SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
QRS Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
[LOGO] [LETTERHEAD]
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
(the "Annual Meeting") of QRS Corporation (the "Company") to be held May 11,
1999, at 12:00 noon at the Company's headquarters, 1400 Marina Way South,
Richmond, California 94804.
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals: (1) to elect three directors of the Company to serve for a
three-year term ending in the year 2002 or until their respective successors are
duly elected and qualified, (2) to approve a series of amendments to the
Company's 1993 Stock Option/Stock Issuance Plan and (3) to ratify the
appointment of Deloitte & Touche LLP as independent auditors of the Company for
the fiscal year ending December 31, 1999.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting. After careful consideration, the
Company's Board of Directors has unanimously approved each of the proposals and
recommends that you vote FOR each such proposal.
After reading the Proxy Statement, please mark, date, sign and return
the enclosed proxy card in the accompanying reply envelope. If you decide to
attend the Annual Meeting and would prefer to vote in person, please notify the
Secretary of the Company that you wish to vote in person and your proxy will not
be voted. YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THE
ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of the Company's 1998 Annual Report has been mailed concurrently
herewith to all stockholders entitled to notice of and to vote at the Annual
Meeting.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
/s/ Shawn M. O'Connor
Shawn M. O'Connor
PRESIDENT AND CHIEF OPERATING OFFICER
Richmond, California
April 5, 1999
- --------------------------------------------------------------------------------
IMPORTANT
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED POSTAGE-PREPAID RETURN ENVELOPE SO THAT IF YOU
ARE UNABLE TO ATTEND THE ANNUAL MEETING, YOUR SHARES MAY BE VOTED.
- --------------------------------------------------------------------------------
QRS CORPORATION
1400 MARINA WAY SOUTH, RICHMOND, CALIFORNIA 94804
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 11, 1999
TO OUR STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders
(the "Annual Meeting") of QRS Corporation, a Delaware corporation (the
"Company"), to be held on May 11, 1999, at 12:00 noon, local time, at the
Company's headquarters, 1400 Marina Way South, Richmond, California 94804, for
the following purposes:
1. To elect three directors to serve for a three-year term ending in the
year 2002 or until their respective successors are duly elected and
qualified. The nominees are Peter R. Johnson, Tania Amochaev and Steven
D. Brooks.
2. To approve a series of amendments to the Company's 1993 Stock
Option/Stock Issuance Plan, including (i) an increase of 400,000
shares of Common Stock to the share reserve, (ii) an increase to the
number of shares of Common Stock subject to both the initial and
annual option grants made to non-employee Board members under the
Automatic Option Grant Program from 5,000 shares to 10,000 shares,
(iii) a new automatic option grant for an additional 10,000 shares to
be made each year to each non-employee Board member serving as the
Chairperson of any Board committee and (iv) a change to the date on
which the annual automatic option grants are to be made to the
non-employee Board members and Chairpersons from the date of the
Annual Stockholders Meeting to the first trading day in January each
year, beginning with calendar year 2000.
3. To ratify the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending December 31, 1999.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement that accompanies this Notice. Only stockholders of record at the close
of business on March 15, 1999 are entitled to notice of and to vote at the
Annual Meeting and at any continuation or adjournment thereof. The stock
transfer books of the Company will remain open between the record date and the
date of the Annual Meeting. A list of stockholders entitled to vote at the
Annual Meeting will be available for inspection at the executive offices of the
Company.
All stockholders are cordially invited and encouraged to attend the
Annual Meeting in person. In any event, to assure your representation at the
meeting, please carefully read the accompanying Proxy Statement which describes
the matters to be voted on at the Annual Meeting and sign, date and return the
enclosed proxy card in the reply envelope provided. Should you receive more than
one proxy because your shares are registered in different names and addresses,
each proxy should be returned to assure that all your shares would be voted. If
you attend the Annual Meeting and vote by ballot, your proxy will be revoked
automatically and only your vote at the Annual Meeting will be counted. The
prompt return of your proxy card will assist us in preparing for the Annual
Meeting. We look forward to seeing you at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Shawn M. O'Connor
SHAWN M. O'CONNOR
PRESIDENT AND CHIEF OPERATING OFFICER
Richmond, California
April 5, 1999
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. IN ANY EVENT, TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU
ARE URGED TO VOTE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN
THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE.
2
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
QRS CORPORATION
TO BE HELD MAY 11, 1999
GENERAL
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of QRS Corporation, a Delaware corporation (the
"Company" or "QRS"), of proxies to be voted at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on May 11, 1999, or at any
adjournment or postponement thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. Stockholders of record on
March 15, 1999 will be entitled to vote at the Annual Meeting. The Annual
Meeting will be held at 12:00 noon, local time, at the Company's headquarters,
1400 Marina Way South, Richmond, California 94804.
It is anticipated that this Proxy Statement and the enclosed proxy card
will be first mailed to stockholders on or about April 5, 1999.
VOTING RIGHTS
The close of business on March 15, 1999, was the record date for
stockholders entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof. At the record date, the Company had 8,714,217 shares of
its Common Stock outstanding and entitled to vote at the Annual Meeting. These
shares were held by 93 stockholders of record and approximately 2,125 beneficial
owners. Holders of Common Stock are entitled to one vote for each share of
Common Stock so held. Stockholders may not cumulate votes in the election of
directors. A majority of the outstanding shares of Common Stock will constitute
a quorum for the transaction of business at the Annual Meeting.
If any stockholder is unable to attend the Annual Meeting, such
stockholder may vote by proxy. The enclosed proxy is solicited by the Company's
Board of Directors (the "Board of Directors" or the "Board") and, when the proxy
card is returned properly completed, it will be voted as directed by the
stockholder on the proxy card. Stockholders are urged to specify their choices
on the enclosed proxy card. If a proxy card is signed and returned without
choices specified, in the absence of contrary instructions, the shares of Common
Stock represented by such proxy will be voted FOR Proposals 1, 2 and 3 and will
be voted in the proxy holders' discretion as to other matters that may properly
come before the Annual Meeting. An automated system administered by the
Company's transfer agent tabulates stockholder votes.
Pursuant to Delaware law, directors are elected by plurality vote. With
regard to such election, votes may be cast in favor of, or withheld from, each
nominee. Withheld votes will be excluded from the vote and will have no effect.
Proposals 2 and 3 will each require the approval of the affirmative vote of a
majority of the shares present or represented and entitled to vote at the Annual
Meeting. Abstentions and broker non-votes (I.E., where the broker or nominee
submits a proxy specifically indicating the lack of discretionary authority to
vote on a matter) on either of these proposals will be counted for purposes of
determining the presence or absence of a quorum. Abstentions will be counted in
the tabulation of votes cast on these proposals and will have the same effect as
negative votes, whereas broker non-votes will not be counted for purposes of
determining whether a proposal has been approved.
3
REVOCABILITY OF PROXIES
Any person giving a proxy has the power to revoke it at any time before
its exercise. A proxy may be revoked by filing with the Secretary of the Company
at the Company's principal executive offices an instrument of revocation or a
duly executed proxy bearing a later date, or by attending the Annual Meeting and
voting in person.
SOLICITATION OF PROXIES
The Company will bear the cost of soliciting proxies, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to the stockholders. Copies
of solicitation material will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
to forward to such beneficial owners. The Company may reimburse such persons for
their costs of forwarding the solicitation material to such beneficial owners.
The original solicitation of proxies by mail may be supplemented by solicitation
by telephone, telegram or other means by directors, officers, employees or
agents of the Company. No additional compensation will be paid to these
individuals for any such services. Except as described above, the Company does
not intend to solicit proxies other than by mail.
THE ANNUAL REPORT OF THE COMPANY FOR THE FISCAL YEAR ENDED DECEMBER 31,
1998 HAS BEEN MAILED CONCURRENTLY WITH THE MAILING OF THE NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT TO ALL STOCKHOLDERS ENTITLED TO NOTICE OF AND TO
VOTE AT THE ANNUAL MEETING. THE ANNUAL REPORT IS NOT INCORPORATED INTO THIS
PROXY STATEMENT AND IS NOT CONSIDERED PROXY-SOLICITING MATERIAL.
4
-----------------------------------------
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
-----------------------------------------
The Company's Certificate of Incorporation provides for a classified
Board of Directors consisting of three classes of directors with staggered
three-year terms, with each class consisting, as nearly as possible, of
one-third of the total number of directors. The Board currently consists of nine
persons, classified as follows: Class II, which will hold office until the year
2000, consists of H. Lynn Hazlett, Garth Saloner and Garen K. Staglin; Class
III, which will hold office until the year 2001, consists of John P. Dougall,
Philip Schlein and John S. Simon; and Class I, which will hold office until the
year 2002, if this Proposal No. 1 is approved, will consist of Peter R. Johnson,
Tania Amochaev and Steven D. Brooks.
At the Annual Meeting, three directors (constituting all the members of
Class I of the Board of Directors) are to be elected to serve until the
Company's 2002 annual meeting of stockholders, or until a successor for such
director is elected and qualified, or until the death, resignation or removal of
such director. It is intended that the proxies will be voted for the three
nominees named below for election to the Company's Board of Directors unless
authority to vote for any such nominee is withheld. There are three nominees,
all of whom are currently directors of the Company. Mr. Johnson is the Chairman
of the Board of Directors and has been a director since 1985. Ms. Amochaev, a
former President and Chief Executive Officer of the Company, has been a director
since 1992. Mr. Brooks is the Chairman of the Audit Committee, and has been a
director since 1994. Each person nominated for election has agreed to serve if
elected, and the Board of Directors has no reason to believe that any nominee
will be unavailable or will decline to serve. In the event, however, that any
nominee is unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for any nominee who shall be designated by
the current Board of Directors to fill the vacancy. Unless otherwise instructed,
the proxy holders will vote the proxies received by them for the nominees named
below. The three candidates receiving the highest number of the affirmative
votes of the shares entitled to vote at the Annual Meeting will be elected
directors of the Company. The proxies solicited by this Proxy Statement may not
be voted for more than three nominees.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
ELECTION OF THE FOLLOWING NOMINEES FOR ELECTION AS DIRECTORS.
NOMINEES FOR TERM ENDING UPON THE
2002 ANNUAL MEETING OF STOCKHOLDERS
Set forth below is information regarding the continuing directors that
will serve until the year 2002 or until their respective successors are duly
elected and qualified.
First Elected
Name Position(s) with the Company Age Director
- ---- ---------------------------- --- --------
Peter R. Johnson (1)(2) Chairman of the Board of Directors 50 1985
Tania Amochaev (2) Director 49 1992
Steven D. Brooks (2) Director, Chairman of the Audit Committee 47 1994
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Executive Committee
5
MR. JOHNSON founded the Company in 1985 and has been Chairman of the
Board since the Company's inception. Mr. Johnson served as President of the
Company from October 1985 to September 1987 and as Chief Executive Officer of
the Company from September 1987 to March 1991 and again from January 1992 to
May 1993. Mr. Johnson has been President, Chief Executive Officer and
Chairman of Peter R. Johnson & Associates since 1984. Before founding the
Company, Mr. Johnson was a corporate general manager of the Myer Emporium
Limited, a large retailer in Australia. Mr. Johnson served as the Chief
Executive Officer of Uniquest Incorporated from December 1993 to December
1994. From 1995 to the present, Mr. Johnson has been a private investor in
and a consultant to technology companies. Mr. Johnson is a director of
Meridian Data, a software and systems company, and of several privately held
companies. Mr. Johnson also serves as Chairman and director of NSB, a United
Kingdom publicly held company.
MS. AMOCHAEV was named a director of the Company in May 1992. Ms.
Amochaev served as President of the Company from May 1992 until February 1997
and as Chief Executive Officer from May 1993 until February 1997. Before
joining the Company, from 1988 to 1992, Ms. Amochaev was Chief Executive
Officer of Natural Language, Inc., a client server database tool software
company. From 1984 to 1987, Ms. Amochaev was President and Chief Executive
Officer of Comserv Corporation, a manufacturing applications software company
that was sold in 1987 to Management Science America. Ms. Amochaev currently
serves as a director of Walker Interactive Systems, Inc., a financial
software company, Government Technology Services, Inc., a computer reseller
to the government, and Symantec Corporation, a software company.
MR. BROOKS was named a director of the Company in January 1994. Mr.
Brooks is a Managing Director at Broadview Capital Partners ("Broadview"), a
private equity firm focused upon investments in the technology sector. Mr.
Brooks joined Broadview in February 1999. From September 1997 to February
1999, Mr. Brooks served as a Managing Director of Donaldson, Lufkin &
Jenrette Securities Corporation, an investment banking firm. From January
1997 to August 1997, Mr. Brooks was a private investor and a consultant to
technology companies. From 1994 to December 1996, Mr. Brooks served as
Managing Director and head of Global Technology Investment Banking at Union
Bank of Switzerland Securities, LLC. From 1988 to 1994 Mr. Brooks was a
private investor and consultant to high technology firms. From 1986 to 1988,
Mr. Brooks served as Managing Partner of investment banking at Robertson,
Stephens & Co., an investment bank. In addition to QRS, Mr. Brooks is a
Director of Paychex, Inc., a national payroll processing and business
services company, and VERITAS Software Corporation, a systems management
software company, as well as several private companies.
CONTINUING DIRECTORS FOR TERM ENDING UPON THE
2001 ANNUAL MEETING OF STOCKHOLDERS
Set forth below is information regarding the continuing directors that will
serve until the year 2001, or until their respective successors are duly elected
and qualified.
First Elected
Name Position(s) with the Company Age Director
- ---- ---------------------------- --- --------
John P. Dougall Director 55 1990
Philip Schlein (1) Director 65 1996
John S. Simon Chief Executive Officer and Director 42 1997
- ------------------------
(1) Member of the Compensation Committee
MR. DOUGALL has been a director of the Company since July 1990. On
February 5, 1999, Mr. Dougall became Group Chief Executive Officer for Plessy
Asia Pacific. From December 1997 to February 1999, Mr. Dougall was a private
investor. From November 1996 to November 1997, Mr. Dougall served as Chairman
and Chief Executive Officer for Aristocrat Leisure Limited, an Australian
publicly listed company and a supplier to gambling and entertainment
companies. From January 1992 to September 1996, Mr. Dougall served as Chief
6
Executive Officer of AWA Limited, an electronics and telecommunications
company. Mr. Dougall held various executive positions with the Company from
July 1990 to January 1992, serving as President of the Company from February
1991 to June 1991 and as President and Chief Executive Officer from June 1991
to January 1992. From February 1988 to June 1990, Mr. Dougall was the
Executive Director of Paxus Corporation, a software services and outsourcing
firm.
MR. SCHLEIN was named a director of the Company in February 1996.
Mr. Schlein has been a general partner of BMS Partners L.P., a venture
partner of U.S. Venture Partners, a venture capital firm, since April 1985.
Mr. Schlein held various executive positions with R.H. Macy & Company, Inc.
from September 1957 to December 1973 and was President and Chief Executive
Officer of its Macy's California division from January 1974 to January 1985.
Mr. Schlein currently serves as a director of Burnham Pacific Incorporated, a
commercial real estate development and leasing company, Ross Stores, Inc., a
clothing store chain, Resound Corporation, a hearing devise manufacturing
company, XOOM.com, Inc., an e-commerce company, and bebe stores, inc., a
producer of contemporary women's apparel and accessories. Additionally, Mr.
Schlein served as a director of Apple Computer, Inc. from 1979 to 1987.
MR. SIMON was named Chief Executive Officer in July 1998 and a
director of the Company in December 1997. Mr. Simon has held various
positions with the Company since 1988, including President from January 1998
until July 1998 and Executive Vice President from January 1994 to December
1997. From 1980 to 1988, Mr. Simon was employed by Carter Hawley Hale Stores,
Inc., a retail company, most recently as Senior Program Manager of its
Information Services Division, and prior to that held a number of
merchandising, store management and information services positions.
CONTINUING DIRECTORS FOR TERM ENDING UPON THE
2000 ANNUAL MEETING OF STOCKHOLDERS
Set forth below is information regarding the continuing directors that
will serve until the year 2000, or until their respective successors are duly
elected and qualified.
First Elected
Name Position(s) with the Company Age Director
- ---- ---------------------------- --- --------
H. Lynn Hazlett, Ph.D. Former Chief Executive Officer, and Director 62 1994
Garth Saloner, Ph.D (2) Director, Chairman of the Compensation Committee 44 1993
Garen K. Staglin (1) Director, Chairman of the Executive Committee 54 1991
- ------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
DR. HAZLETT was named a director of the Company in 1994. Dr. Hazlett
served as Chief Executive Officer of the Company from February 1997 to June
1998. He also served as President of the Company from February 1997 to
January 1998 and was a consultant to the Company from 1995 until February
1997. From January 1994 to February 1997, Dr. Hazlett owned and operated
Supply Chain Associates, a retail supply chain consultancy practice. Dr.
Hazlett served as Vice President, Business Systems at VF Corporation, a
global apparel manufacturer, from 1989 to January 1995. From 1984 to 1989,
Dr. Hazlett served as President and Chief Executive Officer of Information
and Communications, Inc., a division of Carson Pirie Scott & Company, a
conglomerate comprised of 33 department stores, 400 specialty stores and a
mail order catalog business. Prior to that, Dr. Hazlett served as Corporate
Vice President and Chief Information Officer at Levi Strauss & Co., a
manufacturer of apparel. Dr. Hazlett is a director of the National Industries
for the Blind, a non-profit organization, and TriNet Corporation, a provider
of human resource services.
7
DR. SALONER was named a director of the Company in December 1993.
Dr. Saloner has served as the Robert A. Magowan Professor of Strategic
Management and Economics at the Graduate School of Business at Stanford
University since 1990. He served as Associate Dean for Academic Affairs and
Director of Research and Course Development at Stanford from 1993 to 1996.
From 1982 to 1990, Dr. Saloner was a professor in the Economics Department of
the Massachusetts Institute of Technology. Dr. Saloner is a director of
Charles River Associates, an economic consulting firm, Brilliant Digital
Entertainment, Inc., a 3D animation firm, and Next Stage Entertainment, a
firm engaged in building a network of live entertainment theaters.
MR. STAGLIN was named a director of the Company in 1991. From 1991
to April 1998, Mr. Staglin served as the Chief Executive Officer and Chairman
of the Board of Directors of Safelite Glass Corporation, a replacement auto
glass manufacturing and retailing company. He continues to serve as Chairman
of the Board of Directors. From 1980 to 1991, Mr. Staglin was a Vice
President and General Manager of Automatic Data Processing, a computer
networking services company. Mr. Staglin has been the owner and manager of
Staglin Vineyards from 1985 to the present. Mr. Staglin currently serves as a
director of First Data Corporation, a supplier of computer services for
credit card processing and other financial services, and CyberCash, Inc., a
provider of secure transaction services for the Internet, and several other
private companies. In 1994, Mr. Staglin was named a member of the Advisory
Council to the Stanford Graduate School of Business.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held five meetings during fiscal 1998. Each
of the nine directors constituting the Board of Directors for fiscal 1998
attended more than 75% of the aggregate of (i) the total number of Board
meetings held during that fiscal year, and (ii) the total number of meetings
held by all committees of the Board on which such director served. The Board
of Directors has an Audit Committee, a Compensation Committee and an
Executive Committee.
The Audit Committee of the Board of Directors held three meetings
during fiscal 1998. The Audit Committee, which is currently comprised of
Directors Brooks (Chairman), Johnson and Saloner, recommends engagement of
the Company's independent auditors, approves services performed by such
auditors and reviews and evaluates the Company's accounting system and its
system of internal controls.
The Compensation Committee of the Board of Directors held two
meeting during fiscal 1998. The Compensation Committee, which is currently
comprised of Directors Saloner (Chairman), Staglin and Schlein, has overall
responsibility for the Company's compensation policies and determines the
compensation payable to the Company's executive officers, including their
participation in certain of the Company's employee benefit and stock option
plans.
The Executive Committee of the Board of Directors held five meetings
during fiscal 1998. The Executive Committee, which is currently comprised of
Directors Staglin (Chairman), Brooks, Johnson and Amochaev, has, in the
intervals between meetings of the Board of Directors, to the full extent
allowed by Delaware law, all the authority of the Board of Directors in the
management of the business and affairs of the Company, including, without
limitation, the power and authority to manage succession planning and
evaluation of strategic matters, including mergers and acquisitions. However,
the Executive Committee will not exercise its power and authority in a manner
inconsistent with any action, direction or instruction of the Board of
Directors.
DIRECTOR COMPENSATION
For fiscal year 1998, each non-employee director received a
quarterly fee of $2,000 for Board membership, as well as $1,000 per meeting
attended. In addition, the Chairpersons of the Audit, Compensation and
Executive Committees each received a retainer fee of $2,000 for fiscal 1998,
and the members of the Executive Committee each received an annual retainer
of $5,000. Effective as of February 1999, the non-employee directors will
each receive a quarterly fee of $2,500 for Board membership, and the annual
retainer fees for the Chairpersons of Board Committees and the members of the
Executive Committee will be eliminated. The Executive Committee members
8
will instead receive $2,000 per meeting attended, and the Chairpersons of the
Board Committees will receive special option grants under the Automatic
Option Grant Program in effect for non-employee Board members under the
Company's 1993 Stock Option/Stock Issuance Plan (the "1993 Plan"). Each
non-employee director who is not appointed to the Board pursuant to any
contractual or other right or arrangement is eligible for reimbursement, in
accordance with Company policy, for expenses incurred in connection with his
attendance at meetings of the Board of Directors and the committees thereof.
Under the Automatic Option Grant Program as in effect for the 1998
fiscal year, each individual who continued to serve as a non-employee Board
member following the May 5, 1998 date of the 1998 Annual Stockholders Meeting
was granted a 5,000-share option, provided such individual had served as a
non-employee Board member for at least six months. Accordingly, Messrs.
Amochaev, Brooks, Dougall, Johnson, Saloner, Schlein, and Staglin each
received an automatic option grant for 5,000 shares of Common Stock on May 5,
1998 in connection with their continuation as non-employee Board members.
Each such grant has an exercise price of $45.875 per share, the fair market
value per share of the Common Stock on the grant date, and has a maximum term
of 10 years, subject to earlier termination following the optionee's
cessation of Board service. Each option will become exercisable for the
option shares in a series of four successive equal annual installments over
the optionee's period of continued Board service, with the first such
installments to become exercisable upon the optionee's completion of six
months of Board service measured from the grant date. However, the option
will become immediately exercisable for all the option shares upon (i)
certain changes in ownership or control of the Company or (ii) the death or
disability of the optionee while serving as a Board member. In addition, upon
the successful completion of a hostile tender offer for more than 50% of the
Company's outstanding voting stock, each such option may be surrendered to
the Company for a cash distribution per surrendered option share in an amount
equal to the excess of (a) the tender offer price paid per share of Common
Stock over (b) the exercise price payable for such option share.
A number of substantial changes will be made to the Automatic Option
Grant Program if the stockholders approve Proposal No. 2 below at the Annual
Meeting. For further information concerning those changes, please see
Proposal No. 2 below.
On October 26, 1998, the Company entered into an 18-month consulting
contract with John Dougall, one of the Company's directors, pursuant to which
Mr. Dougall is to provide sales and marketing services related to the
Company's emerging Asian-Pacific International business. As compensation for
his services, Mr. Dougall was granted an option on October 16, 1998 to
purchase 10,000 shares of the Company's Common Stock at an exercise price of
$26.13 per share, the closing selling price per share on that date, and will
receive $3,000 per day for consulting performed with a 30-day minimum service
commitment. The option will vest in 48 successive equal monthly installments
over the 48-month period measured from the grant date, provided Mr. Dougall
continues to provide consulting services or remains a member of the Board.
During the 1998 fiscal year, Mr. Dougall was paid $18,000 in consulting fees
pursuant to this arrangement.
On December 31, 1998, the Company entered into a six-month
consulting contract with H. Lynn Hazlett, one of the Company's directors,
pursuant to which Dr. Hazlett is to provide sales and marketing services
relating to the Company's Professional Services business. As compensation for
his services, Dr. Hazlett will receive $3,000 per day for consulting
performed with a 30-day minimum service commitment.
9
MANAGEMENT
Set forth below is information regarding the executive officers of the
Company who are not directors:
Name Age Position
- ---- --- --------
Glenn DuBois 45 Vice President, Sales
Shawn M. O'Connor 39 President and Chief Operating Officer
Peter Papano 49 Vice President, Finance, Chief Financial Officer and Secretary
Philip Swift 48 Vice President, Information Services
Philip Woodworth 42 Vice President, Product Marketing
MR. DUBOIS joined the Company in July 1997 as Vice President, Sales.
Prior to joining the Company, from July 1996 to June 1997, he was Vice
President of Sales for the LizWear Division of Liz Claiborne, Inc., a
manufacturer of apparel. From July 1991 to July 1996, Mr. DuBois was with the
Lee Division of VF Corporation, initially as Director of Business Systems and
Planning and, beginning in 1994, as Regional Vice President of Sales. Prior
to that, from 1983 to 1991, Mr. DuBois served in various management roles in
both retail relations and systems for Levi Strauss.
MR. O'CONNOR joined the Company in February 1995 and became Vice
President, Chief Financial Officer and Secretary in March 1995. Mr. O'Connor
was named Chief Operating Officer in January 1998 and President in July 1998,
and currently serves in these two capacities. Before joining the Company,
from 1992 to 1994, Mr. O'Connor was Vice President and Chief Financial
Officer for Diasonics Ultrasound, Inc., a medical equipment manufacturer
("Diasonics Ultrasound"). From 1988 to 1992, Mr. O'Connor held various
management positions with Diasonics Ultrasound.
MR. PAPANO joined the Company in August 1998 as Vice President,
Finance, Chief Financial Officer and Secretary. Prior to joining the Company,
from 1991 to May 1998, Mr. Papano served in two principal capacities at
Knight-Ridder Information Inc. (now known as the Dialog Corporation), a
company in the information business that primarily provides online search and
current awareness information products, including Chief Financial Officer
from January 1994 to December 1997 and Senior Director of Finance from 1991
to December 1993. In addition, Mr. Papano served as Chief Financial Officer
for a subsidiary of Dialog Corporation from December 1997 until May 1998. He
began his career with GTE Corporation in local and long distance telephone
operations.
MR. SWIFT joined the Company in October 1996 as Vice President,
Product Development and was named Vice President, Information Services in
January 1998. Before joining the Company, from January 1992 to September
1996, Mr. Swift was Department Head of Information Products at VISA, a credit
card transaction processing company. From 1989 to 1991, Mr. Swift was Senior
Project Manager at Matson Navigation, a shipping company.
MR. WOODWORTH was named Vice President, Product Marketing in October
1998. Mr. Woodworth is responsible for the Company's products and product
management and the development of Internet and Internet technology services
that complement the retail industry and demand chain initiatives that the
Company sponsors on behalf of its retailer customers, vendors and carriers.
Mr. Woodworth has worked for the Company for over nine years and has held
various positions, including Vice President of Sales and Director of
Projects. Prior to joining the Company, Mr. Woodworth was employed in the
data processing industry for 19 years.
10
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation earned for services rendered in all capacities to the Company and
its subsidiaries for the 1998, 1997 and 1996 fiscal years by (i) the Company's
Chief Executive Officer, (ii) the former Chief Executive Officer and (iii) each
of the Company's four other most highly compensated executive officers for the
1998 fiscal year. All the individuals named in such table will be hereafter
referred to as the "Named Executive Officers." No other executive officer of the
Company who would have otherwise been included in the table on the basis of
salary and bonus earned for the 1998 fiscal year resigned or terminated
employment during such fiscal year.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation Awards
Annual Compensation -------------------
------------------- Securities All Other
Name and Principal Position(*) Year Salary (1) Bonus Underlying Options(#) Compensation (2)
- -------------------------------------- ----- ----------------- ------------- --------------------- ---------------------
Paul Benchener 1998 $165,375(3) $ 50,000 -- $28,625
Former Vice President, Marketing 1997 $180,000 $ 95,250 10,000 $ 4,750
1996 $ 70,269(4) $ 75,000 45,000 $ 2,250
Glenn DuBois 1998 $170,000 $139,127 20,000 $57,618
Vice President, Sales 1997 $ 85,000(5) $ 40,531 40,000 $ 1,488
1996 -- -- -- --
H. Lynn Hazlett 1998 $275,000 $ 75,000 -- $ 5,000
Director and Former Chief 1997 $245,906(6) $283,102(7) 150,000 $23,138
Executive Officer 1996 -- -- 5,000 $96,000
Shawn M. O'Connor 1998 $210,925 $202,760 40,000 $ 9,119
President and Chief Operating 1997 $169,166 $ 92,688 100,000 $ 4,750
Officer 1996 $157,500 $ 73,720 20,000 $ 4,750
John S. Simon 1998 $220,825 $213,811 40,000 $ 8,186
Chief Executive Officer and 1997 $179,166 $ 93,438 100,000 $ 6,346
Director 1996 $167,500 $ 72,029 25,000 $ 5,777
Philip Swift 1998 $160,000 $ 48,384 5,000 $ 5,000
Vice President, Information 1997 $150,000 $ 39,000 10,000 $ 4,750
Services 1996 $ 38,077(8) $ 10,000 30,000 $ 1,904
Philip Woodworth 1998 $130,000 $ 88,486 10,000 $ 5,000
Vice President, Product Marketing 1997 $110,250 $ 40,000 10,000 $ 4,750
1996 $ 99,200 $ 35,000 10,000 $ 4,750
- ---------------
(*) Does not include Peter Papano, who became the Company's Vice President,
Finance, Chief Financial Officer and Secretary in August 1998. Mr. Papano's
annualized salary was $170,000 for the 1998 fiscal year.
(1) Includes salary deferred under the Company's 401(k) Plan and Non Qualified
Deferred Compensation Plan.
(2) The indicated amount for each Named Executive Officer is comprised of (i)
Company contributions made to the Company's 401(k) and Non Qualified
Deferred Compensation ("NQDC") Plans which match the salary deferral
contributions made by such officer to such plans, (ii) long-term disability
insurance premiums paid by the Company on behalf of such officer, (iii)
life insurance premiums paid by the Company on behalf of such officer, (iv)
reimbursed moving expenses; (v) severance and (vi) consulting fees. See the
table below for the dollar amount of each such item.
(3) Mr. Benchener resigned from his position with the Company in November 1998.
Mr. Benchener's annualized salary was $189,000 for the 1998 fiscal year.
(4) Mr. Benchener's annualized salary was $180,000 for the 1996 fiscal year.
(5) Mr. DuBois' annualized salary was $170,000 for the 1997 fiscal year.
(6) Dr. Hazlett's annualized salary was $275,000 for the 1997 fiscal year.
(7) Dr. Hazlett received a $150,000 signing bonus and a $133,102 performance
bonus for the 1997 fiscal year.
(8) Mr. Swift's annualized salary was $150,000 for the 1996 fiscal year.
11
ALL OTHER COMPENSATION
Matching 401(k) Disability Life Reimbursed
And NQDC Plan Insurance Insurance Moving Consulting
Name Year Contribution Premium Premium Expenses Severance Fees
- ---- ---- ------------- ------- ------- -------- --------- ----
Paul Benchener 1998 $5,000 -- -- -- $23,625 --
Former Vice President, 1997 $4,750 -- -- -- -- --
Marketing 1996 $2,250 -- -- -- -- --
Glenn DuBois 1998 $5,000 -- -- $52,618 -- --
Vice President, Sales 1997 $1,488 -- -- -- -- --
1996 -- -- -- -- -- --
H. Lynn Hazlett 1998 $5,000 -- -- -- -- --
Former Chief Executive 1997 $4,750 -- $2,388 -- -- $16,000
Officer, and Director 1996 -- -- -- -- -- $96,000
John Simon 1998 $5,000 $1,963 $1,223 -- -- --
Chief Executive 1997 $4,750 $1,112 $ 484 -- -- --
Officer and 1996 $4,750 $ 588 $ 439 -- -- --
Director
Shawn O'Connor 1998 $5,000 $1,929 2,190 -- -- --
President and Chief 1997 $4,750 -- -- -- -- --
Operating Officer 1996 $4,750 -- -- -- -- --
Philip Swift 1998 $5,000 -- -- -- -- --
Vice President, 1997 $4,750 -- -- -- -- --
Information Services 1996 $1,904 -- -- -- -- --
Philip Woodworth 1998 $5,000 -- -- -- -- --
Vice President, Product 1997 $4,750 -- -- -- -- --
Marketing 1996 $4,750 -- -- -- -- --
12
STOCK OPTIONS
The following table sets forth information concerning the stock options
granted during the 1998 fiscal year to the Named Executive Officers. No stock
appreciation rights were granted during the 1998 fiscal year to the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
----------------------------------------------------------------- Potential Realizable Value at
Number of Percent of Total Assumed Annual Rates of
Securities Options Stock Price Appreciation for
Underlying Granted to Option Term(3)
Options Employees in Exercise or Base Expiration ------------------------------
Name Granted(#) Fiscal Year(1) Price Share(2) Date 5% 10%
- ---- ---------- -------------- -------------- ---- -- ---
Paul Benchener --
Glenn DuBois 20,000(4) 4.3% $26.13 10/15/08 $328,597 $ 832,730
H. Lynn Hazlett --
Shawn M. O'Connor 40,000(4) 8.6% $26.13 10/15/08 $657,195 $1,665,461
John S. Simon 40,000(4) 8.6% $26.13 10/15/08 $657,195 $1,665,461
Philip Swift 5,000(4) 1.1% $26.13 10/15/08 $ 82,149 $ 208,183
Philip Woodworth 10,000(4) 2.1% $26.13 10/15/08 $164,299 $ 416,365
- ------------------
(1) The Company granted options to purchase 465,350 shares of Common Stock
during the 1998 fiscal year. 412,750 options were granted under the 1993 Plan
and 52,600 options were granted under the 1997 Non-Officer Plan. All grants to
the Named Executive Officers were made under the 1993 Plan. The Plan
Administrator may grant two types of stock appreciation rights in connection
with option grants made under such plan: tandem stock appreciation rights which
provide the holders with the right to surrender their options for an
appreciation distribution from the Company, payable in cash or Common Stock,
equal in amount to the excess of (a) the fair market value of the shares of
Common Stock subject to the surrendered option over (b) the aggregate exercise
price payable for such shares, and limited stock appreciation rights which allow
the holders to surrender their options to the Company, upon the successful
completion of a hostile tender offer for more than 50% of the outstanding Common
Stock, for a cash distribution in an amount per surrendered option share equal
to the excess of (a) the tender offer price paid per share of Common Stock over
(b) the exercise price payable for such share. No stock appreciation rights were
granted to the Named Executive Officers during the 1998 fiscal year.
(2) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee sufficient
funds to pay the exercise price for the purchased shares and the Federal and
state income or employment tax liability incurred by the optionee in connection
with such exercise. The optionee may be permitted, subject to the approval of
the Plan Administrator, to apply a portion of the shares purchased under the
option (or to deliver existing shares of Common Stock) in satisfaction of such
tax liability.
(3) There is no assurance that the actual stock price appreciation over the
10-year option term will be at the five percent and ten percent assumed annual
rates of compounded stock price appreciation or at any other level. Unless the
market price of the Company's Common Stock does, in fact, appreciate over the
option term, no value will be realized from the option grants.
(4) Each option will become exercisable in a series of four successive equal
annual installments upon optionee's completion of each year of service over the
four-year period measured from the grant date. The grant date for each option
was October 16, 1998. The shares subject to such option will vest immediately in
the event the Company is acquired by a merger or asset sale, unless the option
is assumed by the acquiring entity. The Plan Administrator also has the
discretionary authority to provide for accelerated vesting of the option shares
upon (i) the occurrence of such acquisition, whether or not the option is
assumed, (ii) the termination of the optionee's employment within a specified
period following such acquisition, if the option does not otherwise accelerate
at the time of the acquisition, (iii) a change in ownership of more that 50% of
the Company's outstanding voting stock, (iv) a change in the majority of the
Board effected through one or more proxy contests, or (v) the subsequent
termination of the optionee's employment within a specified period following
such a change in ownership or majority of the Board. The option grants made to
Messrs. Simon and O'Connor for the 1998 fiscal year will automatically
accelerate upon an acquisition or other change in control of the Company, except
to the extent such acceleration would result in an excess parachute payment
under the federal tax laws.
13
To the extent their options do not accelerate at the time of the acquisition or
other change in control, acceleration will occur in the event their employment
terminates within 24 months following such acquisition or change in control.
STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information with respect to the
Named Executive Officers concerning the exercise of options during the 1998
fiscal year and unexercised options held by the Named Executive Officers at the
end of the 1998 fiscal year. No Named Executive Officers exercised SARs during
the 1998 fiscal year, and there were no SARs held by such individuals at the end
of the 1998 fiscal year.
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options at
Options at Fiscal Fiscal Year-End
Year-End (market price of shares less
(Number of Shares) exercise price)(1)(2)
-------------------------- -------------------------------
Shares Acquired
Name on Exercise (#) Value Realized(3) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ----------------- ----------- ------------- ----------- -------------
Paul Benchener 10,000 $107,500 15,000 -- $276,250 --
Glenn DuBois -- -- 10,000 50,000 $132,500 $835,000
H. Lynn Hazlett -- -- 188,227 1,773 $4,091,780 $31,033
John S. Simon 10,000 $338,938 68,000 146,000 $1,968,056 $2,712,875
Shawn M. O'Connor 10,000 $243,418 70,000 140,000 $1,896,250 $2,561,250
Philip Swift -- -- 17,500 27,500 $332,500 $522,500
Philip Woodworth 4,300 $158,924 33,700 25,000 $1,142,800 $510,000
- ----------------------------
(1) "In-the-money" options are options whose exercise price was less than the
market price of the Company's Common Stock on December 31, 1998, the last
business day of the 1998 fiscal year.
(2) Based upon the market price of $48.00 per share, which was the closing
price per share of the Company's Common Stock as quoted on the Nasdaq
National Market on December 31, 1998.
(3) Equal to the excess of (i) the market price of the purchased share on the
date the option was exercised for those shares over (ii) the exercise price
paid for the shares.
14
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is currently comprised of three non-employee Board members, Garth Saloner
(Chairman), Garen K. Staglin and Philip Schlein.
The Committee administers the Company's compensation policies and
programs. The Committee has responsibility for executive compensation matters,
including setting the base salaries of the Company's executive officers,
approving individual bonuses and bonus programs for executive officers,
administering certain employee benefit programs, and administering the Company's
1993 Stock Option Plan (the "1993 Plan") under which grants may be made to
executive officers and other key employees. The following is a summary of
policies of the Committee that affect the compensation paid to the Company's
executive officers, as reflected in the tables and text set forth elsewhere in
this proxy statement.
GENERAL COMPENSATION POLICY. The overall policy of the Committee is to
offer the Company's executive officers competitive compensation opportunities
based upon their personal performance, the financial performance of the Company
and their contribution to that performance. One of the primary objectives is to
have a substantial portion of each executive officer's compensation contingent
upon the Company's financial success as well as upon such executive officer's
own level of performance. Each executive officer's compensation package is
generally comprised of three elements: (i) base salary, which is determined on
the basis of the individual's position and responsibilities with the Company,
the level of his or her performance and the financial performance of the
Company, (ii) incentive performance awards payable in cash and tied to the
achievement of specified performance goals and (iii) long-term stock-based
incentive awards designed to strengthen the mutuality of interests between the
executive officers and the Company's stockholders. Generally, as an executive
officer's level of responsibility increases, a greater portion of that
individual's total compensation will be dependent upon Company performance and
stock price appreciation rather than base salary.
FACTORS. The principal factors considered in establishing the
components of each executive officer's compensation package for the 1998 fiscal
year are summarized below. The Committee may, in its discretion, apply entirely
different factors, such as different measures of financial performance, for
future fiscal years.
BASE SALARY. In setting the base salary for each executive
officer, the Committee considers executive compensation data compiled from
surveys of computer services companies. These surveys are performed and compiled
by various independent consulting firms and are conducted on local as well as
national bases. In selecting companies from the surveys for comparative
compensation purposes, the Committee considers a number of factors, such as
their size and organizational complexity, the nature of their businesses, the
regions in which they operate, the structure of their compensation programs
(including the extent to which they rely on bonuses and other contingent forms
of compensation) and the availability of compensation information. Because of
the nature of this selection process, there is no substantial correlation
between the companies chosen for comparative compensation purposes and those
companies included in the indices used to compare stockholder return in the
Stock Performance Chart which appears elsewhere in this proxy statement.
Using the survey data for the selected companies as a starting point,
the Committee evaluates each executive's level of performance as compared to the
performance of other officers within the Company to determine the executive's
base salary. Adjustments to each officer's base salary are considered annually
and are determined based upon: (i) changes in the level of base salaries of
comparable positions in the market, as determined on the basis of the survey
data, (ii) personal performance in the past fiscal year and (iii) the overall
performance of the Company. For the 1998 fiscal year, the base salaries of the
Company's executive officers ranged from the 25th to 75th percentile of the
salary levels in effect for comparable positions at the surveyed companies.
INCENTIVE COMPENSATION. For the 1998 fiscal year, a bonus
program was established under which each executive officer could earn a bonus on
the basis of the Company's attainment of pre-established revenue, and net
operating profit targets and that person's success in achieving the individual
performance goals predetermined for him. The potential bonus amount was
determined by each individual's base salary and job level,
15
and the actual bonus paid varied with the degree to which the performance
factors described above were attained. The amounts paid to each executive
officer under the program ranged from a high of $213,811 to a low of $48,384
for the 1998 fiscal year.
LONG-TERM STOCK-BASED INCENTIVE COMPENSATION. From time to
time, the Committee approves annual grants of stock options to each of the
Company's executive officers under the 1993 Plan. The grants are designed to
align the interests of each executive officer with those of the stockholders and
provide each individual with a significant incentive to manage the Company from
the perspective of an owner with an equity stake in the business. Each grant
generally allows the officer to acquire shares of the Company's Common Stock at
a fixed price per share (the market price on the grant date) over a specified
period of time (up to 10 years). The option generally becomes exercisable in a
series of annual installments over the officer's continued employment with the
Company. Accordingly, the option provides a return to the executive officer only
if the market price of the shares appreciates over the option term and the
officer continues in the Company's employ. The size of the option grant to each
executive officer is designed to create a meaningful opportunity for stock
ownership and is based upon the executive officer's current position with the
Company, internal comparability with option grants made to other Company
executives, the executive officer's current level of performance and the
executive officer's potential for future responsibility and promotion over the
option term. The Committee also takes into account the number of vested and
unvested options held by the executive officer in order to maintain an
appropriate level of equity incentive for that individual. However, the
Committee does not adhere to any specific guidelines as to the relative option
holdings of the Company's executive officers.
CEO COMPENSATION.
The Board of Directors named H. Lynn Hazlett as President and Chief
Executive Officer, effective February 10, 1997. The Company entered into a
formal employment agreement with him on that date and subsequently updated that
agreement on May 7, 1998. Under these agreements, Dr. Hazlett was paid a base
salary of $275,000 for the 1998 fiscal year, and his target bonus for the year
was set at $150,000. In addition, Dr. Hazlett was eligible for a $250,000 bonus
if consulting revenue exceeded a certain targeted amount in 1998. Dr. Hazlett
served as President and Chief Executive Officer until January 1998, and then as
Chief Executive Officer until July 1998, but remained employed with the Company
until the end of 1998. On the basis of the Compensation Committee's evaluation
of Dr. Hazlett's individual performance for the 1998 fiscal year, and the
Company's attainment of certain performance milestones based on revenue growth,
operating profit and new product introduction, he was awarded an incentive bonus
for the 1998 fiscal year in the amount of $75,000.
The Company entered into an employment agreement on December 24, 1997
with John S. Simon naming him President effective January 1998, and on July 9,
1998, Mr. Simon was named Chief Executive Officer. Under this employment
agreement, Mr. Simon was paid a base salary of $220,000 for fiscal 1998, and his
annualized target bonus was set at $160,000. However, on the basis of the
Compensation Committee's evaluation of Mr. Simon's individual performance for
the 1998 fiscal year and the Company's attainment of certain performance
milestones tied to revenue growth, operating profit and new product
introduction, he was awarded an incentive bonus for the 1998 fiscal year in the
amount of $213,811. In addition, on October 16, 1998, Mr. Simon was granted an
option to purchase an additional 40,000 shares of the Company's common stock at
an exercise price of $26.13 per share, the fair market value per share on the
grant date. The option will become exercisable in four successive equal annual
installments upon his completion of each year of service over the four-year
period measured from the grant date.
EMPLOYMENT CONTRACTS. In addition to the employment contracts with Dr.
Hazlett and Mr. Simon, the Compensation Committee deemed it advisable for the
Company to also enter into an employment agreement with Mr. Shawn M. O'Connor,
the President and Chief Operating Officer, in order to provide him with a
competitive compensation package designed to retain his services. The employment
contract with Mr. O'Connor provided him with a base salary of $210,000 for the
1998 fiscal year, plus additional incentive compensation of up to $130,000 for
such year based upon the achievement of specified individual and Company
performance targets. However, on the basis of the Compensation Committee's
evaluation of Mr. O'Connor's individual performance for
16
the 1998 fiscal year and the Company's attainment of certain performance
milestones tied to revenue growth, operating profit and new product
introduction, he was awarded an incentive bonus for the 1998 fiscal year in
the amount of $202,760. In addition, on October 16, 1998, Mr. O'Connor was
granted an option to purchase an additional 40,000 shares of the Company's
common stock at an exercise price of $26.13 per share, the fair market value
per share on the grant date. The option will become exercisable in four
successive equal annual installments upon his completion of each year of
service over the four-year period measured from the grant date.
Messrs. Simon and O'Connor will also be entitled to severance
benefits in the event their employment terminates while their employment
agreements remain in effect. Accordingly, each of them will be entitled to
the continuation of his total targeted annual compensation (salary and bonus)
and benefits for a period of 12 months in the event the Company were to
terminate his employment other than for cause. If there occurs a change of
control of the Company and their employment is terminated by the Company
without cause or they resign following a reduction in their salary or target
bonus by 15% or more, a reduction in their responsibilities or a relocation
of their principal place of employment by more than 50 miles, then each of
them will be entitled to continued target compensation and benefits for a
period of 12 months following their termination or resignation at the level
in effect at the time of such termination or resignation or (if greater) at
the time of the change in control. To the extent any of the stock options
held by Mr. Simon or Mr. O'Connor at the time of a change in control are not
assumed or otherwise continued in effect by the successor entity, those
options will vest and accelerate in full at the time of such change in
control. However, any options granted to Mr. Simon or Mr. O'Connor after
December 23, 1997 will immediately vest upon a change in control of the
Company, whether or not assumed or continued in effect, except to the extent
such acceleration would result in an excess parachute payment under the
federal tax laws. To the extent their post-December 23, 1997 options do not
accelerate at the time of the change in control because of such limitation,
acceleration will occur in the event their employment terminates within 24
months following such change in control.
TAX LIMITATION. As a result of Federal tax legislation enacted in
1993, a publicly held company such as the Company will not be allowed a
Federal income tax deduction for compensation paid to certain executive
officers, to the extent that compensation exceeds $1 million per officer in
any year. This limitation was in effect for the 1998 fiscal year, but the
compensation paid to the Company's executive officers for the 1998 fiscal
year did not exceed the $1 million limit per officer. In addition, the
stockholders approved at the 1994 Annual Meeting an amendment to the
Company's 1993 Plan which imposed a limit on the maximum number of shares of
Common Stock for which any one participant may be granted stock options,
stock appreciation rights and direct stock issuances over the remaining term
of the plan. The effect of this amendment to the 1993 Plan is to exempt from
the $1 million limitation any compensation deemed paid to an officer when he
exercises an outstanding option under the 1993 Plan. Because it is very
unlikely that the cash compensation payable to any of the Company's executive
officers in the foreseeable future will approach the $1 million limit, the
Compensation Committee has decided at this time not to take any other action
to limit or restructure the elements of cash compensation payable to the
Company's executive officers. The Compensation Committee will reconsider this
decision should the individual cash compensation of any executive officer
ever approach the $1 million level.
Submitted by the Compensation Committee of the Company's Board of
Directors:
Garth Saloner, Chairman
Garen K. Staglin, Member
Philip Schlein, Member
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of
Directors are currently Garth Saloner, Garen K. Staglin and Philip Schlein.
No member of the Compensation Committee was at any time during the 1998
fiscal year, or at any other time, an officer or employee of the Company. No
executive officer of the Company serves as a member of the Board of Directors or
Compensation Committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
17
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL AGREEMENTS
On March 8, 1999, the Company entered into a new employment agreement
with John S. Simon, the current Chief Executive Officer of the Company and a
member of the Board of Directors. Under the terms of the new agreement, Mr.
Simon is to be paid a base salary of $240,000 per year, subject to periodic
adjustments by the Board, and will be entitled to an additional incentive
compensation of up to $160,000 per year based upon the achievement of specified
individual and Company performance targets. Should the Company terminate Mr.
Simon's employment other than for cause, he will be entitled to the continuation
of his total targeted annual compensation (base salary and bonus) and benefits
for a period of 12 months. If there occurs a change of control of the Company
and Mr. Simon's employment is subsequently terminated other than for cause or he
resigns in connection with a reduction in his salary or target bonus by 15% or
more, a reduction in his responsibilities or a relocation of his principal place
of employment by more than 50 miles, then he will be entitled to the
continuation of his targeted annual compensation and benefits for a period of 12
months following such termination or resignation at the level in effect at the
time of such termination or resignation or (if greater) at the time of the
change in control. To the extent any stock options held by Mr. Simon at the time
of the change in control are not assumed or otherwise continued in effect by the
successor entity, those options will vest and accelerate in full at the time of
such change in control. However, any options granted to Mr. Simon after December
23, 1997 will immediately vest upon a change in control of the Company, whether
or not assumed or continued in effect, except to the extent such acceleration
would result in an excess parachute payment under the federal tax laws. To the
extent any of Mr. Simon's options do not accelerate at the time of the change in
control because of such limitation, full and immediate acceleration of those
post-December 23, 1997 options will occur in the event his employment terminates
within 24 months following such change in control.
On March 8, 1999, the Company entered into a new employment agreement
with Shawn M. O'Connor, the current President and Chief Operating Officer of the
Company. Under the new agreement, Mr. O'Connor is to be paid a base salary of
$225,000 per year, subject to periodic adjustments by the Board of Directors,
and will be entitled to an additional incentive compensation of up to $145,000
per year based upon the achievement of specified individual and Company
performance targets. The employment agreement is terminable by either party at
any time. Should the Company terminate Mr. O'Connor's employment other than for
cause, he will be entitled to the continuation of his total targeted annual
compensation (salary and bonus) and benefits for a period of 12 months. If there
occurs a change of control of the Company and Mr. O'Connor's employment is
subsequently terminated other than for cause or he resigns in connection with a
reduction in his salary or target bonus by 15% or more, a reduction in his
responsibilities or a relocation of his principal place of employment by more
than 50 miles, then he will be entitled to the continuation of his targeted
annual compensation and benefits for a period of 12 months following such
termination or resignation. To the extent any stock options held by Mr. O'Connor
at the time of the change in control are not assumed or otherwise continued in
effect by the successor entity, those options will vest and accelerate in full
at the time of such change in control. However, any options granted to Mr.
O'Connor after December 23, 1997 will immediately vest upon a change in control
of the Company, except to the extent such acceleration would result in an excess
parachute payment under the federal tax laws. To the extent any of Mr.
O'Connor's options do not accelerate at the time of the change in control
because of such limitation, full and immediate acceleration of those
post-December 23, 1997 options will occur in the event his employment terminates
within 24 months following such change in control
The Company has also entered into agreements with each of Peter Papano,
Glenn DuBois and William Hammack respectively, pursuant to which each of them
will be entitled to their continuation of their targeted annual compensation
(base salary and bonus) and benefits for a period of 12 months in the event the
Company terminates their employment other than for cause. If there occurs a
change of control and within the succeeding 24 months either their employment is
terminated without cause or they resign by reason of a reduction in their salary
of 15% or more, a reduction in their duties or a change in their principal place
of employment by more than 50 miles, then each will be entitled to the
continuation of their targeted annual compensation and benefits for a period of
12 months, and their initial option grants for 35,000, 30,000 and 25,000 shares,
respectively, will accelerate and vest in full. In addition, should there occur
a change of control prior to the full vesting of such officer's initial option
grant
18
and that officer continues in the employ of the successor company for a
period of 12 months, then his initial option will accelerate and vest upon
the completion of that 12 month period of employment following the change of
control.
The Compensation Committee of the Board of Directors has the authority
as Plan Administrator of the 1993 Plan to provide for the accelerated vesting of
the shares of Common Stock subject to outstanding options held by the Chief
Executive Officer and the Company's other executive officers, whether granted
under that plan or any predecessor plan, in the event their employment were to
be terminated (whether involuntarily or through a forced resignation) following
(i) an acquisition of the Company by merger or asset sale, (ii) a change in
ownership of more than 50% of the Company's outstanding Common Stock or (iii) a
change in the majority of the Board as a result of one or more contested
elections for Board membership. The Compensation Committee also has the
authority under the 1993 Plan to accelerate the vesting of outstanding options
immediately upon such acquisition or change in ownership or majority of the
Board.
19
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
the Common Stock of the Company with that of the S&P 500 Stock Index, a broad
market index published by Standard & Poor's Corporation, and a selected retail
processing services company stock index compiled by BT Alex. Brown Incorporated.
The comparison for each of the periods assumes that $100 was invested on August
5, 1993 (the date of the Company's initial public offering) in the Company's
Common Stock, the stocks included in the S&P 500 Stock Index and the stocks
included in the retail processing services company index. These indices, which
reflect formulas for dividend reinvestment and weighing of individual stocks, do
not necessarily reflect returns that could be achieved by individual investors.
COMPARISON OF YEARLY CUMULATIVE TOTAL RETURN
AMONG QRS, S&P 500 INDEX AND PROCESSING SERVICES COMPANY INDEX
(CHART)
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
COMPANY'S PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE EXCHANGE
ACT THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN
WHOLE OR IN PART, THE PRECEDING COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION AND THE PRECEDING PERFORMANCE GRAPH SHALL NOT BE INCORPORATED BY
REFERENCE INTO ANY SUCH FILINGS, NOR SHALL SUCH REPORT OR GRAPH BE
INCORPORATED BY REFERENCE INTO ANY FUTURE FILINGS.
20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of December 31, 1998, by (i) all
persons known by the Company to be beneficial owners of five percent or more of
its outstanding Common Stock, (ii) each director of the Company, (iii) the Named
Executive Officers and (iv) all executive officers and directors of the Company
as a group.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP (1)
--------------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ------------------------------------ -------------------- ----------------------
Warburg Pincus Asset Management, Inc. (2) 1,497,300 17.44%
466 Lexington Avenue
New York, NY 10017
Peter R. Johnson (3) 957,500 11.13%
1400 Marina Way South
Richmond, CA 94804
Brown Investment Advisory & Trust Company (4) 839,953 9.78%
125 High Street, 29th Floor
Boston, MA 02110
Tania Amochaev (3) 95,057 1.10%
Paul Benchener (3) 16,238 *
Steven D. Brooks (5) 32,500 *
John P. Dougall (3) 9,582 *
Glenn DuBois 10,000 *
H. Lynn Hazlett (3) 189,785 2.16%
Shawn M. O'Connor (3) 70,584 *
Peter Papano -- --
Garth Saloner (3) 22,500 *
Philip Schlein (3) 7,500 *
John S. Simon (3) 71,501 *
Garen K. Staglin (3) 41,500 *
Philip Swift (3) 17,761 *
Philip Woodworth (3) 34,126 *
All current executive officers and directors as a group (15 1,576,134 18.25%
persons) (6)
- ------------------
* Less than one percent.
(1) Assumes 8,587,241 shares outstanding as of December 31, 1998. Beneficial
ownership is determined under the rules of the Securities and Exchange
Commission ("SEC") and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to options, warrants and
convertible notes currently exercisable or convertible, or exercisable or
convertible within 60 days after December 31, 1998, are deemed outstanding for
computing the percentage of the person holding such options but are not deemed
outstanding for computing the percentage of any other person. Except as
indicated by footnote, and subject to community property laws where applicable,
the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
21
(2) Pursuant to a Schedule 13G dated January 21, 1998, and filed with the SEC,
Warburg, Pincus Asset Management, Inc. has reported that as of December 31,
1998, it had sole voting power over 1,171,000 of such shares, shared voting
power over 317,100 of such shares, and dispositive power over all of such
shares.
(3) The amounts shown include the following shares issuable upon exercise of
options to purchase shares of Common Stock that are currently exercisable or
will become exercisable within 60 days after December 31, 1998: Mr. Johnson,
17,500; Ms. Amochaev, 91,536; Mr. Benchener, 15,000; Mr. Dougall, 9,582; Mr.
DuBois, 10,000, Dr. Hazlett, 188,227; Mr. O'Connor, 70,000; Mr. Saloner, 22,500;
Mr. Schlein, 7,500; Mr. Simon, 68,000; Mr. Staglin, 13,750; Mr. Swift, 17,500
and Mr. Woodworth, 33,700.
(4) Pursuant to a Schedule 13G dated February 17, 1999, and filed with the SEC,
Brown Investment Advisory & Trust Company ("BIATC") has sole dispositive power
over 230,286 shares and Brown Advisory Inc. has sole dispositive power over
609,667 shares. Brown Advisory Inc. is a wholly-owned subsidiary of BIATC.
(5) Represents 10,000 shares issuable upon exercise of warrants to purchase
shares of Common Stock that are currently exercisable and will become
exercisable within 60 days after December 31, 1998, and 22,500 shares issuable
upon exercise of options to purchase shares of Common Stock that are currently
exercisable or will become exercisable within 60 days after December 31, 1998.
(6) The amount shown includes 597,295 shares issuable upon exercise of options
and warrants to purchase shares of Common Stock that are currently exercisable
or will become exercisable within 60 days after December 31, 1999.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than 10% stockholders are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely upon a review of copies of
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 1998, all the
Company's officers, directors and greater than 10% stockholders complied with
the applicable Section 16(a) filing requirements, except that each of the
following individuals filed a late Form 5 report with respect to a stock option
grant made to him or her during the 1998 fiscal year: Tania Amochaev, Glenn
DuBois John Dougall, Peter Johnson, Shawn O'Connor, Peter Papano, Garth Saloner,
Philip Schlein, John Simon, Garen Staglin and Philip Swift, and Philip
Woodworth. Form 5 reports were filed by these individuals on March 29, 1999.
22
-----------------------------------------------------
PROPOSAL NO. 2:
APPROVAL OF AMENDMENTS TO THE
1993 STOCK OPTION/STOCK ISSUANCE PLAN
-----------------------------------------------------
GENERAL
The stockholders are being asked to vote on a proposal to approve a
series of amendments to the Company's 1993 Stock Option/Stock Issuance Plan (the
"1993 Plan"), including (i) an increase of 400,000 shares of Common Stock to the
share reserve, (ii) an increase to the number of shares of Common Stock subject
to both the initial and annual option grants made to non-employee Board members
under the Automatic Option Grant Program from 5,000 shares to 10,000 shares,
(iii) a new automatic option grant for an additional 10,000 shares to be made
each year to each non-employee Board member serving as the Chairperson of any
Board committee and (iv) a change to the date on which the annual automatic
option grants are to be made to the non-employee Board members and Chairpersons
from the date of the Annual Stockholders Meeting to the first trading day in
January each year, beginning with calendar year 2000.
The Board of Directors believes that the proposed increase to the share
reserve under the 1993 Plan is necessary to assure that there is a sufficient
number of shares available for issuance under the 1993 Plan in order to attract
and retain the services of individuals essential to the Company's long-term
success. The proposed changes to the option grants to be made to the
non-employee Board members under the Automatic Option Grant Program are designed
to make the equity compensation package for such individuals more competitive so
that the Company will continue to have the ability to retain the services of
highly-qualified and experienced non-employee Board members. The Compensation
Committee of the Board of Directors reviewed several surveys of board
compensation, and as a result of that review, concluded that the increase to the
number of shares subject to the initial and annual stock option grants for the
non-employee Board members was necessary to attract and retain skilled directors
and to strengthen the mutuality of interests between the members of the Board
and the Company's stockholders.
The Board has also made two additional amendments to the 1993 to
address certain concerns of the Company's stockholders. The first amendment
eliminates the provisions of the 1993 Plan which authorize the Plan
Administrator to cancel outstanding options with exercise prices in excess of
the then current market price of the Common Stock and issue replacement options
with an exercise price based on the lower market price of Common Stock at the
time of the new grant. The second amendment will require all option grants made
under the 1993 Plan to have an exercise price per share not less than the fair
market value of the Company's Common Stock on the grant date.
The Board approved the amendments to the 1993 Plan on February 15,
1999, subject to stockholder approval at the Annual Meeting. The affirmative
vote of a majority of the shares of Common Stock present or represented and
entitled to vote at the Annual Meeting is required for approval of the
amendments to the 1993 Plan.
1993 PLAN BACKGROUND
The 1993 Plan was originally adopted by the Board in June 1993 and
approved by the stockholders in July 1993. The 1993 Plan became effective in
connection with the initial public offering of the Common Stock and serves as
the successor to the Company's 1990 Stock Option Plan (the "1990 Plan"). Each
option outstanding under the 1990 Plan was incorporated into the 1993 Plan, and
no further option grants have been made under the 1990 Plan since the 1993 Plan
became effective. The 1993 Plan has been amended on several occasions to
increase the number of shares of Common Stock available for issuance thereunder
and was also amended in 1994 to establish a
23
limit on the number of shares of Common Stock for which any one individual
may be granted stock options, separately exercisable stock appreciation
rights and direct under the 1993 Plan.
The following is a summary of the principal features of the 1993
Plan as most recently amended. The summary, however, does not purport to be a
complete description of all the provisions of the 1993 Plan. Any stockholder
who wishes to obtain a copy of the actual plan document may do so by written
request to the attention of Investor Relations of the Company at the
Company's corporate offices in Richmond, California.
STRUCTURE OF THE 1993 PLAN
The 1993 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program, (ii) the Automatic Option Grant Program
and (iii) the Stock Issuance Program. Under the Discretionary Option Grant
Program, options may be issued to key employees (including officers and
directors), non-employee Board members and consultants and other independent
advisors in the service of the Company (or its parent or subsidiary
companies) who contribute to the management, growth and financial success of
the Company (or its parent or subsidiary companies). Under the Automatic
Option Grant Program, option grants are automatically made at periodic
intervals to non-employee members of the Board. Under the Stock Issuance
Program, key employees (including officers and directors), non-employee Board
members and consultants and other independent advisors in the service of the
Company (or its parent or subsidiary companies) who contribute to the
management, growth and financial success of the Company (or its parent or
subsidiary companies) may be issued shares of Common Stock directly either
through the purchase of such shares or as a bonus tied to the performance of
services or the Company's attainment of financial objectives.
As of February 28, 1999, 303 employees (including seven executive
officers and eight non-employee Board members) were eligible to participate
in the Discretionary Option Grant and Stock Issuance Programs, and the seven
non-employee Board members were also eligible to receive grants under the
Automatic Option Grant Program.
SECURITIES SUBJECT TO 1993 PLAN
Assuming stockholder approval of this Proposal, 2,600,000 shares of
the Company's Common Stock will be authorized for issuance over the 10-year
term of the 1993 Plan. As of February 28, 1999, options for 1,368,975 shares
were outstanding, and 425,096 shares remained available for future option
grant, assuming stockholder approval of this Proposal. The shares will be
made available either from the Company's authorized but unissued Common Stock
or from Common Stock reacquired by the Company.
In December 1997, the Company also implemented the Special
Non-Officer Stock Option Plan, pursuant to which 150,000 shares have been
reserved for issuance to employees of the Company who are not officers or
Board members. The provisions of such supplemental plan are substantially the
same as those in effect under the Discretionary Option Grant Program of the
1993 Plan. On February 15, 1999 the Board approved an expansion of this plan
by an additional 150,000 shares to 300,000 shares. As of February 28, 1999,
options for 143,280 shares were outstanding under that plan, no shares had
actually been issued pursuant to the granted options, and 153,950 shares
remained available of future option grants.
In no event may any one individual participating in the 1993 Plan be
granted stock options or separately-exercisable stock appreciation rights or
receive direct stock issuances for more than 500,000 shares of Common Stock
in the aggregate under the 1993 Plan after December 31, 1993. Stockholder
approval of this Proposal will also constitute reapproval of such limitation.
In the event any change is made to the common stock issuable under
the 1993 Plan by reason of any stock split, stock dividend, combination of
shares, merger, reorganization, consolidation, recapitalization, exchange of
shares, or other change in capitalization of the Company affecting the common
stock as a class without the Company's receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and/or class of securities
issuable
24
under the 1993 Plan, (ii) the maximum number and/or class of securities for
which any one individual may be granted stock options, separately exercisable
stock appreciation and direct stock issuances under the 1993 Plan after
December 31, 1993, (iii) the class and/or number of securities and option
price per share in effect under each outstanding option, and (iv) the class
and/or number of securities for which automatic option grants are to be
subsequently made to newly-elected and continuing non-employee Board members
under the Automatic Option Grant Program. The adjustments to the outstanding
options will prevent the dilution or enlargement of benefits thereunder.
The grant of stock options or stock appreciation rights under the 1993
Plan will not affect the right of the Company to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate, sell, or transfer all or any part of its business or
assets.
ADMINISTRATION
The 1993 Plan (other than the Automatic Option Grant Program) will be
administered by the Compensation Committee of the Board. This committee (the
"Plan Administrator") will have complete discretion (subject to the provisions
of the 1993 Plan) to authorize option grants and direct stock issuances under
the 1993 Plan. However, all grants under the Automatic Option Grant Program will
be made in strict compliance with the provisions of that program, and no
administrative discretion will be exercised by the Plan Administrator with
respect to the grants made thereunder.
OPTIONS GRANTED
The table below shows, as to each of the Named Executive Officers and
the various indicated groups, the following information with respect to stock
option transactions effected during the period from January 1, 1998 to March 13,
1999: (i) the number of shares of Common Stock subject to options granted under
the 1993 Plan during that period and (ii) the weighted average exercise price
payable per share under such options.
No direct stock issuances have been made to date under the 1993 Plan.
NUMBER OF WEIGHTED AVERAGE EXERCISE
NAME AND POSITION OPTION SHARES PRICE OF GRANTED OPTIONS
- ----------------- ------------- -------------------------
Paul Benchener -- --
Former Vice President, Marketing
Glenn DuBois 20,000 $26.125
Vice President, Sales
H. Lynn Hazlett -- --
Former Chief Executive Officer, and Director
Shawn M. O'Connor 40,000 $26.125
President and Chief Operating Officer
John S. Simon 40,000 $26.125
Chief Executive Officer and Director
Philip Swift 5,000 $26.125
Vice President, Information Services
Philip Woodworth 10,000 $26.125
Vice President, Product Marketing
25
DISCRETIONARY OPTION GRANT PROGRAM AND STOCK ISSUANCE PROGRAM
Options granted under the Discretionary Option Grant Program may be
either incentive stock options under the federal tax laws or non-statutory
options which are not intended to meet such requirements. The principal
features of the grants made under the Discretionary Option Grant Program and
the direct issuances made under the Stock Issuance Program may be summarized
as follows:
EXERCISE PRICE AND EXERCISABILITY
The exercise price per share must not be less than 100% of the fair
market value per share of the Common Stock on the grant date. No option may
be outstanding for more than a 10-year term. The purchase price for any
shares sold under the Stock Issuance Program may not be less than 100% of the
fair market value of the shares on the date of issuance. Shares may also be
issued under the Stock Issuance Program for non-cash consideration, such as a
bonus for past services rendered to the Company or as an incentive tied to
future service or the Company's attainment of performance milestones.
The Plan Administrator may also assist any optionee (including an
officer) in the exercise of outstanding options under the Discretionary
Option Grant Program or in the purchase of shares under the Stock Issuance
Program by authorizing a loan from the Company or permitting such individual
to pay the exercise price or purchase price through a promissory note payable
in installments over a period of years. The terms and conditions of any such
loan or promissory note will be established by the Plan Administrator in its
sole discretion, but in no event may the maximum credit extended to such
individual exceed the aggregate price payable for the purchased shares (less
the par value), plus any Federal and state income or employment taxes
incurred in connection with the purchase. The Plan Administrator may also
provide for the forgiveness of any outstanding loan or promissory note over
the individual's period of continued service with the Company.
STOCKHOLDER RIGHTS AND OPTION TRANSFERABILITY
No optionee will have any stockholder rights with respect to the option
shares until such optionee has exercised the option and paid the exercise
price for the purchased shares. Options are generally not assignable or
transferable other than by will or the laws of inheritance and, during the
optionee's lifetime, the option may be exercised only by such optionee.
However, the Plan Administrator may allow non-statutory options to be
transferred or assigned during the optionee's lifetime to one or more members
of the optionee's immediate family or to a trust established exclusively for
one or more such family members, to the extent such transfer or assignment is
in furtherance of the optionee's estate plan.
TERMINATION OF SERVICE
The Plan Administrator has complete discretion to establish the
period of time for which any option is to remain exercisable following the
optionee's cessation of service with the Company. Under no circumstances may
an option be exercised after the specified expiration date of the option
term. Each option under the Discretionary Option Grant Program will be
exercisable only to the extent of the number of shares for which such option
is exercisable at the time of the optionee's cessation of employment or
service. However, the Plan Administrator has the discretion, exercisable at
any time while the option remains outstanding, to accelerate the
exercisability of such option in whole or in part.
CORPORATE TRANSACTION
In the event of a Corporate Transaction (defined below), each
outstanding option under the Discretionary Option Grant Program which is not
to be assumed by the successor corporation or which is to be replaced with a
cash incentive program which preserves the existing option spread on the
unvested option shares will automatically accelerate in full, and all
unvested shares under the Stock Issuance Program will immediately vest,
except to the extent the Company's repurchase rights with respect to those
shares are to be assigned to the successor corporation.
26
The Plan Administrator will have the discretion to structure one or more
option grants under the Discretionary Option Grant Program or one or more
unvested shares issuances under the Stock Issuance Program so that those
options or shares will automatically vest in the event the individual's
service is subsequently terminated within a specified period following a
Corporate Transaction in which those options and shares do not otherwise vest
on an accelerated basis. The Plan Administrator may also structure one or
more option grants under the Discretionary Option Grant Program and one or
more unvested share issuances under the Stock Issuance Program so that those
options will automatically accelerate upon a Corporate Transaction. Option
grants made to certain executive officers of the Company may vest on an
accelerated basis in connection with an acquisition or other change in
control of the Company. For further information concerning such acceleration
provisions, please see the "Executive Compensation--Employment Contracts,
Termination of Employment and Change-in-Control Agreements" section above.
A Corporate Transaction includes one or more of the following
stockholder-approved transactions: (i) a merger or acquisition in which the
Company is not the surviving entity (other than a transaction the principal
purpose of which is to change the state of the Company's incorporation), (ii)
the sale, transfer or other disposition of all or substantially all of the
Company's assets in complete liquidation or dissolution of the Company or
(iii) any reverse merger in which the Company is the surviving entity but in
which more than 50% of the Company's outstanding voting stock is transferred
to the acquiring entity or its wholly owned subsidiary.
CHANGE IN CONTROL
The Plan Administrator will have the discretionary authority to
provide for automatic acceleration of outstanding options under the
Discretionary Option Grant Program and the automatic vesting of outstanding
shares under the Stock Issuance Program in connection with a Change in
Control, with such acceleration or vesting to occur either at the time of the
Change in Control or upon the subsequent termination of the participant's
service.
A Change in Control will be deemed to occur under the 1993 Plan
upon: (i) the acquisition of more than 50% of the Company's outstanding
voting stock pursuant to a tender or exchange offer made directly to the
Company's stockholders or (ii) a change in the composition of the Board of
Directors over a period of 36 months or less such that a majority of the
Board members ceases, by reason of one or more proxy contests for the
election of Board members, to be comprised of individuals who either (a) have
been members of the Board continuously since the beginning of such period or
(b) have been elected or nominated for election as Board members during such
period by at least a majority of the Board members described in clause (a)
who were still in office at the time such election or nomination was approved
by the Board.
The acceleration of vesting in the event of a change in the
ownership or control of the Company may be seen as an anti-takeover provision
and may have the effect of discouraging a merger proposal, a takeover attempt
or other efforts to gain control of the Company.
STOCK APPRECIATION RIGHTS
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
TANDEM STOCK APPRECIATION RIGHTS provide the holders with the
right to surrender their options for an appreciation distribution from
the Company equal in amount to the excess of (a) the fair market value
of the vested shares of Common Stock subject to the surrendered option
over (b) the aggregate exercise price payable for such shares. Such
appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash or in shares of Common Stock.
27
LIMITED STOCK APPRECIATION RIGHTS may be granted to officers
of the Company as part of their option grants. Any option with such a
limited stock appreciation right may be surrendered to the Company upon
the successful completion of a Hostile Take-Over of the Company. In
return for the surrendered option, the officer will be entitled to a
cash distribution from the Company in an amount per surrendered option
share equal to the excess of (a) the Take-Over Price per share over (b)
the exercise price payable for such share.
For purposes of such option cash-out provisions, the following
definitions are in effect under the 1993 Plan:
Hostile Take-Over: the direct or indirect acquisition by any
person or related group of persons (other than the Company or its
affiliates) of securities possessing more than 50% of the total
combined voting power of the Company's outstanding securities pursuant
to a tender or exchange offer made directly to the Company's
stockholders which the Board does not recommend that such stockholders
accept.
Take-Over Price: the greater of (A) the fair market value of
the shares of Common Stock subject to the surrendered option, measured
on the surrender date in accordance with the valuation provisions of
the 1993 Plan described above, or (B) the highest reported price per
share paid by the tender offeror in effecting the Hostile Take-Over.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of non-statutory
options or unvested shares under the Discretionary Option Grant Program or the
Stock Issuance Program with the right to have the Company withhold a portion of
the shares of Common Stock otherwise issuable to such individuals upon the
exercise of those options or vesting of those shares in order to satisfy the
Federal and state income and employment withholding taxes to which such
individuals may become subject in connection with such exercise or vesting.
Alternatively, the Plan Administrator may allow such individuals to deliver
already existing shares of the Company's Common Stock in payment of such tax
liability.
AUTOMATIC OPTION GRANT
Under the Automatic Option Grant Program, non-employee Board members
will receive option grants at specified intervals over their period of Board
service. All grants under such program will be made in strict compliance with
the express provisions of the program, and stockholder approval of this Proposal
will also constitute pre-approval of each option granted on or after the date of
the Annual Meeting pursuant to the provisions of the amended provisions of the
Automatic Option Grant Program summarized below and the subsequent exercise of
that option in accordance with such provisions.
On the date of the 1999 Annual Meeting, each individual who will
continue to serve as a non-employee Board member will be granted an option to
purchase 5,000 shares of Common Stock with an exercise price per share equal to
the closing selling price per share of Common Stock on that date.
Each individual who is first elected or appointed as a non-employee
Board member at any time after the 1999 Annual Meeting will automatically be
granted, at the time of such initial election or appointment, a non-statutory
option to purchase 10,000 shares of Common Stock, provided such individual has
not previously been in the employ of the Company.
On the first trading day in January each year, beginning with calendar
year 2000, each individual who is at the time serving as a non-employee Board
member will automatically be granted an option to purchase 10,000 shares of
Common Stock, and each individual who is also at the time serving as a
Chairperson of any Board
28
committee will automatically be granted a second option for an additional
10,000 shares, provided in each instance that the individual has served as a
non-employee Board member for at least six months.
Prior to the February 1999 amendments to the Automatic Option Grant,
continuing non-employee Board members received an annual option grant for
5,000 shares at each Annual Stockholders Meeting, and newly-elected or
appointed non-employee Board members received a 5,000-share option grant at
the time of their initial appointment or election.
Each option grant under the Automatic Option Grant Program will have
an exercise price per share equal to 100% of the fair market value per share
of Common Stock on the grant date and a maximum term of 10 years measured
from such date, subject to earlier termination upon the optionee's cessation
of Board service. Each option will become exercisable for the option shares
in four successive equal annual installments commencing six months after the
grant date, provided the non-employee Board member continues to serve as a
Board member.
The option will remain exercisable for a six-month period following
the optionee's cessation of Board service for any reason other than death or
permanent disability. Should the optionee die while in Board service or
within six months after his or her cessation of Board service, then the
option will remain exercisable for a twelve-month period following such
optionee's death and may be exercised by the personal representative of the
optionee's estate or the person to whom the grant is transferred by the
optionee's will or the laws of inheritance. Should the optionee cease Board
service by reason of permanent disability, then he or she will have a
twelve-month period in which to exercise the option. In no event, however,
may any option be exercised after the expiration date of the option term.
During the applicable exercise period, the option may not be exercised for
more than the number of shares (if any) for which the option is exercisable
at the time of his or her cessation of Board service.
The shares subject to each automatic option grant will immediately
vest should any of the following events occur during optionee's period of
Board service: (i) the optionee's death or permanent disability or (ii) a
Corporate Transaction or Change in Control. In addition, upon the successful
completion of a Hostile Take-Over, each automatic option grant may be
surrendered to the Company for a cash distribution per surrendered option
share in an amount equal to the excess of (a) the Take-Over Price per share
over (b) the exercise price payable for such share. Stockholder approval of
this Proposal will also constitute pre-approval of each option granted with
such a surrender right on or after the date of the Annual Meeting and the
subsequent exercise of that right in accordance with the foregoing provisions.
GENERAL PROVISIONS OF THE 1993 PLAN
VALUATION
The fair market value per share of Common Stock under the 1993 Plan
on any relevant date will be the closing selling price on the date in
question, as reported on the Nasdaq National Market. On March 15, 1999, the
fair market value per share of the Common Stock determined on such basis was
$48.875 per share.
AMENDMENT AND TERMINATION OF THE 1993 PLAN
The Board may amend or modify the 1993 Plan in any or all respects
whatsoever subject to any stockholder approval required under applicable law
or regulation. The Board may terminate the 1993 Plan at any time, but in any
event the 1993 Plan will terminate on December 31, 2003.
NEW PLAN BENEFITS
As of March 15, 1999, no options have been granted, and no direct stock
issuances have been made, on the basis of the 400,000-share increase that forms
part of this Proposal No. 2. If such proposal is approved by the stockholders at
the Annual Meeting, then each individual who will continue to serve as a
non-employee Board member will, on the date of the Annual Meeting, receive an
option grant under the Automatic Option Grant Program to
29
purchase 5,000 shares of Common Stock with an exercise price per share equal
to the closing selling price per share of Common Stock on that date. In
addition, each individual serving as a non-employee Board member on the first
trading day in January 2000 will receive an option grant under the Automatic
Option Grant Program for 10,000 shares of Common Stock, and each individual
who is also at that time serving as a Chairperson of any Board committee will
receive a second option grant under the Automatic Option Grant Program for an
additional 10,000 shares of Common Stock, provided in each instance the
individual has served as a non-employee Board member for at least six months.
Each such option will have an exercise price per share equal to the closing
selling price per share of the Common Stock on that date.
FEDERAL TAX CONSEQUENCES
Options granted under the 1993 Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code or non-statutory options which are not intended to satisfy such
requirements. The Federal income tax treatment for the two types of options
differs as follows:
INCENTIVE STOCK OPTIONS. No taxable income is recognized by the
optionee at the time of the option grant, and no taxable income is generally
recognized at the time the option is exercised. The optionee will, however,
recognize taxable income in the year in which the purchased shares are sold
or otherwise made the subject of disposition.
For Federal income tax purposes, dispositions are divided into two
categories: (i) qualifying and (ii) disqualifying. The optionee will make a
qualifying disposition of the purchased shares if the sale or disposition is
made more than two years after the grant date of the option and more than one
year after the exercise date. If the optionee fails to satisfy either of
these two holding periods prior to the sale or disposition, then a
disqualifying disposition of the purchased shares will result.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the excess of (i) the
fair market value of such shares on the date the option was exercised over
(ii) the exercise price paid for such shares. In no other instance will the
Company be allowed a deduction with respect to the optionee's disposition of
the purchased shares. The Company anticipates that any compensation deemed
paid by the Company upon one or more disqualifying dispositions of incentive
stock option shares will not have to be taken into account for purposes of
the $1 million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company.
NON-STATUTORY OPTIONS. No taxable income is recognized by an
optionee upon the grant of a non-statutory option. The optionee will in
general recognize ordinary income in the year in which the option is
exercised equal to the excess of the fair market value of the purchased
shares on the exercise date over the exercise price, and the optionee will be
required to satisfy the tax withholding requirements applicable to such
income.
If the shares acquired upon exercise of a non-statutory option are
subject to a substantial risk of forfeiture (such as the Company's right to
repurchase unvested shares at the original exercise price paid per share,
upon the optionee's cessation of service prior to vesting in those shares),
then the optionee will not recognize any taxable income at the time the
option is exercised for such unvested shares but will have to report as
ordinary income, as and when the shares vest, an amount equal to the excess
of (a) the fair market value of the shares on the vesting date over (b) the
exercise price paid for the shares. The optionee may, however, elect under
Section 83(b) of the Internal Revenue Code to include as ordinary income in
the year of exercise an amount equal to the difference between the fair
market value of the purchased shares on the date of exercise (determined as
if the unvested shares were not subject to the Company's repurchase right)
and the exercise price paid for the shares. If the Section 83(b) election is
made, the optionee will not recognize any additional income as and when the
shares vest.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee in connection with the
exercise of the non-statutory option. The deduction will in
30
general be allowed for the taxable year of the Company in which such ordinary
income is recognized by the optionee. The Company anticipates that the
compensation deemed paid by the Company upon the exercise of non-statutory
options will not have to be taken into account for purposes of the $1 million
limitation per covered individual on the deductibility of the compensation
paid to certain executive officers of the Company.
STOCK APPRECIATION RIGHTS. If an option granted with a tandem stock
appreciation right is surrendered for an appreciation distribution, or if an
option granted with a limited stock appreciation right is cancelled for an
appreciation distribution, the recipient will generally realize ordinary
income on the surrender or cancellation date, equal in amount to the
appreciation distribution. The Company will be entitled to a deduction equal
to the amount of such ordinary income.
DIRECT STOCK ISSUANCE. The tax principles applicable to direct stock
issuances under the 1993 Plan will be substantially the same as those
summarized above for the exercise of non-statutory option grants.
ACCOUNTING TREATMENT
Under the current accounting principles in effect for equity
incentive programs such as the 1993 Plan, the option grants under the 1993
Plan will not result in any charge to the Company's earnings, but the Company
must disclose, in pro-forma statements to the Company's financial statements,
the impact the option grants would have upon the Company's reported earnings
were the fair value of those options at the time of grant treated as
compensation expense. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis.
Under a recently-proposed amendment to the current accounting
principles, option grants made to non-employee Board members or consultants
after December 15, 1998 will result in a direct charge to the Company's
reported earnings based upon the fair value of the option measured initially
as of the grant date and then subsequently on the vesting date of each
installment of the underlying option shares. Such charge will accordingly
include the appreciation in the value of the option shares over the period
between the grant date of the option (or, if later, the effective date of the
final amendment) and the vesting date of each installment of the option
shares.
Should one or more optionees be granted stock appreciation rights
under the 1993 Plan that have no conditions upon exercisability other than a
service or employment requirement, then such rights would result in a
compensation expense to be charged against the Company's reported earnings.
Accordingly, at the end of each fiscal quarter, the amount (if any) by which
the fair market value of the shares of common stock subject to such
outstanding stock appreciation rights has increased from the prior
quarter-end would be accrued as compensation expense, to the extent such fair
market value is in excess of the aggregate exercise price in effect for those
rights.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the shares represented and
voted at the Annual Meeting is required for approval of the amendment to the
1993 Plan. If stockholder approval of the amendments to the 1993 Plan is not
obtained, then any options granted on the basis of the 400,000-share increase
will terminate without becoming exercisable for any of the shares of Common
Stock subject to those options, and no further options will be granted on the
basis of such share increase. In addition, none of the amendments to the
Automatic Option Grant Program for the non-employee Board members will become
effective. However, the 1993 Plan will continue to remain in effect,
31
and option grants and direct stock issuances may continue to be made pursuant to
the provisions of the 1993 Plan, including the Automatic Option Grant Program,
as in effect prior to the amendments summarized in this Proposal No. 2, until
the available reserve of Common Stock as last approved by the stockholders has
been issued pursuant to option grants and direct stock issuances made under the
1993 Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the amendments to the 1993 Plan
are necessary in order to continue to provide equity incentives to attract and
retain the services of key employees, consultants and non-employee Board
members.
FOR THIS REASON, THE BOARD OF DIRECTORS RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE A SERIES OF AMENDMENTS TO THE
COMPANY'S 1993 STOCK OPTION/STOCK ISSUANCE PLAN, INCLUDING (i) AN INCREASE OF
400,000 SHARES OF COMMON STOCK TO THE SHARE RESERVE, (ii) AN INCREASE TO THE
NUMBER OF SHARES OF COMMON STOCK SUBJECT TO BOTH THE INITIAL AND ANNUAL OPTION
GRANTS MADE TO NON-EMPLOYEE BOARD MEMBERS UNDER THE AUTOMATIC OPTION GRANT
PROGRAM FROM 5,000 SHARES TO 10,000 SHARES, (iii) A NEW AUTOMATIC OPTION GRANT
FOR AN ADDITIONAL 10,000 SHARES TO BE MADE EACH YEAR TO EACH NON-EMPLOYEE BOARD
MEMBER SERVING AS THE CHAIRPERSON OF ANY BOARD COMMITTEE AND (iv) A CHANGE TO
THE DATE ON WHICH THE ANNUAL AUTOMATIC OPTION GRANTS ARE TO BE MADE TO THE
NON-EMPLOYEE BOARD MEMBERS AND CHAIRPERSONS FROM THE DATE OF THE ANNUAL
STOCKHOLDERS MEETING TO THE FIRST TRADING DAY IN JANUARY EACH YEAR, BEGINNING
WITH CALENDAR YEAR 2000.
32
-------------------------------------------------------------
PROPOSAL NO. 3:
RATIFICATION OF INDEPENDENT AUDITORS
-------------------------------------------------------------
The Company is asking the stockholders to ratify the selection of
Deloitte & Touche LLP as the Company's independent auditors for the fiscal year
ending December 31, 1999. The affirmative vote of the holders of a majority of
the shares represented and voting at the Annual Meeting will be required to
ratify the selection of Deloitte & Touche LLP.
In the event the stockholders fail to ratify the appointment, the Audit
Committee of the Board of Directors will consider it as a direction to select
other auditors for the subsequent year. Even if the selection is ratified, the
Board in its discretion may direct the appointment of a different independent
accounting firm at any time during the year if the Board determines that such a
change would be in the best interest of the Company and its stockholders.
Deloitte & Touche LLP has audited the Company's financial statements
annually since 1988. Its representatives are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they desire to
do so, and will be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PROPOSAL TO RATIFY THE SELECTION OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
33
OTHER BUSINESS
The Board of Directors knows of no other business that will be
presented for consideration at the Annual Meeting. If other matters are properly
brought before the Annual Meeting, however, it is the intention of the persons
named in the accompanying proxy to vote the shares represented thereby on such
matters in accordance with their best judgment.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's Annual Meeting of Stockholders to be held in calendar year 2000 must
be received by December 3, 1999, in order to be included in the proxy statement
and proxy relating to that meeting.
In addition, the proxy solicited by the Board of Directors for the
Annual Stockholders Meeting in calendar year 2000 will confer discretionary
authority to vote on any shareholder proposal presented at that meeting, unless
the Company is provided with notice of such proposal no later than February 21,
2000.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Shawn M. O'Connor
SHAWN M. O'CONNOR
PRESIDENT AND CHIEF OPERATING OFFICER
April 5, 1999
34
QRS CORPORATION
1993 STOCK OPTION/STOCK ISSUANCE PLAN
(AS AMENDED AND RESTATED FEBRUARY 15, 1999)
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1993 Stock Option/Stock Issuance Plan ("Plan") is
intended to promote the interests of QRS Corporation, a Delaware corporation
(the "Corporation"), by providing (i) key employees (including officers) of the
Corporation (or its parent or subsidiary corporations) who are responsible for
the management, growth and financial success of the Corporation (or its parent
or subsidiary corporations), (ii) the non-employee members of the Corporation's
Board of Directors and (iii) consultants and other independent contractors who
provide valuable services to the Corporation (or its parent or subsidiary
corporations) with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation (or its parent or
subsidiary corporations).
B. The Discretionary Option Grant and Stock Issuance
Programs under this Plan became effective on the date on which the shares of the
Corporation's Common Stock were first registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). Such date is
hereby designated as the Effective Date for those two programs. The Automatic
Option Grant Program under this Plan became effective immediately upon the
execution and final pricing of the Underwriting Agreement for the initial public
offering of the Corporation's Common Stock. The execution date of such
Underwriting Agreement is hereby designated as the Effective Date of the
Automatic Option Grant Program.
C. This Plan shall serve as the successor to the
Corporation's amended and restated 1990 Stock Option Plan (the "1990 Plan"), and
no further option grants or stock issuances shall be made under the 1990 Plan
from and after the Effective Date of this Plan. All options outstanding under
the 1990 Plan on the Effective Date of the Discretionary Option Grant Program
are hereby incorporated into this Plan and shall accordingly be treated as
outstanding options under this Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the express terms and
conditions of the instrument evidencing such grant, and no provision of this
Plan shall be deemed to affect or otherwise modify the rights or obligations of
the holders of such incorporated options with respect to their acquisition of
shares of the Corporation's Common Stock thereunder.
II. DEFINITIONS
A. For purposes of the Plan, the following definitions
shall be in effect:
BOARD: the Corporation's Board of Directors.
CODE: the Internal Revenue Code of 1986, as amended.
COMMITTEE: the committee of two (2) or more non-employee Board
members appointed by the Board to administer the Plan.
COMMON STOCK: shares of the Corporation's common stock.
CHANGE IN CONTROL: a change in ownership or control of the
Corporation effected through either of the following transactions:
a. any person or related group of persons
(other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common
control with, the Corporation) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of securities
possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's stockholders; or
b. there is a change in the composition of
the Board over a period of thirty-six (36) consecutive months or
less such that a majority of the Board members (rounded up to
the next whole number) ceases, by reason of one or more proxy
contests for the election of Board members, to be comprised of
individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A)
who were still in office at the time such election or nomination
was approved by the Board.
CORPORATE TRANSACTION: any of the following
stockholder-approved transactions to which the Corporation is a party:
a. a merger or consolidation in which the
Corporation is not the surviving entity, except for a
transaction the principal purpose of which is to change the
State in which the Corporation is incorporated,
b. the sale, transfer or other disposition
of all or substantially all of the assets of the Corporation in
complete liquidation or dissolution of the Corporation, or
c. any reverse merger in which the
Corporation is the surviving entity but in which securities
possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities are
transferred to a person or persons different from those who held
such securities immediately prior to such merger.
2
EMPLOYEE: an individual who performs services while in the
employ of the Corporation or one or more parent or subsidiary corporations,
subject to the control and direction of the employer entity not only as to the
work to be performed but also as to the manner and method of performance.
FAIR MARKET VALUE: the fair market value per share of Common
Stock determined in accordance with the following provisions:
a. If the Common Stock is not at the time
listed or admitted to trading on any national
stock exchange but is traded on the Nasdaq
National Market, the Fair Market Value shall be
the closing selling price per share on the date
in question, as such price is reported by the
National Association of Securities Dealers on
the Nasdaq National Market. If there is no
reported closing selling price for the Common
Stock on the date in question, then the closing
selling price on the last preceding date for
which such quotation exists shall be
determinative of Fair Market Value.
b. If the Common Stock is at the time
listed or admitted to trading on any national
stock exchange, then the Fair Market Value shall
be the closing selling price per share on the
date in question on the exchange determined by
the Plan Administrator to be the primary market
for the Common Stock, as such price is
officially quoted in the composite tape of
transactions on such exchange. If there is no
reported sale of Common Stock on such exchange
on the date in question, then the Fair Market
Value shall be the closing selling price on the
exchange on the last preceding date for which
such quotation exists.
HOSTILE TAKE-OVER: a change in ownership of the Corporation
effected through the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
OPTIONEE: any person to whom an option is granted under
either the Discretionary Option Grant or Automatic Option Grant Program in
effect under the Plan.
PARTICIPANT: any person who receives a direct issuance of
Common Stock under the Stock Issuance Program in effect under the Plan.
3
PLAN ADMINISTRATOR: the Committee in its capacity as the
administrator of the Plan.
PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of
the Optionee or the Participant to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
SERVICE: the performance of services on a periodic basis to the
Corporation (or any parent or subsidiary corporation) in the capacity of an
Employee, a non-employee member of the board of directors or an independent
consultant or advisor, except to the extent otherwise specifically provided in
the applicable stock option or stock issuance agreement.
TAKE-OVER PRICE: the GREATER of (a) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (b) the highest
reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Take-Over. However, if the surrendered option is an
incentive stock option under the Federal tax laws, the Take-Over Price shall
not exceed the clause (a) price per share.
The following provisions shall be applicable in determining the
parent and subsidiary corporations of the Corporation:
Any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the
Corporation shall be considered to be a PARENT of the
Corporation, provided each such corporation in the
unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations
in such chain.
Each corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the
Corporation shall be considered to be a SUBSIDIARY of
the Corporation, provided each such corporation (other
than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations
in such chain.
4
III. STRUCTURE OF THE PLAN
A. STOCK PROGRAMS. The Plan shall be divided into three
separate components: the Discretionary Option Grant Program specified in
Article Two, the Automatic Option Grant Program specified in Article Three
and the Stock Issuance Program specified in Article Four. Under the
Discretionary Option Grant Program, eligible individuals may, at the
discretion of the Plan Administrator, be granted options to purchase shares
of Common Stock in accordance with the provisions of Article Two. Under the
Automatic Option Grant Program, non-employee members of the Corporation's
Board of Directors (the "Board") will receive at periodic intervals special
option grants to purchase shares of Common Stock in accordance with the
provisions of Article Three. Under the Stock Issuance Program, eligible
individuals may be issued shares of Common Stock directly, either through the
immediate purchase of such shares at a price not less than the Fair Market
Value of the shares at the time of issuance or as a bonus tied to the
performance of services or the Corporation's attainment of financial
objectives, without any cash payment required of the recipient.
B. GENERAL PROVISIONS. Unless the context clearly
indicates otherwise, the provisions of Articles One and Five shall apply to
the Discretionary Option Grant Program, the Automatic Option Grant Program
and the Stock Issuance Program and shall accordingly govern the interests of
all individuals under the Plan.
IV. ADMINISTRATION OF THE PLAN
A. Both the Discretionary Option Grant Program and the
Stock Issuance Program shall be administered by the Committee. Members of the
Committee shall serve for such period of time as the Board may determine and
shall be subject to removal by the Board at any time.
B. The Committee as Plan Administrator shall have full
power and authority (subject to the express provisions of the Plan) to establish
rules and regulations for the proper administration of the Discretionary Option
Grant and Stock Issuance Programs and to make such determinations under, and
issue such interpretations of, the provisions of such programs and any
outstanding option grants or stock issuances thereunder as it may deem necessary
or advisable. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Discretionary Option Grant or Stock
Issuance Program or any outstanding option or share issuance thereunder.
C. Administration of the Automatic Option Grant Program
shall be self-executing in accordance with the express terms and conditions of
Article Three, and the Committee as Plan Administrator shall exercise no
discretionary functions with respect to option grants made pursuant to that
program.
5
V. OPTION GRANTS AND STOCK ISSUANCES
A. The persons eligible to participate in the Discretionary
Option Grant Program under Article Two or the Stock Issuance Program under
Article Four are as follows:
(i) officers and other key employees of the
Corporation (or its parent or subsidiary corporations) who
render services which contribute to the management, growth and
financial success of the Corporation (or its parent or
subsidiary corporations);
(ii) non-employee Board members; and
(iii) those consultants or other independent
contractors who provide valuable services to the Corporation (or
its parent or subsidiary corporations).
B. Non-employee Board members shall also be eligible to
receive automatic option grants pursuant to the provisions of Article Three.
C. The Plan Administrator shall have full authority to
determine, (I) with respect to the option grants made under the Plan, which
eligible individuals are to receive option grants, the number of shares to be
covered by each such grant, the status of the granted option as either an
incentive stock option ("Incentive Option") which satisfies the requirements of
Code Section 422 or a non-statutory option not intended to meet such
requirements, the time or times at which each granted option is to become
exercisable and the maximum term for which the option may remain outstanding and
(II), with respect to stock issuances under the Stock Issuance Program, the
number of shares to be issued to each Participant, the vesting schedule (if any)
to be applicable to the issued shares, and the consideration to be paid by the
individual for such shares.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance
under the Plan and shall be drawn from either the Corporation's authorized but
unissued shares of Common Stock or from reacquired shares of Common Stock,
including shares repurchased by the Corporation on the open market. The maximum
number of shares of Common Stock which may be issued over the term of the Plan
shall not exceed 2,600,000 shares, subject to adjustment from time to time in
accordance with the provisions of this Section V. Such authorized share reserve
is comprised of (i) the number of shares which remained available for issuance,
as of the Effective Date, under the 1990 Plan as last approved by the
Corporation's stockholders prior to such Effective Date, including the shares
subject to the outstanding options incorporated into this Plan and any other
shares which would have been available for future option grant under the 1990
Plan as last approved by the stockholders (estimated to be 722,000 shares in the
aggregate), (ii) an increase of 128,000 shares authorized by the Board under
this Plan as of the Effective Date, (iii) an additional increase of 500,000
shares authorized by the Board on February 27, 1995 and approved by the
stockholders at the 1995 Annual Meeting, (iv) a further increase of an
6
additional 500,000 shares authorized by the Board on February 16, 1996 and
approved by the stockholders at the 1996 Annual Meeting, (v) an additional
increase of another 350,000 shares authorized by the Board on February 16,
1998 and approved by the stockholders at the 1998 Annual Meeting and (vi) an
additional increase of 400,000 shares authorized by the Board on February 15,
1999, subject to stockholder approval at the 1999 Annual Meeting.
B. To the extent one or more outstanding options under
the 1990 Plan which have been incorporated into this Plan are subsequently
exercised, the number of shares issued with respect to each such option shall
reduce, on a share-for-share basis, the number of shares available for
issuance under this Plan.
C. Should one or more outstanding options under this
Plan (including outstanding options under the 1990 Plan incorporated into
this Plan) expire or terminate for any reason prior to exercise in full
(including any option cancelled in accordance with the cancellation-regrant
provisions of Section IV of Article Two of the Plan), then the shares subject
to the portion of each option not so exercised shall be available for
subsequent option grants under the Plan. Unvested shares issued under the
Plan and subsequently cancelled or repurchased by the Corporation, at the
original option exercise or direct issue price paid per share, pursuant to
the Corporation's repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and
shall accordingly be available for reissuance through one or more subsequent
option grants or direct stock issuances under the Plan. However, the shares
subject to any option or portion thereof surrendered in accordance with
Section IV of Article Two or Section III of Article Three shall reduce on a
share-for-share basis the number of shares of Common Stock available for
subsequent option grants under the Plan. In addition, should the exercise
price of an option under the Plan (including any option incorporated from the
Predecessor Plan) be paid with shares of Common Stock or should shares of
Common Stock otherwise issuable under the Plan be withheld by the Corporation
in satisfaction of the withholding taxes incurred in connection with the
exercise of an option or the vesting of a stock issuance under the Plan, then
the number of shares of Common Stock available for issuance under the Plan
shall be reduced by the gross number of shares for which the option is
exercised or which vest under the stock issuance, and not by the net number
of shares of Common Stock issued to the holder of such option or stock
issuance.
D. In no event may any one individual participating in
the Plan be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances for more than 500,000 shares in the
aggregate over the term of the Plan. However, any stock options, stock
appreciation rights or direct stock issuances granted prior to January 1,
1994 shall not be taken into account for purposes of such limitation.
E. Should any change be made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the maximum
number
7
and/or class of securities for which any one individual participating in the
Plan may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances in the aggregate over the term of the Plan,
(iii) the number and/or class of securities for which automatic option grants
are to be subsequently made per non-employee Board member under the Automatic
Option Grant Program, (iv) the number and/or class of securities and price
per share in effect under each option outstanding under either the
Discretionary Option Grant or Automatic Option Grant Program and (v) the
number and/or class of securities and price per share in effect under each
outstanding option incorporated into this Plan from the 1990 Plan. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.
8
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant
Program shall be authorized by action of the Plan Administrator and may, at the
Plan Administrator's discretion, be either Incentive Options or non-statutory
options. Individuals who are not Employees of the Corporation or its parent or
subsidiary corporations may only be granted non-statutory options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; PROVIDED, however, that each such instrument shall comply
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. OPTION PRICE.
1. The option price per share shall be fixed by the
Plan Administrator but in no event shall be less than one hundred
percent (100%) of the Fair Market Value of such Common Stock on the
grant date.
2. The option price shall become immediately due
upon exercise of the option and, subject to the provisions of Section I of
Article Five and the instrument evidencing the grant, shall be payable in one of
the following alternative forms specified below:
- full payment in cash or check drawn to
the Corporation's order;
- full payment in shares of Common Stock
held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date (as such term
is defined below);
- full payment in a combination of shares
of Common Stock held for the requisite period necessary to avoid
a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date
and cash or check drawn to the Corporation's order; or
- full payment through a broker-dealer
sale and remittance procedure pursuant to which the Optionee (I)
shall provide irrevocable instructions to a designated brokerage
firm to effect the immediate sale of the purchased shares and
remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate
option price payable for the purchased shares plus all
applicable Federal and State income and
9
employment taxes required to be withheld by the Corporation in
connection with such purchase and (II) shall provide directives
to the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the
sale transaction.
For purposes of this subparagraph (2), the Exercise Date
shall be the date on which written notice of the option exercise is delivered to
the Corporation. Except to the extent the sale and remittance procedure is
utilized in connection with the exercise of the option, payment of the option
price for the purchased shares must accompany such notice.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under
this Discretionary Option Grant Program shall be exercisable at such time or
times and during such period as is determined by the Plan Administrator and set
forth in the instrument evidencing the grant. No such option, however, shall
have a maximum term in excess of ten (10) years from the grant date.
C. TERMINATION OF SERVICE.
1. The following provisions shall govern the
exercise period applicable to any outstanding options held by the Optionee at
the time of cessation of Service or death.
- Should an Optionee cease Service for any
reason (including death or Permanent Disability) while holding
one or more outstanding options under this Article Two, then
none of those options shall (except to the extent otherwise
provided pursuant to subparagraph C.(3) below) remain
exercisable for more than a thirty-six (36)-month period (or
such shorter period determined by the Plan Administrator and set
forth in the instrument evidencing the grant) measured from the
date of such cessation of Service.
- Any option held by the Optionee under
this Article Two and exercisable in whole or in part on the date
of his or her death may be subsequently exercised by the
personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent
and distribution. Such exercise, however, must occur prior to
the EARLIER of (i) the third anniversary of the date of the
Optionee's death (or such shorter period determined by the Plan
Administrator and set forth in the instrument evidencing the
grant) or (ii) the specified expiration date of the option term.
Upon the occurrence of the earlier event, the option shall
terminate and cease to be outstanding.
- During the applicable post-Service
period, the option may not be exercised in the aggregate for
more than the number of shares (if any) in which the Optionee is
vested at the time of cessation of Service. Upon the expiration
of the limited post-Service exercise period or (if earlier) upon
the specified expiration date of the option term, each such
option shall terminate and
10
cease to be outstanding with respect to any vested shares for
which it has not otherwise been exercised. However, each outstanding
option shall immediately terminate and cease to be outstanding, at
the time of the Optionee's cessation of Service, with respect to any
shares for which it is not otherwise at that time exercisable or in
which Optionee is not otherwise vested.
- Under no circumstances, however, shall
any such option be exercisable after the specified expiration
date of the option term.
- Should (i) the Optionee's Service be
terminated for misconduct (including, but not limited to, any
act of dishonesty, willful misconduct, fraud or embezzlement) or
(ii) the Optionee make any unauthorized use or disclosure of
confidential information or trade secrets of the Corporation or
its parent or subsidiary corporations, then in any such event
all outstanding options held by the Optionee under this Article
Two shall terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to permit one or more options held by the Optionee
under this Article Two to be exercised, during the limited post-Service exercise
period applicable under subparagraph (1) above, not only with respect to the
number of vested shares of Common Stock for which each such option is
exercisable at the time of the Optionee's cessation of Service but also with
respect to one or more subsequent installments of vested shares for which the
option would otherwise have become exercisable had such cessation of Service not
occurred.
(3) The Plan Administrator shall also have full power and
authority to extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service or death from the
limited period in effect under subparagraph (1) above to such greater period of
time as the Plan Administrator shall deem appropriate. In no event, however,
shall such option be exercisable after the specified expiration date of the
option term.
D. STOCKHOLDER RIGHTS. An Optionee shall have no
stockholder rights with respect to any shares covered by the option until
such individual shall have exercised the option and paid the option price for
the purchased shares.
E. LIMITED TRANSFERABILITY OF OPTIONS. During the
lifetime of the Optionee, Incentive Options shall be exercisable only by the
Optionee and shall not be assignable or transferable other than by will or by
the laws of descent and distribution following the Optionee's death.
However, a Non-Statutory Option may, in connection with the Optionee's estate
plan, be assigned in whole or in part during the Optionee's lifetime to one
or more members of the Optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may
only be exercised by the person or persons who acquire a proprietary interest
in the option pursuant to the assignment. The terms
11
applicable to the assigned portion shall be the same as those in effect for
the option immediately prior to such assignment and shall be set forth in
such documents issued to the assignee as the Plan Administrator may deem
appropriate.
F. REPURCHASE RIGHTS. The shares of Common Stock
acquired upon the exercise of any Article Two option grant may be subject to
repurchase by the Corporation in accordance with the following provisions:
a. The Plan Administrator shall have the
discretion to authorize the issuance of unvested shares of
Common Stock under this Article Two. Should the Optionee cease
Service while holding such unvested shares, the Corporation
shall have the right to repurchase any or all of those unvested
shares at the option price paid per share. The terms and
conditions upon which such repurchase right shall be exercisable
(including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator and set forth in the
instrument evidencing such repurchase right.
b. All of the Corporation's outstanding
repurchase rights under this Article Two shall automatically
terminate, and all shares subject to such terminated rights
shall immediately vest in full, upon the occurrence of a
Corporate Transaction, except to the extent: (i) any such
repurchase right is expressly assigned to the successor
corporation (or parent thereof) in connection with the Corporate
Transaction or (ii) such termination is precluded by other
limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
c. The Plan Administrator shall have the
discretionary authority, exercisable either before or after the
Optionee's cessation of Service, to cancel the Corporation's
outstanding repurchase rights with respect to one or more shares
purchased or purchasable by the Optionee under this
Discretionary Option Grant Program and thereby accelerate the
vesting of such shares in whole or in part at any time.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to
all Incentive Options granted under this Article Two. Incentive Options may
only be granted to individuals who are Employees of the Corporation. Options
which are specifically designated as "non-statutory" options when issued under
the Plan shall NOT be subject to such terms and conditions.
A. DOLLAR LIMITATION. The aggregate Fair Market Value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more options granted to any Employee under this Plan (or any other
option plan of the Corporation or its parent or subsidiary corporations) may for
the first time become exercisable as incentive stock options under the Federal
tax laws during any one calendar year shall not exceed the sum of One
12
Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2)
or more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such options as
incentive stock options under the Federal tax laws shall be applied on the basis
of the order in which such options are granted. Should the number of shares of
Common Stock for which any Incentive Option first becomes exercisable in any
calendar year exceed the applicable One Hundred Thousand Dollar ($100,000)
limitation, then that option may nevertheless be exercised in that calendar year
for the excess number of shares as a non-statutory option under the Federal tax
laws.
B. 10% STOCKHOLDER. If any individual to whom an Incentive
Option is granted is the owner of stock (as determined under Section 424(d) of
the Internal Revenue Code) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Corporation or any one of
its parent or subsidiary corporations, then the option price per share shall not
be less than one hundred and ten percent (110%) of the Fair Market Value per
share of Common Stock on the grant date, and the option term shall not exceed
five (5) years, measured from the grant date.
Except as modified by the preceding provisions of this Section
II, the provisions of Articles One, Two and Five of the Plan shall apply to all
Incentive Options granted hereunder.
III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL
A. In the event of any Corporate Transaction, each option
which is at the time outstanding under this Article Two shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of such shares.
However, an outstanding option under this Article Two shall NOT so accelerate if
and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation or parent thereof
or to be replaced with a comparable option to purchase shares of the capital
stock of the successor corporation or parent thereof, (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the option spread existing at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to such option, or (iii) the acceleration of such option is subject
to other limitations imposed by the Plan Administrator at the time of the option
grant. The determination of option comparability under clause (i) above shall
be made by the Plan Administrator, and its determination shall be final, binding
and conclusive.
B. Upon the consummation of the Corporate Transaction, all
outstanding options under this Article Two shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company.
C. Each outstanding option under this Article Two which is
assumed in connection with the Corporate Transaction or is otherwise to continue
in effect shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities which
would have been issued to the option holder, in
13
consummation of such Corporate Transaction, had such person exercised the option
immediately prior to such Corporate Transaction. Appropriate adjustments shall
also be made to the option price payable per share, PROVIDED the aggregate
option price payable for such securities shall remain the same. In addition,
the class and number of securities available for issuance under the Plan
following the consummation of the Corporate Transaction shall be appropriately
adjusted.
D. The Plan Administrator shall have the discretion,
exercisable either in advance of any actually-anticipated Corporate Transaction
or at the time of an actual Corporate Transaction, to provide (upon such terms
as it may deem appropriate) for the automatic acceleration of one or more
outstanding options under this Article Two which are assumed or replaced in the
Corporate Transaction and do not otherwise accelerate at that time, in the event
the Optionee's Service should subsequently terminate within a designated period
following the effective date of such Corporate Transaction. The Plan
Administrator may also structure one or more option grants under this Article
Two so that those options will automatically accelerate at the time of a
Corporate Transaction, whether or not those options are to be assumed or
replaced by successor corporation.
E. The grant of options under this Article Two shall in no
way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
F. The Plan Administrator shall have the discretionary
authority, exercisable either in advance of any actually-anticipated Change in
Control or at the time of an actual Change in Control, to provide for the
automatic acceleration of one or more outstanding options under this Article Two
(and the termination of one or more of the Corporation's outstanding repurchase
rights under this Article Two) upon the occurrence of the Change in Control.
The Plan Administrator shall also have full power and authority to condition any
such option acceleration (and the termination of any outstanding repurchase
rights) upon the subsequent termination of the Optionee's Service within a
specified period following the Change in Control.
G. Any options accelerated in connection with the Change in
Control shall remain fully exercisable until the expiration or sooner
termination of the option term.
H. The exercisability as incentive stock options under the
Federal tax laws of any options accelerated under this Section III in connection
with a Corporate Transaction or Change in Control shall remain subject to the
dollar limitation of Section II of this Article Two.
IV. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines
in its discretion to implement the stock appreciation right provisions of this
Section IV, one or more Optionees may be granted the right, exercisable upon
such terms and conditions as the Plan Administrator may establish, to surrender
all or part of an unexercised option under this Article Two in exchange for a
distribution from the Corporation in an amount equal to the excess of (i) the
Fair Market Value
14
(on the option surrender date) of the number of shares in which the Optionee is
at the time vested under the surrendered option (or surrendered portion thereof)
over (ii) the aggregate option price payable for such vested shares.
B. No surrender of an option shall be effective hereunder
unless it is approved by the Plan Administrator. If the surrender is so
approved, then the distribution to which the Optionee shall accordingly become
entitled under this Section IV may be made in shares of Common Stock valued at
Fair Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator deems appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the LATER of
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the date of the option grant.
D. One or more officers of the Corporation subject to the
short-swing profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under the Plan. Upon the occurrence of a
Hostile Take-Over, the officer will have a thirty (30)-day period in which he or
she may surrender any outstanding options with such a limited stock appreciation
right to the Corporation, to the extent such options are at the time exercisable
for fully-vested shares of Common Stock. The officer shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the vested shares of Common Stock at the
time subject to each surrendered option over (ii) the aggregate exercise price
payable for such vested shares. The cash distribution payable upon such option
surrender shall be made within five (5) days following the consummation of the
Hostile Take-Over. At the time such limited stock appreciation right is
granted, the Plan Administrator shall pre-approve the subsequent exercise of
that right in accordance with the terms of this Paragraph D. Accordingly, no
further approval of the Plan Administrator or the Board shall be required at the
time of the actual option surrender and cash distribution. Any unsurrendered
portion of the option shall continue to remain outstanding and become
exercisable in accordance with the terms of the instrument evidencing such
grant.
E. The shares of Common Stock subject to any option
surrendered for an appreciation distribution pursuant to this Section IV shall
NOT be available for subsequent option grant under the Plan.
15
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
The following provisions set forth the terms and conditions
of the Automatic Option Grant Program as amended by the Board on February 15,
1999, subject to stockholder approval at the 1999 Annual Meeting.
Stockholder approval of the February 15, 1999 restatement shall also
constitute pre-approval of each option grant made under this amended
Automatic Option Grant Program on or after the date of the 1999 Annual
Stockholders Meeting and the subsequent exercise of that option in accordance
with the terms of such program as set forth below.
I. ELIGIBILITY
The individuals eligible to receive automatic option grants
pursuant to the provisions of this Article Three program shall be limited to (i)
those individuals who are first elected or appointed as non-employee Board
members after the date of the 1999 Annual Stockholders Meeting, whether through
appointment by the Board or election by the Corporation's stockholders, and (ii)
those individuals who continue to serve as non-employee Board members at one or
more Annual Stockholders Meetings, beginning with the 1999 Annual Stockholders
Meeting. In no event, however, shall a clause (i) non-employee Board member be
eligible to participate in the Automatic Option Grant Program if such individual
has at any time been in the prior employ of the Corporation (or any parent or
subsidiary corporation). Any non-employee Board member eligible to participate
in the Automatic Option Grant Program pursuant to the foregoing criteria shall
be designated an Eligible Director for purposes of this Plan.
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. GRANT DATES. Option grants shall be made under this
Article Three on the dates specified below:
(i) On the date of the 1999 Annual
Stockholders Meeting, each individual who is to continue to
serve as a non-employee Board member shall automatically be
granted at that meeting, whether or not such individual is
standing for re-election as a Board member at that particular
meeting, a non-statutory stock option to purchase an additional
5,000 shares of Common Stock upon the terms and conditions of
this Article Three, provided such individual has served as a
non-employee Board member for at least six (6) months prior to
the date of such meeting.
(ii) Each Eligible Director who first
becomes a non-employee Board member after the date of the 1999
Annual Stockholders Meeting, whether through election by the
Corporation's stockholders or appointment by the Board, shall
automatically be granted, at the time of such initial election
or appointment, a non-statutory stock option to purchase 10,000
shares of Common Stock upon the terms and conditions of this
Article Three.
16
(iii) On the first trading day in
January each year, beginning with calendar year 2000, each
individual who is at the time serving as a non-employee Board
member will automatically be granted an option to purchase
10,000 shares of Common Stock, and each individual who is also
at the time serving as a Chairperson of any Board committee will
automatically be granted a second option for an additional
10,000 shares, provided in each instance that such individual
has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such
10,000-share option grants any one non-employee Board member or
Chairperson may receive over his or her period of Board service.
The number of shares for which the automatic grants are
to be made to each newly-elected or continuing Eligible Director shall be
subject to periodic adjustment pursuant to the applicable provisions of Section
V.C of Article One.
B. EXERCISE PRICE. The exercise price per share of
Common Stock subject to each automatic option grant made under this Article
Three shall be equal to one hundred percent (100%) of the Fair Market Value
per share of Common Stock on the automatic grant date.
C. PAYMENT.
The exercise price shall be payable in one of the
alternative forms specified below:
(i) full payment in cash or check
made payable to the Corporation's order; or
(ii) full payment in shares of Common
Stock held for the requisite period necessary to avoid a charge
to the Corporation's reported earnings and valued at Fair Market
Value on the Exercise Date; or
(iii) full payment in a combination of
shares of Common Stock held for the requisite period necessary
to avoid a charge to the Corporation's reported earnings and
valued at Fair Market Value on the Exercise Date and cash or
check payable to the Corporation's order; or
(iv) full payment through a sale and
remittance procedure pursuant to which the non-employee Board
member (I) shall provide irrevocable written instructions to a
designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased
shares and shall (II) concurrently provide written directives to
the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the
sale transaction.
17
The Exercise Date shall be the date on which written notice
of the option exercise is delivered to the Corporation. Except to the extent
the sale and remittance procedure is utilized for the exercise of the option,
payment of the option price for the purchased shares must accompany the
exercise notice.
D. OPTION TERM. Each automatic grant under this Article
Three shall have a maximum term of ten (10) years measured from the automatic
grant date.
E. EXERCISABILITY. Each automatic grant shall become
exercisable in a series of four (4) successive equal annual installments over
the Optionee's period of service on the Board, with the first such
installment to become exercisable six (6) months after the automatic grant
date. The exercisability of each automatic grant shall be subject to
acceleration in accordance with the provisions of Section II.G and Section
III of this Article Three.
F. LIMITED-TRANSFERABILITY. During the lifetime of the
Optionee, each automatic option grant, together with the limited stock
appreciation right pertaining to such option, shall be exercisable only by
the Optionee and shall not be assignable or transferable by the Optionee
other than (i) a transfer of the option effected by will or by the laws of
descent and distribution following Optionee's death or (ii) an assignment of
the option in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established
exclusively for one or more such family members, to the extent such
assignment is effected for estate planning purposes. The assigned portion
may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. The terms applicable to
the assigned portion shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.
G. TERMINATION OF BOARD SERVICE.
1. Should the Optionee cease service as a Board
member cease for any reason (other than death or Permanent Disability) while
holding one or more automatic option grants under this Article Three, then
such individual shall have a six (6)-month period following the date of such
cessation of Board service in which to exercise each such option for any or
all of the shares of Common Stock for which the option is exercisable at the
time of such cessation of Board service. However, each such option shall
immediately terminate and cease to be outstanding, at the time of such
cessation of Board service, with respect to any shares for which the option
is not otherwise at that time exercisable.
2. Should the Optionee die within six (6) months
after cessation of Board service, then each outstanding automatic option
grant held by the Optionee at the time of death may subsequently be
exercised, for any or all of the shares of Common Stock for which such option
is exercisable at the time of the Optionee's cessation of Board service (less
any option shares subsequently purchased by the Optionee prior to death), by
the personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's will or
in accordance with the laws of descent and distribution. Any such exercise
must occur within twelve (12) months after the date of the Optionee's death.
18
3. Should the Optionee die or become permanently
disabled while serving as a Board member, then each automatic option grant
held by such Optionee under this Article Three shall accelerate in full, and
the Optionee (or the representative of the Optionee's estate or the person or
persons to whom the option is transferred upon the Optionee's death) shall
have a twelve (12)-month period following the date of the Optionee's
cessation of Board service in which to exercise each such option for any or
all of the shares of Common Stock subject to that option at the time of such
cessation of Board service.
4. In no event shall any automatic grant under
this Article Three remain exercisable after the specified expiration date of
the ten (10)-year option term. Upon the expiration of the applicable
post-service exercise period under subparagraph 1, 2 or 3 above or (if
earlier) upon the expiration of the ten (10)-year option term, the automatic
grant shall terminate and cease to be outstanding for any unexercised shares
for which the option was otherwise exercisable at the time of the Optionee's
cessation of Board service.
H. STOCKHOLDER RIGHTS. The holder of an automatic
option grant under this Article Three shall have none of the rights of a
stockholder with respect to any shares subject to such option until such
individual shall have exercised the option and paid the exercise price for
the purchased shares.
I. REMAINING TERMS. The remaining terms and conditions
of each automatic option grant shall be as set forth in the prototype
Non-statutory Stock Option Agreement attached as Exhibit A to the Plan.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE
TAKE-OVER
A. In the event of any Corporate Transaction, each
automatic option grant at the time outstanding under this Article Three shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for the Corporate Transaction, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of
such shares. Upon the consummation of the Corporate Transaction, all
automatic option grants under this Article Three shall terminate and cease to
be outstanding.
B. In connection with any Change in Control of the
Corporation, each automatic option grant at the time outstanding under this
Article Three shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date for the Change in Control,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for all or any
portion of such shares.
C. The Optionee shall have the right, exercisable at any
time during the thirty (30)-day period immediately following a Hostile
Take-Over, to surrender each option held by him or her under this Article
Three to the Corporation. The Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Take-Over
19
Price of the shares of Common Stock at the time subject to the surrendered
option (whether or not the option is otherwise at the time exercisable for
such shares) over (ii) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
consummation of the Hostile Take-Over. Stockholder approval of this 1999
Restatement at the 1999 Annual Meeting shall constitute pre-approval of each
such option surrender right granted under this Automatic Option Grant Program
on or after the date of such Annual Meeting and the subsequent exercise of
each such right in accordance with the terms and provisions of this Section
III.C. No additional approval or consent of the Plan Administrator or the
Board shall be required at the time of the actual option surrender and cash
distribution.
D. The shares of Common Stock subject to each option
surrendered in connection with the Hostile Take-Over shall NOT be available
for subsequent option grant under this Plan.
E. The automatic option grants outstanding under this
Article Three shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure
or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
20
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares may be issued under the Stock Issuance Program through
direct and immediate purchases without any intervening stock option grants. The
issued shares shall be evidenced by a Stock Issuance Agreement ("Issuance
Agreement") that complies with the terms and conditions of this Article Four.
A. CONSIDERATION.
1. Shares of Common Stock drawn from the
Corporation's authorized but unissued shares of Common Stock ("Newly Issued
Shares") shall be issued under the Stock Issuance Program for one or more of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check drawn to the
Corporation's order;
(ii) a promissory note payable to the
Corporation's order in one or more installments, which may be
subject to cancellation in whole or in part upon terms and
conditions established by the Plan Administrator; or
(iii) past services rendered to the
Corporation or any parent or subsidiary corporation.
2. All Newly Issued Shares shall be issued for
consideration with a value less not less than one-hundred percent (100%) of the
Fair Market Value of such shares at the time of issuance.
3. Shares of Common Stock reacquired by the
Corporation and held as treasury shares ("Treasury Shares") may be issued under
the Stock Issuance Program for such consideration (including one or more of the
items of consideration specified in subparagraph 1. above) as the Plan
Administrator may deem appropriate, provided such consideration is in an amount
not less than the Fair Market Value of the Treasury Shares at the time of
issuance. Treasury Shares may, in lieu of any cash consideration, be issued
subject to such vesting requirements tied to the Participant's period of future
Service or the Corporation's attainment of specified performance objectives as
the Plan Administrator may establish at the time of issuance. The Treasury
Share provisions shall be in effect only for such period or periods (if any)
during which the Corporation is incorporated under the laws of the State of
Delaware.
21
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the absolute discretion of the Plan Administrator, be
fully and immediately vested upon issuance or may vest in one or more
installments over the Participant's period of Service. The elements of the
vesting schedule applicable to any unvested shares of Common Stock issued under
the Stock Issuance Program, namely:
(i) the Service period to be
completed by the Participant or the performance objectives to be
achieved by the Corporation,
(ii) the number of installments in
which the shares are to vest,
(iii) the interval or intervals (if
any) which are to lapse between installments, and
(iv) the effect which death,
Permanent Disability or other event designated by the Plan
Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued.
2. The Participant shall have full stockholder
rights with respect to any shares of Common Stock issued to him or her under the
Plan, whether or not his or her interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares. Any new, additional or
different shares of stock or other property (including money paid other than as
a regular cash dividend) which the Participant may have the right to receive
with respect to his or her unvested shares by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration or by reason of any Corporate Transaction
shall be issued, subject to (i) the same vesting requirements applicable to his
or her unvested shares and (ii) such escrow arrangements as the Plan
Administrator shall deem appropriate.
3. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock under the
Stock Issuance Program, then those shares shall be immediately surrendered to
the Corporation for cancellation, and the Participant shall have no further
stockholder rights with respect to those shares. To the extent the surrendered
shares were previously issued to the Participant for consideration paid in cash
or cash equivalent (including the Participant's purchase-money promissory note),
the Corporation shall repay to the Participant the cash consideration paid for
the surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to such
surrendered shares. The surrendered shares may, at the Plan Administrator's
22
discretion, be retained by the Corporation as Treasury Shares or may be
retired to authorized but unissued share status. Treasury Shares will only
be an available election during the period or periods (if any) the
Corporation is incorporated under the laws of the State of Delaware.
4. The Plan Administrator may in its discretion
elect to waive the surrender and cancellation of one or more unvested shares of
Common Stock (or other assets attributable thereto) which would otherwise occur
upon the non-completion of the vesting schedule applicable to such shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
II. CORPORATE TRANSACTIONS/CHANGE IN CONTROL
A. Upon the occurrence of any Corporate Transaction, all of
the Corporation's outstanding repurchase rights under this Article Three shall
automatically terminate, and all shares subject to such terminated rights shall
immediately vest in full, except to the extent: (i) any such repurchase right
is expressly assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction or (ii) such termination is precluded
by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
B. The Plan Administrator shall have the discretionary
authority, exercisable either in advance of any actually-anticipated Change in
Control or at the time of an actual Change in Control, to provide for the
immediate and automatic vesting of one or more unvested shares outstanding under
the Stock Issuance Program at the time of such Change in Control. The Plan
Administrator shall also have full power and authority to condition any such
accelerated vesting upon the subsequent termination of the Participant's Service
within a specified period following the Change in Control.
III. SHARE ESCROW/TRANSFER RESTRICTIONS
A. Unvested shares may, in the Plan Administrator's
discretion, be held in escrow by the Corporation until the Participant's
interest in such shares vests or may be issued directly to the Participant with
restrictive legends on the certificates evidencing such unvested shares. To the
extent an escrow arrangement is utilized, the unvested shares and any securities
or other assets issued with respect to such shares (other than regular cash
dividends) shall be delivered in escrow to the Corporation to be held until the
Participant's interest in such shares (or other securities or assets) vests.
Alternatively, if the unvested shares are issued directly to the Participant,
the restrictive legend on the certificates for such shares shall read
substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
UNVESTED AND ARE ACCORDINGLY SUBJECT TO (I) CERTAIN
TRANSFER RESTRICTIONS AND (II) CANCELLATION OR
REPURCHASE IN THE EVENT THE REGISTERED HOLDER (OR
HIS/HER PREDECESSOR IN INTEREST) CEASES TO REMAIN IN THE
CORPORATION'S SERVICE. SUCH TRANSFER
23
RESTRICTIONS AND THE TERMS AND CONDITIONS OF SUCH
CANCELLATION OR REPURCHASE ARE SET FORTH IN A STOCK
ISSUANCE AGREEMENT BETWEEN THE CORPORATION AND THE
REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST)
DATED _____________, _____, A COPY OF WHICH IS ON FILE
AT THE PRINCIPAL OFFICE OF THE CORPORATION."
B. The Participant shall have no right to transfer any
unvested shares of Common Stock issued to him or her under the Stock Issuance
Program. For purposes of this restriction, the term "transfer" shall include
(without limitation) any sale, pledge, assignment, encumbrance, gift, or other
disposition of such shares, whether voluntary or involuntary. Upon any such
attempted transfer, the unvested shares shall immediately be cancelled in
accordance with substantially the same procedure in effect under Section I.B.3
of this Article Four, and neither the Participant nor the proposed transferee
shall have any rights with respect to such cancelled shares. However, the
Participant shall have the right to make a gift of unvested shares acquired
under the Stock Issuance Program to his or her spouse or issue, including
adopted children, or to a trust established for such spouse or issue, provided
the donee of such shares delivers to the Corporation a written agreement to be
bound by all the provisions of the Stock Issuance Program and the Issuance
Agreement applicable to the gifted shares.
24
ARTICLE FIVE
MISCELLANEOUS
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist
any Optionee or Participant (including an Optionee or Participant who is an
officer of the Corporation) in the exercise of one or more options granted to
such Optionee under the Discretionary Option Grant Program or the purchase of
one or more shares issued to such Participant under the Stock Issuance Program,
including the satisfaction of any Federal and State income and employment tax
obligations arising therefrom, by (i) authorizing the extension of a loan from
the Corporation to such Optionee or Participant or (ii) permitting the Optionee
or Participant to pay the option price or purchase price for the purchased
Common Stock in installments over a period of years. The terms of any loan or
installment method of payment (including the interest rate and terms of
repayment) shall be upon such terms as the Plan Administrator specifies in the
applicable option or issuance agreement or otherwise deems appropriate under the
circumstances. Loans or installment payments may be authorized with or without
security or collateral. However, the maximum credit available to the Optionee
or Participant may not exceed the option or purchase price of the acquired
shares plus any Federal and State income and employment tax liability incurred
by the Optionee or Participant in connection with the acquisition of such
shares.
B. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under this financial assistance
program shall be subject to forgiveness by the Corporation in whole or in part
upon such terms and conditions as the Plan Administrator may deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority
to amend or modify the Plan (or any component thereof) in any or all respects
whatsoever. However, no such amendment or modification shall adversely affect
rights and obligations with respect to options at the time outstanding under the
Plan, nor adversely affect the rights of any Participant with respect to Common
Stock issued under the Stock Issuance Program prior to such action, unless the
Optionee or Participant consents to such amendment. In addition, certain
amendments may require stockholder approval pursuant to applicable laws or
regulations.
B. (i) Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant Program and (ii) shares of Common
Stock may be issued under the Stock Issuance Program, which are in both
instances in excess of the number of shares then available for issuance under
the Plan, provided any excess shares actually issued under the Discretionary
Option Grant Program or the Stock Issuance Program are held in escrow until
stockholder approval is obtained for a sufficient increase in the number of
shares available for issuance under the Plan. If such stockholder approval is
not obtained within twelve (12) months
25
after the date the first such excess option grants or excess share issuances
are made, then (I) any unexercised excess options shall terminate and cease
to be exercisable and (II) the Corporation shall promptly refund the purchase
price paid for any excess shares actually issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate)
for the period the shares were held in escrow.
III. TAX WITHHOLDING
The Corporation's obligation to deliver shares of Common
Stock upon the exercise of stock options for such shares or the vesting of
such shares under the Plan shall be subject to the satisfaction of all
applicable Federal, State and local income and employment tax withholding
requirements.
The Plan Administrator may, in its discretion and in
accordance with the provisions of this Section III of Article Five and such
supplemental rules as the Plan Administrator may from time to time adopt
(including the applicable safe-harbor provisions of SEC Rule 16b-3), provide
any or all holders of non-statutory options (other than the automatic grants
made pursuant to Article Three of the Plan) or unvested shares under the Plan
with the right to use shares of the Corporation's Common Stock in
satisfaction of all or part of the Federal, State and local income and
employment withholding taxes to which such holders may become subject in
connection with the exercise of their options or the vesting of their shares
(the "Withholding Taxes"). Such right may be provided to any such holder in
either or both of the following formats:
(a) STOCK WITHHOLDING: The holder of the
non-statutory option or unvested shares may be
provided with the election to have the
Corporation withhold, from the shares of Common
Stock otherwise issuable upon the exercise of
such non-statutory option or the vesting of such
shares, a portion of those shares with an
aggregate Fair Market Value equal to the
percentage of the applicable Withholding Taxes
(not to exceed one hundred percent (100%))
designated by the holder.
(b) STOCK DELIVERY: The Plan Administrator
may, in its discretion, provide the holder of
the non-statutory option or the unvested shares
with the election to deliver to the Corporation,
at the time the non-statutory option is
exercised or the shares vest, one or more shares
of Common Stock previously acquired by such
individual (other than in connection with the
option exercise or share vesting triggering the
Withholding Taxes) with an aggregate Fair Market
Value equal to the percentage of the Withholding
Taxes incurred in connection with such option
exercise or share vesting (not to exceed one
hundred percent (100%)) designated by the
holder.
26
IV. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan as successor to the Corporation's 1990 Stock
Option Plan became effective as of the applicable Effective Date for each of the
equity incentive programs in effect hereunder, and no further option grants or
stock issuances shall be made under the 1990 Plan from and after such Effective
Date. Each option issued and outstanding under the 1990 Plan immediately prior
to the Effective Date of the Discretionary Option Grant Program shall be
incorporated into this Plan and treated as an outstanding option under this
Plan, but each such option shall continue to be governed solely by the terms and
conditions of the instrument evidencing such grant, and nothing in this Plan
shall be deemed to affect or otherwise modify the rights or obligations of the
holders of such options with respect to their acquisition of shares of Common
Stock thereunder.
B. The option/vesting acceleration provisions of Section
III of Article Two relating to Corporate Transactions and Changes in Control
may, in the Plan Administrator's discretion, be extended to one or more stock
options outstanding under the 1990 Plan on the Effective Date of the
Discretionary Option Grant Program, but which do not otherwise provide for such
acceleration.
C. The Plan was subsequently amended by the Board on
February 27, 1995 to increase the number of shares of Common Stock authorized
for issuance under the Plan by an additional 500,000 shares, and such amendment
was approved by the stockholders at the 1995 Annual Meeting on May 22, 1995.
The Plan was further amended by the Board on February 16, 1996 to increase the
number of shares of Common Stock authorized for issuance under the Plan by
another 500,000 shares, subject to stockholder approval at the 1996 Annual
Meeting.
D. In February 1998, the Board further amended and restated
the Plan (the "February 1998 Restatement") to effect the following revisions:
(i) increase the number of shares of Common Stock reserved for issuance over the
term of the Plan by an additional 350,000 shares to 2,200,000 shares, (ii)
render the non-employee Board members (including those serving on as the Plan
Administrator) eligible to receive option grants under the Discretionary Option
Grant and Stock Issuance Programs, (iii) allow unvested shares issued under the
Plan and subsequently repurchased by the Corporation at the option exercise or
direct issue price paid per share to be reissued under the Plan, (iv) remove
certain restrictions on the eligibility of non-employee Board members to serve
as Plan Administrator and (v) effect a series of additional changes to the
provisions of the Plan (including the stockholder approval requirements and the
option transferability restrictions) in order to take advantage of the recent
amendments to Rule 16b-3 of the Securities and Exchange Commission which exempts
certain officer and director transactions under the Plan from the short-swing
liability provisions of the federal securities laws. The February 1998
Restatement was approved by the stockholders at the 1998 Annual Meeting. All
option grants and stock issuances made prior to the February 1998 Restatement
shall remain outstanding in accordance with the terms and conditions of the
respective instruments evidencing those options or issuances, and nothing in the
February 1998 Restatement shall be deemed to modify or in any way affect those
outstanding options or issuances.
27
E. In February 1999, the Board further amended and
restated the Plan (the "February 1999 Restatement") to effect the following
revisions: (i) increase the number of shares of Common Stock reserved for
issuance over the term of the Plan by an additional 400,000 shares to
2,600,000 shares, (ii) increase the number of shares of Common Stock subject
to both the initial and annual option grants made to non-employee Board
members under the Automatic Option Grant Program from 5,000 shares to 10,000
shares, (iii) implement new automatic option grant for an additional 10,000
shares to be made each year to each non-employee Board member serving as the
Chairperson of any Board committee and (iv) change the date on which the
annual automatic option grants are to be made to the non-employee Board
members and Chairpersons from the date of the Annual Stockholders Meeting to
the first trading day in January each year, beginning with calendar year
2000. The February 1999 Restatement is subject to stockholder approval at the
1999 Annual Meeting, and no option grants made on the basis of the February
1999 Restatement shall become exercisable in whole or in part, and no shares
of Common Stock shall be issued on the basis of such restatement, unless and
until such stockholder approval is obtained. All option grants and stock
issuances made prior to the February 1999 Restatement shall remain
outstanding in accordance with the terms and conditions of the respective
instruments evidencing those options or issuances, and nothing in the
February 1999 Restatement shall be deemed to modify or in any way affect
those outstanding options or issuances. Subject to the foregoing
limitations, the Plan Administrator may make option grants and direct stock
issuances under the Plan at any time before the date fixed herein for the
termination of the Plan.
F. The Plan shall terminate upon the EARLIER of (i)
December 31, 2003 or (ii) the date on which all shares available for issuance
under the Plan shall have been issued or cancelled pursuant to the exercise,
surrender or cash-out of the options granted under the Plan or the issuance
of shares (whether vested or unvested) under the Stock Issuance Program. If
the date of termination is determined under clause (i) above, then all option
grants and unvested stock issuances outstanding on such date shall thereafter
continue to have force and effect in accordance with the provisions of the
instruments evidencing such grants or issuances.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale
of shares pursuant to option grants or stock issuances under the Plan shall
be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any
stock option or stock appreciation right under the Plan, the issuance of any
shares under the Stock Issuance Program, and the issuance of Common Stock
upon the exercise of the stock options or stock appreciation rights granted
hereunder shall be subject to the Corporation's procurement of all approvals
and permits required by regulatory authorities having jurisdiction over the
Plan, the stock options and stock appreciation rights granted under it, and
the Common Stock issued pursuant to it.
28
B. No shares of Common Stock or other assets shall be
issued or delivered under this Plan unless and until there shall have been
compliance with all applicable requirements of Federal and State securities
laws, including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all
applicable listing requirements of any securities exchange on which stock of
the same class is then listed.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the
Plan, nor any action taken by the Plan Administrator hereunder, nor any
provision of the Plan shall be construed so as to grant any individual the
right to remain in the employ or service of the Corporation (or any parent or
subsidiary corporation) for any period of specific duration, and the
Corporation (or any parent or subsidiary corporation retaining the services
of such individual) may terminate such individual's employment or service at
any time and for any reason, with or without cause.
VIII. MISCELLANEOUS PROVISIONS
A. Except to the extent otherwise expressly provided in
the Plan, the right to acquire Common Stock or other assets under the Plan
may not be assigned, encumbered or otherwise transferred by any Optionee or
Participant.
B. The provisions of the Plan relating to the exercise
of options and the vesting of shares shall be governed by the laws of the
State of California without resort to that State conflict-of-laws rules.
C. The provisions of the Plan shall inure to the benefit
of, and be binding upon, the Corporation and its successors or assigns,
whether by Corporate Transaction or otherwise, and the Participants and
Optionees, the legal representatives of their respective estates, their
respective heirs or legatees and their permitted assignees.
29
EXHIBIT A
NON-STATUTORY STOCK OPTION AGREEMENT
AUTOMATIC OPTION GRANT PROGRAM
30
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF
QRS CORPORATION
Shawn M. O'Connor and Peter Papano, or either of them, are hereby
appointed as the lawful agents and proxies of the undersigned (with all
powers the undersigned would possess if personally present, including full
power of substitution) to represent and to vote all shares of capital stock
of QRS Corporation (the "Company") which the undersigned is entitled to vote
at the Company's Annual Meeting of Stockholders on May 11, 1999, and at any
adjournments or postponements thereof as follows:
TRIANGLE FOLD AND DETACH HERE TRIANGLE
The Board of Directors recommends a vote FOR each of the below proposals.
This Proxy will be voted as directed, or, if no direction is indicated, will
be voted FOR each of the below proposals and, at the discretion of the
persons named as proxies, upon such other matters as may properly come before
the meeting. This proxy may be revoked at any time before it is voted.
Please mark your
vote as indicated /X/
in this example
1. The election of Peter R. Johnson, Tania Amochaev and Steven D. Brooks to
the Board of Directors, for a term of three years, as described in the Proxy
Statement.
FOR AUTHORIZATION WITHHELD
INSTRUCTION: To withhold authority to vote for any individual nominee, write
such name or names in the space provided below.
- ------------------------------------------------------------------------------
2. Proposal to approve a series of amendments to the Company's 1993 Stock
Option/Stock Issuance Plan, including (i) an increase of 400,000 shares of
Common Stock to the share reserve, (ii) an increase to the number of shares
of Common Stock subject to both the initial and annual option grants made to
non-employee Board members under the Automatic Option Grant Program from
5,000 shares to 10,000 shares, (iii) a new automatic option grant for an
additional 10,000 shares to be made each year to each non-employee Board
member serving as the Chairperson of any Board committee and (iv) a change to
the date on which the annual automatic option grants are to be made to the
non-employee Board members and Chairpersons from the date of the Annual
Stockholders Meeting to the first trading day in January each year, beginning
with calendar year 2000.
FOR AGAINST ABSTAIN
3. Proposal to ratify the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending December 31, 1999.
FOR AGAINST ABSTAIN
4. Transaction of any other business which may properly come before the
meeting or any adjournment or postponement thereof.
I/WE DO OR DO NOT
expect to attend this meeting.
DATE: , 1999
-------------------------------------
- -------------------------------------------------
(Signature)
- -------------------------------------------------
(Signature if held jointly)
(Please sign exactly as shown on your stock certificate and on the envelope
in which this proxy was mailed. When signing as partner, corporate officer,
attorney, executor, administrator, trustee, guardian or in any other
representative capacity, give full title as such and sign your own name as
well. If a stock is held jointly, each joint owner should sign.)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY, USING THE ENCLOSED ENVELOPE.
TRIANGLE FOLD AND DETACH HERE TRIANGLE