COTELLIGENT GROUP, INC.
101 CALIFORNIA STREET, SUITE 2050
SAN FRANCISCO, CALIFORNIA 94111
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held September 9, 1998
To the Stockholders:
The Annual Meeting of Stockholders of Cotelligent Group, Inc. (the
"Company") will be held at the Westin St. Francis Hotel in San Francisco,
California on the 9th day of September at 9:00 a.m., Pacific Daylight Savings
Time, for the following purposes:
1. To elect three Directors, each to serve for the terms specified
in the attached proxy statement or until his or her successor
is elected and qualified.
2. To consider and act on the appointment of Arthur Andersen LLP
as the Company's independent certified public accountants.
3. To approve the 1998 Long-Term Incentive Plan.
4. To approve the change of the Company name from Cotelligent
Group, Inc. to Cotelligent, Inc.
5. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record as of the close of business on July 24,
1998 are entitled to receive notice of and to vote at the meeting. A list of
such stockholders shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, for a period of
ten days prior to the meeting, at the principal executive offices of the
Company, 101 California Street, Suite 2050, San Francisco, California 94111.
By Order of the Board of Directors
/s/ Lorraine E. Vega
Lorraine E. Vega
Secretary
San Francisco, California
July 31, 1998
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE URGED TO FILL
IN, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
RETURN ENVELOPE. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE YOUR SHARES OF
COMMON STOCK PERSONALLY EVEN IF YOU HAVE PREVIOUSLY SUBMITTED A PROXY.
<PAGE>
COTELLIGENT GROUP, INC.
101 CALIFORNIA STREET, SUITE 2050
SAN FRANCISCO, CALIFORNIA 94111
PROXY STATEMENT
INTRODUCTION
The accompanying Proxy is solicited by and on behalf of the Board of
Directors of Cotelligent Group, Inc., a Delaware corporation (the "Company" or
"Cotelligent"), for use only at the 1998 Annual Meeting of Stockholders (the
"Annual Meeting") to be held at the Westin St. Francis Hotel, San Francisco,
California on the 9th day of September, 1998 at 9:00 a.m., Pacific Daylight
Savings Time, and at any adjournment thereof. The approximate date on which this
Proxy Statement and accompanying Proxy will first be given or sent to
stockholders is July 31, 1998.
Each Proxy executed and returned by a stockholder may be revoked at any
time thereafter, by written notice to that effect to the Company, attention of
the Secretary, before the Annual Meeting, or to the Secretary, or the Inspectors
of Election, at the Annual Meeting, or by execution and return of a later-dated
Proxy, except as to any matter voted upon before such revocation.
Proxies in the accompanying form will be voted in accordance with the
specifications made and, where no specifications are given, such Proxies will be
voted:
FOR the election as Directors of the nominees named herein, and
if any one or more of such nominees should become unavailable for
election for any reason then FOR the election of any substitute
nominee that the Board of Directors of the Company may propose;
FOR the appointment of Arthur Andersen LLP as the Company's
independent certified public accountants;
FOR the approval of the 1998 Long-Term Incentive Plan; and
FOR the approval of the change of the Company's name from
Cotelligent Group, Inc. to Cotelligent, Inc.
In the discretion of the proxy holders, the Proxies will also be voted
FOR or AGAINST such other matters as may properly come before the meeting.
Management of the Company is not aware of any other matters to be presented for
action at the meeting.
The Inspectors of Election will treat abstentions and "broker
non-votes" (i.e., shares held by a broker or nominee as to which instructions
have not been received from the beneficial owners or persons entitled to vote)
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum. With respect to the plurality of votes required to elect a
director, broker non-votes will be counted as votes FOR director nominees named
herein; with respect to the majority of votes required to ratify the appointment
of Arthur Andersen LLP, abstentions will not be counted as votes FOR the
appointment of Arthur Andersen LLP and broker non-votes will be counted as votes
FOR such appointment; with respect to the majority of votes required to approve
the amendment of the Company's Certificate of Incorporation to
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change the Company's name, abstentions will not be counted as votes FOR the
approval of the name change and broker non-votes will be counted as votes
AGAINST such approval of the name change; and with respect to the majority of
votes required to approve the 1998 Long-Term Incentive Plan, abstentions will
not be counted as votes FOR the approval of the 1998 Long-Term Incentive Plan
and broker non-votes will be counted as votes AGAINST such approval of the plan.
In cases where the broker indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
however, those shares will not be treated as present and entitled to vote with
respect to that matter, even though they may be present and voting or abstaining
on other matters at the same meeting.
RECORD DATE AND VOTING SECURITIES
The Board of Directors has fixed the close of business on July 24, 1998
as the record date for the determination of stockholders entitled to receive
notice of and to vote at the Annual Meeting. The issued and outstanding stock of
the Company on July 24, 1998 consisted of 14,113,024 shares of Common Stock, par
value $.01 per share (the "Common Stock"), each of which is entitled to one
vote. The holders of a majority of the total shares issued and outstanding,
whether present in person or represented by proxy, will constitute a quorum for
the transaction of business at the meeting.
The affirmative vote of a plurality of the votes entitled to be cast by
the outstanding shares of Common Stock present, in person or by proxy, and
entitled to vote at the meeting, is required for the election of directors. The
affirmative vote of a majority of the votes cast by the outstanding shares of
Common Stock present, in person or by proxy, and entitled to vote at the
meeting, is required for the appointment of Arthur Andersen LLP as the Company's
independent certified public accountants; and for the approval of the 1998
Long-Term Incentive Plan. The approval of the change of the Company's name
requires the approval of a majority of the outstanding shares of Common Stock
whether or not present in person or proxy at the meeting.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of July 24, 1998 information
regarding the beneficial ownership of the Common Stock of the Company by (i)
each person known to beneficially own more than 5% of the outstanding shares of
Common Stock, (ii) each of the Company's directors, (iii) each named executive
officer and each officer named in the Summary Compensation Table and (iv) all
executive officers and directors as a group. All persons listed have an address
c/o the Company's principal executive offices and have sole voting and
investment power with respect to their shares unless otherwise indicated.
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<TABLE>
<CAPTION>
Shares Beneficially Owned
-------------------------------
Name Number Percent
- ------------------------------------------------------------ -------------- --------------
<S> <C> <C>
Fidelity Management & Research Co. (1)................. 896,000 6.35
Wellington Management Company, LLP (2)................. 811,900 5.75
Thomas E. Fallat (3)................................... 821,050 5.82
Michael L. Evans (4)................................... 339,281 2.40
Daniel M. Beals (5).................................... 281,949 2.00
James R. Lavelle (6) .................................. 278,732 1.97
John E. Chamberlain (7) ............................... 272,074 1.93
Jeffrey J. Bernardis (8)............................... 126,020 0.89
Daniel E. Jackson (9) ................................. 120,609 0.85
B. Tom Green (5) ...................................... 82,847 0.59
Edward E. Faber (5) ................................... 54,656 0.39
Anthony M. Frank (5) .................................. 54,656 0.39
Susan E. Trice ........................................ 50,356 0.36
Herbert D. Montgomery (10) ............................ 33,334 0.24
Harvey L. Poppel (5) .................................. 25,328 0.18
Curtis J. Parker (11).................................. 21,338 0.15
Lorraine E. Vega (12).................................. 5,625 0.04
All executive officers and directors as a group (14
persons) (13).......................................... 1,746,805 12.38
<FN>
(1) The address of the stockholder is 82 Devonshire Street, Boston,
Massachusetts, 02109-3614
(2) The address of the stockholder is 75 State Street, Boston, Massachusetts,
02109
(3) Includes 440,000 shares gifted to the Thomas and Opal Fallat Charitable
Remainder Unitrust, 39,000 shares gifted to the J.T. Fallat Charitable
Remainder Unitrust, 39,000 shares gifted to the Stephanie Verona Charitable
Remainder Unitrust, 39,000 shares gifted to the Anna Maria Fallat
Charitable Remainder Unitrust and 28,000 shares gifted to the Fallat Family
Foundation.
(4) Includes 75,000 shares issuable upon exercise of options exercisable within
60 days from June 30, 1998.
(5) Includes 15,000 shares issuable upon exercise of options exercisable within
60 days from June 30, 1998.
(6) Includes 125,000 shares issuable upon exercise of options exercisable
within 60 days from June 30, 1998.
(7) Includes 2,500 shares issuable upon exercise of options exercisable within
60 days from June 30, 1998.
(8) Includes 4,000 shares issuable upon exercise of options exercisable within
60 days from June 30, 1998.
(9) Includes 50,106 shares issuable upon exercise of options exercisable within
60 days from June 30, 1998.
(10) Includes 33,333 shares issuable upon exercise of options exercisable within
60 days from June 30, 1998.
(11) Includes 20,625 shares issuable upon exercise of options exercisable within
60 days from June 30, 1998.
(12) Includes 5,625 shares issuable upon exercise of options exercisable within
60 days from June 30, 1998.
(13) Includes 391,190 shares issuable upon exercise of options exercisable
within 60 days from June 30, 1998.
</FN>
</TABLE>
ELECTION OF DIRECTORS
The number of directors on the Board of Directors is currently fixed at
ten. Upon the expiration of the term of John E. Chamberlain at the Annual
Meeting, the number of directors shall be fixed at nine. Pursuant to the
Company's Certificate of Incorporation and By-laws, the Board of Directors is
divided into three classes serving staggered three-year terms. One class of
directors is elected at each annual meeting of stockholders to serve for the
following three years. Currently there are three directors whose terms expire in
2000, three directors whose terms expire in 1999 and four directors whose terms
will expire at the Annual Meeting. The members whose terms expire at the Annual
Meeting are Michael L. Evans, Jeffrey B. Bernardis, John E. Chamberlain and B.
Tom Green. John E. Chamberlain has decided not to stand for reelection and he
will not be replaced due to the reduction of the number of directors. The
Company's Board of Directors has nominated Michael L. Evans, Jeffrey B.
Bernardis and B. Tom Green for reelection to the Board, each to serve for a term
expiring at the Annual Meeting in 2001 or until their successors shall have been
duly elected and qualified. The persons named as proxies in the accompanying
proxy, or their substitutes, will vote for such nominees at the Annual Meeting.
If, for any reason not currently known, any nominee is not available for
election, another person or persons who may be nominated will be voted for in
the discretion of the proxy holders.
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The following sets forth information concerning each of the nominees for
election to the Board of Directors and each director whose term continues,
including his or her name, age, principal occupation or employment during at
least the past five years and the period during which such person has served as
a director of the Company.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
For a Three Year Term Expiring at the Annual Meeting in 2001:
Michael L. Evans is 46 years old and is President and Chief Operating
Officer and a director of the Company. Mr. Evans has been President and Chief
Operating Officer of the Company since April 1996. Mr. Evans served as Senior
Vice President and Chief Operating Officer from September 1995 to April 1996 and
has been a director of the Company since October 1993. In 1982, Mr. Evans
co-founded Financial Data Systems, Inc. ("FDSI"), a wholly owned subsidiary of
the Company, and served as its Vice President of Consulting and, from 1987 to
1996, served as its President. Mr. Evans has a bachelor of science degree from
Washington State University.
Jeffrey J. Bernardis is 41 years old and is a director of the Company. He
joined the Company in that capacity in August 1995. Since January 1995, Mr.
Bernardis has served as President of BFR Co., Inc. ("BFR"), a wholly owned
subsidiary of the Company. Prior thereto, Mr. Bernardis had served since 1985 as
Vice President of Technical Services for BFR. Mr. Bernardis received a bachelor
of science degree in computer science from Pennsylvania State University.
B. Tom Green is 56 years old and is a director of the Company. He joined
the Company in that capacity in March 1993. Since 1988, Mr. Green has been
President of Sovus Partners, a firm that creates and operates American-Russian
businesses in Russia. From 1982 to 1988, he worked on a voluntary basis with the
United States government to improve diplomatic relations with the Soviet Union.
Prior to 1982, Mr. Green's positions included General Manager of Transamerica's
Southern California Title Insurance division and President of General Mills'
first restaurant division. Mr. Green is a graduate of Stanford University with a
bachelors degree in civil engineering and received his Master of Business
Administration degree from the Stanford Graduate School of Business.
The Board of Directors unanimously recommends that the Company's stockholders
vote FOR the election of Michael L. Evans, Jeffrey B. Bernardis and B. Tom Green
as directors of the Company.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
Members whose terms expire at the Annual Meeting in 1999:
Edward E. Faber is 65 years old and is Vice Chairman of the Board of
Directors of the Company. Mr. Faber joined the Company as a director in March
1993 and served as Chairman from August 1995 to April 1996. From 1990 through
1992, he was Vice Chairman, President and Chief Executive Officer of Supercuts,
Inc., a company specializing in hairstyling. Mr. Faber was founding President
and Chief Executive Officer of Computerland Corporation, a company specializing
in the sale of computer equipment and accessories, from 1976 through 1983. He
retired from that company in 1983 and returned in 1985 as Chairman of the Board
and Chief Executive Officer, serving in that capacity until 1987 when he again
retired. Mr. Faber is a director of Supercuts, Inc. and Integrated Circuit
Engineering, Inc. Mr. Faber has a bachelor of science degree from Cornell
University and served as an officer in the United States Marine Corps.
Daniel M. Beals is 47 years old and is a director of the Company. He joined
the Company in that capacity in October 1995. Mr. Beals served as President of
FDSI from its inception to 1987 and, from 1990 until February 1996, was the
Corporate Secretary and Treasurer of FDSI. Since February 1996, Mr. Beals has
been a private investor. In addition, from August 1990 to December 1993, Mr.
Beals was Vice President of Operations of FDSI. From January 1994 to August
1994, he was Vice President of Operations of CyberSafe Corporation, a software
development company spun off from FDSI in 1994. Mr. Beals received an associate
degree in business data processing from Columbus State Community College in
1970.
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Harvey L. Poppel is 60 years old and is a director of the Company. He
joined the Company in that capacity in October 1995. From 1985 to December 1996,
Mr. Poppel was Managing Director of Broadview Associates, LLC., a firm
specializing in mergers and acquisitions in the information technology field.
Mr. Poppel retired from Broadview Associates effective December 31, 1996. Prior
to joining Broadview Associates, LLC, Mr. Poppel spent 18 years at Booz, Allen &
Hamilton, during which time he held a number of positions, including Senior Vice
President and Managing Officer of the Information Industry Practice and as a
member of its board of directors. Mr. Poppel is a certified Management
Consultant and received a bachelors degree and a Master of Science degree from
Rensselaer Polytechnic Institute.
Members whose terms expire at the Annual Meeting in 2000:
Anthony M. Frank is 67 years old and is a director of the Company. He
joined the Company in that capacity in March 1993. In September of 1994 Mr.
Frank became Co-founding General Partner and Chairman of Belvedere Capital
Partners, the general partner of the California Community Financial Institutions
Fund whose primary purpose is investing in California community banks. From 1992
to 1994, Mr. Frank was an independent financial consultant and venture
capitalist. From March 1988 to March 1992, Mr. Frank served as the Postmaster
General of the United States. From 1971 until 1988, he served as Chairman and
Chief Executive Officer of First Nationwide Bank. Mr. Frank is a graduate of
Dartmouth College and is an overseer of the Tuck School of Business. He is also
a director of several companies, including The Charles Schwab Corporation,
Living Centers of America, Inc., Irvine Apartment Communities, Crescent Real
Estate Equities Ltd. and Temple Inland Corporation.
James R. Lavelle is 47 years old and is the founder, Chairman of the Board
and Chief Executive Officer of the Company. Mr. Lavelle has served as Chief
Executive Officer since he founded the Company in 1993. From inception of the
Company until August 1995, Mr. Lavelle was also Chairman of the Board of the
Company, a position that he reassumed in April 1996. From 1985 to 1993, he was a
business consultant specializing in strategic marketing and organization
development. From 1983 to 1985, Mr. Lavelle was Senior Manager and Director of
Management Consulting Services for the San Francisco office of KPMG Main
Hurdman, an international accounting firm. Prior to that, he was Manager,
Management Consulting Services in the San Francisco office of Arthur Andersen
LLP, an international accounting firm. Mr. Lavelle has a bachelors degree from
University of California at Santa Barbara and a Master of Business
Administration degree from University of Santa Clara.
Susan E. Trice is 45 years old and is President of INNOVA Solutions, Inc.
("ISI"), a wholly owned subsidiary of the Company. Ms. Trice founded ISI in
1991. Prior to 1991 Ms. Trice managed two information technology consulting
firms, was Vice President of Information Technology at Citicorp, a commercial
bank, and Senior Vice President of Information Systems for North American
Mortgage Company. Ms. Trice is a director of ATWork!, a software training
company based in Dallas. Ms. Trice has a Bachelor of Science degree from the
University of Houston.
OTHER EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Daniel E. Jackson................................. 38 Executive Vice President Corporate Development
and General Counsel
Herbert D. Montgomery............................. 55 Senior Vice President, Chief Financial Officer and
Treasurer
Curtis J. Parker.................................. 43 Vice President and Chief Accounting Officer
Lorraine E. Vega.................................. 42 Corporate Counsel and Secretary
</TABLE>
Daniel E. Jackson is 38 years old. and is Executive Vice President,
Corporate Development and General Counsel of the Company. Mr. Jackson has served
in the capacities of Executive Vice President Corporate Development since May
1998, as Senior Vice President of Corporate Development and General Counsel
since September 1995, as Secretary from September 1996 until September 1997 and
as Chief Financial
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Officer from November 1996 until January 1998. From 1994 to 1995, Mr. Jackson
served as Vice President and General Counsel of an affiliate of Notre Venture
Capital, Ltd., a partnership specializing in industry consolidation
transactions. Prior thereto, he was Corporate Counsel and Secretary of Sanifill,
Inc., an environmental services company, from its founding in 1990 through 1994.
From 1986 until 1990, Mr. Jackson was an associate at Morgan, Lewis & Bockius
LLP in New York where he practiced law in the areas of securities and mergers
and acquisitions. Mr. Jackson is a graduate of The Ohio State University with a
bachelor of science degree in business administration and the University of
Pennsylvania Law School with a Juris Doctor degree.
Herbert D. Montgomery is 55 years old and is Senior Vice President, Chief
Financial Officer and Treasurer of the Company. Mr. Montgomery has served as
Senior Vice President, Chief Financial Officer and Treasurer since January 1998.
From June 1994 to January 1998, Mr. Montgomery served as Senior Vice President,
Chief Financial Officer and Treasurer at Guy F. Atkinson Company (`Atkinson"),
an international engineering and construction company. On August 10, 1997,
Atkinson filed a petition under Chapter 11 of the federal bankruptcy law. From
August 1989 to June 1994, he served as Vice President, Chief Financial Officer
and Treasurer at Harding Lawson Associates, Inc., an international engineering
consulting firm. Mr. Montgomery holds a bachelor of science in Finance and a
Master of Science degree in Business Administration from California State
University, Northridge.
Curtis J. Parker is 43 years old and is Vice President and Chief Accounting
Officer of the Company. Mr. Parker has served as Vice President and Chief
Accounting Officer since November 14, 1996. From January 1996 until March 18,
1996 he served as a consultant to the Company and was appointed Corporate
Controller on March 18, 1996. From 1988 through 1995 Mr. Parker was employed by
Burns Philp Food Inc., a manufacturer of food products, where he rose to the
position of Vice President - Finance for the Industrial Products Division. Mr.
Parker has a Bachelor of Commerce degree from the University of British Columbia
and is a Certified Public Accountant.
Lorraine E. Vega is 42 years old and is Corporate Counsel and Secretary of
the Company. Ms. Vega has served as Corporate Counsel since May 1997 and was
appointed Secretary on September 9, 1997. From April 1989 to April 1997, she was
employed by Burns Philp Inc., a food products manufacturer. From 1991 through
April 1997, she served as General Counsel and Secretary to the North American
operations. From 1989 to 1991, she served as Director of Taxes. Ms. Vega has a
bachelor of science degree in accounting from the University of San Diego and a
Juris Doctor degree from St. John's University School of Law. Ms. Vega is
licensed to practice law in the States of California and Connecticut.
BOARD ORGANIZATION AND COMMITTEES
During the fiscal year ended March 31, 1998, the Board held eleven
meetings. Each of the Directors attended at least 75% of the meetings of the
Board and the committees on which he or she served during the fiscal year ended
March 31, 1998.
The Board of Directors has established committees to perform certain of its
functions, including the Audit Committee, the Compensation Committee and the
Executive Committee. The functions of each of these committees, and its members,
are set forth below.
Audit Committee
The Audit Committee reviews the internal controls of the Company, the
objectivity of its financial reporting and the environmental standards and
controls of the Company and meets with appropriate Company financial personnel
and the Company's independent certified public accountants in connection with
these reviews. The Audit Committee also recommends to the Board the appointment
of independent certified public accountants to serve as auditors for the
following year. During the fiscal year ended March 31, 1998 the Audit Committee
met four times. The Audit Committee currently consists of B. Tom Green, Edward
E. Faber and Daniel M. Beals .
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Compensation Committee
The Compensation Committee advises and makes recommendations to the
Board with respect to salaries and bonuses to be paid to officers and other
employees of the Company. The Compensation Committee also administers the
Company's 1995 Long-Term Incentive Plan. During the fiscal year ended March 31,
1998, the Compensation Committee met five times. The Compensation Committee
currently consists of Harvey L. Poppel, Edward E. Faber and Anthony M. Frank.
Executive Committee
The Executive Committee serves as the nominating committee of the Board
and generally handles other matters that are time critical and cannot be handled
in a reasonable manner by the entire Board. The Executive Committee reviews the
size and composition of the Board of Directors, apportions the directors into
classes and makes recommendations with respect to nominations for election of
directors. The Executive Committee will consider recommendations from
stockholders for nominees to serve as directors if such proposals are submitted
in writing to the Company, 101 California Street, Suite 2050, San Francisco,
California 94111, Attention: Executive Committee. During the fiscal year ended
March 31, 1998 this committee did not meet. The Executive Committee currently
consists of James R. Lavelle, Michael L. Evans, Jeffrey J. Bernardis, Anthony M.
Frank , B. Tom Green and Harvey L. Poppel.
DIRECTOR COMPENSATION
Each director who is not an employee of the Company receives an annual
retainer fee of $20,000. Effective January 12, 1996, each non-employee director
of the Company was granted an initial option under the Company's 1995 Long-Term
Incentive Plan to acquire 10,000 shares of Common Stock at an exercise price of
$10.00 per share. Each non-employee director receives an automatic annual option
grant under the 1995 Long-Term Incentive Plan to acquire 5,000 shares of Common
Stock on the date of each of the Company's annual meetings held after March 31,
1997. All of such options have or will have an exercise price equal to the fair
market value of the Common Stock on the date of grant, are or will be
exercisable immediately except as limited by the rules and regulations of the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and will expire ten years
from the date of grant. Directors are also reimbursed for out-of-pocket expenses
incurred in attending meetings of the Board of Directors or committees thereof,
or for other expenses incurred in their capacity as directors.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report of the Compensation Committee of the Board of
Directors of Cotelligent shall not be deemed incorporated by reference by any
general statement incorporating this proxy statement by reference into any
filing under the Securities Act, or under the Exchange Act, and shall not be
deemed filed under either of the Securities Act or the Exchange Act except to
the extent that Cotelligent specifically incorporates this information by
reference.
Overview
The key components of executive officer compensation are salary, bonus
and stock option awards. Each of Messrs. Lavelle, Evans and Jackson is a party
to a three-year employment agreement which was negotiated at arms-length and
entered into prior to Cotelligent's initial public offering (the "Offering") but
did not become effective until the Offering was consummated. Mr. Montgomery is a
party to a three-year employment agreement which was negotiated at arms-length
and entered into January 1998. Each of Messrs. Lavelle, Evans, Jackson and
Montgomery's employment agreement provides for a minimum base salary following
its effective date (subject to increase by the Compensation Committee) and the
right to receive discretionary bonuses provided by the Compensation Committee
and the right to receive stock option grants at the discretion of the
Compensation Committee.
The members of the Compensation Committee hold primary responsibility
for determining executive officer compensation levels, subject to the terms of
the Executive Employment Agreements. The
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Compensation Committee is composed entirely of independent outside directors of
Cotelligent, none of whom are or have been officers or employees of Cotelligent.
The Compensation Committee has adopted a compensation philosophy intended to
align compensation with Cotelligent's overall business strategy. The philosophy
guiding the executive compensation program is designed to link executive
compensation and stockholder value. The goals of the program are to:
Compensate executive employees in a manner that aligns the employees'
interests with the interests of the stockholders;
Encourage continuation of Cotelligent's entrepreneurial spirit;
Reward executives for successful long-term strategic management;
Recognize outstanding performance;
Attract and retain highly qualified and motivated executives.
The strategy established by the Compensation Committee with respect to
executive compensation includes maintaining base salaries for executives and
providing bonuses which, when combined with base salary amounts, give
Cotelligent's executives the potential to earn in excess of competitive industry
compensation if certain subjective and objective performance goals for
Cotelligent are achieved. The Compensation Committee intends to continue to
grant to Cotelligent's executives and other key employees stock options at
current market value, which options have no monetary value to the executives
unless and until the market price of Cotelligent's Common Stock increases. In
this manner, Cotelligent's executives will be well compensated if Cotelligent
achieves its operating and performance goals. The mix of base salary, bonuses
and stock option awards reflects the Compensation Committee's intention to link
executive compensation to Cotelligent's operational performance and the price of
its Common Stock. The Compensation Committee anticipates that discretionary
bonus payments and option grants made during fiscal 1998 and thereafter will be
based on a subjective analysis of various performance criteria and will not
directly be tied to any one factor. The Compensation Committee intends to
continue to examine ways to more closely link its annual bonus and long-term
incentive plans to Cotelligent's stock performance, with the objective of
creating plans that strengthen the relationship between stockholder value and
executive compensation.
1998 Compensation
Compensation paid to James R. Lavelle, Cotelligent's Chairman and Chief
Executive Officer, for the period from April 1, 1996 through January 29, 1997
was in accordance with Mr. Lavelle's employment agreement. Effective February 1,
1997, Mr. Lavelle's annual base salary was increased by the Compensation
Committee to $275,000. For the fiscal year 1998, he was eligible to receive and
did receive a bonus based upon the operating results of the Company in the
amount of $200,000. For the fiscal year 1999, he is eligible to receive a bonus
based upon achieving certain performance objectives and upon the operating
results of the Company. In addition, he may receive a commission upon the
completion by the Company of certain acquisitions.
Compensation paid to Michael L. Evans, Cotelligent's President and
Chief Operating Officer, for the period from April 1, 1996 through January 29,
1997 was in accordance with Mr. Evans' employment agreement. Effective February
1, 1997, Mr. Evans' annual base salary was increased by the Compensation
Committee to $225,000. For the fiscal year 1998, he was eligible to receive and
did receive a bonus based upon the operating results of the Company in the
amount of $125,000. Effective July 1, 1998, Mr. Evans' annual base salary was
increased by the Compensation Committee to $250,000. For the fiscal year 1999,
he is eligible to receive a bonus based upon achieving certain performance
objectives and upon the operating results of the Company. In addition, he may
receive a commission upon the completion by the Company of certain acquisitions.
Compensation paid to Daniel E. Jackson, Cotelligent's Executive Vice
President, Corporate Development and General Counsel, for the period from April
1, 1996 through January 29, 1997 was in accordance with Mr. Jackson's employment
agreement. Effective February 1, 1997, Mr. Jackson's annual base salary was
increased by the Compensation Committee to $200,000. For the fiscal year 1998,
he is
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eligible to receive a bonus based upon the operating results of the Company.
Effective July 1, 1998, Mr. Jackson's annual base salary was increased by the
Compensation Committee to $225,000. For the fiscal year 1999, he is eligible to
receive a bonus based upon achieving certain performance objectives and upon the
operating results of the Company. In addition, he will receive a commission upon
the completion of any acquisitions by the Company.
Compensation paid to Herbert D. Montgomery, Cotelligent's Senior Vice
President, Chief Financial Officer and Treasurer, from January 1998 was in
accordance with Mr. Montgomery's employment agreement. For the fiscal year 1998,
he was eligible to receive and did receive a bonus based upon the operating
results of the Company in the amount of $15,000. For the fiscal year 1999, he is
eligible to receive a bonus based upon achieving certain performance objectives
and upon the operating results of the Company. Mr. Montgomery was granted an
option to purchase 100,000 shares of Company Common Stock; 33,333 shares vested
at January 28, 1998 and the rest vesting ratably over the next two years.
The cash compensation paid to Cotelligent's other executive officers
during 1998 was in accordance with arms-length negotiations between Cotelligent
and such executive officers. Stock option grants were based on arms-length
negotiations with the respective grantees and were approved by the Board of
Directors.
This report is submitted by the members of the Compensation Committee.
Compensation Committee
Harvey L. Poppel
Edward E. Faber
Anthony M. Frank
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All of the members of the Compensation Committee are non-employee
Directors of the Company and are not former officers of the Company or its
subsidiaries. No executive officer of the Company serves as a member of the
Board of Directors or on the compensation committee of a corporation for which
any of the Company's Directors serving on the Compensation Committee or on the
Board of Directors of the Company is an executive officer.
9
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding the
compensation earned by or awarded to the Chief Executive Officer and remaining
executive officers of the Company for each of the fiscal years ended March 31,
1998, 1997 and 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
-------------------------------------------------------- --------------
Fiscal Options/
Name and Principal Position Year Salary($) (1) Bonus($) Other($) SARs(#)
- -------------------------------- ------ ---------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
James R. Lavelle............... 1998 283,542 200,000 6,000 (3) 0
Chairman and Chief 1997 175,833 0 6,000 (3) 200,000
Executive Officer 1996 127,750 0 750 (3) 0
Michael L. Evans............... 1998 250,000 150,000 6,000 (3) 0
Director, President and 1997 167,500 0 6,000 (3) 150,000
Chief Operating Officer 1996 16,666 (2) 0 1,500 (3) 0
Daniel E. Jackson.............. 1998 307,518 150,000 10,846 (5) 0
Executive Vice President 6,000 (3)
Corporate Development and 1997 188,333 0 6,000 (3) 100,000
General Counsel 71,141 (4)
9,895 (5)
1996 88,333 (2) 0 750 (3) 92,676
37,100 (6)
Herbert D. Montgomery.......... 1998 52,179 (2) 15,000 1,000 (3) 100,000
Senior Vice President,
Chief Financial
Officer and Treasurer
Curtis J. Parker............... 1998 115,000 28,750 0 2,500
Vice President and Chief 1997 95,000 0 0 0
Accounting Officer
Lorraine E. Vega............... 1998 108,974 (2) 26,000 0 22,500
Corporate Counsel and
Secretary
<FN>
(1) Base salary and commissions earned.
(2) Reflects salary received for a partial year.
(3) Represents payments made as an automobile allowance.
(4) Reimbursement for relocation costs.
(5) Imputed interest on below market loans. See "Certain Transactions."
(6) Reimbursement for temporary living and commuting costs.
</FN>
</TABLE>
10
<PAGE>
Stock Option Grants Table
The following table sets forth, as to the executive officers named in
the Summary Compensation Table, information related to the grant of stock
options pursuant to the Company's 1995 Long-Term Incentive Plan during the
fiscal year ended March 31, 1998.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN FISCAL 1998
Individual Grants
--------------------------------------------------------
Number of Percentage of Total Exercise or Potential Realizable Value At
Securities Options Granted to Base Price Per Assumed Annual Rates of Stock
Underlying Employees in Fiscal Share Price Appreciation For Option
Name Options Granted 1998 ($/Share)(4) Term ($) (5)
- -------------------------------------------------------------------- -----------------------------------------------
5% 10%
--------------- ---------------
<S> <C> <C> <C> <C> <C>
James R. Lavelle - - - - -
Michael L. Evans - - - - -
Daniel E. Jackson - - - - -
Herbert D. Montgomery 100,000 (1) 22.25 20.00 836,072 2,015,840
Curtis J. Parker 2,500 (2) 0.56 9.00 9,406 22,678
Lorraine E. Vega 22,500 (3) 5.01 11.63 109,390 263,748
<FN>
(1) Options granted in fiscal 1998 expire on January 26, 2005.
(2) Options granted in fiscal 1998 expire on April 1, 2004.
(3) Options granted in fiscal 1998 expire on May 19, 2004.
(4) The exercise price per share for all options granted is equal to the market
price of the underlying Common Stock as of the date of grant.
(5) The potential realizable value has been determined using market price on
the date the options were granted, compounded annually over seven years,
net of exercise price. These values have been determined based upon assumed
rates of appreciation and are not intended to forecast the future value or
trading prices of the Company's Common Stock. There can be no assurance
that the amounts reflected in this table will be achieved.
</FN>
</TABLE>
Stock Option Exercises and Year End Values Table
The following table shows, as to the executive officers named in the
Summary Compensation Table, information with respect to the unexercised options
to purchase Common Stock granted under the 1995 Long-Term Incentive Plan and
held as of March 31, 1998.
VALUE OF OPTIONS AT MARCH 31, 1998
<TABLE>
<CAPTION>
Number of Number of Securities Underlying
Shares Acquired Value Unexercised Options Held Value of Unexercised
On Exercise Realized at March 31, 1998 In-the-Money Options
($) at March 31, 1998 ($) (1)
----------------------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------------
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James R. Lavelle - - 125,000 75,000 1,328,125 796,875
Michael L. Evans - - 75,000 75,000 796,875 796,875
Daniel E. Jackson 18,500 167,500 50,106 142,570 534,104 3,023,697
Herbert D. Montgomery - - 33,333 66,667 320,830 641,670
Curtis J. Parker - - 20,625 21,875 410,391 436,172
Lorraine E. Vega - - 5,625 16,875 101,222 303,666
<FN>
(1) Options are "in-the-money" if the closing market price of the Company's
Common Stock exceeds the exercise price of the options. The value of the
unexercised options represents the difference between the
</FN>
</TABLE>
11
<PAGE>
exercise price of such options and the closing market price ($29.625) of
the Company's Common Stock on the New York Stock Exchange on March 31,1998.
EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
Messrs. Lavelle, Evans and Jackson each entered into employment
agreements commencing on February 14, 1996, the date of the closing of the
Offering. Pursuant to such agreements, each person was to receive an annual base
salary of $150,000 and is eligible for additional bonus compensation. Effective
February 1, 1997, the Compensation Committee increased the annual base salary of
Mr. Lavelle to $275,000. Effective July 1, 1998, the Compensation Committee
increased the annual base salaries of Mr. Evans to $250,000 and of Mr. Jackson
to $225,000. Mr. Montgomery entered into an employment agreement commencing on
January 28, 1998, pursuant to which he is to receive an annual base salary of
$200,000. Each executive officer is eligible for an incentive bonus based upon
the achievement of certain performance objectives and the operating results of
the Company. A commission is payable to Messrs. Lavelle, Evans and Jackson upon
the completion of certain acquisitions during the year. Each employment
agreement is for a term of three years and, unless terminated or not renewed by
the employee, shall continue thereafter on a year-to-year basis on the same
terms and conditions.
Each of the employment agreements provides that, in the event of
termination of employment by the Company without cause, such employee shall be
entitled to receive from the Company such employee's then current salary for the
remaining term of the agreement or for one year, whichever amount is greater,
without regard to whether the employee obtains subsequent employment. In the
event of a change in control of the Company, if the employee is not given at
least five days notice of such change in control, the employee may elect to
terminate his employment and shall be entitled to receive a minimum of three
years' current base salary as compensation. In the event the employee is given
at least five days notice of such change in control, the employee may elect to
terminate his employment agreement and receive a minimum of two years current
salary as compensation.
Each employment agreement contains a covenant-not-to-compete with the
Company for a period equivalent to the longer of two years immediately following
the termination of employment or, in the case of a termination without cause,
for a period of one year following the termination of his employment. If any
court of competent jurisdiction determines that the scope, time or territorial
restrictions contained in the covenant are unreasonable, the
covenant-not-to-compete shall be reduced to the maximum period permitted by such
court. The compensation to which such employee is entitled shall nonetheless be
paid to the employee.
12
<PAGE>
PERFORMANCE GRAPH
The following chart compares the yearly percentage change in the
cumulative total stockholder return on Common Stock from February 14, 1996, the
date of the Offering, through March 31, 1998, with the cumulative total return
on the Russell 2000 Index and the NASDAQ Composite Index. The comparison assumes
$100, as of February 14, 1996, was invested in the Company's Common Stock and in
each of the foregoing indices and assumes reinvestment of dividends, as
applicable. Cotelligent's Offering price of $9.00 was used as the beginning
price of the Common Stock. Dates on the following chart represent the last day
of the indicated fiscal year. Cotelligent has paid no dividends during the
periods shown.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
A GRAPH IS INCLUDED WHICH DIAGRAMS THE RESULTS BELOW - SEE ABOVE FOR DESCRIPTION
OF THE GRAPH
<TABLE>
<CAPTION>
- ------------------------------- --------------------- -------------------- -------------------- -------------------
Company/Index February 14, 1996 March 31, 1996 March 31, 1997 March 31, 1998
- ------------------------------- --------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Cotelligent Group, Inc. $100 $130.55 $102.78 $329.17
Russell 2000 Index 100 103.21 106.52 149.47
NASDAQ Composite Index 100 101.23 112.01 168.30
</TABLE>
CERTAIN TRANSACTIONS
BFR leases office space for its headquarters facilities in Somerset,
New Jersey from BFR Properties, a partnership owned by Jeffrey J. Bernardis, a
director of the Company, and the other principal stockholders of BFR prior to
the consummation of the acquisition of BFR by the Company. The annual cost of
such rental is approximately $170,000, and the lease runs through March 31,
2000. BFR also leases office equipment and furniture for this office space from
BFR Properties. The aggregate annual rental for such furniture and office
equipment is approximately $51,000, and the lease runs through December 31,
1999. The Company believes that the rent for such property and equipment does
not exceed the fair market value thereof.
From May 1996 through early July 1996, the Company advanced to Daniel
E. Jackson, Executive Vice President Corporate Development and General Counsel,
$250,000 to facilitate relocation of his residence to Northern California. On
July 15, 1996, $100,000 of the advance was repaid and the remaining balance was
converted to a demand note in the amount of $150,000. The note is non-interest
bearing and the principal balance is due July 15, 2001 or upon termination of
employment should Mr. Jackson leave the Company prior to the due date. During
fiscal 1998, Mr. Jackson repaid $5,000 of the principal amount.
13
<PAGE>
In the future, transactions with affiliates of the Company are
anticipated to be minimal and will be approved by a majority of the Board of
Directors, including a majority of the disinterested members of the Board of
Directors, and will be made on terms no less favorable to the Company than could
be obtained from unaffiliated third parties.
SELECTION OF ARTHUR ANDERSEN LLP AS CERTIFIED PUBLIC ACCOUNTANTS
On January 9, 1998 the Board of Directors approved and accepted the
recommendation of the Audit Committee and management to appoint Arthur Andersen
LLP ("Arthur Andersen ") as the Company's independent certified public
accountants to audit the Company's financial statements for the year ending
March 31, 1998. Arthur Andersen audited the Company's financial statements for
the year ending March 31, 1998.
During the Company's three fiscal years ended March 31, 1998, there
were no disagreements between the Company and Arthur Andersen regarding any
matter of accounting principles or practices, financial statement disclosure or
auditing scope and procedure which, if not resolved to the satisfaction of
Arthur Andersen , would have caused Arthur Andersen to make reference to the
subject matter of the disagreement in connection with its report.
Representatives of Arthur Andersen are expected to be present at the
Annual Meeting, with the opportunity to make a statement if they desire to do
so, and are expected to be available to respond to appropriate questions.
The affirmative vote of a majority of the Common Stock of the Company
present, in person or by proxy, and entitled to vote at the meeting, is required
for the approval of the selection of Arthur Andersen as the Company's
independent certified public accountants.
The Board of Directors unanimously recommends that the stockholders of the
Company approve the selection of Arthur Andersen LLP as the Company's
independent certified public accountants for the fiscal year ending March 31,
1999.
14
<PAGE>
APPROVAL OF THE COTELLIGENT GROUP, INC.
1998 LONG-TERM INCENTIVE PLAN
The Board of Directors has adopted the 1998 Long-Term Incentive Plan (the
"1998 Plan"). The 1998 Plan is intended to replace the Company's 1995 Long-Term
Incentive Plan (the "1995 Plan"). The 1998 Plan is substantially similar to the
1995 Plan, except that (i) number of shares of Common Stock that may be subject
to the outstanding awards has been increased from 15% to 18% of the total number
of shares of Common Stock outstanding, and (ii) the annual per-participant grant
limitation has been increased from 250,000 shares to 750,000 shares. The 1998
Plan will not be effective unless and until stockholder approval is obtained. If
the 1998 Plan is approved and therefore becomes effective, no further awards
will be made pursuant to the 1995 Plan. Any previously-granted awards under the
1995 Plan that remain outstanding will remain subject to the terms of the 1995
Plan and will count against the 18% limitation under the 1998 Plan. At July 24,
1998, based upon 15% of the shares then outstanding, a maximum of 2,116,953
shares could be subject to outstanding awards under the 1995 Plan, and as of
July 24, 1998, 1,919,071 shares were actually subject to outstanding awards.
Subject to the approval of the 1998 Plan, 423,391 additional shares could be
subject to outstanding awards under the 1998 Plan based upon 18% of the shares
outstanding as of July 24, 1998.
Like the 1995 Plan, the 1998 Plan provides the Compensation Committee with
flexibility to award long-term, equity-based incentives to a wide range of
employees. The changes made to the 1998 Plan described above are intended to
provide the Company with even more flexibility. By increasing the number of
shares that may be awarded under the 1998 Plan, the Board of Directors seeks to
ensure that long-term incentives can continue to be awarded to a broad range of
employees and will remain available for ongoing, strategic use as an attractive
component of the Company's acquisition program. Regarding the per participant
grant limit, the Board believes that added flexibility may be necessary to
attract additional senior executives as the Company grows or to encourage the
owners of businesses being acquired to remain employed by the Company for an
extended period of time (where such owners are deemed to be particularly
valuable employees). However, the Board of Directors expects that annual option
grants for shares in excess of 250,000 will be made only rarely, when special
circumstances warrant or demand unique compensation arrangements, such as in
connection with a major acquisition or attracting a senior executive.
Description of the 1998 Plan
The 1998 Plan is set forth as Exhibit A to this Proxy Statement, and the
description of the 1998 Plan contained herein is qualified in its entirety by
reference to Exhibit A.
The purpose of the 1998 Plan is to advance the interests of the Company
and its stockholders by providing a means to attract, retain and reward
directors, officers and other key employees and consultants of and service
providers to the Company and its subsidiaries and to enable such persons to
acquire or increase a proprietary interest in the Company, thereby promoting a
closer identity of interests between such persons and the Company's
stockholders. The Company had a policy under the 1995 Plan, which it intends to
continue under the 1998 Plan, of granting stock options to a broad base of
employees. For example, under the 1995 Plan, as of July 24, 1998, options for a
total of 1,124,895 shares of Common Stock were granted to a total of 550
employees of the Company (other than the Company's executive officers and
directors). A significant portion of these stock options were awarded to a wide
range of employees who were not shareholders of companies acquired by the
Company. Because these stock options have a seven-year term and vest at a rate
of 25% per year after grant, employees at all levels are provided with a with a
strong incentive to seek increased stockholder value over the long term.
Awards under the 1998 Plan may be granted by the Compensation Committee of
the Board of Directors and may include: (i) options to purchase shares of Common
Stock, including incentive stock options ("ISOs"), non-qualified stock options
or both, which options may contain automatic reload features; (ii) stock
appreciation rights ("SARs"), whether in conjunction with the grant of stock
options or independent of such grant, or stock appreciation rights that are only
exercisable in the event of a change in control of the Company or upon other
events; (iii) restricted stock, consisting of shares that are subject to
forfeiture based on the failure to satisfy employment-related restrictions; (iv)
deferred stock, representing the right to receive shares of stock in the future;
(v) bonus stock and awards in lieu of cash compensation; (vi) dividend
15
<PAGE>
equivalents, consisting of a right to receive cash, other awards, or other
property equal in value to dividends paid with respect to a specified number of
shares of Common Stock, or other periodic payments; or (vii) other awards not
otherwise provided for, the value of which are based in whole or in part upon
the value of the Common Stock. The flexible terms of the 1998 Plan are intended
to, among other things, permit the Compensation Committee to impose performance
conditions with respect to any award, thereby requiring forfeiture of all or
part of any award if performance objectives are not met, or linking the time of
exercisability or settlement of an award to the achievement of performance
conditions. All outstanding awards under the 1998 Plan will generally become
fully exercisable or vested upon a "change in control" of the Company. Unless
otherwise permitted by the Compensation Committee, awards granted under the 1998
Plan are not assignable or transferable except by the laws of descent and
distribution.
The Compensation Committee of the Board of Directors, which administers
the 1998 Plan, has the authority, among other things, to: (i) select the
directors, officers and other key employees and consultants (or other service
providers) entitled to receive awards under the 1998 Plan; (ii) determine the
form of awards, or combinations thereof, and whether such awards are to operate
on a tandem basis or in conjunction with other awards; (iii) determine the
number of shares of Common Stock or units or rights covered by an award; and
(iv) determine the terms and conditions of any awards granted under the 1998
Plan, including, any restrictions or limitations on transfer, any vesting
schedules or the acceleration thereof and any forfeiture provision or waiver
thereof. The exercise price at which shares of Common Stock may be purchased
pursuant to the grant of stock options under the 1998 Plan is to be determined
by the Compensation Committee at the time of grant in its discretion, provided
that the an exercise price cannot be set below the fair market value of the
shares of Common Stock covered by such grant at the time of grant. Like the 1995
Plan, the 1998 Plan also provides for annual automatic option grants to
non-employee directors with respect to 5,000 shares of Common Stock.
The maximum number of shares of Common Stock that may be subject to
outstanding awards (including awards that remain outstanding under the 1995
Plan), determined immediately after the grant of any award, will be equal to 18%
of the aggregate number of shares of the Common Stock outstanding at such time,
provided that shares of Common Stock issued pursuant to the exercise of ISOs
granted under the Plan may not exceed 500,000 shares and the number of shares
that may be delivered as restricted stock and deferred stock may not, in the
aggregate, exceed 500,000. In addition, no individual may receive awards in any
one calendar year relating to more than 750,000 shares of Common Stock.
The 1998 Plan may be amended, altered, suspended, discontinued, or
terminated by the Board of Directors without stockholder approval unless such
approval is required by law or regulation or under the rules of any stock
exchange or automated quotation system on which the Common Stock is then listed
or quoted. Thus, stockholder approval will not necessarily be required for
amendments which might increase the cost of the plan or broaden eligibility.
Stockholder approval will not be deemed to be required under laws or regulations
that condition favorable tax treatment on such approval, although the Board of
Directors may, in its discretion, seek stockholder approval in any circumstances
in which it deems such approval advisable.
Federal Tax Consequences
The following is a brief description of the federal income tax consequences
generally arising with respect to awards that may be granted under the 1998
Plan. This discussion is intended for the information of stockholders
considering how to vote at the Annual Meeting and not as tax guidance to
individuals who participate in the 1998 Plan.
The grant of an option or SAR (including a stock-based award in the nature
of a purchase right) will create no tax consequences for the grantee or the
Company. A grantee will not have taxable income upon exercising an ISO (except
that the alternative minimum tax may apply) and the Company will receive no
deduction at that time. Upon exercising an option other than an ISO (including a
stock-based award in the nature of a purchase right), the participant must
generally recognize ordinary income equal to the difference between the exercise
price and fair market value of the freely transferable and nonforfeitable stock
received. In each case, the Company will generally be entitled to a deduction
equal to the among recognized as ordinary income by the participant.
16
<PAGE>
A participant's disposition of shares acquired upon the exercise of an
option, SAR or other stock-based award in the nature of a purchase right
generally will result in short-term capital gain or loss measured by the
difference between the sale price and the participant's tax basis in such shares
(or the exercise price of the option in the case of shares acquired by exercise
of an ISO and held for the applicable ISO holding periods). Generally, there
will be no tax consequences to the Company in connection with a disposition of
shares acquired under an option or other award, except that the Company will
generally be entitled to a deduction (and the participant will recognize
ordinary taxable income) if shares acquired upon exercise of an ISO are disposed
of before the applicable ISO holding periods have been satisfied.
With respect to awards granted under the 1998 Plan that may be settled
either in cash or in stock or other property that is either not restricted as to
transferability or not subject to a substantial risk of forfeiture, the
participant must generally recognize ordinary income equal to the cash or the
fair market value of stock or other property received. The Company will
generally be entitled to a deduction for the same amount. With respect to awards
involving stock or other property that is restricted as to transferability and
subject to a substantial risk of forfeiture, the participant must generally
recognize ordinary income equal to the fair market value of the shares or other
property received at the first time the shares or other property become
transferable or not subject to a substantial risk of forfeiture, whichever
occurs earlier. The Company will generally be entitled to a deduction in an
amount equal to the ordinary income recognized by the participant. A participant
may elect to be taxed at the time of receipt of shares or other property rather
than upon lapse of restrictions on transferability or the substantial risk of
forfeiture, but if the participant subsequently forfeits such shares or property
he would not be entitled to any tax deduction, including a capital loss, for the
value of the shares or property on which he previously paid tax. Such election
must be made and filed with the Internal Revenue Service within thirty days of
the receipt of the shares or other property.
Different tax rules may apply with respect to participants who are subject
to Section 16 of the Exchange Act when they acquire stock in a transaction
deemed to be nonexempt purchase under the statute, upon exercise of a derivative
security within six months after the exempt grant of such derivative security
under the 1998 Plan or in other kinds of transactions under the 1998 Plan (such
as payment of the exercise price of an option by surrender of previously
acquired common stock).
Section 162(m) of the Internal Revenue Code generally disallows a public
company's tax deduction for compensation to the chief executive office and the
four other most highly compensated executive officers in excess of $1 million.
Compensation that qualifies as "performance-based compensation" is excluded from
the $1 million deductibility cap, and therefore remains fully deductible by the
company that pays it. Assuming the 1998 Plan is approved at the Annual Meeting,
the Company believes that options granted with an exercise price at least equal
to 100% of fair market value of the underlying stock at the date of grant, and
other awards the settlement of which is conditioned upon achievement of
performance goals (based on performance criteria set forth in the 1998 Plan),
will qualify as such "performance-based compensation," although other awards
under the 1998 Plan may not so qualify.
No awards have been granted pursuant to the 1998 Plan. Awards that may in
the future be received by or allocated to the named executive officers, or to
such other groups of persons, cannot be determined at this time (other than
automatic option awards to non-employee directors as set forth in the 1998
Plan).
The Board of Directors unanimously recommends that stockholders vote FOR the
approval of the Company's 1998 Long-Term Incentive Plan.
NAME CHANGE OF COMPANY
The Board of Directors has approved the amendment of the Certificate of
Incorporation to effect the change of the Company's name from Cotelligent Group,
Inc. to Cotelligent, Inc. The Company is undertaking a brand recognition
program. In connection with this process, the Company is changing its name to
reflect the adoption by the marketplace of a simpler form.
The Board of Directors unanimously recommends that stockholders vote FOR the
approval of the name change of the Company.
17
<PAGE>
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than 10%
of a registered class of the Company's equity securities, to file initial
reports of ownership and reports of changes in ownership with the Securities and
Exchange Commission (the "SEC"). Such persons are required by SEC regulation to
furnish the Company with copies of all Sections 16(a) forms they file.
Based solely on its review of the copies of other such forms received
by it with respect to fiscal 1998, or written representations from certain
reporting persons, to the best of the Company's knowledge, all reports were
filed on a timely basis.
STOCKHOLDER PROPOSALS
Stockholders may present proposals for inclusion in the Company's
fiscal 1999 proxy statement provided they are received by the Company no later
than February 16, 1999, and are otherwise in compliance with applicable
Securities and Exchange Commission regulations.
GENERAL
Management does not intend to bring any business before the meeting
other than the matters referred to in the accompanying notice. If, however, any
other matters properly come before the meeting, it is intended that the persons
named in the accompanying proxy will vote pursuant to the proxy in accordance
with their best judgment on such matters.
A copy of the Company's most recent Annual Report on Form 10-K will be
made available without charge upon written request to: Cotelligent Group, Inc.,
101 California Street, Suite 2050, San Francisco, California 94111, Attention:
Investor Relations Administrator.
OTHER INFORMATION
The cost of solicitation of Proxies will be borne by the Company. Proxy
cards and materials will also be distributed to beneficial owners of Common
Stock through brokers, custodians, nominees and other like parties, and the
Company expects to reimburse such parties for their charges and expenses.
/s/ Lorraine E. Vega
Lorraine E. Vega
Secretary
San Francisco, California
July 31, 1998
18
<PAGE>
EXHIBIT A
COTELLIGENT GROUP, INC.
1998 LONG-TERM INCENTIVE PLAN
1. Purpose. The purpose of this 1998 Long-Term Incentive Plan (the
"Plan") of Cotelligent Group, Inc., a Delaware corporation (the "Company"), is
to advance the interests of the Company and its stockholders by providing a
means to attract, retain and reward directors, officers and other key employees
and consultants of and service providers to the Company and its subsidiaries and
to enable such persons to acquire or increase a proprietary interest in the
Company, thereby promoting a closer identity of interests between such persons
and the Company's stockholders.
2. Definitions. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents and Other
Stock-Based Awards are set forth in Section 6 of the Plan. Such awards, together
with any other right or interest granted to a Participant under the Plan, are
termed "Awards." For purposes of the Plan, the following additional terms shall
be defined as set forth below:
(a) "Award Agreement" means any written agreement, contract, notice or
other instrument or document evidencing an Award.
(b) "Beneficiary" shall mean the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(c) "Board" means the Board of Directors of the Company.
(d) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit
plan of the Company, acquires directly or indirectly the
Beneficial Ownership (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended) of any voting
security of the Company and immediately after such acquisition
such Person is, directly or indirectly, the Beneficial Owner
of voting securities representing 50 percent or more of the
total voting power of all of the then-outstanding voting
securities of the Company;
(ii) the individuals (A) who, as of the effective date of the
Plan, constitute the Board (the "Original Directors") or (B)
who thereafter are elected to the Board and whose election, or
nomination for election, to the Board was approved by a vote
of at least two-thirds (2/3) of the Original Directors then
still in office (such directors becoming "Additional Original
Directors" immediately following their election) or (C) who
are elected to the Board and whose election, or nomination for
election, to the Board was approved by a vote of at least
two-thirds (2/3) of the Original Directors and Additional
Original Directors then still in office (such directors also
becoming "Additional Original Directors" immediately following
their election) (such individuals being the "Continuing
Directors"), cease for any reason to constitute a majority of
the members of the Board;
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the
Company, a reverse stock split of outstanding voting
securities, or consummation of any such transaction if
stockholder approval is not sought or obtained, other than any
such transaction which would result in at least 75 percent of
the total voting power represented by the voting securities of
the surviving entity outstanding immediately after such
transaction being Beneficially Owned by at least 75 percent of
the holders of outstanding voting securities of the
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Company immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such
continuing holders not substantially altered in the
transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or a substantial
portion of the Company's assets (i.e., 50 percent or more of
the total assets of the Company).
(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
(f) "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act shall
be deemed to include rules thereunder and successor provisions and rules
thereto.
(h) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee, provided, however, that if the Stock is listed on a
national securities exchange or quoted in an interdealer quotation system, the
Fair Market Value of such Stock on a given date shall be based upon the last
sales price or, if unavailable, the average of the closing bid and asked prices
per share of the Stock on such date (or, if there was no trading or quotation in
the Stock on such date, on the next preceding date on which there was trading or
quotation) as provided by one of such organizations.
(j) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(k) "Non-Employee Director" shall mean a member of the Board who is not
otherwise an employee of the Company or any subsidiary.
(l) "Participant" means a person who, at a time when eligible under
Section 5 hereof, has been granted an Award under the Plan.
(m) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(n) "Stock" means the Common Stock, $.01 par value, of the Company and
such other securities as may be substituted for Stock or such other securities
pursuant to Section 4.
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select persons to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to
each such person;
(iii) to determine the number of Awards to be granted, the
number of shares of Stock to which an Award will relate, the
terms and conditions of any Award granted under the Plan
(including, but not limited to, any exercise price, grant
price or purchase price, any restriction or condition, any
schedule for lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability
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or settlement of an Award, and waivers or accelerations
thereof, performance conditions relating to an Award
(including performance conditions relating to Awards not
intended to be governed by Section 7(f) and waivers and
modifications thereof), based in each case on such
considerations as the Committee shall determine), and all
other matters to be determined in connection with an Award;
(iv) to determine whether, to what extent and under what
circumstances an Award may be settled, or the exercise price
of an Award may be paid, in cash, Stock, other Awards, or
other property, or an Award may be canceled, forfeited, or
surrendered;
(v) to determine whether, to what extent and under what
circumstances cash, Stock, other Awards or other property
payable with respect to an Award will be deferred either
automatically, at the election of the Committee or at the
election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need
not be identical for each Participant;
(vii) to adopt, amend, suspend, waive and rescind such rules
and regulations and appoint such agents as the Committee may
deem necessary or advisable to administer the Plan;
(viii) to correct any defect or supply any omission or
reconcile any inconsistency in the Plan and to construe and
interpret the Plan and any Award, rules and regulations, Award
Agreement or other instrument hereunder; and
(ix) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may
deem necessary or advisable for the administration of the
Plan.
Other provisions of the Plan notwithstanding, the Board may perform any function
of the Committee under the Plan, including without limitation for the purpose of
ensuring that transactions under the Plan by Participants who are then subject
to Section 16 of the Exchange Act in respect of the Company are exempt under
Rule 16b-3. In any case in which the Board is performing a function of the
Committee under the Plan, each reference to the Committee herein shall be deemed
to refer to the Board.
(b) Manner of Exercise of Committee Authority. Any action of the
Committee with respect to the Plan shall be final, conclusive and binding on all
persons, including the Company, subsidiaries of the Company, Participants, any
person claiming any rights under the Plan from or through any Participant and
stockholders, except to the extent the Committee may subsequently modify, or
take further action not consistent with, its prior action. If not specified in
the Plan, the time at which the Committee must or may make any determination
shall be determined by the Committee, and any such determination may thereafter
by modified by the Committee (subject to Section 8(e)). The express grant of any
specific power to the Committee, and the taking of any action by the Committee,
shall not be construed as limiting any power or authority of the Committee.
Except as provided under Section 7(f), the Committee may delegate to officers or
managers of the Company or any subsidiary of the Company the authority, subject
to such terms as the Committee shall determine, to perform such functions as the
Committee may determine, to the extent permitted under applicable law.
(c) Limitation of Liability. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants or any
executive compensation consultant, legal counsel or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
its behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination or
interpretation.
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4. Stock Subject to Plan.
(a) Amount of Stock Reserved. The total amount of Stock that may be
subject to outstanding Awards under the Plan as well as awards outstanding under
the Company's 1995 Long-Term Incentive Plan, determined immediately after the
grant of any Award, shall not exceed 18% of the total number of shares of Stock
outstanding at the effective time of such grant. Notwithstanding the foregoing,
the number of shares that may be delivered upon the exercise of ISOs shall not
exceed 500,000, and the number of shares that may be delivered as Restricted
Stock and Deferred Stock (other than pursuant to an Award granted under Section
7(f)) shall not in the aggregate exceed 500,000, provided, however, that shares
subject to ISOs, Restricted Stock or Deferred Stock Awards shall not be deemed
delivered if such Awards are forfeited, expire or otherwise terminate without
delivery of shares to the Participant. If an Award valued by reference to Stock
may only be settled in cash, the number of shares to which such Award relates
shall be deemed to be Stock subject to such Award for purposes of this Section
4(a). Any shares of Stock delivered pursuant to an Award may consist, in whole
or in part, of authorized and unissued shares, treasury shares or shares
acquired in the market for a Participant's Account.
(b) Annual Per-Participant Limitations. During any calendar year, no
Participant may be granted Awards that may be settled by delivery of more than
750,000 shares of Stock, subject to adjustment as provided in Section 4(c). In
addition, with respect to Awards that may be settled in cash (in whole or in
part), no Participant may be paid during any calendar year cash amounts relating
to such Awards that exceed the greater of the Fair Market Value of the number of
shares of Stock set forth in the preceding sentence at the date of grant or the
date of settlement of Award. This provision sets forth two separate limitations,
so that Awards that may be settled solely by delivery of Stock will not operate
to reduce the amount of cash-only Awards, and vice versa; nevertheless, Awards
that may be settled in Stock or cash must not exceed either limitation.
(c) Adjustments. In the event that the Committee shall determine that
any recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Stock or other
securities, Stock dividend or other special, large and non-recurring dividend or
distribution (whether in the form of cash, securities or other property),
liquidation, dissolution, or other similar corporate transaction or event,
affects the Stock such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Stock reserved and available for Awards
under Section 4(a), including shares reserved for ISOs, Restricted Stock and
Deferred Stock, (ii) the number and kind of shares of Stock specified in the
Annual Per-Participant Limitations under Section 4(b), (iii) the number and kind
of shares of outstanding Restricted Stock or other outstanding Award in
connection with which shares have been issued, (iv) the number and kind of
shares that may be issued in respect of other outstanding Awards, (v) the number
and kind of shares subject to Options to be granted pursuant to Section 6(i),
and (vi) the exercise price, grant price or purchase price relating to any
Award. (or, if deemed appropriate, the Committee may make provision for a cash
payment with respect to any outstanding Award). In addition, the Committee is
authorized to make adjustments in the terms and conditions of, and the criteria
included in, Awards (including, without limitation, cancellation of unexercised
or outstanding Awards, or substitution of Awards using stock of a successor or
other entity) in recognition of unusual or nonrecurring events (including,
without limitation, events described in the preceding sentence and events
constituting a Change in Control) affecting the Company or any subsidiary or the
financial statements of the Company or any subsidiary, or in response to changes
in applicable laws, regulations, or accounting principles.
5. Eligibility. Directors, executive officers and other employees of
the Company and its subsidiaries, and persons who provide consulting or other
services to the Company deemed by the Committee to be of substantial value to
the Company, are eligible to be granted Awards under the Plan. In addition,
persons who have been offered employment by the Company or its subsidiaries, and
persons employed by an entity that the Committee reasonably expects to become a
subsidiary of the Company, are eligible to be granted an Award under the Plan.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter (subject to Section
8(e)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall
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determine, including terms requiring forfeiture of Awards in the event of
termination of employment or service of the Participant. Except as provided in
Section 6(f), 6(h), or 7(a), or to the extent required to comply with
requirements of applicable law, only services may be required as consideration
for the grant (but not the exercise) of any Award.
(b) Options. The Committee is authorized to grant Options (including
"reload" options automatically granted to offset specified exercises of Options)
on the following terms and conditions ("Options"):
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the
Committee; provided, however, that, except as provided in
Section 7(a), such exercise price shall be not less than the
Fair Market Value of a share on the date of grant of such
Option.
(ii) Time and Method of Exercise. The Committee shall determine
the time or times at which an Option may be exercised in whole
or in part, the methods by which such exercise price may be
paid or deemed to be paid, the form of such payment, including,
without limitation, cash, Stock, other Awards or awards granted
under other Company plans or other property (including notes or
other contractual obligations of Participants to make payment
on a deferred basis, such as through "cashless exercise"
arrangements, to the extent permitted by applicable law), and
the methods by which Stock will be delivered or deemed to be
delivered to Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Section 422 of
the Code, including but not limited to the requirement that no
ISO shall be granted with an exercise price less than 100%
(110% for an individual described in Section 422(b)(6) of the
Code) of the Fair Market Value of a share of Stock on the date
of grant and granted no more than ten years after the effective
date of the Plan. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to ISOs shall be
interpreted, amended, or altered, nor shall any discretion or
authority granted under the Plan be exercised, so as to
disqualify either the Plan or any ISO under Section 422 of the
Code, unless requested by the affected Participant.
(iv) Termination of Employment. Unless otherwise determined by
the Committee, upon termination of a Participant's employment
with the Company and its subsidiaries, such Participant may
exercise any Options during the three-month period following
such termination of employment, but only to the extent such
Option was exercisable as of such termination of employment.
Notwithstanding the foregoing, if the Committee determines that
such termination is for cause, all Options held by the
Participant shall terminate as of the termination of
employment.
(c) Stock Appreciation Rights. The Committee is authorized to grant
SARs on the following terms and conditions ("SARs"):
(i) Right to Payment. An SAR shall confer on the Participant
to whom it is granted a right to receive, upon exercise
thereof, the excess of (A) the Fair Market Value of one share
of Stock on the date of exercise (or, if the Committee shall
so determine in the case of any such right other than one
related to an ISO, the Fair Market Value of one share at any
time during a specified period before or after the date of
exercise), over (B) the grant price of the SAR as determined
by the Committee as of the date of grant of the SAR, which,
except as provided in Section 7(a), shall be not less than the
Fair Market Value of one share of Stock on the date of grant.
(ii) Other Terms. The Committee shall determine the time or
times at which an SAR may be exercised in whole or in part,
the method of exercise, method of settlement, form of
consideration payable in settlement, method by which Stock
will be delivered or deemed to be delivered to Participants,
whether or not an SAR shall be in tandem with any other Award,
and any other terms and conditions of any SAR. Limited SARs
that may only be exercised upon the occurrence of a Change in
Control may be granted on such terms, not inconsistent with
this Section 6(c), as the Committee may determine. Limited
SARs may be either freestanding or in tandem with other
Awards.
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(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock on the following terms and conditions ("Restricted Stock"):
(i) Grant and Restrictions. Restricted Stock shall be subject
to such restrictions on transferability and other
restrictions, if any, as the Committee may impose, which
restrictions may lapse separately or in combination at such
times, under such circumstances, in such installments, or
otherwise, as the Committee may determine. Except to the
extent restricted under the terms of the Plan and any Award
Agreement relating to the Restricted Stock, a Participant
granted Restricted Stock shall have all of the rights of a
stockholder including, without limitation, the right to vote
Restricted Stock or the right to receive dividends thereon.
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment or service (as
determined under criteria established by the Committee) during
the applicable restriction period, Restricted Stock that is at
that time subject to restrictions shall be forfeited and
reacquired by the Company; provided, however, that the
Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Restricted
Stock will be waived in whole or in part in the event of
termination resulting from specified causes.
(iii) Certificates for Stock. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee
shall determine. If certificates representing Restricted Stock
are registered in the name of the Participant, such
certificates may bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such
Restricted Stock, the Company may retain physical possession
of the certificate, and the Participant shall have delivered a
stock power to the Company, endorsed in blank, relating to the
Restricted Stock.
(iv) Dividends. Dividends paid on Restricted Stock shall be
either paid at the dividend payment date in cash or in shares
of unrestricted Stock having a Fair Market Value equal to the
amount of such dividends, or the payment of such dividends
shall be deferred and/or the amount or value thereof
automatically reinvested in additional Restricted Stock, other
Awards, or other investment vehicles, as the Committee shall
determine or permit the Participant to elect. Stock
distributed in connection with a Stock split or Stock
dividend, and other property distributed as a dividend, shall
be subject to restrictions and a risk of forfeiture to the
same extent as the Restricted Stock with respect to which such
Stock or other property has been distributed, unless otherwise
determined by the Committee.
(e) Deferred Stock. The Committee is authorized to grant Deferred Stock
subject to the following terms and conditions ("Deferred Stock"):
(i) Award and Restrictions. Delivery of Stock will occur upon
expiration of the deferral period specified for an Award of
Deferred Stock by the Committee (or, if permitted by the
Committee, as elected by the Participant). In addition,
Deferred Stock shall be subject to such restrictions as the
Committee may impose, if any, which restrictions may lapse at
the expiration of the deferral period or at earlier specified
times, separately or in combination, in installments or
otherwise, as the Committee may determine.
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment or service (as
determined under criteria established by the Committee) during
the applicable deferral period or portion thereof to which
forfeiture conditions apply (as provided in the Award
Agreement evidencing the Deferred Stock), all Deferred Stock
that is at that time subject to such forfeiture conditions
shall be forfeited; provided, however, that the Committee may
provide, by rule or regulation or in any Award Agreement, or
may determine in any individual case, that restrictions or
forfeiture conditions relating to Deferred Stock will be
waived in whole or in part in the event of termination
resulting from specified causes.
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(f) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee
is authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of Company obligations to pay cash under other plans or compensatory
arrangements.
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents entitling the Participant to receive cash, Stock, other Awards or
other property equal in value to dividends paid with respect to a specified
number of shares of Stock ("Dividend Equivalents"). Dividend Equivalents may be
awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents shall be paid or distributed
when accrued or shall be deemed to have been reinvested in additional Stock,
Awards or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee may specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant such other Awards that may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on, or related to, Stock and factors that may influence the
value of Stock, as deemed by the Committee to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries ("Other Stock Based Awards"). The
Committee shall determine the terms and conditions of such Awards. Stock issued
pursuant to an Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may be granted
pursuant to this Section 6(h).
(i) Non-Employee Directors Options.
(1) On the date of each of the Company's annual meetings, each
person who is a Non-Employee Director or a nominee who is
elected to the Board at such annual meeting and becomes a
Non-Employee Director, on the date of such annual meeting
shall receive, without the exercise of the discretion of any
person, a non-qualified stock option under the Plan relating
to the purchase of 5,000 shares of Stock. In the event that
there are not sufficient shares available under this Plan to
allow for the grant to each Non-Employee Director of an Option
for the number of shares provided herein, each Non-Employee
Director shall receive an Option for his pro rata share of the
total number of shares of Stock available under the Plan.
(2) The exercise price of each share of Stock subject to an
Option granted to a Non-Employee Director shall equal the Fair
Market Value of a share of Stock on the date such Option is
granted. Payment of the exercise price for the shares being
purchased shall be made in cash.
(3) Each Option granted to a Non-Employee Director be
immediately exercisable, and shall have a term of ten years
from such date. Upon a Non-Employee Director's cessation of
service as a Non-Employee Director, the Option, to the extent
it was exercisable upon such cessation, shall remain
exercisable for a period of one year.
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with or in substitution for any other
Award granted under the Plan or any award granted under any other plan of the
Company, any subsidiary or any business entity to be acquired by the Company or
a subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Awards granted in addition to or in tandem with other
Awards or awards may be granted either as of the same time as or a different
time from the grant of such other Awards or awards.
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(b) Term of Awards. The term of each Award shall be for such period as
may be determined by the Committee; provided, however, that in no event shall
the term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code).
(c) Form of Payment Under Awards. Subject to the terms of the Plan and
any applicable Award Agreement, payments to be made by the Company or a
subsidiary upon the grant, exercise or settlement of an Award may be made in
such forms as the Committee shall determine, including, without limitation,
cash, Stock, other Awards or other property, and may be made in a single payment
or transfer, in installments or on a deferred basis. Such payments may include,
without limitation, provisions for the payment or crediting of reasonable
interest on installment or deferred payments or the grant or crediting of
Dividend Equivalents in respect of installment or deferred payments denominated
in Stock.
(d) Rule 16b-3 Compliance.
(i) Six-Month Holding Period. Unless a Participant could
otherwise dispose of equity securities, including derivative
securities, acquired under the Plan without incurring
liability under Section 16(b) of the Exchange Act, equity
securities acquired under the Plan must be held for a period
of six months following the date of such acquisition, provided
that this condition shall be satisfied with respect to a
derivative security if at least six months elapse from the
date of acquisition of the derivative security to the date of
disposition of the derivative security (other than upon
exercise or conversion) or its underlying equity security.
(ii) Other Compliance Provisions. With respect to a
Participant who is then subject to Section 16 of the Exchange
Act in respect of the Company, the Committee shall implement
transactions under the Plan and administer the Plan in a
manner that will ensure that each transaction by such a
Participant is exempt from liability under Rule 16b-3, except
that such a Participant may be permitted to engage in a
non-exempt transaction under the Plan if written notice has
been given to the Participant regarding the non-exempt nature
of such transaction. The Committee may authorize the Company
to repurchase any Award or shares of Stock resulting from any
Award in order to prevent a Participant who is subject to
Section 16 of the Exchange Act from incurring liability under
Section 16(b). Unless otherwise specified by the Participant,
equity securities, including derivative securities, acquired
under the Plan which are disposed of by a Participant shall be
deemed to be disposed of in the order acquired by the
Participant.
(e) Loan Provisions. With the consent of the Committee, and subject at
all times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee or arrange for a loan
or loans to a Participant with respect to the exercise of any Option or other
payment in connection with any Award, including the payment by a Participant of
any or all federal, state or local income or other taxes due in connection with
any Award. Subject to such limitations, the Committee shall have full authority
to decide whether to make a loan or loans hereunder and to determine the amount,
terms and provisions of any such loan or loans, including the interest rate to
be charged in respect of any such loan or loans, whether the loan or loans are
to be with or without recourse against the borrower, the terms on which the loan
is to be repaid and conditions, if any, under which the loan or loans may be
forgiven.
(f) Performance-Based Awards. The Committee may, in its discretion,
designate any Award the exercisability or settlement of which is subject to the
achievement of performance conditions as a performance-based Award subject to
this Section 7(f), in order to qualify such Award as "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder. The performance objectives for an Award subject to this
Section 7(f) shall consist of one or more business criteria and a targeted level
or levels of performance with respect to such criteria, as specified by the
Committee but subject to this Section 7(f). Performance objectives shall be
objective and shall otherwise meet the requirements of Section 162(m)(4)(C) of
the Code. Business criteria used by the Committee in establishing performance
objectives for Awards subject to this Section 7(f) shall be selected from among
the following:
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(1) Annual return on capital;
(2) Annual earnings or earnings per share;
(3) Annual cash flow provided by operations;
(4) Changes in annual revenues; and/or
(5) Strategic business criteria, consisting of one or
more objectives based on meeting specified revenue,
market penetration, geographic business expansion
goals, cost targets, and goals relating to
acquisitions or divestitures.
The levels of performance required with respect to such business criteria may be
expressed in absolute or relative levels. Achievement of performance objectives
with respect to such Awards shall be measured over a period of not less than one
year nor more than five years, as the Committee may specify. Performance
objectives may differ for such Awards to different Participants. The Committee
shall specify the weighting to be given to each performance objective for
purposes of determining the final amount payable with respect to any such Award.
The Committee may, in its discretion, reduce the amount of a payout otherwise to
be made in connection with an Award subject to this Section 7(f), but may not
exercise discretion to increase such amount, and the Committee may consider
other performance criteria in exercising such discretion. All determinations by
the Committee as to the achievement of performance objectives shall be in
writing. The Committee may not delegate any responsibility with respect to an
Award subject to this Section 7(f).
(g) Acceleration upon a Change of Control. Notwithstanding anything
contained herein to the contrary, unless otherwise provided by the Committee in
an Award Agreement, all conditions and/or restrictions relating to the continued
performance of services and/or the achievement of performance objectives with
respect to the exercisability or full enjoyment of an Award shall immediately
lapse upon a Change in Control.
8. General Provisions.
(a) Compliance With Laws and Obligations. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the requirements of any
applicable securities law, any requirement under any listing agreement between
the Company and any national securities exchange or automated quotation system
or any other law, regulation or contractual obligation of the Company until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) Limitations on Transferability. Awards and other rights under the
Plan will not be transferable by a Participant except by will or the laws of
descent and distribution or to a Beneficiary in the event of the Participant's
death, shall not be pledged, mortgaged, hypothecated or otherwise encumbered, or
otherwise subject to the claims of creditors, and, in the case of ISOs and SARs
in tandem therewith, shall be exercisable during the lifetime of a Participant
only by such Participant or his guardian or legal representative; provided,
however, that such Awards and other rights (other than ISOs and SARs in tandem
therewith) may be transferred to one or more transferees during the lifetime of
the Participant to the extent and on such terms as then may be permitted by the
Committee.
(c) No Right to Continued Employment or Service. Neither the Plan nor
any action taken hereunder shall be construed as giving any employee or other
person the right to be retained in the employ or service of the Company or any
of its subsidiaries, nor shall it interfere in any way with the right of the
Company or any of its subsidiaries to terminate any employee's employment or
other person's service at any time.
(d) Taxes. The Company and any subsidiary is authorized to withhold
from any Award granted or to be settled, any delivery of Stock in connection
with an Award, any other payment relating to an Award or any payroll or other
payment to a Participant amounts of withholding and other taxes due or
potentially payable in connection with
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any transaction involving an Award, and to take such other action as the
Committee may deem advisable to enable the Company and Participants to satisfy
obligations for the payment of withholding taxes and other tax obligations
relating to any Award. This authority shall include authority to withhold or
receive Stock or other property and to make cash payments in respect thereof in
satisfaction of a Participant's tax obligations.
(e) Changes to the Plan and Awards. The Board may amend, alter,
suspend, discontinue or terminate the Plan or the Committee's authority to grant
Awards under the Plan without the consent of stockholders or Participants,
except that any such action shall be subject to the approval of the Company's
stockholders at or before the next annual meeting of stockholders for which the
record date is after such Board action if such stockholder approval is required
by any federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; provided, however, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Award theretofore granted to him
(as such rights are set forth in the Plan and the Award Agreement). The
Committee may waive any conditions or rights under, or amend, alter, suspend,
discontinue, or terminate, any Award theretofore granted and any Award Agreement
relating thereto; provided, however, that, without the consent of an affected
Participant, no such action may materially impair the rights of such Participant
under such Award (as such rights are set forth in the Plan and the Award
Agreement). Notwithstanding the foregoing, the Board or the Committee may take
any action (including actions affecting or terminating outstanding Awards) to
the extent necessary for a business combination in which the Company is a party
to be accounted for under the pooling-of-interests method of accounting under
Accounting Principles Board Opinion No.
16 (or any successor thereto).
(f) No Rights to Awards; No Stockholder Rights. No Participant or
employee shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Participants and employees. No
Award shall confer on any Participant any of the rights of a stockholder of the
Company unless and until Stock is duly issued or transferred and delivered to
the Participant in accordance with the terms of the Award or, in the case of an
Option, the Option is duly exercised.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended
to constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company;
provided, however, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Stock, other Awards, or other property pursuant to any Award,
which trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with the consent of
each affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
(i) No Fractional Shares. No fractional shares of Stock shall be issued
or delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) Compliance with Code Section 162(m). It is the intent of the
Company that employee Options, SARs and other Awards designated as Awards
subject to Section 7(f) shall constitute "qualified performance-based
compensation" within the meaning of Code Section 162(m). Accordingly, if any
provision of the Plan or any Award Agreement relating to such an Award does not
comply or is inconsistent with the requirements of Code Section 162(m), such
provision shall be construed or deemed amended to the extent necessary to
conform to such requirements, and no provision shall be deemed to confer upon
the Committee or any other person discretion to increase the amount of
compensation otherwise payable in connection with any such Award upon attainment
of the performance objectives.
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(k) Governing Law. The validity, construction and effect of the Plan,
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws, and applicable federal law.
(l) Effective Date; Plan Termination. The Plan shall become effective
as of the date of its adoption by the Board and approval of the Company's
stockholders, and shall continue in effect until terminated by the Board.
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