<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Optika Inc.
- --------------------------------------------------------------------------------
(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:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
[COMPANY LOGO APPEARS HERE]
April 14, 1999
Mark K. Ruport
Chairman, Chief Executive Officer
and President
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of Optika Inc. (the "Company"), which will be held on Thursday, May 20, 1999
at 9:00 a.m. local time, at The Broadmoor Hotel, One Lake Avenue, Colorado
Springs, Colorado. In addition to the matters to be acted upon at the meeting,
which are described in detail in the attached Notice of Annual Meeting of
Stockholders and Proxy Statement, there will be a report to the stockholders
on the operations of the Company. I hope that you will be able to attend.
Whether or not you plan to be at the meeting, please be sure to complete,
date, sign and return the proxy card enclosed with this Proxy Statement as
promptly as possible so that your shares may be voted in accordance with your
wishes. Your vote, whether given by proxy or in person at the meeting, will be
held in confidence by the Inspector of Election for the meeting.
Sincerely,
/s/ Mark K. Ruport
MARK K. RUPORT
Chairman, Chief Executive Officer
and President
<PAGE>
[COMPANY LOGO APPEARS HERE]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 20, 1999
TO THE STOCKHOLDERS OF OPTIKA INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Optika Inc., a Delaware corporation (the "Company"), will be held
on Thursday, May 20, 1999, at 9:00 a.m. local time, at the Broadmoor, One Lake
Avenue, Colorado Springs, Colorado 80901, for the following purposes, as more
fully described in the Proxy Statement accompanying this Notice:
1. To elect directors to serve until the next Annual Meeting, or until
their successors are elected and qualified;
2. To ratify the appointment of KPMG LLP as independent accountants of the
Company for the fiscal year ending December 31, 1999;
3. To approve a series of amendments to the Company's 1994 Stock
Option/Stock Issuance Plan (the "1994 Plan" or the "Optika Plan"),
including the renewal of the automatic annual increase in the share
reserve such that the number of shares of the Company's Common Stock
reserved for issuance under the 1994 Plan will automatically increase on
the first trading day of each of the calendar years 2000, 2001 and 2002,
by the number of shares equal to the lesser of (i) three percent (3%) of
the total number of shares of Common Stock outstanding on the last
trading day of the immediately preceding calendar year or (ii) 300,000
shares; and
4. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on March 30, 1999 are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books will not be closed between the record date and the date of the meeting.
A list of stockholders entitled to vote at the Annual Meeting will be
available for inspection at the executive offices of the Company during normal
business hours, for purposes related to the Annual Meeting, for a period of
ten days prior to the Annual Meeting.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed Proxy
as promptly as possible in the envelope enclosed for your convenience. Should
you receive more than one proxy because your shares are registered in
different names and addresses, each proxy should be signed and returned to
assure that all your shares will be voted. You may revoke your proxy at any
time prior to the Annual Meeting. If you attend the Annual Meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
Annual Meeting will be counted.
Sincerely,
/s/ Steven M. Johnson
Steven M. Johnson
Vice President--Finance and
Administration, Chief Financial Officer
and Secretary
Colorado Springs, Colorado
April 14, 1999
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
<PAGE>
OPTIKA INC.
7450 Campus Drive, 2nd Floor
Colorado Springs, Colorado 80920
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1999
GENERAL
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of Optika Inc., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders to be held on Thursday May 20, 1999 (the
"Annual Meeting"). The Annual Meeting will be held at 9:00 a.m. local time at
the Broadmoor, One Lake Avenue, Colorado Springs, Colorado 80901. These proxy
solicitation materials were mailed on or about April 9, 1999 to all
stockholders entitled to vote at the Annual Meeting.
Voting
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice and are described in more
detail in this Proxy Statement. On March 30, 1999, the record date for
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, 7,171,470 shares of the Company's common stock, $.001 par value
("Common Stock"), were issued and outstanding. No shares of the Company's
preferred stock were outstanding. Each stockholder is entitled to one vote for
each share of Common Stock held by such stockholder on March 30, 1999.
Stockholders may not cumulate votes in the election of directors.
All votes will be tabulated by the inspector of elections appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
as present for purposes of determining the presence or absence of a quorum for
the transaction of business. Abstentions will be counted towards the
tabulations 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.
The persons named in the proxies will have discretionary authority to vote
all proxies with respect to additional matters that are properly presented for
action at the Annual Meeting.
Mr. Steven M. Johnson, the Company's Vice President-Finance and
Administration, Chief Financial Officer and Secretary, has been appointed by
the Board of Directors to serve as Inspector of Election at the Meeting. All
proxies and ballots delivered to Mr. Johnson shall be kept confidential.
Revocability of Proxies
You may revoke or change your Proxy at any time before the Annual Meeting
by filing with Mr. Steven M. Johnson, the Secretary of the Company, at the
Company's principal executive offices, Optika Inc., 7450 Campus Drive, 2nd
Floor, Colorado Springs, Colorado 80920, a notice of revocation or another
signed Proxy with a later date. You may also revoke your Proxy by attending
the Annual Meeting and voting in person.
Solicitation
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional soliciting materials furnished to stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares
1
<PAGE>
in their names that are beneficially owned by others so that they may forward
this solicitation material to such beneficial owners. In addition, the Company
may reimburse such persons for their costs in forwarding the solicitation
materials to such beneficial owners. The original solicitation of proxies by
mail may be supplemented by a solicitation by telephone, telegram or other
means by directors, officers or employees. No additional compensation will be
paid to these individuals for any such services. Except as described above,
the Company does not presently intend to solicit proxies other than by mail.
2
<PAGE>
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE--ELECTION OF DIRECTORS
General
Three directors are to be elected and qualified at the Annual Meeting. The
Company's Certificate of Incorporation provides for a classified Board of
Directors consisting of three classes of directors (designated as Class I,
Class II and Class III directors, respectively) having staggered three-year
terms, with each class consisting, as nearly as possible, of one-third of the
total number of directors. The initial Class I, Class II and Class III
directors were so designated and elected at the 1997 Annual Meeting. The
initial term of the Class I directors expired and the Class I directors were
elected for a full term of three (3) years at the 1998 Annual Meeting. At the
1999 annual meeting of stockholders, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three (3) years. At the 2000 annual meeting of stockholders, the terms of
office of the Class III directors shall expire and Class III directors shall
be elected for a full term of three (3) years. At each succeeding annual
meeting of stockholders, directors shall be elected for a full term of three
(3) years to succeed the directors of the class whose terms expire at such
annual meeting.
Nominees for election have agreed to serve if elected, and management has
no reason to believe that any nominee will be unavailable to serve. In the
event any nominee is unable or declines to serve as a director at the time of
the Annual Meeting, the proxies will be voted for any nominee who may be
designated by the present Board of Directors to fill the vacancy. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
FOR the nominees named below. The three candidates receiving the highest
number of affirmative votes of the shares represented and voting on this
particular matter at the Annual Meeting will be elected directors of the
Company, to serve their respective terms and until their successors have been
elected and qualified.
Information with Respect to Nominees and Directors
Set forth below is information regarding the nominees and directors,
including information furnished by them as to principal occupations, certain
other directorships held by them, any arrangements pursuant to which they are
selected as directors or nominees and their ages as of March 10, 1999:
<TABLE>
<CAPTION>
Age Position(s) with the Company Director Since
--- ---------------------------- --------------
<C> <C> <S> <C>
Nominees:
Harry S. Gruner........ 39 Director 1996
Graham O. King......... 59 Director 1996
James T. Rothe Ph.D. .. 55 Director Nominee Not applicable
Directors:
Richard A. Bass........ 57 Director 1993
Paul Carter............ 44 Co-Founder and Director 1988
James E. Crawford...... 53 Director 1993
Mark K. Ruport......... 46 President, Chief Executive Officer 1995
and Chairman of the Board of
Directors
Robert L.Gett*......... 48 Director 1996
</TABLE>
- --------
* Mr. Gett's term expires concurrently with the date of the Annual Meeting and
he has elected to not stand for re-election.
3
<PAGE>
Business Experience of Directors and Nominees
Class I--Directors
Richard A. Bass has served as a Director of the Company since May 1993,
and he served as Chairman of the Board from September 1994 to May 1996.
Since February 1991, Mr. Bass has been President and Chief Executive
Officer of Point of View, Inc., a company specializing in medical, high-
tech and sales multi-media interactives.
Paul Carter is a co-founder of the Company and has served as a Director
since its inception. Since July 1994, he has served as Chief Product
Architect, and he served as the Company's Secretary from 1988 to May 1996.
From July 1990 to June 1994, Mr. Carter was Director of Research and
Development of the Company, and from January 1988 to June 1990 he was its
Vice President--Research and Development. Prior to co-founding the Company,
Mr. Carter was a design specialist for Ashton-Tate in California.
Class II--Directors
Robert L. Gett has served as a Director of the Company since June 1996.
He has been President and Chief Executive Officer of Silicon Valley
Internet Partners, an Internet Strategy and Systems Integration Company,
since November 1996. From March 1991 until October 1996 he was President,
North America for Cambridge Technology Partners, an international
professional services information technology firm, and he had served as a
Director of that firm from October 1992. From August 1990 until March 1991,
Mr. Gett served as Executive Vice President--Operations, of Cambridge
Technology Group, Inc. From July 1988 until August 1990, Mr. Gett served as
President of Fidelity Software Development Company, the systems and
technology services unit of Fidelity Investments. From February 1982 until
July 1988, Mr. Gett served as Chief Information Officer of Smith Barney,
Harris Upham & Company, Inc. Mr. Gett is not standing for re-election as a
Director and his term will expire concurrently with the Annual Meeting.
Class II--Nominees
Harry S. Gruner has served as a Director of the Company since May 1996.
He has been a general partner of JMI Equity Fund, a private equity
investment partnership, since November 1992. From August 1986 to October
1992, Mr. Gruner was with Alex. Brown & Sons Incorporated most recently as
a principal. Mr. Gruner is also a director of the META Group, Inc., a
syndicated information technology research company, Hyperion Software,
Inc., an analytical applications software company and numerous privately
held companies.
Graham O. King has served as a Director since April 1996. Mr. King is
currently the President of Strategic Solutions Group for McKesson HBOC,
Inc. Mr. King was Chairman, Chief Executive Officer and a Director of US
Servis, Inc., a healthcare management services company, from October 1993
to September 1998, at which time US Servis, Inc. was purchased by McKesson
HBOC, Inc. From April 1987 to October 1993, Mr. King was with Shared
Medical Services, a company specializing in hospital information systems,
most recently serving as its president from 1988 to 1993. From February
1983 to December 1986, Mr. King was President of Daseke and Company and
from December 1979 to November 1982, was President and Chief Executive
Officer of Auto-Trol Technology, a computer-aided design software company.
Mr. King is also a Director of ADAC Laboratories, a provider of nuclear
medicine diagnostic imaging equipment and a supplier of radiology and
laboratory information systems.
James T. Rothe Ph.D is currently a Professor of Business at the College
of Business of the University of Colorado at Colorado Springs where he also
served as Dean from 1986 to 1994. Mr. Rothe is a member of the Board of
Directors for Analytical Surveys, Inc. (ANLT) and NeoCore, LLC, and a
Trustee of the Janus Funds. From 1988 to 1998, Mr. Rothe was a Principal of
the Phillips-Smith Specialty Retail Group, a venture capital partnership.
Mr. Rothe was President of Pearle Vision Center in 1986 and President of
Texas State Optical from 1983 to 1986, both of which are divisions of
Pearle Health Services, Inc. Mr. Rothe received his bachelors, masters and
doctoral degrees from the University of Wisconsin at Madison.
4
<PAGE>
Class III--Directors
James E. Crawford III has served as a Director of the Company since
December 1993. He is a general partner of Frontenac Company, a venture
capital firm that he joined in August 1992. From February 1984 to August
1992, Mr. Crawford was a general partner of William Blair Venture
Management Co., the general partner of William Blair Venture Partners III,
a venture capital fund. He was also a general partner of William Blair &
Company, an investment bank and brokerage affiliated with William Blair
Venture Management Co., from January 1987 to August 1992. Mr. Crawford is
also a Director of Input Software (formerly Cornerstone Imaging, Inc.), a
provider of document imaging subsystems, Allegiance Telecom Inc., a
competitive local exchange carrier and he is a Director of several private
companies.
Mark K. Ruport has been President and Chief Executive Officer and
Director of the Company since February 1995. He has served as Chairman of
the Board of Directors since May 1996. From June 1990 to July 1994, Mr.
Ruport was President and Chief Operating Officer, and most recently Chief
Executive Officer, of Interleaf, Inc., a publicly-held software and
services company that develops and markets document management,
distribution and related software. From July 1994 to February 1995, Mr.
Ruport pursued personal interests. From 1989 to 1990, Mr. Ruport was Senior
Vice President of Worldwide Sales of Informix Software, where he had direct
responsibility for direct and indirect sales and OEMs. From 1985 to 1989,
Mr. Ruport was Vice President of North American Operations for Cullinet
Software, where he oversaw North American sales, customer support and
systems integration.
There are no family relationships among the members of the Board of
Directors or the officers of the Company. Messrs. Bass, Carter, Crawford,
Gruner and Ruport, and Mr. Thomson who resigned on November 30, 1997, were
appointed to the Board of Directors of the Company pursuant to a provision of
an Amended and Restated Shareholders' Agreement between the Company and
certain stockholders named therein dated as of November 22, 1995, which
provision will expire on November 22, 2005.
Board Committees and Meetings
During the fiscal year ended December 31, 1998, the Board of Directors held
five (5) meetings. The Board of Directors has an Audit Committee and a
Compensation Committee. Each of the directors attended or participated in 75%
or more of the aggregate of (i) the total number of meetings of the Board of
Directors and (ii) the total number of meetings held by all committees on
which he served during the past fiscal year.
The Audit Committee currently consists of three (3) directors, Messrs.
Bass, Gruner and King. The Audit Committee reviews internal auditing
procedures, the adequacy of internal controls and the results and scope of the
audit and other services provided by the Company's independent auditors. The
Audit Committee meets periodically with management and the independent
auditors. During the fiscal year ended December 31, 1998 the Audit Committee
held one (1) meeting.
The Compensation Committee currently consists of three (3) directors,
Messrs. Crawford, Gruner and King. The Compensation Committee establishes
salaries, incentives and other forms of compensation for officers and other
employees of the Company and administers the incentive compensation and
benefit plans of the Company. The Compensation Committee also has exclusive
authority to administer the Company's 1994 Stock Option/Stock Issuance Plan
(the "1994 Plan") and to make option grants and direct stock issuances under
such Plan. Pursuant to the provisions of the 1994 Plan, the Compensation
Committee has appointed a Secondary Committee of the Compensation Committee,
consisting of Mr. Ruport (the "Secondary Committee"), to make option grants
and direct stock issuances to eligible persons other than officers and
directors subject to the short-swing profit restrictions of the federal
securities laws. The Compensation Committee held three (3) meetings, and the
Secondary Committee acted by written consent on fourteen (14) occasions.
5
<PAGE>
Director Compensation
Except for certain grants of stock options and reimbursement of expenses,
directors of the Company do not receive compensation for services rendered as
a director. However, both Mr. King and Mr. Rothe will receive a fee of $10,000
for each year of service as a director. The Company does not pay compensation
for committee participation or special assignments of the Board of Directors.
Under the Automatic Option Grant Program of the 1994 Plan, each individual
who first joins the Board as a non-employee Board member after July 25, 1996
will receive an option grant for 10,000 shares of Common Stock at the time of
his or her commencement of Board service, provided such individual has not
otherwise been in the prior employ of the Company. In addition, at each annual
stockholder's meeting, beginning with the 1997 annual meeting, each individual
who is to continue to serve as a non-employee Board member will receive an
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 an exercise price equal to the fair market
value per share of Common Stock on the grant date and will have a maximum term
of ten 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, at the option exercise price paid per share, should the
optionee's service as a non-employee Board member cease prior to vesting in
the shares. The 10,000-share grant will vest in four equal and successive
annual installments over the optionee's period of Board service measured from
the grant date. 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) an
acquisition of the Company by merger, asset sale or a hostile takeover of the
Company or (ii) the death or disability of the optionee while serving as a
Board member.
At the 1998 annual meeting, Mssrs. Bass, Crawford, Gruner and King received
an option grant to purchase 2,500 shares of common stock at an exercise price
of $3.50 per share, the fair market value per share of Common Stock on that
date.
In connection with Mr. Rothe's election to the Board of Directors, Mr.
Rothe will receive options to purchase 30,000 shares of the Company's stock,
inclusive of the automatic option grant for 10,000 shares. The options will
vest in four equal and successive annual installments, providing that Mr.
Rothe remains a Board member.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE ABOVE NOMINEES.
6
<PAGE>
PROPOSAL TWO--RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed the firm of KPMG LLP ("KPMG") as the
Company's independent accountants for the fiscal year ending December 31,
1999, and is asking the stockholders to ratify this appointment. The
affirmative vote of a majority of the shares represented and voting at the
Annual Meeting is required to ratify the selection of KPMG.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified,
the Board of Directors in its discretion may direct the appointment of a
different independent accounting firm at any time during the year if the Board
of Directors believes that such a change would be in the best interests of the
Company and its stockholders.
A representative of KPMG is expected to be available at the Annual Meeting,
will have the opportunity to make a statement if he or she desires to do so,
and will be available to respond to appropriate questions.
The Company's independent public accountants for the fiscal year ended
December 31, 1998, PricewaterhouseCoopers, LLP ("PWC"), were dismissed on
March 23, 1999. The decision to dismiss PWC was recommended by the Audit
Committee of the Company's Board of Directors, and approved by the Board of
Directors. Representatives from PWC are not expected to be present at the
Annual Meeting.
PWC's report on the financial statements of the Company for either of the
past two years did not contain an adverse opinion or disclaimer of opinion and
was not modified as to uncertainty, audit scope or accounting principles. In
connection with its audits for the two most recent fiscal years and through
March 23, 1999, there were no disagreements or reportable events with PWC, on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which, if not resolved to PWC's
satisfaction, would have caused them to make reference to subject matter of
the disagreements in connection with their reports.
KPMG was engaged by the Company on April 1, 1999. KPMG was not consulted by
the Company with respect to the application of accounting principles to a
specific completed transaction or contemplated transaction, or the type of
audit opinion that might be rendered on the Company's financial statements.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF KPMG LLP TO SERVE AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
7
<PAGE>
PROPOSAL THREE--APPROVAL OF AMENDMENTS TO THE 1994 STOCK OPTION/ISSUANCE PLAN
The Company's stockholders are being asked to approve a series of
amendments to the Company's 1994 Stock Option/Stock Issuance Plan (the "1994
Plan") which will effect the following changes: (i) renew the automatic annual
increase in the share reserve such that the number of shares of Common Stock
reserved for issuance under the 1994 Plan will automatically increase on the
first trading day of each of the calendar years 2000, 2001 and 2002, by the
number of shares equal to the lesser of (a) three percent (3%) of the total
number of shares of Common Stock outstanding on the last trading day of the
immediately preceding calendar year or (b) 300,000 shares; (ii) amend the
stockholder approval provisions in order to reflect changes which have been
made, since the 1994 Plan was first adopted, to Rule 16b-3 of the Securities
and Exchange Commission (the "SEC") which exempts certain officer and director
transactions under the 1994 Plan from the short-swing liability provisions of
the federal securities laws.
The 1994 Plan was adopted by the Board of Directors in August 1994 as the
successor to the Company's 1992 Stock Plan (the "Predecessor Plan") and was
approved by the stockholders in October 1994. All outstanding options under
the Predecessor Plan were incorporated into the 1994 Plan in August 1994 and
the Predecessor Plan was accordingly terminated at that time. In May 1996, in
connection with the initial public offering of the Common Stock, the Board
restated the 1994 Plan to implement the automatic share increase provision for
the calendar years 1998 and 1999 and add the Automatic Option Grant and Salary
Investment Option Grant Programs. The stockholders approved the restatement in
June 1996. The amendments to the 1994 Plan for which stockholder approval is
sought under this Proposal No. 3 were adopted by the Board in March 1999,
subject to stockholder approval at the Annual Meeting.
The proposed renewal of the automatic annual share increase feature will
assure that a sufficient reserve of Common Stock is available under the 1994
Plan to attract and retain the services of key individuals who are essential
to the Company's long-term growth and success. The remaining amendments will
provide the Company with more opportunities to make equity incentives
available to its non-employee Board members as an inducement for their
continued service and facilitate plan administration by eliminating a number
of limitations and restrictions previously incorporated into the 1994 Plan in
order to comply with the applicable requirements of SEC Rule 16b-3 prior to
its amendment.
The following is a summary of the principal features of the 1994 Plan, as
most recently amended. A copy of the 1994 Plan will be furnished by the
Company to any stockholder upon written request to the Corporate Secretary
located in Colorado Springs, Colorado.
Description of the 1994 Plan
Structure. The 1994 Plan consists of four (4) separate equity incentive
programs: (i) the Discretionary Option Grant Program, (ii) the Salary
Investment Option Grant Program, (iii) the Stock Issuance Program, and (iv)
the Automatic Option Grant Program. The principal features of each of these
programs are described below.
Administration. The Compensation Committee of the Board (the "Plan
Administrator") administers the Discretionary Option Grant and Stock Issuance
Programs of the 1994 and also determines which Section 16 Insiders or other
highly compensated employees may participate in the Salary Investment Option
Grant Program, should such program be implemented in future calendar years.
All grants under the Automatic Option Grant and Salary Investment Option Grant
Programs will be made in strict compliance with the express provisions of each
such program.
Eligibility. Officers and employees, non-employee Board members (other than
members of the Compensation Committee) and independent consultants and
advisors in the service of the Company or any parent or subsidiary corporation
(whether now existing or subsequently established) are eligible to participate
in the Discretionary Option Grant and Stock Issuance Programs. Only non-
employee Board members are eligible to
8
<PAGE>
participate in the Automatic Option Grant Program. Only employees who are
Section 16 Insiders or other highly compensated individuals will be eligible
to participate in the Salary Investment Option Grant Program.
As of December 31, 1998, 5 executive officers, 5 non-employee Board members
and approximately 166 other employees were eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs. The 5 non-employee
Board members were also eligible to participate in the Automatic Option Grant
Program.
Share Reserve. The share reserve under the 1994 Plan consists of 3,210,148
shares of Common Stock. The share reserve includes the automatic share
increases effected in January 1998 and January 1999 of 206,721 and 213,427
shares, respectively, each increase representing the number of shares equal to
three percent (3%) of the total number of shares of Common Stock outstanding
on December 31 of the preceeding year. If the stockholders approve the renewal
of the automatic share increase provision which forms part of this Proposal,
the share reserve will automatically increase on the first trading day of each
of the calendar years 2000, 2001 and 2002 by the number of shares equal to the
lesser of (i) three percent (3%) of the total number of shares of Common Stock
outstanding on December 31 of the immediately preceding year or (ii) 300,000
shares.
Should any option terminate prior to exercise in full, the shares subject
to the unexercised portion of that option will be available for subsequent
option grants. In addition, any unvested shares issued under the Plan and
subsequently repurchased by the Company at the option exercise or direct issue
price paid per share pursuant to the Company's repurchase rights under the
Plan will reduce, on a share-for-share basis, the number of shares of Common
Stock reserved for issuance under the Plan. In addition, shares subject to any
option surrendered in accordance with the stock appreciation right provisions
of the 1994 Plan will not be available for subsequent issuance. No one
participant in the 1994 Plan may receive stock options, separately exercisable
stock appreciation rights and direct stock issuances for more than 500,000
shares of Common Stock in the aggregate per calendar year.
Changes in Capitalization. In the event any change is made to the
outstanding shares of Common Stock by reason of any recapitalization, stock
dividend, stock split, combination of shares, exchange of shares or other
change in corporate structure effected without the Company's receipt of
consideration, appropriate adjustments will be made to (i) the maximum number
and class of securities issuable under the 1994 Plan, (ii) the maximum number
and class of securities for which any one participant may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under the 1994 Plan, (iii) the number and 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, (iv)
the number and class of securities and the exercise price per share in effect
under each outstanding option under the Plan and (v) the maximum number and/or
class of securities for which the share reserve is to increase automatically
on the first trading day of each of the 2000, 2001, and 2002 calendar years.
All such adjustments will be designed to preclude the enlargement or dilution
of participant rights and benefits under the 1994 Plan.
Valuation. For purposes of establishing the option price and for all other
valuation purposes under the 1994 Plan, the fair market value per share of
Common Stock on any relevant date under the 1994 Plan will be the closing
selling price per share of Common Stock on that date, as such price is
reported on the Nasdaq National Market. The closing selling price of the
Common Stock on March 1, 1999 was $4.813 per share.
Discretionary Option Grant Program
Grants. The Plan Administrator has complete discretion under the
Discretionary Option Grant Program to determine which eligible individuals are
to receive option grants, the time or times when such grants are to be made,
the number of shares subject to each such grant, the status of any granted
option as either an incentive stock option or a non-statutory option under the
federal tax laws, the vesting schedule (if any) to be in effect for the option
grant and the maximum term for which any granted option is to remain
outstanding.
9
<PAGE>
Price and Exercisability. The exercise price per share for options granted
under the Discretionary Option Grant Program may not be less than eighty-five
percent (85%) of the fair market value per share of Common Stock on the option
grant date. No option granted will have a term in excess of ten (10) years,
and each option will generally become exercisable in one or more installments
over the optionee's period of service with the Company. The shares of Common
Stock acquired upon the exercise of one or more options may, however, be
unvested and subject to repurchase by the Company, at the exercise price paid
per share, if the optionee ceases service with the Company prior to vesting in
those shares.
The exercise price may be paid in cash or in shares of the Common Stock.
Outstanding options may also be exercised through a same-day sale program
pursuant to which a designated brokerage firm is to effect an immediate sale
of the shares purchased under the option and pay over to the Company, out of
the sale proceeds available on the settlement date, sufficient funds to cover
the exercise price for the purchased shares plus all applicable withholding
taxes.
No optionee will have any stockholder rights with respect to the option
shares until such optionee has exercised the option and paid the exercise
price for the purchased shares. Options are generally not assignable or
transferable other than by will or the laws of inheritance and, during the
optionee's lifetime, the option may be exercised only by such optionee.
However, the Plan Administrator may allow non-statutory options to be
transferred or assigned during the optionee's lifetime pursuant to a domestic
relations order or to one or more members of the optionee's family or to a
trust established for one or more such family members.
Termination of Service. Upon the optionee's cessation of employment or
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. However, at any time while the options remain outstanding, the
Plan Administrator will have complete discretion to extend the period
following the optionee's cessation of employment or service during which his
or her outstanding options may be exercised. The Plan Administrator will also
have complete discretion to accelerate the exercisability or vesting of those
options in whole or in part at any time.
Stock Appreciation Rights. Two types of stock appreciation rights may be
granted under the Discretionary Option Grant Program: (i) tandem rights, which
require the option holder to elect between the exercise of the underlying
option for shares of Common Stock and the surrender of such option for an
appreciation distribution and (ii) limited rights which become exercisable
upon the occurrence of a hostile take-over.
The appreciation distribution payable by the Company upon the exercise of a
tandem stock appreciation right will be equal to the excess of (i) the fair
market value (on the exercise date) of the shares of Common Stock in which the
optionee is at the time vested under the surrendered option over (ii) the
aggregate exercise price payable for those shares. Such appreciation
distribution may, at the Plan Administrator's discretion, be made in cash or
in shares of Common Stock valued at fair market value on the exercise date.
One or more officers or directors of the Company subject to the short-swing
profit restrictions of the Federal securities laws may, at the discretion of
the Plan Administrator, be granted limited stock appreciation rights in
connection with their option grants under the Discretionary Option Grant
Program. Each option with such a limited stock appreciation right may be
surrendered to the Company, to the extent such option is exercisable for one
or more vested option shares, upon the successful completion of a hostile
tender offer for more than fifty percent (50%) of the Company's outstanding
voting stock. In return, the optionee will be entitled to a cash distribution
from the Company in an amount per surrendered option share equal to the excess
of (i) the highest price per share of Common Stock paid in the tender offer
over (ii) the option exercise price per share.
Cancellation/Regrant Program. The Plan Administrator has 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 market price of the Common Stock at the time of the new
grant.
10
<PAGE>
Stock Issuance Program
The Plan Administrator has complete discretion under the Stock Issuance
Program to determine which eligible individuals are to receive stock
issuances, the time or times when such issuances are to be made and the
vesting schedule, if any, to apply to the shares of Common Stock subject to
each stock issuance.
Shares may be sold under the Stock Issuance Program at a price per share
not less than eighty-five percent (85%) of their fair market value, payable in
cash or through a promissory note payable to the Company. Shares may also be
issued as a bonus for past services.
The shares issued as a bonus for past services will be fully vested upon
issuance. All other shares issued under the program will be 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 1994 Plan.
Automatic Option Grant Program
Grants. 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, receives, at the time of such
initial election or appointment, an automatic option grant for 10,000 shares
of Common Stock, provided such individual was not previously in the Company's
employ. In addition, on the date of each Annual Meeting, each individual re-
elected to serve as a non-employee Board member is automatically granted at
that meeting a stock 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 is no limit on the number of such 2,500-share option grants any
one non-employee Board member may receive over his or her period of Board
service, and non-employee Board members who have previously served in the
Company's employ are fully eligible for one or more 2,500-share option grants.
Terms and Conditions. Each option granted under the Automatic Option Grant
Program is subject to the following terms and conditions:
. The exercise price per share will be equal to 100% of the fair market
value per share of Common Stock on the automatic grant date.
. Each option will have a term of (i) ten (10) years measured from the
grant date or (ii) twelve (12) months following termination of Board
service.
. Each 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.
. The shares subject to each initial 10,000-share grant will vest in four
(4) successive equal annual installments over the optionee's period of
Board service, with the first such installment to vest upon the
completion of one (1) year of Board service measured from the automatic
grant date. The shares subject to each annual 2,500-share grant will
vest upon the completion of one (1) year of Board service measured from
the automatic 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
hostile tender offer for more than fifty percent (50%) of the
outstanding voting securities; or (iii) a change in the majority of the
Board occasioned by one or more contested elections for Board
membership.
11
<PAGE>
. Upon the successful completion of a hostile tender offer for securities
possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding voting securities, each outstanding
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 (i) the highest price per share of Common Stock paid in such
hostile tender offer over (ii) the exercise price payable per share.
Stockholder approval of this Proposal will also constitute pre-approval
of each option grant with such a cash surrender right made on or after
the date of the Annual Meeting and the subsequent exercise of that right
in accordance with the foregoing terms.
Salary Investment Option Grant Program
Participation. In the event the Plan Administrator elects to activate the
Salary Investment Option Grant Program for one or more calendar years, each
executive officer and other highly compensated employee of the Company selected
for participation may elect, prior to the start of the calendar year, to reduce
his or her base salary for that calendar year by a specified dollar amount not
less than $10,000 nor more than $50,000.
Grants. Each participant will automatically be granted, on the first trading
day in January of the calendar year for which that salary reduction is to be in
effect, a non-statutory option to purchase that number of shares of Common
Stock determined by dividing the salary reduction amount by two-thirds of the
fair market value per share of Common Stock on the grant date. The option will
be exercisable at a price per share equal to one-third of the fair market value
of the option shares on the grant date. As a result, the total spread on the
option shares at the time of grant (the fair market value of the option shares
on the grant date less the aggregate exercise price payable for those shares)
will be equal to the amount of salary invested in that option. The option will
vest and become exercisable in a series of twelve (12) equal monthly
installments over the calendar year for which the salary reduction is to be in
effect.
Stock Appreciation Rights. Limited stock appreciation rights will
automatically be included as part of each grant made under the Salary
Investment Option Grant Program. Options 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 optionee
will be entitled to a cash distribution from the Company in an amount per
surrendered option share equal to the excess of (i) the highest price per share
of Common Stock paid in connection with the tender offer over (ii) the exercise
price payable for such share.
General Provisions
Change in Ownership or Control. 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 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 which are
assumed in connection with such acquisition will immediately become exercisable
for all the option shares, and any unvested shares which do not vest at the
time of such acquisition will immediately vest in full, in the event the
optionee's service with the Company or any successor entity is terminated
within eighteen (18) months after the acquisition. The Plan Administrator also
has the authority, exercisable either (i) at the time an option is granted
under the Discretionary Option Grant Program or a stock issuance is made under
the Stock Issuance Program or (ii) at any time while such option remains
outstanding or the shares subject to such stock issuance remain unvested, to
provide for the full and immediate vesting of such stock option or unvested
shares 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 a change in the majority of the Board by reason of one or more
proxy contests for the election of Board members), with such vesting to occur
either at the time of such change in control or upon the subsequent termination
of the individual's service. Each option outstanding under the Automatic Option
Grant and Salary Investment Option Grant Programs will automatically accelerate
in full upon an acquisition or change in control of the Company.
12
<PAGE>
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
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 1994 Plan through full-recourse
interest-bearing promissory notes. However, the maximum amount of financing
provided to any participant may not exceed the cash consideration payable for
the issued shares plus all applicable taxes incurred in connection with the
acquisition of the shares.
Special Tax Election. The Plan Administrator may, in its discretion,
provide one or more holders of outstanding options under the Discretionary
Option Grant Program with the right to have the Company withhold a portion of
the shares of Common Stock otherwise issuable to such individuals in
satisfaction of the income and employment tax liability incurred by them in
connection with the exercise of those options. Alternatively, the Plan
Administrator may allow such individuals to deliver existing shares of Common
Stock in satisfaction of such tax liability.
Amendment and Termination. The Board may amend or modify the 1994 Plan in
any or all respects whatsoever. However, certain amendments may require
stockholder approval pursuant to applicable laws and regulations.
Unless sooner terminated by the Board, the 1994 Plan will in all events
terminate on August 11, 2004. Any options outstanding at the time of such
termination will remain in force in accordance with the provisions of the
instruments evidencing such grants.
Option Grants
For each of the executive officers named in the Summary Compensation Table
and the various indicated groups, the table below shows (i) the number of
shares of Common Stock subject to options granted under the 1994 Plan during
the period from January 1, 1998 to March 1, 1999 and (ii) the weighted average
exercise price payable per share under such options. No direct stock issuances
have been made to date under the 1994 Plan.
<TABLE>
<CAPTION>
Weighted Average
Exercise Price
Number of of
Name and Position Option Shares Granted Options
----------------- ------------- ----------------
<S> <C> <C>
Mark K. Ruport ................................. 100,000 $3.500
Chairman, Chief Executive Officer and President
Steven M. Johnson .............................. 35,000 $3.500
Vice President--Finance and Administration,
Chief Financial Officer and Secretary
Marc R. Fey..................................... 15,000 $3.500
Senior Vice President--Engineering
and Customer Support Services
Jeanne C. Logozzo .............................. 25,000 $3.500
Vice President--Marketing
Greg D. Cooke .................................. 20,000 $3.266
Vice President--North American Sales
All current executive officers as a group (5 195,000 $3.476
persons).......................................
All current non-executive directors as a group 12,500 $3.500
(5 persons)....................................
All employees, including current officers who
are not executive officers, as a group (57
persons)....................................... 591,000 $3.150
</TABLE>
As of March 1, 1999 options covering 1,829,478 shares of Common Stock were
outstanding under the 1994 Plan, 770,305 shares had been issued, and 610,365
shares remained available for future option grants.
13
<PAGE>
New Plan Benefits
Since the amendment subject to this Proposal will not result in any
increase to the share reserve under the 1994 Plan until January 2000, no
option grants will be made on the basis of that amendment until that time.
Federal Income Tax Consequences of Options Granted under the 1994 Plan
Options granted under the 1994 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 holding periods is not satisfied, then a disqualifying disposition
will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for those shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of the
shares on the exercise date over (ii) the exercise price paid for those shares
will be taxable as ordinary income to the optionee. Any additional gain or
loss recognized upon the disposition will be taxable as a capital gain or
loss.
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.
14
<PAGE>
Stock Appreciation Rights
No taxable income is recognized upon the receipt of a stock appreciation
right. The holder will recognize ordinary income, in the year in which the
right is exercised, equal to the amount of the appreciation distribution.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the holder in connection with the exercise of
the stock appreciation right. The deduction will be allowed for the taxable
year of the Company in which such ordinary income is recognized.
Direct Stock Issuance
The tax principles applicable to direct stock issuances under the 1994 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
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 options granted with exercise prices equal
to the fair market value of the shares on the grant date will qualify as
performance-based compensation for purposes of 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 Code Section 162(m).
Accounting Treatment
Under the current accounting principles in effect for equity incentive
programs such as the 1994 Plan, the option grants under the 1994 Plan will not
result in any direct charge to the Company's reported earnings. However, the
fair value of those options is required to be disclosed in the notes to the
Company's financial statements, and the Company must also disclose, in
footnotes to the Company's financial statements, the pro-forma impact those
options would have upon the Company's reported earnings were the fair value of
those options at the time of grant treated as a compensation expense. In
addition, the number of outstanding options may be a factor in determining the
Company's earnings per share on a fully-diluted basis.
Under a recently-proposed amendment to the current accounting principles,
option grants made to non-employee Board members or consultants after December
15, 1998 will result in a direct charge to the Company's reported earnings
based upon the appreciation in the value of the underlying shares over the
period between the grant date of the option (or, if later, the effective date
of the final amendment) and the vesting date of each installment of the option
shares. In addition, if the proposed amendment is adopted, any options which
are repriced after December 15, 1998 will also trigger a direct charge to the
Company's reported earnings measured by the appreciation in the value of the
underlying shares over the period between the grant date of the option (or, if
later, the effective date of the final amendment) and the date the option is
exercised for those shares.
Should one or more optionees be granted stock appreciation rights under the
1994 Plan that have no conditions upon exercisability other than a service or
employment requirement, then such rights would result in a compensation
expense to be charged against the Company's reported earnings. Accordingly, at
the end of each fiscal quarter, the amount (if any) by which the fair market
value of the shares of common stock subject to such outstanding stock
appreciation rights has increased from the prior quarter-end would be accrued
as compensation expense, to the extent such fair market value is in excess of
the aggregate exercise price in effect for those rights.
15
<PAGE>
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 1999 Meeting,
together with the affirmative vote of a majority of the required quorum, is
required for approval of this proposed amendment to the 1994 Plan. Should such
stockholder approval not be obtained, then the annual automatic increase in the
share reserve, pursuant to which the number of shares of Common Stock reserved
for issuance under the 1994 Plan will automatically increase on the first
trading day of each of the calendar years 2000, 2001 and 2002 by the number of
shares equal to the lesser of (i) three percent (3%) of the total number of
shares of Common Stock outstanding on December 31 of the immediately preceding
year or (ii) 300,000 shares, will not be renewed and no such automatic increase
will occur after 1999. In addition, whether or not stockholder approval is
otherwise required by the laws or regulations governing the Plan, the Board
will not be permitted, without stockholder approval, to amend the 1994 Plan to
(i) increase the number of shares issuable thereunder, or the maximum number of
shares for which any one may be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances, (ii) materially modify
the eligibility requirements for participation in the 1994 Plan, or (iii)
otherwise materially increase the benefits accruing to participants in the 1994
Plan. The 1994 Plan will, however, continue to remain in effect, and option
grants and direct stock issuances may continue to be made pursuant to the
provisions of the 1994 Plan in effect prior to the amendments summarized in
this Proposal until the available reserve of Common Stock, as last approved by
the stockholders, has been issued pursuant to option grants and direct stock
issuances made under the 1994 Plan.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE AMENDMENTS
TO THE 1994 PLAN.
16
<PAGE>
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
March 1, 1999 by (i) all persons who are beneficial owners of five percent
(5%) or more of the Company's Common Stock, (ii) each nominee for director,
(iii) the executive officers named in the Summary Compensation Table below,
and (iv) all current directors and executive officers as a group.
<TABLE>
<CAPTION>
Percentage
Shares of Shares
Beneficially Beneficially
Name and Address of Beneficial Owner Owned(1)(2) Owned(1)(2)
------------------------------------ ------------ ------------
<S> <C> <C>
Mark K. Ruport(3)................................... 545,000 7.1%
Steven M. Johnson(4)................................ 155,386 2.1%
Marc R. Fey(5)...................................... 178,750 2.5%
Jeanne C. Logozzo(6)................................ 25,000 *
Greg D. Cooke(7).................................... 18,756 *
Paul Carter(8)...................................... 682,186 9.4%
Richard A. Bass(9).................................. 75,856 1.1%
James E. Crawford III(10)........................... 908,067 13.1%
Robert L. Gett(11).................................. 40,000 *
Harry S. Gruner(12)................................. 415,533 5.8%
Graham O. King(13).................................. 55,000 *
James T. Rothe Ph.D. (14)........................... -- --
Malcolm D. Thomson(15).............................. 506,686 6.9%
5945 Wilson Road
Colorado Springs, CO 80919
Frontenac VI Limited Partnership(16)................ 908,067 12.6%
135 S. LaSalle Street
Suite 3800
Chicago, IL 60603
JMI Equity Fund, L.P.(17)........................... 415,533 5.8%
1119 St. Paul Street
Baltimore, MD 21202
Dimensional Fund Advisors(18)....................... 475,200 6.6%
1299 Ocean Ave.
11th Floor
Santa Monica, CA 90401
All directors and executive officers as a group (12 3,099,534 37.7%
persons)...........................................
</TABLE>
- --------
* Represents beneficial ownership of less than 1%.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock. The address for Messrs. Ruport, Johnson, Fey, Logozzo, Cooke, and
Carter is c/o Optika Inc., 7450 Campus Drive, 2nd Floor, Colorado Springs,
Colorado 80920.
(2) Based on 7,171,470 shares of Common Stock outstanding as of March 1, 1999.
The number of shares of Common Stock deemed outstanding includes shares of
Common Stock issuable pursuant to stock options that are currently
exercisable or may be exercised within 60 days after March 1, 1999. Shares
issuable pursuant to such options are deemed outstanding for computing the
percentage of the person holding such options, but are not deemed
outstanding for computing the percentage of any other person.
(3) Includes 535,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days
of March 1, 1999, 18,334 of which shares are unvested and subject to a
repurchase right of the Company, and 176,354 with respect to which Mr.
Ruport shares dispositive power with his former spouse.
17
<PAGE>
(4) Includes 154,386 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days
of March 1, 1999, 5,834 of which shares are unvested and subject to a
repurchase right of the Company.
(5) Includes 63,750 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days
of March 1, 1999.
(6) Includes 25,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days
of March 1, 1999.
(7) Includes 18,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days
of March 1, 1999.
(8) Includes (i) 76,555 shares of Common Stock held of record by the Paul
Carter Irrevocable Trust, of which Mr. Carter may be deemed to be
beneficial owner; (ii) 120,000 vested shares of Common Stock issuable upon
exercise of options that are currently exercisable and (iii) 50,668 shares
of Common Stock held by Iris C. Carter, the spouse of Mr. Carter. Also
includes an aggregate of 67,500 shares of Common Stock which are subject
to currently exercisable options held by third parties.
(9) Includes 15,000 shares of Common Stock issuable upon exercise of options
granted by the Company that are currently exercisable or will become
exercisable within 60 days of March 1, 1999, 7,500 of which shares are
unvested and subject to a repurchase right of the Company.
(10) Pursuant to a Schedule 13G dated February 13, 1997 and filed with the
Securities and Exchange Commission, includes 893,067 shares of Common
Stock owned beneficially by Frontenac. The general partner of Frontenac
is the Frontenac Company, of which Mr. Crawford is a general partner. In
such capacity, Mr. Crawford may be deemed to be a beneficial owner of
such shares, although he disclaims such beneficial ownership except to
the extent of his pecuniary interest therein, if any. Also includes (i)
15,000 shares of Common Stock issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days of March
1, 1999, 7,500 of which shares are unvested and subject to a repurchase
right of the Company, and (ii) 25,000 shares of Common Stock which are
subject to currently exercisable options granted by Frontenac to Mr.
King. The address of Mr. Crawford is c/o Frontenac Company, 135 South
LaSalle Street, Suite 3800, Chicago, Illinois 60603.
(11) Includes 40,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days
of March 1, 1999, 20,000 of which shares are unvested and subject to a
repurchase right of the Company.
(12) Pursuant to a Schedule 13G dated February 12, 1999 and filed with the
Securities and Exchange Commission, includes 400,533 shares of Common
Stock owned beneficially owned by JMI Equity Fund, L.P. The general
partner of JMI Equity Fund, L.P. is JMI Partners, L.P., of which Mr.
Gruner is a general partner. In such capacity, Mr. Gruner may be deemed
to be a beneficial owner of such shares, although he disclaims such
beneficial ownership except to the extent of his pecuniary interest
therein, if any. Also includes 15,000 shares of Common Stock issuable
upon exercise of options that are currently exercisable or will become
exercisable within 60 days of March 1, 1999, 7,500 of which shares are
unvested and subject to a repurchase right of the Company. The address of
Mr. Gruner is c/o JMI Partners, L.P., 1119 St. Paul Street, Baltimore,
Maryland 21202.
(13) Includes (i) 30,000 shares of Common Stock issuable upon exercise of
options granted by the Company that are currently exercisable or will
become exercisable within 60 days of March 1, 1999, 15,000 of which
shares are unvested and subject to a repurchase right of the Company and
(ii) 25,000 shares of Common Stock issuable upon exercise of options
granted by Frontenac to Mr. King, which options are currently exercisable
or will become exercisable within 60 days of March 1, 1999, 12,500 of
which shares are unvested and subject to a repurchase right of Frontenac.
(14) Does not include 30,000 shares of Common Stock issuable upon exercise of
options to be granted upon Mr. Rothe's election to the Company's Board of
Directors.
(15) Pursuant to a Schedule 13G filed with the Securities and Exchange
Commission on February 13, 1999, includes 100,000 shares of Common Stock
held by Nancy H. Thomson, the spouse of Mr. Thomson. Also includes an
aggregate of 67,500 shares of Common Stock which are subject to currently
exercisable options held by third parties, and 120,000 vested shares of
Common Stock issuable upon exercise of options that are currently
exercisable.
18
<PAGE>
(16) Pursuant to a Schedule 13G dated February 13, 1997 and filed with the
Securities and Exchange Commission, Frontenac has reported that as of
December 31, 1997 it had sole voting power over 893,067 shares, shared
voting power over no shares, sole dispositive power over 893,067 shares
and shared dispositive power over no shares. Includes 25,000 shares of
Common Stock which are unvested and subject to a currently exercisable
option granted to Mr. King by Frontenac.
(17) Pursuant to a Schedule 13G dated February 12, 1999 and filed with the
Securities and Exchange Commission, JMI Equity Fund, L.P. has reported
that as of December 31, 1998 it had sole voting power over no shares,
shared voting power over 400,533 shares, sole dispositive power over no
shares and shared dispositive power over 400,533 shares.
(18) Pursuant to a Schedule 13G dated February 12, 1999 and filed with the
Securities and Exchange Commission, Dimensional Fund Advisors reported
that it had sole voting power over 475,200 shares, shared voting power
over 0 shares, sole dispositive power over 475,200 shares and shared
dispositive power over 0 shares.
19
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following table provides certain information summarizing the
compensation earned by the Company's Chief Executive Officer and each of the
Company's other four most highly compensated executive officers whose salary
and bonus was in excess of $100,000 for the fiscal year ended December 31,
1998 (the "Named Executive Officers"), for services rendered in all capacities
to the Company and its subsidiaries for each of the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------- ------------
Securities
Name and Principal Other Annual Underlying
Position Year Salary($) Bonus($)(1) Compensation($) Option (#)
------------------ ---- --------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Mark K. Ruport..........
Chairman, Chief 1998 229,800 116,000 9,427(2) 100,000
Executive Officer and 1997 181,750 45,989 -- --
President 1996 183,956 34,000 -- 110,000
Steven M. Johnson.......
Vice President--Finance
and Administration, 1998 140,000 104,000(3) -- 35,000
Chief Financial Officer 1997 129,082 24,000 -- --
and Secretary 1996 131,156 18,000 -- 35,000
Marc R. Fey.............
Senior Vice President--
Engineering and 1998 130,000 29,000 -- 15,000
Customer Support 1997 117,762 12,500 -- --
Services 1996 120,000 10,000 -- --
Jeanne C. Logozzo(4).... 1998 120,000 38,000 -- 25,000
Vice President-- 1997 51,218 -- -- 75,000
Marketing 1996 -- -- -- --
Greg D. Cooke(5)........ 1998 104,542 42,461 -- 20,000
Vice President--North 1997 108,183 28,465 -- --
American Sales 1996 87,500 39,853 -- --
</TABLE>
- --------
(1) Bonuses earned in 1996, 1997 and 1998 were paid in 1997, 1998 and 1999,
respectively.
(2) Represents the cost of a company car for Mr. Ruport.
(3) Mr. Johnson's bonus for 1998 includes a commission of $60,000 earned in
his temporary role as Vice President of Channel Sales. Mr. Johnson
occupied this role during the period of July 1, 1998 through December 31,
1998.
(4) Ms. Logozzo joined the Company as Vice President of Marketing on June 9,
1997.
(5) Mr. Cooke became Vice President of North American Sales on February 18,
1999.
20
<PAGE>
Option Grants in Last Fiscal Year
The following table contains information concerning the stock option grants
made to each of the Named Executive Officers for the fiscal year ended
December 31, 1998. No stock appreciation rights ("SARs") were granted to these
individuals during such fiscal year.
<TABLE>
<CAPTION>
Potential
Realizable Value
Individual Grants at Assumed Annual
------------------------------------------------- Rates of Stock
Percent of Price
Number of Total Options Exercise Appreciation for
Securities Granted to Price Option Term(1)($)
Underlying Employees in Per Expiration -----------------
Name Options Granted Fiscal Year Share(2) Date 5% 10%
---- --------------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Mark K. Ruport(3)....... 100,000 13.8% $3.5000 02/26/08 $220,113 $557,810
Steven M. Johnson(3).... 35,000 4.8% $3.5000 02/06/08 $ 77,040 $195,233
Marc R. Fey(3).......... 15,000 2.1% $3.5000 02/06/08 $ 33,017 $ 83,671
Jeanne C. Logozzo(3).... 25,000 3.5% $3.5000 02/06/08 $ 55,028 $139,452
Greg D. Cooke(3)........ 15,000 2.1% $3.1875 01/21/08 $ 30,069 $ 76,201
Greg D. Cooke(3)........ 5,000 0.7% $3.5000 02/06/08 $ 11,006 $ 27,890
</TABLE>
- --------
(1) 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.
(2) The exercise price may be paid in cash, in shares of the Common Stock
valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same day sale of the purchased shares. The
Plan Administrator may also assist an optionee in the exercise of an
option by (i) authorizing a loan from the Company in a principal amount
not to exceed the aggregate exercise price plus any tax liability incurred
in connection with the exercise or (ii) permitting the optionee to pay the
option price in installments over a period of years upon terms established
by the Compensation Committee. The Plan Administrator has the
discretionary authority to reprice outstanding options under the Plan
through the cancellation of those options and the grant of replacement
options with an exercise price based on the lower fair market value of the
option shares on the re-grant date.
(3) The option was granted pursuant to the 1994 Plan. The option has a maximum
term of ten years measured from the grant date, subject to earlier
termination upon optionee's cessation of service with the Company. The
optionee will vest in 25% of the options shares upon completion of one
year of service with the Company after the grant date and the balance in a
series of equal annual installments over the next three years of service
completed thereafter. The option shares will fully vest in the event the
Company is acquired by merger or asset sale, unless the option is assumed
by the acquiring company. In addition, if the option is assumed by the
acquiring company, the option shares will vest in full upon the
termination of the optionee's service, whether involuntarily or through a
resignation for good reason, within eighteen months following the
acquisition.
21
<PAGE>
Aggregated Option Exercises and Fiscal Year-End Values
The table below sets forth certain information with respect to the Named
Executive Officers concerning the unexercised options they held as of the end
of the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options
Shares Options at FY-End(#) at FY-End($)(1)
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark K. Ruport.......... -- -- 510,000 100,000 852,250 37,500
Steven M. Johnson....... -- -- 145,636 35,000 262,789 13,125
Marc R. Fey............. -- -- 60,000 15,000 120,000 5,625
Jeanne C. Logozzo....... -- -- 18,750 81,250 7,031 30,469
Greg D. Cooke........... 14,600 36,463 13,000 20,000 30,063 12,188
</TABLE>
- --------
(1) Based on the fair market value of the option shares at fiscal year-end ($3
7/8 per share on the basis of the closing selling price on the Nasdaq
National Market at fiscal year-end) less the exercise price.
Employment Contracts, Termination of Employment Arrangements and Change of
Control Agreements
The Company has an agreement with Mark K. Ruport that provides for his
employment as President and Chief Executive Officer of the Company at the
discretion of the Board of Directors. Mr. Ruport's base salary is $240,000,
subject to annual review by the Compensation Committee, and he is eligible to
receive performance bonuses which may be awarded by the Compensation
Committee. In 1995, Mr. Ruport was also granted an option to acquire 400,000
shares of Common Stock under the 1994 Plan pursuant to the terms of his
employment agreement. Mr. Ruport is eligible to receive severance equal to one
year's base salary in the event he is terminated by the Company without cause.
The Company has an agreement with Steven M. Johnson that provides for his
employment as Chief Financial Officer of the Company, at the discretion of the
Board of Directors. Mr. Johnson's base salary is $140,000, and he is eligible
to receive performance bonuses which may be awarded by the Compensation
Committee. Mr. Johnson is eligible to receive severance equal to six months'
salary in the event he is terminated by the Company without cause.
The Company has an agreement with Marc R. Fey that provides for his
employment as Senior Vice President--Engineering and Customer Support
Services, at the discretion of the Board of Directors. Mr. Fey's base salary
is $130,000, subject to annual review by the Compensation Committee, and he is
eligible to receive performance bonuses which may be awarded by the
Compensation Committee. Mr. Fey is eligible to receive severance equal to six
months' salary in the event he is terminated by the Company without cause.
The Company has an agreement with Jeanne C. Logozzo that provides for her
employment as Vice President of Marketing, at the discretion of the Board of
Directors. Ms. Logozzo's base salary is $120,000, subject to annual review by
the Compensation Committee and she is eligible to receive performance bonuses
which may be awarded by the Compensation Committee.
The Company has an agreement with Greg D. Cooke that provides for his
employment as Vice President of North American Sales, at the discretion of the
Board of Directors. Mr. Cooke's base salary is $120,000, subject to annual
review by the Compensation Committee, and he is eligible to receive incentive
compensation based on performance of the North American operations.
In connection with an acquisition of the Company by merger or asset sale,
each outstanding option held by the Chief Executive Officer and the other
executive officers under the 1994 Plan will automatically accelerate in full
and all unvested shares of Common Stock issued to such individuals pursuant to
the exercise of options granted or direct stock issuances made under such plan
will immediately vest in full, except to the extent such options are to be
assumed by, and the Company's repurchase rights with respect to those shares
are to be
22
<PAGE>
assigned to, the successor corporation. Any options that are assumed in an
acquisition will automatically accelerate, and any repurchase rights which are
assigned will terminate, in the event the executive's service is terminated,
whether involuntarily or through a resignation for good reason, within
eighteen months following the acquisition. In addition, the Compensation
Committee as Plan Administrator of the 1994 Plan has the authority to provide
for the accelerated vesting of the shares of Common Stock subject to
outstanding options held by the Chief Executive Officer or any other executive
officer or the shares of Common Stock purchased pursuant to the exercise of
options or subject to direct issuances held by such individual, in connection
with the termination of the officer's employment following certain hostile
changes in control of the Company.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board is currently comprised of Messrs.
Crawford, Gruner and King. None of the present or former members of the
Compensation Committee were at any time during the fiscal year ended December
31, 1998 or at any other time an officer or employee of the Company.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Exchange Act which require them to file reports with respect to their
ownership of the Common Stock and their transactions in such Common Stock.
Based upon (i) the copies of Section 16(a) reports which the Company received
from such persons for their 1998 fiscal year transactions in the Common Stock
and their Common Stock holdings, and (ii) the written representations received
from one or more of such persons that no annual Form 5 reports were required
to be filed by them for the 1998 fiscal year, the Company believes that both
the executive officers and the Board members complied with all their reporting
requirements under Section 16(a) for such fiscal year, except that Paul
Carter, a Director of the Company, filed one incorrect report on Form 4 to
disclose the sale of stock. The incorrect form was subsequently amended.
23
<PAGE>
COMPENSATION COMMITTEE REPORT
Overview and Philosophy
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for establishing the base salary and incentive cash bonus programs
for the Company's executive officers and other key employees and administering
certain other compensation programs for such individuals, subject in each
instance to review by the full Board. The Compensation Committee also has the
exclusive responsibility for the administration of the Company's 1994 Plan
under which grants may be made to executive officers and other key employees.
It is the Committee's objective that executive compensation be directly
influenced by the Company's business results. Accordingly, the Company's
executive compensation program is structured to stimulate and reward
exceptional performance that results in enhanced corporate and stockholder
values.
The Committee recognizes that the industry sector in which the Company
operates is extremely competitive world-wide, with the result that there is
substantial demand for high-caliber, seasoned executives. It is crucial that
the Company be assured of retaining and rewarding its executive personnel
essential in contributing to the attainment of the Company's performance
goals. For these reasons, the Committee believes the Company's executive
compensation arrangements must remain competitive with those offered by other
companies of similar magnitude, complexity and performance records.
Cash Compensation
A key objective of the Company's executive compensation program is to
position its key executives to earn annual cash compensation (base salary plus
bonus) equaling or exceeding that which the executive would earn at other
similarly situated companies. The Committee, however, did not rely upon any
specific compensation surveys for comparative compensation purposes. Instead,
the Committee made its decisions as to the appropriate market level of base
salary for each executive officer on the basis of its understanding of the
salary levels in effect for similar positions at those companies with which
the Company competes for executive talent. Base salaries will be reviewed on
an annual basis, and adjustments will be made in accordance with the factors
indicated above. The Committee ensures, however, that the higher level of
compensation is paid only when profitable growth rates occur.
Base salaries for the named executive officers are established considering
a number of factors, including the Company's sustained growth and increased
profit margins, the executive's performance and contribution to overall
Company performance, and the salary levels of comparable positions at
companies of a similar size and in a similar industry sector. The Committee
adheres to a compensation philosophy of moderate levels of fixed compensation
such as base salary. Base salary decisions are made as part of a formal review
process.
Stock Options
The Committee grants stock options under the 1994 Plan to foster executive
ownership and to provide direct linkage with stockholder interests. The
Committee considers the executive's current level of equity holdings in the
Company, the stock options previously granted to that individual, industry
practices, the executive's accountability level, and assumed, potential stock
value when determining stock option grants. The Committee relies upon
competitive guideline ranges of retention-effective, target gain objectives to
be derived from option gains based upon relatively aggressive assumptions
relating to planned growth and earnings. In this manner, the potential
executive gains parallel those of other stockholders over the long-term.
Therefore, the stock option program serves as the Company's only long-term
incentive and retention tool for executives and other key employees. The
option shares vest in increments over a period of years as the officers remain
in the Company's employ, and the exercise prices of the stock options granted
to the named executive officers are equal to the market value of the stock on
the date of grant. Therefore, stock options provide an incentive to executives
to continue with the Company and maximize the Company's profitable growth
which ordinarily, over time, should be reflected in the price of the Company's
stock.
24
<PAGE>
Benefits
The Company provides benefits to the named executive officers that are
generally available to other executives in the peer group companies. The
amount of such executive-level benefits and perquisites, as determined in
accordance with the rules of the Securities and Exchange Commission relating
to executive compensation, did not, for any executive officer, exceed 10% of
his total salary and bonus for fiscal 1999. The Committee believes, based upon
the review of industry practices and published benefits surveys, that the
Company's officers receive approximately average benefit levels when compared
to the peer group companies.
Chief Executive Officer Performance and Compensation
In setting Mr. Ruport's base salary of $240,000 and awarding him a bonus of
$116,000 for the 1998 fiscal year, the Committee took note of the Company's
progress in its transition plan and continued to structure his compensation
package so that more of his total compensation would be tied to the Company's
attainment of specific operating objectives.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation
exceeding $1 million paid to certain of the corporation's executive officers.
The compensation to be paid to the Company's executive officers for the 1998
fiscal year did not exceed the $1 million limit per officer, nor is it
expected that the compensation to be paid to the Company's executive officers
for fiscal 1999 will exceed that limit. The Company's 1994 Plan is structured
so that any compensation deemed paid to an executive officer when he exercises
an outstanding option under that Plan with an exercise price equal to the fair
market value of the option shares on the grant date will qualify as
performance-based compensation which will not be subject to the $1 million
limitation. Because it is very unlikely that the cash compensation payable to
any of the Company's executive officers in the foreseeable future will
approach the $1 million limit, the Compensation Committee has decided at this
time not to take any other action to limit or restructure the elements of cash
compensation payable to the Company's executive officers. The Compensation
Committee will reconsider this decision should the individual compensation of
any executive officer ever approach the $1 million level.
It is the opinion of the Committee that the adopted executive compensation
policies and plans provide the necessary total remuneration program to
properly align the Company's performance and the interests of the Company's
stockholders with competitive and equitable executive compensation in a
balanced and reasonable manner, for both the short- and long-term.
The Compensation Committee of the Board
James E. Crawford III
Harry S. Gruner
Graham O. King
25
<PAGE>
Stock Performance Graph
The graph depicted below compares the cumulative total stockholder returns
on the Company's Common Stock against the cumulative total return of the Nasdaq
Stock Market Index and the Nadsaq Computer and Data Processing Index for the
period from July 25, 1996 to December 31, 1998.
[LINE GRAPH APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25-Jul-96 Sep-96 Dec-96 Mar-97 Jun-97 Sep-97 Dec-97 Mar-98 Jun-98 Sep-98 Dec-98
OPTIKA INC. $ 100 $ 131 $ 84 $ 79 $ 83 $ 83 $ 57 $ 63 $ 55 $ 49 $ 65
NASDAQ STOCK MARKET INDEX $ 100 $ 114 $ 119 $ 113 $ 133 $ 156 $ 146 $ 171 $ 176 $ 159 $ 206
NASDAQ COMPUTER AND DATA
PROCESSING INDEX $ 100 $ 114 $ 118 $ 110 $ 141 $ 154 $ 145 $ 192 $ 213 $ 201 $ 260
</TABLE>
- --------
(1) The graph assumes that $100 was invested on July 25, 1996 in the Company's
Common Stock and in each index, and that all dividends were reinvested. No
cash dividends have been declared on the Company's Common Stock.
(2) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings made under the Securities Act of 1933, as amended, or the
Exchange Act that might incorporate future filings made by the Company under
those statutes, neither the preceding Stock Performance Graph nor the
Compensation Committee Report, is to be incorporated by reference into any such
prior filings, nor shall such graph or report be incorporated by reference into
any future filings made by the Company under those statutes.
CERTAIN TRANSACTIONS
The Company's Amended and Restated Certificate of Incorporation and Bylaws
provide for indemnification of directors, officers and certain agents of the
Company. Each of the current directors and executive officers of the Company
have entered into separate indemnification agreements with the Company.
26
<PAGE>
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed Proxy.
STOCKHOLDERS' PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 2000 Annual Meeting must be received no
later than December 9, 1999, in order that they may be included in the proxy
statement and form of proxy relating to that meeting.
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1998 has been mailed concurrently with this Proxy Statement to
all stockholders entitled to notice of and to vote at the Annual Meeting.
Except for "Executive Officers of the Registrant" from Part I of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998, the
Annual Report is not incorporated into this Proxy Statement and is not
considered proxy solicitation material.
FORM 10-K
The Company filed an Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 with the Securities and Exchange Commission. Stockholders
may obtain a copy of this report, without charge, by writing to Mr. Steven M.
Johnson, the Secretary of the Company, at the Company's principal offices
located at 7450 Campus Drive, 2nd Floor, Colorado Springs, Colorado 80920.
Dated: April 14, 1999
THE BOARD OF DIRECTORS OF
OPTIKA INC.
27
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
1994 STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------
AS RESTATED AND AMENDED THROUGH MARCH 1999
ARTICLE ONE
-----------
GENERAL
-------
I. PURPOSE OF THE PLAN
This 1994 Stock Option/Stock Issuance Plan, as amended and restated,
is intended to promote the interests of Optika Imaging Systems, Inc., a Delaware
corporation, by providing eligible individuals with the opportunity to obtain an
equity interest, or otherwise increase their equity interest, in the
Corporation. This Plan shall serve as the successor equity incentive program to
the Corporation's 1992 Stock Plan.
II. DEFINITIONS
For the purposes of this Plan, the following definitions shall be in
effect:
AUTOMATIC OPTION GRANT PROGRAM: the automatic option grant program in
effect under the Plan.
BOARD: the Corporation's Board of Directors.
CHANGE IN CONTROL: a change in ownership or control of the Corporation
effected through either of the following transactions:
- 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, or
- a change in the composition of the Board over a period of thirty-
six (36) 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 such election or nomination was approved by the Board;
provided, however, that a change in the composition of the Board pursuant
to Section 4.3.1(b) or Section 4.3.6 of the
<PAGE>
Corporation's Amended and Restated Articles of Incorporation shall not
constitute a Change in Control.
CODE: the Internal Revenue Code of 1986, as amended.
COMMITTEE: the committee of two (2) or more non-employee Board
members appointed by the Board to administer the Plan.
COMMON STOCK: shares of the Corporation's common stock.
CORPORATE TRANSACTION: 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
(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.
CORPORATION: Optika Imaging Systems, Inc., a Delaware corporation,
and its successors.
DISCRETIONARY OPTION GRANT PROGRAM: the discretionary option grant
program in effect under the Plan.
ELIGIBLE DIRECTOR: a non-employee Board member eligible to participate
in the Automatic Option Grant Program in accordance with the eligibility
provisions of Section v, Article One.
EMPLOYEE: an individual who performs services while in the employ of
the Corporation (or any Parent or Subsidiary) subject to the control and
direction of the employer entity not only as to the work to be performed but
also as to the manner and method of performance.
EXERCISE DATE: the date on which the Corporation shall have received
written notice of the option exercise.
FAIR MARKET VALUE: the Fair Market Value per share of Common Stock
determined in accordance with the following provisions:
- If the Common Stock is not at the time listed or admitted to
trading on any national stock exchange but is traded on the Nasdaq National
Market, the Fair Market Value shall be the closing selling price per share
on the date in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National Market or any
successor system. If there is no reported 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.
2
<PAGE>
- If the Common Stock is at the time listed or admitted to trading
on any national securities exchange, then the Fair Market Value shall be
the closing selling price per share on the date in question on the exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common Stock
on such exchange on the date in question, then the Fair Market Value shall
be the closing selling price on the exchange on the last preceding date for
which such quotation exists.
- If the Common Stock is on the date in question neither listed nor
admitted to trading on any national securities exchange nor traded on the
Nasdaq National Market, then the Fair Market Value of the Common Stock on
such date shall be determined by the Plan Administrator after taking into
account such factors as the Plan Administrator shall deem appropriate.
- For purposes of any option grants made on the Underwriting Date,
the Fair Market Value shall be deemed to be equal to the price per share at
which the Common Stock is to be sold in the initial public offering
pursuant to the Underwriting Agreement.
HOSTILE TAKE-OVER: a change in ownership of the Corporation effected
through the following transaction:
- 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, and
---
- the acceptance of more than fifty percent (50%) of the securities
so acquired in such tender or exchange offer from holders other than
Section 16 Insiders.
INCENTIVE OPTION: a stock option which satisfies the requirements of
Code Section 422.
INVOLUNTARY TERMINATION: the termination of the Service of any
Optionee or Participant which occurs by reason of:
- such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
- such individual's voluntary resignation following (i) 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 any non-
discretionary and objective-standard
3
<PAGE>
incentive payment or bonus award) by more than ten percent (10%) in the
aggregate 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.
MISCONDUCT: the commission of any act of fraud, embezzlement or
dishonesty by the Optionee or Participant, any unauthorized use or disclosure by
such individual of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary) or any other intentional misconduct by such
individual adversely affecting the business or affairs of the Corporation 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 individual in the Service of the Corporation.
1934 ACT: the Securities Exchange Act of 1934, as amended.
NON-STATUTORY OPTION: a stock option not intended to meet the
requirements of Code Section 422.
OPTIONEE: a person to whom an option is granted under the Option
Grant Program.
PARENT: Any corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation, provided each such
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
PARTICIPANT: a person who is issued Common Stock under the Stock
Issuance Program.
PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the
Optionee or the Participant to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
However, solely for 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.
PLAN: the Corporation's 1994 Stock Option/Stock Issuance Plan, as
amended and restated and set forth in this document.
PLAN EFFECTIVE DATE: August 12, 1994, the date on which the Plan was
adopted by the Board.
PLAN ADMINISTRATOR: either the Board or the Committee, to the extent
the Committee is at the time responsible for the administration of the Plan in
accordance with Section IV of Article One.
4
<PAGE>
PREDECESSOR PLAN: the Corporation's 1992 Stock Plan.
SALARY INVESTMENT OPTION GRANT PROGRAM: the salary reduction grant
program in effect under the Plan.
SECTION 12(G) REGISTRATION DATE: July 25, 1996, the date on which the
initial registration of the Common Stock under Section 12(g) of the 1934 Act
became effective.
SECTION 16 INSIDER: an officer or director of the Corporation subject
to the short-swing profit liabilities of Section 16 of the 1934 Act.
SERVICE: the performance of services on a periodic basis for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-
employee member of the board of directors or an independent consultant, except
to the extent otherwise specifically provided in the applicable stock option or
stock issuance agreement.
STOCK ISSUANCE PROGRAM: the stock issuance program in effect under the
Plan.
SUBSIDIARY: any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
such corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
TAXES: 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.
10% STOCKHOLDER: 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.
TAKE-OVER PRICE: the greater of (a) the Fair Market Value per share of
-------
Common Stock on the date the particular option to purchase such stock is
surrendered to the Corporation in connection with a Hostile Take-Over or (b) the
highest reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Take-Over. However, if the cancelled option is an
Incentive Option, then the Take-Over Price shall not exceed the clause (a) price
per share.
UNDERWRITING AGREEMENT: the agreement between the Corporation and the
underwriter or underwriters managing the initial public offering of the Common
Stock.
UNDERWRITING DATE: July 25, 1996, the date on which the Underwriting
Agreement was executed and priced in connection with the initial public offering
of the Common Stock.
5
<PAGE>
III. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four 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),
(iii) the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary
invested each year in special below-market option grants, and
(iv) the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at
periodic intervals to purchase shares of Common Stock.
B. The Discretionary Option Grant and Stock Issuance programs became
effective on the Plan Effective Date. The Salary Investment Option Grant Program
shall become effective when implemented by the Plan Administrator. The Automatic
Option Grant Program shall become effective on the Underwriting Date.
C. The provisions of Articles One and Six shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
IV. ADMINISTRATION OF THE PLAN
A. Until the Section 12(g) Registration Date, the Discretionary
Option Grant and Stock Issuance Programs shall be administered by the Board or
the Committee. From and after such Section 12(g) Registration Date, the
Discretionary Option Grant and Stock Issuance Programs shall be administered
solely and exclusively by the Committee. No non-employee Board member shall be
eligible to serve on the Committee if such individual has, within the relevant
period designated below, received an option grant or direct stock issuance under
this Plan or any other stock plan of the Corporation (or any Parent or
Subsidiary):
- for each of the initial members of the Committee, the period
commencing with the Section 12(g) Registration Date and ending with
the date of his or her appointment to the Committee, or
- for any successor or substitute member, the twelve (12)-month
period immediately preceding the date of his or her appointment to the
Committee or (if shorter) the period commencing with the Section 12(g)
Registration Date and ending with the date of his or her appointment
to the Committee.
6
<PAGE>
B. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time.
C. The Plan Administrator shall have full power and authority
(subject to the express provisions of the Plan) to establish rules and
regulations for the proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding option
grants or stock issuances thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator shall be final and binding on all parties
who have an interest in the Discretionary Option Grant or Stock Issuance
Programs, or any outstanding option grant or share issuance thereunder.
D. Administration of the Salary Investment Option Grant and
Automatic Option Grant Programs shall be self-executing in accordance with the
terms of each such program, and no Plan Administrator shall exercise any
discretionary functions with respect to any option grants or stock issuances
made under those programs.
V. 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 (other than those
serving as members of the Committee) or the board of directors of any
Parent or Subsidiary, and
(iii) consultants 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 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 when 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 stock 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
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. Only Section 16 Insiders and other highly compensated Employees
shall be eligible to participate in the Salary Investment Option Grant Program.
7
<PAGE>
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals serving
as non-employee Board members on the Underwriting Date (ii) those individuals
who first become non-employee Board members after the Underwriting Date, whether
through appointment by the Board or election by the Corporation's stockholders,
and (iii) those individuals who continue to serve as non-employee Board members
at one or more Annual Stockholders Meetings held after the Underwriting Date.
However, Messrs. Gett and King, who each received an option grant under the
Discretionary Option Grant Program of the Plan prior to the Underwriting Date
shall not be eligible to receive an initial option grant under the Automatic
Option Grant Program on the Underwriting Date. In addition, 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 option grant under the
Automatic Option Grant Program at the time he or she first becomes a non-
employee Board member, but shall be eligible to receive periodic option grants
under the Automatic Option Grant Program while he or she continues to serve as a
non-employee Board member.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the
Plan and shall be drawn from either the Corporation's authorized but unissued
shares of Common Stock or from reacquired shares of Common Stock, including
shares repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock which may be issued over the ten (10)-year term of the
Plan shall not exceed 3,210,158* shares, subject to adjustment from time to
time in accordance with the provisions of this Section VI. Such authorized share
reserve is comprised of (i) the number of shares which remained available for
issuance, as of the Plan Effective Date, under the Predecessor Plan as last
approved by the Corporation's stockholders, including the shares subject to the
outstanding options incorporated into this Plan and any other shares which would
have been available for future option grant under the Predecessor Plan as last
approved by the stockholders, plus (ii) an increase of 520,000* /shares
authorized by the Board as of the Plan Effective Date and subsequently approved
by the Corporation's stockholders, plus (iii) an additional increase of 200,000
shares authorized by the Board on November 8, 1995, and approved by the
Corporation's stockholders in February 1996, plus (iv) an additional increase of
750,000 shares approved by the Board in February 1996 and by the Corporation's
stockholders in June 1996, plus (v) an additional increase of 206,721 shares
effected on January 2, 1998 pursuant to Section VI. B. below, plus (v) an
additional increase of 213,437 shares effected on January 4, 1999 pursuant to
Section VI. B. below. As one or more outstanding options under the Predecessor
Plan which have been incorporated into this Plan are exercised, the number of
shares issued with respect to each such option shall reduce, on a share-for-
share basis, the number of shares available for issuance under this Plan. In
addition, the share reserve under the Plan shall be reduced on a share-for-share
basis for each share of Common Stock issued under the Corporation's Special
Stock Option/Stock Purchase Plan, pursuant to which a maximum of 80,000 shares
of Common Stock have been reserved for issuance to service providers of the
Corporation's Business Solution Partner Companies.
______________________
* Adjusted for the 4-for-1 split of the Common Stock effected on
November 22, 1994.
8
<PAGE>
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of each of the
1998 through the 2002 calendar years, by an amount equal to three percent (3%)
of the shares of Common Stock outstanding on December 31 of the immediately
preceding calendar year. Beginning with the 2000 calendar year, in no event may
such annual increase exceed 300,000 shares. For the 1998 and 1999 calendar
years, no Incentive Options may be granted on the basis of the additional shares
of Common Stock resulting from such annual increases
C. In no event may any one individual participating in the Plan be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances for more than 500,000 shares of Common Stock in the
aggregate per calendar year, beginning with the 1996 calendar year.
D. Should one or more outstanding options under this Plan (including
options incorporated from the Predecessor Plan) expire or terminate for any
reason prior to exercise in full (including any option cancelled in accordance
with the cancellation-regrant provisions of Section IV of Article Two of the
Plan), then the shares subject to the portion of each option not so exercised
shall be available for subsequent option grants under the Plan. Shares subject
to any stock appreciation rights exercised under the Plan and all share
issuances under the Plan, whether or not the shares are subsequently repurchased
by the Corporation pursuant to its repurchase rights under the Plan, shall
reduce on a share-for-share basis the number of shares of Common Stock available
for subsequent issuance under the Plan. In addition, should the exercise price
of an outstanding 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 outstanding option under the Plan or the vesting of a
direct share issuance made 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 share
issuance, and not by the net number of shares of Common Stock actually issued to
the holder of such option or share issuance.
E. Should any change be made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which the share reserve is to increase automatically on the first
trading day of each of the 1998 through the 2002 calendar years, (iii) the
maximum number and/or class of securities for which any one individual
participating in the Plan may be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances in the aggregate under this
Plan per calendar year, (iv) the number and/or class of securities for which
grants are subsequently to be made under the Automatic Option Grant Program to
new and continuing non-employee Board members, (v) the number and/or class of
securities and price per share in effect under each option outstanding under the
Plan and (vi) the number and/or class of securities and price per share in
effect under each outstanding option incorporated into this Plan from the
Predecessor Plan. Such adjustments to the outstanding options are to be effected
in a manner which shall preclude the enlargement or dilution of rights and
benefits thereunder. The adjustments determined by the Plan Administrator shall
be final, binding and conclusive.
9
<PAGE>
ARTICLE TWO
-----------
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by action
of the Plan Administrator and may, at the Plan Administrator's discretion, be
either Incentive Options or Non-Statutory Options. Individuals who are not
Employees of the Corporation or its Parent or Subsidiary may only be granted
Non-Statutory Options. Each granted option shall be evidenced by one or more
instruments in the form approved by the Plan Administrator; provided, however,
--------
that each such instrument shall comply with the terms and conditions specified
below. Each instrument evidencing an Incentive Option shall, in addition, be
subject to the applicable provisions of Section II of this Article Two.
A. Option Price.
------------
1. The option price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The option price per share of Common Stock subject
to an Incentive Option shall in no event be less than one hundred percent
(100%) of the Fair Market Value of such Common Stock on the grant date.
(ii) The option price per share of Common Stock subject
to a Non-Statutory Option shall in no event be less than eighty-five
percent (85%) of the Fair Market Value of such Common Stock on the grant
date.
2. The option price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Four, be payable as follows:
(i) in cash or check made payable to the Corporation,
(ii) in shares of Common Stock held by the Optionee 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
(iii) 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
(a) to 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 option 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 purchase and (b) to the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale transaction.
10
<PAGE>
3. Except to the extent such sale and remittance procedure is
utilized, payment of the option price for the purchased shares must be made on
the Exercise Date.
B. Term and Exercise of Options. Each option granted under this
----------------------------
Plan shall be exercisable at such time or times and during such period as is
determined by the Plan Administrator and set forth in the instrument evidencing
the grant. No such option, however, shall have a maximum term in excess of ten
(10) years measured from the grant date. During the lifetime of the Optionee,
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable by the Optionee other than by will or by the laws of
descent and distribution following the Optionee's death. Non-Statutory Options
may, to the extent permitted by the Plan Administrator, be assigned in whole or
in part during the Optionee's lifetime pursuant to a Domestic Relations Order or
to one or more members of Optionee's family or a trust established for one or
more such family members. 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 as set forth in such documents issued to the Assignee as the Plan
Administrator may deem appropriate.
C. Termination of Service.
----------------------
1. Except to the extent otherwise provided pursuant to
subsection C.2 below, the following provisions shall govern the exercise period
applicable to any options held by the Optionee at the time of cessation of
Service or death:
(i) Should the Optionee cease to remain in Service for
any reason other than death or Permanent Disability, then the period during
which each outstanding option held by such Optionee is to remain
exercisable shall be limited to the three (3)-month period following the
date of such cessation of Service.
(ii) Should such Service terminate by reason of
Permanent Disability, then the period during which each outstanding option
held by the Optionee is to remain exercisable shall be limited to the
twelve (12)-month period following the date of such cessation of Service.
(iii) Should the Optionee die while holding one or more
outstanding options, then the period during which each such option is to
remain exercisable shall be limited to the twelve (12)-month period
following the date of the Optionee's death. During such limited period, the
option may be 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.
(iv) Under no circumstances, however, shall any such
option be exercisable after the specified expiration date of the option
term.
(v) 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
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be exercisable for any vested shares
for which the option has not been exercised. However, the option shall,
immediately
11
<PAGE>
upon the Optionee's cessation of Service, terminate and cease to be
outstanding with respect to any option shares for which the option is not
at that time exercisable or in which the Optionee is not otherwise at that
time vested.
(vi) 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 complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding,
- to extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service or death
from the limited period in effect under subsection C.1 of this Article Two
to such greater period of time as the Plan Administrator shall deem
appropriate; provided, that in no event shall such option be exercisable
--------
after the specified expiration date of the option term; and/or
- to permit one or more options held by the Optionee under
this Article Two to be exercised, during the limited post-Service exercise
period applicable under this paragraph C., not only with respect to the
number of vested shares of Common Stock for which each such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more subsequent installments for which the option
would otherwise have become exercisable had such cessation of Service not
occurred.
D. Stockholder Rights. An Optionee shall have no stockholder
------------------
rights with respect to any shares covered by the option until such individual
shall have exercised the option, paid the option price for the purchased shares
and become the record holder of those shares.
E. Unvested Shares. The Plan Administrator shall have the
---------------
discretion to authorize the issuance of unvested shares of Common Stock under
the Plan. Should the Optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the option price paid per
share, any or all of those unvested shares. The terms and conditions upon which
such repurchase right shall be exercisable (including the period and procedure
for exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Plan Administrator and set forth in the agreement
evidencing such repurchase right. All outstanding repurchase rights under the
Plan shall terminate automatically upon the occurrence of any Corporate
Transaction, except to the extent the repurchase rights are expressly assigned
to the successor corporation (or parent thereof) in connection with the
Corporate Transaction.
II. INCENTIVE OPTIONS
Incentive Options may only be granted to individuals who are
Employees, and the terms and conditions specified below shall be applicable to
all Incentive Options granted under the Plan. Except as modified by the
provisions of this Section II, all the provisions of Articles One, Two and Six
of the Plan shall be applicable to all Incentive Options granted hereunder. Any
12
<PAGE>
Options specifically designated as Non-Statutory shall not be subject to such
terms and conditions.
A. Dollar Limitation. The aggregate Fair Market Value (determined
-----------------
as of the respective date or dates of grant) of the Common Stock for which one
or more options granted to any Employee under this Plan (or any other option
plan of the Corporation or its Parent or Subsidiary) may for the first time
become exercisable as incentive stock options under the Federal tax laws during
any one calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as incentive stock options
under the Federal tax laws shall be applied on the basis of the order in which
such options are granted. Should e number of shares of Common Stock for which
any Incentive Option first becomes exercisable in any calendar year exceed the
applicable One Hundred Thousand Dollar ($100,000) limitation, then that option
may nevertheless be exercised in that calendar year for the excess number of
shares as a Non-Statutory Option under the Federal tax laws.
B. 10% Stockholder. If any individual to whom an Incentive Option
---------------
is granted is 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 grant date and the option term shall not exceed five (5)
years measured from the grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each option which
is at the time outstanding under this Article Two shall automatically accelerate
so that each such option shall, immediately prior to the specified effective
date for such Corporate Transaction, become fully exercisable with respect to
the total number of shares of Common Stock at the time subject to such option
and may be exercised for all or any portion of such shares as fully-vested
shares of Common Stock. However, an outstanding option under this Article Two
shall NOT so accelerate if and to the extent: (i) such option is, in connection
with such Corporate Transaction, either to be assumed by the successor
corporation or parent thereof or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation or parent
thereof, (ii) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the option spread existing at the time of
such 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. However, upon an Optionee's cessation of
Service by reason of an Involuntary Termination (other than for Misconduct)
within eighteen (18) months after a Corporate Transaction in which his or her
outstanding options are assumed or replaced pursuant to clause (i) above, each
such option shall automatically accelerate and become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of such shares as fully
vested shares of Common Stock. The option as so accelerated shall remain
exercisable until the earlier of (i) the expiration of the option term or (ii)
-------
the expiration of the one (1)-year period measured from the date of such
Involuntary Termination. 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.
13
<PAGE>
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 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. Immediately following the consummation of a Corporate
Transaction, all outstanding options under this Article Two shall terminate and
cease to remain outstanding, except to the extent assumed by the successor
corporation or its parent company.
D. Each outstanding option under this Article Two that is assumed
in connection with a Corporate Transaction or is otherwise to continue in effect
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply and pertain to the number and class of securities which would have been
issued to the option holder, in consummation of such Corporate Transaction, had
such person exercised the option immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share, provided the aggregate exercise price payable for such
--------
securities shall remain the same. In addition, the class and number of
securities available for issuance under the Plan on both an aggregate and per
participant basis following the consummation of such Corporate Transaction shall
be appropriately adjusted.
E. The Plan Administrator shall have the discretionary authority,
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 under this Article Two (and the termination of one or
more of the Corporation's outstanding repurchase rights under this Article Two)
upon the occurrence of a Change in Control. The Plan Administrator shall also
have full power and authority to condition any such option acceleration (and the
termination of any outstanding repurchase rights) upon the Optionee's cessation
of Service by reason of an Involuntary Termination (other than for Misconduct)
within a specified period following such Change in Control.
F. Any options accelerated in connection with a Change in Control
shall remain fully exercisable until the expiration or sooner termination of the
option term or the surrender of such option in accordance with Section V of this
Article Two.
G. The grant of options under this Article Two shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
H. The portion of any Incentive Option accelerated under this
Section III in connection with a Corporate Transaction or Change in Control
shall remain exercisable as an incentive stock option under the Federal tax laws
only to the extent the dollar limitation of Section II of this Article Two 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.
14
<PAGE>
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 Optionees, the
cancellation of any or all outstanding options under this Article Two (including
outstanding options under the Predecessor Plan incorporated into this Plan) and
to grant in substitution new options under the Plan covering the same or
different numbers of shares of Common Stock but with an option price per share
not less than (i) one hundred percent (100%) of the Fair Market Value on the new
grant date in the case of a grant of an Incentive Option, (ii) one hundred ten
percent (110%) of such Fair Market Value in the case of an Incentive Option
grant to a 10% Stockholder or (iii) eighty-five percent (85%) of such Fair
Market Value in the case of all other grants.
V. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
V, one or more Optionees may be granted the right, exercisable upon such terms
and conditions as the Plan Administrator may establish, to surrender all or part
of an unexercised option under this Article Two in exchange for a distribution
from the Corporation in an amount equal to the excess of (i) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (ii) the aggregate exercise price payable for such vested
shares.
B. No surrender of an option shall be effective hereunder unless
it is approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the Optionee shall accordingly become entitled under
this Section V 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.
C. If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
-----
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the date of the option grant.
D. One or more Section 16 Insiders may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Article Two. Upon the
occurrence of a Hostile Take-Over at a time when the Corporation's outstanding
Common Stock is registered under Section 12(g) of the 1934 Act, each such
officer holding one or more options with such a limited stock appreciation right
in effect for at least six (6) months 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 fully vested shares of Common Stock. The officer shall
in return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the vested shares of Common
Stock at the time subject
15
<PAGE>
to each surrendered option (or surrendered portion of such option) over (ii) the
aggregate exercise price payable for such vested shares. Such cash distribution
shall be made within five (5) days following the option surrender date. Neither
the approval of the Plan Administrator nor the consent of the Board shall be
required in connection with such option surrender and cash distribution. Any
unsurrendered portion of the option shall continue to remain outstanding and
become exercisable in accordance with the terms of the instrument evidencing
such grant.
E. The shares of Common Stock subject to any option surrendered
for an appreciation distribution pursuant to this Section V shall NOT be
available for subsequent issuance under the Plan.
16
<PAGE>
ARTICLE THREE
STOCK ISSUANCE PROGRAM
----------------------
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate purchases without any intervening stock option
grants. The issued shares shall be evidenced by a Stock Issuance Agreement that
complies with the terms and conditions of this Article Three.
A. Consideration.
-------------
1. Shares of Common Stock may be issued under the Stock Issuance
Program for one or more of the following items of consideration which the Plan
Administrator may deem appropriate in each individual instance:
(i) full payment in cash or check made payable to the
Corporation's order;
(ii) a promissory note payable to the Corporation's order
in one or more installments; or
(iii) past services rendered to the Corporation or any
Parent or Subsidiary.
2. The shares may, in the absolute discretion of the Plan
Administrator, be issued for consideration with a value less than one hundred
percent (100%) of the Fair Market Value of such shares at the time of issuance,
but in no event less than eighty-five percent (85%) of such Fair Market Value.
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the absolute discretion of the Plan Administrator, be fully and
immediately vested upon issuance (as a bonus for past services) or may vest in
one or more installments over the Participant's period of Service or the
Corporation's attainment of performance milestones. The elements of the vesting
schedule applicable to any unvested shares of Common Stock issued under the
Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant
or the performance objectives to be achieved by the Corporation,
(ii) the number of installments in which the shares are to
vest,
(iii) the interval or intervals (if any) which are to lapse
between installments, and
17
<PAGE>
(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 executed by the Corporation and the Participant at the time
such unvested shares are issued.
2. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to him or her under the Plan,
whether or not his or her interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive any regular
cash dividends paid on such shares. Any new, additional or different shares of
stock or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
his or her unvested shares by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration or by reason of any Corporate Transaction shall be
issued, subject to (i) the same vesting requirements applicable to his or her
unvested shares and (ii) such escrow arrangements as the Plan Administrator
shall deem appropriate.
3. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock under the Stock Issuance
Program, then the Corporation shall have the right to require the Participant to
surrender those shares immediately to the Corporation for cancellation, and the
Participant shall cease to have any further stockholder rights with respect to
the surrendered shares. To the extent the surrendered shares were previously
issued to the Participant for consideration paid in cash or cash equivalent
(including the Participant's purchase-money promissory note), the Corporation
shall repay to the Participant the cash consideration paid for the surrendered
shares and shall cancel the unpaid principal balance of any outstanding
purchase-money note of the Participant attributable to such surrendered shares.
4. The Plan Administrator may in its discretion elect to waive
the surrender and cancellation of one or more unvested shares of Common Stock
(or other assets attributable thereto) which would otherwise occur upon the non-
completion of the vesting schedule applicable to such shares. Such waiver shall
result in the immediate vesting of the Participant's interest in the shares of
Common Stock as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under this
Article Three shall automatically terminate upon the occurrence of a Corporate
Transaction, except to the extent the Corporation's outstanding repurchase
rights are expressly assigned to the successor corporation (or parent thereof)
in connection with such Corporate Transaction. However, any assigned repurchase
rights covering the unvested shares held by a Participant under this Article
Three shall immediately terminate should there occur an Involuntary Termination
of that Participant's Service (other than for Misconduct) within eighteen (18)
months after such Corporate Transaction.
18
<PAGE>
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the shares are issued under this Article Three or
at any time while those shares remain outstanding, to provide for the automatic
termination of the Corporation's repurchase rights with respect to those shares
should there occur a Change in Control. The Plan Administrator shall also have
full power and authority to condition the termination of those repurchase rights
upon the Participant's cessation of Service by reason of an Involuntary
Termination (other than for Misconduct) within a specified period following such
Change in Control.
III. SHARE ESCROW/TRANSFER RESTRICTIONS
A. Unvested shares may, in the Plan Administrator's discretion, be
held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing such unvested shares.
B. The Participant shall have no right to transfer any unvested
shares of Common Stock issued to him or her under the Stock Issuance Program.
For purposes of this restriction, the term "transfer" shall include (without
limitation) any sale, pledge, assignment, encumbrance, gift or other disposition
of such shares, whether voluntary or involuntary. Upon any such attempted
transfer, the unvested shares shall immediately be cancelled in accordance with
substantially the same procedure in effect under Section I.B.3 of this Article
Three, and neither the Participant nor the proposed transferee shall have any
rights with respect to such cancelled shares. However, the Participant shall
have the right to make a gift of unvested shares acquired under the Stock
Issuance Program to his or her spouse or issue, including adopted children, or
to a trust established for such spouse or issue, provided the transferee of such
shares delivers to the Corporation a written agreement to be bound by all the
provisions of the Stock Issuance Program and the Stock Issuance Agreement
applicable to the gifted shares.
19
<PAGE>
ARTICLE FOUR
------------
SALARY INVESTMENT OPTION GRANT PROGRAM
--------------------------------------
I. OPTION GRANTS
The Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for those calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files a proper salary
reduction authorization shall automatically be granted an option under this
Salary Investment Option Grant Program on the first trading day in January of
the calendar year for which that salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option 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.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) 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 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.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A divided by (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount by which the Optionee's base salary is
to be reduced for the calendar year, and
20
<PAGE>
B is the Fair Market Value per share of Common Stock on the option
grant date.
C. Exercise and Term of Options. The option shall become exercisable
----------------------------
in a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar year for
which the salary reduction is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease Service
--------------------------------
for any reason while holding one or more options under this Article Three, then
each such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Service, until
the earlier of (i) the expiration of the ten (10)-year option term or (ii) the
-------
expiration of the three (3)-year period measured from the date of such cessation
of Service. Should the Optionee die while holding one or more options under this
Article Three, then each such option may be exercised, for any or all of the
shares for which the option is exercisable at the time of the Optionee's
cessation of Service (less any shares subsequently purchased by Optionee prior
to death), by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution. Such right of
exercise shall lapse, and the option shall terminate, upon the earlier of (i)
-------
the expiration of the ten (10)-year option term or (ii) the three (3)-year
period measured from the date of the Optionee's cessation of Service. However,
the option shall, immediately upon the Optionee's cessation of Service for any
reason, terminate and cease to remain outstanding with respect to any and all
shares of Common Stock for which the option is not otherwise at that time
exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. Each such
outstanding option shall be assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and shall remain exercisable for the
fully-vested shares until the earlier of (i) the expiration of the ten (10)-year
-------
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
The option shall remain so exercisable until the earlier or (i) the expiration
-------
of the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service.
21
<PAGE>
C. The grant of options under the Salary Investment 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. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
22
<PAGE>
ARTICLE FIVE
------------
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 serving as a non-employee Board member
on the Underwriting Date, other than Messrs. King and Gett, who each received an
option under the Discretionary Option Grant Program upon his respective
appointment to the Board prior to the Underwriting Date, shall automatically be
granted, on such date, 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. Each individual who is first elected or appointed as a non-
employee Board member at any time on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment
(as the case may be), a Non-Statutory Option to purchase 10,000 shares of Common
Stock, provided that individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary.
3. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as an Eligible
Director (including those individuals first appointed on or after April 1, 1996
but prior to the Underwriting Date) whether or not that individual is standing
for re-election to the Board at that particular Annual Meeting, 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, and non-employee Board members who have previously been
in the employ of the Corporation (or any Parent or Subsidiary) shall be eligible
to receive one or more such annual option grants over their period of continued
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
23
<PAGE>
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 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. 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.
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
24
<PAGE>
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 held by him or her for a period of at least six (6) months. 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. No approval or consent of the Board or any Plan Administrator shall
be required in connection with such 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.
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. AMENDMENT OF THE AUTOMATIC OPTION GRANT PROGRAM
The provisions of this Automatic Option Grant Program, together with
the option grants outstanding thereunder, may not be amended at intervals more
frequently than once every six (6) months, other than to the extent necessary to
comply with applicable Federal income tax laws and regulations.
IV. 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.
25
<PAGE>
ARTICLE SIX
-----------
MISCELLANEOUS
-------------
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant (including an Optionee or Participant who is an officer
of the Corporation) in the exercise of one or more options granted to such
Optionee under the Discretionary Option Grant Program or the purchase of one or
more shares issued to such Participant under the Stock Issuance Program,
including the satisfaction of any Federal, state and local income and employment
tax obligations arising therefrom, by:
(i) authorizing the extension of a loan from the
Corporation to such Optionee or Participant, or
(ii) permitting the Optionee or Participant to pay the
option price or purchase price for the purchased Common Stock in installments
over a period of years.
B. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be upon such terms as
the Plan Administrator specifies in the applicable option or issuance agreement
or otherwise deems appropriate at the time such option price or purchase price
becomes due and payable. Loans or installment payments may be authorized with or
without security or collateral. In all events, the maximum credit available to
the Optionee or Participant may not exceed the option or purchase price of the
acquired shares (less the par value of such shares) plus any Federal, state and
local income and employment tax liability incurred by the Optionee or
Participant in connection with the acquisition of such shares.
C. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under this Section I shall be subject
to forgiveness by the Corporation in whole or in part upon such terms and
conditions as the Plan Administrator may in its discretion deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to
amend or modify the Plan (or any component thereof) in any or all respects
whatsoever. However, no such amendment or modification shall adversely affect
rights and obligations with respect to options at the time outstanding under the
Plan, nor adversely affect the rights of any Participant with respect to Common
Stock issued under the Stock Issuance Program prior to such action, unless the
Optionee or Participant consents to such amendment. In addition, certain
amendments may stockholder approval pursuant to applicable laws or regulations.
B. (i) Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant Program and (ii) shares of Common Stock may
be issued under the Stock Issuance Program, which are in both instances in
excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under the
26
<PAGE>
Option Grant Program or the Stock Issuance Program are held in escrow until
stockholder approval is obtained for a sufficient increase in the number of
shares available for issuance under the Plan. If such stockholder approval is
not obtained within twelve (12) months after the date the first such excess
option grants or excess share issuances are made, then (i) any unexercised
excess options shall terminate and cease to be exercisable and (ii) the
Corporation shall promptly refund the purchase price paid for any excess shares
actually issued under the Plan and held in escrow, together with interest (at
the applicable Short Term Federal Rate) for the period the shares were held in
escrow.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of any stock options granted under Article Two or upon the
issuance of any shares under Article Three 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 (other than the options granted or the shares issued under the
Automatic Option Grant Program) 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:
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.
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.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan originally became effective upon its adoption by
the Board on August 12, 1994 and was approved by the Corporation's stockholders
on October 10, 1994. The Plan is designed to serve as the successor to the
Corporation's 1992 Stock Plan No further option grants or stock issuances shall
be made under the Predecessor Plan from and after the Plan Effective Date.
B. On November 22, 1994, the Corporation effected a four-for-one
split of the outstanding Common Stock. On November 8, 1995 the Board adopted a
200,000-share increase in the maximum number of shares of Common Stock issuable
over the term of the Plan. The increase was approved by the Corporation's
stockholders in November 1995.
27
<PAGE>
C. In February 1996, the Board amended the Plan to (i) increase the
maximum number of shares of Common Stock issuable over the term of the Plan by
750,000 shares to 2,790,000 shares and (ii) increase the maximum number of
shares of Common Stock for which any one participant in the Plan may receive
option grants, separately exercisable stock appreciation rights and direct stock
issuances in the aggregate from 500,000 shares over the term of such plan to
500,000 shares per calendar year, beginning with the 1996 calendar year. On May
21, 1996, in anticipation of the initial public offering of the Common Stock,
the Board further amended and restated the Plan to (i) provide for the immediate
termination of options granted after such date in the event of the Optionee's
termination of Service for misconduct, (ii) provide for automatic increases in
the maximum number of shares of Common Stock reserved for issuance under the
Plan to be effected on the first trading day in each of the 1998 and 1999
calendar years, and (ii) implement the Automatic Option Grant and Salary
Investment Option Grant Programs. The restatement was approved by the
Corporation's stockholders in June, 1996. The Plan was again amended in March
1999, subject to approval by the stockholders at the 1999 Annual Meeting, to (i)
extend the automatic increases in the maximum number of shares of Common Stock
reserved for issuance under the Plan to the 2000, 2001, and 2002 calendar years,
(ii) allow non-statutory stock options to be transferred in certain
circumstances and (iii) amend the provisions regarding stockholder approval for
amendments to the Plan.
D. Each stock option grant outstanding under the Predecessor Plan
immediately prior to the Plan Effective Date was incorporated into this Plan and
treated as an outstanding option under this Plan, but each such option shall
continue to be governed solely by the terms and conditions of the instrument
evidencing such grant, and nothing in this Plan shall be deemed to affect or
otherwise modify the rights or obligations of the holders of such options with
respect to their acquisition of shares of Common Stock thereunder. However, the
Plan Administrator shall have complete discretion to extend, under such
circumstances as it may deem appropriate, one or more provisions of this Plan to
any or all of the stock options which are incorporated into this Plan from the
Predecessor Plan but which do not otherwise contain such provisions.
E. The provisions of each restatement and amendment of the Plan
apply only to stock options and stock appreciation rights granted under the Plan
and stock issuances made under the Plan from and after the effective date of
such restatement or amendment. All stock options and stock appreciation rights
issued and outstanding under the Plan and all stock issuances effected
immediately prior to such effective date shall continue to be governed by the
terms and conditions of the Plan (and the respective instruments evidencing each
such option, stock appreciation right or stock issuance) as in effect on the
date each such option or stock appreciation right was previously granted or such
stock issuance was made, and nothing in any such restatement or amendment shall
be deemed to affect or otherwise modify the rights or obligations of the holders
of such options or stock appreciation rights with respect to their acquisition
of shares of Common Stock under such options or their exercise of such stock
appreciation rights or the rights or obligations of the individuals to which
such shares of Common Stock have been issued.
F. The Plan shall terminate upon the earlier of (i) August 11,
-------
2004 or (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 stock
appreciation rights granted under the Plan or the issuance of
28
<PAGE>
shares (whether vested or unvested) under the Stock Issuance Program. If the
date of termination is determined under clause (i) above, then all option grants
and unvested share issuances outstanding on such date shall thereafter continue
to have force and effect in accordance with the provisions of the instruments
evidencing such option grants or share issuances.
V. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor
any action taken by the Plan Administrator hereunder, nor any provision of the
Plan shall be construed so as to grant any individual the right to remain in the
employ or service of the Corporation (or any Parent or Subsidiary) for any
period of specific duration, and the Corporation (or any Parent or Subsidiary
retaining the services of such individual) may terminate such individual's
employment or service at any time and for any reason, with or without cause.
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants or share issuances under the Plan shall be used for
general corporate purposes.
VII. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option under the
Plan, the issuance of any shares under the Stock Issuance Program, and the
issuance of Common Stock upon the exercise or surrender of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
29
<PAGE>
DETACH HERE
- --------------------------------------------------------------------------------
PROXY
OPTIKA INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Mark K. Ruport and Steven M. Johnson, or
either of them, the proxies and attorneys-in-fact for the undersigned, with full
power of substitution and revocation, to represent and vote on behalf of the
undersigned, at the 1999 annual meeting of stockholders of Optika Inc. (the
"Company") to be held at The Broadmoor Hotel, One Lake Avenue, Colorado Springs,
Colorado 80919 on May 20, 1999 at 9:00 a.m. local time, and any adjournment or
adjournments thereof, all shares of the common stock $.001 par value per share,
of the Company standing in the name of the undersigned of which the undersigned
may be entitled to vote as follows:
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
DETACH HERE
- --------------------------------------------------------------------------------
[X] Please mark
votes as in
this example
This proxy when executed will be voted in the manner herein by the
undersigned. If no direction is made, this proxy will be voted FOR items 1, 2
and 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 and 3
1. Election of Class II Directors.
NOMINEES: Harry S. Gruner, Graham O. King, James T. Rotha Ph.D.
FOR WITHHELD
ALL [_] [_] FROM ALL
NOMINEES NOMINEES MARK HERE
FOR ADDRESS [_]
[_] CHANGE AND
-------------------------------------- NOTE BELOW
For all nominees except as noted above
FOR AGAINST ABSTAIN
2. Election of KPMG as independent [_] [_] [_]
accountants of the Company.
3. Approval of a series of amendments
to the Company's 1994 Stock
Option/Stock Issuance Plan, FOR AGAINST ABSTAIN
including a renewal of the annual [_] [_] [_]
automatic share increase feature for
the calendar years 2000 through 2002.
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments
thereof.
The submission of this proxy if properly executed revokes all prior proxies
given by the undersigned
Receipt of the Notice of Annual Meeting of Stockholders and accompanying
Proxy Statement is hereby acknowledged.
Note: Please sign, date, and mail this proxy promptly in the enclosed
postage-paid envelope. When shares are held by joint tenants, both should
sign. When signing as attorney, executor, administrator 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.
Signature: Date:
-------------------------------- -----------------------------------
Signature: Date:
-------------------------------- --------------------------------
