SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
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[ ] 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
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MRO SOFTWARE, INC.
(Name of Registrant as Specified In Its Charter)
NOT APPLICABLE
---------------------------------------------------------
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* * * * *
MRO SOFTWARE, INC.
ANNUAL MEETING OF STOCKHOLDERS
MARCH 9, 2004
Notice is hereby given that the Annual Meeting of Stockholders of MRO
Software, Inc. (the "Company") will be held at the offices of the Company, 100
Crosby Drive, Bedford, Massachusetts 01730 on Tuesday, March 9, 2004, beginning
at 10:00 A.M., local time, for the following purposes:
1. To elect Stephen B. Sayre and Alan L. Stanzler as Class II
Directors of the Company for a term of three years;
2. To approve an amendment to the Company's Amended and Restated
1999 Equity Incentive Plan to increase the number of shares
issuable thereunder by an additional 1,200,000 shares; and
3. To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent public auditors for the current fiscal
year.
The Board of Directors has fixed the close of business on Monday,
January 26, 2004, as the record date for the determination of the stockholders
of the Company entitled to notice of, and to vote at, said Meeting and any
adjournment thereof. Only stockholders of record on such date are entitled to
notice of, and to vote at, said Meeting or any adjournment thereof.
By Order of the Board of Directors,
/s/ Craig Newfield
-----------------------------------
Craig Newfield
Vice President, General Counsel & Clerk
Bedford, Massachusetts
January 28, 2004
YOUR VOTE IS IMPORTANT
PLEASE SIGN AND RETURN THE ENCLOSED PROXY, WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING.
MRO SOFTWARE, INC.
100 CROSBY DRIVE
BEDFORD, MASSACHUSETTS 01730
(781) 280-2000
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MARCH 9, 2004
This Proxy Statement and the enclosed form of proxy are being mailed to
stockholders on or about January 30, 2004 in connection with the solicitation by
the Board of Directors of MRO Software, Inc., a Massachusetts corporation (the
"Company"), of proxies to be used at the Annual Meeting of Stockholders of the
Company, to be held on Tuesday, March 9, 2004, and at any and all adjournments
thereof (the "Annual Meeting"). When proxies are returned properly executed, the
shares represented will be voted in accordance with the stockholders'
directions. Stockholders are encouraged to vote on the matters to be considered.
If no choice has been specified by a stockholder with respect to a proposal as
to which the Board of Directors has made a recommendation, however, the shares
covered by any executed proxy will be voted as indicated in this proxy
statement. Any stockholder may revoke his proxy at any time before it has been
exercised.
The Board of Directors of the Company has fixed the close of business
on Monday, January 26, 2003, as the record date for the determination of the
stockholders of the Company entitled to notice of, and to vote at, the Annual
Meeting. Only stockholders of record on such date are entitled to notice of, and
to vote at, the Annual Meeting. At the close of business on the record date,
there were issued and outstanding 24,745,276 shares of the Company's Common
Stock, $.01 par value ("Common Stock"). Each share of Common Stock outstanding
on the record date will be entitled to cast one vote on each proposal.
QUORUM AND TABULATION OF VOTES
The By-Laws of the Company provide that the holders of a majority of
shares of Common Stock issued and outstanding and entitled to vote will
constitute a quorum at the Annual Meeting. Shares of Common Stock represented by
a properly signed and returned proxy will be treated as present at the Annual
Meeting for purposes of determining a quorum. In general, votes withheld from
any nominee for election as director, abstentions (if applicable) and broker
"non-votes" (if applicable) are counted as present or represented for purposes
of determining the presence or absence of a quorum for the Annual Meeting. A
"non-vote" occurs when a broker or nominee holding shares for a beneficial owner
votes on one proposal, but does not vote on another proposal because, in respect
of such other proposal, the broker or nominee does not have discretionary voting
power and has not received instructions from the beneficial owner.
The affirmative vote of a plurality of the shares of Common Stock
properly cast at the Annual Meeting will be necessary to elect each Class II
Director (Proposal One). Votes "withheld" from director-nominees, and broker
"non-votes" will not be included in calculating the number of votes cast for
election of the Class II Directors. The affirmative vote of a majority of the
shares of Common Stock properly cast at the Annual Meeting will be necessary to
approve the increase in the
number of shares authorized for issuance under the Company's Amended and
Restated 1999 Equity Incentive Plan (Proposal Two), and to ratify the selection
of PricewaterhouseCoopers LLP as the Company's independent auditors for the
fiscal year ending September 30, 2004 (Proposal Three). Abstentions and broker
"non-votes" will not be included in calculating the number of votes cast on
Proposals Two and Three.
Votes will be tabulated by the Company's transfer agent, EquiServe
Trust Company, N.A. The vote on each matter submitted to stockholders will be
tabulated separately.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company has a Board of Directors consisting of six directors,
divided into three classes, as nearly equal in size as practicable, referred to
as Class I, Class II and Class III.
The terms of the Company's Class I Directors, Robert L. Daniels and
John A. McMullen, will expire at the annual meeting to be held in March 2006.
Mr. Daniels and Mr. McMullen were elected to the Board of Directors at the
Company's Special Meeting in Lieu of Annual Meeting held on April 25, 2000, and
they were re-elected in March 2003. The terms of the Company's Class II
Directors, Stephen B. Sayre and Alan L. Stanzler, will expire at the Annual
Meeting. Mr. Sayre was first elected to the Board of Directors by the members of
the then existing Board to fill a vacancy on the Board, and was re-elected by
the Company's stockholders in March 2001. Mr. Stanzler was first elected to the
Board in 1998, and was re-elected in 2001. The terms of the Company's Class III
Directors, Norman E. Drapeau, Jr. and Richard P. Fishman, will expire at the
annual meeting to be held in March 2005. Mr. Drapeau and Mr. Fishman were
elected to the Board of Directors at the Company's Special Meeting in Lieu of
Annual Meeting held on March 24, 1999, and re-elected on March 5, 2002. The
Directors in each Class serve for a term of three years and until their
successors are duly elected and qualified. As the term of one Class expires, a
successor director or directors for that Class are elected at the annual meeting
of stockholders for that year.
The full Board of Directors has nominated each of Mr. Sayre and Mr.
Stanzler for election to an additional three-year term as a Class II Director.
Each of these candidates was recommended to the Board by other non-management
directors. Mr. Sayre and Mr. Stanzler have each agreed to serve if elected, and
the Company has no reason to believe that either of them will be unable to
serve. In the event that Mr. Sayre or Mr. Stanzler is unable or declines to
serve as a director at the time of the Annual Meeting, proxies will be voted for
such other nominee as is then designated by the Board.
Unless authority to do so has been limited in a proxy, it is the
intention of the persons named as proxies to vote the shares represented by the
proxy FOR the election of Mr. Sayre and Mr. Stanzler as Class II Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF MR.
SAYRE AND MR. STANZLER AS CLASS II DIRECTORS.
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DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
---- --- --------
Norman E. Drapeau, Jr. (1) 43 President, Chief Executive Officer and Director - Class III
Robert L. Daniels (1) 61 Executive Chairman of the Board - Class I
Peter J. Rice 51 Executive Vice President - Finance and Administration,
Chief Financial Officer and Treasurer
Patricia C. Foye 48 Executive Vice President - Global Marketing & Strategic
Alliances
William J. Sawyer 57 Executive Vice President- Operations
Ted D. Williams 55 Executive Vice President- Worldwide Sales
John W. Young 51 Executive Vice President - Products and Technology
Craig Newfield 44 Vice President, General Counsel and Clerk
Richard P. Fishman (2)(3) 57 Director - Class III
John A. McMullen (2)(3)(4) 61 Director - Class I
Stephen B. Sayre (1)(4) 52 Director - Class II
Alan L. Stanzler (4) 60 Director - Class II
- -------------------
(1) Member of the Strategic Advisory Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
(4) Member of the Audit Committee
NORMAN E. DRAPEAU, JR. joined the Company in 1982 as an applications
analyst. Since that time, he has held various positions with the Company,
including, from 1984 to 1987, that of Manager of Customer Support and from 1989
through 1991, that of Director, Product Marketing. In 1991, Mr. Drapeau was
appointed Vice President, Corporate Marketing, in 1992 was appointed Vice
President - Americas and in July 1996 was appointed Executive Vice President -
Worldwide Sales and Marketing, serving in that capacity until January 1998. In
January 1998, Mr. Drapeau was appointed Executive Vice President and Chief
Operating Officer and was also elected a director of the Company. In May 1998,
Mr. Drapeau was elected President and Chief Executive Officer. On October 30,
2003, Mr. Drapeau was appointed to the Board of Directors of Authoria, Inc.
ROBERT L. DANIELS founded the Company in 1968 and has been a director
since that time. Mr. Daniels served as Chairman of the Board and Chief Executive
Officer from 1968 to 1996 and as President from 1968 to 1995. In May 1998, Mr.
Daniels was elected Executive Chairman of the Board.
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PETER J. RICE joined the Company in 2000 as Executive Vice President of
Finance and Administration, Chief Financial Officer, and Treasurer of the
Company. From 1998 to 2000, Mr. Rice was Vice President of Finance and
Administration, Chief Financial Officer, and Treasurer of Interleaf, a developer
of e-publishing and e-content software products. Interleaf was sold to
Broadvision, Inc. in 2000. From 1995 to 1998, Mr. Rice was Vice President, Chief
Financial Officer and Treasurer for Media 100, Inc., a provider of digital media
and content design, and creation and delivery tools. From 1990 to 1995, Mr. Rice
was Vice President, Corporate Controller and Chief Accounting Officer of M/A
Com, Inc. Prior thereto, Mr. Rice held senior financial management positions at
Apollo Computer and Atex, Inc.
PATRICIA C. FOYE joined the Company in July 2001 as Executive Vice
President, Global Marketing and Strategic Alliances. From September 2000 to June
2001, Ms. Foye was Vice President, Worldwide Sales and Marketing for HMS
Software, Inc., an application software company centered in the aerospace
defense markets. From May 1999 to May 2000, Ms. Foye was President of
Allenbrook, Inc., a private firm focused on the development of policy management
system for insurance and financial markets. From 1998 to 1999, Ms. Foye was Vice
President and General Manager of QAD, Inc., leading the Electronics and
Industrial business segment, the largest vertical business for QAD. From 1994 to
1998, Ms. Foye held senior management positions at Digital Equipment
Corporation, a hardware and software vendor and Marcam Corporation, an ERP
applications vendor.
WILLIAM J. SAWYER joined the Company in 1978 as an applications
consultant and served in various sales and services positions from 1978 to 1984.
Mr. Sawyer was a Vice President of the Company from 1984 to 1990 and Executive
Vice President from 1990 until November 1997. In November 1997, Mr. Sawyer left
the Company and joined Peritus Software Services, Inc., a software application
company, as Vice President, Operations. Mr. Sawyer rejoined the Company in
October 1998 as Executive Vice President, Operations.
TED D. WILLIAMS originally joined the Company in 1984 and served as
Director, MAXIMO until 1988. From 1988 to 1993, Mr. Williams was President and
Chief Operating Officer of Comac Systems Corporation, a software application
company. In 1993, Mr. Williams rejoined the Company as Director, Eastern
Regional Sales. He was appointed Vice President-North American Sales in 1996 and
Vice President-Worldwide sales in January 1998. In October 1998, Mr. Williams
was appointed Executive Vice President-Worldwide Sales.
JOHN W. YOUNG originally joined the Company in 1985 and served until
1988 as MAXIMO Product Manager. From 1988 to 1992, Mr. Young was Vice President
of Sales of Comac Systems Corporation, a software application company. In 1992
he rejoined the Company as Director of MAXIMO Product Design, was appointed Vice
President - Research and Development of the Company in 1995 and was appointed
Executive Vice President - Products and Technology of the Company in 1998. On
June 24, 2003, Mr. Young was appointed to the Board of Directors of NSI
Software, Inc.
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CRAIG NEWFIELD joined the Company as Vice President, General Counsel
and Clerk in September 2000. From October 1997 through August 2000, Mr. Newfield
was Vice President, General Counsel and Clerk of Interleaf, Inc., a developer of
e-publishing and e-content software products. Interleaf was sold to Broadvision,
Inc. in 2000. From April 1996 through September 1997, Mr. Newfield was General
Counsel and Secretary of OneWave, Inc., since renamed Primix Solutions, an IT
service provider. From February 1993 to April 1996, Mr. Newfield served as
in-house counsel for Marcam Corporation.
RICHARD P. FISHMAN was elected as a director in March 1999. Mr. Fishman
is currently Senior Managing Partner of MAF Capital Partners, a venture capital
firm. From 1998 to 2002, Mr. Fishman was Executive Vice President at MacAndrews
& Forbes Group, Inc., where he was responsible for venture capital investing.
From 1995 to 1997, Mr. Fishman served as Managing Director of GeoPartners
Research, Inc., a strategy and management-consulting firm, where he headed the
firm's venture capital activities. Mr. Fishman served as President and Chief
Executive Officer of Thinking Machines Corporation from 1993 to 1994 and was a
partner at the law firm of Milbank, Tweed, Hadley & McCoy from 1987 until 1993.
JOHN A. MCMULLEN was elected as a director in April 2000. Mr. McMullen
is the Managing Principal of Cambridge Meridian Group, Inc., a
strategy-consulting firm that serves Fortune 500 and technology-based companies,
with which he has been employed since 1985. Mr. McMullen taught business
strategy at Harvard Law School from the mid 1980's to 1990 and, as one of the
original members of CMGI's Board of Directors, served on that Board from 1988
through 1999. In addition, he serves, or has served, on the boards of twelve
other private, chiefly technology-oriented companies. From 1993 to 1997 he was
an informal advisor to Senator Bill Bradley (NJ). He is currently running for
the United States Senate from Vermont.
STEPHEN B. SAYRE was originally elected as a director in September
1998, and re-elected in March 2001. Mr. Sayre is currently the Vice President of
Marketing and Business Development for Endeca Technologies, Inc. From June 2000
to March 2001, Mr. Sayre was Vice President of Marketing for Idiom, Inc. From
1994 to 2000, he was the Senior Vice President of Marketing at Lotus Development
Corporation, a subsidiary of IBM Corporation, a hardware and software vendor.
Prior to joining Lotus in 1994, Mr. Sayre was President of Boston Treasury
Systems and has held other senior executive level positions with Cullinet
Software and Easel Corporation.
ALAN L. STANZLER was originally elected as a director in May 1998, and
re-elected in March 2001. Mr. Stanzler served as a director of the Company from
1992 to 1994, and as Clerk of the Company from 1990 to 1996. Mr. Stanzler is Of
Counsel at the law firm of Stanzler, Funderburk & Castellon, L.L.P. From 1998 to
September 2001, Mr. Stanzler was a partner of the law firm of Maselan Jones &
Stanzler, P.C.
All directors hold office until the expiration of their respective
terms as described above and until their respective successors are duly elected
and qualified. Executive officers of the Company are appointed by and serve at
the discretion of the Board of Directors.
5
CORPORATE GOVERNANCE
The Board of Directors of the Company has determined that it is the
policy of the Board and of the Company to fully comply with the requirements of
the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), all implementing
rules and regulations of the Securities and Exchange Commission ("SEC"), and the
listing standards and Marketplace Rules of The Nasdaq Stock Market (the "Nasdaq
Rules"), and to implement such non-obligatory corporate governance measures are
as determined to be appropriate in light of the nature of the Company's
operations.
Independent Directors
The Board has determined that Messrs. Fishman, McMullen, Sayre and
Stanzler are all "independent" directors, as that term is currently used in the
Nasdaq Rules and as defined under Section 301 of the Sarbanes-Oxley Act and SEC
Rule 10A-3 adopted thereunder. Accordingly, the Board of Directors is comprised
of a majority of independent directors as required by the Nasdaq Rules.
During the fiscal year ended September 30, 2003 ("fiscal 2003"), the
Board met eight times. No incumbent director attended fewer than 75% of the
total number of meetings held by the Board and Committees of the Board on which
he served.
It is the policy of the Board that each member of the Board shall
attend the Company's annual meetings of stockholders whenever practical, and
that at least one member of the Board shall attend each meeting of stockholders.
Five out of the six directors of the Company attended the Annual Meeting of
Stockholders held in March, 2003.
The Board has undertaken a program of continuing education on matters
of corporate governance and other matters relevant to directors, and has
prohibited the extension of loans to executive officers and directors, except as
specifically permitted under the Sarbanes-Oxley Act.
Committees of the Board
The Board of Directors has an Audit Committee, a Compensation
Committee, a Nominating Committee and a Strategic Advisory Committee. The Board
has resolved that the Audit, Compensation and Nominating committees shall each
be composed entirely of "independent" directors, as defined above.
The Audit Committee (currently composed of Messrs. Sayre, Stanzler and
McMullen) reviews the internal accounting procedures of the Company and consults
with and reviews the services provided by the Company's independent auditors.
The Audit Committee met four times during fiscal 2003. See Report of the Audit
Committee for further information regarding this committee and its operations.
The Compensation Committee (currently composed of Messrs. Fishman and
McMullen) has general responsibility for the Company's executive compensation
policies and practices, including making specific recommendations to the Board
concerning compensation for the Company's executive officers and administering
the Company's Amended and Restated 1999 Equity Incentive Plan (the "1999 Equity
Plan"), 1994 Incentive and Nonqualified Stock Option Plan (the "1994 Stock
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Option Plan") and 2002 Employee Stock Purchase Plan (the "Stock Purchase Plan").
The Compensation Committee met nine times during fiscal 2003. See Report of the
Compensation Committee on Executive Compensation for further information
regarding this committee and its operations.
The Nominating Committee (currently composed of Messrs. Fishman and
McMullen) is responsible for making recommendations to the full Board regarding
candidates for election to the Board of Directors. However, the full Board of
Directors has desired to be directly involved in the nomination process, and as
a result the Nominating Committee did not meet during fiscal 2003. The full
Board of Directors considered and nominated the candidates proposed for election
as directors at the Annual Meeting.
The Strategic Advisory Committee (currently composed of Messrs.
Drapeau, Daniels and Sayre) identifies, evaluates and makes recommendations to
the full Board regarding long-term strategies and potential new business
opportunities for the Company. Information regarding this committee and its
operations will be available in the near future on the Company's website, at
http://www.mro.com.
On January 21, 2004, the Board amended the Charters for the Audit and
Compensation Committees, and adopted the Charter for the Nominating Committee,
to reflect corporate governance rules and initiatives recently enacted or
recommended by the SEC and Nasdaq. The Charters for the Audit and Compensation
Committees are attached hereto as Appendices A and B, respectively; the Charter
for the Nominating Committee is available on the Company's website, at
http://www.mro.com.
Executive Sessions of the Board
The Board has formally adopted a policy of meeting in executive
session, with only independent directors being present, on a regular basis and
at least two times each year. In practice, and during fiscal 2003, the Board met
in executive session on a quarterly basis.
Code of Conduct
The Board has approved and the Company has adopted a Code of Business
Conduct and Ethics, applicable to all directors, officers and employees of the
Company. This Code is available on the Company's website, at http://www.mro.com.
The Audit Committee is responsible for reviewing and approving or rejecting all
requested waivers to the Code, as such waiver(s) may apply to the Company's
Chief Executive Officer, Executive Chairman, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions; see Report of the Audit Committee, below.
Qualifications of Candidates for Election to the Board
Our Directors take a critical role in guiding the Company's strategic
direction, and oversee the management of the Company. Board candidates are
considered based upon various criteria, such as their broad-based business and
professional skills and experiences, a global business and social perspective,
concern for the long-term interests of the stockholders, and personal integrity
and judgment. In addition, directors must have time available to devote to Board
activities and to
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enhance their knowledge of the global software industry. Accordingly, the Board
seeks to attract and retain highly qualified directors who have sufficient time
to attend to their substantial duties and responsibilities to the Company.
Recent developments in corporate governance and financial reporting have
resulted in an increased demand for such highly qualified and productive public
company directors. The Nominating Committee has established the following
minimum requirements: being able to read and understand fundamental financial
statements, having at least ten years of relevant business experience, having no
identified conflicts of interest as a prospective director of the Company,
having not been convicted in a criminal proceeding aside from traffic violations
during the five years prior to the date of selection, and being willing to
execute and comply with the Company's Code of Business Conduct and Ethics. The
Nominating Committee retains the right to modify these minimum qualifications
from time to time. Exceptional candidates who do not meet all of these criteria
may still be considered.
Process for Identifying and Evaluating Candidates for Election to the
Board
The Nominating Committee will review the qualifications and backgrounds
of the Directors, as well as the overall composition of the Board, and recommend
to the full Board the slate of Directors to be nominated for election at the
annual meeting of stockholders. In the case of incumbent directors whose terms
of office are set to expire, the Nominating Committee reviews such directors'
overall service to the Company during their term, including the number of
meetings attended, level of participation, quality of performance, and whether
the director continues to meet the independence standards set forth in the
Sarbanes-Oxley Act, SEC and Nasdaq Rules. In the case of new director
candidates, the questions of independence and financial expertise are important
to determine what roles can be performed by the candidate, and the Nominating
Committee determines whether the candidate meets the independence standards set
forth in the Sarbanes-Oxley Act, and SEC and Nasdaq Rules, and the level of the
candidate's financial expertise. The candidate(s) will be interviewed by the
Nominating Committee, and if approved, then by all other members of the Board.
The full Board will approve the final nomination(s). The Chairman of the Board,
acting on behalf of the full Board, will extend the formal invitation to become
a nominee of the Board of Directors. Qualified candidates for membership on the
Board will be considered without regard to race, color, religion, sex, ancestry,
national origin or disability.
Stockholder Nominations
Stockholders may nominate Director candidates for consideration by the
Nominating Committee by writing to Craig Newfield, General Counsel, MRO
Software, Inc., 100 Crosby Drive, Bedford, MA 01730 and providing the
candidate's name, biographical data and qualifications including age, five year
employment history with employer names and a description of the employer's
business, whether such individual can read and understand fundamental financial
statements, other board memberships (if any), and such other information as
reasonably available and sufficient to enable the Nominating Committee to
evaluate the minimum qualifications stated above under Qualifications of
Candidates for Election to the Board. The submission must be accompanied by a
written consent of the individual to stand for election if nominated by the
Board of Directors and to serve if elected by the stockholders. Written notice
must be given at least 60 days prior to the date of the next annual meeting of
stockholders, including such additional information as required under the
Company's By-Laws. If a stockholder nominee is eligible, and if
8
the nomination is proper, the Nomination Committee will then deliberate and make
its recommendation to the Board of Directors.
The Nominating Committee will not alter the manner in which it
evaluates candidates, including the minimum criteria set forth above, based on
whether the candidate was recommended by a stockholder or not.
Communications with the Board
Stockholders may communicate directly with the Board, or with any
committee of the Board, by writing to Craig Newfield, General Counsel, MRO
Software, Inc., 100 Crosby Drive, Bedford, MA 01730, by calling Mr. Newfield at
+1 781-280-2042, or via e-mail at directors@mro.com. All communications will be
reviewed by management and forwarded to the appropriate director(s),in their
entirety.
REPORT OF THE AUDIT COMMITTEE
The Board of Directors has appointed an Audit Committee consisting of
Messrs. Stanzler, McMullen and Sayre. All members of the Audit Committee are
"independent" as that term is currently used in the Marketplace Rules of The
Nasdaq Stock Market ("Nasdaq") and as defined under Section 301 of the
Sarbanes-Oxley Act and Rule 10A-3 adopted thereunder.
Under the Sarbanes-Oxley Act, the Audit Committee is directly
responsible for the selection, appointment, retention, compensation and
oversight of the Company's independent accountants, including the pre-approval
of both audit and non-audit services (including fees and other terms), and the
resolution of disagreements between management and the auditors regarding
financial reporting, accounting, internal controls, auditing or other matters.
In carrying out its role, the Audit Committee (i) makes such
examinations as are necessary to monitor the Company's financial reporting, its
external audits and its process for compliance with laws and regulations, (ii)
provides to the Board of Directors the results of its examinations and
recommendations derived therefrom, (iii) proposes to the Board of Directors
improvements in internal accounting controls, (iv) reviews the results and scope
of the annual audit of the Company's financial statements conducted by the
Company's independent accountants, (v) reviews the scope of other services
provided by the Company's independent accountants, and (vi) provides to the
Board of Directors such additional information and materials as it may deem
necessary to make the Board aware of significant financial matters that require
Board attention.
The Audit Committee also maintains a telephone "hotline" by which it
can directly receive, on an anonymous and confidential basis, complaints
regarding accounting, internal accounting controls and other auditing matters,
including any concerns regarding questionable accounting, auditing or other
matters that the Company's employees, and non-employees, may have.
The Audit Committee is responsible for reviewing all related party
transactions for potential conflicts of interest and, for approving them. The
Audit Committee is also responsible for reviewing and making determinations
regarding any proposed waiver of the Company's Code of Business Conduct and
Ethics as applicable to the Company's Chief Executive Officer, Executive
Chairman,
9
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. See Corporate Governance - Code of Conduct
for detailed information.
Management has the primary responsibility for the Company's financial
statements and the reporting process, including the systems of internal controls
and for the preparation of financial statements in accordance with generally
accepted accounting principles. The Company's independent auditors are
responsible for auditing the financial statements and expressing an opinion on
the conformity of those audited financial statements with generally accepted
accounting principles. The Audit Committee monitors and reviews these processes,
and reviews the Company's periodic reports and quarterly earning releases before
they are filed with the SEC, but is not responsible for the preparation of the
Company's financial statements.
Audit Committee members are not professionally engaged in the practice
of accounting or auditing and are not experts in the fields of accounting or
auditing, including with respect to auditors' independence. Our Board of
Directors has determined that while none of the Audit Committee members is an
"audit committee financial expert," as defined in the rules adopted by the SEC,
at least one member of the Audit Committee is financially sophisticated as that
term is currently used in the Nasdaq Rules. Our Board also concluded that
ability of the Audit Committee to perform its duties would not be impaired by
the absence of an "audit committee financial expert" if its members otherwise
satisfied the Nasdaq standards.
The Audit Committee is authorized to engage and determine funding for
independent counsel and other advisors it determines necessary to carry out its
duties.
In fulfilling its oversight responsibilities, the Audit Committee
discussed with representatives of PricewaterhouseCoopers LLP, the Company's
independent auditors for fiscal 2003, the overall scope and plans for
PricewaterhouseCoopers LLP's audit of the Company's financial statements for
fiscal 2003. The Audit Committee met with PricewaterhouseCoopers LLP, with and
without Company management present, to discuss whether any significant matters
regarding internal controls over financial reporting had come to the auditors'
attention during the conduct of the audit (no such matters had come to the
auditors' attention), and the overall quality of the Company's financial
reporting.
Beginning in fiscal 2002 and continuing during fiscal 2003, the
Chairman of the Audit Committee met with the Company's Chief Executive and Chief
Financial Officers to discuss their review of the Company's disclosure controls
and procedures and internal controls in connection with the filing of periodic
reports with the SEC.
The Audit Committee reviewed and discussed the Company's audited
financial statements for fiscal 2003 with management and PricewaterhouseCoopers
LLP. The Audit Committee discussed with PricewaterhouseCoopers LLP the matters
required to be discussed by Statement of Auditing Standards No. 61
"Communication's with Audit Committees," as amended, including a discussion of
PricewaterhouseCoopers LLP's judgments as to the quality, not just the
acceptability, of the Company's financial statements, changes in accounting
policies, sensitive accounting estimates, accounting principles and such other
matters as are required to be discussed with audit committees under generally
accepted auditing standards.
10
In addition, the Audit Committee received from and discussed with
PricewaterhouseCoopers LLP the written disclosures and the letter required by
Independence Standards Board Standard No. 1 "Independence Discussions with Audit
Committees" and discussed the disclosures with PricewaterhouseCoopers LLP, as
well as other matters relevant to PricewaterhouseCoopers LLP's independence from
management and the Company. The Audit Committee considered, among other things,
whether the services PricewaterhouseCoopers LLP provided to the Company beyond
their audit of the Company's financial statements was compatible with
maintaining PricewaterhouseCoopers LLP's independence. The Audit Committee also
considered the amount of fees PricewaterhouseCoopers LLP received for audit and
non-audit services. See Proposal Three for detailed information regarding audit
and non-audit fees.
Based on the Audit Committee's reviews, meetings and discussions
referred to above, the Audit Committee recommended to the Board of Directors,
and the Board directed, that the Company's audited financial statements be
included in its Annual Report on Form 10-K for the year ended September 30, 2003
for filing with the SEC. The Audit Committee and the Board of Directors also
have recommended that the selection of PricewaterhouseCoopers LLP as the
Company's independent public accountants for fiscal 2004 be ratified. See
Proposal Three for detailed information.
The Audit Committee is governed by a written charter, adopted by the
Board of Directors, a copy of which is included as Appendix A to this Proxy
Statement. The Audit Committee has recently updated its charter as appropriate
in light of SEC regulations and Nasdaq Rules implementing the Sarbanes-Oxley
Act, see Corporate Governance above.
THE AUDIT COMMITTEE
Alan L. Stanzler, Chairman
John A. McMullen
Stephen B. Sayre
REMUNERATION OF EXECUTIVE OFFICERS AND DIRECTORS
DIRECTORS' COMPENSATION
During the first quarter of fiscal 2003, members of the Board of
Directors who were not employees of the Company or any of its subsidiaries
("Non-Employee Directors") received a quarterly stipend of $7,500, with no
additional fees being payable for attendance at Board or committee meetings.
Non-Employee Directors were also reimbursed for out-of-pocket expenses incurred
in the performance of their duties as directors of the Company. Directors who
were employees of the Company were not paid any separate fees for serving as
directors.
Non-Employee Directors are eligible to receive stock options and other
equity-based incentive awards under the 1999 Equity Plan in the same manner and
to the same degree as all other eligible persons, as determined by the Board of
Directors on a discretionary basis. Options granted to Non-Employee Directors
are subject to acceleration of vesting under certain circumstances.
At the request of the Board of Directors, during the first quarter of
fiscal 2003 the Compensation Committee conducted a comprehensive review of the
compensation of Non-
11
Employee Directors, consulted with independent experts in these matters, and
reported its findings to the full Board. Based on this review and consultation,
and in light of the increased responsibilities and potential exposures
undertaken by Non-Employee Directors under the Sarbanes-Oxley Act and in
general, and by committee members and committee chairmen in particular, the
Board of Directors decided to increase the cash compensation of, and to issue a
grant of restricted stock to, the Non-Employee Directors, as follows. Effective
January 1, 2003, Non-Employee Directors receive a quarterly stipend of $10,000,
plus a quarterly stipend of $2,500 for each active committee of which they are a
member, except that the chairman of the Audit Committee receives a quarterly
stipend of $7,500, and the chairman of the Compensation Committee receives a
quarterly stipend of $6,250. No additional fees are payable for attendance at
Board or committee meetings, and Non-Employee Directors will continue to be
reimbursed for out-of-pocket expenses incurred in the performance of their
duties as directors of the Company. In addition, on January 27, 2003 the Board
approved a one-time grant to each Non-Employee Director of 6,250 shares of
restricted stock under the terms of the 1999 Equity Plan, vesting on a quarterly
basis over three years, with twelve equal installments vesting on the 15th day
of the second month of each quarter, subject to 100% acceleration under certain
circumstances. Finally, on May 26, 2003 the Compensation Committee approved the
amendment of all outstanding stock options previously granted to Non-Employee
Directors which would otherwise expire five years from the date of grant and
which had an exercise price greater than fair market value, to have a term
expiring on the tenth anniversary of the date of grant.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information concerning the compensation earned by the Company's Chief Executive
Officer and the six other most highly paid executive officers of the Company
(collectively, the "named executive officers") for services rendered in all
capacities to the Company during fiscal 2003.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
----------------------------------------- Securities
Fiscal Other Annual Underlying All Other
Name and Principal Position Year Salary($)(1) Bonus($) Compensation Options(#)(2) Compensation($)(3)
- --------------------------- ---- ------------- --------- ------------ ------------- -----------------
Norman E. Drapeau, Jr. 2003 $ 350,000 $262,406 (4) ----- 165,000 $3,000
President and Chief 2002 $ 350,000 $185,513 (5) ----- ----- $2,750
Executive Officer 2001 $ 343,750 $376,773 (6) ----- 150,000 $2,625
Robert L. Daniels 2003 $ 325,000 $ 50,413 (4) ----- ----- (8) -----
Executive Chairman of the 2002 $ 350,000 $141,763 (5) ----- ----- -----
Board 2002 $ 343,750 $376,773 (6) $ 11,027 (7) ----- -----
Peter J. Rice 2003 $ 241,250 $128,954 (4) ----- 55,000 -----
Executive Vice President 2002 $ 215,000 $ 91,166 (5) ----- ----- -----
Finance & Administration, 2001 $ 211,250 $185,157 (6) ----- 50,000 -----
Chief Financial Officer
and Treasurer
Patricia C. Foye 2003 $ 215,000 $128,954 (4) ----- 33,000 -----
Executive Vice President 2002 $ 215,000 $ 91,166 (5) ----- ----- -----
Global Marketing and 2001 $ 44,792 $ 31,100 (6) ----- -----
Strategic Alliances
12
William J. Sawyer 2003 $ 215,000 $128,954 (4) ----- 33,000 $3,000
Executive Vice President of 2002 $ 215,000 $ 91,166 (5) ----- ----- $2,750
Operations 2001 $ 211,250 $185,157 (6) ----- 30,000 $2,625
Ted D. Williams 2003 $ 215,000 $128,954 (4) ----- 33,000 $3,000
Executive Vice President 2002 $ 215,000 $ 91,166 (5) ----- ----- $2,750
Worldwide Sales 2001 $ 211,250 $185,157 (6) ----- 30,000 $2,625
John W. Young 2003 $ 215,000 $128,954 (4) ----- 33,000 $3,000
Executive Vice President 2002 $ 215,000 $ 91,166 (5) ----- ----- $2,750
Products and Technology 2001 $ 211,250 $185,157 (6) ----- 30,000 $2,625
- -------------------------
(1) Salaries for the named executive officers during fiscal 2001 were increased
at the end of the first quarter of fiscal 2001, and were continued at the
same level through the balance of fiscal 2001 and all of fiscal 2002 and
fiscal 2003, except that Mr. Rice's salary was increased effective January
1, 2003.
(2) Represents shares of Common Stock issuable upon exercise of stock options
granted under the 1999 Equity Plan.
(3) The amounts reported represent contributions made by the Company pursuant
to the Company's 401(k) Plan and Trust.
(4) Represents bonuses paid under the Company's 2002 Executive Bonus Plan
(first quarter of fiscal 2003) and its 2003 Executive Bonus Plan (last
three quarters of fiscal 2003).
(5) Represents bonuses paid under the Company's 2002 Executive Bonus Plan.
(6) Represents bonuses paid under the Company's 2001 Executive Bonus Plan.
(7) Represents reimbursement of certain expenses.
(8) Does not include an option granted on November 21, 2003 to purchase 15,262
shares at an exercise price of $13.89 per share.
Equity Compensation Plan Information. As of the end of fiscal 2003, all
stock options and other equity-based incentives (including individual
compensation arrangements) were authorized for issuance pursuant to compensation
plans that were previously approved by the Company's stockholders (except as
noted below).
EQUITY COMPENSATION PLAN INFORMATION
Number of securities to be Weighted-average Number of securities remaining
issued upon exercise of out- exercise price of out- available for future issuance under
standing options, standing options, equity compensation plans (excluding
Plan Category warrants and rights warrants and rights securities reflected in column (a))
------------- ------------------- -------------------- ------------------------------------
Equity compensation plans approved by
security holders 4,303,277 (1) $18.22 490,849 (2)
Equity compensation plans not
approved by security holders 40,000 ----- -----
Total .................. 4,303,277 $18.22 490,849
- -----------------------
(1) Does not include 25,000 shares of restricted stock that were previously
issued under the 1999 Equity Plan.
(2) Includes up to 175,000 shares that may be issued in the form of restricted
stock under the 1999 Equity Plan.
13
Option Grants in Last Fiscal Year. The following table sets forth
certain information regarding stock options granted during fiscal 2003 by the
Company to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual Rate of
Percent of Total Stock Price Appreciation for
Number of Securities Options Granted to Option Term (5)
Underlying Options Employees in Fiscal Exercise Price Expiration ---------------
Name Granted (#) (1) Year(%) (2) ($/Sh) (3) Date (4) 5%($) 10%($)
---- --------------- ----------- ---------- -------- ----------------------------
Norman E. Drapeau, Jr . 165,000 15.4% $11.73 01/27/13 $1,221,000 $3,087,150
Robert L. Daniels (6) ----- ----- ----- ----- ----- -----
John W. Young 33,000 3.1% $11.73 01/27/13 $ 244,200 $ 617,430
William J. Sawyer 33,000 3.1% $11.73 01/27/13 $ 244,200 $ 617,430
Ted D. Williams 33,000 3.1% $11.73 01/27/13 $ 244,200 $ 617,430
Peter J. Rice 55,000 5.1% $11.73 01/27/13 $ 407,000 $1,029,050
Patricia J. Foye 33,000 3.1% $11.73 01/27/13 $ 244,200 $ 617,430
- -----------------------
(1) Represents shares of Common Stock issuable upon exercise of incentive stock
options granted under the Company's 1999 Equity Plan. All such options vest
over four years, first becoming exercisable as to 25% of the shares covered
on the first anniversary of the date of grant, and as to a further 2.08%
each month thereafter, subject to acceleration in certain circumstances.
(2) In fiscal 2003, the Company granted to employees options to purchase an
aggregate of 1,073,500 shares of Common Stock, pursuant to the 1999 Equity
Plan.
(3) All options were granted at exercise prices not less than the fair market
value of the Common Stock on the date of grant.
(4) All such options expire ten years after the date of grant.
(5) Potential realizable value means the value of the shares of Common Stock
underlying the option, at the specified assumed annual rates of stock price
appreciation, compounded over the option term (10 years). Actual gains, if
any, realized on stock option exercises are dependent on the future
performance of the Common Stock and overall stock market conditions. There
can be no assurance that the values reflected in this table will be
realized.
(6) Does not include an option granted on November 21, 2003 to purchase 15,262
shares, representing 1.42% of the aggregate options granted in fiscal 2003,
having an exercise price of $13.89 per share, expiring on November 21,
2013, and having potential realizable value over its term of $133,390
(assuming 5% growth), and $338,053 (assuming 10% growth).
14
Option Exercises and Fiscal Year-End Values. The following table sets
forth certain information concerning stock options exercised during fiscal 2003
and stock options held as of September 30, 2003 by each of the named executive
officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Unexercised Value of Unexercised
Shares Options at In-The-Money Options
Acquired Fiscal Year-End at Fiscal Year End ($) (1)
On Value --------------- --------------------------
Name Exercise (#) Realized ($) Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($)
---- ------------ ------------ --------------- ----------------- --------------- -----------------
Norman E. Drapeau, Jr. ----- ----- 488,248 271,250 $1,308,833 $ 606,488
Robert L. Daniels ----- ----- ----- ----- ----- -----
Peter J. Rice ----- ----- 107,750 99,250 $ 160,938 $ 202,163
Patricia C. Foye ----- ----- 40,624 67,376 ----- $ 63,360
William J. Sawyer ----- ----- 125,000 58,000 $ 346,000 $ 121,298
Ted D. Williams ----- ----- 77,500 58,000 $ 176,844 $ 121,298
John W. Young ----- ----- 98,748 59,250 $ 218,366 $ 121,298
- -----------------------
(1) Value is based on the last sale price of the Common Stock on September 30,
2003, as reported by Nasdaq ($13.65 per share), less the applicable option
exercise price. These values have not been and may never be realized.
Actual gains, if any, on exercise will depend on the value of the Common
Stock on the date of the sale of the shares.
Stock Option Repricings. The following table sets forth all stock
option repricings during fiscal 2003 and during the Company's last ten (10)
fiscal years relating to the executive officers listed in the Summary
Compensation Table.
TEN YEAR OPTION REPRICINGS
Number of Number of Length of
Securities Securities Original
Underlying Underlying Exercise Option Term
Options Options Price At Market Price New Remaining
Date of Prior to After Time of At Time Of Exercise At Date of
Name Repricing Repricing (1) Repricing Repricing ($) Repricing ($) Price ($) Repricing (2)
---- --------- ------------- --------- ------------- ------------- --------- -------------
Norman E. Drapeau, Jr. 7/31/97 15,846 7,922 16.50 10.5625 10.5625 9 Years
President and Chief 7/31/97 84,154 42,076 16.50 10.5625 10.5625 9 Years
Executive Officer
Peter J. Rice -- -- -- -- -- -- --
Executive Vice President-
Finance & Administration,
Chief Financial Officer and
Treasurer
Patricia C. Foye -- -- -- -- -- -- --
Executive Vice President-
Global Marketing and
Strategic Alliances
William J. Sawyer -- -- -- -- -- -- --
Executive Vice President-
Operations
John W. Young 7/31/97 19,446 9,722 16.50 10.5625 10.5625 9 Years
Executive Vice President, 7/31/97 20,554 10,276 16.50 10.5625 10.5625 9 Years
Products and Technology
15
Robert L. Daniels -- -- -- -- -- -- --
Executive Chairman of the
Board
Ted D. Williams 7/31/97 20,000 10,000 16.50 10.5625 10.5625 9 Years
Executive Vice President -
Worldwide Sales
- ------------------------
(1) All share numbers in this Proxy Statement have been adjusted to reflect the
Company's two-for-one stock split effected by means of a stock dividend on
December 15, 1999.
(2) All options expire August 14, 2006.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John A. McMullen and Richard P. Fishman served on the Compensation
Committee during fiscal 2003. Neither of them, nor any executive officer of the
Company, has any relationship requiring disclosure by the Company pursuant to
item 402(j) of Regulation S-K promulgated by the SEC.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee established by the Board of Directors is
composed of two independent directors within the meaning of the Nasdaq Rules,
currently Mr. Fishman and Mr. McMullen. The Compensation Committee has general
responsibility for the Company's executive compensation policies and practices,
including making specific recommendations to the Board concerning compensation
for the Company's executive officers. During the first quarter of fiscal 2003,
in connection with its evaluation and structuring of the Company's executive
compensation program, the Compensation Committee consulted with independent
experts in such matters. The following report is made by Messrs. Fishman and
McMullen, and summarizes the Company's executive officer compensation policies
for fiscal 2003.
Compensation Objectives
The Company's executive compensation programs are generally designed to
relate a substantial part of executive compensation to attainment of the
Company's internal goals for financial performance and corresponding increases
in stockholder value. Decisions concerning executive compensation are guided by
the following underlying principles:
- to establish incentives which will link executive officer
compensation to the Company's financial performance and will
motivate executives to attain the Company's quarterly and annual
financial targets; and
- to provide a total compensation package that is competitive within
the software industry and which will assist the Company in
attracting and retaining executives who will contribute to the
long-term financial success of the Company.
The SEC requires that this Report comment upon the Compensation
Committee's policy with respect to Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Tax Code"), which limits the Company's tax deduction
with regard to compensation in excess of $1 million paid to the chief executive
officer and the four most highly compensated officers (other than the chief
executive officer) at the end of any fiscal year unless the compensation
qualifies as "performance-based compensation." The Compensation Committee's
policy with respect to Section 162(m) is to
16
make every reasonable effort to cause compensation to be deductible by the
Company while simultaneously providing executive officers of the Company with
appropriate rewards for their performance.
Executive Compensation Programs
The Company's executive compensation package consists of three
principal components: (1) salary; (2) cash bonuses tied to quarterly and annual
revenue and earnings; and (3) where appropriate to provide longer-term incentive
to executive officers, equity-based incentives such as stock options and
restricted stock. The Company's executive officers are also eligible to
participate in other employee benefit plans, including health and life insurance
plans, a 401(k) retirement plan and the Stock Purchase Plan, on substantially
the same terms as other employees who meet applicable eligibility criteria,
subject to any legal limitations on the amounts that may be contributed or the
benefits that may be payable under these plans.
Salaries.
Executive officers' salaries for fiscal 2003 were maintained at the
same levels as such salaries for the previous fiscal year (see Summary
Compensation Table), in light of the sluggish economy and consistent with the
Company's overall cost control initiatives, with the exception of the salaries
paid to Messrs. Rice and Newfield, which were increased in order to remain
competitive within the software industry.
Cash Bonuses.
As noted above, the Company's executive officer compensation policy
emphasizes bonuses and stock options, which align the interests of management
with the stockholders' interest in the financial performance of the Company for
fiscal quarters, the fiscal year and the longer term. Consistent with this
approach, in fiscal 2003, 90% of potential cash bonuses for executives was tied
to the Company's performance.
In fiscal 2003, the Company maintained an Executive Bonus Plan (the
"2003 Executive Bonus Plan") intended by the Compensation Committee to align the
interests of its participants with those of the stockholders and provide
additional incentive to executives to enhance Company performance. The
participants in the 2003 Executive Bonus Plan were Ms. Foye and Messrs. Drapeau,
Young, Sawyer, Williams, Rice, Newfield, and (for the first quarter of fiscal
2003 only) Mr. Daniels.
17
Under the 2003 Executive Bonus Plan a participant's bonus was
determined* as follows:
- Quarterly Performance. Forty (40%) percent of the total bonus was
measured and paid quarterly, based on the Company's quarterly
revenue and earnings-per-share ("EPS") performance. Payment for
revenue performance started at 97.5% of goal attainment, and
payment for EPS performance occurred at 100% of goal attainment;
no incremental bonus above the targeted amount was payable for
over-achievement of quarterly goals.
- Annual Performance. Fifty (50%) percent of the total bonus was
based on the Company's annual revenue and EPS performance, with
payment for revenue performance starting at 93% of goal
attainment, and payment for EPS performance starting at 85.7% of
goal attainment. No annual bonus was payable unless 85.7% of the
EPS goal was achieved. In the event that the annual goals were
exceeded, payment would be made over and above the 50% target, not
to exceed 60% of the total bonus amount targeted under the plan.
- Stock Ownership. Ten (10%) percent of the bonus was payable if the
participant owned stock at the end of the fiscal year having
market value equal to or greater than 10% of his or her on target
annual bonus. In order for this bonus to be paid, the annual
targets for revenues and earnings-per-share must have been
achieved.
During fiscal 2003, the Company's quarterly revenues and EPS met or
exceeded 97.5% of the revenue goals for two quarters, and 100% of the EPS goals
for two quarters, as established under the plan. The Company's annual revenues
and EPS exceeded 93% of the annual revenue target, and 85.7% of the annual EPS
target, as established under the plan. The Company's annual revenues and EPS did
not meet 100% of the annual targets, and therefore no amounts were paid with
respect to the stock ownership component of the plan. As a result, the Company
paid $1,016,705 in bonuses to its eight executive officers under the 2003
Executive Bonus Plan.
Equity Incentives.
Having consulted with independent experts in these matters, the
Compensation Committee believes that stock options and restricted stock with
future vesting dates provide significant incentives to executive officers to
continue their employment with the Company and create long term value for its
stockholders, and intends to include stock options or other equity incentives as
part of the executive compensation package. In fiscal 2002, the Company did not
grant any stock options to its executive officers. In fiscal 2003 the Company
granted stock options to its executive officers to purchase such number of
shares as equaled 110% of the shares covered by options granted during fiscal
2001. See Option Grants in Last Fiscal Year above.
Chief Executive Officer and Executive Chairman Compensation
- -----------------------
* Because the 2003 Executive Bonus Plan was not adopted until the end of the
first quarter of fiscal 2003, the executive officers were paid bonuses for
the first quarter of 2003 under the program in effect in fiscal 2002, as
described in the proxy statement for the annual meeting held on March 4,
2003. However, the bonuses paid were not materially different from the
amounts which would have been paid if the 2003 Executive Bonus Plan had
been in effect at the start of fiscal 2003.
18
Consistent with the overall executive officer compensation policy, the
Company's approach to the Chief Executive Officer's compensation package in
fiscal 2003 was to be competitive with other successful companies in the
software industry and to tie a substantial portion of the Chief Executive's
total compensation to Company performance. The Compensation Committee believes
that this approach provides meaningful and effective incentives to the Chief
Executive Officer to achieve the Company's performance goals and enhance
stockholder value. The Chief Executive Officer's salary was designed to give him
assurance of a base level of compensation commensurate with his position and
duration of employment with the Company, and to be competitive with salaries for
officers holding comparable positions in the software industry. The Chief
Executive Officer participated in the 2003 Executive Bonus Plan, and his bonus
for fiscal 2003 was based on the factors and criteria discussed above.
During the first quarter of fiscal 2003, the Compensation Committee, in
consultation with independent experts on such matters, evaluated the roles and
responsibilities of the Executive Chairman, and established a compensation
package appropriate to his duties. The Executive Chairman's salary was
established at a level commensurate with his position and duration of employment
with the Company. The Executive Chairman participated in the Executive Bonus
Plan for the first quarter of fiscal 2003 and received a cash bonus of $50,413
for that quarter. For the remainder of fiscal 2003, the Executive Chairman was
eligible for a bonus, capped at the amount of the cash bonus actually earned by
the Chief Executive Officer with respect to such period, payable in the form of
stock options granted under the 1999 Equity Plan with an exercise price equal to
fair market value on the date of grant. The Executive Chairman's bonus was based
upon (i) the Company's achievement of its revenue and EPS targets for the year,
and (ii) the Executive Chairman's performance (A) as Chairman of the Board, (B)
as Chairman of the Company's Strategic Advisory Committee, and (C) representing
the Company upon request of the Chief Executive Officer. As a result, the
Executive Chairman was granted an option to purchase 15,262 shares of Company
stock.
Mr. Drapeau was Chief Executive Officer and Mr. Daniels was Executive
Chairman of the Company during fiscal 2003.
THE COMPENSATION COMMITTEE
Richard P. Fishman, Chairman
John A. McMullen
19
PERFORMANCE GRAPH
The following Performance Graph compares the performance of the
Company's cumulative stockholder return with that of a broad market index, the
Nasdaq Stock Market Composite Index for U.S. Companies, and a published industry
index, the Nasdaq Computer & Data Processing Index. The cumulative stockholder
returns for shares of the Company's Common Stock and for the market and industry
indices are calculated through September 30, 2003 (the last trading day of
fiscal 2003), assuming $100 was invested on September 30, 1999 (the last trading
day preceding the Company's 2000 fiscal year). The Company paid no cash
dividends during the periods shown. The performance of the market and industry
indices is shown on a total return (dividends reinvested) basis.
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN (1)
AMONG MRO SOFTWARE, INC., THE NASDAQ STOCK MARKET (U.S.) COMPOSITE INDEX
AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX
[PERFORMANCE GRAPH]
9/30/1999 9/29/2000 9/28/2001 9/30/2002 9/30/2003
MRO SOFTWARE, INC. 100 58 38 33 51
NASDAQ COMPUTER AND DATA PROCESSING 100 126 45 35 53
NASDAQ COMPOSITE 100 133 54 43 65
- --------------------
(1) $100 invested on 9/30/99 in stock or index - including reinvestment of
dividends.
20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of January 26, 2004 by (i)
each person known by the Company to own beneficially more than five percent of
the Common Stock as of such date, (ii) each director of the Company, (iii) each
named executive officer, (iv) each nominee as a director of the Company, and (v)
all executive officers and directors of the Company as a group:
Shares Beneficially
Owned (1)
--------
Name Number Percent
---- ------ -------
Robert L. Daniels (2).................................... 4,099,513 16.6%
100 Crosby Drive
Bedford, MA 01730
Columbia Wanger Asset Management, L.P. (3)............... 3,320,300 13.4%
227 West Monroe Street, Suite 3000
Chicago, IL 60606-5016
Kopp Investment Advisors, Inc. (3)....................... 2,306,839 9.3%
7701 France Avenue South, Suite 500
Edina, MN 55435
Westport Asset Management, Inc. (3)(4) .................. 1,370,700 5.5%
253 Riverside Avenue
Westport, CT 06880
Norman E. Drapeau, Jr. (5)............................... 575,122 2.3%
William J. Sawyer (6).................................... 148,213 0.6%
Peter J. Rice (5)........................................ 130,041 0.5%
John W. Young (5)........................................ 119,622 0.5%
Ted D. Williams (7)...................................... 77,825 *
Patricia C. Foye (8)..................................... 60,905 *
Alan L. Stanzler (9)..................................... 102,000 *
Stephen B. Sayre (10).................................... 75,500 *
Richard P. Fishman (11).................................. 71,050 *
John A. McMullen (12) ................................... 59,340 *
All directors and executive officers as a group.......... 5,579,109 21.4%
(12 persons)(2)(5)(6)(7)(8)(9)(10)(11)(12)(13)
- -------------------------
* Less than one percent.
(1) The persons named in this table have sole voting and investment power with
respect to the shares listed, except as otherwise indicated. The inclusion
herein of shares listed as beneficially owned does not constitute an
admission of beneficial ownership.
(2) Includes 1,001,758 shares owned by Susan H. Daniels, over which Robert L.
Daniels has voting control pursuant to a Shareholders' Agreement dated as
of August 1, 2001 (the "Voting Agreement"). Robert and Susan Daniels are
divorced. Mr. Daniels also directly owns 3,000,255 shares apart from the
Voting Agreement. Excludes shares owned by Mr.
21
Daniels' three adult children; each of Robert L. Daniels and Susan H.
Daniels disclaims beneficial ownership of these shares. Includes 19,800
shares held by Mr. Daniels as custodian for the benefit of three minor
children, and includes 77,700 shares held by Anja Eckbo-Daniels, Robert L.
Daniels' spouse; Mr. Daniels disclaims beneficial ownership of these
shares.
(3) This information is as of September 30, 2003 and is based upon information
obtained through Nasdaq.
(4) Includes 577,700 shares held by Westport Advisors LLC.
(5) Represents shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(6) Includes 144,624 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(7) Includes 77,126 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(8) Includes 59,623 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(9) Includes 76,000 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(10) Includes 63,000 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(11) Includes 51,000 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(12) Includes 51,000 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(13) Includes 57,124 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table, held by executives
who are not named executive officers.
CHANGE-IN-CONTROL ARRANGEMENTS
Under a plan adopted by the Company's Board of Directors, each of the
Company's executive officers will receive a payment equal to (i) such officer's
base salary for the current year plus (ii) one times the average of the
officer's bonuses for the three most recent years in the event that such officer
is terminated or terminates his employment for Good Reason in connection with a
change-in-control. Good Reason for termination by an executive of his employment
will exist if (i) within two years after the change-in-control the Company, or
any successor entity then employing the executive, materially diminishes the
responsibilities and authority of the executive or materially reduces the rate
of compensation of the executive (including by way of determining the
eligibility of such executive to earn bonus or incentive compensation), in
either case compared with his responsibilities and authority or rate of
compensation, as the case may be, in effect immediately prior to such
change-in-control and (ii) within 30 days following such diminution or reduction
the executive resigns from his employment.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Marc Daniels, 30, has been employed by the Company since 1999 in
various capacities, and is currently a Senior Product Manager with compensation
at market rates, in excess of $60,000 per year. Marc Daniels is Robert L.
Daniels' son.
22
PROPOSAL TWO
INCREASE IN THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE
UNDER THE 1999 EQUITY PLAN
SUMMARY OF THE 1999 EQUITY INCENTIVE PLAN
The Board of Directors adopted the 1999 Equity Plan and the
stockholders approved it in March 1999. An amendment and restatement of the 1999
Equity Plan was adopted by the Board of Directors in March 1999 and approved by
the Company's stockholders in April 2000. An amendment of the 1999 Equity Plan
to increase the number of shares of Common Stock issuable thereunder was adopted
by the Board of Directors in November 2000, and approved by the Company's
stockholders in March 2001. An amendment of the 1999 Equity Plan to change the
arrangement under which stock awards are granted to Non-Employee Directors was
adopted by the Board of Directors in January 2002, and approved by the Company's
stockholders in March 2002. On January 23, 2004 the Board of Directors approved
amendments to the 1999 Equity Plan to increase the number of shares of Common
Stock issuable thereunder by an additional 1,200,000 shares, of which not more
than 500,000 shares may be subject to "full value" Stock Awards, meaning Stock
Awards other than Stock Options or Stock Appreciation Rights ("SARs").
Stockholder approval of these amendments to the 1999 Equity Plan is required
under the Tax Code and the Nasdaq Rules. The affirmative vote of a majority of
the shares of Common Stock properly cast at the Annual Meeting will be necessary
to approve the amendments to the 1999 Equity Plan. Set forth below is a summary
description of the 1999 Equity Plan, which includes a summary of the amendments
to the 1999 Equity Plan adopted in January 2004.
General Information; Number of Shares Issuable. The 1999 Equity Plan
authorizes the grant of (i) options to purchase Common Stock intended to qualify
as incentive stock options ("Incentive Options"), as defined in Section 422 of
the Tax Code, (ii) options that do not so qualify ("Nonstatutory Stock Options",
and together with Incentive Options, "Options"), (iii) stock bonuses, the terms
and conditions of which are determined by the Committee (as defined below), (iv)
rights to purchase restricted stock, the terms and conditions of which are
determined by the Committee (v) rights to receive cash payments based on or
measured by appreciation in the market price of the Common Stock ("Stock
Appreciation Rights" or "SARs") and (vi) other awards based upon the Company's
Common Stock on such terms and conditions as the Committee may determine
(together with Incentive Options, Nonstatutory Stock Options, stock bonuses,
restricted stock and SARs, "Stock Awards"). Prior to the January 2004
amendments, up to 4,050,000 shares of Common Stock (subject to adjustment upon
certain changes in the capitalization of the Company) were issuable in total
pursuant to Stock Awards granted under the 1999 Equity Incentive Plan.
The last sales price of the Common Stock on January 23, 2004, as
reported by Nasdaq, was $17.46. Accordingly, the market value of the 4,050,000
shares authorized for issuance under the amended 1999 Equity Plan as of January
23, 2004 was $70,713,000.
Amendment to be Approved. The Board of Directors voted on January 23,
2004 to increase the number of shares of Common Stock that may be issued under
the 1999 Equity Plan by an additional 1,200,000 shares, subject to approval of
the Company's stockholders, of which not more than 500,000 shares may be subject
to "full value" Stock Awards, meaning Stock Awards other than
23
Stock Options or SARs. If this amendment is approved by stockholders, the total
number of shares authorized for issuance under the 1999 Equity Plan would be
increased to 5,250,000 shares, and the total number of shares which may be
subject to Stock Bonus or restricted stock purchase Awards under the 1999 Equity
Plan would be increased to 700,000 shares. Upon approval of the proposed
amendment by the Company's stockholders, the Company may issue Stock Awards to
its employees, including its executive officers, but the Company has not decided
to issue any Stock Awards, or determined the nature or amounts of such awards,
if any. The Company has no current plans for the ratification of grants for
which insufficient shares were available when the grants were originally made.
Administration of the 1999 Equity Plan. The 1999 Equity Plan is
administered by a committee (the "Committee") of the Board of Directors
consisting of at least two (2) members who qualify as "Non-Employee Directors"
under Section 16b-3 of the Exchange Act and as "outside directors" under Section
162(m) of the Tax Code. Currently the Company's Compensation Committee is acting
as the Committee. The Committee selects the individuals to whom Stock Awards are
granted and determines the terms of each Stock Award, subject to the provisions
of the 1999 Equity Plan. Stock Awards may be granted under the 1999 Equity Plan
to officers, directors, employees and consultants. As of January 26, 2004, four
directors (excluding Messrs. Drapeau and Daniels, who are also employees of the
Company), eight executive officers and approximately 882 non-officer employees
were eligible to participate in the 1999 Equity Plan.
Incentive Options and Nonstatutory Stock Options. Awards of Options
under the 1999 Equity Plan may be made until March 4, 2009. No Incentive Options
may extend for more than ten years from the date of grant (five years in the
case of an optionee who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any parent or
subsidiary (a "greater-than-ten-percent-stockholder")). The exercise price of
Incentive Options granted under the 1999 Equity Plan must be at least equal to
the fair market value of the Common Stock on the date of grant (110% of fair
market value in the case of a greater-than-ten-percent-stockholder). The
aggregate fair market value (determined at the time of grant) of shares issuable
pursuant to Incentive Options which first become exercisable by an employee or
officer in any calendar year may not exceed one hundred thousand dollars
($100,000). Incentive Options are non-transferable except by will or by the laws
of descent or distribution and are exercisable, during the optionee's lifetime,
only by the optionee.
The exercise price for Nonstatutory Stock Options will be set by the
Committee at the time of grant, but shall be not less than eighty five (85%)
percent of the Fair Market Value of the Company Common Stock subject to the
Option on the date the Option is granted. A Nonstatutory Stock Option may be
transferable to the extent permitted under the option agreement governing such
Nonstatutory Stock Option. No Nonstatutory Stock Options may extend for more
than ten years from the date of grant.
Options held by employees generally expire (i) three months after
termination of the optionee's employment with the Company for any reason other
than death or disability or (ii) one year following the optionee's termination
of employment with the Company by reason of death or disability. In all other
cases, the Committee has the discretion to establish the expiration date.
Payment of the exercise price of the shares subject to the Option may be made
(i) in cash at the time the Option is exercised or (ii) at the discretion of the
Committee, either at the time of grant or
24
exercise of the Option (a) by delivery to the Company of shares of Common Stock
of the Company, (b) according to a deferred payment or other arrangement (which
may include, without limiting the generality of the foregoing, the use of other
Common Stock of the Company) with the person to whom the Option is granted or to
whom the Option is transferred or (c) in any other form of legal consideration
that may be acceptable to the Committee on terms determined by the Committee.
At the discretion of the Committee, Options may include a so-called
"reload" feature pursuant to which an optionee exercising an Option by the
delivery of a number of shares of Common Stock would automatically be granted an
additional Option (with an exercise price equal to the fair market value of the
Common Stock on the date the additional Option is granted, with the same
expiration date as the original option being exercised, and with such other
terms as the Committee may provide) to purchase that number of shares of Common
Stock equal to the number delivered to exercise the original Option.
Limitations on Option Re-Pricing. Under the 1999 Equity Plan, the Board
of Directors or the Committee has the authority to effect the repricing of
outstanding Options and/or Stock Appreciation Rights, or to cancel Options
and/or Stock Appreciation Rights and grant in substitution new Options and/or
Stock Appreciation Rights covering the same or different numbers of shares of
Company Common Stock. However, the Company's Board of Directors has amended the
1999 Equity Plan to provide that the Company shall obtain stockholder approval
of any such repricing (or cancellation and substitute grant), as provided under
the Marketplace Rules of The Nasdaq Stock Market.
Stock Awards for Non-Employee Directors. Under the 1999 Equity Plan,
the Company's Non-Employee Directors are eligible to receive Stock Awards in the
same manner and to the same degree as all other eligible persons, as determined
by the Board of Directors on a discretionary basis. All options granted to
Non-Employee Directors expire ten years from the date of grant.
Stock Bonuses. Each Stock Bonus will be in such form and will contain
such terms and conditions as the Committee shall deem appropriate. A Stock Bonus
may, in the discretion of the Committee, be granted in consideration for past
services actually rendered to the Company for its benefit. Except as otherwise
provided elsewhere in the 1999 Equity Plan, no rights under a Stock Bonus
agreement shall be assignable by any participant under the 1999 Equity Plan,
either voluntarily or by operation of law, except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the rights are granted only by such person.
Restricted Stock. Employees and consultants may be granted the right to
purchase restricted stock from the Company under the 1999 Equity Plan. Any
restricted stock purchase agreement shall be in such form and shall contain such
terms and conditions as the Committee shall deem appropriate. The purchase price
under each restricted stock purchase agreement shall be such amount as the
Committee shall determine and designate in such agreement. Except as otherwise
provided in the 1999 Equity Plan, no rights under a restricted stock purchase
agreement shall be assignable by any participant under the 1999 Equity Plan,
either voluntarily or by operation of law, except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the rights are granted only by such person. The purchase price of
stock acquired pursuant to a restricted stock purchase agreement shall be paid
either: (i) in cash at the time of purchase; (ii) at the discretion of the
Committee, according to a deferred payment or other
25
arrangement with the person to whom the stock is sold; or (iii) in any other
form of legal consideration that may be acceptable to the Committee in its
discretion on terms determined by the Committee. Shares of Common Stock sold or
awarded under the 1999 Equity Plan may, but need not, be subject to a repurchase
option in favor of the Company in accordance with a vesting schedule to be
determined by the Committee.
Limitations on Stock Bonuses and Restricted Stock Purchases. Under the
1999 Equity Plan, no more than two hundred thousand (200,000) shares of Company
Common Stock may be subject to Stock Bonuses or restricted stock purchase
rights. To date, Stock Awards covering twenty five (25,000) thousand shares of
restricted stock have been granted, leaving one hundred and seventy five
(175,000) thousand shares currently available for grant in the form of Stock
Bonuses or restricted stock purchase rights. Under the amendments to the 1999
Equity Plan approved by the Board of Directors in January 2004, if approved by
stockholders, the 1999 Plan would be amended to increase the number of shares
that may be subject to "full value" Stock Awards, meaning Stock Awards other
than Stock Options or SARs, by an additional 500,000 shares. If such amendment
is approved, a total of 700,000 shares would be authorized in the form of Stock
Bonuses or restricted stock purchase Awards, of which 25,000 shares have been
granted, leaving 675,000 shares available for issuance in such form.
Stock Appreciation Rights. Each Stock Appreciation Right shall entitle
the holder to a distribution based on the appreciation in the fair market value
per share of a designated amount of the Company's Common Stock. Three types of
Stock Appreciation Rights are authorized for issuance under the Plan:
Tandem Stock Appreciation Rights. Tandem Rights may be granted
appurtenant to an Option and will require the holder to elect between
the exercise of the underlying Option for shares of Common Stock and
the surrender, in whole or in part, of such Option for an appreciation
distribution equal to the excess of (A) the fair market value (on the
date of Option surrender) of vested shares of Common Stock purchasable
under the surrendered Option over (B) the aggregate exercise price
payable for such shares. Tandem Rights may be tied to either Incentive
Stock Options or Nonstatutory Stock Options. Each such right shall
generally be subject to the same terms and conditions applicable to the
particular Option to which it pertains. If Tandem Rights are granted
appurtenant to an Incentive Stock Option, they must satisfy any
applicable Treasury Regulations so as not to disqualify such Option as
an Incentive Stock Option under the Tax Code.
Concurrent Stock Appreciation Rights. Concurrent Rights will be granted
appurtenant to an Option and may apply to all or any portion of the
shares of Common Stock subject to the underlying Option and will be
exercised automatically at the same time the Option is exercised for
those shares. The appreciation distribution to which the holder of such
concurrent right shall be entitled upon exercise of the underlying
Option shall be in an amount equal to such portion as shall be
determined by the Board or the Committee at the time of grant of the
excess of (A) the aggregate fair market value (at date of exercise) of
the vested shares purchased under the underlying Option with such
concurrent rights over (B) the aggregate exercise price paid for those
shares. Concurrent Rights may be tied to any or all of the shares of
Common Stock subject to any Incentive Stock Option or Nonstatutory
Stock Option grant made under the 1999 Equity Plan. A Concurrent Right
shall, except as
26
specifically set forth below, be subject to the same terms and
conditions applicable to the particular option grant to which it
pertains.
Independent Stock Appreciation Rights. Independent Rights may be
granted independently of any Option and will entitle the holder upon
exercise to an appreciation distribution equal in amount to the excess
of (A) the aggregate fair market value (at date of exercise) of a
number of shares of Common Stock equal to the number of vested share
equivalents exercised at such time over (B) the aggregate fair market
value of such number of shares of Common Stock at the date of grant.
Independent Rights will generally be subject to the same terms and
conditions applicable to Nonstatutory Stock Options. They will be
denominated in share equivalents.
Change In Control. The 1999 Equity Plan provides for accelerated
vesting in the event the Company undergoes a Change in Control (as defined
below). Upon and following the occurrence of a Change of Control, the time for
exercise of each unvested installment of any then outstanding Option or Stock
Appreciation Right will be accelerated, so that:
(i) immediately upon such Change of Control, if the holder is then
an employee or consultant of the Company twenty-five percent (25%) of
any such unvested installment shall be exercisable;
(ii) on the date that is nine months after such Change in Control,
if the holder is then an employee or consultant of the Company
one-third (33 1/3%) of any installment of such Option or Stock
Appreciation Right that has not yet vested in accordance with its
original terms or by virtue of the 1999 Equity Plan's change in control
provisions shall become exercisable;
(iii) on the date that is eighteen months after such Change in
Control, if the holder is then an employee or consultant of the Company
fifty percent (50%) of any installment of such Option or Stock
Appreciation Right that has not yet vested in accordance with its
original terms or the 1999 Equity Plan's change in control provisions
shall become exercisable; and
(iv) on the second anniversary of such Change in Control, if the
holder is then an employee or consultant of the Company any remaining
installment of such Option or Stock Appreciation Right that has not yet
vested in accordance with its original terms or the 1999 Equity Plan's
change in control provisions shall become exercisable.
The foregoing clauses (i) through (iv) provide for vesting that is in
addition to, and not in lieu of, the vesting schedule originally provided in any
Option or Stock Appreciation Right outstanding at the time of a Change in
Control, and, except to the extent accelerated by such clauses, each such Option
or Stock Appreciation Right shall continue to vest in accordance with its
original terms.
Upon the occurrence of a Change of Control, the restrictions and
conditions contained in any Stock Bonus or restricted stock purchase agreement
under the 1999 Equity Plan shall automatically be appropriately modified so that
under its terms additional shares of Common Stock vest in a manner essentially
equivalent to the additional vesting described above for Options and Stock
Appreciation Rights. The determination of the Committee as to such modifications
will be final, binding and conclusive.
27
If the Company is merged with or into or consolidated with another
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation or
if the Company is liquidated, or sells or otherwise disposes of substantially
all of its assets to another corporation while unexercised Options remain
outstanding under the 1999 Equity Plan, then in such event either:
(i) subject to the provisions of clause (ii) below, after the
effective date of such merger, consolidation, liquidation, sale or
disposition, as the case may be, each holder of an outstanding Option
will be entitled, upon exercise of such Option, to receive, in lieu of
the shares of Common Stock as to which such Option was exercisable
immediately prior to such event, the number and class of shares of
stock or other securities, cash or property (including, without
limitation, shares of stock or other securities of another corporation
or common stock) to which such holder would have been entitled pursuant
to the terms of the merger, consolidation, liquidation, sale or
disposition if, immediately prior to such event, such holder had been
the holder of a number of shares of Common Stock equal to the number of
shares as to which such Option shall be so exercised; or
(ii) the Committee may accelerate the time for exercise of some or
all unexercised and unexpired Options or Stock Appreciation Rights so
that from and after a date prior to the effective date of such merger,
consolidation, liquidation, sale or disposition, as the case may be,
specified by the Committee such accelerated Options or Stock
Appreciation Rights shall be exercisable in full.
If, within two years following a Change in Control, the employment of
any optionee who immediately prior to such Change in Control was employed by the
Company as an officer within the meaning of Section 16 of the Exchange Act (each
such optionee being hereafter referred to as a "Designated Executive") is
terminated by the Company other than for cause, or is terminated by the
Designated Executive for Good Reason (as defined below), then in such event all
unvested Options Stock Appreciation Rights, Stock Bonuses and other Stock Awards
held by such Designated Executive at the date of such termination shall
thereupon immediately become exercisable in full. "Good Reason" for termination
by a Designated Executive of his employment will be deemed to have existed only
if (i) within two years after a Change in Control, the Company, or any successor
entity then employing the Designated Executive, materially diminishes the
responsibilities and authority of the Designated Executive or materially reduces
the rate of compensation of the Designated Executive (including by way of a
change in the method of determining the eligibility of such Designated Executive
to earn bonus or incentive compensation), in either case as compared with his
responsibilities and authority or rate of compensation, as the case may be, in
effect immediately prior to such Change in Control, and (ii) within thirty (30)
days following such diminution or reduction the Designated Executive resigns
from his employment by the Company or such successor entity.
If, within two years following a Change in Control, a Non-Employee
Director is terminated or resigns from the Board of Directors for Good Reason,
then in such event all unvested Options held by such Non-Employee Director at
the date of such resignation shall thereupon immediately
28
become exercisable in full. For purposes of this paragraph, "Good Reason" for
resignation by a Non-Employee Director shall be deemed to have existed only if
(i) within two years after a Change in Control, the Company, or any successor
entity, shall materially diminish the responsibilities and authority of the
Non-Employee Director or shall materially reduce the rate of compensation of the
Non-Employee Director, in either case as compared with his responsibilities and
authority or rate of compensation, as the case may be, in effect immediately
prior to such Change in Control, and (ii) within thirty (30) days following such
diminution or reduction the Non-Employee Director shall resign from his position
as a Director.
Under the 1999 Equity Plan, "Change in Control" means the occurrence of
any one of the following events:
(a) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) becomes a "beneficial owner" (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act) (other than
the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned,
directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power
of the Company's then outstanding securities; or
(b) persons who constitute the Company's Board immediately prior to any
tender offer, proxy contest, consent solicitation, business
combination, merger or similar transaction cease to constitute at least
a majority of the Board as a result of such tender offer, proxy
contest, merger or similar transaction; or
(c) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation or other entity, other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than fifty percent
(50%) of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
Authority to Amend the 1999 Equity Plan. The Board may amend the 1999
Equity Plan at any time, provided that no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary for the 1999 Equity Plan to satisfy the requirements of Section 422
of the Tax Code, Section 16b-3 of the Securities Act of 1933, as amended, and
the listing or eligibility for quotation requirements of the Nasdaq or any
similar organization or of any national securities exchange upon which shares of
the Company's Common Stock are listed or eligible for trading. The Board of
Directors may terminate or suspend the 1999 Equity Plan at any time. Unless
sooner terminated, the 1999 Equity Plan shall terminate on March 4, 2009
29
Awards Granted to Date Under the 1999 Equity Plan. Norman E. Drapeau,
Jr., the Company's President and Chief Executive Officer, has received options
to purchase 515,000 shares under the 1999 Equity Plan. Robert L. Daniels,
Executive Chairman of the Board, has received options to purchase 15,262 shares
under the 1999 Equity Plan. Peter J. Rice, the Company's Executive Vice
President - Finance & Administration, Chief Financial Officer and Treasurer has
received options to purchase 207,000 shares under the 1999 Equity Plan. John W.
Young, the Company's Executive Vice President - Products and Technology, has
received options to purchase 123,000 shares under the 1999 Equity Plan. William
J. Sawyer, the Company's Executive Vice President - Operations, has received
options to purchase 118,000 shares under the 1999 Equity Plan. Ted D. Williams,
the Company's Executive Vice President - Worldwide Sales, has received options
to purchase 118,000 shares under the 1999 Equity Plan. Patricia C. Foye, the
Company's Executive Vice President - Global Marketing & Strategic Alliances, has
received options to purchase 108,000 shares under the 1999 Equity Plan. Craig
Newfield, the Company's Vice President, General Counsel and Clerk, has received
options to purchase 113,000 shares under the 1999 Equity Plan. All current
executive officers of the Company as a group have received options to purchase
1,317,262 shares under the 1999 Equity Plan. The current Directors who are not
also executive officers have received a total of 25,000 shares of restricted
stock and options to purchase 255,000 shares under the 1999 Equity Plan.
Employees of the Company who are not executive officers have received options to
purchase 2,616,750 shares under the 1999 Equity Plan. At January 12, 2004,
3,398,568 shares were subject to outstanding options granted under the 1999
Equity Plan, and 512,753 shares remained available for future grants. As of
January 12, 2004, option prices and expiration dates for outstanding options
granted under the 1999 Equity Plan ranged from $7.53 to $85.00 per share and
from December 22, 2009 to November 3, 2013, respectively.
NEW PLAN BENEFITS
The adoption of the proposed amendments to the 1999 Equity Plan will
not result in any new benefits to (i) any of the executive officers, (ii) the
current executive officers, as a group, or (iii) employees who are not executive
officers, as a group. Upon approval of the proposed amendment by the Company's
stockholders, the Company may issue Stock Awards to its employees, including its
executive officers, but the Company has not decided to issue such awards, or
determined the nature or amounts of such awards, if any. The Company is unable
to determine the dollar value and number of any additional plan benefits which
will be received by or allocated to the current directors who are not executive
officers, as a group, including nominees for election as a director, because
Stock Awards are granted to Non-Employee Directors on a discretionary basis.
Federal Income Tax Information with Respect to the 1999 Equity Plan.
The grantee of a Nonstatutory Stock Option ordinarily recognizes no income for
federal income tax purposes on the grant thereof. On the exercise of a
Nonstatutory Stock Option, the difference between the fair market value of the
underlying shares of Common Stock on the exercise date and the option exercise
price is treated as compensation to the holder of the option taxable as ordinary
income in the year of exercise, and such fair market value becomes the basis for
the underlying shares which will be used in computing any capital gain or loss
upon disposition of such shares. Subject to certain limitations, the Corporation
may deduct for the year of exercise an amount equal to the amount recognized by
the option holder as ordinary income upon exercise of a Nonstatutory Stock
Option.
30
The grantee of an Incentive Stock Option recognizes no income for
federal income tax purposes on the grant thereof. Except as described below with
respect to the alternative minimum tax, there is no tax upon exercise of an
Incentive Option. If no disposition of shares acquired upon exercise of the
Incentive Stock Option is made by the option holder within two years from the
date of the grant of the Incentive Stock Option or within one year after
exercise of the Incentive Option, any gain realized by the option holder on the
subsequent sale of such shares is treated as a long-term capital gain for
federal income tax purposes. If the shares are sold prior to the expiration of
such periods, the difference between the lesser of the value of the shares at
the date of exercise or at the date of sale and the exercise price of the
Incentive Stock Option is treated as compensation to the employee taxable as
ordinary income and the excess gain, if any, is treated as capital gain (which
will be long-term capital gain if the shares are held for more than one year).
The excess of the fair market value of the underlying shares over the option
price at the time of exercise of an Incentive Stock Option will constitute an
item of tax preference for purposes of the alternative minimum tax. Taxpayers
who incur the alternative minimum tax are allowed a credit which may be carried
forward indefinitely to be used as a credit against the regular tax liability in
a later year; however, the alternative minimum tax credit can not reduce the
regular tax below the alternative minimum tax for that carryover year. In
connection with the sale of the shares covered by Incentive Options, the
Corporation is allowed a deduction for tax purposes only to the extent, and at
the time, the option holder receives ordinary income (for example, by reason of
the sale of shares by the holder of an Incentive Stock Option within two years
after the date of the granting of the Incentive Stock Option or one year after
the exercise of the Incentive Option), subject to certain limitations on the
deductibility of compensation paid to executives.
Full Text of the 1999 Equity Plan. The full text of the 1999 Equity
Plan, as amended, is attached as Appendix C.
Unless authority to do so has been limited in a proxy, it is the
intention of the persons named as proxies to vote the shares represented by the
proxy FOR the approval of the amendment to the 1999 Equity Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PROPOSAL TO AMEND THE AMENDED AND RESTATED 1999 EQUITY INCENTIVE PLAN TO
INCREASE THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE THEREUNDER BY AN
ADDITIONAL 1,200,000 SHARES.
31
PROPOSAL THREE
RATIFICATION OF SELECTION OF AUDITORS
PricewaterhouseCoopers LLP currently serves as the Company's
independent auditors, and that firm conducted the audit of the Company's
financial statements for fiscal year 2003. The Audit Committee has appointed
PricewaterhouseCoopers LLP to serve as independent auditors to conduct an audit
of the Company's consolidated financial statements for fiscal year 2004.
Appointment of the Company's independent auditors is not required to be
submitted to a vote of the stockholders of the Company for ratification.
However, the Audit Committee has recommended that the Board of Directors submit
this matter to the stockholders as a matter of good corporate practice, which
the Board of Directors is doing.
If the stockholders fail to ratify the appointment, the Audit Committee
will reconsider whether to retain PricewaterhouseCoopers LLP, and may retain
that firm or another without re-submitting the matter to the Company's
stockholders. Even if the appointment is ratified, the Audit Committee may, in
its discretion, direct the appointment of different independent auditors at any
time during the year if it determines that such a change would be in the best
interests of the Company and the stockholders.
AUDIT FEES. The following table presents fees for professional audit
services rendered by PricewaterhouseCoopers LLP for the audit of the Company's
annual financial statements for the years ended September 30, 2002 and September
30, 2003, and fees billed for other services rendered by PricewaterhouseCoopers
LLP during those periods:
Fiscal 2002 Fiscal 2003
----------- -----------
Audit Fees: (1) $301,199 $319,621
Audit related fees: (2) $ 76,306 $ 15,000
Tax fees: (3) $ 85,134 $224,369
All other fees: (4) $ 15,274 $ 1,900
-------- --------
Totals: $477,913 $560,890
======== ========
- -------------
(1) Audit fees consisted of audit work performed in the preparation of
financial statements, as well as work generally only the independent
auditor can reasonably be expected to provide, such as statutory audits.
(2) Audit related fees consisted principally of assurance related services
such as employee benefit plan audits, due diligence related to mergers and
acquisitions and financial accounting consultations.
(3) Tax fees consisted principally of assistance with matters related to tax
compliance and reporting, including tax return preparation, refund claims
and tax planning.
(4) All other fees include financial systems implementation and design
services.
Representatives of PricewaterhouseCoopers LLP will be present at the
Annual Meeting, will have an opportunity to make a statement if they wish, and
will be available to respond to appropriate questions from stockholders.
32
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 SEPTEMBER 30, 2004.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC. Officers, directors and
greater-than-ten-percent stockholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely upon review of Forms 3 and 4 and amendments thereto
furnished to the Company during fiscal 2003, and Forms 5 and amendments thereto
furnished to the Company with respect to fiscal 2003, or representations that
Form 5 was not required, the Company believes that all Section 16(a) filing
requirements applicable to its officers, directors and greater-than-ten percent
stockholders were fulfilled in a timely manner.
SOLICITATION
Brokers, banks and other nominees will be reimbursed for their
out-of-pocket expenses and other reasonable clerical expenses incurred in
obtaining instructions from beneficial owners of the Common Stock. In addition
to the solicitation by mail, directors, officers and certain employees of the
Company may in certain instances, make special solicitation of proxies
personally or by telephone, without extra compensation; it is expected that the
expense of such special solicitation will be nominal. All expenses incurred in
connection with this solicitation will be borne by the Company.
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the proxy materials related to
the 2005 Annual Meeting of Stockholders or Special Meeting in lieu thereof must
be received by the Company at its Executive Offices no later than September 30,
2004 or, if the date of such meeting is more than 30 calendar days before or
after March 9, 2004, a reasonable time before the solicitation of proxies by the
Company with respect to such meeting is made.
In addition, the Company's By-Laws provide that a stockholder must give
written notice to the Company of any business to be conducted at any meeting of
stockholders in accordance with the procedural requirements fully set forth in
Article III of the Company's By-Laws. In the case of a regularly scheduled
annual meeting, such notice must be given not less than sixty days prior to the
scheduled annual meeting describing any proposal to be brought before such
meeting, even if such item is not to be included in the Company's proxy
statement relating to such meeting. To bring an item of business before this
Annual Meeting, a stockholder must have delivered the requisite notice of such
item to the Company no later than January 9, 2004.
33
The Nominating Committee will consider any proposal properly presented
by a stockholder for inclusion in the Company's annual proxy statement. In
considering the proposal, the Committee may seek input from an independent
advisor and/or legal counsel, as appropriate, and will reach a conclusion and
report to the full Board for its consideration. After full consideration by the
Board of Directors, the stockholder proponent will be notified of the conclusion
of the Board.
MISCELLANEOUS
The Board does not intend to present to the Annual Meeting any business
other than the proposals listed herein, and the Board was not aware, a
reasonable time before mailing this Proxy Statement to stockholders, of any
other business, which properly may be presented for action at the Annual
Meeting.
AVAILABLE INFORMATION
Stockholders of record on January 26, 2004 will receive a Proxy
Statement and the Company's Annual Report to Stockholders, which contains
detailed financial information concerning the Company. The Annual Report is not
incorporated herein and is not deemed a part hereof.
34
Appendix A
CHARTER FOR THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF MRO SOFTWARE, INC.
PURPOSE:
The purpose of the Audit Committee (the "Committee") established
pursuant to this Charter is to make such examinations as are necessary to
monitor the corporate financial reporting and the internal and external audits
of MRO Software, Inc. and its subsidiaries (the "Company"), to provide to the
Board of Directors (the "Board") of the Company the results of its examinations
and recommendations derived therefrom, to propose to the Board improvements made
or to be made in internal accounting controls, to propose independent auditors
to the Board and to provide to the Board such additional information and
materials as it may deem necessary to make the Board aware of significant
financial matters that require Board attention.
In addition, the Committee shall have the authority to undertake the
specific duties and responsibilities listed below and the authority to undertake
such other specific duties as the Board from time to time may prescribe.
MEMBERSHIP:
The Committee shall consist of at least three (3) members of the Board
each of whom must meet the independence and other requirements of applicable law
and the Marketplace Rules of The Nasdaq Stock Market. The members of the
Committee shall be appointed by, and shall serve at the discretion of, the
Board, and the Board shall appoint a Chairperson of the Committee. No member of
the Committee may receive any compensation or fees from the Company other than
for service to the Company as a member of the Board or any committee(s) thereof.
RESPONSIBILITIES:
The Committee shall have the following duties and responsibilities:
1. Selecting, appointing and retaining the independent auditors,
who shall report directly to the Committee;
2. Determining the scope of services to be provided by the
independent auditors, pre-approving all non-audit services,
overseeing the work performed by the independent auditors and
determining the compensation of the independent auditors;
3. Resolving disagreements between the independent auditors and
management regarding financial reporting, accounting, internal
controls, auditing or other matters and establishing
procedures for such review, and receiving and reviewing the
response of the management of the Company to any management
letter or report from the independent auditors;
Page A-1
4. Ensuring that the independent auditors provide a formal
written statement delineating all relationships between the
auditor and the Company, consistent with Independence
Standards Board Standard 1, actively engaging in a dialogue
with the auditor with respect to any disclosed relationships
or services that may impact the objectivity and independence
of the auditor and taking, or recommending that the Board
take, appropriate action to oversee the independence of the
outside auditor;
5. Ensuring that the independent auditors provide satisfactory
assurance and documentation regarding their compliance with
Title II of the Sarbanes-Oxley Act of 2002 and the rules
promulgated thereunder;
6. Preparing the report required by the rules of the SEC to be
included in the Company's annual proxy statement;
7. Reviewing with management and the independent auditors the
Company's Annual Reports on Form 10-K and Quarterly Reports on
Form 10-Q before they are filed with the SEC;
8. Reviewing on a continuing basis the adequacy of the Company's
system of internal controls, policies and procedures and
approving policies relating to internal controls and
protection of assets;
9. Reviewing on a continuing basis the activities, organizational
structure and qualifications of the Company's internal audit
function to the extent that the size and operations of the
Company warrant this function;
10. Conducting a post-audit review of the audited financial
statements and discussing such statements with management and
the independent auditors; conducting a post-audit review of
the audit findings (including any significant suggestions for
improvements provided to management by the independent
auditors), the form and content of the Company's financial
statements and disclosures and the required communications
from the independent auditors under generally accepted
auditing standards and any applicable Securities and Exchange
Commission ("SEC") regulations; discussing with the
independent auditors the matters required to be discussed by
the Statement on Auditing Standards No. 61, as amended,
relating to the conduct of the year-end audit;
11. Establishing procedures for the confidential and anonymous
submission by Company employees of concerns regarding
questionable accounting or auditing matters;
12. Establishing procedures for the confidential and anonymous
submission by non- employees of concerns regarding
questionable accounting or auditing matters;
13. Reviewing all related party transactions for potential
conflicts of interest and determining the propriety of and
approving all such transactions;
MRO Software, Inc. Appendix A - Charter for the Audit Committee Page A-2
14. Reviewing and making determinations regarding any proposed
waiver of a provision of the Company's Code of Ethics and
Conduct, as such waiver may apply to the Company's Chief
Executive Officer, Executive Chairman, principal financial
officer, principal accounting officer or controller, or
persons performing similar functions;
15. Reviewing, in conjunction with inside or independent counsel,
any legal matters that could have a significant impact on the
Company's financial statements;
16. Providing oversight and review of the Company's asset
management policies, including an annual review of the
Company's investment policies and performance for cash and
short-term investments, and approving such policies;
17. Instituting, if necessary, special investigations on matters
within its purvue, and, if appropriate, hiring special counsel
or experts to assist;
18. If determined by the Committee to be necessary, serving as a
Qualified Legal Compliance Committee as permitted under
Section 307 of the Sarbanes-Oxley Act of 2002 and the rules
promulgated thereunder;
19. Reviewing with senior management and the independent auditors
the Company's accounting and financial personnel; and
20. Performing other functions as requested by the Board.
In addition to the above responsibilities, the Committee shall
undertake such other duties as the Board delegates to it, or as may be required
by law, the Company's Articles of Organization or its By-Laws, and shall report
to the Board regarding the Committee's examinations and recommendations, as the
Committee deems appropriate.
MEETINGS:
It is anticipated that the Committee will meet at least four times each
year. The Committee may establish its own schedule.
The Committee shall meet separately with the Chief Executive Officer
and Chief Financial Officer of the Company, and such other officers as the
Committee deems necessary, at least annually to review the financial affairs of
the Company. The Committee shall meet with the independent auditors of the
Company, at such times as it deems appropriate, to review the independent
auditors' examination and management report.
The Committee is authorized, by majority vote or unanimous written
consent of its members, to adopt its own rules of procedure, including the
formalities of calling, noticing and holding meetings and for the taking of
action of the Committee by vote at any such meeting or by unanimous written
consent of the members thereof. Unless and until any such procedures are
formally adopted by the Committee, the procedures with respect to calling,
noticing and holding meetings of the Committee and conducting business of the
Committee (and for waiver of such procedures) shall be
MRO Software, Inc. Appendix A - Charter for the Audit Committee Page A-3
the same as those provided in the By-laws of the Company with respect to
calling, noticing and holding meetings of and taking action by the Board. Any
action of the Committee reduced to writing and signed by all of the members of
the Committee shall be fully as effective as if it had been made at a meeting
duly called and held.
REPORTS AND RECOMMENDATIONS:
The Committee may present its reports or recommendations to the Board
in written or oral form. The Committee's recommendations shall be incorporated
as a part of the minutes of the Board meeting at which those recommendations are
presented.
MINUTES:
The Committee will maintain written minutes of its meetings, which
minutes will be filed with the minutes of the meetings of the Board.
ACCOUNTABILITY OF OUTSIDE AUDITOR:
The Company's outside auditor is ultimately accountable to the Board
and the Audit Committee as representatives of shareholders. The Committee shall
have the authority and responsibility to select, evaluate and, where
appropriate, replace the outside auditor (or to nominate the outside auditor to
be proposed for shareholder approval in any proxy statement).
OTHER:
The Committee shall have the right, as and when it shall determine to
be necessary or appropriate to the functions of the Committee:
1 at the Company's expense and not at the expense of the members
thereof, to retain counsel (which may be, but need not be, the
regular corporate counsel to the Company) and other
consultants or advisors to assist it in connection with its
functions; and
2. to request, and to rely upon, advice, orally or in writing,
from the Chief Executive Officer, the Chief Financial Officer
of the Company and from any representative of the independent
auditors to the Company participating in such independent
auditors' engagement by the Company, concerning the Company's
operation, financial condition or other aspect of the Company
relevant to the functions of the Committee.
The Company shall provide the Committee with appropriate funding, as
determined by the Committee, for the payment of (i) compensation to the
independent auditors, (ii) compensation to outside consultants, advisors and
counsel, and (iii) ordinary administrative expenses of the Committee that are
necessary or appropriate in carrying out its duties.
MRO Software, Inc. Appendix A - Charter for the Audit Committee Page A-4
The Committee shall have full access to any relevant records of the
Company. The officers of the Company are requested to cooperate with the
Committee and to render assistance to it as it shall request in carrying out its
functions.
ANNUAL REVIEW:
The Committee will review and reassess the adequacy of this Charter on
at least an annual basis and will report to the Board the results of such review
and reassessment.
MRO Software, Inc. Appendix A - Charter for the Audit Committee Page A-5
Appendix B
CHARTER FOR THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS OF MRO SOFTWARE, INC.
PURPOSE:
The Compensation Committee (the "Committee") is a standing committee of
the Board of Directors (the "Board"). The purpose of the Committee is to
discharge the responsibility of the Board of relating to compensation of the
Company's directors and executive officers and related matters, to review and
make recommendations to the Board regarding employee compensation and benefit
plans and programs generally, and to administer the Company's equity-based
incentive plans and its employee stock purchase plan.
In addition, the Committee shall undertake the specific duties and
responsibilities listed below and such other specific duties as the Board from
time to time may prescribe.
STATEMENT OF PHILOSOPHY:
The policy of the Company is to attract and retain personnel through
the payment of competitive base salaries and to encourage and reward performance
through bonuses and equity participation. The Committee's objectives are to:
- maintain an appropriate relationship between executive
compensation and the creation of stockholder value;
- maintain a total compensation program intended to motivate,
retain and attract executives of outstanding abilities;
- provide an overall executive compensation plan which is
competitive with comparable companies; and
- ensure that compensation policies and practices as applied to
executives, and compensation plans as a whole, are drafted and
administered in a manner that is consistent with and promotes
sound corporate governance and investor confidence.
MEMBERSHIP:
The Committee shall consist of at least two (2) directors, and all
members of the Committee must meet the independence and other requirements of
applicable law and the listing standards of The Nasdaq Stock Market, Inc., the
requirements of an "outside director" for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended, and the requirements of a
"non-employee director" for purposes of Rule 16b-3 under the Securities Exchange
Act of 1934, as amended. The members of the Committee shall be appointed by, and
shall serve at the discretion of, the Board, and the Board shall also designate
a Committee Chairperson.
Page B-1
RESPONSIBILITIES:
The Committee shall have the following duties and responsibilities:
1. Reviewing and recommending the hiring of the Chief Executive
Officer;
2. Determining the compensation plan for the Chief Executive
Officer and the Company's other executive officers, and
determining the roles, responsibilities and compensation plan
for the Executive Chairman;
3. Performing annual evaluations of the Chief Executive Officer
and the Executive Chairman and, in consultation with the Chief
Executive Officer, the other executive officers of the
Company, and administering the compensation plans for the
Chief Executive Officer, the Executive Chairman and the other
executive officers;
4. Reviewing and making recommendations from time to time
regarding compensation of the outside directors, considering
the compensation paid by comparable companies;
5. Reviewing and making recommendations with respect to
stockholder proposals related to compensation matters;
6. Reviewing and making recommendations with respect to all
benefit plans and changes to benefit plans;
7. Acting as administrator of the Company's Amended and Restated
1999 Equity Incentive Plan, its 1994 Incentive and
Non-Qualified Stock Option Plan, its 2002 Employee Stock
Purchase Plan and other equity-based stock incentive plans of
the Company. In its administration of such plans, the
Committee may (i) grant equity awards as provided under such
plans (such as stock options and restricted stock) to
individuals eligible for such grants; and (ii) amend such
awards. The Committee shall also make recommendations to the
Board with respect to amendments to such plans and changes in
the number of shares reserved for issuance thereunder;
8. Reviewing and making recommendations to the Board regarding
other plans that are proposed for adoption or adopted by the
Company for the provision of compensation to employees of,
directors of and consultants to the Company;
9. Preparing the report of the Committee required by the rules of
the Securities and Exchange Commission to be included in the
Company's annual proxy statement;
10. Developing a succession plan for the Chief Executive Officer,
and, as necessary, reviewing with the Chief Executive Officer
the succession plans relating to positions held by executive
officers of the Company; and
11. Carrying out such other duties as may be delegated to it by
the Board of Directors from time to time.
MRO Software, Inc. Appendix B - Charter for the Compensation Committee Page B-2
MEETINGS:
The Committee may establish its own meeting schedule. In at least one
of such meetings annually, the Committee will consider stock plans, performance
goals and incentive awards, and the overall coverage and composition of the
executive compensation package.
The Committee is authorized, by majority vote or unanimous written
consent of its members, to adopt its own rules of procedure, including the
formalities of calling, noticing and holding meetings and for the taking of
action of the Committee by vote at any such meeting or by unanimous written
consent of the members thereof, and unless and until any such procedures are
formally adopted by the Committee, the procedures with respect to calling,
noticing and holding meetings of the Committee and conducting business of the
Committee (and the waiver of such procedures) shall be the same as those
provided in the By-Laws of the Company with respect to calling, noticing and
holding meetings of and taking action by the Board. Any action of the Committee
reduced to writing and signed by all of the members of the Committee shall be
fully as effective as if it had been made at a meeting duly called and held.
REPORTS:
The Committee shall advise the Board of actions taken by the Committee
or, where appropriate, present its recommendations to the Board, in written or
oral form. Committee recommendations will be incorporated as a part of the
minutes of the Board meeting at which those recommendations are presented.
OTHER:
- - ACCESS TO INFORMATION. The Committee shall have full access to any
relevant records of the Company. The Committee may request, and rely upon,
advice, given orally or in writing, from the Chief Executive Officer, the
Chief Financial Officer or the General Counsel of the Company, concerning
the Company's operations, financial condition, benefit or compensation
plans and other aspects of the Company relevant to the functions of the
Committee.
- - ADVISORS. With prior notice to the Board, the Committee may retain, at
Company expense, independent advisors (including legal counsel,
accountants and consultants) as it determines necessary to carry out its
duties. The Committee shall have the ultimate authority and responsibility
to engage or terminate any such independent advisors and to approve the
terms of any such engagement and the fees to be paid to any such advisor.
The Committee may also request that any officer or other employee of the
Company, the Company's outside counsel or any other person meet with any
members of, or independent advisor to, the Committee.
- - DELEGATION. The Committee may delegate any of its responsibilities to a
subcommittee comprised of one or more members of the Committee, and the
Committee may delegate its responsibilities under the Company's stock
option plans with respect to the granting of stock options to
non-executive employees and new hires to the Company's Chief Executive
Officer.
The officers of the Company are requested to cooperate with the
Committee and to render assistance to it as it shall request in carrying out its
functions.
MRO Software, Inc. Appendix B - Charter for the Compensation Committee Page B-3
Appendix C
MRO SOFTWARE, INC.
AMENDED AND RESTATED 1999 EQUITY INCENTIVE PLAN
1. INTRODUCTION: PURPOSES
(a) This Amended and Restated 1999 Equity Incentive Plan (the "1999 Plan" or
"the Plan") amends and restates the 1999 Equity Incentive Plan of MRO Software,
Inc. (the "Company") adopted on March 24, 1999. Options granted under the 1994
Incentive and Nonqualified Stock Option Plan shall continue to be governed by
the terms of the 1994 Incentive and Nonqualified Stock Option Plan, as amended
to date.
(b) The purpose of the Plan is to provide a means by which selected Employees
and Directors of and Consultants to the Company, and its Affiliates, may be
given an opportunity to benefit from increases in value of the stock of the
Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) Stock Bonuses, (iv) rights to purchase Restricted Stock,
(v) Stock Appreciation Rights, and (vi) other awards based upon the Company's
Common Stock on such terms and conditions as the Board of Directors of the
Company(the "Board") may determine.
(c) The Company, by means of the Plan, seeks to retain the services of persons
who are now Employees or Directors of or Consultants to the Company and its
Affiliates, to secure and retain the services of new Employees, Directors and
Consultants, and to provide incentives for such persons to exert maximum efforts
for the success of the Company.
(d) The Company intends that the Stock Awards issued under the Plan shall, in
the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c)
hereof, be either (i) Options granted pursuant to Sections 6 and 7 hereof,
including Incentive Stock Options and Nonstatutory Stock Options, (ii) Stock
Bonuses or rights to purchase restricted stock granted pursuant to Section 8
hereof, (iii) Stock Appreciation Rights granted pursuant to Section 9 hereof or
(iv) other stock based awards granted pursuant to Section 10 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and shall be in such form as required pursuant to
Sections 6 and 7 hereof, and a separate certificate will be issued for shares
purchased upon exercise of each type of Option.
2. DEFINITIONS AND RULES OF INTERPRETATION
(a) Definitions.
For the purposes of the Plan, in addition to the definitions set forth above,
the following terms shall have the respective meanings set forth below:
(i) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(ii) "Board" means the Board of Directors of the Company.
(iii) "Change in Control" means the occurrence of any one of the following
events:
(a) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) becomes a "beneficial owner" (as
such term is defined in Rule 13d-3 promulgated under the
Page C-1
Exchange Act) (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of
the Company, or any corporation owned, directly or indirectly,
by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company),
directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined
voting power of the Company's then outstanding securities; or
(b) persons who constitute the Company's Board immediately prior
to any tender offer, proxy contest, consent solicitation,
business combination, merger or similar transaction cease to
constitute at least a majority of the Board as a result of
such tender offer, proxy contest, merger or similar
transaction; or
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or
other entity, other than a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent
(50%) of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately
after such merger or consolidation; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(iv) "Change in Stock" means any change in the Company Common Stock subject
to the Plan, or subject to any Stock Award, without receipt of
consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend,
stock split, spin-off, split-up, spin-out, dividend in property other
than cash, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not
involving the receipt of consideration by the Company); provided
however, that the conversion of any convertible securities of the
Company shall not be treated as a "transaction not involving the
receipt of consideration by the Company."
(v) "Code" means the Internal Revenue Code of 1986, as amended.
(vi) "Committee" means the Committee appointed by the Board in accordance
with subsection 3 of the Plan.
(vii) "Company" means MRO Software, Inc. a corporation organized under the
laws of Massachusetts.
(viii) "Company Common Stock" means the common stock of the Company, par value
$.01 per share
(ix) "Concurrent Stock Appreciation Right" or "Concurrent Right" means a
right granted pursuant to subsection 9(b)(ii) hereof.
(x) "Consultant" means any person, including an advisor, engaged by the
Company, or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant"
shall not include a Director acting solely in his capacity as such.
(xi) "Continuous Status as an Employee or Consultant" means the employment
or relationship as Consultant is not interrupted or terminated by the
Company or any Affiliate. The Committee, in its
MRO Software, Inc. Appendix C - 1999 Equity Incentive Plan Page C-2
sole discretion, may determine whether Continuous Status as an
Employee, or Consultant shall be considered interrupted in the case of
any leave of absence approved by the Board, including sick leave,
military leave, or any other personal leave; provided, however, that
for purposes of Incentive Stock Options and Stock Appreciation Rights
appurtenant thereto, any such leave may not exceed ninety (90) days,
unless reemployment upon the expiration of such leave is guaranteed by
contract or statute.
(xii) "Director" means a member of the Board.
(xiii) "Disability" means total and permanent disability as defined in Section
22(e)(3) of the Code.
(xiv) "Employee" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(xv) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(xvi) "Fair Market Value" means, the closing sales price as of the date of
grant for Company Common Stock (or the closing bid, if no sales were
reported) as quoted on the Nasdaq National Market or any similar
organization or if Company Common Stock is listed on any national
securities exchange, as quoted on such national securities exchange, as
applicable, as reported in the Wall Street Journal or other source as
the Board deems reliable, and if Company Common Stock is not traded on
the Nasdaq National Market or any similar organization or on any
national securities exchange, the value as determined in good faith by
the Committee, based on the information available to it.
(xvii) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
(xviii) "Independent Stock Appreciation Right" or "Independent Right" means a
right granted under subsection 9(b)(iii) hereof.
(xix) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary,
does not receive compensation (directly or indirectly) from the Company
or its parent or subsidiary for services rendered as a Consultant or in
any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K
(or any successor regulation of similar import) promulgated pursuant to
the Securities Act ("Regulation S-K")), does not possess an interest in
any other transaction as to which disclosure would be required under
Item 404(a) of Regulation S-K (or any successor regulation of similar
import), and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K (or
any successor regulation of similar import); or (ii) is otherwise
considered a "non-employee director" for purposes of Rule 16b-3 of the
Exchange Act.
(xx) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(xxi) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(xxii) "Option" means a stock option granted pursuant to the Plan.
MRO Software, Inc. Appendix C - 1999 Equity Incentive Plan Page C-3
(xxiii) "Option Agreement" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.
(xxiv) "Optionee" means an Employee, Director or Consultant who holds an
outstanding Option.
(xxv) "Outside Director" means for any given date of grant a Director who
either (i) is not then a current employee of the Company or an
"affiliated corporation" (within the meaning of Treasury regulations
promulgated under Section 162(m) of the Code), is not a former employee
of the Company or an "affiliated corporation" receiving compensation
from the Company or such affiliated corporation for prior services
(other than benefits under a tax qualified pension plan) during the
then current taxable year, was not an officer of the Company or an
"affiliated corporation" at any time (other than as its Clerk or
Assistant Clerk), and is not then currently receiving direct or
indirect remuneration from the Company or an "affiliated corporation"
for services in any capacity other than as a Director, and (ii) is
otherwise considered an "outside director" for purposes of Section
162(m) of the Code.
(xxvi) "Plan" or "1999 Plan" mean this Amended and Restated 1999 Equity
Incentive Plan.
(xxvii) "Plan Year" means the calendar year.
(xxiii) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3.
(xxix) "Securities Act" means the Securities Act of 1933, as amended.
(xxx) "Stock Appreciation Right" means any of the various types of rights
which may be granted under Section 9 hereof.
(xxxi) "Stock Award" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and
any Stock Appreciation Right.
(xxxii) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be
subject to the terms and conditions of the Plan.
(xxxiii) "Stock Bonus" means any stock bonus of the type which may be granted
under Section 8 hereof.
(xxxiv) "Tandem Stock Appreciation Right" or "Tandem Right" means a right
granted under subsection 9(b)(i) hereof.
The foregoing terms are not the exclusive definitions as used in the Plan and
reference is made to other capitalized terms defined in the context of their
first use herein.
(b) Rules of Interpretation.
(i) The headings and subheadings used herein or in any Option or other
instrument evidencing a Stock Award are solely for convenience of
reference and shall not constitute a part of the Plan or such document
or affect the meaning, construction or effect of any provision thereof.
(ii) All definitions set forth herein shall apply to the singular as well as
the plural form of such defined term, and all references to the
masculine gender shall include reference to the feminine or neuter
MRO Software, Inc. Appendix C - 1999 Equity Incentive Plan Page C-4
gender and visa versa, as the context may require. (iii) References to
"including" means including without limiting the generality of any
description preceding such term.
(iv) Unless otherwise expressly stipulated, any reference in the Plan to any
statute, act, regulation or specific provision thereof shall also
extend to any amendment, restatement or other modification to such
statute, act, regulation or specific provision thereof or any successor
statute, act, regulation or provision of similar import.
(v) Unless otherwise expressly provided, any reference in the Plan to any
specific provision of any statute or act shall include any regulations
promulgated thereunder from time to time and interpretations thereof as
may be applicable to the Plan.
3. ADMINISTRATION
(a) Administration of the Plan shall be delegated to a committee composed of not
fewer than two (2) members (the "Committee"), all of the members of which
Committee shall be Non-Employee Directors and Outside Directors. The Committee
shall have, in connection with the administration of the Plan, the powers set
forth in the Plan, subject, however, to such resolutions, not inconsistent with
the provisions of the Plan, as may be adopted from time to time by the Board.
The Board may abolish the Committee at any time and revisit in the Board the
administration of the Plan. The Board shall have the authority to correct any
defect, omission or inconsistency in the Plan and to amend the Plan as provided
in Section 16. The Board shall have the authority to appoint the Committee and
to fill any vacancy created on the Committee by reason of the death, resignation
or removal of any member thereof by appointing an eligible successor.
Notwithstanding anything in this Section 3 to the contrary, at any time the
Board or the Committee may delegate to a committee of one or more members of the
Board the authority to grant Stock Awards to eligible persons who are not then
subject to Section 16 of the Exchange Act and to eligible persons with respect
to whom the Company does not wish to comply with Section 162(m) of the Code.
(b) The Committee shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under the
Plan shall be granted Stock Awards; when and how Stock Awards shall be
granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a Stock Bonus, a right to purchase
restricted stock, a Stock Appreciation Right, another stock-based award
or a combination of the foregoing; the provisions of each Stock Award
granted (which need not be identical), including the time or times when
a person shall be permitted to receive stock pursuant to a Stock Award;
whether a person shall be permitted to receive stock upon exercise of
an Independent Stock Appreciation Right; and the number of shares with
respect to which Stock Awards shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under it,
and to establish, amend and revoke rules and regulations for its
administration. The Committee, in the exercise of this power, may
correct any defect, omission or inconsistency in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Stock Award Agreement fully effective.
(iii) To amend any Stock Award.
(iv) Generally, to exercise such powers and to perform such acts as the
Committee deems necessary or expedient to promote the best interests of
the Company and which are not in conflict with the provisions of the
Plan.
MRO Software, Inc. Appendix C - 1999 Equity Incentive Plan Page C-5
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 15 hereof relating to adjustments upon
Changes in Stock, the number of shares of stock that may be issued pursuant to
Stock Awards under the Plan shall be equal to 6,050,000 shares of Company Common
Stock (which reflects the stock split effected by means of a stock dividend on
December 15, 1999). If any Stock Award shall for any reason expire or otherwise
terminate without having been exercised in full, the Company Common Stock not
purchased shall again become available for issuance under the Plan.
Notwithstanding the foregoing, shares of Company Common Stock subject to Stock
Appreciation Rights exercised in accordance with Section 8 hereof shall not be
available for subsequent issuance under the Plan.
(b) The Company Common Stock subject to the Plan may consist in whole or in part
of authorized but unissued shares or treasury shares. Subject to Section 4(a)
hereof, no more than seven hundred thousand (700,000) shares of Company Common
Stock may be subject to "full value" Stock Awards, meaning Stock Awards other
than Options or Stock Appreciation Rights.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant thereto
may be granted only to Employees. Other Stock Awards may be granted to
Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock Option if,
at the time of grant, such person owns (or is deemed to own pursuant to Section
424(d) of the Code) Company Common Stock possessing more than ten percent (10%)
of the total combined voting power of all classes of capital stock of the
Company or of any of its Affiliates unless the exercise price of such Incentive
Stock Option is at least one hundred ten percent (110%) of the Fair Market Value
of such Company Common Stock at the date of grant and the Incentive Stock Option
is not exercisable after the expiration of five (5) years from the date of
grant.
(c) No person shall be eligible to be granted Stock Awards covering more than
two hundred thousand (200,000) shares of Company Common Stock in any Plan Year.
6. OPTION PROVISIONS.
Each Option Agreement shall be in such form and shall contain such terms and
conditions as the Committee shall deem appropriate. The provisions of separate
Option Agreements need not be identical, but each Option Agreement shall include
(through incorporation of provisions hereof by reference in the Option Agreement
or otherwise) the substance of each of the following provisions except as
otherwise specifically provided elsewhere in the Plan:
(a) Term. No Option shall be exercisable after the expiration of ten (10) years
from the date it was granted.
(b) Price. Subject to subsection 5(b) hereof, the exercise price of each
Incentive Stock Option shall be not less than one hundred percent (100%) of the
Fair Market Value of the Company Common Stock subject to the Option on the date
the Option is granted. The exercise price of each Nonstatutory Stock Option
shall be set by the Committee at the time each Option is granted, and shall be
not less than eighty five (85%) percent of the Fair Market Value of the Company
Common Stock subject to the Option on the date the Option is granted.
(c) Consideration. The purchase price of stock acquired pursuant to an Option
shall be paid, to the extent permitted by applicable statutes and regulations,
either: (i) in cash at the time the Option is exercised, or (ii) at the
discretion of the Committee, either at the time of the grant or exercise of the
Option, (A) by delivery to the Company of other Common Stock of the Company
owned by the Optionee for a period of at least six
MRO Software, Inc. Appendix C - 1999 Equity Incentive Plan Page C-6
months, (B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
Common Stock of the Company) with the person to whom the Option is granted or to
whom the Option is transferred pursuant to subsection 6(d) hereof, or (C) in any
other form of legal consideration that may be acceptable to the Committee on
terms determined by the Committee.
In the case of any deferred payment arrangement, interest shall be payable at
least annually and shall be charged at the minimum rate of interest necessary to
avoid the treatment as interest, under any applicable provisions of the Code, of
any amounts other than amounts stated to be interest under the deferred payment
arrangement.
(d) Transferability. An Incentive Stock Option shall not be transferable except
by will or by the laws of descent and distribution, and shall be exercisable
during the lifetime of the person to whom the Incentive Stock Option is granted
only by such person. A Nonstatutory Stock Option may be transferable to the
extent specified in the Option Agreement, in which case the Option may be
transferred upon such terms and conditions as are set forth in the Option
Agreement, as the Committee shall determine in its sole discretion, including
(without limitation) pursuant to a "domestic relations order" within the meaning
of such rules, regulations or interpretation of the Securities and Exchange
Commission as are applicable for purposes of Section 16 of the Exchange Act, or
to family members, or to trusts or other entities maintained for the benefit of
family members. Notwithstanding the foregoing, the person to whom an Option is
granted may, by delivering written notice to the Company, in a form satisfactory
to the Company, designate a third party who, in the event of the death of the
Optionee, shall thereafter be entitled to exercise the Option.
(e) Vesting. The total number of shares of stock subject to an Option may, but
need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Committee may deem appropriate. During the remainder of
the term of the Option (if its term extends beyond the end of the installment
periods), the Option may be exercised from time to time with respect to any
shares then remaining subject to the Option. The provisions of this subsection
6(e) are subject to any Option provisions governing the minimum number of shares
as to which an Option may be exercised.
(f) Termination of Employment or Relationship as A Consultant. In the event an
Optionee's Continuous Status as an Employee or Consultant terminates (other than
upon the Optionee's death or Disability), the Optionee may exercise his or her
Option, but only within such period of time ending on the earlier of (i) the
date three (3) months after termination of the Optionee's Continuous Status as
an Employee or Consultant (or such longer (but only in the case of a
Nonstatutory Stock Option) or shorter period of time specified in the Option
Agreement), or (ii) the expiration of the Option's term, and only to the extent
that the Optionee was entitled to exercise it at the date of termination (but in
no event later than the expiration of the term of such Option as set forth in
the Option Agreement). If, at the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified in the Option Agreement,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
(g) Disability of Optionee. In the event an Optionee's Continuous Status as an
Employee or Consultant terminates as a result of the Optionee's Disability, the
Optionee may exercise his or her Option, but only within such period of time
ending on the earlier of (i) the date twelve (12) months following such
termination (or such longer or shorter period of time as specified in the Option
Agreement), or (ii) the expiration of the
MRO Software, Inc. Appendix C - 1999 Equity Incentive Plan Page C-7
term of the Option as set forth in the Option Agreement). If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(h) Death of Optionee. In the event of the death of an Optionee during, or
within a period specified in the Option Agreement after the termination of, the
Optionee's Continuous Status as an Employee or Consultant, the Option may be
exercised by the Optionee's estate, by a person who acquired the right to
exercise the Option by bequest or inheritance, or by a person designated to
exercise the Option upon the Optionee's death pursuant to subsection 6(d)
hereof, but only within the period ending on the earlier of (i) the date twelve
(12) months following the date of death (or such longer or shorter period
specified in the Option Agreement) or (ii) the expiration of the term of such
Option as set forth in the Option Agreement. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available under the Plan. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
under the Plan.
(i) Early Exercise. The Option Agreement may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. If such a provision is
included in an Option Agreement, the Option Agreement shall also contain
provisions establishing a vesting schedule for the purchased shares and a right
of the Company to repurchase any unvested shares or, as a condition to the
exercise of the relevant Option, requiring the Optionee to enter into an
agreement with the Company establishing such vesting and such rights.
(j) Withholding. To the extent provided by the terms of an Option Agreement, the
Optionee may satisfy any required minimum federal, state or local tax
withholding obligation relating to the exercise of such Option by any of the
following means or by a combination of such means: (1) tendering a cash payment;
(2) authorizing the Company to withhold shares from the shares of the Common
Stock otherwise issuable to the participant as a result of the exercise of the
Option; or (3) delivering to the Company owned and unencumbered shares of the
Common Stock of the Company.
(k) Re-Load Options. Without in any way limiting the authority of the Committee
to make or not to make grants of Options hereunder, the Committee shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionee to a further Option (a "Re-Load Option") in the
event the Optionee exercises the Option evidenced by the Option Agreement, in
whole or in part, by surrendering other shares of Company Common Stock in
accordance with the Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option (i) shall be for a number of shares equal to the number
of shares surrendered as part or all of the exercise price of such Option, (ii)
shall have an expiration date which is the same as the expiration date of the
Option the exercise of which gave rise to such Re-Load Option; and (iii) shall
have an exercise price which is equal to one hundred percent (100%) of the Fair
Market Value of the Company Common Stock subject to the Re-Load Option on the
date of exercise of the original Option or, in the case of a Re-Load Option
which is an Incentive Stock Option and which is granted to a 10% stockholder (as
described in subsection 5(c) hereof), shall have an exercise price which is
equal to one hundred ten percent (110%) of the Fair Market Value of the Company
Common Stock subject to the Re-Load Option on the date of exercise of the
original Option and shall have a term which is no longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock
Option, as the Committee may designate at the time of the grant of the original
Option, provided, however, that the
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designation of any Re-Load Option as an Incentive Stock Option shall be subject
to the one hundred thousand dollar ($100,000) annual limitation on
exercisability of Incentive Stock Options described in subsection 13(d) hereof
and in Section 422(d) of the Code. There shall be no Re-Load Options on a
Re-Load Option. Any such Re-Load Option shall be subject to the availability of
sufficient shares under subsection 4(a) hereof and shall be subject to such
other terms and conditions as the Committee may determine which are not
inconsistent with the express provisions of the Plan regarding the terms of the
Options.
7. AWARDS TO NON-EMPLOYEE DIRECTORS.
(a) The Committee may grant Nonstatutory Stock Options, and other Stock Awards
pursuant to Sections 8, 9 or 10 below, to the Company's Non-Employee Directors,
in the Committee's sole discretion.
(b) Each Nonstatutory Stock Option granted to Non-Employee Directors shall have
an exercise price equal to the Fair Market Value of the Common Stock on the date
of grant. All options granted under this Section 7 prior to March 5, 2002 shall
expire on the date which is five years from the date of grant, provided that the
Committee may under Sections 3(b)(iii) and 17(e) of the 1999 Plan extend the
expiration date of such option(s) to a date no later than the tenth anniversary
of the date of grant. All options granted under this Section 7 on or after March
5, 2002 shall expire on a date determined by the Committee which is not more
than ten years from the date of grant.
(c) The Committee shall adopt such provisions, in its sole discretion, as to the
time, any limitations or restrictions and the manner of the exercise or vesting
of Nonstatutory Stock Options granted under this Section 7 in respect of the
matters set forth under the provisions of Subsections 6(d), (j) and (k) hereof.
8. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each Stock Bonus or restricted stock purchase agreement related to a Stock Award
shall be in such form and shall contain such terms and conditions as the
Committee shall deem appropriate. The terms and conditions of Stock Bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each Stock
Bonus or restricted stock purchase agreement shall include (through
incorporation of provisions herein by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
(a) Purchase Price. The purchase price under each restricted stock purchase
agreement shall be such amount as the Committee shall determine and designate in
such agreement. Notwithstanding the foregoing, the Committee may determine that
eligible participants in the Plan may be granted a Stock Award pursuant to a
Stock Bonus agreement in consideration for past services actually rendered to
the Company for its benefit.
(b) Transferability. Except as otherwise provided elsewhere in the Plan, no
rights under a Stock Bonus or restricted stock purchase agreement shall be
assignable by any participant under the Plan, either voluntarily or by operation
of law, except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the rights are granted
only by such person. The person to whom the Stock Award is granted, may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of such person, shall
thereafter be entitled to exercise the rights held by such person under the
Stock Bonus or restricted stock purchase agreement.
(c) Consideration. The purchase price of stock acquired pursuant to a Stock
Award in the form of a stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Committee, according
to a deferred payment or other arrangement with the person to whom the stock is
sold; or (iii) in any other form of legal consideration that may be acceptable
to the Committee in its discretion; including delivery of a promissory note of
the Optionee to the Company on terms determined by the
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Committee. Notwithstanding the foregoing, the Committee may grant a Stock Award
pursuant to a Stock Bonus agreement in consideration for past services actually
rendered to the Company or for its benefit.
(d) Vesting. Shares of Company Common Stock sold or awarded under the Plan may,
but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Committee.
(e) Termination of Employment or Relationship as a Consultant. In the event a
Participant's Continuous Status as an Employee or Consultant terminates, the
Company may repurchase or otherwise reacquire any or all of the shares of
Company Common Stock held by that person which have not vested as of the date of
termination under the terms of the Stock Bonus or restricted stock purchase
agreement between the Company and such person.
9. STOCK APPRECIATION RIGHTS.
(a) The Committee shall have full power and authority, exercisable in its sole
discretion, to grant Stock Appreciation Rights to Employees or Consultants to
the Company or its Affiliates under the Plan. Each such right shall entitle the
holder to a distribution based on the appreciation in the Fair Market Value per
share of a designated amount of Company Common Stock.
(b) Three types of Stock Appreciation Rights shall be authorized for issuance
under the Plan:
(i) Tandem Stock Appreciation Rights. Tandem Rights will be granted
appurtenant to an Option and will require the holder to elect between
the exercise of the underlying Option for shares of Company Common
Stock and the surrender, in whole or in part, of such Option for an
appreciation distribution equal to the excess of (A) the Fair Market
Value (on the date of Option surrender) of vested shares of Company
Common Stock purchasable under the surrendered Option over (B) the
aggregate exercise price payable for such shares.
(ii) Concurrent Stock Appreciation Rights. Concurrent Rights will be granted
appurtenant to an Option and may apply to all or any portion of the
shares of Company Common Stock subject to the underlying Option and
will be exercised automatically at the same time the Option is
exercised for those shares. The appreciation distribution to which the
holder of such concurrent right shall be entitled upon exercise of the
underlying Option shall be in an amount equal to such portion as shall
be determined by the Board or the Committee at the time of grant of the
excess of (A) the aggregate Fair Market Value (at date of exercise) of
the vested shares purchased under the underlying Option with such
concurrent rights over (B) the aggregate exercise price paid for those
shares.
(iii) Independent Stock Appreciation Rights. Independent Rights may be
granted independently of any Option and will entitle the holder upon
exercise to an appreciation distribution equal in amount to the excess
of (A) the aggregate Fair Market Value (at date of exercise) of a
number of shares of Company Common Stock equal to the number of vested
share equivalents exercised at such time (as described in subsection
8(c)(iii)) hereof over (B) the aggregate Fair Market Value of such
number of shares of Company Common Stock at the date of grant.
(c) The terms and conditions applicable to each Tandem Right, Concurrent Right
and Independent Right shall be as follows:
(i) TANDEM RIGHTS:
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A. Tandem Rights may be tied to either Incentive Stock Options or
Nonstatutory Stock Options. Each such right shall, except as
specifically set forth below, be subject to the same terms and
conditions applicable to the particular Option to which it
pertains. If Tandem Rights are granted appurtenant to an
Incentive Stock Option, they shall satisfy any applicable
Treasury Regulations so as not to disqualify such Option as an
Incentive Stock Option under the Code.
B. The appreciation distribution payable on the exercised Tandem
Right shall be in cash in an amount equal to the excess of (i)
the Fair Market Value (on the date of the Option surrender) of
the number of shares of Company Common Stock covered by that
portion of the surrendered Option in which the Optionee is
vested over (ii) the aggregate exercise price payable for such
vested shares.
(ii) CONCURRENT RIGHTS:
A. Concurrent Rights may be tied to any or all of the shares of
Company Common Stock subject to any Incentive Stock Option or
Nonstatutory Stock Option grant made under the Plan. A
Concurrent Right shall, except as specifically set forth
below, be subject to the same terms and conditions applicable
to the particular option grant to which it pertains.
B. A Concurrent Right shall be automatically exercised at the
same time as the underlying Option is exercised with respect
to the particular shares of Company Common Stock to which the
Concurrent Right pertains.
C. The appreciation distribution payable on an exercised
Concurrent Right shall be in cash in an amount equal to such
portion as shall be determined by the Board or the Committee
at the time of grant of the excess of (i) the aggregate Fair
Market Value (on the date the Option is exercised) of the
vested shares of Company Common Stock purchased under the
underlying Option which have Concurrent Rights appurtenant to
them over (ii) the aggregate exercise price paid for such
shares.
(iii) INDEPENDENT RIGHTS:
A. Independent Rights shall, except as specifically set forth
below, be subject to the same terms and conditions applicable
to Nonstatutory Stock Options as set forth in Section 6
hereof. They shall be denominated in share equivalents.
B. The appreciation distribution payable on the exercised
Independent Right shall be in cash in an amount equal to the
excess of (I) the aggregate Fair Market Value (on the date of
the exercise of the Independent Right) of a number of shares
of Company Common Stock equal to the number of share
equivalents in which the holder is vested under such
Independent Right, and with respect to which the holder is
exercising the Independent Right on such date, over (II) the
aggregate Fair Market Value (on the date of the grant of the
Independent Right) of such number of shares of Company Common
Stock.
(iv) TERMS APPLICABLE TO TANDEM RIGHTS, CONCURRENT RIGHTS AND INDEPENDENT
RIGHTS:
A. To exercise any outstanding Tandem, Concurrent or Independent
Right, the holder must provide written notice of exercise to
the Company in compliance with the provisions of the
instrument evidencing such right.
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B. If a Tandem, Concurrent, or Independent Right is granted to an
individual who is at the time subject to Section 16(b) of the
Exchange Act (a "Section 16(b) Insider"), then the instrument
of grant shall incorporate all the terms and conditions at the
time necessary to assure that the subsequent exercise of such
right shall qualify for the safe-harbor exemption from
short-swing profit liability provided by Rule 16b-3.
C. Except as otherwise provided in this Section 9, no limitation
shall exist on the aggregate amount of cash payments the
Company may make under the Plan in connection with the
exercise of Tandem, Concurrent or Independent Rights.
10. OTHER STOCK-BASED AWARDS.
The Committee shall have the right to grant other Awards based upon Company
Common Stock having such terms and conditions as the Committee may determine,
including the grant of shares based upon certain conditions and grant of
securities convertible into Company Common Stock.
11. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at any time
and from time to time, with the consent of the affected holders of Options
and/or Stock Appreciation Rights, (i) the repricing of any outstanding Options
and/or any Stock Appreciation Rights under the Plan and the grant in
substitution therefor of new Options and/or Stock Appreciation Rights under the
Plan covering the same or different numbers of shares of Company Common Stock,
but having an exercise price per share not less than eighty five percent (85%)
of the Fair Market Value (one hundred percent (100%)) of the Fair Market Value
in the case of an Incentive Stock Option or, in the case of an Incentive Stock
Option granted to a 10% stockholder (as described in subsection 5(c) hereof, not
less than one hundred ten percent (110%) of the Fair Market Value) per share of
Company Common Stock on the new grant date.
(b) Shares of Company Common Stock subject to an Option or Stock Appreciation
Right canceled under this Section 11 shall continue to be counted against the
maximum award of Options and Stock Appreciation Rights permitted to be granted
to a person pursuant to subsection 5(c) hereof. The repricing of an Option
and/or Stock Appreciation Right under this Section 11, resulting in a reduction
of the exercise price, shall be deemed to be a cancellation of the original
Option and/or Stock Appreciation Right and the grant of a substitute Option
and/or Stock Appreciation Right; in the event of such repricing, both the
original and the substituted Options and Stock Appreciation Rights shall be
counted against the maximum awards of Options and Stock Appreciation Rights
permitted to be granted to a person pursuant to subsection 5(c) hereof. The
provisions of this subsection 11(b) shall be applicable only to the extent
required by Section 162(m) of the Code.
(c) The Company shall obtain stockholder approval as provided under the
Marketplace Rules of The Nasdaq National Stock Market of any stock option or
stock appreciation right repricing effected under this Section 11.
12. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available at
all times the number of shares of Company Common Stock required to satisfy such
Stock Awards up to the number of shares of Company Common Stock authorized under
the Plan.
(b) The Company shall seek to obtain from each regulatory commission or agency
having jurisdiction over the Plan such authority as may be required to issue and
sell shares of Company Common Stock under the Stock Awards; provided, however,
that this undertaking shall not require the Company to register under the
MRO Software, Inc. Appendix C - 1999 Equity Incentive Plan Page C-12
Securities Act or any securities law of any state either the Plan, any Stock
Award or any stock issued or issuable pursuant to any such Stock Award. The
Company shall not be required to sell or issue any shares under any Stock Award
if the issuance of such shares shall constitute a violation by the holder of the
Stock Award or by the Company of any provision of any law or regulation of any
governmental authority. In the event the shares of Company Common Stock issuable
on exercise of Stock Award are not registered under the Securities Act, the
Company may imprint upon any certificate representing shares so issued any
legend which counsel for the Company considers necessary or advisable to comply
with the Securities Act and with applicable state securities laws. The Company
may, but shall in no event be obligated to, register any securities covered
hereby pursuant to the Securities Act; and in the event any shares are so
registered the Company may remove any legend on certificates representing such
shares.
13. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Company Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
14. MISCELLANEOUS.
(a) The Committee shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred under
subsection 6(d) hereof shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares of Company Common Stock
subject to such Option unless and until such person has satisfied all
requirements for exercise of the Option pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant, Optionee,
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as a Director or Consultant) or
shall affect the right of the Company or any Affiliate to terminate the
employment or relationship as a Director or Consultant of any Employee,
Director, Consultant or Optionee, with or without cause.
(d) To the extent that the aggregate Fair Market Value (determined at the time
of grant) of Company Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by any Optionee during any calendar year
under all plans of the Company and its Affiliates exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
15. ADJUSTMENTS UPON CHANGE IN STOCK.
In the event of any Change in Stock, the Plan will be appropriately adjusted in
the class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a) hereof and the maximum number of shares subject to Options and
Stock Awards pursuant to subsection 5(c) hereof, and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of shares and
price per share of stock subject to such outstanding Stock Awards. Such
adjustments shall be made by the Committee, the determination of which shall be
final, binding and conclusive.
16. VESTING AND PAYMENT UPON CHANGE IN CONTROL.
MRO Software, Inc. Appendix C - 1999 Equity Incentive Plan Page C-13
(a) After a merger of one or more corporations with or into the Company or after
a consolidation of the Company and one or more corporations in which the
stockholders of the Company immediately prior to such merger or consolidation
own after such merger or consolidation shares representing at least fifty
percent (50%) of the voting power of the Company or the surviving or resulting
corporation, as the case may be, each holder of an outstanding Option shall, at
no additional cost, be entitled upon exercise of such Option to receive in lieu
of the shares of Company Common Stock as to which such Option was exercisable
immediately prior to such event, the number and class of shares of stock or
other securities, cash or property (including, without limitation, shares of
stock or other securities of another corporation or Company Common Stock) to
which such holder would have been entitled pursuant to the terms of the
agreement of merger or consolidation if, immediately prior to such merger or
consolidation, such holder had been the holder of record of a number of shares
of Company Common Stock equal to the number of shares for which such Option
shall be so exercised.
(b) Upon and following the occurrence of a Change of Control, the time for
exercise of each unvested installment of any then outstanding Option or Stock
Appreciation Right shall be accelerated, so that:
(i) immediately upon such Change of Control, if the holder or optionee is
then an employee or consultant of the Company, twenty-five percent
(25%) of any such unvested installment shall be exercisable;
(ii) on the date that is nine months after such Change in Control, if the
holder or optionee is then an employee or consultant of the Company,
one third (33 1/3%) of any installment of such Option or Stock
Appreciation Right that has not yet vested in accordance with its
original terms or by virtue of this Section 16 shall become
exercisable;
(iii) on the date that is eighteen months after such Change in Control, if
the holder or optionee is then an employee or consultant of the
Company, fifty percent (50%) of any installment of such Option or Stock
Appreciation Right that has not yet vested in accordance with its
original terms or by virtue of this Section 16 shall become
exercisable; and
(iv) on the second anniversary of such Change in Control, if the holder or
optionee is then an employee or consultant of the Company, any
remaining installment of such Option or Stock Appreciation Right that
has not yet vested in accordance with its original terms or by virtue
of this Section 16 shall become exercisable.
The foregoing clauses (i) through (iv) are intended to provide for vesting that
is in addition to, and not in lieu of, the vesting schedule originally provided
in any Option or Stock Appreciation Right outstanding at the time of a Change in
Control, and, except to the extent accelerated by such clauses, each such Option
or Stock Appreciation Right shall continue to vest in accordance with its
original terms.
(c) Upon the occurrence of a Change of Control, the restrictions and conditions
contained in any Stock Bonus granted to a then current Employee or Consultant or
restricted stock purchase agreement related to a Stock Award to which a then
current Employee or Consultant is a party shall automatically be appropriately
modified so that under the terms thereof additional shares of Company Common
Stock vest in a manner essentially equivalent to the additional vesting provided
for in Section 16(b) for Options and Stock Appreciation Rights. The
determination of the Committee as to such modifications shall be final, binding
and conclusive.
The foregoing subparagraph (c) is intended to provide for vesting that is in
addition to, and not in lieu of, the vesting schedule originally provided in any
Stock Bonus or restricted stock purchase agreement related to a Stock Award
outstanding at the time of a Change in Control, and, except to the extent
accelerated by such
MRO Software, Inc. Appendix C - 1999 Equity Incentive Plan Page C-14
clauses, each such Stock Bonus or restricted stock purchase agreement related to
a Stock Award shall continue to vest in accordance with its original terms.
(d) If the Company is merged with or into or consolidated with another
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation; or
if the Company is liquidated, or sells or otherwise disposes of substantially
all of its assets to another corporation while unexercised Options remain
outstanding under the Plan, then either in such event:
(i) subject to the provisions of clause (iii) below, after the effective
date of such merger, consolidation, liquidation, sale or disposition,
as the case may be, each holder of an outstanding Option shall be
entitled, upon exercise of such Option, to receive, in lieu of the
shares of Company Common Stock as to which such Option was exercisable
immediately prior to such event, the number and class of shares of
stock or other securities, cash or property (including, without
limitation, shares of stock or other securities of another corporation
or common stock) to which such holder would have been entitled pursuant
to the terms of the merger, consolidation, liquidation, sale or
disposition if, immediately prior to such event, such holder had been
the holder of a number of shares of Company Common Stock equal to the
number of shares as to which such Option shall be so exercised; or
(ii) the Committee may accelerate the time for exercise of some or all
unexercised and unexpired Options or Stock Appreciation Rights so that
from and after a date prior to the effective date of such merger,
consolidation, liquidation, sale or disposition, as the case may be,
specified by the Committee such accelerated Options or Stock
Appreciation Rights shall be exercisable in full.
(e) If, within two years following a Change in Control, the employment of any
Optionee who immediately prior to such Change in Control was employed by the
Company as an Officer (each such Optionee being hereafter referred to as a
"Designated Executive") shall be terminated by the Company other than for cause,
or shall be terminated by the Designated Executive for Good Reason, then in such
event all unvested Options, Stock Appreciation Rights, Stock Bonuses and other
Stock Awards held by such Designated Executive at the date of such termination
shall thereupon immediately become exercisable in full. For purposes of this
paragraph, "Good Reason" for termination by a Designated Executive of his
employment shall be deemed to have existed only if (i) within two years after a
Change in Control, the Company, or any successor entity then employing the
Designated Executive, shall materially diminish the responsibilities and
authority of the Designated Executive or, shall materially reduce the rate of
compensation of the Designated Executive (including by way of a change in the
method of determining the eligibility of such Designated Executive to earn bonus
or incentive compensation), in either case as compared with his responsibilities
and authority or rate of compensation, as the case may be, in effect immediately
prior to such Change in Control, and (ii) within thirty (30) days following such
diminution or reduction the Designated Executive shall resign from his
employment by the Company or such successor entity.
(f) If, within two years following a Change in Control, a Non-Employee Director
is terminated or resigns from the Board of Directors for Good Reason, then in
such event all unvested Options held by such Non-Employee Director at the date
of such termination or resignation shall thereupon immediately become
exercisable in full. For purposes of this paragraph, "Good Reason" for
resignation by a Non-Employee Director shall be deemed to have existed only if
(i) within two years after a Change in Control, the Company, or any successor
entity, shall materially diminish the responsibilities and authority of the
Non-Employee Director or shall materially reduce the rate of compensation of the
Non-Employee Director, in either case as compared with his responsibilities and
authority or rate of compensation, as the case may be, in effect
MRO Software, Inc. Appendix C - 1999 Equity Incentive Plan Page C-15
immediately prior to such Change in Control, and (ii) within thirty (30) days
following such diminution or reduction the Non-Employee Director shall resign
from his position as a Director.
17. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan. However,
except as provided in Section 14 hereof relating to adjustments upon changes in
stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3, or the listing
or eligibility for quotation requirements of the Nasdaq National Market or any
similar organization or of any national securities exchange upon which shares of
Company Common Stock are listed or eligible for trading.
(b) The Board may in its sole discretion submit any other amendment to the Plan
for stockholder approval, including, but not limited to, amendments to the Plan
intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment of the
Plan shall not be altered or impaired by any amendment of the Plan unless (i)
the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Committee at any time, and from time to time, may amend the terms of any
one or more Stock Awards; provided, however, that the rights and obligations
under any Stock Award shall not be altered or impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
18. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on March 4, 2009. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with consent of the person to whom the Stock Award was granted.
19. LOCK-UP AGREEMENT.
The Committee may in its discretion specify upon granting an Option that upon
request of the Company or the underwriters managing any underwritten offering of
the Company's securities, the Optionee shall agree in writing that for a period
of time (not to exceed 180 days) from the effective date of any registration of
securities of the Company, the Optionee will not sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any shares
issued pursuant to the exercise of such Option, without the prior written
consent of the Company or such underwriters, as the case may be.
20. GOVERNING LAW.
MRO Software, Inc. Appendix C - 1999 Equity Incentive Plan Page C-16
The provisions of the Plan and all Stock Awards made hereunder shall be governed
by and interpreted in accordance with the internal laws of the Commonwealth of
Massachusetts without regard to any applicable conflicts of law principles
thereof.
MRO Software, Inc. Appendix C - 1999 Equity Incentive Plan Page C-17
MRO SOFTWARE, INC.
C/O EQUISERVE TRUST COMPANY N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694
[MROCM - MRO SOFTWARE, INC.] [FILE NAME: ZMROC1.ELX] [VERSION - (2)] [01/27/04]
[ORIG. 01/22/04]
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL ZMROC1
PLEASE MARK #MRO
[ X ] VOTES AS IN
THIS EXAMPLE.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION
IS GIVEN WITH RESPECT TO THE PROPOSALS BELOW, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED FOR ALL PROPOSALS.
1. To elect (01) Stephen B. Sayre and (02) Alan L. Stanzier as Class II
Directors of the Company for a term of three years;
FOR WITHHELD
[ ] [ ]
[ ]
--------------------------------------------------------------------------
For all nominees except as written above
Signature: Date:
--------------------------------- ---------------------------
FOR AGAINST ABSTAIN
2. To approve an amendment to the Company's
Amended and Restated 1999 Equity Incentive
Plan to increase the number of shares [ ] [ ] [ ]
issuable thereunder by an additional
1,200,000 shares; and
3. To ratify the appointment by the Board of
Directors of PricewaterhouseCoopers L.L.P. [ ] [ ] [ ]
as the Company's independent public
accountants for the current fiscal year.
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please promptly date and sign this proxy and mail it in the enclosed envelope
to assure representation of your shares. No postage need be affixed if mailed
in the United States.
Please sign exactly as name(s) appear(s) on stock certificate. If stockholder
is a corporation, please sign full corporate name by president or other
authorized officer and, if a partnership, please sign full partnership name by
an authorized partner or other person.
Signature: Date:
--------------------------------- ---------------------------
[MROCM - MRO SOFTWARE, INC.] [FILE NAME: ZMROC2.ELX] [VERSION - (1)] [01/22/04]
[ORIG. 01/22/04]
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL ZMROC2
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
MRO SOFTWARE, INC.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS.
MRO SOFTWARE, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 9, 2004
The undersigned stockholder of MRO Software, Inc. (the "Company"),
revoking all prior proxies, hereby appoints Norman E. Drapeau, Jr., Peter J.
Rice and Craig Newfield, and each of them acting singly, as proxies, with full
power of substitution, to vote all shares of capital stock of the Company which
the undersigned is entitled to vote at the Annual Meeting of Stockholders to be
held at the offices of the Company, 100 Crosby Drive, Bedford, Massachusetts,
01730 on Tuesday, March 9, 2004, beginning at 10:00 A.M., local time, and at
any adjournments thereof, upon matters set forth in the Notice of Annual
Meeting dated January 28, 2004 and the related Proxy Statement, copies of which
have been received by the undersigned. Attendance of the undersigned at the
meeting or any adjourned session thereof will not be deemed to revoke this
proxy unless the undersigned shall affirmatively indicate the intention of the
undersigned to vote the shares represented hereby in person prior to the
exercise of this proxy.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE