<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
previously paid. Identify the previous filing by registration statement
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(4) Date Filed:
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<PAGE> 2
[LEGACY LOGO]
March 31, 1997
Dear Stockholder:
Legacy Software, Inc.'s (the "Company") Annual Meeting of
Stockholders will be held on May 29, 1997 at 10:00 a.m. at the Company's
headquarters located at 5340 Alla Road, Los Angeles, California 90066. I hope
that you will be able to attend in person.
This year you are asked to (1) re-elect directors and elect a
new nominee; (2) approve a series of amendments to the Company's 1995 Stock
Option/Stock Issuance Plan, including an increase in the number of shares of
common stock of the Company available for issuance by an additional 400,000
shares; and (3) act upon other matters that may properly come before the
meeting.
YOUR VOTE IS IMPORTANT. Please sign, date and return your
completed proxy card promptly so your shares can be represented, even if you
plan to attend the Annual Meeting in person. As Chairwoman, I urge you to
re-elect the nominated directors, elect the new nominee, and vote "For" the
remaining proposals.
On behalf of the Company, I would like to thank you for your
spirited and continued support.
Sincerely,
LEGACY SOFTWARE, INC.
ARIELLA J. LEHRER, PH.D.
Chairwoman of the Board,
President and CEO
<PAGE> 3
LEGACY SOFTWARE, INC.
_______________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 29, 1997
_______________
TO THE STOCKHOLDERS OF LEGACY SOFTWARE, INC.:
The Annual Meeting of Stockholders (the "Annual Meeting") of Legacy
Software, Inc., a Delaware corporation (the "Company"), will be held at the
Company's headquarters located at 5340 Alla Road, Los Angeles, California
90066, on Thursday, May 29, 1997, at 10:00 a.m., local time, and at any
adjournment thereof, for the following purposes:
1. To elect six members to the Board of Directors of the Company;
2. To approve a series of amendments to the Company's 1995 Stock
Option/Stock Issuance Plan, including an increase in the
number of shares of common stock of the Company available for
issuance by an additional 400,000 shares; and
3. To transact such other business as may properly come before
the Annual Meeting and any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 31,
1997 as the record date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting and any adjournment thereof. A
list of the stockholders entitled to vote at the Annual Meeting will be
available for inspection at the Company's offices for ten days prior to the
Annual Meeting. A copy of the Company's Annual Report on Form 10-K, for the
fiscal year ended December 31, 1996, is being sent to all stockholders as of
the record date concurrently with the Proxy Statement accompanying this Notice.
All stockholders are urged to attend the meeting in person or by
proxy.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON,
PLEASE DATE, SIGN AND MAIL THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED AS
PROMPTLY AS POSSIBLE. THE PROXY IS REVOCABLE AND WILL NOT AFFECT YOUR RIGHT TO
VOTE IN PERSON IN THE EVENT YOU ATTEND THE MEETING.
By Order of the Board of Directors,
Stanley Wojtysiak
Secretary
Los Angeles, California
March 31, 1997
<PAGE> 4
LEGACY SOFTWARE, INC.
5340 ALLA ROAD
LOS ANGELES, CALIFORNIA 90066
_______________
PROXY STATEMENT
_______________
GENERAL
The enclosed Proxy is solicited by the Board of Directors of Legacy
Software, Inc., a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on May 29, 1997, at 10:00 a.m., local time
(the "Annual Meeting"), or at any adjournment thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting of Stockholders.
The Annual Meeting will be held at the Company's headquarters located at 5430
Alla Road, Los Angeles, California 90066.
This Proxy Statement and the accompanying form of Proxy are being
mailed to all stockholders entitled to vote on or about March 31, 1997.
REVOCABILITY OF PROXIES
Any stockholder giving a Proxy pursuant to this solicitation may
revoke it at any time before it is voted, (a) by filing an instrument with the
Secretary of the Company revoking it, or (b) by executing a proxy bearing a
later date with the Secretary of the Company, or (c) by attending the Annual
Meeting and voting in person. Any such proxy, if not revoked, will be voted at
the Annual Meeting in accordance with the instructions specified therein or, if
no instruction is indicated, it will be voted in favor of the proposals set
forth in the notice attached hereto.
SOLICITATION OF PROXIES
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of the Notice of Annual Meeting,
this Proxy Statement, the Proxy and any additional solicitation materials
furnished to stockholders. Copies of solicitation materials will be furnished
to brokerage houses, fiduciaries and custodians holding shares in their names
that are beneficially owned by others so that they may forward this
solicitation material to such beneficial owners. To assure that a quorum will
be present in person or by proxy at the Annual Meeting, it may be necessary for
certain officers, directors, employees or other agents of the Company to
solicit proxies by telephone, facsimile or other means or in person. The
Company will not compensate such individuals for any such services. The
Company does not presently intend to solicit proxies other than by mail.
RECORD DATE, VOTING AND SHARE OWNERSHIP
The Board of Directors has fixed the close of business on March 31,
1997 as the record date for the determination of the stockholders entitled to
notice of and to vote at the Annual Meeting and, accordingly, only stockholders
of record on such date will be entitled to notice of and to vote at the Annual
Meeting. At the close of business on March 31, 1997, there were issued and
outstanding 2,523,115 shares of the Company's common stock, par value $0.001
per share ("Common Stock"). There are no other voting securities outstanding.
Each stockholder is entitled to one vote for each share of Common
Stock held by such stockholder as of the record date. Stockholders may
cumulate their votes for the election of directors. This means that a
stockholder can give one nominee a number of votes equal to the number of
directors to be elected (i.e., six) multiplied by the number of votes to which
the stockholder is entitled. Or, the stockholder may distribute these votes
among as many nominees as he or she chooses. Proxies which withhold authority
to vote as to specific directors shall not be
<PAGE> 5
considered to cast votes for any other directors unless, in order to effect the
election of the six nominees, it is necessary to cumulate votes to elect the
other directors. The proxy holders shall not cumulate votes for any other
purpose.
If a choice as to the matters coming before the Annual Meeting has
been specified by a stockholder on the Proxy, the shares will be voted
accordingly. If no choice is specified, the shares will be voted IN FAVOR OF
the approval of the proposals described in the Notice of Annual Meeting of
Stockholders and in this Proxy Statement. Abstentions and broker non-votes
(i.e., the submission of a Proxy by a broker or nominee specifically indicating
the lack of discretionary authority to vote on the matter) are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. Abstentions will be counted towards the tabulation of votes cast
on proposals presented to the stockholders and will have the same effect as
negative votes, whereas broker non-votes will not be counted for purposes of
determining whether a proposal has been approved or not.
An affirmative vote of a majority of the shares present and voting at
the meeting is required for approval of all items being submitted to the
shareholders for their consideration. An automated system administered by the
Company's transfer agent tabulates shareholder votes.
Any stockholder or stockholder's representative who, because of a
disability, may need special assistance or accommodation to allow him or her to
participate at the Annual Meeting may request reasonable assistance or
accommodation from the Company by contacting William E. Sliney in writing at
Legacy Software, Inc., 5430 Alla Road, Los Angeles, California 90066 or by
telephone at (310) 823-2423. To provide the Company sufficient time to arrange
for reasonable assistance, please submit such requests by May 15, 1997.
In the absence of a quorum at the Annual Meeting, either in person or
by proxy, the Meeting may be adjourned from time to time without notice other
than announcement at the Annual Meeting until a quorum shall be formed.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE
DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE
PREPAID ENVELOPE PROVIDED TO ENSURE THAT YOUR SHARES WILL BE VOTED AT THE
ANNUAL MEETING.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors (the "Board") recommends the election of the
nominees listed below as directors to hold office until the next annual meeting
of stockholders and until their successors are elected and qualified. If at the
time of the 1997 Annual Meeting of Stockholders (the "Annual Meeting") any
nominee should be unable to serve or is unwilling to serve, the discretionary
authority provided in the Proxy will be exercised to vote for a substitute or
substitutes designated by the Board of Directors. The Board has no reason to
believe that any substitute nominee or nominees will be required.
The Bylaws of the Company provide that the number of directors shall
be determined by resolution of the Board of Directors. The number of directors
is currently set at seven.
The present Board of Directors comprises Ariella J. Lehrer, Ph.D.,
Curtis A. Hessler, Arthur G. Hiller, William E. Sliney, Ivan M. Rosenberg,
Ph.D. and Stanley Wojtysiak. Each present director, except for Arthur G.
Hiller, is a nominee for election at the Annual Meeting. The Board of
Directors has nominated Morley A. Winograd as the sixth nominee. If the six
nominees are elected to the Board of Directors, there will be one vacancy on
the Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY NOMINATED AND URGES YOU TO VOTE FOR
THE SIX NOMINEES FOR DIRECTOR LISTED BELOW.
NOMINEES
The table below sets forth pertinent information with respect to each
of such nominees.
<TABLE>
<CAPTION>
Name Age Since Position
---- --- ----- --------
<S> <C> <C> <C>
Ariella J. Lehrer, Ph.D. 44 1989 Chairwoman of the Board, President,
Chief Executive Officer and Director
William E. Sliney 58 1995 Vice President of Finance, Chief Financial Officer, Treasurer
and Director
Stanley Wojtysiak 54 1989 Secretary and Director
Curtis A. Hessler 53 1996 Director
Ivan M. Rosenberg, Ph.D. 54 1995 Director
Morley A. Winograd 54 1997* Director
- -------------
</TABLE>
* Mr. Winograd is nominated to serve on the Company's Board of
Directors if Proposal 1 is approved by the stockholders.
Ariella J. Lehrer, Ph.D., has served as the Company's Chairwoman of the
Board of Directors, President and Chief Executive Officer since August, 1989.
Dr. Lehrer received a Master of Arts in Child Development from Pacific Oaks
College in 1976, a Ph.D. in Cognitive Psychology from Claremont Graduate School
in 1983 and completed a post-doctorate at the University of California, Los
Angeles in 1984. Prior to joining the Company, Dr. Lehrer headed Lehrer
Associates, a consulting company whose clients included The Learning Company,
Walt Disney Software, Commodore International, Ltd., International Business
Machines, Inc. and SoftKat, Inc. From 1986 to 1989, Dr. Lehrer served on the
California Educational Technology Commission. Dr. Lehrer is a member of the
Board of Fellows of the Claremont Graduate School's Center for Organizational
and Social Psychology and of the Board of Governors of Otis College of Art and
Design.
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Curtis A. Hessler has been a director of the Company since January,
1996. He is President and Chief Executive Officer of Quarterdeck Corporation,
a publicly traded Software Company. During 1996, he served as Chairman of
I-Net, Inc., a network management company now owned by Wang Laboratories, Inc.
From February, 1991 until December, 1995, Mr. Hessler was Executive Vice
President of the Times Mirror Company in charge of corporate affairs and
non-newspaper businesses. From December, 1984 until February, 1991, Mr.
Hessler was Vice Chairman of Unisys Corporation in charge of corporate affairs
and defense systems businesses. Mr. Hessler is a director of Live Picture,
Inc. and of Interactive Search, Inc., both privately held companies. Mr.
Hessler received a Bachelor of Arts in Social Studies from Harvard College in
1996, a Juris Doctor from Yale Law School in 1973 and a Master of Arts in
Economics from the University of California, Berkeley in 1976. From 1966 to
1969, Mr. Hessler studied in the B.Phil. Economics program at Oxford
University.
Ivan M. Rosenberg, Ph.D., has been a consultant to the Company since
February, 1995, and a director of the Company since June, 1995. Dr. Rosenberg
is an entrepreneur and consultant to senior business executives. Dr. Rosenberg
founded Distinctive Software Corporation in 1981. From 1988 to 1990, Dr.
Rosenberg was Vice President for Products and Information Systems at E.K.
Williams & Co., a business accounting and consulting company. In 1992, he
founded Business Information Solutions, a consulting company assisting small to
medium size companies with tactical and strategic automation decisions, which
he continues to own. Dr. Rosenberg also is a senior consultant with The
Gateway Consulting Group, which assists companies in executive training,
team-building, re-engineering, communications effectiveness and culture
changes. Dr. Rosenberg currently serves on the boards of directors of the Los
Angeles Venture Association, Distinctive Solutions Corporation and TREE
(Technology for Results in Elementary Education) and has served on the boards
of directors of the Institute of Management Consultants (Los Angeles Chapter)
and Interex (the Hewlett Packard International User's Group). Dr. Rosenberg is
also a director of Cybernet, Inc., a privately held long-distance
telecommunications company. Dr. Rosenberg received a Bachelor of Science in
Electrical Engineering in 1965 and a Master of Science in Computer Science in
1966 from Cornell University, and a Master of Science in Management in 1974 and
a Ph.D. in Business Information Systems in 1976 from the University of
Rochester.
William E. Sliney has served as the Company's Chief Financial Officer
since October, 1995. In November, 1995, Mr. Sliney also became the Company's
Vice President of Finance, Treasurer and a director. From September, 1994
until October, 1995, Mr. Sliney was an independent consultant. Prior to that,
Mr. Sliney was Chief Executive Officer of Gump's from May, 1993 to August,
1994, and Vice President and Chief Financial Officer of Highland Superstores,
Inc. from January to May, 1993. From 1987 to 1992, Mr. Sliney was President,
Chief Financial and Administrative Officer and a director of Phoenix Service
Corporation. Mr. Sliney graduated from Northeastern University in 1961 with a
Bachelor of Science in Business Administration and from the University of
California, Los Angeles, in 1963 with a Master of Business Administration.
Morley A. Winograd, nominated to the Company's Board of Directors, has
been the Sales Vice President for AT&T's Commercial Markets Western Region
organization since January 1, 1992. In his position at AT&T, Mr. Winograd is
responsible for propelling the success of AT&T's small business customers
throughout the Western United States. Prior to his current assignment with
AT&T, Mr. Winograd created the AT&T University of Sales Excellence and served as
its Director of Training. Mr. Winograd also managed the marketing efforts of
AT&T to the General Motors Corporation and its subsidiaries, marketed AT&T's PBX
and computer equipment to industrial customers in Michigan and worked on
assignments with Michigan Bell. He is the co-author, with Dudley Buffa, of
Taking Control: Politics in The Information Age, published by Henry Holt & Co.
He serves as treasurer of the Institute for the New California, a think tank
devoted to aligning California's governance systems with the requirements of the
Information Age. He serves as Chairman of the Board of TREE (Technology for
Results in Elementary Education) which targets its efforts to school districts
in Los Angeles and Orange County, California with a high proportion of at risk
children. He is also a member of the faculty of The Schools for Managing
supported by the Association for Quality and Participation, and a member of the
Board of The Greater Los Angeles World Trade Center Association. Mr. Winograd
serves on the Advisory Board of the Asian Business League of Southern California
and the California Hispanic Chamber of Commerce. Mr. Winograd is an executive
council member for
4
<PAGE> 8
TREE for the Los Angeles County Office of Education. Mr. Winograd received a
Bachelor of Business Administration in Marketing in 1963 from the University of
Michigan.
Stanley Wojtysiak has been Secretary of the Company since January,
1996 and a director of the Company since August, 1989. Mr. Wojtysiak was
Chairman of the Board of Directors and President of the Company from January,
1989 to August, 1989, Vice President of Engineering from August, 1989 to
October, 1989, Vice President of Development from September, 1995 to October,
1995 and Chief Financial Officer from January, 1989 to October, 1995. Prior to
co-founding the predecessor to the Company in 1986, Mr. Wojtysiak was a
software manager for Oakleaf Corporation. Mr. Wojtysiak graduated from Purdue
University in 1964 with a Bachelor of Science in Mathematics.
COMPENSATION OF DIRECTORS
The Company has no standard arrangements pursuant to which directors
of the Company are compensated for any services provided as a director except
for the Automatic Option Grant Program component of the 1995 Stock Option/Stock
Issuance Plan (the "1995 Plan"). Directors who are not current employees of
the Company ("non-employee directors") are eligible for the Automatic Option
Grant Program component of the 1995 Plan under which option grants will
automatically be made at periodic intervals to eligible non-employee Board
members to purchase shares of Common Stock at an exercise price equal to 100%
of their fair market value on the grant date.
Under the Automatic Option Grant Program, each individual who is first
elected or appointed as a non-employee Board member will receive a 10,000-share
option grant on the date of such election or appointment, provided such
individual has not been in the prior employ of the Company. In addition, at
each Annual Meeting, beginning with the 1997 Annual Meeting, each individual
who is to continue to serve as a non-employee Board member after the meeting
will receive an additional option grant to purchase 2,500 shares of Common
Stock whether or not such individual has been in the prior employ of the
Company.
Each automatic grant will have a term of ten (10) years, subject to
earlier termination following the optionee's cessation of Board service. Each
automatic option will be immediately exercisable; however, any shares purchased
upon exercise of the option will be subject to repurchase should the optionee's
service as a non-employee Board member cease prior to vesting in the shares.
The initial 10,000-share grant will vest in four equal and successive annual
installments over the optionee's period of Board service. Each additional
2,500-share grant will vest upon the optionee's completion of one year of Board
service measured from the grant date. However, each outstanding option will
immediately vest upon (i) certain changes in the ownership or control of the
Company or (ii) the death or disability of the optionee while serving as a
Board member.
In January 1996, Messrs. Hessler, Hiller, and Rosenberg received
options to purchase 10,000 shares under the Discretionary Option Grant Program
in effect under the 1995 Plan. The exercise price per share for these options
is $6.00, which was the fair market value of the Company's Common Stock on the
date of grant. Similar to the vesting schedule described above for the
10,000-share automatic option grant, these three discretionary options are
immediately exercisable and will vest in four equal and successive annual
installments over the optionee's period of Board service measured from the date
of grant.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is hereby made to the Employment Agreements between the
Company and each of Ariella J. Lehrer, Ph.D., William E. Sliney, Stanley
Wojtysiak and Robert E. Heitman described below in "COMPENSATION OF EXECUTIVE
OFFICERS AND DIRECTORS -- Employment Agreements."
Certain officers and directors and an immediate family member of one
of such officers have made certain loans to the Company. As of March 31, 1997,
the Company had four outstanding unsecured promissory notes. The first
promissory note, in the principal amount of $73,200, is payable to Ariella J.
Lehrer, Ph.D., the Chairwoman of the Company's Board of Directors and the
Company's President and Chief Executive Officer. The second promissory note,
in the principal amount of $73,200, is payable to Stanley Wojtysiak, the
Company's Secretary and a Director. The principal payments on these two notes
are payable over a two-year period beginning
5
<PAGE> 9
on March 31, 1998. The Company has a third unsecured promissory note in the
amount of $260,051 payable to Irving Lehrer, Dr. Lehrer's father-in-law. The
principal payments on this third note are payable over a two-year period
beginning on July 1, 1997. The fourth and final unsecured promissory note, in
the amount of $120,885, is payable to Benjamin Elkin over a one-year period
beginning July 1, 1996. The loans accrue interest at the rates of 9.0% to 16.7%
per annum. As of March 31, 1997, the outstanding principal and accrued interest
due on each of Dr. Lehrer's loan, Mr. Wojtysiak's loan, Mr. Lehrer's loan and
Mr. Elkins' loan were approximately $66,876, $73,200, $260,051 and $20,132,
respectively. The Company is currently making interest payments on the
indebtedness to Messrs. Wojtysiak and I. Lehrer as they come due from revenue,
and principal and interest payments on the indebtedness to Dr. Lehrer and
Mr. Elkin as they come due from revenue.
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties. All future transactions, including loans,
between the Company and its officers, directors and principal stockholders and
their affiliates will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested directors of the
Board of Directors, and will be on terms no less favorable to the Company than
could be obtained from unaffiliated third parties.
BOARD MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held five meetings during the fiscal year ended
December 31, 1996. Five members of the Board attended at least seventy-five
percent (75%) of the aggregate of the total number of meetings of the Board
held during the fiscal year. Messrs. Hiller and Hessler attended less than
seventy-five percent (75%) of the meetings of the Board. All directors, except
for Mr. Hiller, attended at least seventy-five percent (75%) of the aggregate
of the total number of meetings held by all committees of the Board on which
such director served. Mr. Hiller attended less than 75% of the aggregate of
the number of meetings held by all committees of the Board on which he served.
The Board of Directors has appointed an Audit Committee, Compensation
Committee and a Stock Option Committee, but has not appointed a standing
Nominating Committee.
During the 1996 fiscal year, the members of the Audit Committee
consisted of Messrs. Hessler and Rosenberg and, through December 9, 1996,
Daniel D. Phillips. The Audit Committee held one meeting during 1996. The
Audit Committee is responsible for reviewing financial statements, consulting
with the independent auditors concerning the Company's financial statements,
accounting and financial policies and internal controls and reviewing the scope
of the independent auditors' activities and fees.
During the 1996 fiscal year, the members of the Compensation Committee
consisted of Messrs. Hiller and Rosenberg and, through December 9, 1996, Mr.
Phillips. The Compensation Committee held two meetings during 1996. The
Compensation Committee reviews and makes recommendations to the Board of
Directors with respect to the compensation of all officers of the Company and
issuances of equity securities of the Company to directors, officers, employees
and consultants of the Company.
During the 1996 fiscal year, the members of the Stock Option Committee
consisted of Messrs. Hessler and Rosenberg and, through December 9, 1996, Mr.
Phillips. The Stock Option Committee held three meetings during 1996. The
Stock Option Committee is responsible for administering the Company's 1995 Stock
Option/Stock Issuance Plan and granting options thereunder.
STOCKHOLDER APPROVAL
In order to be adopted, the affirmative vote of the holders of a
majority of the Company's Common Stock present in person or by proxy at the
Annual Meeting and entitled to vote is required for approval of this Proposal.
6
<PAGE> 10
THE BOARD OF DIRECTORS UNANIMOUSLY NOMINATED AND URGES YOU TO VOTE FOR
THE SIX NOMINEES FOR DIRECTOR LISTED ABOVE.
PROPOSAL 2
AMENDMENTS TO 1995 STOCK OPTION/
STOCK ISSUANCE PLAN
The stockholders are being asked to vote on a proposal to approve a
series of amendments to the Company's 1995 Plan that will effect the following
changes: (i) increase the number of shares of Common Stock issuable under the
1995 Plan by an additional 400,000 shares, (ii) render all non-employee Board
members eligible to receive option grants and direct stock issuances under the
Discretionary Option Grant and Stock Issuance Programs in effect under the 1995
Plan, (iii) allow unvested shares issued under the 1995 Plan and subsequently
repurchased by the Company at the option exercise price or share issue price
paid per share to be reissued under the 1995 Plan, (iv) remove certain
restrictions on the eligibility of non-employee Board members to serve as Plan
Administrator, and (v) effect a series of additional changes to the provisions
of the 1995 Plan (including the stockholder approval requirements, the
transferability of non-statutory stock options and the elimination of the six
(6)-month holding period requirement as a condition to the exercise of stock
appreciation rights) in order to take advantage of the recent amendments to Rule
16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
which exempts certain officer and director transactions under the 1995 Plan from
the short-swing liability provisions of the federal securities laws.
The amendment to increase the share reserve is designed to assure that
a sufficient reserve of Common Stock is available under the 1995 Plan to
attract and retain the services of key individuals essential to the Company's
long-term growth and success, and to more closely align their interests with
those of the stockholders. The other amendments will enhance the equity
incentives provided to the non-employee Board members and facilitate plan
administration.
The 1995 Plan became effective on November 9, 1995, upon adoption by
the Board, and was subsequently approved by the stockholders on November 9,
1995. On March 28, 1997, the Board adopted the amendments to the 1995 Plan
that are the subject of this Proposal 2.
The following is a summary of the principal features of the 1995 Plan,
assuming stockholder approval of this Proposal 2. However, the summary does
not purport to be a complete description of all the provisions of the 1995
Plan. Any stockholder of the Company who wishes to obtain a copy of the actual
plan document may do so upon written request to the Corporate Secretary at the
Company's principal executive offices in Los Angeles, California.
EQUITY INCENTIVE PROGRAMS
The 1995 Plan contains three (3) separate equity incentive programs:
(i) a Discretionary Option Grant Program, (ii) a Stock Issuance Program, and
(iii) an Automatic Option Grant Program. The principal features of each
program are described below. The 1995 Plan (other than the Automatic Option
Grant Program) is administered by the Stock Option Committee. The Stock Option
Committee acting in such administrative capacity (the "Plan Administrator") has
complete discretion (subject to the provisions of the 1995 Plan) to authorize
option grants and direct stock issuances under the 1995 Plan. All grants under
the Automatic Option Grant Program will be made in strict compliance with the
provisions of that program, and no administrative discretion will be exercised
by the Plan Administrator with respect to the grants made under such program.
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<PAGE> 11
SHARE RESERVE
A total of 921,800 shares of Common Stock has been reserved for
issuance over the term of the 1995 Plan, assuming stockholder approval of the
400,000-share increase which forms part of this Proposal 2. In no event may
any one participant in the 1995 Plan be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances for more than
250,000 shares under the 1995 Plan.
The shares issuable under the 1995 Plan may be drawn from shares of
the Company's authorized but unissued Common Stock or from shares of Common
Stock reacquired by the Company, including shares purchased on the open market.
Should an option expire or terminate for any reason prior to exercise in full,
or be cancelled in accordance with the cancellation-regrant provisions under
the Plan, the shares subject to the portion of the option not so exercised or
cancelled will be available for subsequent issuance under the 1995 Plan.
Unvested shares issued under the 1995 Plan and subsequently repurchased by the
Company at the original option exercise or share issue price paid per share
will be added back to the share reserve and will accordingly be available for
subsequent issuance under the 1995 Plan.
In the event any change is made to the outstanding shares of Common
Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change in corporate
structure effected without the Company's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the 1995 Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted options, separately
exercisable stock appreciation rights and direct stock issuances per calendar
year, (iii) the number and/or class of securities for which option grants will
subsequently be made under the Automatic Option Grant Program to each
newly-elected or continuing non-employee Board member, and (iv) the number
and/or class of securities and the exercise price per share in effect under
each outstanding option.
ELIGIBILITY
Officers and other employees of the Company and its parent or
subsidiary corporations, non-employee members of the Board or the board of
directors of any parent or subsidiary corporation and consultants and other
advisors in the service of the Company or its parent or subsidiary corporations
will be eligible to participate in the Discretionary Option Grant and Stock
Issuance Programs. Non-employee members of the Board will also be eligible to
participate in the Automatic Option Grant Program.
As of March 31, 1997, four (4) executive officers, three (3)
non-employee Board members and approximately twenty-nine (29) other employees
were eligible to participate in the Discretionary Option Grant and Stock
Issuance Programs, and the three (3) non-employee Board members were also
eligible to participate in the Automatic Option Grant Program.
VALUATION
The fair market value per share of Common Stock on any relevant date
under the 1995 Plan will be the closing selling price per share on that date on
the Nasdaq SmallCap Market. At the close of the business day on March 24,
1997, the closing selling price per share was $2.00.
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at
an exercise price per share not less than eighty-five percent (85%) of the fair
market value per share of Common Stock on the option grant date. No granted
option will have a term in excess of (10) ten years. The options will
generally become exercisable in a series of installments over the optionee's
period of service with the Company.
8
<PAGE> 12
Upon cessation of service, the optionee will have a limited period of
time in which to exercise his or her outstanding options for any shares in
which the optionee is vested at that time. The Plan Administrator will have
complete discretion to extend the period following the optionee's cessation of
service during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of
service.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
Tandem stock appreciation rights provide the holders with the
right to surrender their options for an appreciation distribution from
the Company equal in amount to the excess of (a) the fair market value
of the vested shares of Common Stock subject to the surrendered option
over (b) the aggregate exercise price payable for such shares. Such
appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash or in shares of Common Stock.
Limited stock appreciation rights may be provided to one or
more officers or non-employee Board members of the Company as part of
their option grants. Any option with such a limited stock
appreciation right may be surrendered to the Company upon the
successful completion of a hostile tender offer for more than fifty
percent (50%) of the Company's outstanding voting stock. In return
for the surrendered option, the officer will be entitled to a cash
distribution from the Company in an amount per surrendered option
share equal to the excess of (a) the highest price paid per share of
Common Stock paid in connection with the tender offer over (b) the
exercise price payable for such share.
The shares of Common Stock acquired upon the exercise of one or more
options may be unvested and subject to repurchase by the Company, at the
original exercise price paid per share, if the optionee ceases service with the
Company prior to vesting in those shares. The Plan Administrator will have
complete discretion to establish the vesting schedule to be in effect for any
such unvested shares and may at any time cancel the Company's outstanding
repurchase rights with respect to those shares and thereby accelerate the
vesting of those shares.
The Plan Administrator will also have the authority to effect the
cancellation of outstanding options under the Discretionary Option Grant
Program which have exercise prices in excess of the then current market price
of the Common Stock and to issue replacement options with an exercise price
based on the lower market price of Common Stock at the time of the new grant.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per
share not less than eighty-five percent (85%) of fair market value, payable in
cash or check made payable to the Company. Shares may also be issued solely as
a bonus for past services.
The issued shares may either be immediately vested upon issuance or
subject to a vesting schedule tied to the performance of service or the
attainment of performance goals. The Plan Administrator will, however, have
the discretionary authority at any time to accelerate the vesting of any and
all unvested shares outstanding under the Option Plan.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who first
becomes a non-employee Board member, whether through election by the
stockholders or appointment by the Board, will automatically be granted,
9
<PAGE> 13
at the time of such initial election or appointment, a non-statutory option to
purchase 10,000 shares of Common Stock (the "Initial Grant"), provided such
individual has not previously been in the Company's employ. On the date of
each Annual Stockholders Meeting after an individual's Initial Grant, each
individual who continues to serve as a non-employee Board member will
automatically be granted a non-statutory option to purchase an additional 2,500
shares of Common Stock, provided such individual has served as a non-employee
Board member for at least six (6) months. There is no limit on the number of
such 2,500-share option grants any one eligible non-employee Board member may
receive over his or her period of Board service.
Each 10,000-share or 2,500-share option granted under the Automatic
Option Grant Program will have an exercise price per share equal to one hundred
percent (100%) of the fair market value per share of Common Stock on the option
grant date and a maximum term of ten (10) years measured from the grant date.
The option will be immediately exercisable for all the option shares, but any
purchased shares will be subject to repurchase by the Company, at the exercise
price paid per share, upon the optionee's cessation of Board service prior to
vesting in those shares. Each initial 10,000-share option will vest, and the
Company's repurchase right will lapse, in four (4) successive equal annual
installments over the optionee's period of Board service, with the first such
installment to vest upon completion of one (1) year of Board service measured
from the option grant date. Each annual 2,500-share grant will vest, and the
Company's repurchase right will lapse, upon the optionee's completion of one
(1) year of Board service measured from the option grant date.
The shares subject to each outstanding automatic option grant will
immediately vest should the optionee die or become permanently disabled while a
Board member or should any of the following events occur while the optionee
continues in Board service: (i) an acquisition of the Company by merger or
asset sale, (ii) the successful completion of a tender offer for more than
fifty percent (50%) of the Company's outstanding voting securities, or (iii) a
change in the majority of the Board effected through one or more contested
elections for Board membership. In addition, upon the successful completion
of a hostile tender offer for more than fifty percent (50%) of the Company's
outstanding voting stock, each automatic option grant may be surrendered to the
Company for a cash distribution per surrendered option share in an amount equal
to the excess of (a) the highest price per share of Common Stock paid in
connection with such tender offer over (b) the exercise price payable for such
share. Stockholder approval of the 1995 Plan, as amended and restated through
March 28, 1997, will constitute pre-approval of the subsequent grant of
automatic options with this option surrender provision, and the subsequent
surrender of options in accordance with such provision and the terms of the
1995 Plan. No additional approval of the Plan Administrator or the Board will
be required at the time of the actual option surrender and cash distribution.
GENERAL PROVISIONS
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed or replaced by the successor corporation will automatically
accelerate in full, and all unvested shares under the Discretionary Option Grant
and Stock Issuance Programs will immediately vest, except to the extent the
Company's repurchase rights with respect to those shares are to be assigned to
the successor corporation. Any options assumed in connection with such
acquisition will accelerate in full, and any unvested shares which do not vest
at the time of such acquisition will vest in full, in the event the individual's
service with the successor entity is terminated within twelve (12) months
following the acquisition. In connection with a change in control of the
Company (whether by successful tender offer for more than fifty percent (50%) of
the outstanding voting stock or by contest for the election of Board members),
the Plan Administrator will have the discretionary authority to provide for
automatic acceleration of outstanding options under the Discretionary Option
Grant Program and the automatic vesting of all unvested shares outstanding under
the Discretionary Option Grant and Stock Issuance Programs, with such
acceleration or vesting to occur either at the time of such change in control or
upon the subsequent termination of the individual's service.
10
<PAGE> 14
The acceleration of vesting upon a change in the ownership or control
of the Company may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a takeover attempt or other efforts
to gain control of the Company.
FINANCIAL ASSISTANCE
The Plan Administrator may institute a loan program to assist one or
more participants in financing the exercise of outstanding options or the
purchase of shares under the Discretionary Option Grant and Stock Issuance
Programs. The Plan Administrator will have complete discretion to determine
the terms of any such financial assistance. However, the maximum amount of
financing provided any individual may not exceed the cash consideration payable
for the issued shares plus all applicable taxes. Any such financing may be
subject to forgiveness in whole or in part, at the discretion of the Plan
Administrator, over the participant's period of service.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the Plan Administrator
may allow such individuals to deliver previously acquired shares of Common
Stock in payment of such tax liability.
11
<PAGE> 15
STOCK AWARDS
The table below shows, for the period from the November 9, 1995
effective date to March 31, 1997, as to each of the Company's executive officers
named in the Summary Compensation Table and the various indicated individuals
and groups, the number of shares of Common Stock subject to options granted
under the Discretionary Option Grant Program together with the weighted average
exercise price payable per share. The table does not include option grants that
were originally granted at higher exercise prices and were cancelled on December
19, 1996 in exchange for new options for the same number of shares with lower
exercise prices. For further information concerning these options, see "REPORT
OF THE COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE -- 1995 PLAN
RE-PRICING." No direct stock issuances have been made to date under the 1995
Plan.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
<TABLE>
<CAPTION>
OPTIONS
GRANTED WEIGHTED AVERAGE
(NUMBER OF EXERCISE PRICE
NAME AND TITLE SHARES) PER SHARE
-------------- ---------- ------------
<S> <C> <C>
Ariella J. Lehrer, Ph.D.
Chairwoman of the Board of Directors, Chief Executive Officer and
Director 100,000 $3.00
William E. Sliney,
Vice President of Finance, Chief Financial Officer, Treasurer, and
Director 50,000 $3.00
Stanley Wojtysiak,
Secretary and Director 100,000 $3.00
All current executive officers as a group (4 persons) 266,666 $3.00
All non-employee directors as a group 30,000 $6.00
(3 persons)
All employees, including current officers who are not executive
officers, as a group 120,000 $3.00
</TABLE>
As of March 31, 1997, options covering 416,666 shares of Common Stock
were outstanding under the 1995 Plan, and 505,134 shares remained available for
future option grants or direct stock issuances, assuming stockholder approval of
the 400,000-share increase which forms part of this Proposal 2. Through March
31, 1997, no shares have been issued under the 1995 Plan.
NEW PLAN BENEFITS
As of March 31, 1997, no options have been granted and no direct stock
issuances have been made under the 1995 Plan on the basis of the 400,000-share
increase for which stockholder approval is sought as part of this Proposal 2.
AMENDMENT AND TERMINATION
The Board may amend or modify the Option Plan in any or all respects
whatsoever, subject to any stockholder approval required under applicable law
or regulation. The Board may terminate the Option Plan at any time, and the
Option Plan will in all events terminate on October 31, 2005.
12
<PAGE> 16
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1995 Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code or non-statutory options which are not intended to meet such requirements.
The Federal income tax treatment for the two types of options differs as
follows:
Incentive Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize
taxable income in the year in which the purchased shares are sold or otherwise
made the subject of a taxable disposition. For Federal tax purposes,
dispositions are divided into two categories: (i) qualifying and (ii)
disqualifying. A qualifying disposition occurs if the sale or other
disposition is made after the optionee has held the shares for more than two
(2) years after the option grant date and more than one (1) year after the
exercise date. If either of these two (2) holding periods is not satisfied,
then a disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the excess of (i) the
fair market value of such shares on the option exercise date over (ii) the
exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.
Non-Statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general
recognize ordinary income, in the year in which the option is exercised, equal
to the excess of the fair market value of the purchased shares on the exercise
date over the exercise price paid for the shares, and the optionee will be
required to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee will not recognize any taxable income at the time of exercise but will
have to report as ordinary income, as and when the Company's repurchase right
lapses, an amount equal to the excess of (i) the fair market value of the
shares on the date the repurchase right lapses over (ii) the exercise price
paid for the shares. The optionee may, however, elect under Section 83(b) of
the Internal Revenue Code to include as ordinary income in the year of exercise
of the option an amount equal to the excess of (i) the fair market value of the
purchased shares on the exercise date over (ii) the exercise price paid for
such shares. If the Section 83(b) election is made, the optionee will not
recognize any additional income as and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for
the taxable year of the Company in which such ordinary income is recognized by
the optionee.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
such distribution for the taxable year in which the ordinary income is
recognized by the optionee.
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the 1995
Plan will be substantially the same as those summarized above for the exercise
of non-statutory option grants.
13
<PAGE> 17
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options granted with exercise prices equal to the
fair market value of the option shares on the grant date will qualify as
performance-based compensation for purposes of Internal Revenue Code Section
162(m) and will not have to be taken into account for purposes of the $1
million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company. Accordingly,
all compensation deemed paid with respect to those options will remain
deductible by the Company without limitation under Internal Revenue Code
Section 162(m).
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less
than the fair market value of the shares on the grant or issue date will result
in a compensation expense to the Company's earnings equal to the difference
between the exercise or issue price and the fair market value of the shares on
the grant or issue date. Such expense will be accruable by the Company over
the period that the option shares or issued shares are to vest. Option grants
or stock issuances with exercise or issue prices equal to the fair market value
of the shares at the time of issuance or grant will not result in any charge to
the Company's earnings, but the Company must disclose, in the notes to the
Company's financial statements, the pro-forma impact those option grants would
have upon the Company's reported earnings were the value of those options
treated as compensation expense. Whether or not granted at a discount, the
number of outstanding options may be a factor in determining the Company's
earnings per share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights
which have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the Annual Meeting
is required for approval of the amendments to the 1995 Plan. Should such
stockholder approval not be obtained, then any options granted on the basis of
the 400,000-share increase which forms part of this Proposal 2 will terminate
without becoming exercisable for any of the shares of Common Stock subject to
those options, and no further options will be granted on the basis of such
share increase. In addition, unvested shares repurchased by the Company at the
option exercise or issue price paid per share pursuant to the Company's
repurchase rights under the 1995 Plan will not be available for reissuance, and
only non-employee Board members who are not on the Stock Option Committee will
be eligible to participate in the Discretionary Option Grant and Stock Issuance
Programs in effect under the 1995 Plan. The 1995 Plan will, however, continue
to remain in effect, and option grants and stock issuances may continue to be
made pursuant to the provisions of the 1995 Plan prior to the amendments until
the available reserve of Common Stock under the 1995 Plan as last approved by
the stockholders is issued.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE AMENDMENTS TO THE 1995 PLAN.
14
<PAGE> 18
ADDITIONAL INFORMATION
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information regarding each of the current
executive officers of the Company. Officers are appointed by and serve at the
direction of the Board.
<TABLE>
<CAPTION>
Name Age Since Position
---- --- ----- --------
<S> <C> <C> <C>
Ariella J. Lehrer, Ph.D. 44 1989 Chairwoman of the Board, President,
Chief Executive Officer and Director
William E. Sliney 58 1995 Vice President of Finance, Chief Financial Officer,
Treasurer and Director
Stanley Wojtysiak 54 1989 Secretary and Director
Robert E. Heitman 46 1996 Vice President of Internet Technologies
</TABLE>
Ariella J. Lehrer, Ph.D., has served as the Company's Chairwoman of
the Board of Directors, President and Chief Executive Officer since August,
1989. Further information about Dr. Lehrer is presented in "ELECTION OF
DIRECTORS."
William E. Sliney has served as the Company's Chief Financial Officer
since October 16, 1995. On November 9, 1995, Mr. Sliney also became the
Company's Vice President of Finance, Treasurer and a director. Further
information about Mr. Sliney is presented in "ELECTION OF DIRECTORS."
Stanley Wojtysiak has been Secretary of the Company since January,
1996 and a director of the Company since August, 1989. Mr. Wojtysiak was
Chairman of the Board of Directors and President of the Company from January,
1989 to August, 1989, Vice President of Engineering from August, 1989 to
October, 1989, Vice President of Development from September, 1995 to October,
1995 and Chief Financial Officer from January, 1989 to October, 1995. Further
information about Mr. Wojtysiak is presented in "ELECTION OF DIRECTORS."
Robert E. Heitman has served as the Company's Vice President of
Internet Technologies since August, 1996. Prior to joining the Company, Mr.
Heitman was the Vice Preident of Product Development for Sierra Network from
January, 1991 to December, 1991. Mr. Heitman was the Vice President of Product
Development of Tsunami Media from January, 1992 to January, 1994. In January,
1994, Mr. Heitman founded Triton Interaction/On the Toes of Giants, which
designed computer game software for use on the internet and other
internet-related software. From January, 1994 to August, 1996 Mr. Heitman
served as the Chief Engineer of Triton Interaction/On the Toes of Giants.
15
<PAGE> 19
COMMON STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1997, the number and
percentage of shares of Common Stock beneficially owned (as defined in Rule
13d-3 adopted under the Exchange Act) by (a) all persons known to the Company
to own beneficially more than 5% of any class of voting security of the
Company, (b) each of the Company's directors and nominees for director, (c) the
Company's officers named in the Summary Compensation Table set forth herein and
(d) all directors and executive officers of the Company as a group.
COMMON STOCK
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES
NUMBER SHARES BENEFICIALLY
NAME AND ADDRESS (1) BENEFICIALLY OWNED(2)(3) OWNED(2)(3)
- -------------------- ------------------------ -----------
<S> <C> <C> <C>
Ariella J. Lehrer, Ph.D.
Chairwoman of the Board, President,
Chief Executive Officer and Director. . 89,294 3.54%
Stanley Wojtysiak
Secretary and Director . . . . . . . . . 288,000 11.41%
William E. Sliney
Vice President of Finance, Chief
Financial Officer, Treasurer and *
Director . . . . . . . . . . . . . . . . 1,240
Curtis A. Hessler
Director . . . . . . . . . . . . . . . . 2,500(4) *
Arthur Hiller
Director . . . . . . . . . . . . . . . . 2,500(5) *
Ivan Rosenberg, Ph.D.
Director . . . . . . . . . . . . . . . . 23,500(6) *
Morley A. Winograd
Director . . . . . . . . . . . . . . . . 0 0%
Robert E. Heitman
Vice President - Internet . . . . . . . 33,334 1.32%
E.B.C. Trust Corporation
10, rue Princesse Florestine
MC 98000 Monaco(7) . . . . . . . . . . . 534,351 21.18%
D&A Lehrer Children Trust
1300 Woodland Road
York, PA 17403 (8) . . . . . . . . . . 200,000 7.93%
John Miller . . . . . . . . . . . . . . . . . 144,000 5.71%
All directors and executive
officers as a group (8 persons) . . . . 440,368(9) 17.40%
- -------------------
</TABLE>
* Less than one percent
(1) Unless otherwise indicated, the stockholder's address is at the Company's
principal executive offices.
16
<PAGE> 20
(2) Percent ownership is based on 2,523,115 shares of Common Stock outstanding
as of March 21, 1997 plus any shares issuable pursuant to options or
warrants held by the person or class in question which may be exercised
within 60 days of March 21, 1997.
(3) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each stockholder named in this table
has sole voting and investment power with respect to the shares set forth
opposite such stockholder's name.
(4) Includes 2,500 shares which Mr. Hessler has the right to acquire by
exercise of stock options vested pursuant to the 1995 Plan.
(5) Includes 2,500 shares which Mr. Hiller has the right to acquire by exercise
of stock options vested pursuant to the 1995 Plan.
(6) Includes 2,500 shares which Mr. Rosenberg has the right to acquire by
exercise of stock options vested pursuant to the 1995 Plan.
(7) The beneficial owners of E.B.C. Trust Corporation's capital stock are
Richard MacLellan and Michael Woolf.
(8) Ariella J. Lehrer, Ph.D., has no voting or investment power or beneficial
ownership with respect to the D&A Lehrer Children Trust.
(9) Includes 2,500 shares which each of Messrs. Hessler, Hiller and Rosenberg
respectively has the right to acquire by exercise of stock options vested
pursuant to the 1995 Plan.
17
<PAGE> 21
REPORT OF THE COMPENSATION
COMMITTEE AND STOCK OPTION COMMITTEE(1)
The Company's Compensation Committee, formed on January 15, 1996, is
currently comprised of two non-employee directors and for most of the 1996
fiscal year was comprised of three non-employee directors. The Compensation
Committee oversees and administers the Company's executive compensation program
and the Company's compensation program for all of its employees. The Company's
Stock Option Committee, formed on January 15, 1996, is currently comprised of
two non-employee directors and for most of the 1996 fiscal year was comprised
of three non-employee directors. The Stock Option Committee oversees and
administers the Company's 1995 Stock Option/Stock Issuance Plan (the "1995
Plan") and the granting of options thereunder. The Compensation Committee, and
when applicable, the Stock Option Committee, will review the performance of the
executive officers of the Company and make recommendations to the Board of
Directors as to their compensation, including salary, cash and non-cash bonus
levels and stock option awards.
COMPENSATION POLICIES
In recognition that the recruitment and retention of personnel in the
computer software industry is highly competitive, the Company's compensation
policies, both for executive and non-executive employees, are structured to
attract and retain highly skilled technical, marketing and management
personnel. To reward and encourage performance that enhances both the
short-term and long-term results of the Company, the Compensation Committee has
developed a compensation program that provides economic incentives to achieve
the Company's business objectives by linking compensation to the performance of
the Company, to align executive officers' compensation with stockholder
interests to create stockholder value, and to reward individual performance.
The Company will use a combination of base salary, annual incentives and
long-term incentive awards to achieve the aforementioned objectives.
BASE SALARY
In considering the base salary levels of the Chief Executive Officer
and the other executive officers, the Compensation Committee's recommendations,
while subjective, are intended to be competitive with other similar companies
in the software industry (the "Peer Group"), notwithstanding the significantly
larger revenues at many of the companies in the Peer Group. In making its
competitive analysis of base salaries, the Compensation Committee relied on the
1996 Ninth Annual Survey of Compensation in the Software Industry (the
"Compensation Survey") published by Coopers and Lybrand LLP, a nationally
recognized accounting firm. On the basis of the information provided in the
Compensation Survey, the Compensation Committee determines the base salary of
each executive officer at a level which is competitive with the salaries of
individuals in similar positions at the Peer Group. The Compensation Committee
will also take into consideration, in determining such base salary levels, the
Company's financial performance over the past year and the performance of each
executive officer in comparison to the performance of the Company's other
executive officers.
- -------------
(1) This section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act of 1933, as amended or, the Securities Exchange
Act of 1934, as amended, whether made before or after the date hereof and
irrespective of any general incorporation language in any such filing.
18
<PAGE> 22
ANNUAL INCENTIVES
For the 1996 fiscal year, the Company did not award any cash or
non-cash bonuses to its executive officers in light of the financial results of
the Company during this period. The Company did not have an established annual
incentive program to determine whether any of the executive officers would
receive any cash or non-cash bonuses.
The Company may, at the discretion of the Board of Directors, pay
non-cash bonuses to executive officers on the basis of a combination of Company
and individual performance objectives, with a greater emphasis on the Company's
performance objectives. Such performance objectives will generally be
established by the Compensation Committee and will require approval by the
Board of Directors. In establishing the Company's performance objectives, the
Compensation Committee will use criteria such as revenues, cash flow, earnings
per share and other relevant strategic considerations. In establishing the
performance objectives for the executive officers, efforts will be made to
establish parity among individuals with similar responsibilities and
performance.
LONG-TERM INCENTIVE AWARDS
The Company's 1995 Plan permits the Compensation Committee to grant to
eligible employees stock options, stock appreciation rights and other stock
awards of restricted stock or bonus stock. The Compensation Committee believes
that the 1995 Plan encourages key personnel of the Company to increase their
investment in the Company's long-term success, thus better linking employee and
stockholder interests, and motivates executive officers to make long-term
decisions that are in the best interests of the Company and that will, over the
long run, give the best return to stockholders. The Compensation Committee has
determined that long-term incentives should be granted on a discretionary basis
based principally on the quality of the individual performance and base salary
levels. Options are granted under the 1995 Plan at no less than 85% of the
then-current market price and are generally subject to four-year vesting
periods to encourage executive officers to remain with the Company. The
Compensation Committee takes into consideration the amount of stock, stock
options and terms of such stock options already held by such executive officer
when granting options.
1995 PLAN RE-PRICING
At the time of the adoption of the 1995 Plan, the Company established
the exercise price of the options to be the closing price of the common stock
of the Company (the "Common Stock") on the date of the stock option grant.
However, the price of the Common Stock has declined since the time of the
adoption of the 1995 Plan. As a result, if the Common Stock at the trading
price on the date the Stock Option Committee adopted the re-pricing (i.e.,
$2.25) were to grow at an assumed ten percent (10%) growth rate over the next
ten (10) years, the exercise price of a substantial number of outstanding
options under the 1995 Plan prior to the re-pricing of such 1995 Plan would
exceed such projected price.
In an effort to continue to retain and incentivize the current eligible
employees of the Company, the Stock Option Committee determined that it would be
desirable and necessary to cancel the original stock option grants and re-issue
new grants to the optionholders of the Company with the following exercise
prices: (i) the exercise price of one-half of the outstanding stock options of
the Company granted to each optionee pursuant to the 1995 Plan was set at Fifty
Cents ($0.50) above the fair market value of the Common Stock (i.e., $2.75) as
of the date of the Stock Option Committee approval of such re-pricing (i.e.,
December 19, 1996) and (ii) the exercise price for the remaining one-half of the
outstanding stock options of the Company granted to each optionee pursuant to
the 1995 Plan was set at One Dollar ($1.00) above the fair market value of the
Common Stock (i.e. $3.25) as of the date of the Stock Option Committee approval
of such re-pricing (i.e., December 19, 1996). The new stock option grants
issued in connection with the re-pricing are also subject to a new vesting
schedule whereby the option becomes exercisable in four successive equal annual
installments upon the optionee's completion of each of the four years of service
measured from December 19.
19
<PAGE> 23
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The base salary for the Company's Chief Executive Officer, Dr. Lehrer,
for the 1996 fiscal year was principally based upon an employment agreement
entered into between the Company and Dr. Lehrer. In accordance with the terms
of such employment agreement, Dr. Lehrer's base salary for the 1996 fiscal year
was increased upon the Company's initial public offering so that Dr. Lehrer's
base salary would be in accordance with the base salaries of chief executive
officers of similarly situated companies whose shares of capital stock are
quoted on NASDAQ National Market System or listed for trading on the New York
Stock Exchange or the American Stock Exchange. Dr. Lehrer was also granted an
option to purchase 100,000 shares of the Company's Common Stock under the 1995
Plan at an option price of $6.00 per share. However, pursuant to the
re-pricing of certain stock options granted under the 1995 Plan, on December
19, 1996, the Company cancelled Dr. Lehrer's original stock option grant and
issued to Dr. Lehrer a new stock option grant to purchase 100,000 shares of the
Company's Common Stock under the 1995 Plan at an exercise price of $2.75 for
50,000 shares and $3.25 for the other 50,000 shares. The vesting schedule also
changed to the four-year successive annual installment schedule described in
the "1995 Plan Re-Pricing" section above. No cash bonuses were awarded to Dr.
Lehrer for the 1996 fiscal year.
In determining Dr. Lehrer's base salary and stock option grants, the
Compensation Committee and Stock Option Committee, as applicable, based their
recommendations on the criteria described above, including specifically, the
contribution of Dr. Lehrer to the Company's strategic focus, market position
and successful initial public offering. The Compensation Committee and Stock
Option Committee, as applicable, will continue to review the performance of the
Chief Executive Officer of the Company annually based on the criteria described
above and recommend such officer's compensation accordingly.
CONCLUSION
The Compensation Committee and the Stock Option Committee believe that
the policies and concepts discussed above will be an effective strategy to
attract and retain responsible management that will produce both long-term and
short-term results that will further the interests of the Company's
stockholders. In implementing their policies, the Compensation Committee and
the Stock Option Committee intend to base their review on experience of its
members, the Company and management information, and where appropriate,
discussions with and information compiled by various compensation consultants
and other appropriate sources.
COMPENSATION COMMITTEE
Ivan M. Rosenberg, Ph.D.
Arthur G. Hiller
STOCK OPTION COMMITTEE
Ivan M. Rosenberg, Ph.D.
Curtis A. Hessler
20
<PAGE> 24
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total return on the Company's Common
stock from May 17, 1996, when the Company completed an initial public offering
of its Common Stock, to December 31, 1996 compared to the Nasdaq Stock Market
(U.S. Companies) Index. The graph assumes a $100 investment at the beginning
of the period and the reinvestment of all dividends.
[STOCK PERFORMANCE GRAPH 1996]
<TABLE>
<CAPTION>
1996
April May June July Aug Sept Oct Nov Dec
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Prices
------------------
Legacy Software 6.00 8.25 8.75 7.25 7.00 6.50 4.00 3.75 3.75
Nasdaq Computer
Index 431.10 452.23 431.21 396.12 413.00 476.08 475.90 524.12 740.74
S & 500 654.16 669.09 670.59 639.94 651.99 687.33 705.27 757.02 518.79
Value of $100.00
------------------
Legacy Software 100.00 137.50 145.83 120.83 116.67 108.33 66.67 62.50 62.50
Nasdaq Computer
Index 100.00 104.90 100.03 91.89 95.80 110.43 110.39 121.58 171.83
S & P 500 100.00 102.28 102.51 97.83 99.67 105.07 107.81 115.72 79.31
</TABLE>
THIS GRAPH REPRESENTS HISTORICAL STOCK PRICES PERFORMANCE AND IS NOT
NECESSARILY INDICATIVE OF ANY FUTURE STOCK PRICE PERFORMANCE.
THE FOREGOING REPORT OF THE COMPENSATION COMMITTEE AND THE STOCK OPTION
COMMITTEE AND THE PERFORMANCE GRAPH THAT APPEARS IMMEDIATELY AFTER SUCH REPORT
SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL OR TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES EXCHANGE ACT OF 1934 OR INCORPORATED BY REFERENCE IN
ANY DOCUMENT SO FILED.
21
<PAGE> 25
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company on behalf of (i) the Chief
Executive Officer and (ii) the two other most highly compensated executive
officers of the Company whose total annual salary and bonus for fiscal year
1996 exceeded $100,000 (the "Named Executive Officers"), with respect to
services rendered by such persons to the Company and its subsidiaries for each
of the fiscal years ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
------------
Annual Compensation Awards
------------------------- ------------
Other Annual Securities
Compen- Underlying
Name and Principal Salary sation Options
Position Year ($) ($) #
---------------------- ---- ------ -------- ---------
<S> <C> <C> <C> <C>
Ariella J. Lehrer, Ph.D. 1996 $117,500 $ - 0 - 100,000(1)
Chief Executive Officer, 1995 $ 62,250 $ - 0 - --
President, Chairwoman 1994 $ 48,000 $ - 0 - --
of the Board of
Directors . . . . . . . .
William E. Sliney 1996 $112,500 $6,071(4) 50,000(2)
Vice President of 1995 $ 20,833(3) $4,500(4) --
Finance, Chief 1994 -- -- --
Financial Officer and
Director . . . . . .
Stanley Wojtysiak 1996 $ 98,333 $ - 0 - 100,000(5)
Secretary and 1995 $ 58,532 - 0 - --
Director . . . . . . . 1994 $ 48,568 - 0 - --
- -------------------
</TABLE>
(1) Represents stock options re-granted on December 19, 1996 at a lower
exercise price of $2.75 per share for 50,000 shares and $3.25 per share
for the remaining 50,000 shares. See "REPORT OF THE COMPENSATION
COMMITTEE AND STOCK OPTION COMMITTEE -- 1995 Plan Re-Pricing."
(2) Represents stock options re-granted on December 19, 1996 at a lower
exercise price of $2.75 per share for 25,000 shares and $3.25 per share
for another 25,000 shares. See "REPORT OF THE COMPENSATION COMMITTEE
AND STOCK OPTION COMMITTEE -- 1995 Plan Re-Pricing."
(3) Mr. Sliney joined the Company in October, 1995; his annualized base
salary for 1995 was $100,000. See "-- Employment Agreements."
(4) The Company paid Mr. Sliney approximately $4,500 for Mr. Sliney's
relocation expenses during 1995 and $6,071 for Mr. Sliney's relocation
expenses during 1996.
(5) Represents stock options re-granted on December 19, 1996 at a lower
exercise price of $2.75 for 50,000 shares and $3.25 for another 50,000
shares. See "REPORT OF THE COMPENSATION COMMITTEE AND STOCK OPTION
COMMITTEE -- 1995 Plan Re-Pricing."
EMPLOYMENT AGREEMENTS
Ariella J. Lehrer, Ph.D. has a five-year employment agreement with the
Company which became effective November 10, 1995. The agreement provides for
an annual base salary of $105,000, which was automatically adjusted to $120,000
per annum effective March 1, 1996 and which, following certain registrations of
the Common Stock under the Securities Act of 1933, as amended (the "Securities
Act"), will be adjusted by the Board of
22
<PAGE> 26
Directors so as to be in accordance with the compensation packages provided by
similarly situated public companies to officers who have comparable duties and
responsibilities to those of Dr. Lehrer.
William E. Sliney has a five-year employment agreement with the
Company which became effective October 16, 1995. The agreement provides for an
annual base salary of $100,000, which automatically adjusted to $115,000 per
annum effective March 1, 1996 and which, following certain registrations of the
Common Stock under the Securities Act, will be adjusted by the Board of
Directors so as to be in accordance with the compensation packages provided by
similarly situated public companies to officers who have comparable duties and
responsibilities to those of Mr. Sliney.
Stanley Wojtysiak has a five-year employment agreement with the
Company which became effective November 10, 1995. The agreement provides for
an annual base salary of $90,000, which automatically adjusted to $100,000 per
annum effective March 1, 1996 and which, following certain registrations of the
Common Stock under the Securities Act, will be adjusted by the Board of
Directors so as to be in accordance with the compensation packages provided by
similarly situated public companies to officers who have comparable duties and
responsibilities to those of Mr. Wojtysiak.
Robert E. Heitman has a three-year employment agreement with the
Company which became effective August 30, 1996. The agreement provides for an
annual base salary of $85,000 and will be increased to reflect inflation or
such other adjustments as the Board may deem appropriate.
Each of Dr. Lehrer's and Messrs. Sliney's and Wojtysiak's employment
agreements also provides severance compensation upon termination of employment
(other than for cause, voluntary termination or expiration of the agreement)
during the period beginning on the date of such termination until the earlier
of (x) death of such employee or (y) date the agreement would have been
terminated had such employee not been earlier terminated, provided such
termination shall not be less than one year, consisting of (A) the pro rata
portion of the base salary theretofore earned but unpaid, (B) such employee's
monthly base salary, (C) a pro rata portion of such employee's bonus for such
fiscal year and (D) full vesting of such employee's stock options, warrants,
and rights and other Company stock-related awards granted to such employee by
the Company that otherwise would have vested and become exercisable during such
fiscal year of the Company in which such employee is terminated. In the event
such employee is terminated not for cause within two years following a change
of control, as defined in the agreement, such employee will be entitled to the
severance compensation set forth above until the later of (X) the date the
agreement would have terminated had such employee not been earlier terminated
and (Y) two years from such date of termination of such employee, regardless of
such employee's death.
Mr. Heitman's employment agreement also provides severance compensation
upon termination of employment (other than for cause, voluntary termination or
expiration of the agreement) consisting of (A) the pro rata portion of the base
salary theretofore earned but unpaid, (B) during the period beginning on the
date of such termination until the earlier of (x) death of Mr. Heitman or (y)
date the agreement would have been terminated had Mr. Heitman not been earlier
terminated, all benefits to which Mr. Heitman or his legal representatives,
heirs, eligible dependents or permitted assigns may be entitled under any
benefit plans of the Company (provided Mr. Heitman or his legal representatives,
heirs, eligible dependents or permitted assigns pay the regular premium required
of active employees for such benefits), (C) during the period beginning on the
date of such termination until the date the agreement would have been terminated
had Mr. Heitman not been earlier terminated, one-twelfth (1/12) of the base
salary, (D) a pro rata portion of Mr. Heitman's bonus for such fiscal year,
provided Mr. Heitman completed six or more months of the Company's then current
fiscal year and (E) full vesting of Mr. Heitman's stock options, warrants, and
rights and other Company stock-related awards granted to him by the Company that
otherwise would have vested and become exercisable during the fiscal year in
which Mr. Heitman's employment is terminated.
In addition, the Stock Option Committee as Plan Administrator of the
1995 Plan will have the authority to provide for the accelerated vesting of the
shares of Common Stock subject to outstanding options held by the Chief
Executive Officer and any other executive officer of the Company, or the shares
of Common Stock subject to direct issuances held by any such individual, in
connection with certain changes in control of the Company or the subsequent
termination of the officer's employment following the change in control event.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was formed in January, 1996 to
establish salary, bonus and other forms of compensation or officers of the
Company, provide recommendations for the salaries and incentive compensation of
the employees and consultants of the Company and make recommendations to the
Board of Directors regarding such matters. The principal objectives of the
Company's executive compensation are to: (i) support the achievement of the
desired Company performance; (ii) align the executive officer's interests with
the success of the Company and with the interests of the Company's
stockholders; and (iii) provide compensation that will attract and retain
qualified management and reward performance. These objectives are principally
achieved through compensation in the form of annual base salaries,
discretionary bonuses and equity investment opportunities, such as stock option
grants. Prior to January, 1996, the Board of Directors performed the functions
of the Compensation Committee. The Company has not historically linked
executive compensation directly to corporate performance.
During the 1996 fiscal year, the Compensation Committee was composed
of Messrs. Hessler and Rosenberg and, through December 9, 1996, Mr. Phillips.
No interlocking relationship exists between the Company's Board of Directors or
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
23
<PAGE> 27
STOCK OPTIONS
The following tables sets forth certain information with respect to
options granted to each of the company's Named Executive Officers during fiscal
year 1996. The Company did not grant any stock appreciation rights during
fiscal year 1996.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------------------------
Percent of
Total Potential Realizable
Number of Options Value at Assumed
Securities Granted to Rates of Stock
Underlying Eligible Appreciation for
Options Persons Exercise or Option Term(4)
Granted in Fiscal Base Price Expiration ---------------------
Name (#)(1) Year(2) ($/Sh)(3) Date 5% 10%
---- ----------- ---------- --------------------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Ariella J. . . . . . . 100,000 24% $2.75 (50,000 shares) 12/18/06 $ 86,473 $219,140
Lehrer, Ph.D. $3.25 (50,000 shares) $102,195 $258,983
William E. Sliney . . . 50,000 12% $2.75 (25,000 shares) 12/18/06 $ 43,237 $ 51,098
$3.25 (25,000 shares) $109,570 $121,492
Stanley Wojtysiak . . . 100,000 24% $2.75 (50,000 shares) 12/18/06 $ 86,473 $219,140
$3.25 (50,000 shares) $102,195 $258,983
- -----------
</TABLE>
(1) The options were originally granted at higher exercise prices and were
cancelled and re-granted on December 19, 1996 at lower exercise prices
of $2.75 and $3.25. See "REPORT OF THE COMPENSATION COMMITTEE AND
STOCK OPTION COMMITTEE -- 1995 Plan Re-Pricing." The options granted
to Dr. Lehrer and Messrs. Sliney and Wojtysiak will become exercisable
in four successive equal annual installments upon Optionee's
completion of each of the four years of service measured from
December 19, 1996.
(2) In the 1996 fiscal year, the Company granted options representing a
total of 416,666 shares under the 1995 Plan.
(3) The exercise price on the date of grant was equal to or above the fair
market value on the date of grant.
(4) The 5% and 10% assumed rates of appreciation are specified under the
rules of the Securities and Exchange Commission and do not represent
the Company's estimate or projection of the future Common Stock price.
There can be no assurance provided to any executive officer or any
other holder of the Company's Securities that the actual stock price
appreciation over the ten-year option term will be at the assumed 5%
and 10% levels or at any other defined level. Unless the market price
of the Common Stock appreciates over the option term, no value will be
realized from the option grants made to the executive officers.
24
<PAGE> 28
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND VALUE OF OPTIONS AT END OF FISCAL 1996
The following table sets forth certain information with respect to the
Company's Named Executive Officers concerning unexercised stock options held as
of December 31, 1996. No stock options were exercised by such individuals
during fiscal year 1996. The Company did not grant any stock appreciation rights
during fiscal year 1996 and no such rights were outstanding as of the end of
such fiscal year.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Securities Underlying in-the-Money
Options at Options at
Fiscal Year-End Fiscal Year-End ($)(1)
------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <<C> <C>
Ariella J. . . . . . - 0 - 100,000 - - $75,000
Lehrer, Ph.D.
William Sliney . . . - 0 - 50,000 - - $37,500
Stanley Wojtysiak . . - 0 - 100,000 - - $75,000
----------
</TABLE>
(1) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1996 ($3.75 per share) minus the exercise
price.
TEN-YEAR OPTION RE-PRICING
The following table sets forth information with respect to each of the
Company's executive officer, concerning his or her participation in the option
cancellation/re-grant program effected on December 19, 1996.
<TABLE>
<CAPTION>
Length of
Securities original
underlying option term
number of Market price of Exercise price remaining at
options stock at time at time of date of
repriced or of repricing or repricing or New exercise repricing or
Name Date amended (#) amendment ($) amendment ($) price ($)(1) amendment
---- ---- ----------- ------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Ariella J. 12/19/96 100,000 2.25 6.00 $2.75 (50,000 4 years and
Lehrer, Ph.D. shares) 1 month
$3.25 (50,000
shares)
Stanley 12/19/96 100,000 2.25 6.00 $2.75 (50,000 4 years and
Wojtysiak shares) 1 month
$3.25 (50,000
shares)
William E. 12/19/96 50,000 2.25 5.10 $2.75 (25,000 9 years and
Sliney shares) 1 month
$3.25 (25,000
shares)
Robert E. 12/19/96 16,666 2.25 5.95 $2.75 (8,333 9 years and
Heitman shares) 7 1/2 months
$3.25 (8,333
shares)
- ----------
</TABLE>
(1) The exercise price of one-half of the outstanding stock options of the
Company granted to each Executive Officer pursuant to the 1995 Plan is
set at Fifty Cents ($0.50) above the fair market value of the Common
25
<PAGE> 29
Stock as of the date of the Stock Option Committee approval of such
re-pricing. The exercise price for the remaining one-half of the
outstanding stock options of the Company granted to each Executive
Officer pursuant to the 1995 Plan is set at One dollar ($1.00) above
the fair market value of the Common Stock as of the date of the Stock
Option Committee approval of such re-pricing. The fair market value
of the Common Stock as of the date of the Stock Option Committee
approval of such re-pricing was $2.25. See "REPORT OF THE
COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE -- 1995 Plan
Re-Pricing."
26
<PAGE> 30
OTHER MATTERS
STOCKHOLDER PROPOSALS
Individual stockholders of the Company may be entitled to submit
proposals which they believe should be voted upon by the stockholders. The
Securities and Exchange Commission (the "SEC") has adopted regulations which
govern the inclusion of such proposals in annual proxy materials. All such
proposals must be submitted to the Secretary of the Company no later than
December 2, 1997 in order to be considered for inclusion in the Company's 1998
proxy materials. It is suggested that any such proposal be submitted by
certified mail, return receipt requested.
OTHER BUSINESS
Management does not know of any business to be presented other than
the matters set forth above, but if other matters properly come before the
meeting, it is the intention of the persons named in the Proxy to vote in
accordance with their best judgment on such matters.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act, requires the Company's directors,
officers and greater than ten percent shareholders to file with the SEC initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Such persons are required to provide
to the Company a copy of each such report they file with the SEC.
To the Company's knowledge, based solely on a review of the copies of
such reports provided to the Company and written representations that no other
reports were required, during 1996 all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent shareholders
were complied with.
ACCOUNTANTS
A representative of BDO Seidman, LLP, the Company's current
accountants, is expected to be present at the Annual Meeting of Stockholders
and will be available to answer appropriate questions.
FINANCIAL STATEMENTS
The Company's audited financial statements and notes thereto,
including selected financial data and management's discussion and analysis of
financial condition and results of operations for the fiscal year ended
December 31, 1996, are included in the annual report Form 10-K, which was
mailed concurrently with this Proxy Statement to all stockholders of record.
The financial statements, the report of independent accountants thereon,
selected financial data and management's discussion and analysis of financial
condition and results of operations included in the Annual Report are
incorporated herein by reference. Additional copies of the Annual Report are
available without charge upon written request to Legacy Software, Inc., 5340
Alla Road, Los Angeles, California 90066, Attention: William E. Sliney.
27
<PAGE> 31
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy and information
statements and other information with the SEC. Such reports, proxy and
information statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices
at Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511, and at 7 World Trade Center, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In
addition, the SEC maintains a web site at http:/www.sec.gov containing reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC including the Company.
By Order of the Board of Directors,
Stanley Wojtysiak
Secretary
Dated: March 31, 1997
28
<PAGE> 32
APPENDIX
LEGACY SOFTWARE, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
(Amended and Restated as of March 28, 1997)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option/Stock Issuance Plan is intended to
promote the interests of Legacy Software, Inc., a Delaware corporation, by
providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity
programs:
(i) the Discretionary Option Grant
Program under which eligible persons may, at the discretion of the
Plan Administrator, be granted options to purchase shares of Common
Stock,
(ii) the Stock Issuance Program under
which eligible persons may, at the discretion of the Plan
Administrator, be issued shares of Common Stock directly, either
through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary), and
(iii) the Automatic Option Grant Program
under which Eligible Directors shall automatically receive option
grants at periodic intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply
to all equity programs under the Plan and shall accordingly govern the
interests of all persons under the Plan.
A-1
<PAGE> 33
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12(g) Registration Date, the
Plan shall be administered by the Board. From and after the Section 12(g)
Registration Date, the Primary Committee shall have sole and exclusive
authority to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders.
B. Administration of the Discretionary Option Grant and
Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power
to administer those programs with respect to all such persons. The members of
the Secondary Committee may be Board members who are Employees eligible to
receive discretionary option grants or direct stock issuances under the Plan or
any other stock option, stock appreciation, stock bonus or other stock plan of
the Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may determine and
may be removed by the Board at any time. The Board may also at any time
terminate the functions of any Secondary Committee and reassume all powers and
authority previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of
its administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant and Stock Issuance Programs
and to make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction or
any stock option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary
Committee shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No member
of the Primary Committee or the Secondary Committee shall be liable for any act
or omission made in good faith with respect to the Plan or any option grants or
stock issuances under the Plan.
F. Administration of the Automatic Option Grant Program
shall be self-executing in accordance with the terms of that program, and no
Plan Administrator shall exercise any discretionary functions with respect to
option grants made thereunder.
A-2
<PAGE> 34
IV. ELIGIBILITY
A. The persons eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or
the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent
advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Each Plan Administrator shall, within the scope of
its administrative jurisdiction under the Plan, have full authority (subject to
the provisions of the Plan) to determine, (i) with respect to the option grants
under the Discretionary Option Grant Program, which eligible persons are to
receive option grants, the time or times when such option grants are to be
made, the number of shares to be covered by each such grant, the status of the
granted option as either an Incentive Option or a Non-Statutory Option, the
time or times at which each option is to become exercisable, the vesting
schedule (if any) applicable to the option shares and the maximum term for
which the option is to remain outstanding and (ii) with respect to stock
issuances under the Stock Issuance Program, which eligible persons are to
receive such issuances, the time or times when such issuances are to be made,
the number of shares to be issued to each Participant, the vesting schedule (if
any) applicable to the issued shares and the consideration to be paid for such
shares.
C. The Plan Administrator shall have the absolute
discretion either to grant options in accordance with the Discretionary Option
Grant Program or to effect stock issuances in accordance with the Stock
Issuance Program.
D. The individuals eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the Section 12(g)
Registration Date, whether through appointment by the Board or election by the
Corporation's stockholders, and (ii) those individuals who are re-elected as
non-employee Board members at one or more Annual Stockholders Meetings held
after the Section 12(g) Registration Date. A non-employee Board member who has
previously been in the employ of the Corporation (or any Parent or Subsidiary)
shall not be eligible to receive an initial option grant under the Automatic
Option Grant Program on the Section 12(g) Registration Date or (if later) at
the time he or she first becomes a non-employee Board member, but such
individual shall be eligible to receive periodic option grants under the
Automatic Option Grant Program upon his or her re-election as a non- employee
Board member at one or more Annual Stockholders Meetings held after the Section
12(g) Registration Date.
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V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock which may be issued over the term of the Plan shall not
exceed 921,800 shares. Such share reserve includes the 400,000-share increase
authorized by the Board on March 28, 1997, subject to stockholder approval at
the 1997 Annual Meeting.
B. No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 250,000 shares of Common Stock.
C. Shares of Common Stock subject to outstanding options
shall be available for subsequent issuance under the Plan to the extent (i) the
options expire or terminate for any reason prior to exercise in full or (ii)
the options are cancelled in accordance with the cancellation-regrant
provisions of Article Two. In addition, unvested shares issued under the Plan
and subsequently repurchased by the Corporation, at the original exercise or
issue price paid per share, pursuant to the Corporation's repurchase rights
under the Plan, shall be added back to the number of shares of Common Stock
reserved for issuance under the Plan and shall accordingly be available for
reissuance through one or more subsequent option grants or direct stock
issuances under the Plan. Shares subject to any stock appreciation rights
exercised under the Plan shall not be available for subsequent issuance under
the Plan. In addition, should the exercise price of an option under the Plan
be paid with shares of Common Stock or should shares of Common Stock otherwise
issuable under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option or the
vesting of a stock issuance under the Plan, then the number of shares of Common
Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised or which vest under the
stock issuance, and not by the net number of shares of Common Stock issued to
the holder of such option or stock issuance.
D. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted options, separately
exercisable stock appreciation rights and direct stock issuances per calendar
year, (iii) the number and/or class of securities for which automatic option
grants are to be subsequently made per Eligible Director under the Automatic
Option Grant Program and (iv) the number and/or class of securities and the
exercise price per share in effect under each outstanding option in order to
prevent the dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive.
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the
Plan applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed
by the Plan Administrator but shall not be less than eighty-five percent (85%)
of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
I of Article Five and the documents evidencing the option, be payable in cash
or check made payable to the Corporation. From and after the Section 12(g)
Registration Date, the exercise price may also be paid in either of the
following forms:
(i) in shares of Common Stock held for
the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(ii) to the extent the option is
exercised for vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall concurrently provide
irrevocable written instructions to (a) a Corporation-designated
brokerage firm to effect the immediate sale of the purchased shares
and remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate exercise
price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld by
the Corporation by reason of such exercise and (b) the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale transaction.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
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B. Exercise and Term of Options. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in
excess of ten (10) years measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the
exercise of any options held by the Optionee at the time of cessation of
Service or death:
(i) Any option outstanding at the time
of the Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term.
(ii) Any option exercisable in whole or
in part by the Optionee at the time of death may be subsequently
exercised by the personal representative of the Optionee's estate or
by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and
distribution.
(iii) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable post-Service exercise period or (if
earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares for which
the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and
cease to be outstanding to the extent the option is not otherwise at
that time exercisable for vested shares.
(iv) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have the
discretion, exercisable either at the time an option is granted or at any time
while the option remains outstanding, to:
(i) extend the period of time for which
the option is to remain exercisable following the Optionee's cessation
of Service from the period otherwise in effect for that option to such
greater period of time as the
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Plan Administrator shall deem appropriate, but in no event beyond the
expiration of the option term, and/or
(ii) permit the option to be exercised,
during the applicable post-Service exercise period, not only with
respect to the number of vested shares of Common Stock for which such
option is exercisable at the time of the Optionee's cessation of
Service but also with respect to one or more additional installments
in which the Optionee would have vested under the option had the
Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall
have no stockholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have
the discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. Limited Transferability of Options. During the
lifetime of the Optionee, Incentive Options shall be exercisable only by the
Optionee and shall not be assignable or transferable other than by will or by
the laws of descent and distribution following the Optionee's death. However,
Non-Statutory Options may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned
portion shall be the same as those in effect for the option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section
II.
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A. Eligibility. Incentive Options may only be granted
to Employees.
B. Exercise Price. The exercise price per share shall
not be less than one hundred percent (100%) of the Fair Market Value per share
of Common Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value
of the shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan (or
any other option plan of the Corporation or any Parent or Subsidiary) may for
the first time become exercisable as Incentive Options during any one (1)
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as Incentive Options
shall be applied on the basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an
Incentive Option is granted is a 10% Stockholder, then the exercise price per
share shall not be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the option grant date, and the option term
shall not exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each
outstanding option shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. However, an outstanding option shall NOT
so accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation (or
parent thereof) or to be replaced with a comparable option to purchase shares
of the capital stock of the successor corporation (or parent thereof), (ii)
such option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested option shares
at the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such option or (iii)
the acceleration of such option is subject to other limitations imposed by the
Plan Administrator at the time of the option grant. The determination of
option comparability under clause (i) above shall be made by the Plan
Administrator, and its determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also
terminate automatically, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights
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are to be assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.
C. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options (and the automatic termination of one or more
outstanding repurchase rights with the immediate vesting of the shares of
Common Stock subject to those rights) upon the occurrence of a Corporate
Transaction, whether or not those options are to be assumed or replaced (or
those repurchase rights are to be assigned) in the Corporate Transaction.
D. Immediately following the consummation of the
Corporate Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
E. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to (i) the number and
class of securities available for issuance under the Plan following the
consummation of such Corporate Transaction, (ii) the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same, and (iii) the maximum number
and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under the Plan per calendar year.
F. Any options which are assumed or replaced in the
Corporate Transaction and do not otherwise accelerate at that time shall
automatically accelerate (and any of the Corporation's outstanding repurchase
rights which do not otherwise terminate at the time of the Corporate
Transaction shall automatically terminate and the shares of Common Stock
subject to those terminated rights shall immediately vest in full) in the event
the Optionee's Service should subsequently terminate by reason of an
Involuntary Termination within twelve (12) months following the effective date
of such Corporate Transaction. Any options so accelerated shall remain
exercisable for fully-vested shares until the earlier of (i) the expiration of
the option term or (ii) the expiration of the one (1)-year period measured from
the effective date of the Involuntary Termination.
G. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to (i) provide for the automatic acceleration of
one or more outstanding options (and the automatic termination of one or more
outstanding repurchase rights with the immediate vesting of the shares of
Common Stock subject to those rights) upon the occurrence of a
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Change in Control or (ii) condition any such option acceleration (and the
termination of any outstanding repurchase rights) upon the subsequent
Involuntary Termination of the Optionee's Service within a specified period
following the effective date of such Change in Control. Any options
accelerated in connection with a Change in Control shall remain fully
exercisable until the expiration or sooner termination of the option term.
H. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One
Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent
such dollar limitation is exceeded, the accelerated portion of such option
shall be exercisable as a Non-Statutory Option under the Federal tax laws.
I. The grant of options under the Discretionary Option
Grant Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option
holders, the cancellation of any or all outstanding options under the
Discretionary Option Grant Program and to grant in substitution new options
covering the same or different number of shares of Common Stock but with an
exercise price per share based on the Fair Market Value per share of Common
Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and
authority to grant to selected Optionees tandem stock appreciation rights
and/or limited stock appreciation rights.
B. The following terms shall govern the grant and
exercise of tandem stock appreciation rights:
(i) One or more Optionees may be granted
the right, exercisable upon such terms as the Plan Administrator may
establish, to elect between the exercise of the underlying option for
shares of Common Stock and the surrender of that option in exchange
for a distribution from the Corporation in an amount equal to the
excess of (a) the Fair Market Value (on the option surrender date) of
the number of shares in which the Optionee is at the time vested under
the surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares.
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(ii) No such option surrender shall be
effective unless it is approved by the Plan Administrator. If the
surrender is so approved, then the distribution to which the Optionee
shall be entitled may be made in shares of Common Stock valued at
Fair Market Value on the option surrender date, in cash, or partly in
shares and partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.
(iii) If the surrender of an option is
rejected by the Plan Administrator, then the Optionee shall retain
whatever rights the Optionee had under the surrendered option (or
surrendered portion thereof) on the option surrender date and may
exercise such rights at any time prior to the later of (a) five (5)
business days after the receipt of the rejection notice or (b) the
last day on which the option is otherwise exercisable in accordance
with the terms of the documents evidencing such option, but in no
event may such rights be exercised more than ten (10) years after the
option grant date.
C. The following terms shall govern the grant and
exercise of limited stock appreciation rights:
(i) One or more Section 16 Insiders may
be granted limited stock appreciation rights with respect to their
outstanding options.
(ii) Upon the occurrence of a Hostile
Take-Over, each individual holding one or more options with such a
limited stock appreciation right shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile
Take-Over) to surrender each such option to the Corporation, to the
extent the option is at the time exercisable for vested shares of
Common Stock. In return for the surrendered option, the Optionee
shall receive a cash distribution from the Corporation in an amount
equal to the excess of (A) the Take-Over Price of the shares of Common
Stock which are at the time vested under each surrendered option (or
surrendered portion thereof) over (B) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within
five (5) days following the option surrender date.
(iii) The Plan Administrator shall
pre-approve, at the time the limited stock appreciation right is
granted, the subsequent exercise of that right in accordance with the
terms of the grant and the provisions of this Section V.C. No
additional approval of the Plan Administrator or the Board shall be
required at the time of the actual option surrender and cash
distribution.
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(iv) The balance of the option (if any)
shall continue in full force and effect in accordance with the
documents evidencing such option.
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ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed
by the Plan Administrator, but shall not be less than eighty-five percent (85%)
of the Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of
Article Five, shares of Common Stock may be issued under the Stock Issuance
Program for any of the following items of consideration which the Plan
Administrator may deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the
Corporation (or any Parent or Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed
by the Participant or the performance objectives to be attained,
(ii) the number of installments in which
the shares are to vest,
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(iii) the interval or intervals (if any)
which are to lapse between installments, and
(iv) the effect which death, Permanent
Disability or other event designated by the Plan Administrator is to
have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional securities
or other property (including money paid other than as a regular cash dividend)
which the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder
rights with respect to any shares of Common Stock issued to the Participant
under the Stock Issuance Program, whether or not the Participant's interest in
those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock issued under
the Stock Issuance Program or should the performance objectives not be attained
with respect to one or more such unvested shares of Common Stock, then those
shares shall be immediately surrendered to the Corporation for cancellation,
and the Participant shall have no further stockholder rights with respect to
those shares. To the extent the surrendered shares were previously issued to
the Participant for consideration paid in cash or cash equivalent (including
the Participant's purchase-money indebtedness), the Corporation shall repay to
the Participant the cash consideration paid for the surrendered shares and
shall cancel the unpaid principal balance of any outstanding purchase- money
note of the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion
waive the surrender and cancellation of one or more unvested shares of Common
Stock (or other assets attributable thereto) which would otherwise occur upon
the cessation of the Participant's Service or the non-attainment of the
performance objectives applicable to those shares. Such waiver shall result in
the immediate vesting of the Participant's interest in the shares
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of Common Stock as to which the waiver applies. Such waiver may be effected at
any time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the outstanding repurchase/cancellation rights
under the Stock Issuance Program shall terminate automatically, and all the
shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent
(i) those repurchase/cancellation rights are assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction
or (ii) such accelerated vesting is precluded by other limitations imposed in
the Stock Issuance Agreement.
B. To the extent any repurchase/cancellation rights
applicable to the Participant's outstanding shares under the Stock Issuance
Program are assigned in the Corporate Transaction, those rights shall
automatically terminate, and the shares subject to those terminated rights
shall immediately vest in full, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within twelve
(12) months following the effective date of such Corporate Transaction.
C. The Plan Administrator shall have the discretion,
exercisable either at the time the unvested shares are issued or at any time
while the Corporation's repurchase rights remain outstanding, to (i) provide
for the automatic termination of one or more outstanding
repurchase/cancellation rights and the immediate vesting of the shares of
Common Stock subject to those rights upon the occurrence of a Change in Control
or (ii) condition any such accelerated vesting upon the subsequent Involuntary
Termination of the Participant's Service within a specified period following
the effective date of such Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
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ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the
dates specified below:
1. Each individual who is first elected or
appointed as a non-employee Board member on or after the Section 12(g)
Registration Date shall automatically be granted, on the Section 12(g)
Registration Date or any later date of initial election or appointment, a
Non-Statutory Option to purchase 10,000 shares of Common Stock, provided such
individual has not previously been in the employ of the Corporation (or any
Parent or Subsidiary).
2. On the date of each Annual Stockholders
Meeting held after the Section 12(g) Registration Date, each individual who is
to continue to serve as an Eligible Director shall automatically be granted a
Non-Statutory Option to purchase 2,500 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 2,500-share option
grants any one Eligible Director may receive over his or her period of Board
service.
B. Exercise Price.
1. The exercise price per share shall be equal
to one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall be payable in one or
more of the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
C. Option Term. Each option shall have a term of ten
(10) years measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall
be immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. Each initial
10,000-share grant shall vest, and the Corporation's repurchase right shall
lapse, in
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a series of four (4) successive equal annual installments over the Optionee's
period of continued service as a Board member, with the first such installment
to vest upon the Optionee's completion of one (1) year of Board service
measured from the option grant date. Each annual 2,500-share grant shall vest,
and the Corporation's repurchase right shall lapse, upon the Optionee's
completion of one (1) year of Board service measured from the option grant
date.
E. Effect of Termination of Board Service. The
following provisions shall govern the exercise of any options held by the
Optionee at the time the Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of
Optionee's death, the personal representative of the Optionee's estate
or the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the date
of such cessation of Board service in which to exercise each such
option.
(ii) During the twelve (12)-month
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares of Common Stock for which the
option is exercisable at the time of the Optionee's cessation of Board
service.
(iii) Should the Optionee cease to serve
as a Board member by reason of death or Permanent Disability, then all
shares at the time subject to the option shall immediately vest so
that such option may, during the twelve (12)-month exercise period
following such cessation of Board service, be exercised for all or any
portion of those shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain
exercisable after the expiration of the option term. Upon the
expiration of the twelve (12)-month exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service for any reason other than death
or Permanent Disability, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
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II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares
of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to such option and may be exercised for all or any portion of those
shares as fully-vested shares of Common Stock. Immediately following the
consummation of the Corporate Transaction, each automatic option grant shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof).
B. In connection with any Change in Control, the shares
of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Change in Control, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Each such option shall remain exercisable
for such fully-vested option shares until the expiration or sooner termination
of the option term or the surrender of the option in connection with a Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each automatic option granted under this Article Four. The
Optionee shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock at the time subject to the surrendered option (whether
or not the Optionee is otherwise at the time vested in those shares) over (ii)
the aggregate exercise price payable for such shares. Such cash distribution
shall be paid within five (5) days following the surrender of the option to the
Corporation. Stockholder approval of the March 28, 1997 amended and restated
Plan shall constitute pre-approval of the subsequent grant of each such option
surrender right under this Automatic Option Grant Program and the subsequent
exercise of that right in accordance with the terms and provisions of this
Section II.C. No additional approval of the Board or Plan Administrator shall
be required at the time of the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same.
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<PAGE> 50
E. The grant of options under the Automatic Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
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<PAGE> 51
ARTICLE FIVE
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee or
Participant to pay the option exercise price under the Discretionary Option
Grant Program or the purchase price for shares issued under the Stock Issuance
Program by delivering a promissory note payable in one or more installments.
The terms of any such promissory note (including the interest rate and the
terms of repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In no event may the maximum credit available to the Optionee or
Participant exceed the sum of (i) the aggregate option exercise price or
purchase price payable for the purchased shares plus (ii) any Federal, state
and local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.
B. The Plan Administrator may, in its discretion,
determine that one or more such promissory notes shall be subject to
forgiveness by the Corporation in whole or in part upon such terms as the Plan
Administrator may deem appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of stock options or stock appreciation rights or
upon the issuance or vesting of such shares under the Plan shall be subject to
the satisfaction of all applicable Federal, state and local income and
employment tax withholding requirements.
B. The Plan Administrator may, in its discretion,
provide any or all holders of Non-Statutory Options or unvested shares of
Common Stock under the Plan with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
(i) Stock Withholding: The election to
have the Corporation withhold, from the shares of Common Stock
otherwise issuable upon the exercise of such Non-Statutory Option or
the vesting of such shares, a portion of those shares with an
aggregate Fair Market Value equal to the percentage of the Taxes (not
to exceed one hundred percent (100%)) designated by the holder.
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<PAGE> 52
(ii) Stock Delivery: The election to
deliver to the Corporation, at the time the Non-Statutory Option is
exercised or the shares vest, one or more shares of Common Stock
previously acquired by such holder (other than in connection with the
option exercise or share vesting triggering the Taxes) with an
aggregate Fair Market Value equal to the percentage of the Taxes (not
to exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Discretionary Option Grant and Stock Issuance
Programs became effective on the November 9, 1995 Effective Date. The
Automatic Option Grant Program became effective on the May 17, 1996 Section
12(g) Registration Date. Options may be granted under the Discretionary Option
Grant Program, and shares may be issued under the Stock Issuance Program, at
any time on or after the Effective Date. In addition, initial option grants
under the Automatic Option Grant Program shall be made to the Eligible
Directors at any time on or after the Section 12(g) Registration Date.
B. On March 28, 1997, the Board adopted a series of
amendments to the Plan which (i) increased the number of shares of Common Stock
reserved for issuance over the term of the Plan by an additional 400,000
shares, (ii) rendered non-employee Board members serving on the Primary
Committee eligible to receive option grants and stock issuances under the
Discretionary Option Grant and Stock Issuance Programs, (iii) allowed unvested
shares issued under the Plan and subsequently repurchased by the Corporation at
the option exercise price or direct issue price paid per share to be reissued
under the Plan, (iv) removed certain restrictions on the eligibility of
non-employee Board members to serve as Plan Administrator, and (v) effected a
series of additional changes to the provisions of the Plan (including the
stockholder approval requirements) in order to take advantage of the recent
amendments to Rule 16b-3 of the 1934 Act which exempts certain officer and
director transactions under the Plan from the short-swing liability provisions
of the federal securities laws. The March 28, 1997 amendments are subject to
stockholder approval at the 1997 Annual Meeting. Should stockholder approval
of the 1997 amendments not be obtained, then any options granted on the basis
of the 400,000-share increase shall terminate and cease to remain outstanding
without ever becoming exercisable for those shares, and no further option
grants shall be made on the basis of such increase. However, the provisions of
the Plan as in effect immediately prior to the March 28, 1997 amendments shall
automatically be reinstated, and option grants and share issuances may
thereafter continue to be made pursuant to the reinstated provisions of the
Plan.
C. The Plan shall terminate upon the earliest of (i)
October 31, 2005, (ii) the date on which all shares available for issuance
under the Plan shall have been issued pursuant to the exercise of the options
or the issuance of shares (whether vested or unvested) under the Plan or (iii)
the termination of all outstanding options in connection
A-21
<PAGE> 53
with a Corporate Transaction. Upon such Plan termination, all outstanding
stock options and unvested stock issuances shall continue to have force and
effect in accordance with the provisions of the documents evidencing such
options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations
with respect to options, stock appreciation rights or unvested stock issuances
at the time outstanding under the Plan unless the Optionee or the Participant
consents to such amendment or modification. In addition, certain amendments
may require stockholder approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant Program and shares of Common Stock
may be issued under the Stock Issuance Program that are in each instance in
excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under those programs are held in
escrow until there is obtained stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess grant or issuances are
made, then (i) any unexercised options granted on the basis of such excess
shares shall terminate and cease to be outstanding and (ii) the Corporation
shall promptly refund to the Optionees and the Participants the exercise or
purchase price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate) for
the period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any
option or stock appreciation right under the Plan and the issuance of any
shares of Common Stock (i) upon the exercise of any option or stock
appreciation right or (ii) under the Stock Issuance Program shall be subject to
the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the options and stock
appreciation rights granted under it and the shares of Common Stock issued
pursuant to it.
A-22
<PAGE> 54
B. No shares of Common Stock or other assets shall be
issued or delivered under the Plan unless and until there shall have been
compliance with all applicable requirements of Federal and state securities
laws and all applicable listing requirements of any Stock Exchange (or the
Nasdaq Small Cap or the Nasdaq National Market, if applicable) on which Common
Stock may then be listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person) or
of the Optionee or the Participant, which rights are hereby expressly reserved
by each, to terminate such person's Service at any time for any reason, with or
without cause.
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<PAGE> 55
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by
any person or related group of persons (other than the Corporation or
a person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over
a period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction; or
A-1.
<PAGE> 56
(ii) the sale, transfer or other disposition of
all or substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
G. CORPORATION shall mean Legacy Software, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Legacy Software, Inc. which shall by appropriate
action adopt the Plan.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
I. EFFECTIVE DATE shall mean November 9, 1995, the date on which
the Plan was adopted by the Board.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member
eligible to participate in the Automatic Option Grant Program in accordance
with the eligibility provisions of Article One.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on
the Nasdaq SmallCap or the Nasdaq National Market, then the Fair
Market Value shall be the closing selling price per share of Common
Stock on the date in question, as such price is reported by the
National Association of Securities Dealers on the Nasdaq Small Cap or
the Nasdaq National Market (or any successor system). If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of
A-2.
<PAGE> 57
transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date
for which such quotation exists.
(iii) For purposes of option grants and direct
stock issuances made on the date the Underwriting Agreement is
executed and the initial public offering price of the Common Stock is
established, the Fair Market Value shall be deemed to be equal to the
established initial offering price per share. For purposes of option
grants and direct stock issuances made prior to such date, the Fair
Market Value shall be determined by the Plan Administrator after
taking into account such factors as the Plan Administrator shall deem
appropriate.
N. HOSTILE TAKE-OVER shall mean the direct or indirect
acquisition by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation
following (A) a change in his or her position with the Corporation
which materially reduces his or her level of responsibility, (B) a
reduction in his or her level of compensation (including base salary,
fringe benefits and participation in corporate-performance based bonus
or incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual's place of employment by more than fifty
(50) miles, provided and only if such change, reduction or relocation
is effected by the Corporation without the individual's consent.
A-3.
<PAGE> 58
Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of
the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds for
the dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
S. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant or Automatic Option Grant Program.
U. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
V. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of
twelve (12) months or more. However, solely for the purposes of the Automatic
Option Grant Program, Permanent Disability or Permanently Disabled shall mean
the inability of the non-employee Board member to perform his or her usual
duties as a Board member by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration
of twelve (12) months or more.
X. PLAN shall mean the Corporation's 1995 Stock Option/Stock
Issuance Plan, as set forth in this document.
A-4.
<PAGE> 59
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to one or more classes of eligible persons, to the extent
such entity is carrying out its administrative functions under those programs
with respect to the persons under its jurisdiction.
Z. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
AA. SECONDARY COMMITTEE shall mean a committee of two (2) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
AB. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AC. SECTION 12(G) REGISTRATION DATE shall mean May 17, 1996, which
is the first date on which the Common Stock was registered under Section 12(g)
of the 1934 Act.
AD. SERVICE shall mean the provision of services to the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in
the documents evidencing the option grant or stock issuance.
AE. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
AF. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
AG. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.
AH. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
A-5.
<PAGE> 60
AI. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
AJ. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those
options or the vesting of those shares.
AK. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
AL. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters who managed the initial public
offering of the Common Stock.
A-6.
<PAGE> 61
PROXY
LEGACY SOFTWARE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Ariella J. Lehrer, Ph.D., William E. Sliney and
Stanley Wojtysiak, and each of them, as Proxies, each with the power to appoint
his or her substitute, and hereby authorizes them to represent and to vote, as
designated below, all the shares of common stock of Legacy Software, Inc. held
of record by the undersigned on March 31, 1997 at the Annual Meeting of
Stockholders to be held on May 29, 1997 or any adjournment thereof.
Please Mark, Sign, Date and Return the Proxy
Card Promptly Using the Enclosed Envelope.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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FOLD AND DETACH HERE
<PAGE> 62
Please mark your vote as indicated in the example. [X]
FOR WITHHOLD
all nominees AUTHORITY
listed (except to vote for all
as listed below) nominees listed below
1. ELECTION OF DIRECTORS [ ] [ ]
(INSTRUCTION: To withhold
authority to vote for any
individual nominee, write
that nominee's name in the
space provided below.)
Nominees: Ariella J. Lehrer, Ph.D. Curtis A. Hessler
Ivan M. Rosenberg, Ph.D. William E. Sliney
Morley A. Winograd Stanley Wojtysiak
- -----------------------------------------------------------
FOR AGAINST ABSTAIN
2. PROPOSAL FOR AMENDMENTS TO THE 1995 [ ] [ ] [ ]
STOCK OPTION/STOCK ISSUANCE PLAN
FOR AGAINST ABSTAIN
3. IN THEIR DISCRETION, THE PROXIES ARE [ ] [ ] [ ]
AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING.
This proxy when properly executed and returned will be voted in the manner
directed herein by the undersigned stockholder. If no direction is made, this
proxy will be voted for Proposals 1, 2 and 3. If any other business is
presented at the meeting, this Proxy confers authority to and shall be voted in
accordance with the recommendation of the Board of Directors. This Proxy
confers the power of cumulative voting and the power to vote cumulatively for
less than all of the nominees as described in the proxy statement.
Signature(s) Dated: , 1997
-------------------------------------------- ---------
Please date this Proxy and sign exactly as the name appears on this card. When
shares are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
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FOLD AND DETACH HERE
