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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
DataWorks Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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PRELIMINARY PROXY MATERIALS
DATAWORKS CORPORATION
5910 PACIFIC CENTER BOULEVARD, SUITE 300
SAN DIEGO, CALIFORNIA 92121
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 18, 1998
TO THE SHAREHOLDERS OF DATAWORKS CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of DATAWORKS
CORPORATION, a California corporation (the "Company"), will be held on Thursday,
June 18, 1998 at 10:00 a.m. local time at The Hyatt Regency, La Jolla, 3777 La
Jolla Village Drive, San Diego, California 92122 for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve a change in the Company's state of incorporation from
California to Delaware.
3. To approve an amendment to the Company's Articles of Incorporation to
increase the number of shares of Common Stock authorized for issuance
from 25,000,000 to 50,000,000 shares.
4. To approve the Company's 1995 Equity Incentive Plan, as amended, to
increase the aggregate number of shares authorized for issuance under
such plan by 1,250,000 shares.
5. To approve the Company's 1995 Employee Stock Purchase Plan, as amended,
to increase the aggregate number of shares authorized for issuance under
such plan by 750,000 shares.
6. To approve the Company's 1995 Non-Employee Directors' Stock Option Plan,
as amended, to (a) provide for a one-time 10,000-share option grant to
each non-employee director as of the date of the 1998 Annual Meeting and
(b) increase the aggregate number of shares authorized for issuance
under such plan by 150,000 shares.
7. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 1998.
8. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 21, 1998,
as the record date for the determination of shareholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
Rick E. Russo
Secretary
San Diego, California
April , 1998
<PAGE> 3
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 4
DATAWORKS CORPORATION
5910 PACIFIC CENTER BOULEVARD, SUITE 300
SAN DIEGO, CALIFORNIA 92121
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
JUNE 18, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
DATAWORKS CORPORATION, a California corporation (the "Company"), for use at the
Annual Meeting of Shareholders to be held on Thursday, June 18, 1998, at 10:00
a.m. local time, or at any adjournment or postponement thereof (the "Annual
Meeting"), for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at The Hyatt Regency, La Jolla,
3777 La Jolla Village Drive, San Diego, California 92122. The Company intends to
mail this proxy statement and accompanying proxy card on or about May 11, 1998,
to all shareholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to shareholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company
or, at the Company's request, ChaseMellon Shareholder Services ("ChaseMellon").
No additional compensation will be paid to directors, officers or other regular
employees for such services, but ChaseMellon will be paid its customary fee,
estimated to be about $6,000 if it renders solicitation services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April
21, 1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 21, 1998, the Company had outstanding and entitled to
vote shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
With respect to the election of directors, shareholders may exercise cumulative
voting rights. Under cumulative voting, each holder of Common Stock will be
entitled to seven votes for each share held. Each shareholder may give one
candidate, who has been nominated prior to voting, all the votes such
shareholder is entitled to cast or may distribute such votes among as many such
candidates as such shareholder chooses. (However, no shareholder will be
entitled to cumulate votes unless the candidate's name has been placed in
nomination prior to the voting and at least one shareholder has given notice at
the meeting, prior to the voting, of his or her intention to cumulate votes.)
Unless the proxyholders are otherwise instructed, shareholders, by means of the
accompanying proxy, will grant the proxyholders discretionary authority to
cumulate votes.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
towards a quorum but, except for Proposals 2 and 3, are not counted for any
purpose in determining whether a matter is approved. With respect to Proposals 2
and 3, abstentions and broker non-votes will have the same effect as negative
votes.
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REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, located at
5910 Pacific Center Boulevard, Suite 300, San Diego, California 92121, a written
notice of revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the meeting and voting in person. Attendance at the meeting
will not, by itself, revoke a proxy.
SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at the
Company's 1999 Annual Meeting of Shareholders must be received by the Company
not later than January 11, 1998 in order to be included in the proxy statement
and proxy relating to that Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
There are seven nominees for the seven Board positions that will be
authorized in the Company's Bylaws as of the date of the Annual Meeting. Each
director to be elected will hold office until the next annual meeting of
shareholders and until his successor is elected and has qualified, or until such
director's earlier death, resignation or removal. Each nominee listed below is
currently a director of the Company, all seven directors having been elected by
the shareholders.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the seven nominees named below, subject to
the discretionary power to cumulate votes. In the event that any nominee should
be unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. Each person nominated for election has agreed to serve if elected, and
management has no reason to believe that any nominee will be unable to serve.
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The seven candidates receiving the highest number of affirmative votes cast
at the meeting will be elected directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
---- --- --------------------
<S> <C> <C>
Stuart W. Clifton......................... 53 Chairman of the Board, President
and Chief Executive Officer
Norman R. Farquhar........................ 52 Executive Vice President, Chief
Financial Officer and Director
Nathan W. Bell............................ 38 General Partner of Pacific
Private Capital
Tony N. Domit............................. 60 Former President and Chief
Executive Officer of Document
Sciences Corporation
William P. Foley, II...................... 53 Chairman of the Board and Chief
Executive Officer of CKE
Restaurants, Inc.; Chairman of
the Board and Chief Executive
Officer of Fidelity National
Financial, Inc.
Ronald S. Parker.......................... 53 Chairman of the Board of Parker,
Mulcahy & Associates
Roy Thiele-Sardina........................ 38 Vice President, Sales and
Business Development of G2
Networks, Inc.
</TABLE>
Stuart W. Clifton has served as President, Chief Executive Officer and as
Chairman of the Board of Directors since January 1987. Between 1971 and 1986,
Mr. Clifton held various management positions at Triad Systems Corporation, a
vertical distribution software company, in which he was involved from its
inception, most recently as Executive Vice President and General Manager. Mr.
Clifton also serves on the Board of Directors of Star Buffet, Inc.
Norman R. Farquhar has served as Executive Vice President and Chief
Financial Officer since February 1996 and as a director of the Company since
August 1995. From April 1993 to December 1995, Mr. Farquhar served as Senior
Vice President, Chief Financial Officer and Secretary of Wonderware Corporation,
a manufacturer of software for the industrial automation industry. From December
1991 to April 1993, he was Vice President of Finance and Chief Financial Officer
of MTI Technology Corporation, a developer of system-managed storage solutions.
From November 1987 to December 1991, he was Senior Vice President and Chief
Financial Officer of Amperif Corporation, a manufacturer of cache-based data
storage subsystems. Mr. Farquhar is also a member of the Board of Directors of
Alteer Corporation, a medical software company, and a member of the Board of
Directors and Chairman of the Audit Committee of Artecon, Inc., a manufacturer
of host- and network-attached data storage products.
Nathan W. Bell has served as a director of the Company since April 1995.
Mr. Bell is a founding general partner of Pacific Private Capital ("PPC"), the
general partner of Pacific Mezzanine Fund, L.P. ("PMF"), an investment firm
formed in March 1994. Mr. Bell currently serves on numerous boards of directors
in which PMF has an investment. From January 1990 to March 1994, Mr. Bell was
the managing director of BW Capital Corporation, an investment firm.
Tony N. Domit has served as a director of the Company since February 1997.
Mr. Domit served as President and Chief Executive Officer of Document Sciences
Corporation, a manufacturer of document automation software and a subsidiary of
Xerox, from its inception in 1991 until his retirement in March. Prior
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to 1991, Mr. Domit was employed by Xerox for twenty-two years where he held
various vice presidential and chief engineering positions. Mr. Domit is a member
of the Cal Poly (San Luis Obispo) School of Engineering Dean's Advisory Council,
a member of the Board of Directors of Cal Poly's Alumni Association and a member
of the Southern California Technical Entrepreneurs Network, The San Diego
Software Forum and The Software Council of Southern California.
William P. Foley, II has served as a director of the Company since April
1997. Mr. Foley has been Chief Executive Officer of CKE Restaurants, Inc.
("CKE") since October 1994 and Chairman of the Board of CKE since March 1994.
Since 1981, Mr. Foley has been Chairman of the Board, President (until January
1995) and Chief Executive Officer of Fidelity National Financial, Inc., a
company engaged in title insurance and related services. Mr. Foley is also a
member of the Board of Directors of Micro General Corporation, Checkers Drive-In
Restaurants, Inc. and GB Foods Corporation and Chairman of the Board of Rally's
Hamburgers, Inc.
Ronald S. Parker has served as a director of the Company since July 1994.
Mr. Parker has served as Chairman of the Board of Parker, Mulcahy & Associates
("PMA"), an investment firm, since May 1992. From March 1991 to April 1992, he
was Executive Vice President, Corporate Banking Group, of Security Pacific Bank
in Los Angeles. From January 1984 to March 1991, he was Executive Vice
President, Corporate Banking Group, of Wells Fargo Bank in Los Angeles. He also
serves as a director of USC Norris Cancer Center Development Board, The Alliance
Automotive Group, LLC, Avtel Services, Inc., Bula Inc. and Feeling Fine Company,
LLC.
Roy Thiele-Sardina has served as a director of the Company since February
1997. Mr. Thiele-Sardina joined G2 Networks, Inc., a supplier of GigaBit
fibre-channel clustering technology, in October 1997, as Vice President, Sales
and Business Development. From April 1997 to October 1997, Mr. Thiele-Sardina
served as Vice President, Corporate Development of Shomiti Systems, Inc., a
supplier of land analyzers and probe technology. From January 1996 to March
1997, Mr. Thiele-Sardina served as Vice-President, Sales and Business
Development of Brocade Communications Systems, Inc., a GigaBit fibre-channel
networking company. From July 1995 to January 1996, Mr. Thiele-Sardina served as
Vice-President, Sales and Business Development of CommVision Corporation, Inc.,
a venture-backed remote access server company. Prior to July 1995, Mr.
Thiele-Sardina was employed by Sun Microsystems, Inc. for ten years where he
held various management and sales positions, most recently Director, Corporate
Development.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1997 the Board of Directors held
ten meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements, recommends to the Board the independent auditors to be retained, and
receives and considers the auditors' comments as to controls, adequacy of staff
and management performance and procedures in connection with audit and financial
controls. The Audit Committee met one time during 1997. During 1997, the Audit
Committee was composed of two non-employee directors, Messrs. Bell and Domit.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plan and otherwise determines compensation levels and
performs such other functions regarding compensation as the Board may delegate.
The Compensation Committee met three times during 1997. During 1997, the
Compensation Committee was composed, through January 1997, of two directors,
Messrs. Finis F. Conner and Parker, and subsequently of three directors, Messrs.
Domit, Parker and Thiele-Sardina.
During the fiscal year ended December 31, 1997, each of the directors
attended 75% or more of the meetings of the Board held during the period for
which he was a director and each of the directors who was a member of the Audit
Committee or the Compensation Committee attended 75% or more of the committee
meetings held during the period for which he was a committee member.
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PROPOSAL 2
REINCORPORATION OF THE COMPANY IN DELAWARE
AND RELATED CHANGES TO THE RIGHTS OF SHAREHOLDERS
GENERAL
The Board of Directors has unanimously approved a proposal to change the
Company's state of incorporation from California to Delaware. The Board of
Directors believes the change in domicile to be in the best interests of the
Company and its shareholders for several reasons. Principally, the Board of
Directors believes that reincorporation will enhance the Company's ability to
attract and retain qualified members of the Company's Board of Directors as well
as encourage directors to continue to make independent decisions in good faith
on behalf of the Company. To date, the Company has not experienced difficulty in
retaining directors. The Company believes that the more favorable corporate
environment afforded by Delaware will enable it to compete more effectively with
other public companies, most of which are incorporated in Delaware, to attract
new directors and to retain its current directors. Reincorporation in Delaware
will allow the Company the increased flexibility and predictability afforded by
Delaware law. Concurrent with the reincorporation, the Company proposes to adopt
or maintain certain measures designed to make hostile takeovers of the Company
more difficult. The Board believes that adoption of these measures will enable
the Board to consider fully any proposed takeover attempt and to negotiate terms
that maximize the benefit to the Company and its shareholders.
In recent years, a number of major public companies have obtained the
approval of their shareholders to reincorporate in Delaware. For the reasons
explained below, the Company believes it is beneficial and important that the
Company likewise avail itself of Delaware law.
For many years, Delaware has followed a policy of encouraging incorporation
in that state. In furtherance of that policy, Delaware has adopted comprehensive
corporate laws which are revised regularly to meet changing business
circumstances. The Delaware Legislature is particularly sensitive to issues
regarding corporate law and is especially responsive to developments in modern
corporate law. The Delaware courts have developed considerable expertise in
dealing with corporate issues as well as a substantial body of case law
construing Delaware's corporate law. As a result of these factors, it is
anticipated that Delaware law will provide greater predictability in the
Company's legal affairs than is presently available under California law.
In 1986, Delaware amended its corporate law to allow corporations to limit
the personal monetary liability of its directors for their conduct as directors
under certain circumstances. The directors have elected to adopt such a
provision in the Delaware certificate and bylaws. It should be noted that
Delaware law does not permit a Delaware corporation to limit or eliminate the
liability of its directors for intentional misconduct, bad faith conduct or any
transaction from which the director derives an improper personal benefit or for
violations of federal laws such as the federal securities laws. The Board
believes that Delaware incorporation will enhance the Company's ability to
recruit and retain directors in the future. However, the shareholders should be
aware that such a provision inures to the benefit of the directors, and the
interest of the Board in recommending the reincorporation may therefore be in
conflict with the interests of the shareholders.
In 1987, California amended its corporate law in a manner similar to
Delaware to permit a California corporation to limit the personal monetary
liability of its directors for their conduct as directors under certain
circumstances. The Company adopted articles and bylaws and entered into
indemnification agreements to take advantage of these changes in California law.
Nonetheless, the Board of Directors believes that the protection from liability
for directors is somewhat greater under the Delaware law than under the
California law and therefore that the Company's objectives in adopting this type
of provision can be better achieved by reincorporation in Delaware. The Board of
Directors has included such a provision in the Delaware certificate and bylaws.
Shareholders should be aware that, because such provision inures to the benefit
of the directors, there is a potential conflict in the Board's support of such a
provision. See "Indemnification and Limitation of Liability" for a more complete
discussion of these issues.
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The interests of the Board of Directors of the Company, management and
affiliated shareholders in voting on the reincorporation proposal may not be the
same as those of unaffiliated shareholders. Delaware law does not afford
minority shareholders some of the rights and protections available under
California law. Reincorporation of the Company in Delaware may make it more
difficult for minority shareholders to elect directors and influence Company
policies. A discussion of the principal differences between California and
Delaware law as they affect shareholders is set forth below.
In addition, portions of the reincorporation proposal may have the effect
of deterring hostile takeover attempts. A hostile takeover attempt may have a
positive or a negative effect on the Company and its shareholders, depending on
the circumstances surrounding a particular takeover attempt. Takeover attempts
that have not been negotiated or approved by the board of directors of a
corporation can seriously disrupt the business and management of a corporation
and generally present to the shareholders the risk of terms which may be less
than favorable to all of the shareholders than would be available in a
board-approved transaction. Board-approved transactions may be carefully planned
and undertaken at an opportune time in order to obtain maximum value for the
corporation and all of its shareholders with due consideration to matters such
as the recognition or postponement of gain or loss for tax purposes, the
management and business of the acquiring corporation and maximum strategic
deployment of corporate assets.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to the shareholders, providing all of the shareholders
with considerable value for their shares. However, the Board of Directors
believes that the potential disadvantages of unapproved takeover attempts are
sufficiently great such that prudent steps to reduce the likelihood of such
takeover attempts are in the best interests of the Company and its shareholders.
Accordingly, the reincorporation plan includes certain proposals that may have
the effect of discouraging or deterring hostile takeover attempts.
Notwithstanding the belief of the Board as to the benefits to shareholders
of the changes, shareholders should recognize that one of the effects of such
changes may be to discourage a future attempt to acquire control of the Company
which is not presented to and approved by the Board of Directors, but which a
substantial number and perhaps even a majority of the Company's shareholders
might believe to be in their best interests or in which shareholders might
receive a substantial premium for their shares over the current market price. As
a result, shareholders who might desire to participate in such a transaction may
not have an opportunity to do so.
The Company's current Amended and Restated Articles of Incorporation (the
"California Articles") and the Amended and Restated Bylaws (the "California
Bylaws") do not contain the following provisions available to certain public
companies under California law that deter hostile takeover attempts: elimination
of cumulative voting; elimination of action by written consent of shareholders;
and supermajority requirements for amendment of certain provisions or a
Company's Articles of Incorporation or Bylaws. These provisions will be included
in the Company's new charter documents following the reincorporation. In
addition, the Delaware certificate and bylaws will contain a provision limiting
the ability of the shareholders to remove any director without cause and a
provision to require a vacancy on the board resulting from an increase in number
of directors to be filled by the majority vote of the directors.
In considering the proposals, shareholders should be aware that the overall
effect of certain of the proposed changes is to make it more difficult for
holders of a majority of the outstanding shares of Common Stock to change the
composition of the Board of Directors and to remove existing management in
circumstances where a majority of the shareholders may be dissatisfied with the
performance of the incumbent directors or otherwise desire to make changes.
The new provisions in the Company's charter documents could make a proxy
contest a less effective means of removing or replacing existing directors or
could make it more difficult to effect a change in control of the Company which
is opposed by the Board of Directors. This strengthened tenure and authority of
the Board of Directors could enable the Board of Directors to resist change and
otherwise thwart the desires of a majority of the shareholders. Because this
provision may have the effect of continuing the tenure of the current Board of
Directors, the Board has recognized that the individual directors have a
personal interest in this
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provision that may differ from those of the shareholders. However, the Board
believes that these provisions' primary purpose is to ensure that the Board will
have sufficient time to consider fully any proposed takeover attempt in light of
the short- and long-term benefits and other opportunities available to the
Company and, to the extent the Board determines to proceed with the takeover, to
effectively negotiate terms that would maximize the benefits to the Company and
its shareholders.
The Board of Directors has considered the potential disadvantages and
believes that the potential benefits of the provisions included in the proposed
charter documents outweigh the possible disadvantages. In particular, the Board
believes that the benefits associated with attracting and retaining skilled and
experienced outside directors and with enabling the Board to fully consider and
negotiate proposed takeover attempts, as well as the greater sophistication,
breadth and certainty of Delaware law, make the proposed reincorporation
beneficial to the Company, its management and its shareholders.
The proposal to include these anti-takeover provisions in the proposed
reincorporation does not reflect knowledge on the part of the Board of Directors
or management of any proposed takeover or other attempt to acquire control of
the Company. Management may in the future propose other measures designed to
discourage takeovers apart from those proposed in this Proxy Statement, if
warranted from time to time in the judgment of the Board of Directors.
The proposed reincorporation would be accomplished by merging the Company
into a newly formed Delaware corporation which, just before the merger, will be
a wholly-owned subsidiary of the Company (the "Delaware Company"), pursuant to
an Agreement and Plan of Merger (the "Merger Agreement"), a copy of which is
attached as Exhibit A to this Proxy Statement. Upon the effective date of the
merger, the Delaware Company's name will remain DataWorks Corporation. The
reincorporation will not result in any change in the Company's business, assets
or liabilities, will not cause its corporate headquarters to be moved and will
not result in any relocation of management or other employees.
Following the effectiveness of the proposed reincorporation, each
outstanding share of Common Stock of the Company will automatically convert into
one share of Common Stock of the Delaware Company, and shareholders of the
Company will automatically become shareholders of the Delaware Company. On the
effective date of the reincorporation, the number of outstanding shares of
Common Stock of the Delaware Company will be equal to the number of shares of
Common Stock of the Company outstanding immediately prior to the effective date
of the reincorporation. In addition, each outstanding option, right or warrant
to acquire shares of Common Stock of the Company will be converted into an
option or right to acquire an equal number of shares of Common Stock of the
Delaware Company, under the same terms and conditions as the original options or
rights. All of the Company's employee benefit plans, including the 1995 Equity
Incentive Plan, as amended, the 1995 Non-Employee Directors' Stock Option Plan,
as amended, and the 1995 Employee Stock Purchase Plan, as amended, will be
continued by the Delaware Company following the reincorporation. Shareholders
should recognize that approval of the proposed reincorporation will constitute
approval of the adoption and assumption of those plans by the Delaware Company.
No action need be taken by shareholders to exchange their stock
certificates now; this will be accomplished at the time of the next transfer by
the shareholder. Certificates for shares in the Company will automatically
represent an equal number of shares in the Delaware Company upon completion of
the merger.
Under the California Articles and the California Bylaws, the affirmative
vote of a majority of the outstanding shares of the Company's voting stock is
required for approval of the reincorporation. If approved by the shareholders,
it is anticipated that the reincorporation would be completed as soon thereafter
as practicable. The reincorporation may be abandoned or the Merger Agreement may
be amended (with certain exceptions), either before or after shareholder
approval has been obtained, if in the opinion of the Board of Directors,
circumstances arise that make such action advisable; provided, that any
amendment that would effect a material change from the charter provisions
discussed in this Proxy Statement would require further approval by the holders
of a majority of the outstanding voting shares.
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SIGNIFICANT CHANGES CAUSED BY REINCORPORATION
In general, the Company's corporate affairs are governed at present by the
corporate law of California, the Company's state of incorporation, and by the
California Articles and the California Bylaws, which have been adopted pursuant
to California law. The California Articles and California Bylaws are available
for inspection during business hours at the principal executive offices of the
Company. In addition, copies may be obtained by writing to the Company at
DataWorks Corporation, 5910 Pacific Center Boulevard, Suite 300, San Diego,
California 92121, Attention: Corporate Secretary.
If the reincorporation proposal is adopted, the Company will merge into,
and its business will be continued by, the Delaware Company. Following the
merger, issues of corporate governance and control would be controlled by
Delaware, rather than California law (however, see "-- Application of California
Law After Reincorporation"). The California Articles and California Bylaws will,
in effect, be replaced by the Certificate of Incorporation of the Delaware
Company (the "Delaware Certificate") and the bylaws of the Delaware Company (the
"Delaware Bylaws"), copies of which are attached as Exhibits B and C to this
Proxy. Accordingly, the differences among these documents and between Delaware
and California law are relevant to your decision whether to approve the
reincorporation proposal. In the event that this Proposal 2 is approved but
Proposal 3 regarding the increase in the Company's authorized Common Stock is
not approved, the Delaware Certificate that will be filed will be the same as
the attached Exhibit B, with the exception that the authorized number of shares
of Common Stock of the Company will be 25,000,000 shares instead of 50,000,000
shares.
A number of differences between California and Delaware law and among the
various charter documents are summarized in the chart below. Shareholders are
requested to read the following chart in conjunction with the discussion
following the chart and the Merger Agreement, the Delaware Certificate and the
Delaware Bylaws attached to this Proxy Statement. For each item summarized in
the chart, there is a reference to a page of this Proxy Statement on which a
more detailed discussion appears.
<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
----- -------- ----------
<S> <C> <C>
Limitation of Delaware law permits the limitation of California law contains additional
Liability of liability of directors and officers to exceptions to the liability limitations
Directors and the Company except in connection with of directors and officers. See
Officers (see page (i) breaches of the duty of loyalty; "-- Indemnification and Limitations of
10). (ii) acts or omissions not in good Liability."
faith or involving intentional
misconduct or knowing violations of
law; (iii) the payment of unlawful
dividends or unlawful stock repurchases
or redemptions; or (iv) transactions in
which a director received an improper
personal benefit.
Indemnification of Delaware law permits somewhat broader California law permits indemnification
Directors and indemnification and could result in under certain circumstances, subject to
Officers (see page indemnification of directors and certain limitations. See
10). officers in circumstances where "-- Indemnification and Limitation of
California law would not permit Liability."
indemnification. See "Indemnification
and Limitation of Liability."
Cumulative Voting for Cumulative voting not available under California law permits NASDAQ/NMS
Directors (see page Delaware law because not provided in corporations with over 800 equity
11). the Delaware Certificate. security holders to eliminate
cumulative voting; the California
Articles have not eliminated cumulative
voting.
Number of Directors Determined solely by resolution of the Determined by Board within range set in
(see page 12). Board. the California Bylaws. Changes in the
authorized range must be approved by
the shareholders.
Classified Board (see The Delaware Certificate presently The California Company presently has a
page 12). designates one class of directors. Board consisting of a single class of
directors.
</TABLE>
8
<PAGE> 12
<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
----- -------- ----------
<S> <C> <C>
Removal of Directors Removal for cause by affirmative vote Removal with or without cause by
by Shareholders (see of a majority of the outstanding shares affirmative vote of a majority of the
page 12). of voting stock entitled to vote at an outstanding shares, provided that
election of directors. Removal without shares voting against removal could not
cause by affirmative vote of the elect such director under cumulative
holders of at least 66 2/3% of voting voting.
stock entitled to vote at an election
of directors.
Who May Call Special The Board, the Chairman of the Board or The Board, the Chairman of the Board,
Shareholder Meeting the Chief Executive Officer. the President, or holders of 10% of the
(see page 13). shares entitled to vote at the special
meeting.
Action by Written Action by written consent not permitted Actions by written consent permitted by
Consent of by Delaware Certificate. All California Articles.
Shareholders in Lieu shareholder action must take place by a
of a Shareholder Vote shareholder vote at a meeting of
at Shareholder shareholders.
Meeting (see page
13).
Tender Offer Statute; Restricts hostile two-step takeovers; No comparable state; the California
Fair Price Provision the Delaware Certificate does not Articles do not contain a fair price
(see page 14). contain a fair price provision. provision.
Amendment of Amendments to provisions relating to Amendments to provisions relating to
Certificate (see page director indemnification, management of management of the Company, and
16). the Delaware Company, and amendment of amendment of the California Articles
the Delaware Certificate require require approval by majority of the
approval by 66 2/3% of the voting stock voting stock of the Company.
of the Delaware Company.
Amendment of Bylaws By the Board or the holders of 66 2/3% By the Board or the holders of a
(see page 16). of the outstanding voting shares for majority of the outstanding voting
amendments relating to certain shares.
provisions relating to shareholder
meetings, the number of directors and
vacancies on the Board.
Loans to Officers and Board may authorize if expected to If the Company has outstanding shares
Directors (see page benefit the Company. of record by 100 or more persons on the
16). date of approval by the Board, the
Board may authorize to officers,
whether or not a director, and may
adopt an employee plan authorizing such
loans, if expected to benefit the
Company.
Class Vote for Generally not required unless a A reorganization transaction must
Reorganizations (see reorganization adversely affects a generally be approved by a majority
page 16). specific class of shares. vote of each class of shares
outstanding.
Right of Shareholders Permitted for any purpose reasonably Permitted for any purpose reasonably
to Inspect related to such shareholder's interest related to such shareholder's interest
Shareholder List (see as a shareholder. as a shareholder. Also, an absolute
page 17). right to 5% shareholders and certain 1%
shareholders.
Appraisal Rights (see Generally available if shareholders Available in certain circumstances if
page 17). receive cash in exchange for the shares the holders of 5% of the class assert
and in certain other circumstances. such rights.
Dividends (see page Paid from surplus (including paid-in Generally limited to the greater of (i)
17). and earned surplus or net profits). retained earnings or (ii) an amount
which would leave the Company with
assets of 125% of liabilities and
current assets of 100% of current
liabilities.
Other Responsive legislature and larger body
of corporate case law in Delaware
provides more predictable corporate
legal environment in Delaware.
</TABLE>
9
<PAGE> 13
INDEMNIFICATION AND LIMITATION OF LIABILITY
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. The laws of
both states also permit corporations to adopt a provision in their articles of
incorporation or certificate of incorporation eliminating the liability of a
director to the corporation or its shareholders for monetary damage for breach
of the director's fiduciary duty of care. There are nonetheless certain
differences between the laws of the two states respecting indemnification and
limitation of liability.
The California Articles eliminate the liability of directors to the
corporation to the fullest extent permissible under California law. California
law does not permit the elimination of monetary liability where such liability
is based on: (a) intentional misconduct or knowing and culpable violation of
law; (b) acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders, or that involve the absence of
good faith on the part of the director; (c) receipt of an improper personal
benefit; (d) acts or omissions that show reckless disregard for the director's
duty to the corporation or its shareholders, where the director in the ordinary
course of performing a director's duties should be aware of a risk of serious
injury to the corporation or its shareholders; (e) acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the corporation and its shareholders; (f) interested
transactions between the corporation and a director in which a director has a
material financial interest; or (g) liability for improper distributions, loans
or guarantees.
The Delaware Certificate also eliminates the liability of directors to the
fullest extent permissible under Delaware law, as such law exists currently or
as it may be amended in the future. Under Delaware law, such provision may not
eliminate or limit director monetary liability for: (a) breaches of the
director's duty of loyalty to the corporation or its shareholders; (b) acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law; (c) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (d) transactions in which the director received
an improper personal benefit. Such limitation of liability provision also may
not limit director's liability for violation of, or otherwise relieve the
Delaware Company or its directors from the necessity of complying with, federal
or state securities laws or affect the availability of non-monetary remedies
such as injunctive relief or rescission.
California law permits indemnification of expenses incurred in derivative
or third-party actions, except that with respect to derivative actions (a) no
indemnification may be made without court approval when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines such person is
entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine, and (b) no indemnification
may be made under California law, without court approval in respect of amounts
paid or expenses incurred in settling or otherwise disposing of a threatened or
pending action or amounts incurred in defending a pending action which is
settled or otherwise disposed of without court approval. Delaware allows
indemnification of such expenses without court approval.
Indemnification is permitted by both California and Delaware law providing
the requisite standard of conduct is met, as determined by a majority vote of a
disinterested quorum of the directors, independent legal counsel (if a quorum of
independent directors is not obtainable), a majority vote of a quorum of the
shareholders (excluding shares owned by the indemnified party) or the court
handling the action.
California law requires indemnification when the individual has
successfully defended the action on the merits (as opposed to Delaware law which
requires indemnification relating to a successful defense on the merits or
otherwise).
Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the shareholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in or (in contrast to California law) not opposed to the best interests of
the corporation. Without court approval, however, no indemnification may be made
in respect of any derivative action in which such person is adjudged liable for
negligence or
10
<PAGE> 14
misconduct in the performance of his or her duty to the corporation. Delaware
law requires indemnification of expenses when the individual being indemnified
has successfully defended the action on the merits or otherwise.
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws
or other corporate action beyond that specifically authorized by statute. The
California Articles include such a provision. In addition, the Company,
following shareholder approval, entered into indemnification agreements with its
officers and directors providing for indemnification beyond that expressly
mandated by the California Corporations Code.
A provision of Delaware law states that the indemnification provided by
statute shall not be deemed exclusive of any other rights under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise. Under
Delaware law, therefore, the indemnification agreements entered into by the
California Company with its officers and directors may be assumed by the
Delaware Company upon completion of the proposed reincorporation. If the
proposed reincorporation is approved, the indemnification agreements will be
assumed as previously approved by the Company's shareholders without change.
Thus, a vote in favor of the proposed reincorporation will also approve
assumption of the indemnification agreements in their present form. Although the
law in this regard is not certain, shareholders who vote in favor of the
reincorporation proposal, and thereby approve assumption of the indemnity
contracts, may be prevented from challenging the validity of the indemnity
contracts in a subsequent court proceeding.
The indemnification and limitation of liability provisions of California
law, and not Delaware law, will apply to actions of the directors and officers
of the California Company made prior to the proposed reincorporation.
Nevertheless, the Board has recognized in considering this reincorporation
proposal that the individual directors have a personal interest in obtaining the
application of Delaware law to such indemnity and limitation of liability issues
affecting them and the Company in the event they arise from a potential future
case, and that the application of Delaware law, to the extent that any director
or officer is actually indemnified in circumstances where indemnification would
not be available under California law, would result in expense to the Company
which the Company would not incur if the Company were not reincorporated. The
Board believes, however, that the overall effect of reincorporation is to
provide a corporate legal environment that enhances the Company's ability to
attract and retain high quality outside directors and thus benefits the
interests of the Company and its shareholders.
CUMULATIVE VOTING FOR DIRECTORS
Cumulative voting permits the holder of each share of stock entitled to
vote in the election of directors to cast that number of votes which equal the
number of directors to be elected. The holder may allocate all votes represented
by a share to a single candidate or may allocate those votes among as many
candidates as he chooses. Thus, a shareholder with a significant minority
percentage of the outstanding shares may be able to elect one or more directors
if voting is cumulative.
Under California law, cumulative voting in the election of directors is
mandatory upon notice given by a shareholder at a shareholders' meeting at which
directors are to be elected. In order to cumulate votes, a shareholder must give
notice at the meeting, prior to the voting, of the shareholder's intention to
vote cumulatively. If any one shareholder gives such a notice, all shareholders
may cumulate their votes. However, California law permits a company, by amending
its bylaws, to eliminate cumulative voting when the Company's shares are listed
on a national stock exchange or traded on the Nasdaq National Market System and
are held by at least 800 equity security holders. Cumulative voting has not been
eliminated under the California Articles.
Cumulative voting is not available under Delaware law unless so provided in
the corporation's certificate of incorporation. The Delaware Certificate does
not provide for cumulative voting.
11
<PAGE> 15
OTHER MATTERS RELATING TO DIRECTORS
Number of Directors. California law allows the number of persons
constituting the board of directors of a corporation to be fixed by the bylaws
or the articles of incorporation, or permits the bylaws to provide that the
number of directors may vary within a specified range, the exact number to be
determined by the Board of Directors. California law further provides that, in
the case of a variable board, the maximum number of directors may not exceed two
times the minimum number minus one. The California Articles and Bylaws provide
for a board of directors that may vary between five and nine members, inclusive,
and the Board of Directors has fixed the exact number of directors at eight
until the date of the Annual Meeting, at which time such number will be fixed at
seven. California law also requires that any change in a fixed number of
directors and any change in the range of a variable Board of Directors specified
in the articles and bylaws must be approved by a majority in interest of the
outstanding shares entitled to vote (or such greater proportion of the
outstanding shares as may be required by the articles of incorporation). The
California Bylaws require the vote of a majority of the outstanding shares to
change the range of the Company's variable Board of Directors, provided that an
amendment reducing the minimum number of directors to less than five cannot be
adopted if votes cast against its adoption at a meeting or the shares not
consenting to it in the case of action by written consent are equal to more than
16 2/3 percent of the outstanding shares entitled to vote.
Delaware law permits a board of directors to change the authorized number
of directors by amendment to the bylaws unless the number of directors is fixed
in the certificate of incorporation or the manner of fixing the number of
directors is set forth in the certificate of incorporation, in which case the
number of directors may be changed only by amendment of the certificate of
incorporation or consistent with the manner specified in the certificate of
incorporation, as the case may be. The Delaware Certificate provides that the
exact number of directors shall be fixed from time to time exclusively by the
Board of Directors by resolution.
Elections; Classified Board of Directors. California law generally
requires that directors be elected annually but does permit a "classified" Board
of Directors if (i) a corporation is listed on a national stock exchange or (ii)
the corporation's shares are traded in the Nasdaq National Market System and are
held by at least 800 shareholders. California law also allows the election of
one or more directors by the holders of a particular class or series of shares.
The California Articles currently do not provide for a classified board of
directors. The directors of the California Company, who will also be the
directors of the Delaware Company if the reincorporation proposal is approved,
are set forth in Proposal 1.
Delaware law permits, but does not require, the adoption of a classified
board of directors with staggered terms. A maximum of three classes of directors
is permitted by Delaware law, with members of one class to be elected each year
for a maximum term of three years. The Delaware Certificate and the Delaware
Bylaws do not provide for a classified Board of Directors.
By approving Proposal 2, shareholders will be approving the election of the
same directors as would be elected to the Board of Directors of the Company in
the event Proposal 1 is approved by the shareholders.
Although not currently anticipated, the Company may propose the adoption of
a classified Board of Directors in the future. The existence of a classified
Board may deter so-called "creeping acquisitions" in which a person or group
seeks to acquire: (i) a controlling position without paying a normal control
premium to the selling shareholders; (ii) a position sufficient to exert control
over the Company through a proxy contest or otherwise; or (iii) a block of stock
with a view toward attempting to promote a sale or liquidation or a repurchase
by the Company of the block at a premium, or an exchange of the block for assets
of the Company. Faced with a classified Board of Directors, such a person or
group would have to assess carefully its ability to control or influence the
Company. If free of the necessity to act in response to an immediately
threatened change in control, the Board of Directors can act in a more careful
and deliberative manner to make and implement appropriate business judgments in
response to a creeping acquisition.
Removal of Directors. Under California law, a director may be removed with
or without cause by the affirmative vote of a majority of the outstanding
shares, provided that the shares voted against removal would not be sufficient
to elect the director by cumulative voting. The Delaware Certificate provides
that the Company's directors can be removed (i) for cause by the affirmative
vote of the holders of a majority of the
12
<PAGE> 16
combined voting power of the then outstanding shares of capital stock of the
Company entitled to vote generally in the election of directors (the "Voting
Stock") voting as a single class, and (ii) without cause by the affirmative vote
of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the
voting power of the then outstanding shares of Voting Stock. The term "cause"
with respect to the removal of directors is not defined in the Delaware General
Corporation Law and its meaning has not been precisely delineated by the
Delaware courts.
CAPITALIZATION; BLANK CHECK PREFERRED
The Company's capital stock currently consists of 25,000,000 authorized
shares of Common Stock, no par value, of which shares were issued and
outstanding as of April 21, 1998, and 5,000,000 authorized shares of Preferred
Stock, no par value, of which no shares were issued and outstanding as of April
21, 1998.
Upon the effectiveness of the reincorporation, the Delaware Company will
have the same number of outstanding shares of Common Stock and Preferred Stock
that the Company had outstanding immediately prior to the reincorporation.
However, the Board of Directors, subject to shareholder approval, has also
unanimously approved a proposal to increase the number of authorized shares of
Common Stock of the Company. For a description of the proposed change in the
Company's authorized capital stock, see Proposal 3 below.
Under the Delaware Certificate, as under the California Articles, the Board
of Directors has the authority to determine or alter the rights, preferences,
privileges and restrictions to be granted to or imposed upon any wholly unissued
series of Preferred Stock and to fix the number of shares constituting any such
series and to determine the designation thereof. See "-- Anti-Takeover
Measures."
The Board may authorize the issuance of Preferred Stock in connection with
various corporate transactions, including corporate partnering arrangements. The
Board may also authorize the issuance of Preferred Stock for the purpose of
adopting a shareholder rights plan. If the reincorporation is approved, it is
not the present intention of the Board of Directors to seek shareholder approval
prior to any issuance of Preferred Stock, except as required by law or
regulation.
SHAREHOLDER POWER TO CALL SPECIAL SHAREHOLDERS' MEETING
Under California law, a special meeting of shareholders may be called by
the Board of Directors, the Chairman of the Board of Directors, the President or
the holders of shares entitled to cast not less than 10% of the votes at such
meeting and such persons as are authorized by the articles of incorporation or
bylaws. Under Delaware law, a special meeting of shareholders may be called by
the Board of Directors or by any other person authorized to do so in the
certificate of incorporation or the bylaws. The Delaware Certificate and
Delaware Bylaws provide that such a meeting may be called by the Board of
Directors, the Chairman of the Board of Directors or the Chief Executive
Officer. Pursuant to the Delaware Certificate and Delaware Bylaws, if the
meeting is called by a person or persons other than the Board of Directors
(i.e., by the Chairman or the Board of the Chief Executive Officer), the Board
of Directors shall determine the time and the place of such meeting which shall
be from 35 to 120 days after the receipt of the request of the meeting.
ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS
Under California and Delaware law, shareholders may execute an action by
written consent in lieu of a shareholder meeting. Both California and Delaware
law permits a corporation to eliminate such actions by written consent in its
charter. The California Articles have retained the ability of shareholders to
act by written consent. The Delaware Certificate eliminates actions by written
consent of shareholders.
Elimination of such shareholders written consents may lengthen the amount
of time required to take shareholder actions because certain actions by written
consent are not subject to the minimum notice requirement of a shareholders'
meeting. The elimination of shareholders written consents will deter hostile
takeover attempts because of the lengthened shareholder approval process. The
Board believes this provision,
13
<PAGE> 17
like the other provisions to be included in the Delaware Certificate and Bylaws,
will enhance the Board's opportunity to fully consider and effectively negotiate
in the context of a takeover attempt.
ADVANCE NOTICE REQUIREMENT FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
There is no specific statutory requirement under either California or
Delaware law with regard to advance notice of director nominations and
shareholder proposals. Absent a bylaw restriction, director nominations and
shareholder proposals may be made without advance notice at the annual meeting.
However, federal securities laws generally provide that shareholder proposals
that the proponent wishes to include in the Company's proxy materials must be
received not less than 120 days in advance of the date of the proxy statement
released in connection with the previous year's annual meeting.
The Delaware Bylaws provide that in order for director nominations or
shareholder proposals to be properly brought before the meeting, the shareholder
must have delivered timely notice to the Secretary of the corporation. To be
timely, notice must have been delivered not less than 120 days prior to the
anniversary of the mailing date for the previous year's annual meeting under the
California Bylaws, and not less than 60 nor more than 90 days prior to the
mailing date for the previous year's annual meeting under the Delaware Bylaws.
If no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than 30 days from the date contemplated at the
time of the previous year's proxy statement, the Delaware Bylaws will provide
that notice must be given not more than 90 days nor less than 60 days prior to
the annual meeting. Proper notice under the federal securities laws for a
proposal to be included in the Company's proxy materials will constitute proper
notice under the Delaware Bylaws. These notice requirements help ensure that
shareholders are aware of all proposals to be voted on at the meeting and have
the opportunity to consider each proposal in advance of the meeting.
ANTI-TAKEOVER MEASURES
Delaware law has been widely viewed to permit a corporation greater
flexibility in governing its internal affairs and its relationships with
shareholders and other parties than do the laws of many other states, including
California. In particular, Delaware law permits a corporation to adopt a number
of measures designed to reduce a corporation's vulnerability to hostile takeover
attempts. Such measures are either not currently permitted or are more narrowly
drawn under California law. Among these measures are the establishment of a
classified board of directors and the elimination of the right of shareholders
to call special shareholders' meetings, each of which is described above. In
addition, certain types of "poison pill" defenses (such as shareholder rights
plans) have been upheld by Delaware courts, while California courts have yet to
decide on the validity of such defenses, thus rendering their effectiveness in
California less certain.
As discussed herein, certain provisions of the Delaware Certificate could
be considered to be anti-takeover measures. The Company does not have any
present intention of adopting any further anti-takeover measures (such as a
shareholder rights plan), nor does the Board of Directors have knowledge that
any attempt to gain control of the Company is being contemplated. However, as
discussed above, numerous differences between California and Delaware law,
effective without additional action by the Delaware Company, could have a
bearing on unapproved takeover attempts.
One such difference is the existence of a Delaware statute regulating
tender offers, which statute is intended to limit coercive takeovers of
companies incorporated in that state. California has no comparable statute. The
Delaware law provides that a corporation may not engage in any business
combination with any interested shareholder for a period of three years
following the date that such shareholder became an interested shareholder,
unless (i) prior to the date the shareholder became an interested shareholder
the Board of Directors approved the business combination or the transaction
which resulted in the shareholder becoming an interested shareholder, or (ii)
upon consummation of the transaction which resulted in the shareholder becoming
an interested shareholder, the interested shareholder owned at least 85% of the
voting stock, or (iii) the business combination is approved by the Board of
Directors and authorized by 66 2/3% of the outstanding voting stock which is not
owned by the interested shareholder. An interested shareholder means any person
that is the owner of 15% or more of the outstanding voting stock. However, the
statute provides for
14
<PAGE> 18
certain exceptions to parties who otherwise would be designated interested
shareholders, including an exception for parties that held 15% or more of the
outstanding voting stock as of December 23, 1987. Any corporation may decide to
opt out of the statute in its original certificate of incorporation or, at any
time, by action of its shareholders. The Company has no present intention of
opting out of the statute.
There can be no assurance that the Board of Directors would not adopt any
further anti-takeover measures available under Delaware law (some of which may
not require shareholder approval). Moreover, the availability of such measures
under Delaware law, whether or not implemented, may have the effect of
discouraging a future takeover attempt which a majority of the Delaware
Company's shareholders may deem to be in their best interests or in which
shareholders may receive a premium for their shares over then current market
prices. As a result, shareholders who might desire to participate in such
transactions may not have the opportunity to do so. Shareholders should
recognize that, if adopted, the effect of such measures, along with the
possibility of discouraging takeover attempts, may be to limit in certain
respects the rights of shareholders of the Delaware Company compared with the
rights of shareholders of the Company.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to the shareholders, providing all of the shareholders
with considerable value for their shares. However, the Board of Directors
believes that the potential disadvantages of unapproved takeover attempts (such
as disruption of the Company's business and the possibility of terms which may
be less than favorable to all of the shareholders than would be available in a
board-approved transaction) are sufficiently great such that prudent steps to
reduce the likelihood of such takeover attempts and to enable the Board to fully
consider the proposed takeover attempt and actively negotiate its terms are in
the best interests of the Company and its shareholders.
In addition to the various anti-takeover measures that would be available
to the Delaware Company after the reincorporation due to the application of
Delaware law, the Delaware Company would retain the rights currently available
to the Company under California law to issue shares of its authorized but
unissued capital stock. Following the effectiveness of the proposed
reincorporation, shares of authorized and unissued Common Stock and Preferred
Stock of the Delaware Company could (within the limits imposed by applicable
law) be issued in one or more transactions, or Preferred Stock could be issued
with terms, provisions and rights which would make more difficult and,
therefore, less likely, a takeover of the Delaware Company. Any such issuance of
additional stock could have the effect of diluting the earnings per share and
book value per share of existing shares of Common Stock and Preferred Stock, and
such additional shares could be used to dilute the stock ownership of persons
seeking to obtain control of the Delaware Company.
It should be noted that the voting rights to be accorded to any unissued
series of Preferred Stock of the Delaware Company ("Delaware Preferred Stock")
remain to be fixed by the Delaware Board. Accordingly, if the Delaware Board so
authorizes, the holders of Delaware Preferred Stock may be entitled to vote
separately as a class in connection with approval of certain extraordinary
corporate transactions in circumstances where Delaware law does not ordinarily
require such a class vote, or might be given a disproportionately large number
of votes. Such Delaware Preferred Stock could also be convertible into a large
number of shares of Common Stock of the Delaware Company under certain
circumstances or have other terms which might make acquisition of a controlling
interest in the Delaware Company more difficult or more costly, including the
right to elect additional directors to the Delaware Board. Potentially, the
Delaware Preferred Stock could be used to create voting impediments or to
frustrate persons seeking to effect a merger or otherwise to gain control of the
Delaware Company. Also, the Delaware Preferred Stock could be privately placed
with purchasers who might side with the management of the Delaware Company in
opposing a hostile tender offer or other attempt to obtain control.
The Board may also authorize the issuance of Preferred Stock in connection
with various corporate transactions, including corporate partnering
arrangements. The Board may also authorize the issuance of Preferred Stock for
the purpose of adopting a shareholder rights plan. However, future issuances of
Delaware Preferred Stock as an anti-takeover device might preclude shareholders
from taking advantage of a situation which might otherwise be favorable to their
interests. In addition (subject to the considerations referred to above as to
applicable law), the Delaware Board could authorize issuance of shares of Common
Stock of the
15
<PAGE> 19
Delaware Company ("Delaware Common Stock") or Delaware Preferred Stock to a
holder who might thereby obtain sufficient voting power to ensure that any
proposal to alter, amend, or repeal provisions of the Delaware Certificate
unfavorable to a suitor would not receive the necessary vote of 66 2/3% of the
voting stock required for certain of the proposed amendments (as described
below).
If the reincorporation is approved, it is not the present intention of the
Board of Directors to seek shareholder approval prior to any issuance of the
Delaware Preferred Stock or Delaware Common Stock, except as required by law or
regulation. Frequently, opportunities arise that require prompt action, and it
is the belief of the Board of Directors that the delay necessary for shareholder
approval of a specific issuance would be a detriment to the Delaware Company and
its shareholders. The Board of Directors does not intend to issue any Preferred
Stock except on terms which the Board of Directors deems to be in the best
interests of the Delaware Company and its then existing shareholders.
AMENDMENT OF CERTIFICATE
The California Articles may be amended by the approval of a majority of the
members of the Board of Directors and by a majority of the outstanding shares.
The Delaware Certificate provides that any amendment to Sections IV, V or VI of
the Delaware Certificate can only be effected by the affirmative vote of the
holders of at least 66 2/3% of the voting power of the then outstanding voting
stock of the Delaware Company.
AMENDMENT OF BYLAWS
The California Bylaws may be amended or repealed either by the Board of
Directors or by the holders of a majority in interest of the outstanding stock
of the Company, except that a change in the authorized number of directors below
five may only be effected if votes cast against its adoption at a meeting, or
the shares not consenting to it in the case of an action by written consent, are
equal to more than 16 2/3% of the outstanding shares entitled to vote. Upon the
effectiveness of the proposed reincorporation, the Delaware Board will be able
to adopt, amend or repeal any of the Delaware Bylaws. Certain provisions of the
Delaware Bylaws may also be adopted, amended or repealed by the holders of at
least 66 2/3% of the voting power of the outstanding capital stock of the
Delaware Company.
LOANS TO OFFICERS, DIRECTORS AND EMPLOYEES
California law provides that any loan or guaranty (other than loans to
permit the purchase of shares under certain stock purchase plans) for the
benefit of any officer or director, or any employee benefit plan authorizing
such loan or guaranty (except certain employee stock purchase plans), must be
approved by the shareholders of a California corporation. However, if the
Company has outstanding shares held of record by 100 or more persons on the date
of approval by the Board of Directors, the Company may make loans to any
officer, whether or not a director, or adopt an employee benefit plan
authorizing such loans with approval of the Board of Directors alone, if the
Board of Directors determines that such a loan may reasonably be expected to
benefit the Company.
Under Delaware law, a corporation may make loans to, or guarantee the
obligations of, officers or other employees when, in the judgment of the board
of directors, the loan or guaranty may reasonably be expected to benefit the
corporation. Both California law and Delaware law permit such loans or
guaranties to be unsecured and without interest.
CLASS VOTE FOR CERTAIN REORGANIZATIONS
With certain exceptions, California law requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. Delaware law generally does
not require class voting for such transactions, except in certain situations
involving an amendment to the certificate of incorporation which adversely
affects a specific class of shares.
California law also requires that holders of a California corporation's
Common Stock receive nonredeemable Common Stock in a merger of the corporation
with the holder (or an affiliate of the holder) of more than
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50% but less than 90% of its Common Stock, unless all of the holders of its
Common Stock consent to the merger or the merger has been approved by the
California Commissioner of Corporations at a "fairness" hearing. This provision
of California law may have the effect of making a cash "freezeout" merger by a
majority shareholder more difficult to accomplish. A cash freezeout merger is a
transaction whereby a minority shareholder is forced to relinquish his share
ownership in a corporation in exchange for cash, subject in certain instances to
dissenters' rights. Delaware law has no comparable provision.
INSPECTION OF SHAREHOLDER LISTS
California law provides for an absolute right of inspection of the
shareholder list for shareholders holding 5% or more of a corporation's
outstanding voting shares or shareholders holding 1% or more of such shares who
have filed a Schedule 14B with the Securities and Exchange Commission (the
"SEC"). Delaware law provides no such absolute right of shareholder inspection.
However, both California and Delaware law permit any shareholder of record to
inspect the shareholder list for any purpose reasonably related to that person's
interest as a shareholder.
APPRAISAL RIGHTS
Under both California law and Delaware law, a shareholder of a corporation
participating in certain mergers and reorganizations may be entitled to receive
cash in the amount of the "fair value" (Delaware) or "fair market value"
(California) of his shares, as determined by a court, in lieu of the
consideration he would otherwise receive in the transaction. The limitations on
such dissenters' appraisal rights are somewhat different in California and
Delaware.
Shareholders of a California corporation, the shares of which are listed on
a national securities exchange or on the OTC margin stock list, generally do not
have appraisal rights unless the holders of at least 5% of the class of
outstanding shares assert the appraisal right. In any reorganization in which
one corporation or the shareholders of one corporation own more than 5/6 of the
voting power of the surviving or acquiring corporation, shareholders are denied
dissenters' rights under California law. For this reason, appraisal rights will
not be available to shareholders in connection with the reincorporation
proposal.
Under Delaware law, appraisal rights are not available to shareholders with
respect to a merger or consolidation by a corporation if the shares are either
listed on a national securities exchange or designated as a national market
system security or an interdealer quotation system security by the National
Association of Securities Dealers, Inc., or are held of record by more than
2,000 holders if the shareholders receive shares of the surviving corporation or
shares of any other corporation which are similarly listed or dispersed, and the
shareholders do not receive any other property in exchange for their shares
except cash for fractional shares. Appraisal rights are also unavailable under
Delaware law to shareholders of a corporation surviving a merger if no vote of
those shareholders is required to approve the merger because, among other
things, the number of shares to be issued in the merger does not exceed 20% of
the shares of the surviving corporation outstanding immediately before the
merger and certain other conditions are met.
VOTING OR APPRAISAL RIGHTS IN CERTAIN TRANSACTIONS
Delaware law does not provide shareholders with voting or appraisal rights
when a corporation acquires another business through the issuance of its stock,
whether in exchange for assets or stock or in a merger with a subsidiary.
California law treats these kinds of acquisitions in the same manner as a merger
of the corporation directly with the business to be acquired and provides
appraisal rights in the circumstances described in the preceding section.
DIVIDENDS
Under California law, any dividends or other distributions to shareholders,
such as redemptions, are limited to the greater of (i) retained earnings or (ii)
an amount which would leave the corporation with assets (excluding certain
intangible assets) equal to at least 125% of its liabilities (excluding certain
deferred items) and current assets equal to at least 100% (or, in certain
circumstances, 125%) of its current liabilities.
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Delaware law allows the payment of dividends and redemption of stock out of
surplus (including paid-in and earned surplus) or out of net profits for the
current and immediately preceding fiscal years.
APPLICATION OF CALIFORNIA LAW AFTER REINCORPORATION
California law provides that if (i) the average of certain property,
payroll and sales factors results in a finding that more than 50% of the
Delaware Company's business is conducted in California, and in a particular
fiscal year more than 50% of the Delaware Company's outstanding voting
securities are held of record by persons having addresses in California, and
(ii) the Company's shares are traded in the Nasdaq National Market System and
are held by fewer than 800 equity security holders, as of its most recent annual
meeting of shareholders, then the Delaware Company would become subject to
certain provisions of California law regardless of its state of incorporation.
Because the Company's Common Stock is traded in the Nasdaq National Market
System and the Company's shares are held by at least 800 equity security
holders, as of its most recent annual meeting of shareholders, California law
will not initially apply to the Delaware Company if the reincorporation is
approved. The Company would not be subject to California law as long as it
continued to meet both of these requirements.
If the Delaware Company were to become subject to the provisions of
California law referred to above, and such provisions were enforced by
California courts in a particular case, many of the Delaware laws described in
this Proxy Statement would not apply to the Delaware Company. Instead, the
Delaware Company could be governed by certain California laws, including those
regarding liability of directors for breaches of the duty of care,
indemnification of directors, dissenters' rights of appraisal, removal of
directors as well as certain other provisions discussed above, to the exclusion
of Delaware law. The effects of applying both Delaware and California laws to a
Delaware corporation whose principal operations are based in California have not
yet been determined.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The reincorporation provided for in the Merger Agreement is intended to be
a tax-free reorganization under the Internal Revenue Code of 1986, as amended.
Assuming the reincorporation qualifies as a reorganization, no gain or loss will
be recognized to the holders of capital stock of the Company as a result of
consummation of the reincorporation, and no gain or loss will be recognized by
the Company or the Delaware Company. Each former holder of capital stock of the
Company will have the same basis in the capital stock of the Delaware Company
received by such holder pursuant to the reincorporation as such holder has in
the capital stock of the Company held by such holder at the time of consummation
of the reincorporation. Each shareholder's holding period with respect to the
Delaware Company's capital stock will include the period during which such
holder held the corresponding Company capital stock, provided the latter was
held by such holder as a capital asset at the time of consummation of the
reincorporation. The Company has not obtained a ruling from the Internal Revenue
Service or an opinion of legal or tax counsel with respect to the consequences
of the reincorporation.
The foregoing is only a summary of certain federal income tax consequences.
Shareholders should consult their own tax advisers regarding the specific tax
consequences to them of the merger, including the applicability of the laws of
any state or other jurisdiction.
BOARD RECOMMENDATION
The foregoing discussion is an attempt to summarize the more important
differences in the corporation laws of Delaware and California and does not
purport to be an exhaustive discussion of all of the differences. Such
differences can be determined in full by reference to the California
Corporations Code and to the Delaware General Corporation Law. In addition, both
California and Delaware law provide that some of the statutory provisions as
they affect various rights of holders of shares may be modified by provisions in
the charter or bylaws of the corporation.
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A vote FOR the reincorporation proposal will constitute approval of the
merger, the Delaware Certificate, the Delaware Bylaws, assumption of the
indemnification agreements, the adoption and assumption by the Delaware Company
of each of the Company's stock option, stock purchase and employee benefit plans
and all other aspects of this Proposal 2.
Vote Required. The affirmative vote of the holders of a majority of the
shares of the Common Stock outstanding on the Record Date will be required to
approve the reincorporation proposal. As a result, abstentions and broker
non-votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
PROPOSAL 3
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
In connection with the proposal to change the Company's state of
incorporation from California to Delaware, and the filing of a Certificate of
Incorporation (the "Delaware Certificate") in Delaware, the Board of Directors
has approved and adopted, subject to shareholder approval, filing a Delaware
Certificate that will increase the Company's authorized number of shares of
Common Stock from 25,000,000 shares to 50,000,000 shares (the "Common Stock
Amendment"). In the event that this Proposal 3 is approved but Proposal 2
regarding the reincorporation of the Company in Delaware is not approved, the
Company intends to file Amended and Restated Articles of Incorporation with the
California Secretary of State to effect the Common Stock Amendment.
Reasons for Amendment. Although at present the Company has no plans to
issue additional shares of Common Stock other than the shares currently reserved
as discussed below, it desires to have such shares available to provide
additional flexibility to use its capital stock for business and financial
purposes in the future. The additional shares may be used, without further
shareholder approval, for various purposes including, without limitation,
raising capital, providing equity incentives to employees, officers, directors
or consultants, establishing strategic relationships with other companies and
expanding the Company's business through the acquisition of other businesses or
products. Shareholders will not be entitled to preemptive rights with respect to
any such issuances.
Principal Effects. The additional shares of Common Stock to be authorized
by adoption of the Common Stock Amendment would have rights identical to the
currently authorized Common Stock of the Company. Adoption of the Common Stock
Amendment and the issuance of Common Stock would not affect the rights of the
holders of currently outstanding Common Stock of the Company, except for effects
incidental to increasing the number of shares of the Company's Common Stock
outstanding, such as dilution of the earnings per share and voting rights of
current holders of Common Stock. The complete text of the Certificate of
Incorporation that would be filed with the office of the Secretary of State of
the State of Delaware to effect the Common Stock Amendment is set forth in
Exhibit B to this Proxy Statement. If the Common Stock Amendment is approved by
the shareholders, it will become effective upon the filing of the Certificate of
Incorporation with the Secretary of State of the State of Delaware which is
expected to occur as soon as practicable following the Annual Meeting.
At March 31, 1998, of the 25,000,000 shares of Common Stock presently
authorized: 14,215,044 shares were issued and outstanding; under the Company's
1995 Equity Incentive Plan (subject to shareholder approval of the amendment
thereof as discussed in Proposal 4), 1,321,093 shares remained available for
future option grants and 1,810,770 shares remained available for issuance upon
exercise of presently outstanding options; under the Company's 1995 Employee
Stock Purchase Plan (subject to shareholder approval of the amendment thereof as
discussed in Proposal 5), 750,000 shares remained available for issuance; under
the Company's 1995 Non-Employee Directors' Stock Option Plan (subject to
shareholder approval of the amendment thereof as discussed in Proposal 6),
203,334 shares remained available for future option grants and 96,666 shares
remained available for issuance upon exercise of presently outstanding options;
125,936
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shares were reserved for issuance pursuant to outstanding warrants; and
8,384,593 shares were unissued and unreserved.
Vote Required. The affirmative vote of the holders of a majority of the
shares of the Common Stock outstanding on the Record Date will be required to
approve the Common Stock Amendment. As a result, abstentions and broker
non-votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
PROPOSAL 4
APPROVAL OF 1995 EQUITY INCENTIVE PLAN, AS AMENDED
In October 1995 the Board of Directors adopted, and the shareholders
subsequently approved, the 1995 Equity Incentive Plan (the "Incentive Plan"),
which became effective upon the completion of the Company's initial public
offering, as an amendment and restatement of the Company's 1987 Stock Option
Plan. As of March 31, 1998, 2,450,000 shares of Common Stock were authorized for
issuance under the Incentive Plan.
At March 31, 1998, options (net of cancelled or expired options) covering
an aggregate of 2,453,949 shares of the Company's Common Stock had been granted
under the Incentive Plan, and only 71,093 shares (plus any shares that might in
the future be returned to the plan as a result of cancellations or expiration of
options) remained available for future grant under the Incentive Plan.
In January 1998, the Board approved an amendment to the Incentive Plan,
subject to shareholder approval, to enhance the flexibility of the Board and the
Compensation Committee in granting stock options to the Company's employees. The
amendment increases the number of shares authorized for issuance under the
Incentive Plan from a total of 2,450,000 shares to 3,700,000 shares. The Board
adopted this amendment to ensure that the Company can continue to grant stock
options to employees at levels determined appropriate by the Board and the
Compensation Committee.
Shareholders are requested in this Proposal 4 to approve the Incentive
Plan, as amended. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and voting at the meeting will
be required to approve the Incentive Plan, as amended. In order to take
advantage of the exemption contained in Rule 16b-3 ("Rule 16b-3") promulgated by
the Securities and Exchange Commission (the "SEC") under the Securities Exchange
Act of 1934, as amended (the "1934 Act"), for purposes of this vote, abstentions
will be counted toward the tabulation of votes counted and will have the same
effect as negative votes, while broker non-votes will not be counted for any
purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4.
The essential features of the Incentive Plan are as follows:
GENERAL
The Incentive Plan provides for the grant or issuance of incentive stock
options to employees of the Company and nonstatutory stock options, restricted
stock purchase awards, stock bonuses and stock appreciation rights to employees,
officers, directors and consultants of the Company. Incentive stock options
granted under the Incentive Plan are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). Nonstatutory stock options granted under the Incentive
Plan are not intended to qualify as incentive stock options under the Code. See
"-- Federal Income Tax Information" for a discussion of the tax treatment of the
various awards included in the Incentive Plan.
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PURPOSE
The Incentive Plan was adopted to provide a means by which selected
employees, officers, directors and consultants to the Company and its affiliates
could be given an opportunity to receive stock in the Company, to assist in
retaining the services of employees holding key positions, to secure and retain
the services of persons capable of filling such positions and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
ADMINISTRATION
The Incentive Plan is administered by the Board of Directors of the
Company. The Board has the power to construe and interpret the Incentive Plan
and, subject to the provisions of the Incentive Plan, to determine the persons
to whom and the dates on which awards will be granted, what type of award will
be granted, the number of shares to be subject to each award, the time or times
during the term of each award within which all or a portion of such award may be
exercised, the exercise price, the type of consideration and other terms of the
award. The Board also has the authority under the Incentive Plan to accelerate
the vesting of any stock option, restricted stock purchase, stock bonus or stock
appreciation right. The Board of Directors is authorized to delegate
administration of the Incentive Plan to a committee composed of not fewer than
two members of the Board. The Board has delegated administration of the
Incentive Plan to the Compensation Committee of the Board. As used herein with
respect to the Incentive Plan, the "Board" refers to the Compensation Committee
as well as to the Board of Directors itself. The Board of Directors has
delegated to the Company's Chief Executive Officer the authority to grant stock
options under the Company's Incentive Plan to employees of the Company that are
not executive officers, directors or 10% stockholders of the Company, provided
such grants are in accordance with guidelines that have been approved in advance
by the Compensation Committee.
ELIGIBILITY
Incentive stock options and stock appreciation rights appurtenant thereto
may be granted under the Incentive Plan only to employees of the Company and its
affiliates. Employees, officers, directors and consultants are eligible to
receive awards other than incentive stock options and stock appreciation rights
under the Incentive Plan.
No incentive stock option may be granted under the Incentive Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least 110%
of the fair market value of the stock subject to the option on the date of
grant, and the term of the option does not exceed five years from the date of
grant. For incentive stock options granted under the Incentive Plan, the
aggregate fair market value, determined at the time of grant, of the shares of
Common Stock with respect to which such options are exercisable for the first
time by an optionee during any calendar year (under all such plans of the
Company and its affiliates) may not exceed $100,000. No person may be granted
stock options, restricted stock purchase awards, stock bonuses or stock
appreciation rights covering more than 750,000 shares of common stock in any
calendar year.
STOCK SUBJECT TO THE INCENTIVE PLAN
If awards granted under the Incentive Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such awards
again becomes available for issuance under the Incentive Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the Incentive Plan. Individual option grants may be more restrictive as to any
or all of the permissible terms described below.
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Exercise Price; Payment. The exercise price of incentive stock options
under the Incentive Plan may not be less than the fair market value of the
Common Stock subject to the option on the date of the option grant and, in some
cases (see "Eligibility" above), may not be less than 110% of such fair market
value. The exercise price of nonstatutory options under the Incentive Plan is
determined by the Board.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, and/or
stock appreciation rights with new lower priced options and/or stock
appreciation rights. The Board also has the authority to include as part of an
option agreement a provision entitling the optionee to a further option in the
event that the optionee exercises his or her option by surrendering other shares
of Common Stock as payment of the exercise price.
The exercise price of options granted under the Incentive Plan must be paid
either: (a) in cash at the time the option is exercised; (b) at the discretion
of the Board, (i) by delivery of other Common Stock of the Company or (ii)
pursuant to a deferred payment arrangement; or (c) in any other form of legal
consideration acceptable to the Board.
Option Exercise. Options granted under the Incentive Plan may become
exercisable in cumulative increments ("vest") as determined by the Board. Shares
covered by options granted under the Incentive Plan generally vest over a
four-year period with 25% vesting one year from the date of grant and the
remaining shares vesting in 36 equal monthly installments thereafter. Shares
covered by options granted in the future under the Incentive Plan may be subject
to different vesting terms than those terms under the Incentive Plan. The Board
has the power to accelerate the time during which an option may be exercised. In
addition, options granted under the Incentive Plan may permit exercise prior to
vesting, but in such event the optionee may be required to enter into an early
exercise stock purchase agreement that allows the Company to repurchase shares
not yet vested at their exercise price should the optionee leave the employ of
the Company before vesting. To the extent provided by the terms of an option, an
optionee may satisfy any federal, state or local tax withholding obligation
relating to the exercise of such option by a cash payment upon exercise, by
authorizing the Company to withhold a portion of the stock otherwise issuable to
the optionee, by delivering already-owned stock of the Company or by a
combination of these means.
Term. The maximum term of options under the Incentive Plan is 10 years,
except that in certain cases (see "-- Eligibility") the maximum term is five
years. Options under the Incentive Plan terminate three months after the
optionee ceases to be employed by the Company or any affiliate of the Company
or, if such optionee is not an employee of the Company, six months after the
optionee ceases to be a director of or consultant to the Company or any
affiliate of the Company, unless (a) the termination of the optionee's
relationship to the Company is due to such person's permanent and total
disability (as defined in the Code), in which case the option may, but need not,
provide that it may be exercised at any time within 12 months of such
termination; (b) the optionee dies while employed by, or acting as a director of
or consultant to, the Company or any affiliate of the Company, or within three
months after termination of such employment, in which case the option may, but
need not, provide that it may be exercised (to the extent the option was
exercisable at the time of the optionee's death) within 12 months of the
optionee's death by the person or persons to whom the rights to such option pass
by will or by the laws of descent and distribution; or (c) the option by its
terms specifically provides otherwise. Individual options by their terms may
provide for exercise within a longer period of time following termination of
employment or the consulting relationship. The option term may also be extended
in the event that exercise of the option within these periods is prohibited for
specified reasons.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
Purchase Price; Payment. The purchase price under each stock purchase
agreement will be determined by the Board. The purchase price of stock pursuant
to a stock purchase agreement must be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board, according to a deferred payment
or other arrangement with the person to whom the Common Stock is sold; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion. Eligible participants may be awarded stock
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pursuant to a stock bonus agreement in consideration of past services actually
rendered to the Company or for its benefit.
Repurchase. Shares of Common Stock sold or awarded under the Incentive
Plan may, but need not, be subject to a repurchase option in favor of the
Company in accordance with a vesting schedule determined by the Board. In the
event a person ceases to be an employee of or ceases to serve as a director of
or consultant to the Company or an affiliate of the Company, the Company may
repurchase or otherwise reacquire any or all of the shares of the Common Stock
held by that person that have not vested as of the date of termination under the
terms of the stock bonus or restricted stock purchase agreement between the
Company and such person.
STOCK APPRECIATION RIGHTS
The Board may grant stock appreciation rights to employees, officers,
directors and consultants of the Company or its affiliates. The Incentive Plan
authorizes three types of stock appreciation rights.
Tandem Stock Appreciation Rights. Tandem stock appreciation rights are
tied to an underlying option and require the holder to elect whether to exercise
the underlying option or to surrender the option for an appreciation
distribution equal to the market price of the vested shares purchasable under
the surrendered option less the aggregate exercise price payable for such
shares. Appreciation distributions payable upon exercise of tandem stock
appreciation rights may, at the Board's discretion, be made in cash or in an
equivalent number of shares of Common Stock.
Concurrent Stock Appreciation Rights. Concurrent stock appreciation rights
are tied to an underlying option and are exercised automatically at the same
time the underlying option is exercised. The holder receives an appreciation
distribution equal to the market price of the vested shares purchased under the
option less the aggregate exercise price payable for such shares. Appreciation
distributions payable upon exercise of concurrent stock appreciation rights may,
at the Board's discretion, be made in cash or in an equivalent number of shares
of Common Stock.
Independent Stock Appreciation Rights. Independent stock appreciation
rights are granted independently of any option and entitle the holder to receive
upon exercise an appreciation distribution equal to the market price of a number
of shares equal to the number of share equivalents to which the holder is vested
under the independent stock appreciation right less the fair market value of
such number of shares of stock on the date of grant of the independent stock
appreciation rights. Appreciation distributions payable upon exercise of
independent stock appreciation rights may, at the Board's discretion, be made in
cash or in an equivalent number of shares of Common Stock.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Incentive Plan or
subject to any award granted under the Incentive Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Incentive Plan and awards outstanding thereunder will be appropriately adjusted
as to the class and the maximum number of shares subject to such plan and the
class, number of shares and price per share of stock subject to such outstanding
awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Incentive Plan provides that, in the event of a dissolution or
liquidation of the Company, specified type of merger or other corporate
reorganization, to the extent permitted by law, any surviving corporation will
be required to either assume awards outstanding under the Incentive Plan or
substitute similar awards for those outstanding under such plan, or such
outstanding awards will continue in full force and effect. In the event that any
surviving corporation declines to assume or continue awards outstanding under
the Incentive Plan, or to substitute similar awards, then the time during which
such awards may be exercised will be accelerated and the awards terminated if
not exercised during such time. The acceleration of an award in the
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event of an acquisition or similar corporate event may be viewed as an
anti-takeover provision, which may have the effect of discouraging a proposal to
acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Incentive Plan without shareholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Incentive Plan will terminate on October 4, 2005.
The Board may also amend the Incentive Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
shareholders of the Company within 12 months before or after its adoption by the
Board if the amendment would: (a) modify the requirements as to eligibility for
participation (to the extent such modification requires shareholders approval in
order for the Plan to satisfy Section 422 of the Code, if applicable, or Rule
16b-3 under the 1934 Act); (b) increase the number of shares reserved for
issuance upon exercise of options; or (c) change any other provision of the Plan
in any other way if such modification requires shareholder approval in order to
comply with Rule 16b-3 or satisfy the requirements of Section 422 of the Code.
The Board may submit any other amendment to the Incentive Plan for shareholder
approval, including, but not limited to, amendments intended to satisfy the
requirements of Section 162(m) of the Code regarding the exclusion of
performance-based compensation from the limitation on the deductibility of
compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Under the Incentive Plan, an incentive stock option may not be transferred
by the optionee otherwise than by will or by the laws of descent and
distribution and, during the lifetime of an optionee, an option may be exercised
only by the optionee. A nonstatutory stock option may not be transferred except
by will or by the laws of descent and distribution or pursuant to a "qualified
domestic relations order." In any case, an optionee may designate in writing a
third party who may exercise the option in the event of the optionee's death. No
rights under a stock bonus or restricted stock purchase agreement are
transferable except where required by law or expressly authorized by the terms
of the applicable stock bonus or restricted stock purchase agreement. A tandem
stock appreciation right or concurrent stock appreciation right may be
transferred only by the method(s) applicable to the underlying option. In
addition, any shares subject to repurchase by the Company under an early
exercise stock purchase agreement may be subject to restrictions on transfer
which the Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
The following is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the grant and exercise of
awards under the Incentive Plan, does not purport to be complete and does not
discuss the income tax laws of any state or foreign country in which a
participant may reside.
Incentive Stock Options. Incentive stock options under the Incentive Plan
are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will realize taxable
ordinary income equal to the lesser of (a) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (b) the optionee's
actual gain, if any, on the purchase and sale. The optionee's
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<PAGE> 28
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term, mid-term or short-term depending
on how long the optionee holds the stock. Capital gains are generally subject to
lower tax rates than ordinary income. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the 1934 Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
Incentive Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be
long-term, mid-term or short-term depending on how long the stock was held.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the 1934 Act.
Restricted Stock and Stock Bonuses. Restricted stock and stock bonuses
granted under the Incentive Plan generally have the following federal income tax
consequences:
Upon acquisition of stock under a restricted stock or stock bonus award,
the recipient normally will recognize taxable ordinary income equal to the
excess of the stock's fair market value over the purchase price, if any.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse unless the recipient elects to be taxed on receipt of the stock.
Generally, with respect to employees, the Company is required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the recipient. Upon disposition of the stock, the
recipient will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock, if any, plus
any amount recognized as ordinary income upon acquisition (or vesting) of the
stock. Such gain or loss will be long-term, mid-term or short-term depending on
how long the stock was held. Slightly different rules may apply to persons who
acquire stock subject to certain repurchase options or when subject to Section
16(b) of the 1934 Act.
Stock Appreciation Rights. No taxable income is realized upon the receipt
of a stock appreciation right, but upon exercise of the stock appreciation right
the fair market value of the shares (or cash in lieu of shares) received must be
treated as compensation taxable as ordinary income to the recipient in the year
of such exercise. Generally, with respect to employees, the Company is required
to withhold from the payment made on exercise of the stock appreciation right or
from regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
be entitled to a business expense deduction equal to the taxable ordinary income
recognized by the recipient.
Potential Limitation on Company Deductions. Code Section 162(m) denies a
deduction to any publicly held corporation for compensation paid to certain
employees in a taxable year to the extent that compensation
25
<PAGE> 29
exceeds $1,000,000 for a covered employee. It is possible that compensation
attributable to awards granted in the future under the Incentive Plan, when
combined with all other types of compensation received by a covered employee
from the Company, may cause this limitation to be exceeded in any particular
year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the option is granted by a compensation committee comprised solely
of "outside directors" and either: (i) the option plan contains a per-employee
limitation on the number of shares for which options may be granted during a
specified period, the per-employee limitation is approved by the shareholders,
and the exercise price of the option is no less than the fair market value of
the stock on the date of grant; or (ii) the option is granted (or exercisable)
only upon the achievement (as certified in writing by the compensation
committee) of an objective performance goal established in writing by the
compensation committee while the outcome is substantially uncertain, and the
option is approved by shareholders.
Compensation attributable to restricted stock will qualify as
performance-based compensation, provided that: (i) the award is granted by a
compensation committee comprised solely of "outside directors;" and (ii) the
purchase price of the award is no less than the fair market value of the stock
on the date of grant. Stock bonuses qualify as performance-based compensation
under the Treasury regulations only if: (i) the award is granted by a
compensation committee comprised solely of "outside directors;" (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain; (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied and (iv) prior to the granting (or
exercisability) of the award, shareholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
(or formula used to calculate the amount) payable upon attainment of the
performance goal).
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<PAGE> 30
The following table presents certain information with respect to options
granted under the Incentive Plan during the fiscal year ended December 31, 1997
to (i) the Named Executive Officers (as defined below), (ii) all executive
officers as a group and (iii) all non-executive officer employees as a group. No
non-employee directors have been authorized to receive grants under the
Incentive Plan.
NEW PLAN BENEFITS
1995 EQUITY BENEFIT PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT
NAME AND POSITION DOLLAR VALUE(1) TO OPTIONS GRANTED
----------------- --------------- ------------------------
<S> <C> <C>
Stuart W. Clifton....................... $1,071,000 70,000
Chairman of the Board, $1,905,000 120,000
President and Chief Executive Officer
Norman R. Farquhar...................... $ 459,000 30,000
Executive Vice President, Chief
Financial Officer and Director
Robert C. Vernon........................ $ 814,000 40,000
President, International Operations
Mark Hellinger.......................... $ 508,750 25,000
President, ERP Systems Group
Robert W. Brandel....................... $ 765,000 50,000
Former President, Information Systems
Group
All Executive Officers as a Group....... $5,522,750 335,000
All Non-Executive Officer Employees as a
Group................................. $5,126,625 296,000
</TABLE>
- ---------------
(1) Exercise price multiplied by the number of shares underlying the option(s).
PROPOSAL 5
APPROVAL OF THE 1995 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
In September 1995, the Board of Directors adopted, and the shareholders
subsequently approved, the 1995 Employee Stock Purchase Plan (the "Purchase
Plan"), authorizing the issuance of 150,000 shares of the Company's Common
Stock, which was increased in February 1997 to increase the aggregate number of
shares authorized for issuance under the Purchase Plan to 300,000 shares. The
Purchase Plan provides a means by which employees of the Company and its
affiliates may purchase Common Stock of the Company at a discount through
accumulated payroll deductions. At March 31, 1998, an aggregate of 300,000
shares had been issued under the Purchase Plan, and no shares remained for the
grant of future rights under the Purchase Plan.
In January 1998, the Board adopted amendments to the Purchase Plan, subject
to shareholder approval, to increase the aggregate number of shares authorized
for issuance under the Purchase Plan to 1,050,000 shares.
Shareholders are requested in this Proposal 5 to approve the Purchase Plan,
as amended. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and voting at the meeting will be
required to approve the Purchase Plan, as amended. In order to take advantage of
the exemption contained in Rule 16b-3 promulgated by the SEC, for purposes of
this vote and broker non-votes will not be counted for any purpose in
determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 5
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<PAGE> 31
The essential features of the Purchase Plan, as amended, are outlined
below:
PURPOSE
The purpose of the Purchase Plan is to assist the Company in retaining the
services of its employees, to secure and retain the services of new employees
and to provide incentives for such persons to exert maximum efforts for the
success of the Company. As of March 31, 1998, approximately 1,066 of the
Company's 1,244 employees were eligible to participate in the Purchase Plan.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Code.
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors of the Company.
The Board has the power to construe and interpret the Purchase Plan and, subject
to the provisions of the Purchase Plan, to determine when and how rights to
purchase Common Stock will be granted, to determine the provisions of each
offering of such rights, and to designate which affiliates of the Company shall
be eligible to participate in the Purchase Plan. The Board of Directors is
authorized to delegate administration of the Purchase Plan to a committee
composed of not fewer than two members of the Board. The Board may abolish any
such committee at any time and revest in the Board the administration of the
Purchase Plan. The Board has delegated administration of the Purchase Plan to
the Compensation Committee of the Board. As used herein with respect to the
Purchase Plan, the "Board" refers to the Compensation Committee as well as to
the Board of Directors itself.
OFFERINGS
Under the Purchase Plan, the Board may provide for the grant of rights to
purchase Common Stock to eligible employees (an "Offering") on a date or dates
to be selected by the Board. The Board authorized the first Offering beginning
October 26, 1995, the effective date of the Company's initial public offering,
and extending until July 31, 1997. The next Offering began on August 1, 1997 and
will end on July 31, 1999. Subsequent Offerings will commence on August 1 every
two years, beginning with calendar year 1999 and will end on the day prior to
the second anniversary of the date the Offering commences.
ELIGIBILITY
Rights to purchase stock may be granted under the Purchase Plan only to
employees of the Company and its affiliates who are employed by the Company or
its designated affiliates on the date an offering commences, and whose customary
employment with the Company or its affiliates is at least 20 hours per week and
at least five months per calendar year, unless otherwise determined by the
Board. The Board may provide that if an employee becomes eligible to participate
in the Purchase Plan during the course of an Offering, the employee may receive
a right under that Offering. Such right shall have the same characteristics as
any rights originally granted under that Offering, except that (i) the date on
which the right is granted shall be the offering date for all purposes,
including the determination of the exercise price, (ii) the period of the
Offering for such right shall begin on its offering date and end coincident with
the end of such Offering, and (iii) the Board may provide that if a person
becomes an eligible employee within a specified period of time before the end of
the Offering, he or she will not receive any right under that Offering. Officers
of the Company shall be eligible to participate in Offerings, although the Board
may provide that certain highly compensated employees shall not be eligible to
participate.
Notwithstanding the foregoing, no employee is eligible for the grant of any
rights under the Purchase Plan if, immediately after such grant, the employee
would own, directly or indirectly, stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or of any
parent or subsidiary of the Company (including any stock which such employee may
purchase under all outstanding
28
<PAGE> 32
rights and options), nor will any employee be granted rights that would permit
him to buy more than $25,000 worth of stock (determined at the fair market value
of the shares at the time such rights are granted) under all employee stock
purchase plans of the Company in any calendar year.
TERMS OF RIGHTS
The following is a description of the terms of rights granted under the
Purchase Plan.
Rights; Purchase Price. On each date an Offering commences (the "Offering
Date"), each eligible employee shall be granted the right to purchase the number
of shares of Common Stock of the Company purchasable with a percentage
designated by the Board not exceeding 15% of such employee's earnings during the
period which begins on the Offering Date and ends on a designated date not in
excess of 27 months after the Offering Date. In connection with each Offering,
the Board shall specify a maximum number of shares which may be purchased by any
employee as well as a maximum aggregate number of shares which may be purchased
by all eligible employees. If an Offering contains more than one exercise date,
the Board may specify a maximum aggregate number of shares which may be
purchased by all eligible employees on any given exercise date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board
will make a pro rata allocation of the shares available in as nearly a uniform
manner as practicable and as the Board deems equitable.
The purchase price of stock acquired pursuant to rights granted under the
Purchase Plan will not be less than the lesser of (i) an amount equal to 85% of
the fair market value of the stock on the Offering Date, or (ii) an amount equal
to 85% of the fair market value of the stock on the exercise date.
Transferability. Rights granted under the Purchase Plan are
nontransferable and may be exercised only by the person to whom such rights are
granted.
Exercise. On each exercise date, a participant's accumulated payroll
deductions and any other additional permitted payments (without any increase for
interest) will be applied to the purchase of whole shares of stock of the
Company, up to the maximum number of shares permitted pursuant to the terms of
the Purchase Plan, at the purchase price specified in the Offering. No
fractional shares will be issued upon the exercise of rights granted under the
Purchase Plan. Any accumulated payroll deductions remaining in a participant's
account after the purchase of the number of whole shares purchasable at the
purchase price specified in the Offering in an amount less than is required to
purchase one whole share will be held in the participant's account for the
purchase of shares under the next Offering under the Purchase Plan, unless the
participant withdraws from the next Offering or is no longer eligible to be
granted rights under the Purchase Plan, in which case such amount shall be
distributed to the participant after the final exercise date, without interest.
Any accumulated payroll deductions remaining in a participant's account after
such purchase in an amount greater than that required to purchase one share will
be distributed to the participant without interest.
PARTICIPATION, WITHDRAWAL AND TERMINATION
An eligible employee may become a participant in an Offering by delivering
a participation agreement to the Company authorizing payroll deductions of up to
the maximum percentage of such employee's earnings during the Offering, as
specified by the Board. Payroll deductions made for a participant shall be
credited to an account for such participant under the Purchase Plan and
deposited with the general funds of the Company. A participant may reduce,
increase or begin payroll deductions after the beginning of any purchase period
only as provided for in the Offering. A participant may make additional payments
into his or her account only if specifically provided for in the Offering and
only if the participant has not had the maximum amount withheld during the
purchase period.
A participant may terminate payroll deductions under the Purchase Plan and
withdraw from an Offering at any time during the Offering by delivering to the
Company a notice of withdrawal. Upon such withdrawal, the Company will
distribute to such participant all of his or her accumulated payroll deductions
(reduced to the extent such deductions have been used to acquire stock for the
participant) under the Offering, without
29
<PAGE> 33
interest, and the participant's interest in that Offering will be automatically
terminated. Such withdrawal will have no effect upon such participant's
eligibility to participate in any other Offerings under the Purchase Plan, but
the participant will be required to deliver a new participation agreement in
order to participate in subsequent Offerings.
Rights granted under the Purchase Plan will terminate immediately upon
cessation of a participating employee's employment, and the Company shall
distribute to such employee all of his or her accumulated payroll deductions
(reduced to the extent such deductions have been used to acquire stock for the
terminated employee) without interest.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Purchase Plan or subject
to any rights granted under the Purchase Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Purchase Plan and
rights outstanding thereunder will be appropriately adjusted as to the class and
the maximum number of shares subject to such plan and the class, number of
shares and price per share of stock subject to such outstanding rights.
In the event of a dissolution or liquidation of the Company, a merger or
consolidation in which the Company is not the surviving corporation, a reverse
merger in which the Company is the surviving corporation but the shares of
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, or any other capital reorganization in which more than 50% of
the shares of the Company entitled to vote are exchanged, then as determined by
the Board in its sole discretion, the successor corporation may assume such
outstanding rights or substitute similar rights, such rights may continue in
full force and effect, or participants' accumulated payroll deductions may be
used to purchase Common Stock immediately prior to the transaction described
above and the participants' rights under the ongoing Offering terminated.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Purchase Plan without shareholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Purchase Plan will terminate on September 12, 2005.
The Board may also amend the Purchase Plan at any time or from time to
time. However, no amendment shall be effective unless approved by the
shareholders of the Company within 12 months before or after its adoption by the
Board if the amendment would: (i) modify the provisions as to eligibility for
participation (to the extent such modification requires shareholder approval in
order for the Purchase Plan to satisfy the requirements of Section 423 of the
Code or to comply with the requirements of Rule 16b-3 of the 1934 Act); (ii)
increase the number of shares reserved for rights; or (iii) modify the Purchase
Plan in any other way if such modification requires shareholder approval in
order for the Purchase Plan to satisfy the requirements of Section 423 of the
Code or to comply with the requirements of Rule 16b-3 of the 1934 Act.
FEDERAL INCOME TAX INFORMATION
The following is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the rights granted under
the Purchase Plan, does not purport to be complete and does not discuss the
income tax laws of any state or foreign country in which a participant may
reside.
Rights granted under the Purchase Plan are intended to qualify for
favorable federal tax treatment associated with rights granted under an employee
stock purchase plan which qualifies under provisions of Section 423 of the Code.
A participant will be taxed on amounts withheld for the purchase of shares as if
such amounts were actually received. Other than this, no income will be taxable
to a participant until disposition of the shares acquired, and the method of
taxation will depend upon the holding period of the purchased shares.
30
<PAGE> 34
If the stock is disposed of at least two years after the beginning of the
offering period and at least one year after the stock is transferred to the
participant, then the lesser of (i) the excess of the fair market value of the
stock at the time of such disposition over the exercise price or (ii) the excess
of the fair market value of the stock as of the beginning of the offering period
over the exercise price (determined as of the beginning of the offering period)
will be treated as ordinary income. Any further gain or any loss will be taxed
as a capital gain or loss. Capital gains generally are subject to lower tax
rates than ordinary income.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the exercise date over the exercise price generally will be treated as
ordinary income at the time of such disposition, and the Company may, in the
future, be required to withhold income taxes relating to such ordinary income
from other payments made to the participant. The balance of any gain will be
treated as capital gain. Even if the stock is later disposed of for less than
its fair market value on the exercise date, the same amount of ordinary income
is attributed to the participant, and a capital loss is recognized equal to the
difference between the sales price and the fair market value of the stock on
such exercise date. Any capital gain or loss realized by a participant upon the
disposition of stock acquired under the Purchase Plan will be long-term,
mid-term or short-term depending on how long the stock was held.
There are no federal income tax consequences to the Company by reason of
the grant or exercise of rights under the Purchase Plan. The Company is entitled
to a deduction to the extent amounts are taxed as ordinary income to a
participant (subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting obligation).
The following table presents certain information with respect to shares
purchased under the Purchase Plan during the fiscal year ended December 31, 1997
by (i) the Named Executive Officers (as defined below), (ii) all executive
officers as a group and (iii) all non-executive officer employees as a group.
Non-employee directors are not eligible to purchase shares under the Purchase
Plan.
NEW PLAN BENEFITS
1995 EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION DOLLAR VALUE(1) PURCHASED
----------------- --------------- ----------------
<S> <C> <C>
Norman R. Farquhar............................ $ 52,321.13 2,844
All Executive Officers as a Group............. $ 52,321.13 2,844
All Non-Executive Officer Employees as a
Group....................................... $1,941,540.47 110,180
</TABLE>
- ---------------
(1) Fair market value on the date of purchase multiplied by the number of shares
purchased.
PROPOSAL 6
APPROVAL OF THE 1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN, AS AMENDED
In September 1995, the Board of Directors adopted, and the shareholders
subsequently approved, the 1995 Non-Employee Directors' Stock Option Plan, as
amended in May 1996 (the "Directors' Plan"). As of March 31, 1998, options (net
of cancelled or expired options) covering an aggregate of 100,000 shares of
Common Stock had been granted under the Directors' Plan and only 53,334 shares
(plus any shares that might in the future be returned to the plan as a result of
cancellations or expiration of options) remained available for future grant
under the Directors' Plan.
During the last fiscal year, under the Directors' Plan, the Company has
granted to all current directors who are not officers as a group options to
purchase 85,000 shares at exercise prices of $14.50, $18.125 and $21.75 per
share.
Currently, there are 150,000 shares authorized for issuance under the
Directors' Plan. In January 1998, the Board approved an amendment to the
Directors' Plan, subject to shareholder approval, to (i) provide for a
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<PAGE> 35
one-time 10,000-share option grant to each non-employee director as of the date
of the 1998 Annual Meeting and (ii) increase the number of shares authorized for
issuance under the Directors' Plan from 150,000 shares to a total of 300,000
shares. The Board adopted this amendment to attract and retain the services of
persons capable of serving as non-employee directors, to provide incentives for
such persons to exert maximum efforts to promote the success of the Company and
to ensure that the Directors' Plan has sufficient shares reserved to allow for
future automatic grants under such plan.
Shareholders are requested in this Proposal 6 to approve the Directors'
Plan, as amended. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and voting at the meeting will
be required to approve the Directors' Plan, as amended. In order to take
advantage of the exemption contained in Rule 16b-3 promulgated by the SEC, for
purposes of this vote, abstentions and broker non-votes will not be counted for
any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 6.
The essential features of the Directors' Plan are as follows:
GENERAL
The Directors' Plan provides for the automatic grant of nonstatutory stock
options to purchase shares of Common Stock to Non-Employee Directors (as defined
below) of the Company. Subject to shareholder approval of this Proposal 6, the
maximum number of shares of Common Stock that may be issued pursuant to options
granted under the Directors' Plan is 300,000. Options granted under the
Directors' Plan are not intended to qualify as incentive stock options, as
defined under Section 422 of the Code.
PURPOSE
The purpose of the Directors' Plan is to attract and retain the services of
persons capable of serving as Non-Employee Directors on the Board of Directors
and to provide incentives for such persons to exert maximum efforts to promote
the success of the Company.
ADMINISTRATION
The Directors' Plan is administered by the Board of Directors of the
Company. The Board of Directors has the final power to construe and interpret
the Directors' Plan and options granted under it, and to establish, amend and
revoke rules and regulations for its administration. The Board of Directors is
authorized to delegate administration of the Directors' Plan to a committee of
not fewer than two members of the Board. The Board of Directors does not
presently contemplate delegating administration of the Directors' Plan to any
committee of the Board of Directors.
ELIGIBILITY
The Directors' Plan provides that options may be granted only to
Non-Employee Directors of the Company who are Eligible Directors. A
"Non-Employee Director" is defined in the Directors' Plan as a director of the
Company or any of its affiliates who is not otherwise an employee of the Company
or any affiliate. "Eligible Directors" are defined in the Directors' Plan as all
Non-Employee Directors of the Company serving as members of the Board from time
to time after the effectiveness of the Company's initial public offering;
provided, however, that any Non-Employee Director whose membership on the Board
of Directors commenced prior to the Company's initial public offering pursuant
to a capital investment in the Company by an entity which such Non-Employee
Director represents shall become an Eligible Director only if and when he or she
is elected as a Non-Employee Director by the shareholders of the Company after
such initial public offering.
Option grants under the Directors' Plan are non-discretionary. Each person
who, after the effectiveness of the Company's Registration Statement filed in
connection with the Company's initial public offering, for the first time
becomes an Eligible Director shall be granted upon the date of his or her
initial election to be a Non-
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<PAGE> 36
Employee Director by the Board or shareholders of the Company, an option to
purchase 20,000 shares of Common Stock. In addition, on the date of the annual
meeting of shareholders each year, each Eligible Director who is not elected a
director for the first time at such meeting shall be granted an option to
purchase 5,000 shares of Common Stock. In addition, subject to shareholders
approval of this Proposal 6, on the date of the 1998 Annual Meeting, each
Eligible Director will receive a one-time 10,000-share option grant.
TERMS OF OPTIONS
Each option under the Directors' Plan is subject to the following terms and
conditions:
Option Exercise. Under the Directors' Plan, as amended, options granted
become exercisable in installments over a period of three years from the date of
grant as follows: one-twelfth ( 1/12) of the shares will vest on the date three
months after the date of grant and one thirty-sixth ( 1/36) of the shares shall
vest each month thereafter. Options granted under the Directors' Plan prior to
May 1997 become exercisable in installments over a period of four years from the
date of grant as follows: one-sixteenth ( 1/16) of the shares will vest on the
date three months after the date of grant and one forty-eighth ( 1/48) of the
shares shall vest each month thereafter. Such vesting is conditioned upon
continued service as a director, employee or consultant of the Company. An
option granted under the Directors' Plan may be exercised by giving written
notice of exercise to the Company, specifying the number of full shares of
Common Stock to be purchased and tendering payment of the purchase price to the
Company.
Exercise Price; Payment. The exercise price of options granted under the
Directors' Plan shall be equal to 100% of the fair market value of the Common
Stock subject to such options on the date of grant. The exercise price of
options granted under the Directors' Plan may be paid in cash or by delivery of
shares of Common Stock of the Company that have been held for the period
required to avoid a charge to the earnings of the Company. Any shares so
surrendered shall be valued at their fair market value on the date of exercise.
Transferability; Term. Under the Directors' Plan, an option may not be
transferred by the optionee, except by will or the laws of descent and
distribution or pursuant to a "qualified domestic relations order." During the
lifetime of an optionee, an option may be exercised only by the optionee or
transferee pursuant to such order. No option granted under the Directors' Plan
is exercisable by any person after the expiration of ten years from the date the
option is granted.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Plan as may be
determined by the Board of Directors.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Directors' Plan or
subject to any option granted under the Directors' Plan (through merger,
consolidation, reorganization recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating, dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Directors' Plan and options outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to such plan
and the class, number of shares and price per share of stock subject to such
outstanding options.
In the event of a dissolution or liquidation of the Company, a merger or
consolidation in which the Company is not the surviving corporation or a reverse
merger in which the Company is the surviving corporation but the shares of the
Company's Common Stock outstanding immediately preceding the merger were
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, or any other capital reorganization after which
less than 50% of the outstanding voting shares of the new or continuing
corporation are owned by shareholders of the Company immediately before such
transactions, then to the extent permitted by applicable law, the time during
which such options may be exercised shall be accelerated, and the options
terminated if not exercised prior to such event.
33
<PAGE> 37
DURATION, AMENDMENT AND TERMINATION
The Board of Directors may amend, suspend or terminate the Directors' Plan
at any time or from time to time; provided, however, that the Board may not
amend the Directors' Plan with respect to the amount, price or timing of grants
more often than once every six months. No amendment will be effective unless
approved by the shareholders of the Company within twelve months before or after
its adoption by the Board if the amendment would: (i) increase the number of
shares reserved for options under the Directors' Plan; (ii) modify the
requirements as to eligibility for participation in the Directors' Plan (to the
extent such modification requires shareholder approval in order for the Plan to
comply with the requirements of Rule 16b-3; or (iii) modify the Directors' Plan
in any other way if such modification requires shareholder approval in order for
the Directors' Plan to meet the requirements of Rule 16b-3. Unless sooner
terminated, the Directors' Plan will terminate on October 26, 2005.
FEDERAL INCOME TAX INFORMATION
Stock options granted under the Directors' Plan are subject to federal
income tax treatment pursuant to rules governing options that are not incentive
stock options.
The following is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Directors' Plan, does not purport to be complete and does not
discuss the income tax laws of any state or foreign country in which an optionee
may reside.
Options granted under the Directors' Plan are nonstatutory options. There
are no tax consequences to the optionee or the Company by reason of the grant of
a nonstatutory stock option. Upon exercise of a nonstatutory stock option, the
optionee normally will recognize taxable ordinary income equal to the excess of
the stock's fair market value on the date of exercise over the option exercise
price. Generally, with respect to employees, the Company is required to withhold
from regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, the provisions
of Section 162(m) of the Code and the satisfaction of a tax reporting
obligation, the Company will generally be entitled to a business expense
deduction equal to the taxable ordinary income realized by the optionee. Upon
disposition of the stock, the optionee will recognize a capital gain or loss
equal to the difference between the selling price and the sum of the amount paid
for such stock plus any amount recognized as ordinary income upon exercise of
the option. Such gain or loss will be long-term, mid-term or short-term
depending on how long the stock was held. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the 1934 Act.
PROPOSAL 7
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998 and has
further directed that management submit the selection of independent auditors
for ratification by the shareholders at the Annual Meeting. Representatives of
Ernst & Young LLP are expected to be present at the Annual Meeting, will have an
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
Shareholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the shareholders for ratification as a matter of good corporate practice. If
the shareholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its shareholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and voting at the Annual Meeting will be required
to ratify the selection of Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 7.
34
<PAGE> 38
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 February 18, 1998 by: (i) each of the
executive officers named in the Summary Compensation Table; (ii) each director;
(iii) all those known by the Company to be beneficial owners of more than five
percent of its Common Stock; and (iv) all executive officers and directors of
the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
---------------- --------- ----------
<S> <C> <C>
Stuart W. Clifton(2)(3)................................ 1,061,881 7.46%
Norman R. Farquhar(3)(4)............................... 92,808 *
Robert W. Brandel(3)(5)................................ 329,685 2.32%
Mark S. Howlett(6)..................................... 296,567 2.09%
Nathan W. Bell(7)...................................... 341,472 2.41%
Tony N. Domit(8)....................................... 9,166 *
William P. Foley II(9)................................. 289,999 2.04%
Ronald S. Parker(10)................................... 40,904 *
Roy Thiele-Sardina(8).................................. 9,166 *
Robert C. Vernon(11)................................... 848,426 5.98%
Mark Hellinger......................................... 269,627 1.90%
All executive officers and directors as a group (11
persons)(12)......................................... 4,867,747 25.26%
</TABLE>
- ---------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal shareholders. Unless otherwise indicated in the footnotes to this
table and subject to community property laws where applicable, the Company
believes that each of the shareholders named in this table has sole voting
and investment power with respect to the shares indicated as beneficially
owned. Applicable percentages are based on 14,186,327 shares outstanding on
February 18, 1998, adjusted as required by rules promulgated by the
Securities and Exchange Commission (the "SEC").
(2) Includes 55,832 shares subject to options exercisable within 60 days of
February 18, 1998.
(3) Excludes 899,491 shares beneficially owned by the DCD Employee Stock
Ownership Plan (the "ESOP") for which Messrs. Clifton, Farquhar and Brandel
serve as trustees. Each of such trustees disclaims beneficial ownership of
the ESOP shares.
(4) Includes 92,808 shares subject to options exercisable within 60 days of
February 18, 1998.
(5) Includes 12,500 shares subject to options exercisable within 60 days of
February 18, 1998.
(6) Includes 16,666 shares subject to options exercisable within 60 days of
February 18, 1998.
(7) Includes 69 shares issuable upon exercise of a warrant held by Mr. Bell,
3,458 shares issuable upon exercise of a warrant held by PMF and 325,097
shares held by PMF. Mr. Bell is a general partner of PPC, which is the
general partner of PMF. He disclaims beneficial ownership of securities
held by PMF, except to the extent of his pro rata interest therein.
Includes 4,444 shares subject to options exercisable within 60 days of
February 18, 1998.
(8) Includes 9,166 shares subject to options exercisable within 60 days of
February 18, 1998.
(9) Includes 170,000 shares held by Fidelity National Title Insurance Company
of Pennsylvania ("Fidelity Pennsylvania") and 90,000 shares held by
Fidelity National Title Insurance Company ("Fidelity"). Mr. Foley is an
executive officer and director of Fidelity National Financial, Inc., which
is affiliated with both Fidelity Pennsylvania and Fidelity. Includes 7,499
shares subject to options exercisable within 60 days of February 18, 1998.
35
<PAGE> 39
(10) Includes warrants to purchase up to 8,197 shares of Common Stock. Includes
4,444 shares subject to options exercisable within 60 days of February 18,
1998.
(11) Includes 300,000 shares owned by the Vernon Family Charitable Remainder
Trust.
(12) Includes 888,555 shares held by entities affiliated with directors and
officers of the Company, 212,525 shares subject to options held by officers
and directors exercisable within 60 days of February 18, 1998 and 11,724
shares issuable upon exercise of warrants held by directors and entities
affiliated with directors. See note (2) and notes (4) through (11).
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with 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 ten percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The members of the Board of Directors are not compensated for attendance at
Board and Committee meetings. They are, however, eligible for reimbursement for
their expenses incurred in connection with such attendance in accordance with
Company policy.
Non-employee directors are also eligible for grants of options under the
Directors' Plan, as described in Proposal 6, above.
The Company has entered into certain loan agreements with, and has issued
warrants to purchase Common Stock to, affiliates of Messrs. Bell and Parker,
directors of the Company. Such loan agreements were terminated in November 1995.
In connection with the Company's Series A Preferred Stock financing in August
1995, the Company issued to Mr. Bell a warrant to purchase 69 shares of Common
Stock. See "Security Ownership of Certain Beneficial Owners and Management."
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ended December 31, 1995,
1996 and 1997, certain compensation awarded or paid to, or earned by, the
Company's Chief Executive Officer and the four most highly compensated executive
officers of the Company who earned more than $100,000 in the fiscal year ended
December 31, 1997 and one individual for whom disclosure would have been
provided but for the fact the individual was not serving as an executive officer
at the end of the last fiscal year (collectively, the "Named Executive
Officers").
36
<PAGE> 40
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS(2)
---------------------------------------- -------------
OTHER SECURITIES ALL OTHER
FISCAL SALARY BONUS ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION($) OPTIONS(#)(3) ($)(4)
- --------------------------- ------ -------- -------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stuart W. Clifton........... 1997 $271,981 $270,000 -- -- $12,947
Chairman of the Board, 1996 $272,000 $192,500(5) -- -- $14,560
President and Chief 1995 $250,000 $301,700(5) -- 30,000 $14,738
Executive Officer
Robert C. Vernon(6)......... 1997 $278,193 $ 52,500 $1,187,500(7) -- $ 2,592
President, International 1996 -- -- -- -- --
Operations 1995 -- -- -- -- --
Mark Hellinger(8)........... 1997 $210,692 $ 52,500 $ 562,500(9) -- --
President, ERP Systems 1996 -- $ 46,426 -- -- --
Group 1995 -- -- -- -- --
Norman R. Farquhar.......... 1997 $200,000 $150,000 -- $ 4,832
Executive Vice President, 1996 $183,333 $ 80,000 -- 165,000 $ 2,213
Chief Financial Officer 1995 -- -- -- 19,230 --
and Director
Robert W. Brandel(10)....... 1997 $200,501 $100,000 -- -- $ 1,269
Former President, 1996 $ 45,000(11) -- $ 80,000(12) -- --
Information Systems 1995 -- -- -- -- --
Group
Mark S. Howlett(13)......... 1997 $170,646(14) -- $ 150,000(15) -- $ 1,839
Former Executive Vice 1996 $180,000 $ 31,500 -- -- $ 6,065
President, Sales and 1995 -- -- -- 20,000 $ 7,108
Marketing
</TABLE>
- ---------------
(1) As permitted by rules promulgated by the SEC, no amounts are shown with
respect to certain perquisites where such amounts do not exceed the lesser
of 10% of the sum of the amount in the salary and bonus columns or $50,000.
(2) None of the named executive officers held restricted stock awards as of
February 18, 1998.
(3) All options were granted under the Incentive Plan. Reference is made to
Proposal 4 above for a more detailed description of option grants under the
Incentive Plan.
(4) Includes the value of excess group term life insurance premiums paid on
behalf of Messrs. Clifton, Vernon, Hellinger, Farquhar, Brandel and
Howlett.
(5) Mr. Clifton's bonus for 1995 includes advances of $91,700 made in 1994 and
approved by the Board as a 1995 bonus in June 1995. Mr. Clifton's bonus for
1995 includes a bonus of $210,000 for services rendered in 1995, which
bonus was paid in 1996. Mr. Clifton's bonus for 1996 includes advances of
$90,000 made in 1994 and approved by the Board as a 1996 bonus in February
1997. Mr. Clifton's bonus for 1997 includes advances of $90,000 made in
1997 and approved by the Board as a 1997 bonus in 1997.
(6) Includes the portion of Mr. Vernon's salary paid by Interactive Group, Inc.
See "-- Employment Agreements."
(7) Includes a retention bonus granted to Mr. Vernon pursuant to his employment
agreement and payment pursuant to a non-compete agreement. See
"-- Employment Agreements."
(8) Includes the portion of Mr. Hellinger's salary paid by Interactive Group,
Inc. See "-- Employment Agreements."
(9) Includes a retention bonus granted to Mr. Hellinger pursuant to his
employment agreement and payment pursuant to a non-compete agreement. See
"-- Employment Agreements."
(10) In November 1997, Mr. Brandel provided the Company with notice of his
intention to resign as President, Information Systems Group of the Company.
Mr. Brandel's resignation became effective as of January 30, 1998.
37
<PAGE> 41
(11) Excludes the portion of Mr. Brandel's salary paid by DCD Corporation
("DCD") prior to the Company's acquisition of DCD in September 1996. See
"-- Employment Agreements."
(12) Includes a retention bonus paid to Mr. Brandel pursuant to Mr. Brandel's
employment agreement with DCD. See "-- Employment Agreements."
(13) Mr. Howlett resigned as Executive Vice President, Sales and Marketing
effective May 31, 1997.
(14) Includes the salary paid to Mr. Howlett before his resignation from the
Company effective May 31, 1997. Also includes $79,922 paid to Mr. Howlett
under a consultant agreement between Mr. Howlett and the Company and
$15,720 paid to Mr. Howlett in commissions.
(15) Includes a payment made to Mr. Howlett pursuant to a non-compete agreement.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its Incentive
Plan. The following tables show, for the fiscal year ended December 31, 1997,
certain information regarding options granted to, exercised by, and held at year
end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF AT ASSUMED ANNUAL
SECURITIES TOTAL OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION
OPTIONS EMPLOYEES EXERCISE OR MARKET FOR OPTION TERM(3)(4)
GRANTED IN FISCAL BASE PRICE VALUE ON EXPIRATION ---------------------------
NAME (#)(1) YEAR(2) ($/SH) GRANT DATE DATE 5%($) 10%($)
---- ---------- ------------- ----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stuart W. Clifton......... 70,000(5) 11.1% $15.30 $14.25 04/17/02 $ 295,897 $ 653,856
120,000(6) 19% $15.875 $15.875 12/18/07 $1,200,150 $3,028,950
Robert C. Vernon.......... 40,000(6) 6.3% $20.35 $18.50 09/29/07 $ 512,820 $1,294,260
Mark Hellinger............ 25,000(6) 4.0% $20.35 $18.50 09/29/07 $ 320,513 $ 808,913
Norman R. Farquhar........ 30,000(6) 4.8% $15.30 $14.25 04/17/07 $ 289,170 $ 729,810
Robert W. Brandel......... 50,000(6) 7.9% $15.30 $14.25 04/17/07 $ 481,950 $1,216,350
</TABLE>
- ---------------
(1) The options will fully vest upon a change in control of the Company as
defined in the Incentive Plan unless the acquiring company assumes the
options or substitutes similar options. The term of the options is generally
ten years.
(2) Based on options to purchase 631,000 shares granted to employees, including
Named Executive Officers, under the Incentive Plan in fiscal 1997.
(3) Calculated on the assumption that the market value of the underlying stock
increases at the stated values, compounded annually. The total appreciation
of the options over their ten-year terms at 5% and 10% is 63% and 159%,
respectively. These amounts do not reflect the Company's estimate or
projection of future stock price performance. Actual gains, if any, are
dependent on the actual future performance of the Company's Common Stock and
no gain to the optionee is possible unless the stock price increases over
the option term, which will benefit all shareholders.
(4) The term of Mr. Clifton's option to purchase 70,000 shares is five years.
The total appreciation of these options over their five-year term at 5% and
10% is 28% and 61%, respectively.
(5) Such option becomes exercisable over a three-year period with shares vesting
in 36 equal monthly installments.
(6) Such options become exercisable over a four-year period, with 25% of the
shares subject to such options vesting on the first anniversary of the
respective grant dates and the remainder vesting monthly thereafter.
38
<PAGE> 42
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information indicating that none of the
Named Executive Officers exercised stock options during the fiscal year ended
December 31, 1997. The following table also sets forth the number and value of
securities underlying unexercised options held by the Named Executive Officers
at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, AT DECEMBER 31,
1997(#)(1) 1997($)(2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Stuart W. Clifton..... 0 -- 21,666/198,334 $198,244/876,506
Robert C. Vernon...... 0 -- 0/ 40,000 0
Mark Hellinger........ 0 -- 0/ 25,000 0
Norman R. Farquhar.... 0 -- 110,580/103,650 $979,549/629,589
Robert W. Brandel..... 0 -- 0/ 50,000 $ 0/228,750
Mark S. Howlett....... 0 -- 14,444/ 5,556 $146,246/ 56,255
</TABLE>
- ---------------
(1) Includes both "in-the-money" and "out-of-the-money" options. "In-the-money"
options are options with an exercise price below the fair market value of
the Company's Common Stock.
(2) Fair market value of the Company's Common Stock as of December 31, 1997
($19.875) minus the exercise price. Negative values are indicated as "0".
EMPLOYMENT AGREEMENTS
In May 1994, Stuart W. Clifton entered into an executive employment
agreement with the Company which was amended and restated in December 1997.
Under the terms of the amended and restated agreement, Mr. Clifton receives an
annual salary of no less than $325,000 and bonuses and equity compensation as
determined by the Compensation Committee of the Board of Directors. In addition,
the agreement provides that during each quarter, Mr. Clifton is entitled to
advances in the amount of $33,000, provided that the aggregate amount of all
outstanding advances does not exceed $264,000. The agreement provides that
advances be repaid by deduction from any annual bonus awarded to Mr. Clifton and
net proceeds from any sale of the Company's securities held by him. If the
advances for any calendar year are not repaid from his annual bonus awarded for
such year or from his net proceeds from sales of the Company's securities owned
by him during such year, the advances will commence bearing interest on the date
bonuses are determined by the Compensation Committee during such year. All
outstanding advances, including interest accrued thereon, are due and payable in
full five years from the effective date of the agreement. In fiscal 1997, the
Compensation Committee, with Mr. Clifton's consent, decided to discontinue such
bonus advances to Mr. Clifton. The principal amount of such advances outstanding
as of December 31, 1997 was $97,205. If Mr. Clifton's employment is terminated
by the Company without cause, under the agreement he is entitled to receive as
severance two times his then-current base salary plus two times his most recent
annual bonus, payable in equal monthly installments over the 12-month period
following the date of termination, continued health insurance benefits and
automatic forgiveness by the Company of any outstanding advances in principal
sum not exceeding $198,000 and all accrued interest thereon. If Mr. Clifton's
employment is terminated by the Company for cause or he resigns, all of his
executive compensation will cease immediately, no severance benefits will be
provided and all outstanding advances and accrued interest thereon will be
automatically due and payable in full. In addition, in the event that, at the
time of or within 12 months following a merger or other change in control of the
Company which occurs after December 19, 1998, the Company or its successor
terminates Mr. Clifton's employment without cause or Mr. Clifton voluntarily
terminates his employment for reason or for no reason, all options then owned by
Mr. Clifton shall immediately accelerate and become fully vested and
exercisable.
39
<PAGE> 43
Pursuant to an executive employment agreement between the Company and Mark
S. Howlett entered into in May 1994, Mr. Howlett received a base salary of
$74,004 and commissions of $15,720 for his employment with the Company from
January 1, 1997 through May 31, 1997. On May 31, 1997, Mr. Howlett resigned as
an employee of the Company but agreed to become a consultant for the Company. In
connection with Mr. Howlett's resignation as an employee, and in connection with
a non-compete arrangement he was granted a severance payment of $150,000 and
continued health insurance benefits until June 1, 1998 or until Mr. Howlett
begins full-time employment with another company wherein comparable health
benefits are offered. The Company agreed to pay Mr. Howlett a salary of $137,000
for consulting services to the Company from June 1, 1997 until November 30, 1998
and as of December 31, 1997, had paid Mr. Howlett $79,922 in consulting fees.
Pursuant to an offer letter dated January 17, 1996, Norman R. Farquhar
received an annual base salary of $200,000, which is subject to review and
adjustment by the compensation committee, and a cash bonus of $50,000 for the
fiscal year beginning January 1, 1996. Upon commencement of his employment in
February 1996, Mr. Farquhar was granted an option to purchase 135,000 shares of
Common Stock at an exercise price equal to the fair market value on the date of
grant, which option vests monthly over a three-year period. If Mr. Farquhar's
employment is terminated with or without cause Mr. Farquhar agrees, for one year
following such termination, to not solicit any employee, consultant or
independent contractor of the Company to terminate his or her relationship with
the Company in order to become an employee, consultant or independent contractor
to or for any other person or business.
Pursuant to a letter agreement between DCD and Mr. Brandel entered into in
September 1996 in connection with the Company's acquisition of DCD, Mr. Brandel
receives an annual base salary of $180,000 and received a retention bonus of
$80,000. The retention bonus is conditioned upon Mr. Brandel's continued
full-time employment with DCD for two years following the date of the agreement,
and in the event that his employment terminates prior to such time (unless
terminated by DCD without cause), Mr. Brandel will be required to return to DCD
the portion of such retention bonus equal in proportion to the remaining portion
of his two-year obligation. Effective January 30, 1998, Mr. Brandel resigned as
an employee of the Company, and DCD agreed to waive any obligation of Mr.
Brandel to return any portion of his retention bonus.
Pursuant to a letter agreement between the Company and Mr. Vernon entered
into in September 1997 in connection with the Company's acquisition of
Interactive Group, Inc., Mr. Vernon receives an annual base salary of $250,000
and received a retention bonus of $300,000, payable quarterly over two years,
with the first payment being made on October 1, 1997. Under the Agreement, if
Mr. Vernon's employment is terminated by the Company without cause, he is
entitled to receive as severance his annual salary as of that date payable in
equal monthly installments over the 12-month period following the date of
termination and the remainder of his retention bonus. In connection with Mr.
Vernon's employment, he also entered into a Noncompetition Agreement with the
Company pursuant to which the Company paid Mr. Vernon $1,150,000. Under the
terms of the Noncompetition Agreement, Mr. Vernon agreed that he would not
compete with the Company or solicit the Company's employees or customers until
the sooner of three years after Mr. Vernon's termination of employment with the
Company or September 2002.
Pursuant to a letter agreement between the Company and Mr. Hellinger
entered into in September 1997 in connection with the Company's acquisition of
Interactive Group, Inc., Mr. Hellinger receives an annual base salary of
$250,000 and received a retention bonus of $300,000, payable quarterly over two
years, with the first payment being made on October 1, 1997. Under the
Agreement, if Mr. Hellinger's employment is terminated by the Company without
cause, he is entitled to receive as severance his annual salary as of that date
payable in equal monthly installments over the 12-month period following the
date of termination and the remainder of his retention bonus. In connection with
Mr. Hellinger's employment, he also entered into a Noncompetition Agreement with
the Company pursuant to which the Company paid Mr. Hellinger $525,000. Under the
terms of the Noncompetition Agreement, Mr. Hellinger agreed that he would not
compete with the Company or solicit the Company's employees or customers until
the sooner of two years after Mr. Hellinger's termination of employment with the
Company or September 2000.
40
<PAGE> 44
The Company pays the annual premium on split-dollar life insurance policies
taken out on the lives of Stuart W. Clifton, Norman R. Farquhar, Robert W.
Brandel, Robert C. Vernon and Mark Hellinger. The face value of each policy and
the portion of the premium that is required to be taken into income by each
insured employee are as follows:
<TABLE>
<CAPTION>
TAXABLE PORTION
FACE VALUE OF PREMIUM
---------- ---------------
<S> <C> <C>
Stuart W. Clifton........................ $3,000,000 $4,804
Norman R. Farquhar....................... $1,500,000 $2,134
Robert W. Brandel........................ $1,500,000 $ 928
Robert C. Vernon......................... $1,500,000 $ 0
Mark P. Hellinger........................ $1,500,000 $ 47
</TABLE>
Upon the death of the insured, or upon the earlier termination of the
split-dollar agreement between the Company and the insured, the Company will be
repaid the greater of the cash surrender value of the policy or the amount of
the insurance premiums paid by the Company. However, in the event of a change in
control of the Company, the Company will be entitled to receive only the cash
surrender value of the policy. Upon the occurrence of certain events, the
insured employee will become vested in the split-dollar life insurance policy.
Upon the occurrence of a "vesting event," the Company will be obligated to
continue making premium payments on the split-dollar insurance policy until the
death of the insured employee. The vesting events are: completion of 60 months
of employment following the establishment of the split-dollar agreement;
attaining age 55; becoming disabled; or a change in control of the Company.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(1)
The Company's executive compensation program is administered by the
Compensation Committee (the "Committee") of the Board of Directors (the
"Board"). The Committee is appointed by the Board and is comprised of three
non-employee directors. The Committee has responsibility for all compensation
matters concerning the Company's executive officers.
COMPENSATION PHILOSOPHY
The Board's executive compensation program strongly links management pay
with the Company's annual and long-term performance. The program is intended to
attract, motivate and retain senior management by providing compensation
opportunities that are consistent with Company performance. The program provides
for base salaries which reflect such factors as level of responsibility,
individual performance, internal fairness and external competitiveness; annual
incentive cash bonus awards which are payable upon the Company's achievement of
annual financial and strategic objectives approved by the Board; and long-term
incentive opportunities, generally in the form of stock options which strengthen
the mutuality of interest between management and the Company's shareholders.
The following is a discussion of each of the elements of the Company's
executive compensation program including a description of the decisions and
actions taken by the Committee with respect to compensation in fiscal 1997 for
the Chief Executive Officer and all executive officers as a group.
MANAGEMENT COMPENSATION PROGRAM
Compensation paid to the Company's executive officers for fiscal 1997 (as
reflected in the foregoing tables with respect to the Named Executive Officers)
consisted of the following elements: base salary, cash bonuses and stock options
granted under the Incentive Plan.
- ---------------
(1) The material in this report is not "soliciting material," is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any
filing of the Company under the 1933 Act or 1934 Act whether made before or
after the date hereof and irrespective of any general incorporation
language contained in such filing.
41
<PAGE> 45
BASE SALARY
With respect to determining the base salary of executive officers, the
Committee takes into consideration a variety of factors including the
executive's levels of responsibility and individual performance, and the
salaries of similar positions in the Company and in comparable companies in the
Company's industry segment. The Committee believes that its process for
determining and adjusting the base salary of executive officers is fully
consistent with sound personnel practices and is subject to the terms and
conditions of their respective employment agreements. Annual adjustments in base
salaries typically are made effective at the beginning of the calendar year for
which they are intended to apply and therefore reflect in large part prior
year's business and individual performance achievements.
ANNUAL BONUS PROGRAM
The Company's bonus program encourages executive officers to achieve
corporate and individual objectives as established at the beginning of the year.
Bonus earnings opportunities primarily derive from the achievement of corporate
objectives, which objectives are based on a scale commensurate with the
executive's ability to effect company-wide goals. Incentive bonuses are awarded
if certain minimum corporate earnings thresholds are met. Below such minimum, no
corporate incentive bonus is normally permitted. The Company's bonus program
applied to all executive officers of the Company beginning in 1996.
1995 EQUITY INCENTIVE PLAN
The long term incentive element of the Company's management compensation
program provides for grants of stock awards, which include (i) incentive stock
options, (ii) nonstatutory stock options, (iii) stock bonuses, (iv) rights to
purchase restricted stock and (v) stock appreciation rights. These discretionary
stock awards are granted and administered by the Committee under the Incentive
Plan, which is intended to create an opportunity for employees of the Company to
acquire an equity ownership interest in the Company and thereby enhance their
efforts in the service of the Company and its shareholders. The Committee
believes that as a result of increasing competitiveness in the high technology
industry for critical talent, the Company will be required to use the grant of
stock options aggressively in order to attract and retain qualified management
personnel. The compensatory and administrative features of the Incentive Plan
conform in all material respects to the design of standard comparable plans in
industry and are, in the Committee's estimation, fair and reasonable.
In 1997, the Committee granted options to purchase 335,000 shares of Common
Stock to five executive officers. 120,000 of such stock options become
exercisable over a three-year period with shares vesting in 36 equal monthly
installments and the remaining options become exercisable over a four-year
period with shares vesting 25% one year from the date of the grant and the
remaining 75% in 36 equal monthly installments. The Committee believes that by
rationing the exercisability of these stock options over a three-year period,
the executive retention impact of the Incentive Plan will be strengthened and
management's motivation to enhance the value of the Company's stock will be
constructively influenced.
CHIEF EXECUTIVE OFFICER COMPENSATION
Pursuant to an executive employment agreement between the Company and
Stuart W. Clifton, Chairman of the Board, President and Chief Executive Officer
of the Company, entered into in May 1994, Mr. Clifton received a base salary of
$272,000 in 1997. In December 1997, based on Mr. Clifton's performance during
1997 and to reflect the scope of responsibilities associated with the
combination of the Company and Interactive Group, Inc., the Compensation
Committee increased Mr. Clifton's base salary by $53,000 to $325,000. In
addition, although Mr. Clifton's executive employment agreement provides for
advances to be made by the Company to Mr. Clifton each year, in fiscal 1997, the
Compensation Committee, with Mr. Clifton's consent, decided to discontinue such
advances to Mr. Clifton. See "Employment Agreements."
Among the factors considered by the Committee in its consideration of Mr.
Clifton's ongoing performance were the continued expansion of the Company's core
businesses into both domestic and international
42
<PAGE> 46
markets, the continued success of the Company's new product development, sales
and marketing efforts, and the fiscal 1997 financial performance of the Company
and its subsidiaries measured by actual-versus-target sales and
actual-versus-target earnings.
Mr. Clifton's annual bonus award for fiscal 1997 was earned under the
program established and approved by the Committee at the beginning of fiscal
1996. As the senior corporate executive officer, his bonus generally reflected
the significant growth and financial performance of the Company in fiscal 1997.
The $140,000 bonus awarded for 1997 reflected various substantial achievements,
including the successful completion of the Company's acquisition of Interactive
Group, Inc. and the subsequent integration of the two companies, significant
sales growth apart from the Interactive Group, Inc. acquisition and the
recruitment of additional senior management personnel.
SECTION 162(m) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code.
The statute containing this law and the applicable Treasury regulations
offer a number of transitional exceptions to this deduction limit for
pre-existing compensation plans, arrangements and binding contracts. As a
result, the Compensation Committee believes that at the present time it is quite
unlikely that the compensation paid to any Named Executive Officer in a taxable
year which is subject to the deduction limit will exceed $1 million. Therefore,
the Compensation Committee has not yet established a policy for determining
which forms of incentive compensation awarded to its Named Executive Officers
shall be designed to qualify as "performance-based compensation." The
Compensation Committee intends to continue to evaluate the effects of the
statute and to comply with Code Section 162(m) in the future to the extent
consistent with the best interests of the Company.
SUBMITTED BY THE COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS:
William P. Foley, II
Ronald S. Parker
Roy Thiele-Sardina
43
<PAGE> 47
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows a comparison of cumulative total returns for the
Company, the Center for Research in Securities Prices Index for the Nasdaq Stock
Market (United States Companies) (the "CRSP Nasdaq U.S. Index") and the Center
for Research in Securities Prices Index for the Nasdaq Computer and Data
Processing Stocks (the "CRSP Nasdaq Computer Index") for the period that
commenced on October 27, 1995 (the date on which the Company's Common Stock was
first traded on the Nasdaq National Market) and ended on December 31, 1997. The
graph assumes that the value of the investment in the Company's Common Stock and
each index was $100 on October 27, 1995 and that all dividends, if any, have
been reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT
(DATAWORKS CORPORATION, CRSP NASDAQ STOCK MARKET U.S. (U.S. COMPANIES) INDEX,
CRSP NASDAQ COMPUTER AND DATA PROCESSING STOCKS INDEX)
<TABLE>
<CAPTION>
CRSP INDEX FOR
CRSP INDEX FOR THE NASDAQ
THE NASDAQ STOCK COMPUTER AND
MEASUREMENT PERIOD DATA WORKS MARKET (UNITED DATA PROCESSING
(FISCAL YEAR COVERED) CORPORATION STATES COMPANIES) STOCKS
<S> <C> <C> <C>
10/27/95 100.00 100.00 100.00
12/31/95 97.12 101.80 99.44
3/31/96 98.08 106.56 99.44
6/30/96 136.54 115.26 115.73
9/30/96 200.00 119.36 118.03
12/31/96 194.23 125.23 122.81
3/31/97 111.54 118.49 113.94
6/30/97 168.27 140.21 146.12
9/30/97 141.35 163.93 159.78
12/31/97 152.88 153.74 150.80
</TABLE>
- ---------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
44
<PAGE> 48
CERTAIN TRANSACTIONS
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party by
reason of his position as a director, officer or other agent of the Company, and
otherwise to the full extent permitted under California law and the Company's
Bylaws.
The principal amount of all outstanding advances paid to Mr. Clifton
pursuant to his executive employment contract as of December 31, 1997 was
$97,205. See "Employment Agreements."
In September 1997, the Company entered into an employment agreement with
Robert C. Vernon, President International Operations of the Company. See
"Employment Agreements." In September 1997, pursuant to his employment agreement
with the Company, Mr. Vernon received a grant of an option under the Incentive
Plan to purchase 40,000 shares of Common Stock at an exercise price of $20.35
per share.
In September 1997, the Company entered into an employment agreement with
Mark Hellinger, President ERP Systems Group of the Company. See "Employment
Agreements." In September 1997 pursuant to his employment agreement with the
Company, Mr. Hellinger received a grant of an option under the Incentive Plan to
purchase 25,000 shares of Common Stock at an exercise price of $20.35 per share.
In connection with the Company's acquisition of Interactive Group, Inc. in
September 1997, each share of Interactive Group, Inc. Common Stock, $.001 par
value, outstanding immediately prior to the closing of the acquisition converted
into approximately 0.8054 of a share of Common Stock, no par value, of the
Company. Robert C. Vernon, a former shareholder and the former Chairman and
Chief Executive Officer of Interactive Group, Inc., received 848,426 shares of
the Company's Common Stock and $1.46 in lieu of fractional shares in exchange
for his Interactive Group, Inc. Common Stock in the acquisition. Mark Hellinger,
a former shareholder and the former President and Chief Operating Officer, North
American Operation of Interactive Group, Inc., received 269,627 shares of the
Company's Common Stock in exchange for his Interactive Group, Inc. Common Stock
in the acquisition.
The Company has entered into certain additional transactions with its
directors and officers, as described under the caption "Executive Compensation."
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
Rick E. Russo
Secretary
April , 1998
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY, RICK E. RUSSO,
DATAWORKS CORPORATION, 5910 PACIFIC CENTER BOULEVARD, SUITE 300, SAN DIEGO,
CALIFORNIA 92121.
45
<PAGE> 49
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the "Merger
Agreement") is made as of , 1998, by and between DataWorks
Corporation, a California corporation ("DataWorks California"), and DataWorks
Corporation, a Delaware corporation ("DataWorks Delaware"). DataWorks California
and DataWorks Delaware are sometimes referred to as the "Constituent
Corporations."
The authorized capital stock of DataWorks California consists of thirty
million (30,000,000) shares, of which twenty-five million (25,000,000) shares
are designated Common Stock, no par value, and five million (5,000,000) shares
are designated Preferred Stock, no par value. The authorized capital stock of
DataWorks Delaware consists of fifty million (50,000,000) shares of Common
Stock, $.001 par value, and five million (5,000,000) shares of Preferred Stock,
$.001 par value per share.
The directors of the Constituent Corporations deem it advisable and to the
advantage of said corporations that DataWorks California merge into DataWorks
Delaware upon the terms and conditions herein provided.
Following the Merger (as defined below) the subsidiaries of DataWorks
California shall be the subsidiaries of DataWorks Delaware.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Merger Agreement and do hereby agree that DataWorks
California shall merge into DataWorks Delaware on the following terms,
conditions and other provisions:
1. TERMS AND CONDITIONS
1.1 MERGER. DataWorks California shall be merged with and into DataWorks
Delaware (the "Merger"), and DataWorks Delaware shall be the surviving
corporation (the "Surviving Corporation") effective at [10:00 a.m. (Pacific
Daylight Time) on June , 1998] (the "Effective Time").
1.2 SUCCESSION. At the Effective Time, DataWorks Delaware shall continue
its corporate existence under the laws of the State of Delaware, and the
separate existence and corporate organization of DataWorks California, except
insofar as it may be continued by operation of law, shall be terminated and
cease.
1.3 TRANSFER OF ASSETS AND LIABILITIES. At the Effective Time, the
rights, privileges, powers and franchises, both of a public as well as of a
private nature, of each of the Constituent Corporations shall be vested in and
possessed by the Surviving Corporation, subject to all of the disabilities,
duties and restrictions of or upon each of the Constituent Corporations; and all
and singular rights, privileges, powers and franchises of each of the
Constituent Corporations, and all property, real, personal and mixed, of each of
the Constituent Corporations, and all debts due to each of the Constituent
Corporations on whatever account, and all things in action or belonging to each
of the Constituent Corporations shall be transferred to and vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest, shall be thereafter the property
of the Surviving Corporation as they were of the Constituent Corporations, and
the title to any real estate vested by deed or otherwise in either of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the Merger; provided, however, that the liabilities of the Constituent
Corporations and of their shareholders, directors and officers shall not be
affected and all rights of creditors and all liens upon any property of either
of the Constituent Corporations shall be preserved unimpaired, and any claim
existing or action or proceeding pending by or against either of the Constituent
Corporations may be prosecuted to judgment as if the Merger had not taken place
except as they may be modified with the consent of such creditors and all debts,
liabilities and duties of or upon each of the Constituent Corporations shall
attach to the Surviving Corporation, and may be enforced against it to the same
extent as if such debts, liabilities and duties had been incurred or contracted
by it.
1.4 COMMON STOCK OF DATAWORKS CALIFORNIA AND DATAWORKS DELAWARE. At the
Effective Time, by virtue of the Merger and without any further action on the
part of the Constituent Corporations or their shareholders, (i) each share of
Common Stock of DataWorks California issued and outstanding immediately
A-1
<PAGE> 50
prior thereto shall be changed and converted into one fully paid and
nonassessable share of Common Stock of DataWorks Delaware; and (ii) each share
of Common Stock of DataWorks Delaware issued and outstanding immediately prior
thereto shall be canceled and returned to the status of authorized but unissued
shares.
1.5 STOCK CERTIFICATES. At and after the Effective Time, all of the
outstanding certificates which prior to that time represented shares of the
Common Stock of DataWorks California shall be deemed for all purposes to
evidence ownership of and to represent the shares of DataWorks Delaware into
which the shares of DataWorks California represented by such certificates have
been converted as herein provided and shall be so registered on the books and
records of the Surviving Corporation or its transfer agents. The registered
owner of any such outstanding stock certificate shall, until such certificate
shall have been surrendered for transfer or conversion or otherwise accounted
for to the Surviving Corporation or its transfer agent, have and be entitled to
exercise any voting and other rights with respect to and to receive any dividend
and other distributions upon the shares of DataWorks Delaware evidenced by such
outstanding certificate as above provided.
1.6 OPTIONS OF DATAWORKS CALIFORNIA. At the Effective Time, the Surviving
Corporation will assume and continue all of DataWorks California's stock option
plans in existence at the Effective Time, including without limitation all
options outstanding under such stock option plans and any other outstanding
options shall be converted into options of DataWorks Delaware, such that an
option for one (1) share of DataWorks California shall be converted into an
option for (1) share of DataWorks Delaware, with no change in the exercise price
of the DataWorks Delaware option. No other changes in the terms and conditions
of such options will occur. Effective at the Effective Time, DataWorks Delaware
hereby assumes the outstanding and unexercised portions of such options and the
obligations of DataWorks California with respect thereto.
1.7 WARRANTS. On the Effective Time, the Surviving Corporation will
assume and continue warrants of DataWorks California and the outstanding and
unexercised portions of all warrants, including without limitation all warrants
to purchase shares of Common Stock outstanding and any other outstanding
warrants, shall be converted into warrants of DataWorks Delaware, such that a
warrant for one (1) share of DataWorks California shall be converted into a
warrant for one (1) share of DataWorks Delaware, with no change in the exercise
price of the DataWorks Delaware warrant. No other changes in the terms and
conditions of such warrants will occur. Effective on the Effective Date,
DataWorks Delaware hereby assumes the outstanding and unexercised portions of
such warrants and the obligations of DataWorks California with respect thereto.
1.8 EMPLOYEE BENEFIT PLANS. At the Effective Time, the Surviving
Corporation shall assume all obligations of DataWorks California under any and
all employee benefit plans in effect as of the Effective Time with respect to
which employee rights or accrued benefits are outstanding as of such time,
including but not limited to the Company's 401(k) Plan provided, however, that
one share Common Stock of DataWorks Delaware shall be substituted for each share
of Common Stock of DataWorks California (if any) thereunder. At the Effective
Time, the Surviving Corporation shall adopt and continue in effect all such
employee benefit plans upon the same terms and conditions as were in effect
immediately prior to the Merger and shall reserve that number of shares of
DataWorks Delaware Common Stock with respect to each such employee benefit plan
as is equal to the number of shares of DataWorks California Common Stock (if
any) so reserved at the Effective Time.
2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of DataWorks Delaware in effect at the Effective Time
shall continue to be the Certificate of Incorporation and Bylaws of the
Surviving Corporation.
2.2 DIRECTORS. The directors of DataWorks California immediately
preceding the Effective Time shall become the directors of the Surviving
Corporation at and after the Effective Time to serve until the expiration of
their terms and until their successors are elected and qualified.
2.3 OFFICERS. The officers of DataWorks California immediately preceding
the Effective Time shall become the officers of the Surviving Corporation at and
after the Effective Time to serve at the pleasure of its Board of Directors.
A-2
<PAGE> 51
3. MISCELLANEOUS
3.1 FURTHER ASSURANCES. From time to time, and when required by the
Surviving Corporation or by its successors and assigns, there shall be executed
and delivered on behalf of DataWorks California such deeds and other
instruments, and there shall be taken or caused to be taken by it such further
and other action, as shall be appropriate or necessary in order to vest or
perfect in or to conform of record or otherwise, in the Surviving Corporation
the title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of DataWorks California
and otherwise to carry out the purposes of this Merger Agreement, and the
officers and directors of the Surviving Corporation are fully authorized in the
name and on behalf of DataWorks California or otherwise to take any and all such
action and to execute and deliver any and all such deeds and other instruments.
3.2 AMENDMENT. At any time before or after approval by the shareholders
of DataWorks California, this Merger Agreement may be amended in any manner
(except that, after the approval of the Merger Agreement by the shareholders of
DataWorks California, the principal terms may not be amended without the further
approval of the shareholders of DataWorks California) as may be determined in
the judgment of the respective Board of Directors of DataWorks Delaware and
DataWorks California to be necessary, desirable, or expedient in order to
clarify the intention of the parties hereto or to effect or facilitate the
purpose and intent of this Merger Agreement.
3.3 CONDITIONS TO MERGER. The obligation of the Constituent Corporations
to effect the transactions contemplated hereby is subject to satisfaction of the
following conditions (any or all of which may be waived by either of the
Constituent Corporations in its sole discretion to the extent permitted by law):
(a) the Merger shall have been approved by the shareholders of
DataWorks California in accordance with applicable provisions of the
General Corporation Law of the State of California; and
(b) DataWorks California, as sole stockholder of DataWorks Delaware,
shall have approved the Merger in accordance with the General Corporation
Law of the State of Delaware; and
(c) any and all consents, permits, authorizations, approvals, and
orders deemed in the sole discretion of DataWorks California to be material
to consummation of the Merger shall have been obtained.
3.4 ABANDONMENT OR DEFERRAL. At any time before the Effective Time, this
Merger Agreement may be terminated and the Merger may be abandoned by the Board
of Directors of either DataWorks California or DataWorks Delaware or both,
notwithstanding the approval of this Merger Agreement by the shareholders of
DataWorks California or DataWorks Delaware or the prior filing of this Merger
Agreement with the Secretary of State of the State of Delaware, or the
consummation of the Merger may be deferred for a reasonable period of time if,
in the opinion of the Boards of Directors of DataWorks California and DataWorks
Delaware, such action would be in the best interest of such corporations. In the
event of termination of this Merger Agreement, this Merger Agreement shall
become void and of no effect and there shall be no liability on the part of
either Constituent Corporation or its Board of Directors or shareholders with
respect thereto, except that DataWorks California shall pay all expenses
incurred in connection with the Merger or in respect of this Merger Agreement or
relating thereto.
3.5 COUNTERPARTS. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original.
A-3
<PAGE> 52
IN WITNESS WHEREOF, this Merger Agreement, having first been fully approved
by the Board of Directors of DataWorks California and DataWorks Delaware, is
hereby executed on behalf of each said corporation and attested by their
respective officers thereunto duly authorized.
DATAWORKS CORPORATION
a California corporation
By:
------------------------------------
Stuart W. Clifton
President and Chief Executive
Officer
ATTEST:
- ---------------------------------------------------
Rick E. Russo
Secretary
DATAWORKS CORPORATION
a Delaware Corporation
By:
------------------------------------
Stuart W. Clifton
President and Chief Executive
Officer
ATTEST:
- ---------------------------------------------------
Rick E. Russo
Secretary
A-4
<PAGE> 53
EXHIBIT B
CERTIFICATE OF INCORPORATION
OF
DATAWORKS CORPORATION
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is DataWorks Corporation.
II.
The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman Street, Dover, Delaware 19901, County of Kent, and
the name of the registered agent of the corporation in the State of Delaware at
such address is the National Registered Agents, Inc.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. CLASSES OF STOCK. This corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the corporation is authorized to issue is
fifty-five million (55,000,000) shares. Fifty million (50,000,000) shares shall
be Common Stock, each having a par value of one-tenth of one cent ($.001). Five
million (5,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001).
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
B-1
<PAGE> 54
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed exclusively by one or more resolutions adopted by the Board of
Directors.
2. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances,
directors shall be elected at each annual meeting of stockholders for a
term of one year. Each director shall serve until his successor is duly
elected and qualified or until his death, resignation or removal. No
decrease in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent director.
3. Subject to the rights of the holders of any series of Preferred
Stock, the Board of Directors or any individual director may be removed
from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding
shares of voting stock of the corporation, entitled to vote at an election
of directors (the "Voting Stock") or (ii) without cause by the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66 2/3%)
of the voting power of all the then-outstanding shares of the Voting Stock.
4. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly
created directorships resulting from any increase in the number of
directors, shall, unless the Board of Directors determines by resolution
that any such vacancies or newly created directorships shall be filled by
the stockholders, except as otherwise provided by law, be filled only by
the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors, and not by the
stockholders. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
B.
1. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of
at least sixty-six and two-thirds percent (66 2/3%) of the voting power of
all of the then-outstanding shares of the Voting Stock. The Board of
Directors shall also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance
with the Bylaws.
Special meetings of the stockholders of the corporation may be called,
for any purpose or purposes, by (i) the Chairman of the Board of Directors,
(ii) the Chief Executive Officer or President, or (iii) the Board of
Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is
presented to the Board of Directors for adoption), and shall be held at
such place, on such date, and at such time as the Board of Directors shall
fix.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting
of the stockholders of the corporation shall be given in the manner
provided in the Bylaws of the corporation.
B-2
<PAGE> 55
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal sections V, VI
and VII of the Certificate of Incorporation.
VIII.
The name and the mailing address of the Sole Incorporator is as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Denise L. Woolard Cooley Godward LLP
4365 Executive Drive, Suite
1100
San Diego, CA 92121-2128
</TABLE>
IN WITNESS WHEREOF, this Certificate has been subscribed this day of
, 1998 by the undersigned who affirms that the statements made herein
are true and correct.
--------------------------------------
Denise L. Woolard
Sole Incorporator
B-3
<PAGE> 56
EXHIBIT C
BYLAWS
OF
DATAWORKS CORPORATION
(A DELAWARE CORPORATION)
<PAGE> 57
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Article I Offices........................................... C-1
Section 1. Registered Office............................ C-1
Section 2. Other Offices................................ C-1
Article II Corporate Seal................................... C-1
Section 3. Corporate Seal............................... C-1
Article III Stockholders' Meetings.......................... C-1
Section 4. Place Of Meetings............................ C-1
Section 5. Annual Meetings..............................
Section 6. Special Meetings............................. C-2
Section 7. Notice Of Meetings........................... C-3
Section 8. Quorum....................................... C-3
Section 9. Adjournment And Notice Of Adjourned
Meetings..................................... C-3
Section 10. Voting Rights................................ C-4
Section 11. Joint Owners Of Stock........................ C-4
Section 12. List Of Stockholders......................... C-4
Section 13. Action Without Meeting....................... C-4
Section 14. Organization................................. C-4
Article IV Directors........................................ C-5
Section 15. Number....................................... C-5
Section 16. Powers....................................... C-5
Section 17. Term of Office............................... C-5
Section 18. Vacancies.................................... C-5
Section 19. Resignation.................................. C-5
Section 20. Removal...................................... C-5
Section 21. Meetings..................................... C-5
(a) Annual Meetings......................... C-5
(b) Regular Meetings........................ C-6
(c) Special Meetings........................ C-6
(d) Telephone Meetings...................... C-6
(e) Notice Of Meetings...................... C-6
(f) Waiver Of Notice........................ C-6
Section 22. Quorum And Voting............................ C-6
Section 23. Action Without Meeting....................... C-6
Section 24. Fees And Compensation........................ C-6
Section 25. Committees................................... C-7
(a) Executive Committee..................... C-7
(b) Other Committees........................ C-7
(c) Term.................................... C-7
(d) Meetings................................ C-7
Section 26. Organization................................. C-7
Article V Officers.......................................... C-8
Section 27. Officers Designated.......................... C-8
Section 28. Tenure And Duties Of Officers................ C-8
(a) General................................. C-8
(b) Duties Of Chairman Of The Board Of
Directors................................... C-8
(c) Duties Of President..................... C-8
</TABLE>
C-i
<PAGE> 58
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(d) Duties Of Vice Presidents............... C-8
(e) Duties Of Secretary..................... C-8
(f) Duties Of Chief Financial Officer....... C-9
Section 29. Delegation Of Authority...................... C-9
Section 30. Resignations................................. C-9
Section 31. Removal...................................... C-9
Article VI Execution Of Corporate Instruments And Voting Of
Securities Owned By The Corporation....................... C-9
Section 32. Execution Of Corporate Instruments........... C-9
Section 33. Voting Of Securities Owned By The
Corporation............................................ C-10
Article VII Shares Of Stock................................. C-10
Section 34. Form And Execution Of Certificates........... C-10
Section 35. Lost Certificates............................ C-10
Section 36. Transfers.................................... C-10
Section 37. Fixing Record Dates.......................... C-11
Section 38. Registered Stockholders...................... C-11
Article VIII Other Securities Of The Corporation............ C-11
Section 39. Execution Of Other Securities................ C-11
Article IX Dividends........................................ C-12
Section 40. Declaration Of Dividends..................... C-12
Section 41. Dividend Reserve............................. C-12
Article X Fiscal Year....................................... C-12
Section 42. Fiscal Year.................................. C-12
Article XI Indemnification.................................. C-12
Section 43. Indemnification Of Directors, Executive
Officers, Other Officers, Employees And Other
Agents....................................... C-12
(a) Directors And Executive Officers........ C-12
(b) Other Officers, Employees and Other
Agents.................................. C-12
(c) Expenses................................ C-12
(d) Enforcement............................. C-13
(e) Non-Exclusivity Of Rights............... C-13
(f) Survival Of Rights...................... C-13
(g) Insurance............................... C-13
(h) Amendments.............................. C-13
(i) Saving Clause........................... C-13
(j) Certain Definitions..................... C-14
Article XII Notices......................................... C-14
Section 44. Notices...................................... C-14
(a) Notice To Stockholders.................. C-14
(b) Notice To Directors..................... C-14
(c) Affidavit Of Mailing.................... C-14
(d) Time Notices Deemed Given............... C-15
(e) Methods Of Notice....................... C-15
(f) Failure To Receive Notice............... C-15
(g) Notice To Person With Whom Communication
Unlawful................................ C-15
(h) Notice To Person With Undeliverable
Address................................................ C-15
</TABLE>
C-ii
<PAGE> 59
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Article XIII Amendments..................................... C-15
Section 45. Amendments................................... C-15
Article XIV Loans To Officers............................... C-16
Section 46. Loans To Officers............................ C-16
</TABLE>
C-iii
<PAGE> 60
BYLAWS
OF
DATAWORKS CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be 9 East Loockerman Street, Dover, Delaware 19901,
County of Kent.
SECTION 2. Other Offices. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. Corporate Seal. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. Place Of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. Annual Meetings.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (A) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (B) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (C) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the
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tenth (10th) day following the day on which public announcement of the date of
such meeting is first made by the corporation. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the corporation which are beneficially owned by the
stockholder, (iv) any material interest of the stockholder in such business and
(v) any other information that is required to be provided by the stockholder
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b). The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this paragraph (b), and, if he should
so determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 5. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section 5.
At the request of the Board of Directors, any person nominated by a stockholder
for election as a director shall furnish to the Secretary of the corporation
that information required to be set forth in the stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
SECTION 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation may be called,
for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii)
the Chief Executive Officer, or (iii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to
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the Board of Directors for adoption) and shall be held at such place, on such
date, and at such time as the Board of Directors, shall fix.
(b) If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within sixty
(60) days after the receipt of the request, the person or persons requesting the
meeting may set the time and place of the meeting and give the notice. Nothing
contained in this paragraph (b) shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the Board
of Directors may be held.
SECTION 7. Notice Of Meetings. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. Quorum. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the votes cast, including abstentions, by the
holders of shares of such class or classes or series shall be the act of such
class or classes or series
SECTION 9. Adjournment And Notice Of Adjourned Meetings. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty
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(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. Joint Owners Of Stock. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. List Of Stockholders. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. Action Without Meeting. Effective upon the effective date of
the merger between the Corporation and DataWorks Corporation, a California
corporation, no action shall be taken by the stockholders except at an annual or
special meeting of stockholders called in accordance with these Bylaws, and no
action shall be taken by the stockholders by written consent.
SECTION 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make
such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the
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commencement thereof, limitations on the time allotted to questions or comments
by participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. Number. The authorized number of directors of the corporation
shall be fixed in accordance with the Certificate of Incorporation. Directors
need not be stockholders unless so required by the Certificate of Incorporation.
If for any cause, the directors shall not have been elected at an annual
meeting, they may be elected as soon thereafter as convenient at a special
meeting of the stockholders called for that purpose in the manner provided in
these Bylaws.
SECTION 16. Powers. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
SECTION 17. Term of Office. Subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under specified
circumstances, directors shall be elected at each annual meeting of stockholders
for a term of one year. Each director shall serve until his successor is duly
elected and qualified or until his death, resignation or removal. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
SECTION 18. Vacancies. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
SECTION 19. Resignation. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified
SECTION 20. Removal. Subject to the rights of the holders of any series
of Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all the then-outstanding shares of the Voting Stock.
SECTION 21. Meetings.
(a) Annual Meetings. The annual meeting of the Board of Directors shall be
held immediately before or after the annual meeting of stockholders and at the
place where such meeting is held. No notice of an
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annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(b) Regular Meetings. Except as hereinafter otherwise provided, regular
meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(c) Special Meetings. Unless otherwise restricted by the Certificate of
Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors
(d) Telephone Meetings. Any member of the Board of Directors, or of any
committee thereof, may participate in a meeting by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(e) Notice Of Meetings. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by electronic
mail or other electronic means, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) Waiver Of Notice. The transaction of all business at any meeting of
the Board of Directors, or any committee thereof, however called or noticed, or
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
SECTION 22. Quorum And Voting.
(a) Unless the Certificate of Incorporation requires a greater number and
except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation, a
quorum of the Board of Directors shall consist of a majority of the exact number
of directors fixed from time to time by the Board of Directors in accordance
with the Certificate of Incorporation; provided, however, at any meeting whether
a quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors, without notice other than by announcement at the
meeting.
(b) At each meeting of the Board of Directors at which a quorum is present,
all questions and business shall be determined by the affirmative vote of a
majority of the directors present, unless a different vote be required by law,
the Certificate of Incorporation or these Bylaws.
SECTION 23. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. Fees And Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of
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Directors, a fixed sum and expenses of attendance, if any, for attendance at
each regular or special meeting of the Board of Directors and at any meeting of
a committee of the Board of Directors. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee, or otherwise and receiving compensation
therefor.
SECTION 25. Committees.
(a) Executive Committee. The Board of Directors may appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to (i) approving or adopting, or recommending to
the stockholders, any action or matter expressly required by Delaware the
General Corporation Law to be submitted to stockholders for approval, or (ii)
adopting, amending or repealing any bylaw of the corporation.
(b) Other Committees. The Board of Directors may, from time to time,
appoint such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall any such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) Term. Each member of a committee of the Board of Directors shall serve
a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to the provisions of subsections (a)
or (b) of this Bylaw may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) Meetings. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
SECTION 26. Organization. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of
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the directors present, shall preside over the meeting. The Secretary, or in his
absence, an Assistant Secretary directed to do so by the President, shall act as
secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. Officers Designated. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. Tenure And Duties Of Officers.
(a) General. All officers shall hold office at the pleasure of the Board
of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b) Duties Of Chairman Of The Board Of Directors. The Chairman of the
Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) Duties Of President. The President shall preside at all meetings of
the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the corporation,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(d) Duties Of Vice Presidents. The Vice Presidents may assume and perform
the duties of the President in the absence or disability of the President or
whenever the office of President is vacant. The Vice Presidents shall perform
other duties commonly incident to their office and shall also perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time.
(e) Duties Of Secretary. The Secretary shall attend all meetings of the
stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
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(f) Duties Of Chief Financial Officer. The Chief Financial Officer shall
keep or cause to be kept the books of account of the corporation in a thorough
and proper manner and shall render statements of the financial affairs of the
corporation in such form and as often as required by the Board of Directors or
the President. The Chief Financial Officer, subject to the order of the Board of
Directors, shall have the custody of all funds and securities of the
corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 29. Delegation Of Authority. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
SECTION 30. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. Removal. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION
SECTION 32. Execution Of Corporate Instruments. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
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SECTION 33. Voting Of Securities Owned By The Corporation. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. Form And Execution Of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. Lost Certificates. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. Transfers.
(a) Transfers of record of shares of stock of the corporation shall be made
only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware
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SECTION 37. Fixing Record Dates.
(a) In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty (60) nor less than ten (10) days before the date of such meeting. If
no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted, and which record date shall be not more than sixty (60) days prior
to such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 38. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. Execution Of Other Securities. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
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ARTICLE IX
DIVIDENDS
SECTION 40. Declaration Of Dividends. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 41. Dividend Reserve. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. Indemnification Of Directors, Executive Officers, Other Officers,
Employees And Other Agents.
(a) Directors And Executive Officers. The corporation shall indemnify its
directors and executive officers (for the purposes of this Article XI,
"executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and executive
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or executive officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (d).
(b) Other Officers, Employees and Other Agents. The corporation shall have
power to indemnify its other officers, employees and other agents as set forth
in the Delaware General Corporation Law.
(c) Expenses. The corporation shall advance to any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not
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apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
(d) Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct.
(e) Non-Exclusivity Of Rights. The rights conferred on any person by this
Bylaw shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) Survival Of Rights. The rights conferred on any person by this Bylaw
shall continue as to a person who has ceased to be a director, officer, employee
or other agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(g) Insurance. To the fullest extent permitted by the Delaware General
Corporation Law, the corporation, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Bylaw.
(h) Amendments. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) Saving Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer
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to the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) Certain Definitions. For the purposes of this Bylaw, the following
definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony
in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall include,
without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of
any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority
to indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Bylaw with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries;
and a person who acted in good faith and in a manner he reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the
best interests of the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. Notices.
(a) Notice To Stockholders. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b) Notice To Directors. Any notice required to be given to any director
may be given by the method stated in subsection (a), or by facsimile, telex or
telegram, except that such notice other than one which is delivered personally
shall be sent to such address as such director shall have filed in writing with
the Secretary, or, in the absence of such filing, to the last known post office
address of such director.
(c) Affidavit Of Mailing. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or
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directors, to whom any such notice or notices was or were given, and the time
and method of giving the same, shall in the absence of fraud, be prima facie
evidence of the facts therein contained
(d) Time Notices Deemed Given. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(e) Methods Of Notice. It shall not be necessary that the same method of
giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(f) Failure To Receive Notice. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such director to receive such notice.
(g) Notice To Person With Whom Communication Is Unlawful. Whenever notice
is required to be given, under any provision of law or of the Certificate of
Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(h) Notice To Person With Undeliverable Address. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. Amendments. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock. The
Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.
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ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. Loans To Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute).
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DATAWORKS CORPORATION
1995 EQUITY INCENTIVE PLAN
ADOPTED OCTOBER 5, 1995
AS AMENDED FEBRUARY 3, 1997 AND JANUARY 27, 1998
INTRODUCTION
This DataWorks Corporation 1995 Equity Incentive Plan is an amendment
and restatement of the DataWorks Corporation 1987 Stock Option Plan. Shares
reserved for issuance under the 1987 Stock Option Plan shall hereafter be
reserved for issuance, and issued, under the terms of this 1995 Equity Incentive
Plan, as amended and restated in the form below.
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees, Directors and Consultants to the Company, and its Affiliates, may be
given an opportunity to benefit from increases in value of the stock of the
Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) stock bonuses, (iv) rights to purchase restricted stock,
and (v) Stock Appreciation Rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants of the Company or its
Affiliates, to secure and retain the services of new Employees, Directors and
Consultants, and to provide incentives for such persons to exert maximum efforts
for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) Stock
Appreciation Rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
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(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means DataWorks Corporation, a California corporation.
(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(i) "DIRECTOR" means a member of the Board.
(j) "EMPLOYEE" means any person employed by the Company or any
Affiliate of the Company. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows:
(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market, the Fair Market Value of a share of common stock shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(ii) If the common stock is quoted on the Nasdaq System (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of common stock shall be the mean between the bid and
asked prices for the common stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(iii) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
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(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means
a right granted pursuant to subsection 8(b)(3) of the Plan.
(o) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(p) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(q) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(t) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
(u) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(v) "PLAN" means this DataWorks Corporation 1995 Equity Incentive Plan.
(w) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(x) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
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<PAGE> 79
(y) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
(z) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(aa) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; whether a Stock Award will be an Incentive Stock Option,
a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted
stock, a Stock Appreciation Right, or a combination of the foregoing; the
provisions of each Stock Award granted (which need not be identical), including
the time or times when a person shall be permitted to receive stock pursuant to
a Stock Award; whether a person shall be permitted to receive stock upon
exercise of an Independent Stock Appreciation Right; and the number of shares
with respect to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 14.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). In
the discretion of the Board, the Committee may consist solely of two (2) or more
Outside Directors, in accordance with Code Section 162(m), or solely of two (2)
or more Non-Employee Directors, in accordance with Rule 16b-3. If administration
is delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan.
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4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate three million seven hundred thousand
(3,700,000) shares of the Company's common stock. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not acquired under such Stock Award shall
revert to and again become available for issuance under the Plan. Shares subject
to Stock Appreciation Rights exercised in accordance with Section 8 of the Plan
shall not be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Incentive Stock Option is at
least one hundred ten percent (110%) of the Fair Market Value of such stock at
the date of grant and the Option is not exercisable after the expiration of five
(5) years from the date of grant.
(c) Subject to the provisions of Section 13 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Stock Awards
covering more than seven hundred fifty thousand (750,000) shares of Common Stock
in any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be determined by the Board or Committee.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
Nonstatutory Stock Option) may be granted with an exercise price
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lower than that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option may be
transferred to the extent provided in the Option Agreement; provided that if the
Option Agreement does not expressly permit transfer, then such Nonstatutory
Stock Option shall not be transferable except by will, by the laws of descent
and distribution or pursuant to a domestic relations order, and shall be
exercisable during the lifetime of the person to whom the Option is granted only
by such person or any transferee pursuant to a domestic relations order.
Notwithstanding the foregoing, the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionee, shall
thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such
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longer or shorter period specified in the Option Agreement) if the Optionee is
an Employee at the time of such termination, (ii) the date six (6) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement)
if the Optionee is a Director or Consultant, but not an Employee, at the time of
such termination, or (iii) the expiration of the term of the Option as set forth
in the Option Agreement. If, after termination, the Optionee does not exercise
his or her Option within the time specified in the Option Agreement, the Option
shall terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such registration
requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and again become available for issuance under the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date twelve (12)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the
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term of such Option as set forth in the Option Agreement. If, at the time of
death, the Optionee was not entitled to exercise his or her entire Option, the
shares covered by the unexercisable portion of the Option shall revert to and
again become available for issuance under the Plan. If, after death, the Option
is not exercised within the time specified herein, the Option shall terminate,
and the shares covered by such Option shall revert to and again become available
for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company, with
the repurchase price to be equal to the original purchase price of the stock, or
to any other restriction the Board determines to be appropriate.
(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
common stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option which is intended to be an Incentive Stock
Option and which is granted to a 10% stockholder (as described in subsection
5(b)), shall have an exercise price which is equal to one hundred ten percent
(110%) of the Fair Market Value of the stock subject to the Re-Load Option on
the date of exercise of the original Option and shall have a term which is no
longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 12(d) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option shall be subject to the availability of sufficient shares
under subsection 4(a) and shall be subject to such other terms and conditions as
the Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each
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stock bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement. Notwithstanding the foregoing, the
Board or the Committee may determine that eligible participants in the Plan may
be awarded stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or pursuant to a domestic relations order, so long as stock
awarded under such agreement remains subject to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option (or in the case of a stock bonus
award, a reacquisition option) in favor of the Company in accordance with a
vesting schedule to be determined by the Board or the Committee and such other
terms and conditions as determined by the Board or Committee in its sole
discretion.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire, subject to the limitations described in subsection 7(d), any or all
of the shares of stock held by that person which have not vested as of the date
of termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. If a Stock
Appreciation Right is granted to an individual who is at the time subject to
Section 16(b) of the Exchange Act (a "Section 16(b) Insider"), the Stock Award
Agreement of grant shall incorporate all the terms and conditions at the time
necessary to assure that the subsequent exercise of such right shall qualify
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for the safe-harbor exemption from short-swing profit liability provided by the
rules (or any successor rules or regulations) promulgated under Section 16 of
the Exchange Act. No limitation shall exist on the aggregate amount of cash
payments the Company may make under the Plan in connection with the exercise of
Stock Appreciation Rights.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(i) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock
Appreciation Rights will be granted appurtenant to an Option, and shall, except
as specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of stock based on Fair
Market Value on the date of the Option surrender) in an amount up to the excess
of (A) the Fair Market Value (on the date of the Option surrender) of the number
of shares of stock covered by that portion of the surrendered Option in which
the Optionee is vested over (B) the aggregate exercise price payable for such
vested shares.
(ii) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights
will be granted appurtenant to an Option and may apply to all or any portion of
the shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on an
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(iii) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent
Rights will be granted independently of any Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to Nonstatutory Stock Options as set forth in Section 6.
They shall be denominated in share equivalents. The appreciation distribution
payable on the exercised Independent Right shall be not greater than an amount
equal to the excess of (A) the aggregate Fair Market Value (on the date of the
exercise of the Independent Right) of a number of shares of Company stock equal
to the number of share equivalents in which the holder is vested under such
Independent Right, and with respect to which the holder is exercising the
Independent Right on such date, over (B) the aggregate Fair Market Value (on the
date of the grant of the Independent Right) of such number of shares of Company
stock. The appreciation distribution payable on the exercised Independent Right
shall be in cash or, if so provided, in an equivalent number of shares of stock
based on Fair Market Value on the date of the exercise of the Independent Right.
10.
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9. CANCELLATION AND RE-GRANT OF OPTIONS.
The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options and/or
any Stock Appreciation Rights under the Plan and/or (ii) with the consent of the
affected holders of Options and/or Stock Appreciation Rights, the cancellation
of any outstanding Options and/or any Stock Appreciation Rights under the Plan
and the grant in substitution therefor of new Options and/or Stock Appreciation
Rights under the Plan covering the same or different numbers of shares of stock,
but having an exercise price per share not less than eighty-five percent (85%)
of the Fair Market Value (one hundred percent (100%) of the Fair Market Value in
the case of an Incentive Stock Option) or, in the case of a 10% stockholder (as
described in subsection 5(b)), not less than one hundred ten percent (110%) of
the Fair Market Value) per share of stock on the new grant date. Notwithstanding
the foregoing, the Board or the Committee may grant an Option and/or Stock
Appreciation Right with an exercise price lower than that set forth above if
such Option and/or Stock Appreciation Right is granted as part of a transaction
to which section 424(a) of the Code applies.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act of 1933, as amended (the "Securities Act") either the Plan,
any Stock Award or any stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
12. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
(b) Neither an Employee, Director or Consultant nor any person to whom
a Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such Stock Award
11.
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unless and until such person has satisfied all requirements for exercise of the
Stock Award pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant or
other holder of Stock Awards any right to continue in the employ of the Company
or any Affiliate (or to continue acting as a Director or Consultant) or shall
affect the right of the Company or any Affiliate to terminate the employment of
any Employee with or without cause, the right of the Company's Board of
Directors and/or the Company's shareholders to remove any Director pursuant to
the terms of the Company's Bylaws and the provisions of the California
Corporations Code, or the right to terminate the relationship of any Consultant
pursuant to the terms of such Consultant's agreement with the Company or
Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred pursuant to
subsection 6(d), 7(b) or 8(b), as a condition of exercising or acquiring stock
under any Stock Award, (1) to give written assurances satisfactory to the
Company as to such person's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Stock Award;
and (2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the Stock Award for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3)
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delivering to the Company owned and unencumbered shares of the common stock of
the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan and the maximum number of shares subject to
award to any person during any calendar year, and the outstanding Stock Awards
will be appropriately adjusted in the class(es) and number of shares and price
per share of stock subject to such outstanding Stock Awards. Such adjustments
shall be made by the Board or the Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(b) In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation, (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's common stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, (3) a sale of all or substantially all of the Company's assets, (4)
any other capital reorganization in which the beneficial ownership of more than
fifty percent (50%) of the shares of the Company entitled to vote changes, or
(5) the acquisition by any person, entity or group (excluding any employee
benefit plan, or related trust, sponsored or maintained by the Company or any
subsidiary of the Company) of the beneficial ownership, directly or indirectly,
of securities of the Company representing more than fifty percent (50%) of the
combined voting in the election of directors of the Company, then to the extent
permitted by applicable law: (i) any surviving or acquiring corporation, or an
Affiliate of such surviving or acquiring corporation, shall assume any Stock
Awards outstanding under the Plan or shall substitute similar Stock Awards for
those outstanding under the Plan, or (ii) such Stock Awards shall continue in
full force and effect. In the event any surviving or acquiring corporation and
its Affiliates refuse to assume or continue such Stock Awards, or to substitute
similar Stock Awards for those outstanding under the Plan, then the vesting
schedules applicable to all outstanding Stock Awards shall be accelerated so
that all outstanding Stock Awards are fully vested, and any Options shall be
terminated if not exercised prior to such event. In the event of a dissolution
or liquidation of the Company, the vesting schedules applicable to all
outstanding Stock Awards shall be accelerated so that all outstanding Stock
Awards are fully vested, and any Options shall be terminated if not exercised
prior to such event.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan. However,
except as provided in Section 13 relating to adjustments upon changes in stock,
no amendment
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<PAGE> 89
shall be effective unless approved by the stockholders of the Company within
twelve (12) months before or after the adoption of the amendment, where the
amendment will:
(i) Increase the number of shares reserved for Stock Awards
under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of the
Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on October 4, 2005, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.
14.
<PAGE> 90
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon the initial registration of any
class of the Company's equity securities under Section 12 of the Exchange Act,
but no Stock Awards granted under the Plan shall be exercised or vested unless
and until the Plan has been approved by the stockholders of the Company, which
approval shall be within twelve (12) months before or after the date the Plan is
adopted by the Board.
15.
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DATAWORKS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
ADOPTED SEPTEMBER 13, 1995
AS AMENDED FEBRUARY 3, 1997 AND JANUARY 27, 1998
1. PURPOSE.
(a) The purpose of the Employee Stock Purchase Plan (the "Plan") is to
provide a means by which employees of Dataworks Corporation, a California
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
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<PAGE> 92
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company and its Affiliates.
(c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate one million fifty thousand
(1,050,000) shares of the Company's common stock (the "Common Stock") after
giving effect to the one for 2.6 reverse stock split to be effected in September
1995. If any right granted under the Plan shall for any reason terminate without
having been exercised, the Common Stock not purchased under such right shall
again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or provide
for the grant of rights to purchase Common Stock of the Company under the Plan
to eligible employees (an "Offering") on a date or dates (the "Offering
Date(s)") selected by the Board or the Committee. Each Offering shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The provisions of separate Offerings need not be
identical, but each Offering shall include (through incorporation of the
provisions of this Plan by reference in the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.
2.
<PAGE> 93
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be greater than two (2)
years. In addition, unless otherwise determined by the Board or the Committee
and set forth in the terms of the applicable Offering, no employee of the
Company or any Affiliate shall be eligible to be granted rights under the Plan,
unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that, each person who,
during the course of an Offering, first becomes an eligible employee of the
Company or designated Affiliate will, on a date or dates specified in the
Offering which coincides with the day on which such person becomes an eligible
employee or occurs thereafter, receive a right under that Offering, which right
shall thereafter be deemed to be a part of that Offering. Such right shall have
the same characteristics as any rights originally granted under that Offering,
as described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the period of the Offering with respect to such right
shall begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board or the Committee may provide that if such
person first becomes an eligible employee within a specified period of time
before the end of the Offering, he or she will not receive any right under that
Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
3.
<PAGE> 94
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that the
Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock effected in accordance with such Offering.
(b) In connection with each Offering made under this Plan, the Board or
the Committee shall specify a maximum number of shares which may be purchased by
any employee as well as a maximum aggregate number of shares which may be
purchased by all eligible employees pursuant to such Offering. In addition, in
connection with each Offering which contains more than one Purchase Date, the
Board or the Committee may specify a maximum aggregate number of shares which
may be purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering. "Earnings" is defined as an employee's regular salary or wages
(including amounts thereof elected to be deferred by the employee, that would
otherwise have been paid, under any arrangement established by the Company
intended to comply with Section 401(k), Section 402(e)(3), Section 125, Section
402(h), or Section 403(b) of
4.
<PAGE> 95
the Code, and also including any deferrals under a non-qualified deferred
compensation plan or arrangement established by the Company), any may also
include or exclude (as provided for each Offering) the following items of
compensation: bonuses, commissions, overtime pay, incentive pay, profit sharing,
other remuneration paid directly to the employee, the cost of employee benefits
paid for by the Company or an Affiliate, education or tuition reimbursements,
imputed income arising under any group insurance or benefit program, traveling
expenses, business and moving expense reimbursements, income received in
connection with stock options, contributions made by the Company or an Affiliate
under any employee benefit plan, and similar items of compensation, as
determined by the Board or Committee. The payroll deductions made for each
participant shall be credited to an account for such participant under the Plan
and shall be deposited with the general funds of the Company or an Affiliate. A
participant may reduce (including to zero), increase or begin such payroll
deductions after the beginning of any Offering only as provided for in the
Offering. A participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the participant
has not had the maximum amount withheld during the Offering.
(b) At any time during an Offering, a participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering. Upon
such withdrawal from the Offering by a participant, the Company shall distribute
to such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company and any designated Affiliate, for any reason, and the Company
shall distribute to such terminated employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable, and,
except as provided in paragraph 14, shall be exercisable only by the person to
whom such rights are granted.
8. EXERCISE.
(a) On each date specified therefor in the relevant Offering ("Purchase
Date"), each participant's accumulated payroll deductions and other additional
payments specifically provided for in the Offering (without any increase for
interest) will be applied to the purchase of whole shares of stock of the
Company, up to the maximum number of shares permitted pursuant to the terms of
the Plan and the applicable Offering, at the purchase price specified in the
Offering. No fractional shares shall be issued upon the exercise of rights
granted under the Plan. The amount,
5.
<PAGE> 96
if any, of accumulated payroll deductions remaining in each participant's
account after the purchase of shares which is less than the amount required to
purchase one share of stock on the final Purchase Date of an Offering shall be
held in each such participant's account for the purchase of shares under the
next Offering under the Plan, unless such participant withdraws from such next
Offering, as provided in subparagraph 7(b), or is no longer eligible to be
granted rights under the Plan, as provided in paragraph 5, in which case such
amount shall be distributed to the participant after such final Purchase Date,
without interest. The amount, if any, of accumulated payroll deductions
remaining in any participant's account after the purchase of shares which is
equal to the amount required to purchase whole shares of stock on the final
Purchase Date of an Offering shall be distributed in full to the participant
after such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the Plan (including rights granted thereunder) is covered by an effective
registration statement pursuant to the Securities Act of 1933, as amended (the
"Securities Act"). If on a Purchase Date in any Offering hereunder the Plan is
not so registered, no rights granted under the Plan or any Offering shall be
exercised on such Purchase Date, and the Purchase Date shall be delayed until
the Plan is subject to such an effective registration statement, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If on the Purchase Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered, no rights granted under
the Plan or any Offering shall be exercised and all payroll deductions
accumulated during the Offering (reduced to the extent, if any, such deductions
have been used to acquire stock) shall be distributed to the participants,
without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the rights granted under the
Plan. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such rights unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the Plan shall
constitute general funds of the Company.
6.
<PAGE> 97
11. RIGHTS AS A SHAREHOLDER.
A participant shall not be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to rights granted under
the Plan unless and until the participant's shareholdings acquired upon exercise
of rights under the Plan are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
rights will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding rights.
(b) In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation, (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's common stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, (3) a sale of all or substantially all of the Company's assets, (4)
any other capital reorganization in which the beneficial ownership of more than
fifty percent (50%) of the shares of the Company entitled to vote changes, or
(5) the acquisition by any person, entity or group (excluding any employee
benefit plan, or related trust, sponsored or maintained by the Company or any
subsidiary of the Company) of the beneficial ownership, directly or indirectly,
of securities of the Company representing more than fifty percent (50%) of the
combined voting in the election of directors of the Company, then, as determined
by the Board in its sole discretion (i) any surviving corporation may assume
outstanding rights or substitute similar rights for those under the Plan, (ii)
such rights may continue in full force and effect, or (iii) participants'
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment if such amendment requires stockholder approval in order for the Plan
to obtain employee stock purchase plan treatment under Section 423 of the Code
or to comply with the requirements of Rule 16b-3 promulgated under the Exchange
Act or any Nasdaq or securities exchange requirements.
(b) The Board may amend the Plan in any respect the Board deems
necessary or advisable to provide eligible employees with the maximum benefits
provided or to be provided under the provisions of the Code and the regulations
promulgated thereunder relating to
7.
<PAGE> 98
employee stock purchase plans and/or to bring the Plan and/or rights granted
under it into compliance therewith.
(c) Rights and obligations under any rights granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under the Plan comply
with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to him of such shares and cash. In addition, a
participant may file a written designation of a beneficiary who is to receive
any cash from the participant's account under the Plan in the event of such
participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on September 12, 2005. No rights may
be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted or except as necessary to comply with any laws
or governmental regulation.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon the effectiveness of the Company's
initial public offering of shares of common stock, but no rights granted under
the Plan shall be exercised unless and until the Plan has been approved by the
shareholders of the Company.
8.
<PAGE> 99
DATAWORKS CORPORATION
1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED SEPTEMBER 13, 1995
AS AMENDED MAY 23, 1996, APRIL 17, 1997 AND JANUARY 27, 1998
1. PURPOSE.
(a) The purpose of the 1995 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which certain directors of DataWorks
Corporation (the "Company") who are not otherwise employees of the Company or of
any Affiliate of the Company (a "Non-Employee Director") will be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
certain persons now serving as Non-Employee Directors of the Company, to secure
and retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).
(b) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate three hundred thousand
(300,000) shares of the Company's common stock. If any option granted under the
Plan shall for any reason expire or otherwise terminate without having been
exercised in full, the stock not purchased under such option shall again become
available for the Plan.
1.
<PAGE> 100
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
(a) Options shall be granted only to Non-Employee Directors of the
Company who are Eligible Directors, as defined in subparagraph 4(b).
(b) Notwithstanding any other provision hereof, "Eligible Directors"
shall mean all Non-Employee Directors of the Company serving as members of the
Board from time to time after the effectiveness of the Company's initial public
offering of common stock (the "Effective Date"); provided, however, that any
Non-Employee Director whose membership on the Board commenced prior to the
Effective Date pursuant to a capital investment in the Company by an entity
which such Non-Employee Director represents shall become an Eligible Director
only if and when he or she is elected as a Non-Employee Director by the
shareholders of the Company after the Effective Date, which shall be treated as
such person's initial election to be a Non-Employee Director for purposes of the
Plan (including, but not limited to subparagraph 5(a) hereof).
5. NON-DISCRETIONARY GRANTS.
(a) Each person who, after the Effective Date, for the first time
becomes an Eligible Director automatically shall be granted, upon the date of
his or her initial election to be a Non-Employee Director by the Board or
shareholders of the Company, an option to purchase twenty thousand (20,000)
shares of common stock of the Company on the terms and conditions set forth
herein.
(b) On the date of each annual meeting of the shareholders of the
Company after the Effective Date, each person who is then an Eligible Director
and continues on the Board thereafter (other than a person who receives a grant
under subparagraph 5(a) on such date) automatically shall be granted an option
to purchase five thousand (5,000) shares of common stock of the Company on the
terms and conditions set forth herein.
(c) In addition to the foregoing, on the date of the 1998 annual
meeting of the shareholders of the Company, each person who is then an Eligible
Director and continues on the Board thereafter (other than a person who receives
a grant under subparagraph 5(a) on such date) automatically shall be granted an
option to purchase ten thousand (10,000) shares of common stock of the Company
on the terms and conditions set forth herein.
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ten (10) years
from the date of grant (the "Expiration Date"). If the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate terminates for any reason or for no reason, the option shall terminate
on the earlier of the Expiration Date or the date twelve (12) months following
the
2.
<PAGE> 101
date of termination of all such service; provided, however, that if such
termination of service is due to the optionee's death, the option shall
terminate on the earlier of the Expiration Date or eighteen (18) months
following the date of the optionee's death. In any and all circumstances, an
option may be exercised following termination of the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate only as to that number of shares as to which it was exercisable under
the provisions of subparagraph 6(e) on the date of termination of all such
service.
(b) The exercise price of each option shall be one hundred percent
(100%) of the fair market value of the stock subject to such option on the date
such option is granted.
(c) The optionee may elect to make payment of the exercise price under
one of the following alternatives:
(i) In cash (or check) at the time of exercise;
(ii) Provided that at the time of exercise the Company's
common stock is publicly traded and quoted regularly in The Wall Street Journal,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at its Fair Market
Value on the date immediately preceding the date of exercise;
(iii) Provided that at the time of exercise the Company's
common stock is publicly traded and quoted regularly in The Wall Street Journal,
pursuant to a program developed under Regulation T as promulgated by the Federal
Reserve Board which results in the receipt of cash (or check) by the Company
either prior to the issuance of the shares of the Company's common stock or
pursuant to the terms of irrevocable instructions issued by the optionee prior
to the issuance of shares of the Company's common stock;
(iv) Payment by a combination of the methods of payment
specified in subparagraphs 6(c)(i) through 6(c)(iii) above.
(d) An option shall be transferable only to the extent specifically
provided in the option agreement; provided, however, that if the option
agreement does not specifically provide for the transferability of an option,
then the option shall not be transferable except by will or by the laws of
descent and distribution, or pursuant to a domestic relations order, and shall
be exercisable during the lifetime of the person to whom the option is granted
only by such person (or by his or her guardian or legal representative) or
transferee pursuant to such an order. Notwithstanding the foregoing, the
optionee may, by delivering written notice to the Company in a form satisfactory
to the Company, designate a third party who, in the event of the death of the
optionee, shall thereafter be entitled to exercise the option.
(e) The option shall become exercisable in installments over a period
of three years from the date of grant as follows: one twelfth (1/12) of the
shares shall vest on the date three months after the date of grant and one
thirty-sixth (1/36) of the shares shall vest each month thereafter, provided
that the optionee has, during the entire period prior to such vesting date,
continuously served as a Non-Employee Director or employee of or consultant to
the Company
3.
<PAGE> 102
or any Affiliate of the Company, whereupon such option shall become fully
exercisable in accordance with its terms with respect to that portion of the
shares represented by that installment.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(ii) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a then-currently-effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii), as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then-applicable securities laws.
(g) Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are not
then so registered, the Company has determined that such exercise and issuance
would be exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
4.
<PAGE> 103
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Eligible Director any right to continue in the service of
the Company or any Affiliate or shall affect any right of the Company, its Board
or shareholders or any Affiliate to terminate the service of any Eligible
Director with or without cause.
(c) No Eligible Director, individually or as a member of a group, and
no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of common stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(d) In connection with each option granted pursuant to the Plan, it
shall be a condition precedent to the Company's obligation to issue or transfer
shares to an Eligible Director, or to evidence the removal or lapse of any
restrictions on transfer, that such Eligible Director make arrangements
satisfactory to the Company to insure that the amount of any federal or other
withholding tax required to be withheld with respect to such sale or transfer,
or such removal or lapse, is made available to the Company for timely payment of
such tax.
(e) As used in this Plan, "fair market value" means, as of any date,
the value of the common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market, the fair market value of a share of common stock shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(ii) If the common stock is quoted on Nasdaq (but not on the
National Market thereof) or is regularly quoted by a recognized securities
dealer but selling prices are not reported, the fair market value of a share of
common stock shall be the mean between the bid and asked prices for the common
stock on the last market trading day prior to the day of determination, as
reported in the Wall Street Journal or such other source as the Board deems
reliable;
(iii) In the absence of an established market for the common
stock, the fair market value shall be determined in good faith by the Board.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding options will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding options. Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive.
5.
<PAGE> 104
(The conversion of any convertible securities of the Company shall not be
treated as a "transaction not involving the receipt of consideration by the
Company.")
(b) In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation, (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's common stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, (3) a sale of all or substantially all of the Company's assets, (4)
any other capital reorganization in which the beneficial ownership of more than
fifty percent (50%) of the shares of the Company entitled to vote changes, or
(5) the acquisition by any person, entity or group (excluding any employee
benefit plan, or related trust, sponsored or maintained by the Company or any
subsidiary of the Company) of the beneficial ownership, directly or indirectly,
of securities of the Company representing more than fifty percent (50%) of the
combined voting in the election of directors of the Company, then the time
during which options outstanding under the Plan may be exercised shall be
accelerated to permit the optionee to exercise all such options in full prior to
such event, and the options shall terminate if not exercised prior to such
event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan
and/or some or all outstanding options granted under the Plan. Except as
provided in paragraph 10 relating to adjustments upon changes in stock, no
amendment shall be effective unless approved by the shareholders of the Company
within twelve (12) months before or after the adoption of the amendment, where
the amendment will:
(i) Increase the number of shares which may be issued under
the Plan; or
(ii) Modify the Plan in any other way if such modification
requires shareholder approval in order for the Plan to comply with the
requirements of Section 162(m) of the Code.
(b) Rights and obligations under any option granted before any
amendment of the Plan shall not be impaired by such amendment unless (i) the
Company requests the consent of the person to whom the option was granted and
(ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on the date that is ten years after
the Effective Date. No options may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
6.
<PAGE> 105
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective on the Effective Date (as defined
in subparagraph 4(b)), subject to the condition that the Plan be approved by the
shareholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
7.
<PAGE> 106
PROXY
DATAWORKS CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 18, 1998
The undersigned hereby appoints Stuart W. Clifton, Norman R. Farquhar and Rick
E. Russo, and each of them, as attorneys and proxies of the undersigned, with
full power of substitution, to vote all of the shares of stock of DataWorks
Corporation which the undersigned may be entitled to vote at the Annual Meeting
of Shareholders of DataWorks Corporation ("DataWorks") to be held at The Hyatt
Regency, La Jolla, 3777 La Jolla Village Drive, San Diego, California 92122, on
Thursday, June 18, 1998 at 10:00 a.m., local time, and at any and all
postponements, continuations and adjournments thereof (the "Annual Meeting"),
with all powers that the undersigned would possess if personally present, upon
and in respect of the following matters and in accordance with the following
instructions, with discretionary authority as to any and all other matters that
may properly come before the Annual Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. UNLESS A CONTRARY DIRECTION IS INDICATED, THIS
PROXY WILL BE VOTED FOR ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2,
3, 4, 5, 6 AND 7, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT
TRANSMITTED IN CONNECTION WITH THE ANNUAL MEETING. ANY HOLDER WHO WISHES TO
WITHHOLD THE DISCRETIONARY AUTHORITY REFERRED TO IN PROPOSAL 8 BELOW SHOULD MARK
A LINE THROUGH THE ENTIRE PROPOSAL.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
(CONTINUED ON OTHER SIDE)
<PAGE> 107
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW AND FOR
PROPOSALS 2, 3, 4, 5, 6, 7, AND 8.
Please mark
your votes as
indicated in
this example.
[ X ]
<TABLE>
<S> <C> <C>
FOR all nominees WITHHOLD AUTHORITY
1: To elect directors to hold office until the next Annual Meeting of listed below (except to vote for all nominees
Shareholders and until their successors are elected. as marked to the listed below.
contrary below).
Nominees: Stuart W. Clifton, Norman R. Farquhar,
Nathan W. Bell, Tony N. Domit, William P. Foley, II, [ ] [ ]
Ronald S. Parker and Roy Thiele-Sardina
To withhold authority to vote for any nominee(s), write such nominee(s)'
name(s) below:
</TABLE>
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
2: To approve a change in the Company's state of incorporation from California FOR AGAINST ABSTAIN
to Delaware.
[ ] [ ] [ ]
3: To approve an amendment to the Company's Articles of Incorporation to FOR AGAINST ABSTAIN
increase the number of shares of Common Stock authorized for issuance from
25,000,000 to 50,000,000 shares. [ ] [ ] [ ]
4: To approve the Company's 1995 Equity Incentive Plan, as amended, to increase FOR AGAINST ABSTAIN
the aggregate number of shares authorized for issuance under such plan by
1,250,000 shares. [ ] [ ] [ ]
5: To approve the Company's 1995 Employee Stock Purchase Plan, as amended, to FOR AGAINST ABSTAIN
increase the aggregate number of shares authorized for issuance under such
plan by 750,000 shares. [ ] [ ] [ ]
6: To approve the Company's 1995 Non-Employee Directors' Stock Option Plan, as FOR AGAINST ABSTAIN
amended, to (a) provide for a one-time 10,000-share option grant to each non-
employee director as of the date of the 1998 Annual Meeting and (b) increase [ ] [ ] [ ]
the aggregate number of shares authorized for issuance under such plan by
150,000 shares.
7: To ratify the selection of Ernst & Young LLP as independent auditors of the FOR AGAINST ABSTAIN
Company for its fiscal year ending December 31, 1998.
[ ] [ ] [ ]
8: To transact such other business as may properly come before the meeting or FOR AGAINST ABSTAIN
any adjournment or postponement thereof.
[ ] [ ] [ ]
</TABLE>
Receipt of the Proxy Statement dated
April____, 1998 is hereby acknowledged.
Signature(s)____________________________________________Dated_____________,1998
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If signer is
a corporation, please give full corporate name and have a duly authorized
officer sign, stating title. If signer is a partnership, please sign in
partnership name by an authorized person.
