and Ms. Nelson, Ms. Nelson will receive $25,000
per month in salary continuation payments for a period of six months.
(2) Pursuant to the terms of a Settlement Agreement and Release, dated
October 20, 2000, between the Company and Mr. O'Connor, Mr. O'Connor will
receive $22,500 per month in salary continuation payments for a period of
thirteen months and a lump sum of $162,000, which will be paid to
Mr. O'Connor on September 30, 2001.
(3) Pursuant to the terms of the Settlement Agreement and Release between the
Company and Ms. Welch, dated February 12, 2001, Ms. Welch will receive
$26,250 per month in salary continuation payments for a period of twelve
months.
STOCK OPTIONS
The following table sets forth information concerning the stock options
granted during the 2000 fiscal year to the Named Executive Officers.
14
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
--------------------------------------------------------------- ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO TERM(3)
OPTIONS EMPLOYEES IN EXERCISE OR BASE EXPIRATION --------------------------------
NAME GRANTED(#) FISCAL YEAR(1) PRICE(2) DATE 5% 10%
---- ------------ ---------------- ---------------- ---------- --------------- --------------
John S. Simon............... 40,000(4)(5) 3.15% $29.625 06/08/10 $ 745,240 $1,888,585
Vince Morris................ 20,000(4)(5) 1.58% $29.625 06/08/10 $ 372,935 $ 945,089
10,000(4)(5) 0.79% $13.438 10/18/10 $ 84,511 $ 214,167
Allison Nelson.............. 20,000(4)(5) 1.58% $83.00 03/24/10 $1,043,965 $2,645,612
20,000(4)(5) 1.58% $29.625 06/08/10 $ 372,620 $ 944,292
Shawn M. O'Connor........... 35,000(6) 2.76% $29.625 06/09/10 $ 652,085 $1,652,518
Mark Self................... 50,000(4)(5) 3.94% $85.4375 02/22/10 $2,686,559 $6,808,269
40,000(4)(5) 3.15% $29.625 06/09/10 $ 745,240 $1,888,585
Susan Welch................. 10,000(4)(5) 0.78% $54.875 04/03/10 $ 345,106 $ 874,566
10,000(4)(5) 0.78% $29.625 06/09/10 $ 183,310 $ 472,146
- ------------------------------
(1) The Company granted options to purchase 1,268,338 shares of Common Stock
during the 2000 fiscal year. Options for 897,500 of those shares were
granted under the 1993 Plan and options for 370,838 shares were granted
under the 1997 Non-Officer Plan. All grants to the Named Executive Officers
were made under the 1993 Plan. The Plan Administrator may grant two types of
stock appreciation rights in connection with option grants made under such
plan: tandem stock appreciation rights which provide the holders with the
right to surrender their options for an appreciation distribution from the
Company, payable in cash or Common Stock, equal in amount to the excess of
(a) the fair market value of the shares of Common Stock subject to the
surrendered option over (b) the aggregate exercise price payable for such
shares, and limited stock appreciation rights which allow the holders to
surrender their options to the Company, upon the successful completion of a
hostile tender offer for more than 50% of the outstanding Common Stock, for
a cash distribution in an amount per surrendered option share equal to the
excess of (a) the tender offer price paid per share of Common Stock over
(b) the exercise price payable for such share. No stock appreciation rights
were granted to the Named Executive Officers during the 2000 fiscal year.
(2) The exercise price may be paid in cash, in shares of the Common Stock valued
at fair market value on the exercise date or through a procedure involving a
same-day sale of the purchased shares. The Company may also finance the
option exercise by loaning the optionee sufficient funds to pay the exercise
price for the purchased shares and the Federal and state income or
employment withholding taxes to which the optionee may become subject in
connection with such exercise. The optionee may be permitted, subject to the
approval of the Plan Administrator, to apply a portion of the shares
purchased under the option (or to deliver existing shares of Common Stock)
in satisfaction of such withholding tax liability.
(3) There is no assurance that the actual stock price appreciation over the
10-year option term will be at the five percent and ten percent assumed
annual rates of compounded stock price appreciation or at any other level.
Unless the market price of the Common Stock does, in fact, appreciate over
the option term, no value will be realized from the option grants.
(4) Each of these options was surrendered on January 3, 2001 in return for a
restricted share award at an exchange ratio of three option shares for every
one share of Common Stock subject to the restricted share award. See
Compensation Committee Report on Restricted Share Award Program for more
information.
(5) Each option was structured so that the option would have become exercisable
for 25% of the option shares upon the optionee's completion of one year of
service measured from the grant date and would have become exercisable for
the balance of the option shares in a series of thirty-six monthly
installments upon the optionee's completion of the next thirty-six months of
service. The shares subject to such option would have vested immediately in
the event the Company were acquired by a merger or asset sale, unless the
option were assumed by the acquiring entity. The Plan Administrator had the
discretionary authority to provide for accelerated vesting of the option
shares upon (i) the occurrence of such
15
acquisition, whether or not the option was assumed, (ii) the termination of
the optionee's employment within a specified period following such
acquisition, if the option did not otherwise accelerate at the time of the
acquisition, (iii) a change in ownership of more that 50% of the Company's
outstanding voting stock, (iv) a change in the majority of the Board
effected through one or more proxy contests, or (v) the subsequent
termination of the optionee's employment within a specified period following
such a change in ownership or majority of the Board. The option grant made
to Mr. Simon for the 2000 fiscal year would have automatically accelerated
upon an acquisition or change of control of the Company, except to the
extent such acceleration would result in an express parachute payment under
federal law. The option grants made to Ms. Nelson and Ms. Welch and to
Messrs. Morris and Self for the 2000 fiscal year would have automatically
accelerated upon an acquisition or other change in control of the Company,
unless the options were assumed by the acquiring entity. To the extent their
options would not have accelerated at the time of the acquisition or other
change in control, acceleration would have occurred 12 months following such
acquisition or change in control.
(6) 24,062 of these options were forfeited upon Mr. O'Connor's resignation from
the Company in September 2000.
STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information with respect to the Named
Executive Officers concerning the exercise of options during the 2000 fiscal
year and unexercised options held by the Named Executive Officers at the end of
the 2000 fiscal year. No Named Executive Officers exercised SARs during the 2000
fiscal year, and there were no SARs held by such individuals at the end of the
2000 fiscal year.
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT FISCAL YEAR-END
OPTIONS AT FISCAL YEAR-END (MARKET PRICE OF SHARES LESS
(NUMBER OF SHARES) EXERCISE PRICE)(1)(2)
SHARES ACQUIRED ------------------------------ ------------------------------
NAME ON EXERCISE(#) VALUE REALIZED(3) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(4)
- ---- --------------- ----------------- ----------- ------------- ----------- ----------------
John S. Simon............. 15,000 $905,251 229,332 151,669(5) $8,719 --
Vince Morris.............. -- -- 4,686 40,314(7) -- --
Allison Nelson............ 3,000 $154,179 23,145 71,355(6) -- --
Shawn M. O'Connor......... 15,000 $807,188 255,788 -- $6,022 --
Mark Self................. -- -- -- 90,000(7) -- --
Susan Welch............... -- -- -- 20,000(7) -- --
- ------------------------------
(1) "In-the-money" options are options whose exercise price was less than the
market price of the Common Stock on December 29, 2000, the last business day
of the 2000 fiscal year.
(2) Based upon the market price of $12.8125 per share, which was the closing
price per share of the Common Stock as quoted on the Nasdaq National Market
on December 29, 2000.
(3) Equal to the excess of (i) the market price of the purchased share on the
date the option was exercised for those shares over (ii) the exercise price
paid for the shares.
(4) All unexercisable options were out-of-the-money at fiscal year end.
(5) 90,416 of these options were surrendered on January 3, 2001 in return for a
restricted share award at an exchange ratio of three option shares for every
one share of Common Stock subject to the restricted share award. See
Compensation Committee Report on Restricted Share Award Program for more
information. 15,000 of these options were cancelled because of failure to
meet the performance goals specified.
16
(6) 54,423 of these options were surrendered on January 3, 2001 in return for a
restricted share award at an exchange ratio of three option shares for every
one share of common stock subject to the restricted share award. See
Compensation Committee Report on Restricted Share Award Program for more
information.
(7) Each of these options was surrendered on January 3, 2001 in return for a
restricted share award at an exchange ratio of three option shares for every
one share of Common Stock subject to the restricted share award. See
Compensation Committee Report on Restricted Share Award Program for more
information.
17
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL AGREEMENTS
On April 2, 2001, the Company entered into an employment agreement with John
S. Simon, the Chief Executive Officer of the Company and a member of the Board
of Directors. Under the terms of the agreement, the Company agreed to pay
Mr. Simon a base salary of $290,000 for the 2001 fiscal year and additional
incentive compensation of up to $217,000 for such fiscal year based upon the
achievement of specified individual and Company performance targets. Should the
Company terminate Mr. Simon's employment other than for cause, he will be
entitled to the continuation of his total targeted annual compensation (base
salary and bonus) and benefits for a period of 12 months and his stock options
and restricted shares will become fully vested. If a change of control of the
Company occurs and Mr. Simon's employment is subsequently terminated other than
for cause or he resigns in connection with a reduction in his salary or target
bonus by 15% or more, a reduction in his responsibilities or a relocation of his
principal place of employment by more than 50 miles, then he will be entitled to
the continuation of his targeted annual compensation and benefits for a period
of 12 months following such termination or resignation at the level in effect at
the time of such termination or resignation or (if greater) at the time of the
change in control. To the extent any stock options or restricted shares held by
Mr. Simon at the time of the change in control are not assumed or otherwise
continued in effect by the successor entity, those options and restricted shares
will vest and accelerate in full at the time of such change in control. However,
any options or restricted shares granted to Mr. Simon after December 23, 1997
will immediately vest upon a change in control of the Company, whether or not
assumed or continued in effect, except to the extent such acceleration would
result in an excess parachute payment under the federal tax laws. To the extent
any of Mr. Simon's options or restricted shares do not accelerate at the time of
the change in control because of such limitation, full and immediate
acceleration of those post-December 23, 1997 options and restricted shares will
occur in the event his employment terminates within 24 months following such
change in control.
On October 30, 2000, the Company entered into an agreement with Mr. Simon
pursuant to which the Company agreed to pay Mr. Simon up to $100,000 subject to
the achievement of certain specified short-term corporate goals through
March 31, 2001.
On February 1, 2001, the Company entered into an employment agreement with
Mark Self, Senior Vice President of Sales. Under the terms of the agreement, the
Company agreed to pay Mr. Self a base salary of $220,000 for the 2001 fiscal
year and additional incentive compensation of up to $110,000 for such fiscal
year based upon the achievement of specified individual and Company performance
targets.
On February 1, 2001, the Company entered into an employment agreement with
Vince Morris, Senior Vice President of Support and Operations. Under the terms
of the agreement, the Company agreed to pay Mr. Morris a base salary of $200,000
for the 2001 fiscal year and additional incentive compensation of up to $100,000
for such fiscal year based upon the achievement of specified individual and
Company performance targets.
Pursuant to their respective employment agreements, should the Company
terminate Mr. Self or Mr. Morris' employment other than for cause, they will be
entitled to the continuation of their total targeted annual compensation (base
salary and bonus) and benefits for a period of 12 months. If there occurs a
corporate transaction or change of control of the Company and their employment
is
18
subsequently terminated other than for cause or they resign in connection with a
reduction in their salary or target bonus by 15% or more, a reduction in their
responsibilities or a relocation of their principal place of employment by more
than 50 miles, then they will be entitled to the continuation of their targeted
annual compensation and benefits for a period of 12 months following such
termination or resignation at the level in effect at the time of such
termination or resignation or (if greater) at the time of the corporate
transaction or change in control and their stock options and restricted shares
will become fully vested. Alternatively, if there occurs a change of control
and, within the succeeding 12 months of such change in control, either of their
respective employment is terminated without cause or they resign by reason of a
reduction in their salary of 15% or more, or a reduction in their duties, then
they will be paid their respective base compensation and benefits for a period
of 12 months, and their option grants will accelerate and vest in full. In
addition, should there occur a change of control prior to the full vesting of
their respective option grants and they continue in the employ of the successor
company for a period of 12 months, then their respective options will accelerate
and vest upon the completion of that 12 month period of employment following the
change of control.
In October 2000, the Company entered into a Settlement Agreement and Release
with Shawn M. O'Connor. Under the terms of the agreement, Mr. O'Connor will
receive $22,500 per month plus his existing benefits from September 5, 2000
until September 30, 2001. In addition, Mr. O'Connor will receive his annual
target incentive compensation in the amount of $162,000 on September 30, 2001.
Finally, 73,965 of Mr. O'Connor's unvested options became fully vested as of
September 5, 2000. Mr. O'Connor had previously vested in 181,823 of his options.
All of his accelerated options and previously vested options shall remain
exercisable until January 31, 2002. Mr. O'Connor did not participate in the
restricted share award program.
On February 12, 2001, the Company entered into a Settlement Agreement and
Release with Susan Welch. Under the terms of the agreement, Ms. Welch will
receive $26,250 per month for a period of twelve months. In addition, 1,111 of
the 6,666 restricted shares awarded to Ms. Welch on January 3, 2001 will be
issued on April 30, 2001. All other restricted share awards granted to
Ms. Welch have been forfeited. If there is a change in ownership or control of
the Company, amounts due under the Settlement Agreement shall accelerate and
become payable in full on the date of change in ownership or control. On
February 12, 2001, the Company also entered into a Consulting Agreement with
Ms. Welch. Under the terms of the agreement, Ms. Welch has agreed to perform
certain services to the Company on an as requested basis at a rate of $2,000 per
day. Ms. Welch has agreed further to provide such services for at least thirty
days during the twelve month period following the date of the agreement. If at
the end of such twelve month period, Ms. Welch has not been paid for at least
thirty days of services to the Company, the Company has agreed to pay her an
amount equal to $60,000 less any amounts the Company has already paid under the
consulting agreement.
On March 9, 2001, the Company entered into a Settlement Agreement and
Release with Allison Nelson. Under the terms of the agreement, Ms. Nelson will
receive $25,000 per month for a period of six months. In addition, the agreement
provides that 34,500 shares subject to stock options and 20,000 restricted share
awards will vest monthly in equal installments until September 9, 2001, subject
to the terms set forth in the agreement. All vested options shall remain
exercisable until March 9, 2002. If there is a change in control of the Company
during the six month term of the agreement, all unvested shares shall accelerate
and become fully vested and exercisable and Ms. Nelson will be entitled to an
additional six months of pay at $25,000 per month. On March 9, 2001, the Company
also entered into a
19
Consulting Agreement with Ms. Nelson. Under the terms of the agreement,
Ms. Nelson has agreed to perform certain services for the Company on an as
requested basis at a rate of $2,000 per day. The term of the agreement is six
months from the effective date, unless terminated earlier pursuant to the
provisions of the agreement.
The Compensation Committee of the Board of Directors has the authority as
Plan Administrator of the 1993 Plan to provide for the accelerated vesting of
the shares of Common Stock subject to outstanding options held by the Chief
Executive Officer and the Company's other executive officers, whether granted
under that plan or any predecessor plan, in the event their employment were to
be terminated (whether involuntarily or through a forced resignation) following
(i) an acquisition of the Company by merger or asset sale, (ii) a change in
ownership of more than 50% of the outstanding Common Stock or (iii) a change in
the majority of the Board as a result of one or more contested elections for
Board membership. The Compensation Committee also has the authority under the
1993 Plan to accelerate the vesting of outstanding options immediately upon such
acquisition or change in ownership or majority of the Board.
COMPENSATION COMMITTEE REPORT ON RESTRICTED SHARE AWARD PROGRAM
RESTRICTED SHARE AWARD PROGRAM. On December 19, 2000, the Compensation
Committee approved the implementation of a restricted share award program
pursuant to the stock issuance provisions of the 1993 Plan. Each officer (from
Vice President level and up) was given the opportunity under the program to
surrender his or her outstanding options under the 1993 Plan with exercise
prices in excess of $15.00 per share in return for restricted share award at an
exchange ratio of three option shares for every one share of Common Stock
subject to the restricted share award. When the restricted share awards were
made under the program on January 3, 2001, the fair market value of Common Stock
was $13.6875 per share. The executive officers surrendered options covering a
total of 320,000 shares of Common Stock with a weighted average exercise price
of $52.42 per share in return for an aggregate of 106,666 shares of Common Stock
subject to their restricted share awards. The shares subject to each such award
will be issued in a series of six successive equal semi-annual installments upon
the individual's completion of each successive six months of continued
employment with the Company, with the first such semi-annual vesting to occur on
April 30, 2001. The shares may be issued on an accelerated basis should the
Company become subject to certain changes in control or ownership based on the
terms of the employment agreement between each holder of restricted shares and
the Company. The shares will be fully-vested upon issuance and will be charged
against the share reserve under the 1993 Plan.
The Compensation Committee believed that this program was necessary because
equity incentives constitute a significant component of the total compensation
package of each of the Company's executive officers and key employees and play a
substantial role in the Company's ability to retain the services of these
individuals essential to the Company's long-term financial success. The
Compensation Committee felt that the Company's ability to retain these
individuals would be significantly impaired, unless their out-of-the-money
options were replaced with valuable equity incentives in the form of restricted
stock awards for which they paid no cash consideration but which they would
forfeit were they to leave the Company's employ prior to vesting in their
awards. Accordingly, in order for the restricted share awards to serve their
primary purpose of assuring the continued service of each participant in the
program, a new three-year installment vesting schedule was imposed on those
awards. As a result, each participant will only have the opportunity to earn the
shares subject to his or her
20
award if he or she remains in the Company's employ through each semi-annual
vesting date. To the extent the award is not vested at the time of the
participant's termination of employment, the award will be forfeited, and no
shares will be issued with respect to that forfeited portion.
As a result of the vesting schedules imposed on the restricted share awards,
the Compensation Committee believes that the program strikes an appropriate
balance between the interests of the Company's executive officers and other key
employees and those of the Company's stockholders. The restricted share awards
provide a valuable retention incentive to the executive officers and key
employees critical to the Company's financial performance. However, those
individuals will not receive the shares subject to those awards unless they in
fact remain in the Company's employ and earn those shares through their
continued services.
TEN-YEAR HISTORICAL INFORMATION REGARDING REPRICING, REPLACEMENT OR CANCELLATION
AND REGRANT OF OPTIONS
The following sets forth certain information concerning the repricing,
replacement or cancellation and regrant of options or other equity securities
which has occurred over the last ten fiscal years with respect to options held
by executive officers of the Company. Except for the January 2001 exchange of
21
options for restricted share awards, there have been no such repricing,
replacement or cancellation of options in connection with any option regrant or
repricing programs:
TEN-YEAR OPTION/SAR REPRICINGS
LENGTH OF
NUMBER OF ORIGINAL OPTION
SECURITIES TERM
UNDERLYING REMAINING AT
OPTIONS/SARS DATE OF
REPRICED MARKET REPRICING
PURSUANT TO PRICE NUMBER OF PURSUANT TO
RESTRICTED SHARE OF STOCK AT EXERCISE PRICE RESTRICTED RESTRICTED
AWARDS TIME OF AT TIME OF SHARE AWARDS SHARE AWARD
NAME/TITLE DATE (#) REPRICING($) REPRICING($) RECEIVED(1) (IN YEARS)
- ---------- -------- ---------------- ------------ -------------- ------------- ---------------
Brian Marsden .................... 01/03/01 15,000 $13.688 $ 54.875 5,000 9.3
Senior Vice President and 01/03/01 10,000 $13.688 $29.625 3,333 9.5
General Manager, International
Vince Morris ..................... 01/03/01 5,000 $13.688 $ 54.125 1,667 9.6
Senior Vice President, 01/03/01 10,000 $13.688 $63.5625 3,333 8.9
Operations 01/03/01 20,000 $13.688 $29.625 6,667 9.5
01/03/01 10,000 $13.688 $13.438 3,333 9.9
Allison Nelson(2) ................ 01/03/01 20,000 $13.688 $63.5625 6,666 8.9
Former Senior Vice President, 01/03/01 20,000 $13.688 $83.00 6,667 9.2
Global Services and Business 01/03/01 20,000 $13.688 $29.625 6,667 9.5
Development
Sean Salehi ...................... 01/03/01 50,000 $13.688 $ 15.563 16,667 9.8
Senior Vice President, Global
Products and Chief Technology
Officer
Mark Self ........................ 01/03/01 50,000 $13.688 $85.4375 16,667 9.1
Senior Vice President, Sales 01/03/01 40,000 $13.688 $29.625 13,333 9.5
John S. Simon .................... 01/03/01 50,000 $13.688 $63.5625 16,667 8.9
Chief Executive Officer 01/03/01 15,000 $13.688 $63.5625 5,000 8.9
01/03/01 40,000 $13.688 $29.625 13,333 9.5
Candy Smith ...................... 01/03/01 50,000 $13.688 $ 15.563 16,667 9.8
Senior Vice President, Global
Services
Susan Welch(3) ................... 01/03/01 10,000 $13.688 $ 54.875 3,333 9.3
Former Senior Vice President, 01/03/01 10,000 $13.688 $29.625 3,333 9.5
Application Services
- ------------------------------
(1) Each option was exchanged for a restricted share award at an exchange
ratio of three option shares for every one share of Common Stock subject to the
restricted share award. The shares subject to each such award will be issued in
a series of six successive equal semi-annual installments upon the individual's
completion of each successive six months of continued employment with the
Company, with the first such semi-annual vesting to occur on April 30, 2001.
(2) Ms. Nelson terminated employment with the Company in March 2001. The
restricted share award held by Ms. Nelson will vest and the 20,000 shares of
Common Stock will be issued in monthly installments through September 9, 2001
pursuant to Ms. Nelson's Settlement Agreement and Release.
(3) Ms. Welch terminated employment with the Company in February 2001. The
restricted share award covering 5,555 shares was forfeited pursuant to
Ms. Welch's Settlement Agreement and Release and 1,111 shares of Common Stock
will be issued on April 3, 2001.
22
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
currently comprised of three non-employee Board members, Garth Saloner
(Chairman), Philip Schlein and David A. Cole.
The Committee administers the Company's compensation policies and programs.
The Committee has responsibility for executive compensation matters, including
setting the base salaries of the Company's executive officers, approving
individual bonuses and bonus programs for executive officers, administering
certain employee benefit programs, and granting options under the 1993 Plan to
executive officers of the Company. The following is a summary of policies of the
Committee that affect the compensation paid to the Company's executive officers,
as reflected in the tables and text set forth elsewhere in this proxy statement.
GENERAL COMPENSATION POLICY. The overall policy of the Committee is to
offer the Company's executive officers competitive compensation opportunities
based upon their personal performance, the financial performance of the Company
and their contribution to that performance. One of the primary objectives is to
have a substantial portion of each executive officer's compensation contingent
upon the Company's financial success as well as upon such executive officer's
own level of performance. Each executive officer's compensation package is
generally comprised of three elements: (i) base salary, which is determined on
the basis of the individual's position and responsibilities with the Company,
the level of his or her performance and the financial performance of the
Company, (ii) incentive performance awards payable in cash and tied to the
achievement of specified performance goals and (iii) long-term stock-based
incentive awards designed to strengthen the mutuality of interests between the
executive officers and the Company's stockholders. Generally, as an executive
officer's level of responsibility increases, a greater portion of that
individual's total compensation will be dependent upon Company performance and
stock price appreciation rather than base salary.
FACTORS. The principal factors considered in establishing the components of
each executive officer's compensation package for the 2000 fiscal year are
summarized below. The Committee may, in its discretion, apply entirely different
factors, such as different measures of financial performance, for future fiscal
years.
BASE SALARY. In setting the base salary for each executive officer, the
Committee considers executive compensation data compiled from surveys of
computer services companies. These surveys are performed and compiled by various
independent consulting firms and are conducted on local as well as national
bases. In selecting companies from the surveys for comparative compensation
purposes, the Committee considers a number of factors, such as their size and
organizational complexity, the nature of their businesses, the regions in which
they operate, the structure of their compensation programs (including the extent
to which they rely on bonuses and other contingent forms of compensation) and
the availability of compensation information. Because of the nature of this
selection process, there is no substantial correlation between the 27 companies
chosen for comparative compensation purposes and those companies included in the
indices used to compare stockholder return in the Stock Performance Chart which
appears elsewhere in this proxy statement.
Using the survey data for the selected companies as a starting point, the
Committee evaluates each executive's level of performance as compared to the
performance of other officers within the Company to determine the executive's
base salary. Adjustments to each officer's base salary are considered
23
annually and are determined based upon: (i) changes in the level of base
salaries of comparable positions in the market, as determined on the basis of
the survey data, (ii) personal performance in the past fiscal year and
(iii) the overall performance of the Company. For the 2000 fiscal year, the base
salaries of the Company's executive officers ranged from the 25th to 90th
percentile of the salary levels in effect for comparable positions at the
surveyed companies
INCENTIVE COMPENSATION. For the 2000 fiscal year, a bonus program was
established under which each executive officer could earn a bonus on the basis
of the Company's attainment of pre-established revenue, and net operating profit
targets and that person's success in achieving the individual performance goals
predetermined for him. The potential bonus amount was determined by each
individual's base salary and job level, and the actual bonus paid varied with
the degree to which the performance factors described above were attained. The
amounts paid to each executive officer under the program ranged from a high of
$30,000 to a low of $0 for the 2000 fiscal year.
LONG-TERM STOCK-BASED INCENTIVE COMPENSATION. From time to time, the
Committee approves stock option grants for the Company's executive officers
under the 1993 Plan. The grants are designed to align the interests of each
executive officer with those of the stockholders and provide each individual
with a significant incentive to manage the Company from the perspective of an
owner with an equity stake in the business. Each grant generally allows the
officer to acquire shares of Common Stock at a fixed price per share (the market
price on the grant date) over a specified period of time (up to 10 years). The
option generally becomes exercisable in a series of installments over the
officer's continued employment with the Company. Accordingly, the option
provides a return to the executive officer only if the market price of the
shares appreciates over the option term and the officer continues in the
Company's employ. The size of the option grant to each executive officer is
designed to create a meaningful opportunity for stock ownership and is based
upon the executive officer's current position with the Company, internal
comparability with option grants made to other Company executives, the executive
officer's current level of performance and the executive officer's potential for
future responsibility and promotion over the option term. The Committee also
takes into account the number of vested and unvested options held by the
executive officer in order to maintain an appropriate level of equity incentive
for that individual. However, the Committee does not adhere to any specific
guidelines as to the relative option holdings of the Company's executive
officers.
CEO COMPENSATION.
Pursuant to his employment contract with the Company, John S. Simon, the
Company's Chief Executive Officer, was paid a base salary of $290,000 for fiscal
2000. This base salary was approximately at the 50th percentile of the base
salary levels of other chief executive officers at the surveyed companies.
Pursuant to his employment contract, Mr. Simon's annualized target bonus was set
at $217,500. The target bonus was to be based upon Mr. Simon's individual
performance for the 2000 fiscal year and the Company's attainment of certain
performance milestones tied to revenue growth, operating profit and new product
introduction. Because these milestones were not met, Mr. Simon did not earn an
incentive bonus for the 2000 fiscal year.
On June 9, 2000, the Compensation Committee granted Mr. Simon an option to
purchase 40,000 shares of Common Stock at an exercise price of $29.625 per
share, the fair market value per share on the grant date. Pursuant to the
restricted share award program, on January 3, 2001, Mr. Simon surrendered this
option in exchange for a restricted share award covering 13,333 shares of Common
24
Stock. On October 15, 1999, Mr. Simon had been granted an option to purchase
80,000 shares of Common Stock. The option was to be exercisable for 50,000 of
the shares over time as long as Mr. Simon remained employed by the Company. The
option was to be exercisable at the end of 2001 for 15,000 shares if the Company
had achieved revenue growth of 35% between fiscal year 1999 and fiscal year 2000
and for another 15,000 shares if the Company achieved revenue growth of 35%
between fiscal year 2000 and fiscal year 2001. The 2000 performance goal was not
achieved and therefore the option to purchase those 15,000 shares was cancelled.
Mr. Simon exchanged the option to purchase the remaining 65,000 shares subject
to the option for a restricted share award covering 21,667 shares of Common
Stock. Mr. Simon also exchanged options to purchase 40,000 shares in the
restricted share award program. The total of 35,000 shares subject to
Mr. Simon's restricted share award will be issued in a series of six successive
equal semi-annual installments upon his completion of each successive six months
of continued employment with the Company. The shares will be issued on an
accelerated basis should the Company be acquired.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of the
Internal Revenue Code disallows a tax deduction to publicly held companies for
compensation paid to certain of their executive officers, to the extent that
compensation, whether payable in cash or stock, exceeds $1.0 million per covered
officer in any fiscal year. The limitation applies only to compensation that is
not considered to be performance-based. Non-performance-based compensation paid
to the Company's executive officers for the 2000 fiscal year did not exceed the
$1.0 million limit per officer, and the Compensation Committee does not
anticipate that any non-performance-based compensation payable in cash to the
executive officers for the 2001 fiscal year will exceed that limit. The 1993
Plan has been structured so that any compensation deemed paid in connection with
the exercise of option grants made under that plan with an exercise price equal
to the fair market value of the option shares on the grant date will qualify as
performance-based compensation that will not be subject to the $1.0 million
limitation. However, the shares which will be issued pursuant to the restricted
share award program implemented under the Plan in cancellation of outstanding
out-of-the-money options will not qualify as performance-based compensation, and
the deductibility of the compensation which will be deemed paid by the Company
as the shares subject to the restricted share awards are issued in semi-annual
increments will be subject to the $1 million limitation. For purposes of that
limitation, the compensation deemed paid by the Company on each such semi-annual
issue date will be equal to the market price of the shares on that date. Because
it is unlikely that the actual cash compensation payable to any of the Company's
executive officers in the foreseeable future will approach the $1.0 million
limit, the Compensation Committee has decided at this time not to take any
action to limit or restructure the elements of cash compensation payable to the
executive officers. The Compensation Committee will reconsider this decision
should the individual cash compensation of any executive officer ever approach
the $1.0 million level.
Submitted by the Compensation
Committee
of the Board of Directors:
Garth Saloner, Chairman
David A. Cole, Member
Philip Schlein, Member
25
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors are
currently Garth Saloner, Philip Schlein and David A. Cole.
No member of the Compensation Committee was at any time during the 2000
fiscal year, or at any other time, an officer or employee of the Company. No
executive officer of the Company serves as a member of the Board of Directors or
Compensation Committee of any entity that has one or more executive officers
serving as a member of the Board of Directors or Compensation Committee.
AUDIT COMMITTEE REPORT
The following is the report of the audit committee with respect to the
Company's audited financial statements for the fiscal year ended December 31,
2000 included in the Company's Annual Report on Form 10-K for that year.
The audit committee has reviewed and discussed these audited financial
statements with management of the Company.
The audit committee has discussed with the Company's independent auditors,
PricewaterhouseCoopers LLP, the matters required to be discussed by SAS 61
(Codification of Statements on Auditing Standards, AU Section 380) as amended,
which includes, among other items, matters related to the conduct of the audit
of the Company's financial statements.
The audit committee has received the written disclosures from
PricewaterhouseCoopers LLP required by Independence Standards Board Standard
No. 1 ("Independence Discussions with Audit Committees") and has discussed with
PricewaterhouseCoopers LLP the independence of PricewaterhouseCoopers LLP from
the Company.
Based on the review and discussions referred to above in this report, the
audit committee recommended to the Company's Board of Directors that the audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000 for filing with the Securities and
Exchange Commission.
Submitted by the Audit Committee
of the Board of Directors:
Peter R. Johnson
Garth Saloner
26
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Common Stock with that of the S&P 500 Stock Index, a broad market index
published by Standard & Poor's Corporation, and a selected retail processing
services company stock index compiled by Research Data Group, Inc. The
comparison for each of the periods assumes that $100 was invested on
December 31, 1995 in the Common Stock, the stocks included in the S&P 500 Stock
Index and the stocks included in the retail processing services company index.
These indices, which reflect formulas for dividend reinvestment and weighing of
individual stocks, do not necessarily reflect returns that could be achieved by
individual investors.
COMPARISON OF YEARLY CUMULATIVE TOTAL RETURN
AMONG QRS, S&P 500 INDEX AND RETAIL PROCESSING SERVICES COMPANY INDEX*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
DOLLARS
DEC-95 DEC-96 DEC-97 DEC-98 DEC-99 DEC-00
QRS CORPORATION 100 155.1 201.36 261.22 857.14 104.6
S & P 500 100 122.96 163.98 210.84 255.22 231.98
PEER GROUP 100 125.35 175.35 252.49 319.19 437.33
*Fiscal year ending December 31. The trading symbols for the companies
comprising the peer group are ARIS, AUD, CEFT and PAYX. The current peer group
consists of four of the five companies that comprised the peer group for the
Company's 2000 proxy statement, because one of the companies from the original
peer group no longer has a public market for its stock.
27
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES AND EXCHANGE
ACT OF 1934 THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY
STATEMENT, IN WHOLE OR IN PART, THE PRECEDING COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION, AUDIT COMMITTEE REPORT AND PERFORMANCE GRAPH SHALL NOT
BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS, NOR SHALL SUCH REPORTS OR
GRAPH BE INCORPORATED BY REFERENCE INTO ANY FUTURE FILINGS.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal year 2000, Tradeweave, Inc. ("Tradeweave"), a subsidiary of
the Company, issued 400,000 shares of its common stock to Peter R. Johnson,
Chairman of the Board of the Company and a security holder of more than five
percent of the Company's Common Stock, for $100,000 in cash pursuant to the
exercise by Mr. Johnson of Tradeweave stock options. On September 30, 2000,
Tradeweave issued 142,503 shares of its common stock valued at $1.17 per share
(as determined by an independent appraisal) to Mr. Johnson for his services
provided to Tradeweave as Chief Executive Officer.
On June 30, 2000, the Company entered into a Preferred Stock Purchase
Agreement (the "Preferred Stock Agreement") with Tradeweave, Mr. Johnson and
Garth Saloner, a member of the Board of Directors of the Company and Chairman of
the Compensation Committee. Under the terms of the Preferred Stock Agreement,
during the month of June 2000, Tradeweave issued 529,115 shares of its series A
preferred stock to Mr. Johnson for $1,034,000 in cash, 135,093 shares of its
series A preferred stock to Mr. Saloner for $264,000 in cash, and 4,964,678
shares of its series A preferred stock to the Company for $9,702,000 in cash.
On February 9, 2001, the Company acquired the outstanding capital stock of
Tradeweave not previously held by the Company under a merger agreement (the
"Tradeweave Merger Agreement"). Under the Tradeweave Merger Agreement, the
Company agreed to issue 334,774 shares of its Common Stock for shares of
Tradeweave common stock and preferred stock held by Mr. Johnson, Mr. Saloner and
certain Tradeweave employees who held shares pursuant to the exercises of
Tradeweave stock options. The Company agreed to issue 199,555 shares of the
Company's Common Stock to Mr. Johnson and 47,362 shares of the Company's Common
Stock to Mr. Saloner. Additionally, the Company assumed the outstanding stock
options under the Tradeweave Non-Qualified Stock Option Plan, which will be
convertible to options to purchase 138,369 shares of the Company's Common Stock.
The Company also issued warrants to purchase 140,000 shares of the Company's
Common Stock at a price of $11.0625 per share to Mr. Johnson and Mr. Saloner.
The right to purchase such shares vests over a four-year period in equal annual
installments. The warrants expire on January 31, 2005.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of December 31, 2000, by (i) all persons known
by the Company to be beneficial owners of five percent or more of its
outstanding Common Stock, (ii) each director of the Company,
28
(iii) the Named Executive Officers and (iv) all executive officers and directors
of the Company as a group.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
-----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ------------------------------------ ---------------- ----------------
Peter R. Johnson(2)(3) ..................................... 1,436,249 9.52%
1400 Marina Way South Richmond, CA 94804
Brown Investment Advisory & Trust Company ("BIATC") and..... 1,637,772 10.89%
Brown Advisory Incorporated ("BAI")(4)
16 South Street
Baltimore, MD 21202
Downtown Associates III, L.P(5)............................. 799,800 5.32%
312 West State Street, Suite B
Kennett Square, PA 19348
Downtown Associates, L.L.C.(6).............................. 1,162,200 7.73%
312 West State Street, Suite B
Kennett Square, PA 19348
Tania Amochaev(2)........................................... 143,561 *
David A. Cole(2)............................................ 12,874 *
John P. Dougall(2).......................................... 23,751 *
Vince Morris(2)(7).......................................... 6,318 *
Allison Nelson(2)(7)........................................ 25,542 *
Shawn M. O'Connor(2)........................................ 255,788 1.67%
Garth Saloner(2)............................................ 58,749 *
Philip Schlein(2)........................................... 28,436 *
Mark Self(2)(7)............................................. 12,500 *
John S. Simon(2)(7)......................................... 220,374 1.44%
Garen K. Staglin(2)......................................... 124,749 *
Susan Welch(8).............................................. 340,524 2.26%
All current executive officers and directors as a group (17
persons) (9).............................................. 2,106,731 13.41%
- ------------------------
* Less than one percent.
(1) Assumes 15,036,996 shares outstanding as of December 31, 2000. Beneficial
ownership is determined under the rules of the Securities and Exchange
Commission ("SEC") and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to options, warrants
and convertible notes currently exercisable or convertible, or exercisable
or convertible within 60 days after December 31, 2000, are deemed
outstanding for computing the percentage of the person holding such options
but are not deemed outstanding for computing the percentage of any other
person. Except as indicated by footnote, and subject to community property
laws where applicable, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
29
(2) The amounts shown include the following shares issuable upon exercise of
options to purchase shares of Common Stock that are currently exercisable or
will become exercisable within 60 days after December 31, 2000:
Mr. Johnson, 56,250; Ms. Amochaev, 137,740; Mr. Cole 9,374; Mr. Dougall,
23,438; Mr. Morris, 6,318; Ms. Nelson, 25,542; Mr. O'Connor, 255,788;
Mr. Saloner, 58,749; Mr. Schlein, 28,436; Mr. Self, 12,500; Mr. Simon,
220,374; and Mr. Staglin, 83,124.
(3) The beneficial ownership for Mr. Johnson includes 30,000 shares held by the
Peter J. Johnson and Victoria J. Johnson GST Trust of which Mr. Johnson is a
trustee.
(4) Pursuant to a Schedule 13G dated February 13, 2001, and filed with the SEC,
BIATC has reported that as of December 31, 2000, BIATC beneficially owned
741,846 of such shares. With respect to these shares, BIATC had sole voting
power over 697,030 of such shares, shared voting power over 44,816 of such
shares, sole dispositive power over 699,546 of such shares and shared
dispositive power over 42,300 of such shares. BAI has reported that as of
December 31, 2000, BAI beneficially owned 895,926 of such shares. With
respect to these shares, BAI had sole voting and dispositive power over all
of such shares. BAI is a wholly-owned subsidiary of BIATC.
(5) Pursuant to a Schedule 13G/A dated February 14, 2001, and filed with the
SEC, Downtown Associates III, L.P. has reported that as of December 31, 2000
it has shared voting power over 799,800 shares and shared dispositive power
over 799,800 shares.
(6) Pursuant to a Schedule 13G/A dated February 14, 2001, and filed with the
SEC, Downtown Associates L.L.C. has reported that as of December 31, 2000,
it has shared voting power over 1,162,200 shares and shared dispositive
power over 1,162,200 shares.
(7) Mr. Morris had 6,318 shares and Mr. Self had 12,500 shares that would have
been exercisable within 60 days after December 31, 2000, but each
surrendered their respective shares pursuant to the restricted share program
under which their awards vest over a three-year period. In addition,
Mr. Simon surrendered 16,365 of his options and Ms. Nelson surrendered 6,667
of her options exercisable within 60 days after December 31, 2000 pursuant
to the restricted share program under which awards vest over a three-year
period.
(8) The amount shown includes 118,428 shares held in escrow as of December 31,
2000, of which Ms. Welch is the beneficial owner.
(9) The amount shown includes 675,473 shares issuable upon exercise of options
and warrants to purchase shares of Common Stock that are currently
exercisable or will become exercisable within 60 days after December 31,
2000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than 10% stockholders are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
30
To the Company's knowledge, based solely upon a review of copies of reports
furnished to the Company and written representations that no other reports were
required during the fiscal year ended December 31, 2000, all the Company's
officers, directors and greater than 10% stockholders complied with the
applicable Section 16(a) filing requirements, except that in August 2000 Garen
Staglin filed a late Form 4 reporting a purchase of shares of Common Stock he
made in May 2000.
31
----------------------------------------------------------------
PROPOSAL NO. 2:
APPROVAL OF AMENDMENT TO THE
1993 STOCK OPTION/STOCK ISSUANCE PLAN
----------------------------------------------------------------
The Company's stockholders are being asked to approve an amendment to the
1993 Plan which will increase in the number of shares of Common Stock authorized
for issuance over the term of the 1993 Plan by an additional 750,000 shares,
from 4,700,000 shares to 5,450,000 shares. The proposed amendment was adopted by
the Board of Directors on March 1, 2001, subject to stockholder approval at the
2001 Annual Meeting.
The Board believes that the proposed 750,000-share increase to the 1993 Plan
is necessary to assure that there is a sufficient number of shares available for
issuance under the 1993 Plan in order to attract and retain the services of
individuals essential to the Company's long-term success. Equity incentives play
a significant role in the Company's efforts to remain competitive in the market
for talented individuals, and the Company relies on such incentives as a means
to attract and retain highly qualified individuals in the positions vital to the
Company's success.
The 1993 Plan was originally adopted by the Board in June 1993 and approved
by the stockholders in July 1993. The 1993 Plan became effective in connection
with the initial public offering of the Common Stock and serves as the successor
to the Company's 1990 Stock Option Plan (the "1990 Plan"). Each option
outstanding under the 1990 Plan was incorporated into the 1993 Plan, and no
further option grants have been made under the 1990 Plan since the 1993 Plan
became effective.
The following is a summary of the principal features of the 1993 Plan, as
most recently modified by the Board. The summary, however, does not purport to
be a complete description of all the provisions of the 1993 Plan. Any
stockholder who wishes to obtain a copy of the actual plan document may do so by
written request to the attention of Investor Relations of the Company at the
Company's corporate offices in Richmond, California.
STRUCTURE OF THE 1993 PLAN
The 1993 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program, (ii) the Automatic Option Grant Program and
(iii) the Stock Issuance Program. Under the Discretionary Option Grant Program,
options may be issued to key employees (including officers and directors),
non-employee Board members and consultants and other independent advisors in the
service of the Company (or its parent or subsidiary companies) who contribute to
the management, growth and financial success of the Company (or its parent or
subsidiary companies). Under the Automatic Option Grant Program, option grants
are automatically made at periodic intervals to non-employee members of the
Board. Under the Stock Issuance Program, key employees (including officers and
directors), non-employee Board members and consultants and other independent
advisors in the service of the Company (or its parent or subsidiary companies)
who contribute to the management, growth and financial success of the Company
(or its parent or subsidiary companies) may be issued shares of Common Stock
directly, either through the purchase of such shares at fair market value or as
a bonus tied to their performance of services or the Company's attainment of
financial objectives.
32
As of March 16, 2001, 664 employees (including ten executive officers and
seven non-employee Board members) were eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs, and the seven
non-employee Board members were also eligible to receive grants under the
Automatic Option Grant Program.
SECURITIES SUBJECT TO 1993 PLAN
The maximum number of shares of Common Stock which can be issued under the
1993 Plan is 5,450,000 and the number available for issuance under the 1993 Plan
as of February 28, 2001 is 1,409,245, including the 750,000-share increase for
which stockholder approval is sought.
In no event may any one individual participating in the 1993 Plan be granted
stock options, separately-exercisable stock appreciation rights, and receive
direct stock issuances for more than 750,000 shares of Common Stock in the
aggregate under the 1993 Plan, exclusive of any grants or issuances made to such
individual prior to January 1, 1994. Stockholder approval of this Proposal will
also constitute reapproval of such limitation for purposes of Internal Revenue
Code Section 162(m).
The shares of Common Stock issuable under the 1993 Plan may be drawn from
shares of authorized but unissued Common Stock or from shares of Common Stock
which the Company acquires, including shares purchased on the open market.
Shares subject to any outstanding options under the 1993 Plan (including
options transferred from the 1990 Plan) which expire or otherwise terminate
prior to exercise will be available for subsequent issuance. Unvested shares
issued under the 1993 Plan which the Company subsequently purchases, at the
option exercise or direct issue price paid per share, pursuant to the Company's
purchase rights under the 1993 Plan will be added back to the number of shares
reserved for issuance under the 1993 Plan and will accordingly be available for
subsequent issuance. However, any shares subject to stock appreciation rights
exercised under the 1993 Plan will not be available for reissuance.
In the event any change is made to the Common Stock issuable under the 1993
Plan by reason of any stock split, stock dividend, combination of shares,
merger, reorganization, consolidation, recapitalization, exchange of shares, or
other change in capitalization of the Company affecting the outstanding shares
of Common Stock as a class without the Company's receipt of consideration,
appropriate adjustments will be made to (i) the maximum number and/or class of
securities issuable under the 1993 Plan, (ii) the maximum number and/or class of
securities for which any one individual may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the 1993
Plan after December 31, 1993, (iii) the class and/or number of securities and
option price per share in effect under each outstanding option, and (iv) the
class and/or number of securities for which automatic option grants are to be
subsequently made to new and continuing non-employee Board members under the
Automatic Option Grant Program. The adjustments to the outstanding options will
prevent the dilution or enlargement of benefits thereunder.
ADMINISTRATION
The Compensation Committee of the Board will have the exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to option grants and stock issuances made to the Company's executive
officers and non-employee board members and will also have the authority to make
option grants and stock issuances under those programs to all other eligible
33
individuals. However, the Board may at any time appoint a secondary committee of
one or more Board members to have separate but concurrent authority with the
Compensation Committee to make option grants and stock issuances under those two
programs to individuals other than the Company's executive officers and
non-employee Board members.
The term plan administrator, as used in this Proposal, will mean the
Compensation Committee and any secondary committee, to the extent each such
entity is acting within the scope of its administrative authority under the 1993
Plan. However, neither the Compensation Committee nor any secondary committee
will exercise any administrative discretion under the Automatic Option Grant
Program. All grants under that program will be made in strict compliance with
the express provisions of such program.
OPTIONS GRANTED
The table below shows, as to each of the Named Executive Officers and the
various indicated groups, the following information with respect to stock option
transactions effected during the period from January 1, 2000 to February 28,
2001: (i) the number of shares of Common Stock subject to options granted under
the 1993 Plan during that period and (ii) the weighted average exercise price
payable per share under such options. No direct stock issuances have been made
to date under the 1993 Plan.
NUMBER OF WEIGHTED AVERAGE EXERCISE
NAME AND POSITION OPTION SHARES PRICE OF GRANTED OPTIONS
- ----------------- ------------- -------------------------
John S. Simon............................................. 40,000(1) $29.625
Chief Executive Officer and Director
Vince Morris.............................................. 20,000(1) $29.625
Senior Vice President, Operations 10,000(1) $13.438
Allison Nelson............................................ 20,000(1) $83.00
Former Senior Vice President, Global Services and 20,000(1) $29.625
Business Development
Shawn M. O'Connor......................................... 35,000(2) $29.625
Former President and Chief Operating Officer
Mark Self................................................. 50,000(1) $85.4375
Senior Vice President, Sales 40,000(1) $29.625
Susan Welch............................................... 10,000(1) $54.875
Former Senior Vice President, Application Services 10,000(1) $29.625
All current executive officers as a group (10 persons).... 358,250 $30.81
All current non-employee Board members as a group
(7 persons)............................................. 345,000 $56.73
All employees (other than current executive officers) as a
group................................................... 920,107 $30.96
- ------------------------
(1) Each of these options was surrendered to the Company on January 3, 2001 in
return for a restricted share award at an exchange ratio of three option
shares for every one share of Common Stock subject to the restricted share
award. See Compensation Committee Report on Restricted Share Award Program
for more information.
34
(2) 24,062 of these options were forfeited upon Mr. O'Connor's resignation from
the Company in September 2000.
As of February 28, 2001, options for 1,830,406 shares were outstanding under
the 1993 Plan, 1,936,867 shares were issued, and, assuming stockholder approval
of this Proposal, 1,409,245 shares remained available for future option grants
and stock issuances.
In December 1997, the Company implemented the Special Non-Officer Stock
Option Plan, pursuant to which 225,000 shares were initially reserved for
issuance to employees of the Company who are neither officers nor Board members.
The provisions of such supplemental plan are substantially the same as those in
effect under the Discretionary Option Grant Program of the 1993 Plan described
below. On February 15, 1999, the Board authorized an increase of 225,000 shares
to this plan, and an additional 225,000 shares were added to the available
reserve on May 11, 2000. As of March 16, 2001, options for 575,802 shares were
outstanding, 48,691 shares had been issued, and 50,507 shares remained available
of future option grants under the plan.
On December 19, 2000, the Compensation Committee approved the implementation
of a restricted share award program under the Stock Issuance Program of the 1933
Plan. Each officer (from Vice President level and up) was given the opportunity
under the program to surrender his or her outstanding options under the 1993
Plan that had exercise prices in excess of $15 per share in return for a
restricted share award at an exchange ratio of three option shares for every one
share of Common Stock subject to the restricted share award. A total of 875,126
shares were surrendered under this program and up to 291,709 shares of Common
Stock may be issued pursuant to restricted share awards granted under this
program.
DISCRETIONARY OPTION GRANT PROGRAM AND STOCK ISSUANCE PROGRAM
Options granted under the Discretionary Option Grant Program may be either
incentive stock options under the federal tax laws or non-statutory options
which are not intended to meet such requirements; however, only employees of the
Company are eligible to receive incentive stock option grants. The principal
features of the grants made under the Discretionary Option Grant Program and the
direct issuances made under the Stock Issuance Program may be summarized as
follows:
EXERCISE PRICE AND EXERCISABILITY
The exercise price per share must not be less than 100% of the fair market
value per share of the Common Stock on the grant date. No option may be
outstanding for more than a 10-year term. The shares subject to each option will
generally vest in one or more installments over a specified period of service
measured from the grant date. However, one or more options may be structured so
that they will be immediately exercisable for any or all of the option shares.
The shares acquired under such immediately exercisable options will be subject
to repurchase by the Company, at the exercise price paid per share, if the
optionee ceases service prior to vesting in those shares.
The purchase price for any shares sold under the Stock Issuance Program may
not be less than 100% of the fair market value of the shares on the date of
issuance. Shares may also be issued under the Stock Issuance Program for
non-cash consideration, such as a bonus for past services rendered to the
Company. In addition, shares may be issued under the Stock Issuance Program as
an incentive tied
35
to the individual's performance of future service or the Company's attainment of
performance milestones.
The plan administrator may also assist any optionee (including an officer)
in the exercise of outstanding options under the Discretionary Option Grant
Program or in the purchase of shares under the Stock Issuance Program by
authorizing a loan from the Company or permitting such individual to pay the
exercise price or purchase price through a full-recourse, interest-bearing
promissory note payable in installments over a period of years. The terms and
conditions of any such loan or promissory note will be established by the plan
administrator in its sole discretion, but in no event may the maximum credit
extended to such individual exceed the aggregate price payable for the purchased
shares, plus any Federal and state income or employment withholding taxes to
which such individual may become subject in connection with the purchase. The
plan administrator may also provide for the forgiveness of any outstanding loan
or promissory note over the individual's period of continued service with the
Company.
TERMINATION OF SERVICE
The plan administrator has complete discretion to establish the period of
time for which any option is to remain exercisable following the optionee's
cessation of service with the Company. Under no circumstances may an option be
exercised after the specified expiration date of the option term. Each option
under the Discretionary Option Grant Program will be exercisable only to the
extent of the number of shares for which such option is exercisable at the time
of the optionee's cessation of employment or service. However, the plan
administrator has the discretion, exercisable at any time while the option
remains outstanding, to accelerate the exercisability of such option in whole or
in part. Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
CORPORATE TRANSACTION
In the event of a Corporate Transaction (defined below), each outstanding
option under the Discretionary Option Grant Program, which will not be assumed
by the successor corporation or otherwise replaced with a cash incentive program
which preserves the existing option spread on the unvested option shares will
automatically accelerate in full, and all unvested shares under the Stock
Issuance Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. The plan administrator will have the discretion to
structure one or more option grants under the Discretionary Option Grant Program
or one or more unvested shares issuances under the Stock Issuance Program so
that those options or shares will automatically vest in the event the
individual's service is subsequently terminated within a specified period
following a Corporate Transaction in which those options and shares do not
otherwise vest on an accelerated basis. The plan administrator may also
structure one or more option grants under the Discretionary Option Grant Program
and one or more unvested share issuances under the Stock Issuance Program so
that those options and shares will automatically vest in full upon a Corporate
Transaction. Option grants made to certain executive officers of the Company may
vest on an accelerated basis in connection with an acquisition or other change
in control of the Company. For further information concerning such acceleration
provisions, please see the "Executive Compensation--
36
Employment Contracts, Termination of Employment and Change-in-Control
Agreements" section above.
A Corporate Transaction includes one or more of the following
stockholder-approved transactions: (i) a merger or acquisition in which the
Company is not the surviving entity (other than a transaction the principal
purpose of which is to change the state of the Company's incorporation),
(ii) the sale, transfer or other disposition of all or substantially all of the
Company's assets in complete liquidation or dissolution of the Company or
(iii) any reverse merger in which the Company is the surviving entity but in
which more than 50% of the Company's outstanding voting stock is transferred to
the acquiring entity or its wholly owned subsidiary.
CHANGE IN CONTROL
The plan administrator will have the discretionary authority to provide for
automatic acceleration of outstanding options under the Discretionary Option
Grant Program and the automatic vesting of outstanding shares under the Stock
Issuance Program in connection with a Change in Control, with such acceleration
or vesting to occur either at the time of the Change in Control or upon the
subsequent termination of the participant's service.
A Change in Control will be deemed to occur under the 1993 Plan upon:
(i) the acquisition of more than 50% of the Company's outstanding voting stock
pursuant to a tender or exchange offer made directly to the Company's
stockholders or (ii) a change in the composition of the Board of Directors over
a period of 36 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 members of the Board
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 such election or nomination was approved by the Board.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
STOCK APPRECIATION RIGHTS
The plan administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
TANDEM STOCK APPRECIATION RIGHTS provide the holders with the right to
surrender all or part of an unexercised option for an appreciation
distribution from the Company equal in amount to the excess of (a) the fair
market value of the shares of Common Stock subject to the surrendered option
over (b) the aggregate exercise price payable for those shares. Such
appreciation distribution may, at the discretion of the plan administrator,
be made in cash, shares of Common Stock or a combination of both.
LIMITED STOCK APPRECIATION RIGHTS may be granted to officers of the
Company as part of their option grants. Any option with such a limited stock
appreciation right may be surrendered to the Company upon the successful
completion of a Hostile Take-Over of the Company. In return for
37
the surrendered option, the officer will be entitled to a cash distribution
from the Company in an amount per surrendered share equal to the excess of
(a) the Take-Over Price per share over (b) the exercise price payable for
such share.
For purposes of such option cash-out provisions, the following definitions
are in effect under the 1993 Plan:
Hostile Take-Over: the direct or indirect acquisition by any person or
related group of persons (other than the Company or its affiliates) of
securities possessing more than 50% of the total combined voting power of
the Company's outstanding securities pursuant to a tender or exchange offer
made directly to the Company's stockholders which the Board does not
recommend that such stockholders accept.
Take-Over Price: the greater of (A) the fair market value of the shares
of Common Stock subject to the surrendered option, measured on the surrender
date in accordance with the valuation provisions of the 1993 Plan described
below, or (B) the highest reported price per share paid by the tender
offeror in effecting the Hostile Take-Over.
SPECIAL TAX ELECTION
The plan administrator may provide one or more employee-holders of
non-statutory options or unvested shares under the Discretionary Option Grant
Program or the Stock Issuance Program with the right to have the Company
withhold a portion of the shares of Common Stock otherwise issuable to such
individuals upon the exercise of those options or vesting of those shares in
order to satisfy the Federal and state income and employment withholding taxes
to which such individuals may become subject in connection with such exercise or
vesting. Alternatively, the plan administrator may allow such individuals to
deliver already existing shares of the Company's Common Stock in payment of such
withholding tax liability.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, non-employee Board members will
receive option grants at specified intervals over their period of Board service.
All grants under such program will be made in strict compliance with the express
provisions of the program, and stockholder approval of this Proposal will also
constitute pre-approval of each option granted on or after the date of the
Annual Meeting pursuant to the provisions of the Automatic Option Grant Program
on the basis of the share increase effected pursuant to this Proposal and the
subsequent exercise of that option in accordance with such provisions.
Each individual who first joined the Board as a non-employee Board member at
any time after the 2000 Annual Meeting was automatically granted, at the time of
his or her initial election or appointment to the Board, a non-statutory option
to purchase 15,000 shares of Common Stock, provided such individual has not
previously been in the employ of the Company.
On the first trading day in January each year, beginning with calendar year
2001, each individual who is at the time serving as a non-employee Board member
will automatically be granted an option to purchase 10,000 shares of Common
Stock, and each individual who is also at the time serving as a chairperson of
any Board committee will automatically be granted a second option for an
additional
38
10,000 shares, provided in each instance that the individual has served as a
non-employee Board member for at least six months.
Each option grant under the Automatic Option Grant Program will have an
exercise price per share equal to 100% of the fair market value per share of
Common Stock on the grant date and a maximum term of 10 years measured from such
date, subject to earlier termination upon the optionee's cessation of Board
service. Each option will become exercisable for the option shares as follows:
(i) the option will become exercisable for twenty-five percent (25%) of the
option shares upon the optionee's completion of six months of Board service
measured from the date of the option grant and (ii) the balance of the option
shares will become exercisable in a series of thirty-six (36) successive equal
monthly installments upon the optionee's completion of each additional month of
Board service.
The option will remain exercisable for a six-month period following the
optionee's cessation of Board service for any reason other than death or
permanent disability. Should the optionee die while in Board service or within
six months after his or her cessation of Board service, then the option will
remain exercisable for a twelve-month period following such optionee's death and
may be exercised by the personal representative of the optionee's estate or the
person to whom the grant is transferred by the optionee's will or the laws of
inheritance. Should the optionee cease Board service by reason of permanent
disability, then he or she will have a twelve-month period in which to exercise
the option. In no event, however, may any option be exercised after the
expiration date of the option term. During the applicable exercise period, the
option may not be exercised for more than the number of shares (if any) for
which the option is exercisable at the time of his or her cessation of Board
service.
The shares subject to each automatic option grant will immediately vest
should any of the following events occur during optionee's period of Board
service: (i) the optionee's death or permanent disability or (ii) a Corporate
Transaction or Change in Control. In addition, upon the successful completion of
a Hostile Take-Over, each automatic option grant may be surrendered to the
Company for a cash distribution per surrendered option share in an amount equal
to the excess of (a) the Take-Over Price per share over (b) the exercise price
payable for such share. Stockholder approval of this Proposal will also
constitute pre-approval of each option granted with such a surrender right on or
after the date of the Annual Meeting and the subsequent exercise of that right
in accordance with the foregoing provisions.
GENERAL PROVISIONS OF THE 1993 PLAN
STOCKHOLDER RIGHTS AND OPTION TRANSFERABILITY
No optionee will have any stockholder rights with respect to the option
shares until such optionee has exercised the option and paid the exercise price
for the purchased shares. Options are generally not assignable or transferable
other than by will or the laws of inheritance and, during the optionee's
lifetime, the option may be exercised only by such optionee. However, the plan
administrator may allow non-statutory options to be transferred or assigned
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.
39
VALUATION
The fair market value per share of Common Stock under the 1993 Plan on any
relevant date will be the closing selling price on the date in question, as
reported on the Nasdaq National Market and published in THE WALL STREET JOURNAL.
On March 16, 2001, the fair market value per share of the Common Stock
determined on such basis was $9.656 per share.
AMENDMENT AND TERMINATION OF THE 1993 PLAN
The Board may amend or modify the 1993 Plan in any or all respects
whatsoever subject to any stockholder approval required under applicable law or
regulation. No amendment or modification will adversely affect the rights of
holders of outstanding options or restricted stock unless such holder's consent
is obtained. Unless sooner terminated by the Board, the 1993 Plan will terminate
on the earliest of (a) December 31, 2005, (b) the date on which all shares
available for issuance under the 1993 Plan have been issued as fully-vested
shares or (c) the termination of all outstanding options in connection with
certain changes in control or ownership of the Company.
NEW PLAN BENEFITS
As of March 16, 2001, no options have been granted, and no direct stock
issuances have been made, on the basis of the 750,000-share increase that is the
subject of this Proposal.
FEDERAL TAX CONSEQUENCES
Options granted under the 1993 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to satisfy such requirements. The
Federal income tax treatment for the two types of options differs as follows:
INCENTIVE STOCK OPTIONS.
The optionee recognizes no taxable income at the time of the option grant,
and no taxable income is generally recognized at the time the option is
exercised. The optionee will, however, recognize taxable income in the year in
which the purchased shares are sold or otherwise made the subject of
disposition.
For Federal income tax purposes, dispositions are divided into two
categories: (i) qualifying and (ii) disqualifying. The optionee will make a
qualifying disposition of the purchased shares if the sale or disposition is
made more than two years after the date the option for the shares involved in
such sale or other disposition is granted and more than one year after the date
the option is exercised for those shares. If the sale or disposition occurs
before these two requirements are satisfied, then a disqualifying disposition of
the purchased shares will result.
Upon a qualifying disposition, the optionee will recognize long-term capital
gain in an amount equal to the excess of (i) the amount realized upon the sale
or other disposition of the purchased shares over (ii) the exercise price paid
for the shares. If there is a disqualifying disposition of the shares, then the
excess of (i) the fair market value of those shares on the exercise date over
(ii) the
40
exercise price paid for the shares will be taxable as ordinary income to the
optionee. Any additional gain or loss recognized upon the disposition will be
recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the date the option was exercised over (ii) the
exercise price paid for such shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.
NON-STATUTORY OPTIONS.
An optionee recognizes no taxable income upon the grant of a non-statutory
option. The optionee will in general recognize ordinary income in the year in
which the option is exercised equal to the excess of the fair market value of
the purchased shares on the exercise date over the exercise price, and the
optionee will be required to satisfy the tax withholding requirements applicable
to such income.
If the shares acquired upon exercise of a non-statutory option are subject
to a substantial risk of forfeiture (such as the Company's right to repurchase
unvested shares at the original exercise price paid per share, upon the
optionee's cessation of service prior to vesting in those shares), then the
optionee will not recognize any taxable income at the time the option is
exercised for such unvested shares but will have to report as ordinary income,
as and when the shares vest, an amount equal to the excess of (a) the fair
market value of the shares on the vesting date over (b) the exercise price paid
for the shares. The optionee may, however, elect under Section 83(b) of the
Internal Revenue Code to include as ordinary income in the year of exercise an
amount equal to the difference between the fair market value of the purchased
shares on the date of exercise (determined as if the unvested shares were not
subject to the Company's repurchase right) and the exercise price paid for the
shares. If the Section 83(b) election is made, the optionee will not recognize
any additional income as and when the shares vest.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee in connection with the exercise of
the non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
STOCK APPRECIATION RIGHTS.
If an option granted with a tandem stock appreciation right is surrendered
for an appreciation distribution, or if an option granted with a limited stock
appreciation right is cancelled for an appreciation distribution, the recipient
will generally realize ordinary income on the surrender or cancellation date,
equal in amount to the appreciation distribution. The Company will be entitled
to a deduction equal to the amount of such ordinary income.
DIRECT STOCK ISSUANCE.
The tax principles applicable to direct stock issuances under the 1993 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
41
DEDUCTIBILITY OF EXECUTIVE COMPENSATION.
The Company anticipates that any compensation deemed paid by it in
connection with the disqualifying disposition of incentive stock option shares
or the exercise of non-statutory options with exercise prices equal to the fair
market value of the option shares on the grant date will qualify as
performance-based compensation for purposes of Code Section 162(m) and will not
have to be taken into account for purposes of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain
executive officers of the Company. Accordingly, all compensation deemed paid
with respect to those options will remain deductible by the Company without
limitation under Code Section 162(m).
ACCOUNTING TREATMENT
Under the current accounting principles in effect for equity incentive
programs such as the 1993 Plan, the option grants under the 1993 Plan will not
result in any charge to the Company's reported earnings, but the Company must
disclose, in pro-forma statements to the Company's financial statements, the
impact the option grants would have upon the Company's reported earnings were
the fair value of those options at the time of grant treated as compensation
expense. The number of outstanding options may be a factor in determining the
Company's earnings per share on a fully diluted basis.
The restricted share awards issued on January 3, 2001 in cancellation of the
out-of-the-money options held by the executive officers and certain other
individuals on that date cover a total of 291,709 shares of Common Stock. These
awards will result in a non-cash compensation expense to the Company based on
the $13.6875 per share fair market value of the Common Stock on that date. Such
compensation expense (approximately a $4 million maximum expense) will be
amortized, for financial reporting purposes, over the three-year vesting period
in effect for those awards.
Option grants made to independent consultants (but not non-employee Board
members) after December 15, 1998 will result in a direct charge to the Company's
reported earnings based upon the fair value of the option measured initially as
of the grant date of that option and then subsequently on the vesting date of
each installment of the underlying option shares. No charge will, however, be
required for periods before July 1, 2000.
Should one or more optionees be granted stock appreciation rights under the
1993 Plan that have no conditions upon exercisability other than a service or
employment requirement, then such rights would result in a compensation expense
to be charged against the Company's reported earnings. Accordingly, at the end
of each fiscal quarter, the amount (if any) by which the fair market value of
the shares of Common Stock subject to such outstanding stock appreciation rights
has increased from the prior quarter-end would be accrued as compensation
expense, to the extent such fair market value is in excess of the aggregate
exercise price in effect for those rights.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the shares represented and entitled to
vote at the Annual Meeting is required for approval of the proposed share
increase to the 1993 Plan. If stockholder approval of such share increase 1993
Plan is not obtained, then any options granted on the basis of that share
increase will terminate without becoming exercisable for any of the shares of
Common Stock
42
subject to those options, and no further options will be granted on the basis of
such share increase. However, the 1993 Plan will continue to remain in effect,
and option grants and direct stock issuances may continue to be made pursuant to
the provisions of the 1993 Plan, until the available reserve of Common Stock as
last approved by the stockholders has been issued pursuant to such option grants
and direct stock issuances made under the 1993 Plan or (if earlier) until the
December 31, 2005 termination date of the 1993 Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the proposed share increase to the 1993
Plan is necessary in order to provide the Company with the continuing
opportunity to utilize equity incentives to attract and retain the services of
key employees, consultants and non-employee Board members.
FOR THIS REASON, THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR THE PROPOSED SHARE INCREASE TO THE 1993 PLAN.
43
----------------------------------------------------------------
PROPOSAL NO. 3:
APPROVAL OF AMENDMENTS TO THE
EMPLOYEE STOCK PURCHASE PLAN
----------------------------------------------------------------
INTRODUCTION
The stockholders are being asked to approve an amendment and restatement of
the Purchase Plan, to effect the following changes: (i) increase the number of
shares authorized for issuance under the Purchase Plan by an additional 200,000
shares, (ii) implement a series of overlapping twenty-four (24)-month offering
periods beginning at semi-annual intervals each year, (iii) establish a series
of semi-annual purchase dates within each such offering period, (iv) limit the
number of shares of Common Stock purchasable per participant on any one purchase
date to a total of 750 shares, (v) limit the maximum number of shares of Common
Stock purchasable in total by all participants on any one purchase date to
100,000 shares, (vi) extend the term of the Purchase Plan to the last business
day in April 2011, and (vii) revise certain provisions of the plan document in
order to facilitate the administration of the Purchase Plan.
The purpose of such amendment and restatement is to ensure the Company will
continue to have a sufficient reserve of Common Stock available under the
Purchase Plan to provide eligible employees of the Company and its participating
affiliates (whether now existing or subsequently established) with the
opportunity to purchase shares of Common Stock at semi-annual intervals through
their accumulated periodic payroll deductions.
The Purchase Plan was adopted by the Board in June 1993 and became effective
on August 5, 1993, in connection with the Company's initial public offering. The
proposed amendment and restatement of the Purchase Plan was adopted by the Board
of Directors on March 1, 2001, subject to stockholder approval at the Annual
Meeting.
The terms and provisions of the amended and restated Purchase Plan are
summarized below. This summary, however, does not purport to be a complete
description of the Purchase Plan. Any stockholder who wishes to obtain a copy of
the actual plan document may do so by written request to the attention of
Investor Relations of the Company at the Company's corporate offices in
Richmond, California.
DESCRIPTION OF THE PURCHASE PLAN
ADMINISTRATION
The Purchase Plan is administered by the Compensation Committee of the
Board. Such committee, as plan administrator, has full authority to adopt
administrative rules and procedures and to interpret the provisions of the
Purchase Plan.
SECURITIES SUBJECT TO THE PURCHASE PLAN
The maximum number of shares of Common Stock currently reserved for issuance
over the term of the Purchase Plan is limited to 425,000 shares, assuming
stockholder approval of the 200,000-share
44
increase which forms part of this Proposal. As of March 16, 2001, 42,472 shares
were available for future issuance.
The shares issuable under the Purchase Plan may be made available from
authorized but unissued shares of the Common Stock or from shares of Common
Stock repurchased by the Company, including shares repurchased on the open
market.
In the event that any change is made to the outstanding Common Stock
(whether by reason of any recapitalization, stock dividend, stock split,
exchange or combination of shares or other change affecting the outstanding
Common Stock as a class without the Company's receipt of consideration),
appropriate adjustments will be made to (a) the maximum number and class of
securities issuable under the Purchase Plan, (b) the maximum number and class of
securities purchasable per participant on any one semi-annual purchase date,
(c) the maximum number and class of securities purchasable in total by all
participants on any one purchase date and (d) the number and class of securities
and the price per share in effect under each outstanding purchase right. Such
adjustments will be designed to preclude any dilution or enlargement of benefits
under the Purchase Plan or the outstanding purchase rights thereunder.
OFFERING PERIODS AND PURCHASE RIGHTS
Currently, shares of Common Stock are offered under the Purchase Plan
through a series of successive offering periods, each with a maximum duration of
one (1) year. At the time the participant joins the offering period, he or she
is granted a purchase right to acquire shares of Common Stock at the end of that
offering period. All payroll deductions collected from the participant for the
period ending with each such purchase date are automatically applied to the
purchase of Common Stock, subject to certain limitations. The current offering
period will end on December 31, 2001 and shares of Common Stock will be
purchased on behalf of the participants on that date.
If stockholder approval of this Proposal is obtained, then the Common Stock
will be offered for purchase under the Purchase Plan through a series of
overlapping offering periods, each with a maximum duration of twenty-four
(24) months. Such offering periods will begin on the first business day of May
and on the first business day of November each year over the term of the Plan.
Accordingly, two (2) separate offering periods will begin in each calendar year
the Purchase Plan remains in effect. However, the initial offering period under
this new arrangement will begin on July 2, 2001 and will end on the last
business day in April 2003.
Each offering period will consist of a series of one or more successive
purchase intervals. Purchase intervals will run from the first business day in
May to the last business day in October each year and from the first business
day in November each year to the last business day in April in the immediately
succeeding year. However, for the offering period which begins on July 2, 2001,
the initial purchase interval will run from July 2, 2001 to October 31, 2001.
If the fair market value per share of Common Stock on any semi-annual
purchase date within a particular offering period is less than the fair market
value per share of Common Stock on the start date of that offering period, then
the participants in that offering period will automatically be transferred from
that offering period after the semi-annual purchase of shares on their behalf
and enrolled in the new offering period which begins on the next business day
following such purchase date.
45
ELIGIBILITY AND PARTICIPATION
Any individual who is employed on a basis under which he or she is regularly
expected to work for more than twenty (20) hours per week for more than five
(5) months per calendar year in the employ of the Company or any participating
parent or subsidiary corporation (including any corporation which subsequently
becomes such at any time during the term of the Purchase Plan) is eligible to
participate in the Purchase Plan.
An individual who is an eligible employee on the start date of any offering
period may join that offering period at that time. An eligible employee may not
participate in more than one offering period at a time.
As of March 16, 2001, approximately 664 employees, including ten executive
officers, were eligible to participate in the Purchase Plan.
PURCHASE PRICE
The purchase price of the Common Stock purchased on behalf of each
participant in the Purchase Plan on each semi-annual purchase date will be equal
to 85% of the lower of (i) the fair market value per share of Common Stock on
the start date the offering period in which the participant is enrolled or
(ii) the fair market value on the semi-annual purchase date.
The fair market value per share of Common Stock on any particular date under
the Purchase Plan will be deemed to be equal to the closing selling price per
share on such date reported on the Nasdaq National Market and published in THE
WALL STREET JOURNAL. On March 16, 2001, the closing selling per share of Common
Stock on the Nasdaq National Market was $9.656.
PAYROLL DEDUCTIONS AND STOCK PURCHASES
Each participant may authorize periodic payroll deductions in any multiple
of 1% up to a maximum of 10% of his or her regular base salary to be applied to
the acquisition of Common Stock at semi-annual intervals. Accordingly, on each
semi-annual purchase date (the last business day in April and October each
year), the accumulated payroll deductions of each participant will automatically
be applied to the purchase of whole shares of Common Stock at the purchase price
in effect for the participant for that purchase date.
SPECIAL LIMITATIONS
The Purchase Plan imposes certain limitations upon a participant's rights to
acquire Common Stock, including the following limitations:
- Purchase rights granted to a participant may not permit such individual to
purchase more than $25,000 worth of Common Stock (valued at the time each
purchase right is granted) for each calendar year those purchase rights
are outstanding at any time.
- Purchase rights may not be granted to any individual if such individual
would, immediately after the grant, own or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of the
Company or any of its affiliates.
46
- No participant may purchase more than 750 shares of Common Stock on any
one purchase date.
- The maximum number of shares of Common Stock purchasable in total by all
participants on any one purchase date within the current offering period
will be limited to 100,000 shares for each purchase date within each
subsequent offering period.
The Compensation Committee will have the discretionary authority to increase
or decrease the per participant and total participant limitations on the start
date of any new offering period under the Purchase Plan.
TERMINATION OF PURCHASE RIGHTS/TERMINATION OF EMPLOYMENT
The participant may withdraw from the Purchase Plan at any time, and his or
her accumulated payroll deductions will, at the participant's election, be
applied to the purchase of shares on the next semi-annual purchase date or
refunded.
Upon the participant's cessation of employment or loss of eligible employee
status, payroll deductions will automatically cease. Any payroll deductions
which the participant may have made for the semi-annual period in which such
cessation of employment or loss of eligibility occurs will, at the participant's
election, be applied to the purchase of shares on the next semi-annual purchase
date or refunded.
STOCKHOLDER RIGHTS
No participant will have any stockholder rights with respect to the shares
covered by his or her purchase rights until the shares are actually purchased on
the participant's behalf. No adjustment will be made for dividends,
distributions or other rights for which the record date is prior to the date of
such purchase.
ASSIGNABILITY
Purchase rights are not assignable or transferable by the participant other
than by will or by the laws of descent and distribution following the
participant's death, and the purchase rights are exercisable only by the
participant during the participant's lifetime.
CHANGE IN OWNERSHIP
In the event a change in ownership occurs, all outstanding purchase rights
will automatically be exercised immediately prior to the effective date of such
acquisition. The purchase price in effect for each participant will be equal to
85% of the LOWER of (a) the fair market value per share of Common Stock on the
start date of the offering period in which the participant is enrolled at the
time such acquisition occurs or (b) the fair market value per share of Common
Stock immediately prior to such acquisition. The limitation on the maximum
number of shares purchasable in total by all participants on any one purchase
date will not be applicable to any purchase date attributable to such an
acquisition.
A CHANGE IN OWNERSHIP is deemed to occur if (a) the Company is involved in a
merger or consolidation in which more than 50% of the Company's outstanding
voting stock is transferred to a person or persons different from those who held
stock immediately prior to such transaction, (b) the
47
Company sells, transfers or disposes of all or substantially all of its assets
or (c) any person or related group of persons acquires ownership of securities
possessing more than 50% of the total combined voting power of the Company's
outstanding securities pursuant to a tender or exchange offer made directly to
the Company's stockholders.
SHARE PRO-RATION
Should the total number of shares of Common Stock to be purchased pursuant
to outstanding purchase rights on any particular date exceed the number of
shares then available for issuance under the Purchase Plan, then the plan
administrator will make a pro-rata allocation of the available shares on a
uniform and nondiscriminatory basis, and the payroll deductions of each
participant, to the extent in excess of the aggregate purchase price payable for
the Common Stock pro-rated to such individual, will be refunded.
AMENDMENT AND TERMINATION
The Purchase Plan will terminate upon the earliest of (a) the last business
day in April 2011, assuming this Proposal is approved by the Company's
stockholders at the Annual Meeting, or December 31, 2002 in the absence of such
stockholder approval, (b) the date on which all shares available for issuance
thereunder are sold pursuant to exercised purchase rights or (c) the date on
which all purchase rights are exercised in connection with an acquisition of the
Company.
The Board may at any time alter, suspend or terminate the Purchase Plan.
However, the Board may not, without stockholder approval, (a) increase the
number of shares issuable under the Purchase Plan, (b) alter the purchase price
formula so as to reduce the purchase price or (c) modify the requirements for
eligibility to participate in the Purchase Plan.
PLAN BENEFITS
The table below shows, as to the Named Executive Officers and specified
groups, the number of shares of Common Stock purchased under the Purchase Plan
between January 1, 2000 and December 31, 2000, the most recent purchase date,
together with the purchase price paid per share.
48
PURCHASE PLAN TRANSACTIONS
NUMBER OF PURCHASE PRICE PER
NAME AND POSITION SHARES SHARE
- ----------------- --------- ------------------
John S. Simon, Chief Executive Officer and Director......... 242 $10.891
Vince Morris, Senior Vice President, Operations............. 242 $10.891
Allison Nelson, Former Senior Vice President, Global
Services and Business Development......................... -- --
Shawn M. O'Connor, Former President and Chief Operating
Officer................................................... 242 $10.891
Mark Self, Senior Vice President, Sales..................... 151 $10.891
Susan Welch, Former Senior Vice President, Application
Services.................................................. -- --
All current executive officers as a group (10 persons)...... 877 $10.891
All current non-employee Board Members as a group (7
persons).................................................. -- --
All employees (other than current executive officers) as a
group..................................................... 37,075 $10.891
NEW PLAN BENEFITS
No purchase rights have been granted, and no shares have been issued, on the
basis of the share increase which forms part of this Proposal.
FEDERAL TAX CONSEQUENCES
The Purchase Plan is intended to be an "employee stock purchase plan" within
the meaning of Section 423 of the Internal Revenue Code. Under a plan which so
qualifies, no taxable income will be recognized by a participant, and no
deductions will be allowable to the Company, upon either the grant or the
exercise of the purchase rights. Taxable income will not be recognized until
there is a sale or other disposition of the shares acquired under the Purchase
Plan or in the event the participant should die while still owning the purchased
shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after the start date of the offering period in which such
shares were acquired or within one (1) year after the actual semi-annual
purchase date of those shares, then the participant will recognize ordinary
income in the year of sale or disposition equal to the amount by which the fair
market value of the shares on the purchase date exceeded the purchase price paid
for those shares, and the Company will be entitled to an income tax deduction,
for the taxable year in which such disposition occurs, equal in amount to such
excess. The participant will also recognize capital gain equal to the amount by
which the amount realized upon the sale or disposition exceeds the sum of the
aggregate purchase price and the ordinary income recognized with respect to the
shares.
If the participant sells or disposes of the purchased shares more than two
(2) years after the start date of the offering period in which the shares were
acquired and more than one (1) year after the actual semi-annual purchase date
of those shares, then the participant will recognize ordinary income in the year
of sale or disposition equal to the lesser of (i) the amount by which the fair
market value of the shares on the sale or disposition date exceeded the purchase
price paid for those shares or (ii) fifteen percent (15%) of the fair market
value of the shares on the start date of that offering
49
period; and any additional gain upon the disposition will be taxed as a
long-term capital gain. The Company will not be entitled to an income tax
deduction with respect to such disposition.
If the participant still owns the purchased shares at the time of death, the
lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) fifteen percent (15%) of the
fair market value of the shares on his or her start date of the offering period
in which those shares were acquired will constitute ordinary income in the year
of death.
ACCOUNTING TREATMENT
Under current accounting principles applicable to employee stock purchase
plans qualified under Section 423 of the Internal Revenue Code, the issuance of
Common Stock under the Purchase Plan will not result in a compensation expense
chargeable against the Company's reported earnings. However, the Company must
disclose, in pro-forma statements to the Company's financial statements, the
impact the purchase rights granted under the Purchase Plan would have upon the
Company's reported earnings were the fair value of those purchase rights treated
as compensation expense.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the amendment and restatement of the Purchase Plan
described in this Proposal. Should such stockholder approval not be obtained,
then the 200,000-share increase which forms part of such Proposal will not be
implemented, and any purchase rights granted on the basis of that share increase
will terminate immediately. No additional purchase rights will be granted on the
basis of such share increase, and the Purchase Plan will terminate once the
shares in the existing share reserve have been issued.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board believes that it is in the best interests of the Company to
continue to provide employees with the opportunity to acquire an ownership
interest in the Company through their participation in the Purchase Plan and
thereby encourage them to remain in the Company's employ and more closely align
their interests with those of the stockholders.
FOR THIS REASON, THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR THE APPROVAL OF THIS PROPOSAL.
50
----------------------------------------------------------------
PROPOSAL NO. 4:
RATIFICATION OF INDEPENDENT AUDITORS
----------------------------------------------------------------
The Company is asking the stockholders to ratify the selection of
PricewaterhouseCoopers LLP as the Company's independent accountants to provide
auditing services to the Company during the fiscal year ending December 31,
2001. The affirmative vote of the holders of a majority of the shares
represented and entitled to vote at the Annual Meeting will be required to
ratify the selection of PricewaterhouseCoopers LLP.
In the event the stockholders fail to ratify the appointment, the Audit
Committee of the Board of Directors will consider it as a direction to select
other auditors for the subsequent year. Even if the selection is ratified, the
Board in its discretion may direct the appointment of a different independent
accounting firm at any time during the year if the Board determines that such a
change would be in the best interest of the Company and its stockholders.
PricewaterhouseCoopers LLP's representatives are expected to be present at
the Annual Meeting, will have the opportunity to make a statement if they desire
to do so, and will be available to respond to appropriate questions.
CHANGE IN INDEPENDENT ACCOUNTANTS
As previously disclosed by the Company in the Current Report on Form 8-K
filed with the Securities and Exchange Commission (the "Commission") on
August 28, 2000, on August 21, 2000, Deloitte & Touche LLP ("D&T") resigned as
the Company's independent accountants.
D&T's reports on the Company's consolidated financial statements for the two
fiscal years ended December 31, 1998 and 1999, respectively, did not contain an
adverse opinion or disclaimer of opinion, nor were such reports qualified or
modified as to uncertainty, audit scope or accounting principles.
Neither the Company's Board of Directors nor the Audit Committee recommended
or approved D&T's resignation. The Company has authorized D&T to respond fully
to any inquiries made by any successor accountants, including with respect to
the accounting disagreement described in the following paragraph.
During the Company's two fiscal years ended December 31, 1999 and through
August 21, 2000, there were no disagreements with D&T on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreement(s), if not resolved to the satisfaction
of D&T, would have caused it to make reference to the subject matter of the
disagreement(s) in connection with its reports, except the following which D&T
discussed with the Company's Audit Committee on February 22, 2000:
As reported in Note 7 to the financial statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999, on
December 30, 1999 the Company and Comm Press, Inc., a.k.a. bTrade ("bTrade")
entered into two concurrent transactions in which the Company licensed its
Keystone catalog software to bTrade for $3,000,000, which the Company proposed
to recognize as revenue in 1999, and bTrade licensed its messaging software to
the Company for
51
$4,000,000, which the Company proposed to capitalize and amortize over the
three-year term of the license agreement. Upon review of documentation and
discussion with management in connection with its audit of the Company's
financial statements for the fiscal year ended December 31, 1999, D&T determined
that the proposed accounting was not appropriate and recommended that the two
transactions be recorded net of each other with the resulting $1,000,000 asset
amortized over the three-year term of the bTrade agreement. As set forth in said
Note 7 to the 1999 financial statements, the Company recorded the transaction as
recommended by D&T in its financial statements for the fiscal year ended
December 31, 1999.
During the Company's two fiscal years ended December 31, 1999 and through
August 21, 2000, there were no "Reportable Events" (hereinafter defined)
requiring disclosure pursuant to Item 304(a)(1)(v) of Regulation S-K. As used
herein, the term "Reportable Event" means any of the items listed in paragraphs
(a)(1)(v)(A) through (D) of item 304 of Regulation S-K.
As previously disclosed by the Company in the Current Report on Form 8-K
filed with the Commission on September 26, 2000, the Company engaged
PricewaterhouseCoopers LLP as its new independent accountants as of
September 22, 2000. The Company did not consult with PricewaterhouseCoopers LLP
prior to its engagement regarding the application of accounting principles to a
specified transaction, either completed or proposed, the type of audit opinion
that might be rendered on the Company's financial statements or any matter that
was either the subject of a disagreement or a reportable event within the
meaning of Item 304(a)(1) of Regulation S-K.
FEES BILLED TO THE COMPANY BY PRICEWATERHOUSECOOPERS LLP DURING FISCAL YEAR
ENDED DECEMBER 31, 2000
AUDIT FEES:
The aggregate fees billed by PricewaterhouseCoopers LLP for professional
services rendered for the audit of the Company's annual financial statements for
the fiscal year ended December 31, 2000 and the reviews of the financial
statements included in the Company's quarterly reports on Form 10-Q for the
nine-month period ended September 30, 2000, and the Form 10Q/As for the three-
and six-month periods ended March 31, 2000 and September 30, 2000, respectively,
total $438,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES:
The Company did not engage PricewaterhouseCoopers LLP to provide advice to
the Company regarding financial information systems design and implementation
during fiscal year ended December 31, 2000.
ALL OTHER FEES:
The aggregate fees billed by PricewaterhouseCoopers LLP during the fiscal
year ended December 31, 2000 for professional services rendered to the Company
other than as stated under the captions Audit Fees and Financial Information
Systems Design and Implementation Fees above totaled $29,000.
The Audit Committee has considered whether the provision of services
described in the preceding two paragraphs is compatible with maintaining
PricewaterhouseCoopers LLP's independence.
52
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO
RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2001.
OTHER BUSINESS
The Board of Directors knows of no other business that will be presented for
consideration at the Annual Meeting. If other matters are properly brought
before the Annual Meeting, however, it is the intention of the persons named in
the accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the annual
meeting of stockholders to be held in calendar year 2002 must be received by
December 3, 2001, in order to be included in the proxy statement and proxy
relating to that meeting.
In addition, the proxy solicited by the Board of Directors for the annual
stockholders meeting in calendar year 2001 will confer discretionary authority
to vote on any stockholder proposal presented at that meeting, unless the
Company is provided with notice of such proposal no later than April 20, 2001.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John S. Simon
JOHN S. SIMON
CHIEF EXECUTIVE OFFICER
April 14, 2001
53
APPENDIX LIST
Appendix A--Audit Committee Charter
Appendix B--QRS Corporation 1993 Stock Option/Stock Issuance Plan
Appendix C--QRS Corporation Employee Stock Purchase Plan
APPENDIX A
AUDIT COMMITTEE CHARTER
This Audit Committee Charter ("Charter") has been adopted by the Board of
Directors (the "Board") of QRS Corporation (the "Company"). The Audit Committee
of the Board (the "Committee") shall review and reassess this charter annually
and recommend any proposed changes to the Board for approval.
ROLE AND INDEPENDENCE: ORGANIZATION
The Committee assists the Board in fulfilling its responsibility for
oversight of the quality and integrity of the accounting, auditing, internal
control and financial reporting practices of the Company. It may also have such
other duties as may from time to time be assigned to it by the Board. The
membership of the Committee shall consist of at least three directors, who are
each free of any relationship that, in the opinion of the Board, may interfere
with such member's individual exercise of independent judgment. Each Committee
member shall also meet the independence and financial literacy requirements for
serving on audit committees, and at least one member shall have accounting or
related financial management expertise, all as set forth in the applicable rules
of the Nasdaq. The Committee shall maintain free and open communication with the
independent auditors, the internal auditors and Company management. In
discharging its oversight role, the Committee is empowered to investigate any
matter relating to the Company's accounting, auditing, internal control or
financial reporting practices brought to its attention, with full access to all
Company books, records, facilities and personnel. The Committee may retain
outside counsel, auditors or other advisors.
One member of the Committee shall be appointed as chair. The chair shall be
responsible for leadership of the Committee, including scheduling and presiding
over meetings, preparing agendas, and making regular reports to the Board. The
chair will also maintain regular liaison with the CEO, CFO, the lead independent
audit partner and the director of internal audit.
The Committee shall meet at least four times a year, or more frequently as
the Committee considers necessary. At least once each year the Committee shall
have separate private meetings with the independent auditors, management and the
internal auditors.
RESPONSIBILITIES
Although the Committee may wish to consider other duties from time to time,
the general recurring activities of the Committee in carrying out its oversight
role are described below. The Committee shall be responsible for:
- Recommending to the Board the independent auditors to be retained (or
nominated for shareholder approval) to audit the financial statements of
the Company. Such auditors are ultimately accountable to the Board and the
Committee, as representatives of the shareholders.
- Evaluating, together with the Board and management, the performance of the
independent auditors and, where appropriate, replacing such auditors.
- Obtaining annually from the independent auditors a formal written
statement describing all relationships between the auditors and the
Company, consistent with Independence Standards Board Standard Number 1.
The Committee shall actively engage in a dialogue with the
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independent auditors with respect to any relationships that may impact the
objectivity and independence of the auditors and shall take, or recommend
that the Board take, appropriate actions to oversee and satisfy itself as
to the auditors' independence.
- Reviewing the audited financial statements and discussing them with
management and the independent auditors. These discussions shall include
the matters required to be discussed under Statement of Auditing Standards
No. 61 and consideration of the quality of the Company's accounting
principles as applied in its financial reporting, including a review of
particularly sensitive accounting estimates, reserves and accruals,
judgmental areas, audit adjustments (whether or not recorded), and other
such inquiries as the Committee or the independent auditors shall deem
appropriate. Based on such review, the Committee shall make its
recommendation to the Board as to the inclusion of the Company's audited
financial statements in the Company's Annual Report on Form 10-K (or the
Annual Report to Shareholders, if distributed prior to the filing of the
Form 10-K).
- Issuing annually a report to be included in the Company's proxy statement
as required by the rules of the Securities and Exchange Commission.
- Overseeing the relationship with the independent auditors, including
discussing with the auditors the nature and rigor of the audit process,
receiving and reviewing audit reports, and providing the auditors full
access to the Committee (and the Board) to report on any and all
appropriate matters.
- Discussing with a representative of management and the independent
auditors: (1) the interim financial information contained in the Company's
Quarterly Report on Form 10-Q prior to its filing, (2) the earnings
announcement prior to its release (if practicable), and (3) the results of
the review of such information by the independent auditors. (These
discussions may be held with the Committee as a whole or with the
Committee chair in person or by telephone.)
- Overseeing internal audit activities, including discussing with management
and the internal auditors the internal audit function's organization,
objectivity, responsibilities, plans, results, budget and staffing.
- Discussing with management, the internal auditors and the independent
auditors the quality and adequacy and compliance with the Company's
internal controls.
- Discussing with management and/or the Company's general counsel any legal
matters (including the status of pending litigation) that may have a
material impact on the Company's financial statements, and any material
reports or inquiries from regulatory or governmental agencies.
The Committee's job is one of oversight. Management is responsible for the
preparation of the Company's financial statements and the independent auditors
are responsible for auditing those financial statements. The Committee and the
Board recognize that management (including the internal audit staff) and the
independent auditors have more resources and time, and more detailed knowledge
and information regarding the Company's accounting, auditing, internal control
and financial reporting practices than the Committee does; accordingly the
Committee's oversight role does not provide any expert or special assurance as
to the financial statements and other financial information provided by the
Company to its shareholders and others.
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APPENDIX B
QRS CORPORATION
1993 STOCK OPTION/STOCK ISSUANCE PLAN
(AS AMENDED AND RESTATED THROUGH MARCH 1, 2001)
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1993 Stock Option/Stock Issuance Plan ("Plan") is
intended to promote the interests of QRS Corporation, a Delaware corporation
(the "Corporation"), by providing (i) key employees (including officers) of the
Corporation (or its parent or subsidiary corporations) who are responsible for
the management, growth and financial success of the Corporation (or its parent
or subsidiary corporations), (ii) the non-employee members of the Corporation's
Board of Directors and (iii) consultants and other independent contractors who
provide valuable services to the Corporation (or its parent or subsidiary
corporations) 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 (or its parent or
subsidiary corporations).
B. The Discretionary Option Grant and Stock Issuance Programs
under this Plan became effective on the date on which the shares of the
Corporation's Common Stock were first registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). Such date is
hereby designated as the Effective Date for those two programs. The Automatic
Option Grant Program under this Plan became effective immediately upon the
execution and final pricing of the Underwriting Agreement for the initial public
offering of the Corporation's Common Stock. The execution date of such
Underwriting Agreement is hereby designated as the Effective Date of the
Automatic Option Grant Program.
C. This Plan shall serve as the successor to the Corporation's
amended and restated 1990 Stock Option Plan (the "1990 Plan"), and no further
option grants or stock issuances shall be made under the 1990 Plan from and
after the Effective Date of this Plan. All options outstanding under the 1990
Plan on the Effective Date of the Discretionary Option Grant Program are hereby
incorporated into this Plan and shall accordingly be treated as outstanding
options under this Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the express terms and conditions of the
instrument evidencing such grant, and no provision of this Plan shall be deemed
to affect or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of the
Corporation's Common Stock thereunder.
D. All share numbers in this March 2001 restatement reflect the
3-for-2 split of the Common Stock which was effected on July 21, 1999.
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II. DEFINITIONS
A. For purposes of the Plan, the following definitions
shall be in effect:
BOARD: the Corporation's Board of Directors.
CHANGE IN CONTROL: a change in ownership or control of the
Corporation effected through either of the following transactions:
a. 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) directly or indirectly acquires 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
b. there is 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 (rounded up to the next
whole number) ceases, by reason of one or more proxy contests for
the election of Board members, 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
such election or nomination was approved by the Board.
CODE: the Internal Revenue Code of 1986, as amended.
COMMON STOCK: Common Stock, $0.001 par value, of the
Corporation.
CORPORATE TRANSACTION: any of the following
stockholder-approved transactions to which the Corporation is a party:
a. a merger or consolidation in which the
Corporation is not the surviving entity, except for a transaction
the principal purpose of which is to change the State in which the
Corporation is incorporated,
b. the sale, transfer or other disposition of all
or substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
c. any reverse merger in which the Corporation is
the surviving entity but 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 those who held such securities immediately
prior to such merger.
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EMPLOYEE: an individual who performs services while in the
employ of the Corporation or one or more parent or subsidiary corporations,
subject to the control and direction of the employer entity not only as to the
work to be performed but also as to the manner and method of performance.
FAIR MARKET VALUE: the fair market value per share of Common
Stock determined in accordance with the following provisions:
a. If the Common Stock is not at the time listed
or admitted to trading on any national stock exchange but is traded
on the Nasdaq National Market, the Fair Market Value shall be the
closing selling price per share on the date in question, as such
price is reported by the National Association of Securities Dealers
on the Nasdaq National Market and published in THE WALL STREET
JOURNAL. If there is no reported closing selling price for the
Common Stock on the date in question, then the closing selling price
on the last preceding date for which such quotation exists shall be
determinative of Fair Market Value.
b. If the Common Stock is at the time listed or
admitted to trading on any national stock exchange, then the Fair
Market Value shall be the closing selling price per share on the
date in question on the 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 and published in THE WALL STREET JOURNAL. If there is
no reported sale of Common Stock on such exchange on the date in
question, then the Fair Market Value shall be the closing selling
price on the exchange on the last preceding date for which such
quotation exists.
HOSTILE TAKE-OVER: a change in ownership of the Corporation
effected through 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.
INCENTIVE OPTION: an option which satisfies the requirements
of Code Section 422.
NON-STATUTORY OPTION: an option not intended to satisfy the
requirements of Code Section 422.
OPTIONEE: any person to whom an option is granted under
either the Discretionary Option Grant or Automatic Option Grant Program in
effect under the Plan.
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PARTICIPANT: any person who receives a direct issuance of
Common Stock under the Stock Issuance Program in effect under the Plan.
PLAN ADMINISTRATOR: 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.
PERMANENT DISABILITY OR PERMANENTLY DISABLED: 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.
PRIMARY COMMITTEE: 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.
SECONDARY COMMITTEE: 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.
SECTION 16 INSIDER: an officer or director of the Corporation
subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
SERVICE: the performance of services on a periodic basis to
the Corporation (or any parent or subsidiary corporation) in the capacity of an
Employee, a non-employee member of the board of directors or an independent
consultant or advisor, except to the extent otherwise specifically provided in
the applicable stock option or stock issuance agreement.
TAKE-OVER PRICE: the GREATER of (a) 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 (b) 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 (a) price per share.
WITHHOLDING TAXES: the Federal, state and local income and
employment withholding taxes to which the holder of Non-statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.
B. The following provisions shall be applicable in
determining the parent and subsidiary corporations of the Corporation:
Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation shall be
considered to be a PARENT of
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the Corporation, provided each such corporation in the unbroken
chain (other than the Corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the
other corporations in such chain.
Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation shall
be considered to be a SUBSIDIARY of the Corporation, provided each
such 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.
III. STRUCTURE OF THE PLAN
A. STOCK PROGRAMS. The Plan shall be divided into three separate
components: the Discretionary Option Grant Program specified in Article Two, the
Automatic Option Grant Program specified in Article Three and the Stock Issuance
Program specified in Article Four. Under the Discretionary Option Grant Program,
eligible individuals may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock in accordance with the
provisions of Article Two. Under the Automatic Option Grant Program,
non-employee members of the Board will receive at periodic intervals special
option grants to purchase shares of Common Stock in accordance with the
provisions of Article Three. Under the Stock Issuance Program, eligible
individuals may be issued shares of Common Stock directly, either through the
immediate purchase of such shares at a price not less than the Fair Market Value
of the shares at the time of issuance or as a bonus tied to the performance of
services or the Corporation's attainment of financial objectives, without any
cash payment required of the recipient.
B. GENERAL PROVISIONS. Unless the context clearly indicates
otherwise, the provisions of Articles One and Five shall apply to the
Discretionary Option Grant Program, the Automatic Option Grant Program and the
Stock Issuance Program and shall accordingly govern the interests of all
individuals under the Plan.
IV. 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. However, any discretionary option grants or stock issuances for members
of the Primary Committee must be authorized by a disinterested majority of the
Board. Members of the Primary and Secondary Committee shall serve for such
period of time as the Board may determine and shall be subject to removal by the
Board at any time. The Board may also at any time terminate the functions of
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any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
B. Each Plan Administrator shall have full power and authority
(subject to the express provisions of the Plan) to establish rules and
regulations for the 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 option
grants or stock issuances thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator shall be final and binding on all parties
who have an interest in the Discretionary Option Grant or Stock Issuance Program
or any outstanding option or share issuance thereunder.
C. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Three, and the Plan Administrator shall exercise no discretionary functions with
respect to option grants made pursuant to that program.
D. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
V. OPTION GRANTS AND STOCK ISSUANCES
A. The persons eligible to participate in the Discretionary
Option Grant Program under Article Two or the Stock Issuance Program under
Article Four are as follows:
(i) officers and other key employees of the Corporation
(or its parent or subsidiary corporations) who render services which
contribute to the management, growth and financial success of the
Corporation (or its parent or subsidiary corporations);
(ii) non-employee Board members; and
(iii) those consultants or other independent contractors
who provide valuable services to the Corporation (or its parent or
subsidiary corporations).
B. Non-employee Board members shall also be eligible to
receive automatic option grants pursuant to the provisions of Article Three.
C. The Plan Administrator shall have full authority to
determine, (i) with respect to the option grants made under the Plan, which
eligible individuals are to receive option grants, the number of shares to be
covered by each such grant, the status of the granted option as
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either an Incentive Option or a Non-statutory Option, the time or times at which
each granted option is to become exercisable and the maximum term for which the
option may remain outstanding and (ii), with respect to stock issuances under
the Stock Issuance Program, the number of shares to be issued to each
Participant, the vesting schedule (if any) to be applicable to the issued
shares, and the consideration to be paid by the individual for such shares.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance
under the Plan and shall be drawn from either the Corporation's authorized
but unissued shares of Common Stock or from reacquired shares of Common
Stock, including shares repurchased by the Corporation on the open market.
The maximum number of shares of Common Stock which may be issued over the
term of the Plan shall not exceed 5,450,000 shares. Such authorized share
reserve is comprised of (i) the number of shares which remained available for
issuance, as of the Effective Date, under the 1990 Plan as last approved by
the Corporation's stockholders prior to such Effective Date, including the
shares subject to the outstanding options incorporated into this Plan and any
other shares which would have been available for future option grant under
the 1990 Plan as last approved by the stockholders (estimated to be 1,083,000
shares in the aggregate), (ii) an increase of 192,000 shares authorized by
the Board under this Plan as of the Effective Date, (iii) an additional
increase of 750,000 shares authorized by the Board on February 27, 1995 and
approved by the stockholders at the 1995 Annual Meeting, (iv) a further
increase of an additional 750,000 shares authorized by the Board on February
16, 1996 and approved by the stockholders at the 1996 Annual Meeting, (v) an
additional increase of another 525,000 shares authorized by the Board on
February 16, 1998 and approved by the stockholders at the 1998 Annual
Meeting, (vi) an additional increase of 600,000 shares authorized by the
Board on February 15, 1999 and approved by the stockholders at the 1999
Annual Meeting, (vii) an additional increase of 800,000 shares authorized by
the Board on February 22, 2000 and approved by the stockholders at the 2000
Annual Meeting and (viii) an additional increase of 750,000 shares approved
by the Board on March 1, 2001, subject to stockholder approval at the 2001
Annual Meeting.
B. To the extent one or more outstanding options under the 1990
Plan which have been incorporated into this Plan are subsequently exercised, the
number of shares issued with respect to each such option shall reduce, on a
share-for-share basis, the number of shares available for issuance under this
Plan.
C. Should one or more outstanding options under this Plan (including
outstanding options under the 1990 Plan incorporated into this Plan) expire or
terminate for any reason prior to exercise in full, then the shares subject to
the portion of each option not so exercised shall be available for subsequent
option grants under the Plan. Unvested shares issued under the Plan and
subsequently cancelled or repurchased by the Corporation, at the original option
exercise or direct 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, the shares subject to any option or
portion thereof surrendered in accordance with Section IV of Article Two or
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Section III.B. of Article Three shall reduce on a share-for-share basis the
number of shares of Common Stock available for subsequent option grants under
the Plan. In addition, should the exercise price of an option under the Plan
(including any option incorporated from the Predecessor 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.
D. In no event may any one individual participating in the Plan
be granted stock options, separately exercisable stock appreciation rights and
direct stock issuances for more than 750,000 shares in the aggregate over the
term of the Plan. However, any stock options, stock appreciation rights or
direct stock issuances granted prior to January 1, 1994 shall not be taken into
account for purposes of such limitation.
E. Should any change be made to the Common Stock issuable under
the Plan 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, then 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 for which any one individual participating in
the Plan may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances under the Plan after December 31, 1993, (iii)
the number and/or class of securities for which automatic option grants are to
be subsequently made to each new or continuing non-employee Board member under
the Automatic Option Grant Program, (iv) the number and/or class of securities
and price per share in effect under each option outstanding under either the
Discretionary Option Grant or Automatic Option Grant Program and (v) the number
and/or class of securities and price per share in effect under each outstanding
option incorporated into this Plan from the 1990 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.
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant
Program shall be authorized by action of the Plan Administrator and may, at the
Plan Administrator's discretion, be either Incentive Options or Non-statutory
Options. Individuals who are not Employees of the Corporation or its parent or
subsidiary corporations may only be granted Non-statutory Options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; PROVIDED, HOWEVER, that each such instrument shall comply
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. OPTION PRICE.
1. The option price per share shall be fixed by the Plan
Administrator but in no event shall be less than one hundred percent (100%) of
the Fair Market Value per share of such Common Stock on the grant date.
2. The option price shall become immediately due upon
exercise of the option and, subject to the provisions of Section I of Article
Five and the instrument evidencing the grant, shall be payable in one of the
following alternative forms specified below:
- full payment in cash or check drawn to the
Corporation's order;
- full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market Value on the
Exercise Date (as such term is defined below);
- full payment in a combination of 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 and cash or check drawn to the
Corporation's order; or
- full payment through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (I) shall provide
irrevocable instructions to a 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 option price payable for the purchased shares plus all
applicable Withholding Taxes required to be withheld by the Corporation in
connection with such purchase and (II) shall
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provide directives to the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete the
sale transaction.
For purposes of this subparagraph (2), the Exercise Date
shall be the date on which written notice of the option exercise is delivered to
the Corporation. Except to the extent the sale and remittance procedure is
utilized in connection with the exercise of the option, payment of the option
price for the purchased shares must accompany such notice.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under this
Discretionary Option Grant Program shall be exercisable at such time or times
and during such period as is determined by the Plan Administrator and set forth
in the instrument evidencing the grant. No such option, however, shall have a
maximum term in excess of ten (10) years from the grant date.
C. TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise
period applicable to any outstanding options held by the Optionee at the time
of cessation of Service or death.
- Should an Optionee cease Service for any reason
(including death or Permanent Disability) while holding one or more
outstanding options under this Article Two, then none of those options
shall (except to the extent otherwise provided pursuant to subparagraph C.3
below) remain exercisable for more than a thirty-six (36)-month period (or
such shorter period determined by the Plan Administrator and set forth in
the instrument evidencing the grant) measured from the date of such
cessation of Service.
- Any option held by the Optionee at the time of his or
her death and which is exercisable in whole or in part on the date of his
or her 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 or by the designated beneficiary or
beneficiaries of the option. Such exercise, however, must occur prior to
the EARLIER of (i) the third anniversary of the date of the Optionee's
death (or such shorter period determined by the Plan Administrator and
set forth in the instrument evidencing the grant) or (ii) the specified
expiration date of the option term. Upon the occurrence of the earlier
event, the option shall terminate and cease to be outstanding.
- During the applicable post-Service period, the option
may not be exercised in the aggregate for more than the number of shares
(if any) in which the Optionee is vested at the time of cessation of
Service. Upon the expiration of the limited post-Service exercise period or
(if earlier) upon the specified expiration date of the option term, each
such option shall terminate and cease to be outstanding with respect to any
vested shares for which it has not
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otherwise been exercised. However, each outstanding option shall
immediately terminate and cease to be outstanding, at the time of the
Optionee's cessation of Service, with respect to any shares for which it
not otherwise at that time exercisable or in which Optionee is not
is otherwise vested.
- Under no circumstances, however, shall any such
option be exercisable after the specified expiration date of the
option term.
- Should (i) the Optionee's Service be terminated for
misconduct (including, but not limited to, any act of dishonesty, willful
misconduct, fraud or embezzlement) or (ii) the Optionee make any
unauthorized use or disclosure of confidential information or trade secrets
of the Corporation or its parent or subsidiary corporations, then in any
such event all outstanding options held by the Optionee under this Article
Two shall terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to permit one or more options held by the Optionee
under this Article Two to be exercised, during the limited post-Service exercise
period applicable under subparagraph (1) above, not only with respect to the
number of vested shares of Common Stock for which each such option is
exercisable at the time of the Optionee's cessation of Service but also with
respect to one or more subsequent installments of vested shares for which the
option would otherwise have become exercisable had such cessation of Service not
occurred.
3. The Plan Administrator shall also have full power and
authority to extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service or death from the
limited period in effect under subparagraph 1 above to such greater period of
time as the Plan Administrator shall deem appropriate. In no event, however,
shall such option be exercisable after the specified expiration date of the
option term.
D. STOCKHOLDER RIGHTS. An Optionee shall have no stockholder
rights with respect to any shares covered by the option until such individual
shall have exercised the option and paid the option price for the purchased
shares.
E. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of
the Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. However, a
Non-statutory Option may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established exclusively
for one or more such family members. The assigned portion may only be exercised
by the person or persons who acquire a proprietary interest in the option
pursuant to the assignment. The terms applicable to the assigned portion shall
be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. Notwithstanding the foregoing, the
Optionee may
B-11
also designate one or more persons as the beneficiary or beneficiaries of his or
her outstanding options under this Article Two, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.
F. REPURCHASE RIGHTS. The shares of Common Stock acquired
upon the exercise of any Article Two option grant may be subject to
repurchase by the Corporation in accordance with the following provisions:
1. The Plan Administrator shall have the discretion to
authorize the issuance of unvested shares of Common Stock under this Article
Two. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase any or all of those unvested
shares at the option price paid per share. The terms and conditions 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 instrument
evidencing such repurchase right.
2. All of the Corporation's outstanding repurchase rights
under this Article Two shall automatically terminate, and all shares subject to
such terminated rights shall immediately vest in full, upon the occurrence of a
Corporate Transaction, except to the extent: (a) any such repurchase right is
expressly assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction or (b) such termination is precluded
by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
3. The Plan Administrator shall have the discretionary
authority, exercisable either before or after the Optionee's cessation of
Service, to cancel the Corporation's outstanding repurchase rights with respect
to one or more shares purchased or purchasable by the Optionee under this
Discretionary Option Grant Program and thereby accelerate the vesting of such
shares in whole or in part at any time.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees of the Corporation. Options which are
specifically designated as "non-statutory" options when issued under the Plan
shall NOT be subject to such terms and conditions.
A. DOLLAR LIMITATION. The aggregate Fair Market Value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more options granted to any Employee under this Plan (or any other
option plan of the Corporation or its parent or subsidiary corporations) 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
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($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. Should the
number of shares of Common Stock for which any Incentive Option first becomes
exercisable in any calendar year exceed the applicable One Hundred Thousand
Dollar ($100,000) limitation, then that option may nevertheless be exercised in
that calendar year for the excess number of shares as a Non-statutory Option.
B. 10% STOCKHOLDER. If any Employee to whom an Incentive Option
is granted is the owner of stock (as determined under Section 424(d) of the
Internal Revenue Code) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Corporation or any one of
its parent or subsidiary corporations, then the option price per share shall not
be less than one hundred and ten percent (110%) of the Fair Market Value per
share of Common Stock on the grant date, and the option term shall not exceed
five (5) years, measured from the grant date.
Except as modified by the preceding provisions of this Section II,
the provisions of Articles One, Two and Five of the Plan shall apply to all
Incentive Options granted hereunder.
III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL
A. In the event of any Corporate Transaction, each option which
is at the time outstanding under this Article Two shall automatically accelerate
so that each such option shall, immediately prior to the specified effective
date for 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 all or any portion of such shares. However, an outstanding
option under this Article Two shall NOT so accelerate if and to the extent: (i)
such option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation or parent thereof or to be replaced with a
comparable option to purchase shares of the capital stock of the successor
corporation or parent thereof, (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the option spread
existing at the time of the Corporate Transaction and provides for subsequent
payout in accordance with the same vesting schedule applicable to such option,
or (iii) the acceleration of such option is subject to other limitations imposed
by the Plan Administrator at the time of the option grant. The determination of
option comparability under clause (i) above shall be made by the Plan
Administrator, and its determination shall be final, binding and conclusive.
B. Upon the consummation of the Corporate Transaction, all
outstanding options under this Article Two shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company.
C. Each outstanding option under this Article Two which is
assumed in connection with the Corporate Transaction or is otherwise to continue
in effect shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities which
would have been issued to the option holder, in consummation of such Corporate
Transaction, had such person exercised the option immediately
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prior to such Corporate Transaction. Appropriate adjustments shall also be
made to the option price payable per share, PROVIDED the aggregate option
price payable for such securities shall remain the same. In addition, the
class and number of securities available for issuance under the Plan
following the consummation of the Corporate Transaction shall be
appropriately adjusted. To the extent the actual holders of the Corporation's
outstanding Common Stock receive cash consideration for their Common Stock in
consummation of the Corporate Transaction, the successor corporation may, in
connection with the assumption of the outstanding options under the
Discretionary Option Grant Program, substitute one or more shares of its own
common stock with a fair market value equivalent to the cash consideration
paid per share of Common Stock in such Corporate Transaction.
D. The Plan Administrator shall have the discretion,
exercisable either in advance of any actually-anticipated Corporate
Transaction or at the time of an actual Corporate Transaction, to provide
(upon such terms as it may deem appropriate) for the automatic acceleration
of one or more outstanding options under this Article Two which are assumed
or replaced in the Corporate Transaction and do not otherwise accelerate at
that time, in the event the Optionee's Service should subsequently terminate
within a designated period following the effective date of such Corporate
Transaction. The Plan Administrator may also structure one or more option
grants under this Article Two so that those options will automatically
accelerate at the time of a Corporate Transaction, whether or not those
options are to be assumed or replaced by successor corporation.
E. The grant of options under this Article Two 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.
F. The Plan Administrator shall have the discretionary
authority, exercisable either in advance of any actually-anticipated Change in
Control or at the time of an actual Change in Control, to provide for the
automatic acceleration of one or more outstanding options under this Article Two
(and the termination of one or more of the Corporation's outstanding repurchase
rights under this Article Two) upon the occurrence of the Change in Control. The
Plan Administrator shall also have full power and authority to condition any
such option acceleration (and the termination of any outstanding repurchase
rights) upon the subsequent termination of the Optionee's Service within a
specified period following the Change in Control.
G. Any options accelerated in connection with the Change in
Control shall remain fully exercisable until the expiration or sooner
termination of the option term.
H. Any Incentive Option accelerated under this Section III in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the dollar limitation of
Section II of this Article Two is not exceeded. To the extent such limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-statutory Option.
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IV. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in
its discretion to implement the stock appreciation right provisions of this
Section IV, one or more Optionees may be granted the right, exercisable upon
such terms and conditions as the Plan Administrator may establish, to
surrender all or part of an unexercised option under this Article Two in
exchange for a distribution from the Corporation in an amount equal to the
excess of (i) the Fair Market Value (on the option surrender date) of the
number of shares at the time subject to the surrendered option (or
surrendered portion thereof) over (ii) the aggregate option price payable for
such shares.
B. No surrender of an option shall be effective hereunder
unless it is approved by the Plan Administrator. If the surrender is so
approved, then the distribution to which the Optionee shall accordingly
become entitled under this Section IV may be made in shares of Common Stock
valued at Fair Market Value on the option surrender date, in cash, or partly
in shares and partly in cash, as the Plan Administrator deems appropriate.
C. If the surrender of an option is rejected 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
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the date of the option grant.
D. One or more officers of the Corporation subject to the
short-swing profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under the Plan. Upon the occurrence of a
Hostile Take-Over, the officer will have a thirty (30)-day period in which he or
she may surrender any outstanding options with such a limited stock appreciation
right to the Corporation. The officer 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 over (ii) the aggregate exercise price payable for such
shares. The cash distribution payable upon such option surrender shall be made
within five (5) days following the consummation of the Hostile Take-Over. At the
time such limited stock appreciation right is granted, the Plan Administrator
shall pre-approve the subsequent exercise of that right in accordance with the
terms of this Paragraph D. 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. Any unsurrendered portion of the option shall
continue to remain outstanding and become exercisable in accordance with the
terms of the instrument evidencing such grant.
E. The shares of Common Stock subject to any option surrendered
for an appreciation distribution pursuant to this Section IV shall NOT be
available for subsequent option grant under the Plan.
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ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
The following provisions set forth the terms and conditions of the
Automatic Option Grant Program (i) as amended and restated by the Board on
February 22, 2000 and approved by the stockholders at the 2000 Annual Meeting
and (ii) as further amended by the Board on March 22, 2000. Stockholder approval
of the February 2000 restatement shall also constitute pre-approval of each
option grant made under this amended Automatic Option Grant Program on or after
the date of the 2000 Annual Stockholders Meeting and the subsequent exercise of
that option in accordance with the terms of such program as set forth below.
I. ELIGIBILITY
The individuals eligible to receive automatic option grants pursuant
to the provisions of this Article Three program as amended February 22, 2000 and
March 22, 2000 shall be limited to (i) those individuals who are first elected
or appointed as non-employee Board members on or after the date of the 2000
Annual Stockholders Meeting, 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 after the date of the 2000
Annual Stockholders Meeting. In no event, however, shall a clause (i)
non-employee Board member be eligible to participate in the Automatic Option
Grant Program if such individual has at any time been in the prior employ of the
Corporation (or any parent or subsidiary corporation). Any non-employee Board
member eligible to participate in the Automatic Option Grant Program pursuant to
the foregoing criteria shall be designated an Eligible Director for purposes of
this Plan.
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. GRANT DATES. Option grants shall be made under this amended
and restated Article Three on the dates specified below:
(i) Each Eligible Director who first becomes a
non-employee Board member on or after the date of the 2000 Annual
Stockholders Meeting, whether through election by the Corporation's
stockholders or appointment by the Board, shall automatically be granted,
at the time of such initial election or appointment, a non-statutory stock
option to purchase 15,000 shares of Common Stock upon the terms and
conditions of this Article Three.
(ii) On the first trading day in January each year,
beginning with calendar year 2001, each individual who is at the time
serving as a non-employee Board member will automatically be granted an
option to purchase 10,000 shares of Common Stock, and each individual who
is also at the time serving as a Chairperson of any Board committee will
automatically be granted a second option for an additional 10,000 shares,
provided in each instance that such
B-16
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 10,000-share option
grants any one non-employee Board member or Chairperson may receive over
his or her period of Board service.
The number of shares for which the automatic grants are to be made
to each newly-elected or continuing Eligible Director shall be subject to
periodic adjustment pursuant to the applicable provisions of Section V.C of
Article One.
B. EXERCISE PRICE. The exercise price per share of Common Stock
subject to each automatic option grant made under this Article Three shall be
equal to one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the automatic grant date.
C. PAYMENT. The exercise price shall be payable in one of the
alternative forms specified below:
(i) full payment in cash or check made payable to
the Corporation's order; or
(ii) full payment in shares of Common Stock held for
the requisite period necessary to avoid a charge to the Corporation's
reported earnings and valued at Fair Market Value on the Exercise Date; or
(iii) full payment in a combination of shares of
Common Stock held for the requisite period necessary to avoid a charge to
the Corporation's reported earnings and valued at Fair Market Value on the
Exercise Date and cash or check payable to the Corporation's order; or
(iv) full payment through a sale and remittance
procedure pursuant to which the non-employee Board member (a) shall provide
irrevocable written instructions to a 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 and
shall (b) concurrently provide written directives to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale transaction.
The Exercise Date shall be the date on which written notice of
the option exercise is delivered to the Corporation. Except to the extent the
sale and remittance procedure is utilized for the exercise of the option,
payment of the option price for the purchased shares must accompany the exercise
notice.
D. OPTION TERM. Each automatic grant under this Article Three
shall have a maximum term of ten (10) years measured from the automatic grant
date.
B-17
E. EXERCISABILITY. Each automatic grant shall become exercisable
over the Optionee's period of service on the Board as follows: (i) the option
will become exercisable for twenty-five percent (25%) of the option shares upon
the Optionee's completion of six (6) months of Board service measured from after
the automatic grant date, and (ii) the option will become exercisable for the
balance of the option shares in a series of thirty-six (36) successive equal
monthly installments upon the Optionee's completion of each of the next
thirty-six (36) months of Board service thereafter.1 The exercisability of each
automatic grant shall be subject to acceleration in accordance with the
provisions of Section II.G and Section III of this Article Three.
F. LIMITED-TRANSFERABILITY. During the lifetime of the Optionee,
each automatic option grant, together with the limited stock appreciation right
pertaining to such option, shall be exercisable only by the Optionee and shall
not be assignable or transferable by the Optionee other than (i) a transfer of
the option effected by will or by the laws of descent and distribution following
Optionee's death or (ii) an assignment of the option 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, to the extent such assignment is effected for estate planning purposes.
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.
Notwithstanding the foregoing, the Optionee may also designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options
under this Article Three, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.
G. TERMINATION OF BOARD SERVICE.
1. Should the Optionee cease service as a Board member
cease for any reason (other than death or Permanent Disability) while holding
one or more automatic option grants under this Article Three, then such
individual shall have a six (6)-month period following the date of such
cessation of Board service in which to exercise each such option for any or all
of the shares of Common Stock for which the option is exercisable at the time of
such cessation of Board service. However, each such option shall immediately
terminate and cease to
- ---------------------------------------
1 Prior to the February 2000 restatement, each automatic option grant made
under this Article Three was to become exercisable in a series of four (4)
successive equal annual installments over the Optionee's period of Service
on the Board, with the first such installment to become exercisable six (6)
months after the automatic grant date. The new vesting schedule for the
automatic option grants was approved by the stockholders at the 2000 Annual
Meeting and is in effect for all options outstanding under the Automatic
Option Grant Program on the date of such stockholder approval and for all
future option grants made under such program.
B-18
be outstanding, at the time of such cessation of Board service, with respect to
any shares for which the option is not otherwise at that time exercisable.
2. Should the Optionee die within six (6) months after
cessation of Board service, then each outstanding automatic option grant held by
the Optionee at the time of death may subsequently be exercised, for any or all
of the shares of Common Stock for which such option is exercisable at the time
of the Optionee's cessation of Board service (less any option shares
subsequently purchased by the 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 or by the designated beneficiary or
beneficiaries of the option. Any such exercise must occur within twelve (12)
months after the date of the Optionee's death.
3. Should the Optionee die or become Permanently Disabled
while serving as a Board member, then each automatic option grant held by such
Optionee under this Article Three shall accelerate in full, and the Optionee (or
the representative of the Optionee's estate or the person or persons to whom the
option is transferred upon the Optionee's death) shall have a twelve (12)-month
period following the date of the Optionee's cessation of Board service in which
to exercise each such option for any or all of the shares of Common Stock
subject to that option at the time of such cessation of Board service.
4. In no event shall any automatic grant under this Article
Three remain exercisable after the specified expiration date of the ten
(10)-year option term. Upon the expiration of the applicable post-service
exercise period under subparagraph 1, 2 or 3 above or (if earlier) upon the
expiration of the ten (10)-year option term, the automatic grant shall terminate
and cease to be outstanding for any unexercised shares for which the option was
otherwise exercisable at the time of the Optionee's cessation of Board service.
H. STOCKHOLDER RIGHTS. The holder of an automatic option grant
under this Article Three shall have none of the rights of a stockholder with
respect to any shares subject to such option until such individual shall have
exercised the option and paid the exercise price for the purchased shares.
I. REMAINING TERMS. The remaining terms and conditions of each
automatic option grant shall be as set forth in the prototype Non-statutory
Stock Option Agreement attached as Exhibit A to the Plan.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, each automatic
option grant at the time outstanding under this Article Three shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for the Corporate Transaction, become exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for any or all of those shares. Upon the consummation of the
Corporate
B-19
Transaction, all automatic option grants under this Article Three shall
terminate and cease to be outstanding.
B. In the event of any Change in Control of the Corporation,
each automatic option grant at the time outstanding under this Article Three
shall automatically accelerate so that each such option shall, immediately prior
to the specified effective date for the Change in Control, become exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for any or all of those shares.
C. The Optionee shall have the right, exercisable at any time
during the thirty (30)-day period immediately following a Hostile Take-Over, to
surrender each option held by him or her under this Article Three to the
Corporation. 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 option is otherwise at the time exercisable for such shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the consummation of
the Hostile Take-Over. Stockholder approval of the February 2000 Restatement at
the 2000 Annual Meeting shall constitute pre-approval of each such option
surrender right granted under this Automatic Option Grant Program on or after
the date of such Annual Meeting and the subsequent exercise of each such right
in accordance with the terms and provisions of this Section III.C. No additional
approval or consent of the Plan Administrator or the Board shall be required at
the time of the actual option surrender and cash distribution.
D. Upon the consummation of the Corporate Transaction, all
options granted under this Article Three shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof) in such Corporate Transaction.
E. Each outstanding option under this Automatic Option Grant
Program which is assumed in connection with the Corporate Transaction or is
otherwise to continue in effect shall be appropriately adjusted, immediately
after such Corporate Transaction, to apply and pertain to the number and class
of securities which would have been issued to the option holder, in consummation
of such Corporate Transaction, had such person exercised the option immediately
prior to such Corporate Transaction. Appropriate adjustments shall also be made
to the option price payable per share, PROVIDED the aggregate option price
payable for such securities shall remain the same. In addition, the class and
number of securities available for issuance under the Plan following the
consummation of the Corporate Transaction shall be appropriately adjusted. To
the extent the actual holders of the Corporation's outstanding Common Stock
receive cash consideration for their Common Stock in consummation of the
Corporate Transaction, the successor corporation may, in connection with the
assumption of the outstanding options under the Automatic Option Grant Program,
substitute one or more shares of its own common stock with a fair market value
equivalent to the cash consideration paid per share of Common Stock in such
Corporate Transaction.
F. The shares of Common Stock subject to each option surrendered
in connection with the Hostile Take-Over shall NOT be available for subsequent
option grant under this Plan.
B-20
G. The automatic option grants outstanding under this Article
Three 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.
B-21
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate purchases without any intervening stock
option grants. The issued shares shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") that complies with the terms and conditions of
this Article Four.
A. CONSIDERATION.
1. Shares of Common Stock drawn from the Corporation's
authorized but unissued shares of Common Stock ("Newly Issued Shares") shall be
issued under the Stock Issuance Program for one or more of the following items
of consideration which the Plan Administrator may deem appropriate in each
individual instance:
(i) cash or check drawn to the Corporation's order;
(ii) a promissory note payable to the Corporation's
order in one or more installments, which may be subject to cancellation in
whole or in part upon terms and conditions established by the Plan
Administrator; or
(iii) past services rendered to the Corporation or
any parent or subsidiary corporation.
2. All Newly Issued Shares shall be issued for
consideration with a value less not less than one-hundred percent (100%) of the
Fair Market Value of such shares at the time of issuance.
3. Shares of Common Stock reacquired by the Corporation
and held as treasury shares ("Treasury Shares") may be issued under the Stock
Issuance Program for such consideration (including one or more of the items of
consideration specified in subparagraph 1. above) as the Plan Administrator may
deem appropriate, provided such consideration is in an amount not less than the
Fair Market Value of the Treasury Shares at the time of issuance. Treasury
Shares may, in lieu of any cash consideration, be issued subject to such vesting
requirements tied to the Participant's period of future Service or the
Corporation's attainment of specified performance objectives as the Plan
Administrator may establish at the time of issuance. The Treasury Share
provisions shall be in effect only for such period or periods (if any) during
which the Corporation is incorporated under the laws of the State of Delaware.
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the absolute discretion of the Plan Administrator, be fully and
immediately vested upon
B-22
issuance or may vest in one or more installments over the Participant's period
of Service. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the
Participant or the performance objectives to be achieved by the
Corporation,
(ii) the number of installments in which the shares
are to vest,
(iii) the interval or intervals (if any) which are
to lapse between installments, and
(iv) the effect which death, Permanent Disability or
other event designated by the Plan Administrator is to have upon the
vesting schedule,
shall be determined by the Plan Administrator and incorporated into the
Issuance Agreement executed by the Corporation and the Participant at the
time such unvested shares are issued.
2. The Participant shall have full stockholder rights
with respect to any shares of Common Stock issued to him or her under the
Plan, whether or not his or her 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. Any new, additional
or different shares of stock 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 his or her unvested shares 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 or by reason of any
Corporate Transaction shall be issued, subject to (i) the same vesting
requirements applicable to his or her unvested shares and (ii) such escrow
arrangements as the Plan Administrator shall deem appropriate.
3. Should the Participant cease to remain in Service
while holding one or more unvested shares of Common Stock under the Stock
Issuance Program, then those shares shall be immediately surrendered to the
Corporation for cancellation, and the Participant shall have no further
stockholder rights with respect to those shares. To the extent the surrendered
shares were previously issued to the Participant for consideration paid in cash
or cash equivalent (including the Participant's purchase-money promissory note),
the Corporation shall repay to the Participant the cash consideration paid for
the surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to such
surrendered shares. The surrendered shares may, at the Plan Administrator's
discretion, be retained by the Corporation as Treasury Shares or may be retired
to authorized but unissued share status. Treasury Shares will only be an
available election during the period or periods (if any) the Corporation is
incorporated under the laws of the State of Delaware.
B-23
4. The Plan Administrator may in its discretion elect to
waive the surrender and cancellation of one or more unvested shares of Common
Stock (or other assets attributable thereto) which would otherwise occur upon
the non-completion of the vesting schedule applicable to such 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.
II. CORPORATE TRANSACTIONS/CHANGE IN CONTROL
A. Upon the occurrence of any Corporate Transaction, all of the
Corporation's outstanding repurchase rights under this Article Three shall
automatically terminate, and all shares subject to such terminated rights shall
immediately vest in full, except to the extent: (i) any such repurchase right is
expressly assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction or (ii) such termination is precluded
by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
B. The Plan Administrator shall have the discretionary
authority, exercisable either in advance of any actually-anticipated Change in
Control or at the time of an actual Change in Control, to provide for the
immediate and automatic vesting of one or more unvested shares outstanding under
the Stock Issuance Program at the time of such Change in Control. The Plan
Administrator shall also have full power and authority to condition any such
accelerated vesting upon the subsequent termination of the Participant's Service
within a specified period following the Change in Control.
III. SHARE ESCROW/TRANSFER RESTRICTIONS
A. 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 such unvested shares. To the extent an
escrow arrangement is utilized, the unvested shares and any securities or other
assets issued with respect to such shares (other than regular cash dividends)
shall be delivered in escrow to the Corporation to be held until the
Participant's interest in such shares (or other securities or assets) vests.
Alternatively, if the unvested shares are issued directly to the Participant,
the restrictive legend on the certificates for such shares shall read
substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE
ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND (II)
CANCELLATION OR REPURCHASE IN THE EVENT THE REGISTERED HOLDER (OR HIS/HER
PREDECESSOR IN INTEREST) CEASES TO REMAIN IN THE CORPORATION'S SERVICE.
SUCH TRANSFER RESTRICTIONS AND THE TERMS AND CONDITIONS OF SUCH
CANCELLATION OR REPURCHASE ARE SET FORTH IN A STOCK ISSUANCE AGREEMENT
BETWEEN THE CORPORATION AND THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR
IN INTEREST)
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DATED ______________, _____, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION."
B. The Participant shall have no right to transfer any unvested
shares of Common Stock issued to him or her under the Stock Issuance Program.
For purposes of this restriction, the term "transfer" shall include (without
limitation) any sale, pledge, assignment, encumbrance, gift, or other
disposition of such shares, whether voluntary or involuntary. Upon any such
attempted transfer, the unvested shares shall immediately be cancelled in
accordance with substantially the same procedure in effect under Section I.B.3
of this Article Four, and neither the Participant nor the proposed transferee
shall have any rights with respect to such cancelled shares. However, the
Participant shall have the right to make a gift of unvested shares acquired
under the Stock Issuance Program to his or her spouse or issue, including
adopted children, or to a trust established for such spouse or issue, provided
the donee of such shares delivers to the Corporation a written agreement to be
bound by all the provisions of the Stock Issuance Program and the Issuance
Agreement applicable to the gifted shares.
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ARTICLE FIVE
MISCELLANEOUS
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant (including an Optionee or Participant who is an officer
of the Corporation) in the exercise of one or more options granted to such
Optionee under the Discretionary Option Grant Program or the purchase of one or
more shares issued to such Participant under the Stock Issuance Program,
including the satisfaction of any Withholding Taxes arising therefrom, by (i)
authorizing the extension of a loan from the Corporation to such Optionee or
Participant or (ii) permitting the Optionee or Participant to pay the option
price or purchase price (less the par value per share) for the purchased Common
Stock in installments over a period of years. The terms of any loan or
installment method of payment (including the interest rate and terms of
repayment) shall be upon such terms as the Plan Administrator specifies in the
applicable option or issuance agreement or otherwise deems appropriate under the
circumstances. Loans or installment payments may be authorized with or without
security or collateral. However, the maximum credit available to the Optionee or
Participant may not exceed the option or purchase price of the acquired shares
plus any Federal and State income and employment tax liability incurred by the
Optionee or Participant in connection with the acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under this financial assistance
program shall be subject to forgiveness by the Corporation in whole or in part
upon such terms and conditions as the Plan Administrator may deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to
amend or modify the Plan (or any component thereof) in any or all respects
whatsoever. However, no such amendment or modification shall adversely affect
rights and obligations with respect to options at the time outstanding under
the Plan, nor adversely affect the rights of any Participant with respect to
Common Stock issued under the Stock Issuance Program prior to such action,
unless the Optionee or Participant consents to such amendment. In addition,
certain amendments may require stockholder approval pursuant to applicable
laws or regulations.
B. (i) Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant Program and (ii) shares of
Common Stock may be issued under the Stock Issuance Program, which are in
both instances in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under the
Discretionary Option Grant Program or the Stock Issuance Program are held in
escrow until stockholder approval is obtained for a sufficient increase in
the number of shares available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess option grants or excess share issuances are made, then
(I) any
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unexercised excess options shall terminate and cease to be exercisable and (II)
the Corporation shall promptly refund the purchase price paid for any excess
shares actually 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.
III. TAX WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon
the exercise of stock options for such shares or the vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable
Withholding Taxes.
The Plan Administrator may, in its discretion and in accordance with
the provisions of this Section III of Article Five and such supplemental rules
as the Plan Administrator may from time to time adopt (including the applicable
safe-harbor provisions of SEC Rule 16b-3), provide any or all holders of
Non-statutory Options (other than the automatic grants made pursuant to Article
Three of the Plan) or unvested shares under the Plan with the right to use
shares of the Common Stock in satisfaction of all or part of the Withholding
Taxes to which such holders may become subject 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:
a. STOCK WITHHOLDING: The holder of the Non-statutory
Option or unvested shares may be provided with 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 applicable Withholding Taxes (not to exceed one
hundred percent (100%)) designated by the holder.
b. STOCK DELIVERY: The Plan Administrator may, in its
discretion, provide the holder of the Non-statutory Option or the unvested
shares with 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 individual (other than in
connection with the option exercise or share vesting triggering the
Withholding Taxes) with an aggregate Fair Market Value equal to the
percentage of the Withholding Taxes incurred in connection with such
option exercise or share vesting (not to exceed one hundred percent
(100%)) designated by the holder.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan as successor to the Corporation's 1990 Stock
Option Plan became effective as of the applicable Effective Date for each of
the equity incentive programs in effect hereunder, and no further option
grants or stock issuances shall be made under the 1990 Plan from and after
such Effective Date. Each option issued and outstanding under the 1990 Plan
immediately prior to the Effective Date of the Discretionary Option Grant
Program shall be
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incorporated into this Plan and treated as an outstanding option under this
Plan, but each such option shall continue to be governed solely by the terms and
conditions of the instrument evidencing such grant, and nothing in this Plan
shall be deemed to affect or otherwise modify the rights or obligations of the
holders of such options with respect to their acquisition of shares of Common
Stock thereunder.
B. The option/vesting acceleration provisions of Section III of
Article Two relating to Corporate Transactions and Changes in Control may, in
the Plan Administrator's discretion, be extended to one or more stock options
outstanding under the 1990 Plan on the Effective Date of the Discretionary
Option Grant Program, but which do not otherwise provide for such acceleration.
C. The Plan was subsequently amended by the Board on
February 27, 1995 to increase the number of shares of Common Stock authorized
for issuance under the Plan by an additional 750,000 shares, and such amendment
was approved by the stockholders at the 1995 Annual Meeting on May 22, 1995. The
Plan was further amended by the Board on February 16, 1996 to increase the
number of shares of Common Stock authorized for issuance under the Plan by
another 750,000 shares, and such amendment was approved by the stockholders at
the 1996 Annual Meeting.
D. In February 1998, the Board further amended and restated the
Plan (the "February 1998 Restatement") to effect the following revisions: (i)
increase the number of shares of Common Stock reserved for issuance over the
term of the Plan by an additional 525,000 shares to 3,300,000 shares, (ii)
render the non-employee Board members (including those serving as the Plan
Administrator) eligible to receive option grants under the Discretionary Option
Grant and Stock Issuance Programs, (iii) allow unvested shares issued under the
Plan and subsequently repurchased by the Corporation at the option exercise or
direct issue price paid per share to be reissued under the Plan, (iv) remove
certain restrictions on the eligibility of non-employee Board members to serve
as Plan Administrator and (v) effect a series of additional changes to the
provisions of the Plan (including the stockholder approval requirements and the
option transferability restrictions) in order to take advantage of the recent
amendments to Rule 16b-3 of the Securities and Exchange Commission which exempts
Section 16 Insider transactions under the Plan from the short-swing liability
provisions of the federal securities laws. The February 1998 Restatement was
approved by the stockholders at the 1998 Annual Meeting. All option grants and
stock issuances made prior to the February 1998 Restatement shall remain
outstanding in accordance with the terms and conditions of the respective
instruments evidencing those options or issuances, and nothing in the February
1998 Restatement shall be deemed to modify or in any way affect those
outstanding options or issuances.
E. In February 1999, the Board further amended and restated the
Plan (the "February 1999 Restatement") to effect the following revisions: (i)
increase the number of shares of Common Stock reserved for issuance over the
term of the Plan by an additional 600,000 shares to 3,900,000 shares, (ii)
increase the number of shares of Common Stock subject to both the initial and
annual option grants made to non-employee Board members under the Automatic
Option Grant Program from 7,500 shares to 15,000 shares, (iii) implement new
automatic option
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grant for an additional 15,000 shares to be made each year to each non-employee
Board member serving as the chairperson of any Board committee and (iv) change
the date on which the annual automatic option grants are to be made to the
non-employee Board members and chairpersons from the date of the Annual
Stockholders Meeting to the first trading day in January each year, beginning
with calendar year 2000. The February 1999 Restatement was approved by the
stockholders at the 1999 Annual Meeting, and no option grants made on the basis
of the February 1999 Restatement became exercisable in whole or in part, and no
shares of Common Stock were issued on the basis of such restatement, until
stockholder approval of the restatement was obtained at the 1999 Annual Meeting.
All option grants and stock issuances made prior to the February 1999
Restatement shall remain outstanding in accordance with the terms and conditions
of the respective instruments evidencing those options or issuances, and nothing
in the February 1999 Restatement shall be deemed to modify or in any way affect
those outstanding options or issuances.
F. The Plan was amended and restated on February 22, 2000 (the
"February 2000 Restatement") to effect the following changes:
(i) increase the maximum number of shares of Common
Stock authorized for issuance under the Plan by an additional 800,000
shares so that the authorized share reserve is thereby increased from
3,900,000 shares to 4,700,000 shares of Common Stock;
(ii) change the vesting schedule for all currently
outstanding options under the Automatic Option Grant Program and all future
option grants made under that program from a vesting schedule whereby the
options were to become exercisable in four successive annual installments
to a vesting schedule whereby such options will become exercisable for
twenty-five percent (25%) of the option shares upon the Optionee's
completion of six (6) months of Board service measured from after the
automatic grant date and will become exercisable for the balance of the
option shares in a series of thirty-six (36) successive equal monthly
installments upon the Optionee's completion of each of the next thirty-six
(36)-months of Board service thereafter; and
(iii) extend the termination date of the Plan from
December 31, 2003 to December 31, 2005.
The amendments contained in the February 2000 Restatement were
approved by the stockholders at the 2000 Annual Meeting, and no option grants
made on the basis of the February 2000 Restatement became exercisable in whole
or in part, and no shares of Common Stock were issued on the basis of such
restatement, until stockholder approval of the restatement was obtained at the
2000 Annual Meeting.
G. The Plan was amended and restated on March 22, 2000 (the
"March 2000 Restatement") to reduce the number of shares of Common Stock subject
to each option grant made to the continuing non-employee Board members and the
continuing Chairpersons under the
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Automatic Option Grant Program from 15,000 shares to 10,000 shares, effective
with the option grants to be made on January 2, 2001.
H. The Plan was amended and restated on March 1, 2001 (the
"March 2001 Restatement") to increase the maximum number of shares of Common
Stock authorized for issuance under the Plan by 750,000 shares so that the share
reserve is thereby increased from 4,700,000 shares to 5,450,000 shares. Such
amendment is subject to stockholder approval at the 2001 Annual Meeting. No
option grants or direct stock issuances shall be made on the basis of the share
increases authorized by the March 2001 Restatement unless and until the
amendment to the Plan is approved by the stockholders at the 2001 Annual
Meeting.
I. The Plan shall terminate upon the EARLIER of
(i) December 31, 2005 or (ii) the date on which all shares available for
issuance under the Plan shall have been issued or cancelled pursuant to the
exercise, surrender or cash-out of the options granted under the Plan or the
issuance of shares (whether vested or unvested) under the Stock Issuance
Program. If the date of termination is determined under clause (i) above, then
all option grants and unvested stock issuances outstanding on such date shall
thereafter continue to have force and effect in accordance with the provisions
of the instruments evidencing such grants or issuances.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to option grants or stock issuances 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 or stock appreciation right under the Plan, the issuance of any shares
under the Stock Issuance Program, and the issuance of Common Stock upon the
exercise of the stock options or stock appreciation rights granted hereunder
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 and stock appreciation rights granted under it, and the Common Stock
issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under this 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 securities exchange or the Nasdaq National Market on which stock of the
same class is then listed.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor
any action taken by the Plan Administrator hereunder, nor any provision of the
Plan shall be construed so as to grant any individual the right to remain in the
employ or service of the Corporation (or any
B-30
parent or subsidiary corporation) for any period of specific duration, and the
Corporation (or any parent or subsidiary corporation retaining the services of
such individual) may terminate such individual's employment or service at any
time and for any reason, with or without cause.
VIII. MISCELLANEOUS PROVISIONS
A. Except to the extent otherwise expressly provided in the
Plan, the right to acquire Common Stock or other assets under the Plan may not
be assigned, encumbered or otherwise transferred by any Optionee or Participant.
B. The provisions of the Plan relating to the exercise of
options and the vesting of shares shall be governed by the laws of the State of
California without resort to that State conflict-of-laws rules.
C. The provisions of the Plan shall inure to the benefit of,
and be binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Participants and Optionees, the
legal representatives of their respective estates, their respective heirs or
legatees and their permitted assignees.
B-31
APPENDIX C
QRS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
(AMENDED AND RESTATED AS OF MARCH 1, 2001)
I. PURPOSE
The QRS Corporation Employee Stock Purchase Plan (the "Plan") is
intended to provide Eligible Employees of the Company and one or more of its
Corporate Affiliates with the opportunity to acquire a proprietary interest in
the Company through participation in a plan designed to qualify as an employee
stock purchase plan under Code Section 423.
The provisions of the March 2001 restatement (the "2001
Restatement") shall become effective with the offering period commencing on July
2, 2001 and shall not have any force or effect prior to such date. All share
numbers in this document reflect the 3-for-2 split of the Common Stock effected
in July 1999.
II. DEFINITIONS
For purposes of administration of the Plan, the following terms
shall have the meanings indicated:
BASE SALARY means the regular base salary paid to an Eligible
Employee by one or more Participating Companies during such individual's period
of participation in the Plan, plus (i) any salary deferral contributions made by
such individual to the Company's 401(k) Plan during such period and (ii) any
other pre-tax contributions which such individual makes during the period to any
of the Company's Code Section 125 cafeteria benefit programs. Base Salary shall
NOT include any overtime payments, bonuses, commissions, profit-sharing
distributions and other incentive-type payments, and all contributions (other
than Code Section 125 or Section 401(k) contributions) made by the Company or
its Corporate Affiliates for such individual's benefit under any employee
benefit or welfare plan now or hereafter established.
BOARD means the Board of Directors of the Company.
CODE means the Internal Revenue Code of 1986, as amended.
COMMON STOCK means Common Stock, $0.001 par value, of the Company.
COMPANY means QRS Corporation, a Delaware corporation, and any
corporate successor to all or substantially all of the assets or voting stock of
QRS Corporation which shall by appropriate action adopt the Plan.
CORPORATE AFFILIATE means any company which is either the parent
corporation or a subsidiary corporation of the Company (as determined in
accordance with Code Section 424), including any parent or subsidiary
corporation which becomes such after the Effective Time.
C-1
EFFECTIVE TIME means the time at which the Underwriting Agreement
for the initial public offering of the Common Stock was executed and finally
priced. Any Corporate Affiliate which becomes a Participating Company in the
Plan after such Effective Time shall designate a subsequent Effective Time with
respect to its employee-Participants.
ELIGIBLE EMPLOYEE means any person who is regularly engaged, for a
period of more than twenty (20) hours per week for more than five (5) months per
calendar year, in the rendition of personal services to the Company or any other
Participating Company for earnings considered wages under Code Section 3401(a).
FAIR MARKET VALUE means, for any relevant valuation date under the
Plan, the closing selling price per share of the Common Stock on such date, as
officially quoted on the principal exchange on which the Common Stock is at the
time traded or, if not traded on any exchange, the closing selling price per
share of the Common Stock on such date, as reported on the Nasdaq National
Market and published in THE WALL STREET JOURNAL. If there are no sales of the
Common Stock on such day, then the closing selling price per share on the next
preceding day for which such closing selling price is quoted shall be
determinative of Fair Market Value.
1933 ACT means the Securities Act of 1933, as amended.
1934 ACT means the Securities Exchange Act of 1934, as amended.
PARTICIPANT means any Eligible Employee of a Participating Company
who is actively participating in the Plan.
PARTICIPATING COMPANY means the Company and such Corporate Affiliate
or Affiliates as may be authorized from time to time by the Board to extend the
benefits of the Plan to their Eligible Employees. The Participating Companies in
the Plan, as of the Effective Time, are listed in attached Schedule A.
PLAN ADMINISTRATOR shall have the meaning given such term in Article
III.
PURCHASE DATE shall mean the last business day of each Purchase
Interval.
PURCHASE INTERVAL shall mean each successive six (6)-month period
within a particular offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant. However, the initial
Purchase Interval under the 2001 Restatement shall be of four (4) months
duration and shall run from July 2, 2001 to October 31, 2001.
C-2
III. ADMINISTRATION
The Plan Administrator shall have sole and exclusive authority to
administer the Plan and shall consist of a committee (the "Plan Administrator")
of two (2) or more non-employee Board members appointed by the Board. The Plan
Administrator shall have full authority to interpret and construe any provision
of the Plan and to adopt such rules and regulations for administering the Plan
as it may deem necessary in order to comply with the requirements of Code
Section 423. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under
the Plan through a series of overlapping offering periods until such time as
(i) the maximum number of shares of Common Stock available for issuance under
the Plan shall have been issued pursuant to purchase rights granted under the
Plan or (ii) the Plan shall have been sooner terminated in accordance with
Subsection D of Article XI.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. Offering periods shall commence at
semi-annual intervals on the first business day of May and on the first business
day of November each year over the term of the Plan. Accordingly, two (2)
separate offering periods shall commence in each calendar year the 2001
Restatement remains in existence. However, the initial offering period under the
2001 Restatement shall begin on the first business day in July 2001 and end on
the last business day in April 2003.
C. Each offering period shall consist of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from the first
business day of May to the last business day of October each year and from the
first business day of November each year to the last business day of April in
the succeeding year. However, the first Purchase Interval under the initial
offering period under the 2001 Restatement shall be of four (4) months duration
and shall run from the first business day of July, 2001 to the last business day
of October 2001.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within a particular offering period be less than the Fair Market
Value per share of Common Stock on the start date of that offering period, then
the individuals participating in such offering period shall, immediately after
the purchase of shares of Common Stock on their behalf on such Purchase Date, be
transferred from that offering period and automatically enrolled in the next
offering period commencing after such Purchase Date.
E. No purchase rights granted under the Plan shall be exercised,
and no shares of Common Stock shall be issued hereunder, until such time as
(i) the Plan shall have been approved by the Company's stockholders and (ii) the
Company shall have complied with all applicable requirements of the 1933 Act
(including the registration of the shares of Common Stock issuable under the
Plan on a Form S-8 registration statement filed with the Securities and
C-3
Exchange Commission), all applicable listing requirements of any securities
exchange on which the Common Stock is listed and all other applicable
requirements established by law or regulation.
V. ELIGIBILITY AND PARTICIPATION
A. Each individual who is an Eligible Employee on the start date
of any offering period under the Plan may enter that offering period on such
start date. However, an Eligible Employee may participate in only one offering
period at a time.
B. Except as otherwise provided in Section IV.D. above, an
Eligible Employee must, in order to participate in a particular offering period,
complete the enrollment forms prescribed by the Plan Administrator (including a
stock purchase agreement and a payroll deduction authorization) and file such
forms with the Plan Administrator (or its designate) on or before the start date
of that offering period.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock during an offering period may be
any multiple of one percent (1%) of the Base Salary paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
ten percent (10%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
- - The Participant may, at any time during the offering period, reduce his
or her rate of payroll deduction to become effective as soon as
possible after filing the appropriate form with the Plan Administrator.
The Participant may not, however, effect more than one (1) such
reduction per Purchase Interval.
- - The Participant may, prior to the commencement of any new Purchase
Interval within the offering period, increase the rate of his or her
payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the ten percent (10%)
maximum) shall become effective on the start date of the first Purchase
Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day
administratively feasible following the start date of the offering period and
shall (unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of that offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from the Participant shall
not be required to be held in any segregated account or trust fund and may be
commingled with the general assets of the Corporation and used for general
corporate purposes.
C-4
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan
on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
VII. COMMON STOCK SUBJECT TO PLAN
A. The Common Stock purchasable by Participants under the Plan
shall, solely in the discretion of the Plan Administrator, be made available
from either authorized but unissued shares of Common Stock or shares of Common
Stock reacquired by the Company, including shares of Common Stock purchased on
the open market. The total number of shares which may be issued under the Plan
shall not exceed Four Hundred Twenty-Five Thousand (425,000) shares (subject to
adjustment under Subsection C below). Such share reserve is comprised of (i) the
225,000 shares of Common Stock initially reserved for issuance under the Plan
plus (ii) the 200,000 share increase authorized by the Board as part of the 2001
Restatement, subject to stockholder approval at the 2001 Annual Meeting.
B. In the event any change is made to the Common Stock
purchasable under the Plan by reason of any stock dividend, stock split,
combination of shares, recapitalization or other change affecting the Company's
outstanding Common Stock as a class without the Company's receipt of
consideration, appropriate adjustments shall be made by the Plan Administrator
to (i) the class and maximum number of securities issuable over the term of the
Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and class of
securities purchasable in total by all Participants on any one Purchase Date and
(iv) the class and number of securities and the price per share in effect under
each purchase right at the time outstanding under the Plan in order to prevent
the dilution or enlargement of benefits thereunder.
VIII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHTS. A Participant shall be granted a
separate purchase right for each offering period in which he or she is enrolled.
The purchase right shall be granted on the start date of the offering period and
shall provide the Participant with the right to purchase shares of Common Stock,
in a series of successive installments during that offering period, upon the
terms set forth below. The Participant shall execute a stock purchase agreement
embodying such terms and such other provisions (not inconsistent with the Plan)
as the Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
C-5
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. PURCHASE PRICE. The purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date within
the particular offering period in which he or she is enrolled shall be equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
Common Stock on the start date of that offering period or (ii) the Fair Market
Value per share of Common Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common
Stock purchasable by a Participant on each Purchase Date during the particular
offering period in which he or she is enrolled shall be the number of whole
shares obtained by dividing the amount collected from the Participant through
payroll deductions during the Purchase Interval ending with that Purchase Date,
together with any amount carried over from the preceding purchase interval
pursuant to the provisions of Subsection E of this Article VIII, by the purchase
price in effect for the Participant for that Purchase Date. However, the maximum
number of shares of Common Stock purchasable per Participant on any one Purchase
Date shall not exceed Seven Hundred Fifty (750) shares, subject to periodic
adjustments in the event of certain changes in the Corporation's capitalization.
In addition, the maximum number of shares of Common Stock purchasable in total
by all Participants in the Plan on any one Purchase Date shall not exceed One
Hundred Thousand (100,000) shares, subject to periodic adjustments in the event
of certain changes in the Corporation's capitalization. However, the Plan
Administrator shall have the discretionary authority, exercisable prior to the
start of any offering period under the Plan, to increase or decrease the
limitations to be in effect for the number of shares purchasable per Participant
and in total by all Participants enrolled in that particular offering period on
each Purchase Date which occurs during that offering period.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied
to the purchase of shares of Common Stock on any Purchase Date because they are
not sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date in the same offering period.
Any payroll deductions not applied to the purchase of shares on the last
Purchase Date in the offering period shall be promptly refunded. Furthermore,
any payroll deductions not applied to the purchase of Common Stock by reason of
the limitation on the maximum number of shares purchasable per Participant on
any one Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHTS. The following provisions
shall govern the termination of outstanding purchase rights:
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- A Participant may, at any time prior to the last five (5)
business days of the Purchase Interval, terminate his/her outstanding
purchase right by filing the prescribed notification form with the Plan
Administrator (or its designate). No further payroll deductions shall be
collected from the Participant with respect to the terminated purchase
right, and any payroll deductions collected to date during that Purchase
Interval shall, at the Participant's election, be immediately refunded or
held for the purchase of shares on the next Purchase Date. If no such
election is made at the time such purchase right is terminated, then the
deductions collected with respect to the terminated right shall be refunded
as soon as possible.
- The termination of such purchase right shall be irrevocable,
and the Participant may not subsequently rejoin the offering period for
which the terminated purchase right was granted. In order to resume
participation in any subsequent offering period, such individual must
re-enroll in the Plan (by making a timely filing of a new stock purchase
agreement and payroll deduction authorization) on or before the start date
of that offering period.
G. TERMINATION OF ELIGIBLE EMPLOYEE STATUS. Should the
Participant cease to remain an Eligible Employee for any reason (including
death, disability or change in status) while his/her purchase right remains
outstanding, then no further payroll deductions may be made by or on behalf of
that individual to the Plan following such cessation of Eligible Employee
status. However, such individual (or his/her designated beneficiary under the
Plan or, in the absence of such a designated beneficiary, the personal
representative of his or her estate) shall have the following election with
respect to the payroll deductions made to date in the Purchase Interval in which
such cessation of Eligible Employee status occurs:
1) to withdraw all of those deductions, or
2) to have such funds held for the purchase of shares on
his or her behalf on the next scheduled Purchase Date.
If no such election is made within the thirty (30)-day period
following such cessation of Eligible Employee status or (if earlier) prior to
the Purchase Date, then the collected payroll deductions shall be refunded as
soon as possible after the expiration of the applicable Purchase Interval.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of
shares of Common Stock to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and any amounts
credited to the accounts of Participants shall, to the extent not applied to the
purchase of shares of Common Stock, be refunded to the Participants.
I. RIGHTS AS STOCKHOLDER. A Participant shall have no
stockholder rights with respect to the shares of Common Stock covered by
his/her outstanding purchase right until
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the shares are actually purchased on the Participant's behalf in accordance with
Subsection B of this Article VIII. No adjustments shall be made for dividends,
distributions or other rights for which the record date is prior to the date of
such purchase.
A Participant shall be issued, as soon as practicable after the
close of each Purchase Interval, a stock certificate for the number of shares
purchased on the Participant's behalf. Such certificate may, upon the
Participant's request, be issued in the names of the Participant and his/her
spouse as community property or as joint tenants with right of survivorship.
Alternatively, the stock certificate may be delivered to a designated stock
brokerage account maintained for the Participant and held in "street name" in
order to facilitate the subsequent sale of the purchased shares.
J. ASSIGNABILITY. No purchase right granted under the Plan shall
be assignable or transferable by the Participant other than by will or by the
laws of descent and distribution following the Participant's death, and during
the Participant's lifetime the purchase right shall be exercisable only by the
Participant.
K. CHANGE IN OWNERSHIP. Should any of the following transactions
(a "Change in Ownership") occur during the offering period:
(i) a merger or consolidation in which more than fifty
percent (50%) of the Company's outstanding voting stock is transferred to a
person or persons different from those who held the stock immediately prior
to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Company's assets in complete liquidation or
dissolution of the Company, or
(iii) the acquisition, directly or indirectly by any person
or related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Company), 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 Company's
outstanding securities pursuant to a tender or exchange offer made directly
to the Company's stockholders,
then all outstanding purchase rights under the Plan shall
automatically be exercised immediately prior to the consummation of such Change
in Control by applying the payroll deductions of each Participant during the
Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at eighty-five percent (85%) of the LOWER of
(i) the Fair Market Value per share of Common Stock on the start date of the
offering period in which the Participant is enrolled at the time of such Change
in Control or (ii) the Fair Market Value per share of Common Stock immediately
prior to the consummation of such Change in Control. However, the applicable
limitation on the number of shares of Common Stock purchasable per Participant
shall continue to apply to any such purchase, but not
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the limitation applicable to the maximum number of shares of Common Stock
purchasable in total by all Participants on any one Purchase Date.
IX. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with rights to purchase shares of
stock accrued under other purchase rights granted to the Participant under this
Plan and all other employee stock purchase plans (within the meaning of Code
Section 423) of the Company or its Corporate Affiliates, would otherwise permit
such Participant to purchase more than Twenty-Five Thousand Dollars ($25,000) in
value of stock of the Company or any Corporate Affiliate (determined on the
basis of the Fair Market Value per share on the date or dates such rights are
granted to the Participant) for each calendar year such rights are at any time
outstanding.
B. For purposes of applying the accrual limitations of
Subsection A of this Article IX, the right to acquire Common Stock pursuant to
each purchase right granted under the Plan shall accrue as follows:
(i) The right to acquire Common Stock under each such
purchase right shall accrue in a series of installments on each successive
Purchase Date during the offering period in which such right remains
outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock under
one or more other purchase rights at a rate in excess of Twenty-Five
Thousand Dollars ($25,000) worth of Common Stock (determined on the basis
of the Fair Market Value per share on the date or dates of grant) for each
calendar year such rights are outstanding.
(iii) If by reason of the limitations of Subsection A of this
Article IX, the Participant's purchase right does not accrue on one or more
of the relevant Purchase Dates within the particular offering period, then
the payroll deductions which the Participant made during that Purchase
Interval with respect to such purchase right shall be promptly refunded.
C. In the event there is any conflict between the provisions of this
Article IX and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article IX shall be controlling.
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X. AMENDMENT
A. The Board may from time to time alter, amend, suspend or
discontinue the Plan; PROVIDED, however, that no such action shall adversely
affect purchase rights at the time outstanding under the Plan. In addition, no
such action of the Board may, without the approval of the Company's
stockholders, (i) increase the number of shares issuable under the Plan, except
to the extent authorized pursuant to Subsection C of Article VII and Subsection
D of Article VIII in connection with certain changes in the Company's capital
structure, (ii) alter the purchase price formula so as to reduce the purchase
price specified in the Plan or (iii) modify the requirements for eligibility to
participate in the Plan.
XI. GENERAL PROVISIONS
A. The Plan became effective at the Effective Time, PROVIDED
that no purchase rights granted under the Plan could be exercised, and no shares
of Common Stock could be issued hereunder, until (i) the Plan had been approved
by the Company's stockholders and (ii) the Company had complied with all
applicable requirements of the 1933 Act, all applicable listing requirements of
any securities exchange on which the Common Stock is listed and all other
applicable requirements established by law or regulation. The Plan was approved
by the stockholders within twelve (12) months after the date on which the Plan
was adopted by the Board.
B. The 1995 restatement of the Plan was adopted by the Board on
December 2, 1994 and provided for quarterly entry dates into each offering
period commencing under the Plan from December 31, 1994 to June 30, 2001.
Stockholder approval for the 1995 restatement was approved by the Company's
stockholders at the 1995 Annual Stockholders Meeting.
C. This 2001 Restatement was adopted by the Board on
March 1, 2001 and effects the following changes to the Plan: (i) increase the
number of shares authorized for issuance under the Purchase Plan by an
additional 200,000 shares, (ii) implement a series of overlapping twenty-four
(24)-month offering periods beginning at semi-annual intervals each year,
(iii) establish a series of semi-annual purchase dates within each such offering
period, (iv) limit the number of shares of Common Stock purchasable by any one
Participant on any one Purchase Date to a total of 750 shares, (v) limit the
maximum number of shares of Common Stock purchasable in total by all
Participants on any one Purchase Date to 100,000 shares, (vi) extend the term of
the Purchase Plan until the last business day in April 2011, and (vii) revise
certain provisions of the plan document in order to facilitate the
administration of the Purchase Plan. However, the 2001 Restatement shall not
become effective unless approved by the Company's stockholders at the 2001
Annual Stockholders Meeting.
D. The Plan shall terminate upon the EARLIEST of (i) the last
business day in April 2011 (following the purchase of shares on such Purchase
Date), (ii) the date on which all shares available for issuance under the Plan
shall have been sold pursuant to purchase rights exercised under the Plan or
(iii) the date on which all purchase rights are exercised in connection with an
acquisition of the Company.
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E. All costs and expenses incurred in connection with the
administration of the Plan shall be paid by the Company; however, each Plan
Participant shall bear all costs and expenses incurred by such individual in the
sale or other disposition of any shares purchased under the Plan.
F. Neither the action of the Company in establishing the Plan,
nor any action taken under the Plan by the Board or the Plan Administrator, nor
any provision of the Plan itself shall be construed so as to grant any person
the right to remain in the employ of the Company or any of its Corporate
Affiliates for any period of specific duration, and such person's employment may
be terminated at any time, with or without cause.
G. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
C-11
SCHEDULE A
COMPANIES PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
QRS Corporation
C-12
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
QRS CORPORATION
John S. Simon and Samuel M. Hedgpeth III, or either of them, are
hereby appointed as the lawful agents and proxies of the undersigned (with
all powers the undersigned would possess if personally present, including
full power of substitution) to represent and to vote all shares of capital
stock of QRS Corporation (the "Company") which the undersigned is entitled
to vote at the Company's Annual Meeting of Stockholders on May 10, 2001, and
at any adjournment thereof. The shares represented by this Proxy shall be
voted in the manner set forth below:
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
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^ FOLD AND DETACH HERE ^
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Please mark /X/
your votes as
indicated in
this example
AUTHORIZATION
FOR WITHHELD
1. To elect John P. Dougall, Philip Schlein / / / /
and John S. Simon to the Board of Directors
to serve for a three-year term ending in
the year 2004 or until their respective
successor is duly elected and qualified.
INSTRUCTION: To withhold authority to vote for
any individual nominee, write such name or names
in the space provided below.
- -------------------------------------------------
FOR AGAINST ABSTAIN
2. To approve an amendment to the QRS Corporation / / / / / /
1993 Stock Option/Stock Issuance Plan
(the "1993 Plan") pursuant to which the number
of shares of Common Stock authorized for
issuance over the term of the 1993 Plan will
be increased by an additional 750,000 shares to
a total of 5,450,000 shares.
3. To approve an amendment and restatement of the / / / / / /
QRS Corporation Employee Stock Purchase Plan
(the "Purchase Plan") to effect the following
changes:(i) increase the number of shares
authorized for issuance under the Purchase Plan
by an additional 200,000 shares, (ii) implement
a series of overlapping twenty-four (24)-month
offering periods beginning at semi-annual
intervals each year, (iii) establish a series
of semi-annual purchase dates within each such
offering period, (iv) limit the number of shares
of Common Stock purchasable by any one participant
on any one purchase date to a total of 750 shares,
(v) limit the maximum number of shares of Common
Stock purchasable in total by all participants on
any one purchase date to 100,000 shares, (vi) extend
the term of the Purchase Plan to the last business
day in April 2011, and (vii) revise certain
provisions of the plan document in order to
facilitate the administration of the Purchase Plan.
4. To ratify the appointment of / / / / / /
PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year
ending December 31, 2001.
5. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors recommends a vote FOR
each of the above proposals. THIS PROXY WILL
BE VOTED AS DIRECTED, OR, IF NO DIRECTION IS
INDICATED, WILL BE VOTED FOR EACH OF THE ABOVE
PROPOSALS AND, AT THE DISCRETION OF THE PERSONS
NAMED AS PROXIES, UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING. This proxy may
be revoked at any time before it is voted.
DO DO NOT
I/WE / / OR / / EXPECT TO ATTEND THIS MEETING.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY, USING THE ENCLOSED ENVELOPE.
(SIGNATURE)
------------------------------------------------
(SIGNATURE IF HELD JOINTLY)
--------------------------------
DATE , 2001
------------------------
(PLEASE SIGN EXACTLY AS SHOWN ON YOUR STOCK CERTIFICATE AND ON THE ENVELOPE
IN WHICH THIS PROXY WAS MAILED. WHEN SIGNING AS PARTNER, CORPORATE OFFICER,
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN OR IN ANY OTHER
REPRESENTATIVE CAPACITY, GIVE FULL TITLE AS SUCH AND SIGN YOUR OWN NAME AS WELL.
IF STOCK IS HELD JOINTLY, EACH JOINT OWNER SHOULD SIGN.)
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^FOLD AND DETACH HERE^