<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[X] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(c)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
QUADRAMED CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[QUADRAMED LOGO]
QUADRAMED CORPORATION
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 6, 1998
To Our Stockholders:
You are cordially invited to attend the Special Meeting of Stockholders of
QuadraMed Corporation (the "Company"), which will be held at 80 East Sir Francis
Drake Boulevard, Larkspur, California 94939 at 9:00 a.m. on February 6, 1998
(the "Special Meeting"). The purpose of the Special Meeting is to consider and
take action upon a proposal recommended by the Board of Directors to amend the
Company's 1996 Stock Incentive Plan including a 750,000-share increase in the
number of shares of Common Stock authorized for issuance over the term of such
plan. This matter is more fully described in the Proxy Statement accompanying
this Notice.
The Board of Directors has fixed the close of business on January 7, 1998
as the record date for determining those stockholders who will be entitled to
vote at the Special Meeting. The stock transfer books will remain open between
the record date and the date of the Special Meeting.
Representation of at least a majority of all outstanding shares of Common
Stock of QuadraMed Corporation either in person or by proxy is required to
constitute a quorum. Accordingly, it is important that your shares be
represented at the meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED ENVELOPE. Your proxy may be revoked at any time prior to the time it is
voted at the Special Meeting.
Please read the accompanying proxy material carefully. Your vote is
important and the Company appreciates your cooperation in considering and acting
on the matter presented.
Sincerely yours,
James D. Durham
Chairman of the Board,
President and Chief Executive Officer
January 16, 1998
Larkspur, California
<PAGE> 3
STOCKHOLDERS SHOULD READ THE ENTIRE PROXY STATEMENT
CAREFULLY PRIOR TO RETURNING THEIR PROXIES
------------------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
OF
QUADRAMED CORPORATION
TO BE HELD ON FEBRUARY 6, 1998
------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of QUADRAMED CORPORATION ("QuadraMed Corporation" or the
"Company") of proxies to be voted at the Special Meeting of Stockholders (the
"Special Meeting"), which will be held at 9:00 a.m. on February 6, 1998, at 80
East Sir Francis Drake Boulevard, Larkspur, California 94939, or at any
adjournments or postponements thereof, for the purposes set forth in the
accompanying Notice of Special Meeting of Stockholders. This Proxy Statement and
the proxy card were first mailed to stockholders on or about January 16, 1998.
VOTING RIGHTS AND SOLICITATION
The close of business on January 7, 1998 was the record date for
stockholders entitled to notice of and to vote at the Special Meeting of
Stockholders. As of that date, QuadraMed Corporation had 11,916,097 shares of
Common Stock, $.01 par value per share (the "Common Stock") issued and
outstanding. All of the shares of the Company's Common Stock outstanding on the
record date are entitled to vote at the Special Meeting of Stockholders, and
stockholders of record entitled to vote at the meeting will have one vote for
each share of Common Stock so held with regard to each matter to be voted upon.
Shares of the Company's Common Stock represented by proxies in the
accompanying form which are properly executed and returned to QuadraMed
Corporation will be voted at the Special Meeting of Stockholders in accordance
with the stockholders' instructions contained therein. In the absence of
contrary instructions, shares represented by such proxies will be voted FOR the
proposal to approve the amendments to the 1996 Stock Incentive Plan. Management
does not know of any matters to be presented at this Special Meeting other than
those set forth in this Proxy Statement and in the Notice accompanying this
Proxy Statement. If other matters should properly come before the meeting, the
proxy holders will vote on such matters in accordance with their best judgment.
Any stockholder has the right to revoke his or her proxy at any time before it
is voted at the meeting. The affirmative vote of a majority of the Common Stock
present or represented at the meeting and entitled to vote at the Meeting is
required for approval of each of the proposals being submitted to the
stockholders for their consideration. Abstentions and broker non-votes are each
included in the determination of the number of shares present for quorum
purposes. Abstentions are counted in tabulations of the votes cast on proposals
presented to stockholders, whereas broker non-votes are not counted for purposes
of determining whether a proposal has been approved.
The entire cost of soliciting proxies will be borne by the Company. Proxies
will be solicited principally through the use of the mails, but, if deemed
desirable, may be solicited personally or by telephone, telegraph or special
letter by officers and regular Company employees for no additional compensation.
Arrangements may be made with brokerage houses and other custodians, nominees
and fiduciaries to send proxies and proxy material to the beneficial owners of
the Company's Common Stock, and such persons may be reimbursed for their
expenses.
<PAGE> 4
PROPOSAL 1
APPROVAL OF AMENDMENTS TO THE 1996 STOCK INCENTIVE PLAN
The Company's stockholders are being asked to approve a series of
amendments to the Company's 1996 Stock Incentive Plan (the "1996 Plan") which
will (i) increase the maximum number of shares of Common Stock authorized for
issuance over the term of the 1996 Plan from 1,638,297 to 2,388,297 shares, (ii)
increase the maximum number of shares for which any one person may receive
options, separately exercisable stock appreciation rights and direct stock
issuances by an additional 300,000 shares to 500,000 shares in the aggregate per
calendar year, (iii) remove certain restrictions on the eligibility of
non-employee Board members to serve as Plan Administrator and (iv) effect a
series of additional changes to the provisions of the 1996 Plan (including the
stockholder approval requirements) in order to take advantage of the recent
amendments to Rule 16b-3 of the Securities and Exchange Commission ("SEC") which
exempts certain officer and director transactions under the 1996 Plan from the
short-swing liability provisions of the federal securities laws.
The Board of Directors of the Company (the "Board") believes that the
increase in the number of shares available for issuance over the term of the
1996 Plan is necessary in order to assure that the Company will have a
sufficient reserve of Common Stock available to continue to utilize option
grants for purposes of attracting and retaining the services of key individuals
essential to the Company's long-term success. The Board believes that the other
amendments are needed in order to provide the Company with more opportunities to
make equity incentives available to its executive officers and non-employee
Board members as an inducement for their continued service and to facilitate
plan administration in light of the changes to SEC Rule 16b-3.
The 1996 Plan became effective on June 26, 1996 (the "Effective Date") upon
approval by the Board and serves as the successor to the Company's predecessor
1994 Stock Plan (the "1994 Plan"). On the Effective Date, all outstanding
options under the 1994 Plan were incorporated into the 1996 Plan and the 1994
Plan accordingly terminated. The amendments to the 1996 Plan that are the
subject of this Proposal were adopted by the Board at the July 10 and December
18, 1997 Board meetings. The following is a summary of the principal features of
the 1996 Plan, as amended. The summary, however, does not purport to be a
complete description of all the provisions of the 1996 Plan. Any stockholder of
the Company who wishes to obtain a copy of the actual plan document may do so
upon written request to the Company's Secretary at the Company's principal
executive offices in Larkspur, California.
EQUITY INCENTIVE PROGRAMS
The 1996 Plan contains five (5) separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) a Salary Investment Option Grant
Program, (iii) a Stock Issuance Program, (iv) an Automatic Option Grant Program,
and (v) a Director Fee Option Grant Program. The principal features of each
program are described below. The Compensation Committee has the exclusive
authority to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to option grants and stock issuances made to the Company's
executive officers and non-employee Board members. The Compensation Committee
and the full Board each have separate but concurrent authority to make option
grants and stock issuances under those programs to all other eligible
individuals. The Compensation Committee also has the exclusive authority to
select the executive officers and other highly compensated employees who may
participate in the Salary Investment Option Grant Program, but neither the
Compensation Committee nor the Board will exercise any administrative discretion
with respect to option grants under the Salary Investment Option Grant Program,
or under the Automatic Option Grant or Director Fee Option Grant Program for the
non-employee Board members. All grants under these three latter programs are
made in strict compliance with the express provisions of each such program. The
term Plan Administrator, as used in this summary, will mean either the
Compensation Committee or the Board, to the extent each such entity is acting
within the scope of its administrative jurisdiction under the 1996 Plan.
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<PAGE> 5
SHARE RESERVE
As of January 2, 1998, 2,388,297 shares of Common Stock were reserved under
the 1996 Plan, including the 750,000-share increase subject to stockholder
approval as part of this Proposal and including an additional 178,741 shares
which became issuable as of the first trading day of January 1998 pursuant to
the annual automatic share increase provisions of the 1996 Plan. The number of
shares of Common Stock available for issuance under the 1996 Plan automatically
increases on the first trading day of each calendar year by an amount equal to
one and one-half percent (1.5%) of the total number of shares of Common Stock
outstanding on the last trading day of the immediately preceding calendar year.
However, no individual may be granted options, stock appreciation rights and
direct stock issuances for more than 500,000 shares in the aggregate per
calendar year, assuming stockholder approval of the 300,000-share increase in
such limit pursuant to this Proposal.
The shares of Common Stock issuable under the 1996 Plan may be drawn from
shares of the Company's authorized but unissued Common Stock or from shares of
Common Stock reacquired by the Company, including shares repurchased on the open
market. Shares subject to any outstanding options under the 1996 Plan (including
options incorporated from the 1994 Plan) which expire or otherwise terminate
prior to exercise will be available for subsequent issuance. Unvested shares
issued under the 1996 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 1996 Plan will also be available for reissuance.
However, shares subject to any option surrendered in accordance with the stock
appreciation rights provisions of the 1996 Plan will not be available for
subsequent issuance.
ELIGIBILITY
Employees, non-employee Board members, and independent consultants and
advisors in the service of the Company or its parent and subsidiaries (whether
now existing or subsequently established) are eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs. Executive officers and
other highly compensated employees are also eligible to participate in the
Salary Investment Option Grant Program, and non-employee members of the Board
are also eligible to participate in the Automatic Option Grant and Director Fee
Option Grant Programs.
As of December 31, 1997, six (6) executive officers, six (6) non-employee
Board members and approximately six hundred forty (640) other employees and
consultants were eligible to participate in the Discretionary Option Grant and
Stock Issuance Programs, approximately seven (7) executive officers and other
highly compensated employees were eligible to participate in the Salary
Investment Option Grant Program, and six (6) non-employee Board members were
eligible to participate in the Automatic Option Grant and Director Fee Option
Grant Programs.
VALUATION
The fair market value per share of Common Stock on any relevant date under
the 1996 Plan is the closing selling price per share on that date on the Nasdaq
National Market. On January 2, 1998, the fair market value per share was $27.25.
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. All expenses
incurred in administering the 1996 Plan are paid by the Company.
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<PAGE> 6
PRICE AND EXERCISABILITY
Each option grant has an exercise price per share not less than one hundred
percent (100%) of the fair market value per share of Common Stock on the option
grant date, and no option has a term in excess of ten (10) years. The shares
subject to each option generally vest in a series of installments over a
specified period of service measured from the grant date.
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.
An optionee has no stockholder rights with respect to the option shares
until such optionee has exercised the option and paid the exercise price for the
purchased shares. Options are generally not assignable or transferable other
than by will or the laws of inheritance and, during the optionee's lifetime, the
option may be exercised only by such optionee. However, the Plan Administrator
may allow non-statutory options to be transferred or assigned during the
optionee's lifetime to one or more members of the optionee's immediate family or
to a trust established exclusively for one or more such family members, to the
extent such transfer or assignment is in furtherance of the optionee's estate
plan.
TERMINATION OF SERVICE
Upon the optionee's cessation of service, the optionee has a limited period
of time in which to exercise any outstanding option to the extent exercisable
for vested shares. The Plan Administrator has complete discretion to extend the
period following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability or
vesting of such options in whole or in part. Such discretion may be exercised at
any time while the options remain outstanding, whether before or after the
optionee's actual cessation of service.
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 Common Stock at the time of the new grant.
SALARY INVESTMENT OPTION GRANT PROGRAM
GRANTS
The Plan Administrator has complete discretion in implementing the Salary
Investment Option Grant Program for one or more calendar years and in selecting
the executive officers and other highly compensated individuals who are to
participate in the program for those years. As a condition to such
participation, each selected individual must, prior to the start of the calendar
year of participation, file with the Plan Administrator an irrevocable
authorization directing the Company to reduce his or her base salary for the
upcoming 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 is automatically granted an
option under the Salary Investment Option Grant Program on or before the last
trading day in January of the calendar year for which that salary reduction is
to be in effect. Stockholder approval of this Proposal will constitute
pre-approval of each option subsequently granted pursuant to the provisions of
the Salary Investment Option Grant Program summarized below and the subsequent
exercise of that option in accordance with its terms.
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TERMS
Each option is subject to substantially the same terms and conditions
applicable to option grants made under the Discretionary Option Grant Program,
except for the following differences:
-- Each option is a non-statutory option.
-- The exercise price per share is equal to one-third of the fair
market value per share of Common Stock on the option grant date, and the
number of option shares is determined by dividing the total dollar amount
of the authorized reduction in the participant's base salary by two-thirds
of the fair market value per share of Common Stock on the option grant
date. As a result, the total spread on the option (the fair market value of
the option shares on the grant date less the aggregate exercise price
payable for those shares) is equal to the dollar amount of the reduction to
the optionee's base salary to be in effect for the calendar year for which
the option grant is made.
-- The option becomes exercisable for the option shares 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 remains outstanding for 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 the
optionee's service terminates.
The Compensation Committee has approved the implementation of the Salary
Investment Option Grant Program for the 1998 calendar year.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share
not less than one hundred percent (100%) 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, with no cash outlay required of the
participant.
Shares issued as a bonus for past services are fully vested upon issuance.
All other shares issued under the program are subject to a vesting schedule tied
to the performance of service or the attainment of performance goals. The Plan
Administrator, however, has the discretionary authority at any time to
accelerate the vesting of any and all unvested shares outstanding under the 1996
Plan.
AUTOMATIC OPTION GRANT PROGRAM
GRANTS
Under the Automatic Option Grant Program, each individual serving as a
non-employee Board member on October 10, 1996, the date of the Company's initial
public offering of Common Stock (the "IPO"), received at that time an automatic
option grant for 10,000 shares, provided such individual had not previously been
in the Company's employ or received an option grant from the Company. In
addition, each individual who is first elected or appointed as a non-employee
Board member at any time after the Company's IPO will receive 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. At each annual stockholders meeting beginning with the 1997 Annual
Meeting, each individual who is to continue in service as a non-employee Board
member, whether or not that individual is standing for re-election to the Board
at that particular meeting, will automatically be granted at that meeting an
option to purchase 4,000 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 4,000-share options which any one non-employee Board
member may receive over his or her period of Board service, and non-employee
Board members who have previously been in the Company's employ are fully
eligible for one or more 4,000-share option grants over their
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period of Board service. Stockholder approval of this Proposal will constitute
pre-approval of each option subsequently granted pursuant to the provisions of
the Automatic Option Grant Program summarized below and the subsequent exercise
of that option in accordance with its terms.
TERMS
Each option under the Automatic Option Grant Program has an exercise price
per share equal to 100% of the fair market value per share of Common Stock on
the option grant date and a maximum term of ten (10) years measured from the
grant date.
The option is immediately exercisable for all the option shares, but any
purchased shares are subject to repurchase by the Company, at the exercise price
paid per share, upon the optionee's cessation of Board service prior to vesting
in those shares. Each initial 10,000-share grant vests, and the Company's
repurchase rights lapse, as follows: (i) one-third (1/3) of the option shares
vest upon the optionee's completion of one (1) year of Board service measured
from the option grant date and (ii) the balance of the option shares vest in a
series of twenty-four (24) successive equal monthly installments upon the
optionee's completion of each additional month of Board service over the
twenty-four (24)-month period measured from the first anniversary of such grant
date. Each annual 4,000-share grant vests, and the Company's repurchase right
lapses, in a series of twelve (12) successive equal monthly installments over
the optionee's period of Board service measured from the grant date.
The shares subject to each outstanding automatic option grant will vest
immediately should any of the following occur while the optionee continues in
Board service: (i) the optionee's death or permanent disability, (ii) an
acquisition of the Company by merger or asset sale, (iii) the successful
completion of a tender offer for more than 50% of the Company's outstanding
voting stock or (iv) a change in the majority of the Board effected through one
or more proxy contests for Board membership. Each automatic option grant held by
an optionee upon his or her termination of Board service remains exercisable,
for any or all of the option shares in which the optionee is vested at the time
of such termination, for up to a twelve (12)-month period following such
termination date.
DIRECTOR FEE OPTION GRANT PROGRAM
GRANTS
Each non-employee Board member has the right to apply all or a portion of
his or her total retainer fee otherwise payable in cash each year to the
acquisition of a special option grant under the Director Fee Option Grant
Program. The grant is made automatically on the first trading day in January
following the filing of the stock-in-lieu of cash election and has an exercise
price per share equal to one-third of the fair market value of the option shares
on the grant date. The number of option shares is determined by dividing the
total dollar amount of the retainer fee subject to the director's election by
two-thirds of the fair market value per share of Common Stock on the option
grant date. As a result, the total spread on the option (the fair market value
of the option shares on the grant date less the aggregate exercise price payable
for those shares) is equal to the portion of the retainer fee subject to the
director's election. Stockholder approval of this Proposal will constitute
pre-approval of each option subsequently granted pursuant to the provisions of
the Director Fee Option Grant Program summarized below and the subsequent
exercise of that option in accordance with its terms. As non-employee Board
members do not receive retainer fees, the Director Fee Option Grant Program is
not currently in effect.
TERMS
The options become exercisable for fifty percent (50%) of the option shares
upon the optionee's completion of six (6) months of Board service in the
calendar year for which his or her election is in effect and become exercisable
for the balance of the option shares in a series of six (6) successive equal
monthly installments upon the optionee's completion of each additional month of
Board service during that calendar year. In the event the optionee ceases Board
service for any reason (other than death or permanent disability),
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the options terminate immediately with respect to any unvested shares subject to
the option at the time. However, the option remains exercisable for the vested
shares subject to the option until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the end of the three (3)-year period measured from
the date of the optionee's cessation of Board service. Should the optionee's
service as a Board member cease by reason of death or permanent disability, then
the option will immediately become exercisable for all the shares of Common
Stock subject to the option and may be exercised for such shares until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the end
of the three (3)-year period measured from the date of the optionee's cessation
of Board service.
STOCK AWARDS
The table on the following page shows, as to each of the Named Executive
Officers in the Summary Compensation Table and the various indicated individuals
and groups, the number of shares of Common Stock subject to options granted
under the 1996 Plan since the June 26, 1996 effective date through December 31,
1997, together with the weighted average exercise price payable per share.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
OPTIONS GRANTED WEIGHTED AVERAGE
NAME AND TITLE (NUMBER OF SHARES) EXERCISE PRICE
--------------------------------------------- ------------------ ----------------
<S> <C> <C>
James D. Durham.............................. 305,000 $10.68
Chairman of the Board, President and Chief
Executive Officer
John V. Cracchiolo........................... 155,000 $10.66
Executive Vice President, Chief Financial
Officer and Secretary
Frederick Stodolak........................... 60,000 $10.11
Executive Vice President and President,
Value-Added Systems Division
Lemuel C. Stewart............................ 100,000 $ 9.13
Executive Vice President and President, EDI
Division
Suzanne Blumenthal........................... 25,000 $11.50
Senior Vice President, Business Development
Eugene Arnone................................ -- --
Executive Vice President and President,
Business Office Outsourcing Services
Division
All executive officers as a group
(eight)(8)................................. 757,100 $10.17
Thomas F. McNulty, Director.................. 4,000 $ 7.75
John H. Austin, M.D., Director............... 4,000 $ 7.75
Albert L. Greene, Director................... 10,000 $ 7.75
Kenneth E. Jones, Director................... 10,000 $ 7.75
Joan P. Neuscheler, Director................. 14,000 $10.79
Cornelius T. Ryan, Director.................. 14,000 $10.79
All non-employee directors as a group
(six)(6)................................... 56,000 $ 9.27
All employees, including current officers who
are not executive officers, as a group
(thirty-five)(35).......................... 247,833 $ 8.70
</TABLE>
As of December 31, 1997, 1,282,929 shares of Common Stock were subject to
outstanding options under the 1996 Plan and 14,567 shares remained available for
future issuance. Through December 31, 1997, 1,802,790 shares of Common Stock
have been issued under the 1996 Plan.
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GENERAL PLAN PROVISIONS
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed or replaced by the successor corporation will automatically
accelerate in full, and all unvested shares under the Stock Issuance Program
will immediately vest, except to the extent the Company's repurchase rights with
respect to those shares are transferred to the successor corporation. The Plan
Administrator will have complete discretion to grant one or more options under
the Discretionary Option Grant Program which will become fully exercisable for
all option shares in the event those options are assumed in the acquisition and
the optionee's service with the Company or the acquiring entity is involuntarily
terminated within a designated period following such acquisition. The Plan
Administrator will have similar discretion to grant options which will become
fully exercisable for all the option shares should the optionee's service
terminate, whether involuntarily or through a resignation for good reason,
within a designated period following a change in control of the Company (whether
by successful tender offer for more than 50% of the outstanding voting stock or
by proxy contest for the election of Board members). The Plan Administrator may
also provide for the automatic vesting of any outstanding shares under the Stock
Issuance Program upon similar terms and conditions.
Each option outstanding under the Salary Investment Option Grant, Automatic
Option Grant and Director Fee Option Grant Programs will also automatically
accelerate in the event of an acquisition or change in control of the Company.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
STOCK APPRECIATION RIGHTS
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the Plan:
Tandem stock appreciation rights, which may be granted under the
Discretionary Option Grant Program, provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (a) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (b) the
aggregate exercise price payable for those shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in
cash or in shares of Common Stock.
Limited stock appreciation rights may be granted under the
Discretionary Option Grant Program to one or more officers of the Company
as part of their option grants. 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 officer will be entitled to a cash distribution from the
Company in an amount per surrendered option share equal to the excess of
(a) the highest price per share of Common Stock paid in connection with the
tender offer over (b) the exercise price payable for such share.
All options granted under the Automatic Option Grant, Salary Investment
Option Grant and Director Fee Option Grant Programs include a Limited Stock
Appreciation Right. With respect to such options, stockholder approval of this
Proposal will constitute pre-approval of each such option granted after the
Annual Meeting and the subsequent surrender of that option in accordance with
foregoing provisions. No additional approval of the Plan Administrator or the
Board will be required at the time of the actual option surrender or cash
distribution.
8
<PAGE> 11
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/or class of securities issuable under the
1996 Plan, (ii) the number and/or class of securities for which any one person
may be granted stock options, separately exercisable stock appreciation rights
and direct stock issuances under the 1996 Plan per calendar year, (iii) 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 and (iv) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder.
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 1996 Plan. The Plan Administrator will determine the terms of
any such assistance. However, the maximum amount of financing provided 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 provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the Plan Administrator
may allow such individuals to deliver previously acquired shares of Common Stock
in payment of such tax liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1996 Plan in any or all respects
whatsoever, subject to any required stockholder approval under applicable law or
regulation. The Board may terminate the 1996 Plan at any time, and the 1996 Plan
will in all events terminate on April 30, 2006.
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1996 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 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, 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 the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be
9
<PAGE> 12
taxable as ordinary income to the optionee. Any additional gain or loss
recognized upon the disposition will be recognized as a capital gain or loss by
the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
such distribution for the taxable year in which the ordinary income is
recognized by the optionee.
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the 1996 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 granted with exercise prices equal to the
fair market value of the option shares on the grant date will qualify as
performance-based compensation for purposes of 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
Option grants or stock issuances with exercise or issue prices less than
the fair market value of the shares on the grant or issue date will result in a
direct compensation expense to the Company's earnings equal to the difference
between the exercise or issue price and the fair market value of the shares on
the grant or issue date.
10
<PAGE> 13
Such expense will be accruable by the Company over the period that the option
shares or issued shares are to vest. Option grants or stock issuances at 100% of
fair market value will not result in any direct charge to the Company's
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 pro-forma statements to the Company's financial statements, the
impact those options would have upon the Company's reported earnings were the
value of those options at the time of grant treated as compensation expense.
Whether or not granted at a discount, the number of outstanding options may be a
factor in determining the Company's earnings per share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings.
NEW PLAN BENEFITS
As of December 31, 1997, no options had been granted in reliance upon the
750,000-share increase to the total number of shares reserved for issuance under
the 1996 Plan which is subject to this Proposal. On July 10, 1997, an option for
105,000 shares of Common Stock was granted to James D. Durham on the basis of
the 300,000-share increase to the annual maximum limit on the number of shares
for which any one person may receive options, separately exercisable stock
appreciation rights and direct stock issuances under the 1996 Plan, which
increase is also subject to this Proposal.
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 Meeting is required
for approval of the amendments to 1996 Plan. Should such stockholder approval
not be obtained, then the 750,000-share increase to the share reserve will not
be implemented, and any stock options granted on the basis of that increase will
immediately terminate without becoming exercisable for the shares of Common
Stock subject to those options, and no additional options will be granted on the
basis of such share increase. In addition, should such stockholder approval not
be obtained, then the option grant to Mr. Durham for 105,000 shares granted on
the basis of the 300,000-share increase to the annual maximum limit on the
number of shares for which any one person may be granted such options will
terminate without ever becoming exercisable for any of the shares of Common
Stock subject to that option, and such annual limit will remain at 200,000
shares. In addition, certain other changes to the provisions of the 1996 Plan
(including certain administrative provisions and stockholder approval
provisions) that were intended to take advantage of the recent amendments to
Rule 16b-3 of the SEC will not be implemented.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL
OF THE AMENDMENTS TO THE 1996 PLAN.
11
<PAGE> 14
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1997 by (i) each
person known by the Company to be the beneficial owner of more than five percent
of the outstanding shares of the Company's Common Stock, (ii) each director of
the Company, (iii) each Named Executive Officer listed in the Summary
Compensation Table and (iv) all executive officers and directors of the Company
as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
-------------------------
NAME OF BENEFICIAL OWNERS NUMBER PERCENT
----------------------------------------------------- --------- -------
<S> <C> <C>
Resource Health Partners, L.P........................ 1,588,701 13.3%
c/o Healthcare Research Affiliates, Inc.
West Shore Office Park
5000 Lenker Street
Mechanicsburg, PA 17055
Wells Fargo Bank, N.A.(2)............................ 612,500 5.1
420 Montgomery Street
San Francisco, CA 94163
James D. Durham(3)................................... 634,635 5.1
John V. Cracchiolo(4)................................ 72,241 *
Suzanne J. Blumenthal(5)............................. 33,836 *
Frederick Stodolak(6)................................ 55,786 *
Eugene M. Arnone..................................... 167,688 *
John H. Austin, M.D.(7).............................. 22,666 *
Albert L. Greene(8).................................. 10,000 *
Kenneth E. Jones(8).................................. 10,000 *
Thomas F. McNulty(9)................................. 26,666 *
Joan P. Neuscheler(10)............................... 442,626 3.6
Cornelius T. Ryan(11)................................ 215,439 *
All executive officers and directors as a group (12
persons)(12)....................................... 1,691,583 13.0
</TABLE>
- ---------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options, warrants and convertible notes currently exercisable or
convertible, or exercisable or convertible within 60 days, are deemed
outstanding for computing the percentage of the person holding such
options, but are not deemed outstanding for computing the percentage of any
other person. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) Based upon a Schedule 13G filed on or about February 14, 1997, Wells Fargo
Bank, N.A. has sole voting power with respect to 612,500 shares of Common
Stock and shared investment power with respect to 598,500 of such shares.
All such shares are held in trust accounts for the economic benefit of the
beneficiaries of those accounts.
(3) Includes 90,295 shares of Common Stock owned by Trigon Resources
Corporation ("Trigon"), a corporation owned by Mr. Durham and his two
children, 134,574 shares of Common Stock issuable upon exercise of a
warrant held by Trigon, and 355,600 shares issuable upon exercise of a
warrant held by Mr. Durham. Also includes 54,166 shares issuable upon
exercise of options within 60 days of December 31, 1997. Mr. Durham's
address is 80 East Sir Francis Drake Boulevard, Suite 2A, Larkspur, CA
94939.
(4) Includes 71,666 shares issuable upon exercise of options within 60 days of
December 31, 1997.
12
<PAGE> 15
(5) Includes 32,820 shares issuable upon exercise of options within 60 days of
December 31, 1997.
(6) Includes 19,250 shares issuable upon exercise of options within 60 days of
December 31, 1997.
(7) Includes 22,666 shares issuable upon exercise of options within 60 days of
December 31, 1997.
(8) Includes 10,000 shares issuable upon exercise of options within 60 days of
December 31, 1997.
(9) Includes 26,666 shares issuable upon exercise of options within 60 days of
December 31, 1997.
(10) Includes 179,353 shares of Common Stock owned by, and 249,270 shares of
Common Stock issuable upon exercise of certain warrants issued to,
Tullis-Dickerson Capital Focus, L.P. Also includes 14,000 shares issuable
upon exercise of options held by Ms. Neuscheler and exercisable within 60
days of December 31, 1997. Ms. Neuscheler, a director of the Company, is a
general partner of Tullis-Dickerson Partners, which is the general partner
of Tullis-Dickerson Capital Focus, L.P. Ms. Neuscheler disclaims beneficial
ownership in the shares held by Tullis-Dickerson Capital Focus, L.P.,
except to the extent of her pecuniary interest arising from her general
partnership interest in Tullis-Dickerson Partners. Also includes 231 shares
held in trust for the benefit of Susannah Dickerson and 231 shares held in
trust for the benefit of Caroline Dickerson. Ms. Neuscheler disclaims
beneficial ownership in such shares. Ms. Neuscheler's address is One
Greenwich Plaza, Greenwich, CT 06830.
(11) Includes 65,468 shares of Common Stock owned by Oxford Bioscience Partners
L.P.; 18,465 shares of Common Stock owned by Oxford Bioscience Partners
(Bermuda) Limited Partnership; 91,655 shares of Common Stock issuable upon
exercise of a warrant issued to Oxford Bioscience Partners L.P.; and 25,851
shares of Common Stock issuable upon exercise of a warrant issued to Oxford
Bioscience Partners (Bermuda) Limited Partnership. Also includes 14,000
shares issuable upon exercise of options held by Mr. Ryan and exercisable
within 60 days of December 31, 1997. Mr. Ryan, a director of the Company,
is a general partner of OBP Management L.P. and OBP Management (Bermuda)
Limited Partnership, which are the general partners of Oxford Bioscience
Partners L.P. and Oxford Bioscience Partners (Bermuda) Limited Partnership,
respectively. Mr. Ryan disclaims beneficial ownership in the shares held by
Oxford Bioscience Partners L.P. and Oxford Bioscience Partners (Bermuda)
Limited Partnership, except to the extent of his pecuniary interest arising
from his general partnership interests in OBP Management L.P. and OBP
Management (Bermuda) L.P., respectively. Mr. Ryan's address is 315 Post
Road West, Westport, CT 06880.
(12) Includes 1,132,184 shares issuable upon exercise of certain warrants and
options within 60 days of December 31, 1997.
13
<PAGE> 16
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table set forth certain information regarding the
compensation earned during the last three fiscal years by (i) the Company's
Chief Executive Officer, and (ii) each of the four other most highly compensated
executive officers of the Company serving as such as of the end of the last
fiscal year whose total annual salary and bonus exceeded $100,000. Such
individuals will be hereafter referred to as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------- ----------------
OTHER SECURITIES
FISCAL ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/WARRANTS
- -------------------------------- ------ -------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
James D. Durham................. 1997 $225,000 $100,000 -- 305,000
Chairman of the Board, 1996 187,425 -- -- 101,600
President and Chief 1995 178,003 -- -- 388,574(1)
Executive Officer
John V. Cracchiolo.............. 1997 159,375(2) -- -- 155,000
Executive Vice President, 1996 133,333 52,000 -- --
Chief Financial Officer 1995 73,149(3) -- 14,000(4) 70,000
and Secretary
Frederick Stodolak.............. 1997 179,800 -- -- 60,000
Executive Vice President 1996 118,141(5) -- 134,198(6) --
and President, 1995 -- -- -- 24,000
Value-Added Systems Division
Suzanne J. Blumenthal........... 1997 125,000 3,324(7) -- 25,000
Senior Vice President, 1996 110,000 32,646(8) -- --
Business Development 1995 85,000 28,505(7) 20,400
Eugene M. Arnone................ 1997 127,549(9) -- -- --
Executive Vice President and
President, Business Office
Outsourcing Services Division
</TABLE>
- ---------------
(1) Includes a warrant to purchase 254,000 shares. In September 1996, this
warrant was combined with a warrant to purchase 101,600 shares.
(2) Effective August 1997, Mr. Cracchiolo's annual salary was increased from
$150,000 to $175,000 by the Board of Directors.
(3) Represents salary paid from May 1995 through December 1995.
(4) Represents reimbursement for moving expenses.
(5) Represents salary paid through June 15, 1996 and from November 19, 1996
through December 31, 1996. Mr. Stodolak's annual salary for 1996 was
$175,000. In addition, for the period of September 1, 1996 through November
18, 1996, Mr. Stodolak was a consultant with the Company and received a
$20,000 retainer fee.
(6) For the period June 16, 1996 through August 31, 1996, Mr. Stodolak received
35,786 shares of Common Stock, at $3.75 per share, in lieu of receiving
cash salary. The fair market value of the Common Stock was $7.50 per share.
The aggregate value of the difference between the fair market value and the
purchase price of the shares was $134,198.
(7) Represents commissions earned and paid.
(8) Includes $12,646 for commissions earned and paid.
(9) Represents salary paid from April 1997 through December 1997. Mr. Arnone
resigned from the Company effective December 15, 1997.
14
<PAGE> 17
STOCK OPTIONS
The following table sets forth information concerning the stock option
grants made to each of the Named Executive Officers during the 1997 fiscal year.
No stock appreciation rights were granted during the 1997 fiscal year to the
Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED ANNUAL
NUMBER OF ------------------------------------ RATES OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED EXERCISE OR BASE TERM(3)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED(1) FISCAL 1997 SHARE(2) DATE 5% 10%
- ------------------------ ---------- ----------------- ---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James D. Durham......... 200,000 20.5% $ 11.50 1/03/07 $1,446,488 $3,665,608
105,000 10.8 9.125 7/10/07 602,035 1,526,479
John V. Cracchiolo...... 100,000 10.3 11.50 1/03/07 723,229 1,832,804
55,000 5.6 9.125 7/10/07 315,351 799,585
Frederick Stodolak...... 25,000 2.6 11.50 3/10/07 180,807 458,200
35,000 3.6 9.125 1/03/07 200,678 508,827
Suzanne J. Blumenthal... 25,000 2.6 11.50 1/03/07 180,807 458,200
Eugene M. Arnone........ -- -- -- -- -- --
</TABLE>
- ---------------
(1) Each option set forth in the table above has a maximum term of ten (10)
years measured from the grant date, subject to earlier termination upon the
executive officer's termination of service with the Company. Each option
will become exercisable for 25% of the option shares upon completion of one
year of service measured from the grant date and will become exercisable for
the remaining shares in equal annual installments over the next three years
of service thereafter. The option will immediately become exercisable for
all of the option shares upon an acquisition of the Company by merger or
asset sale unless the options are assumed by the successor corporation.
(2) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a cashless
purchase procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares and the
federal and state income tax liability incurred by the optionee in
connection with such exercise.
(3) 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 10-year option term will be at the assumed 5% and 10% compounded
annual rates 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 Named Executive Officers.
15
<PAGE> 18
OPTION EXERCISES AND YEAR-END VALUES
No SARs were outstanding 1997 fiscal year. The following table sets forth
certain information with respect to the Named Executive Officers concerning
option exercises during the 1997 fiscal year as well as the number of shares of
the Company's Common Stock subject to exercisable and unexercisable stock
options which the Named Executive Officers held at the end of the 1997 fiscal
year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
(#) SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END (1)
ACQUIRED ($) VALUE ----------------------------- ---------------------------
NAME ON EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James D. Durham......... 5,313 63,304 490,174(3) 305,000 $11,641,633 $ 5,129,375
John V. Cracchiolo...... 30,000 388,650 40,000 155,000 950,000 $ 2,610,625
Frederick Stodolak...... 24,000 60,000 570,000 $ 1,043,125
Suzane J. Blumenthal.... 36,400 25,000 884,500 $ 400,000
Eugene M. Arnone........ -- -- -- --
</TABLE>
- ---------------
(1) Calculated by determining the difference between the fair market value of
the Company's Common Stock as of December 31, 1997 and the exercise price of
the option.
(2) Calculated by multiplying the number of shares acquired on exercise by the
difference between the fair market value of the shares on the date of
exercise and the exercise price.
(3) Includes 134,574 shares of Common Stock issuable upon exercise of a warrant
held by Trigon Resources Corporation and 355,600 shares of Common Stock
issuable upon exercise of a warrant held by Mr. Durham. See "Security
Ownership of Certain Beneficial Owners and Management."
EMPLOYMENT AGREEMENTS; CHANGE IN CONTROL ARRANGEMENTS
In December 1996, the Company entered into an employment agreement with
Frederick Stodolak, the Company's Executive Vice President and President,
Value-Added Systems Division. Pursuant to the terms of the agreement, Mr.
Stodolak is to receive a base salary of $175,000 per year and is eligible for
such annual cash bonuses as the Board of Directors in its discretion shall
award. The agreement also contains a severance provision pursuant to which Mr.
Stodolak will receive $175,000 if Mr. Stodolak terminates his employment with
cause (as defined in the agreement) or if Mr. Stodolak is terminated by the
Company (i) without cause or (ii) because he has become disabled. The agreement
terminates on December 31, 1998, but will automatically be extended for a period
of 90 days following notice of termination from the Company, unless the Company
provides written notice to Mr. Stodolak, not later than 90 days prior to such
anniversary date, that it will not extend the term of the letter agreement. In
addition, if Mr. Stodolak's employment is terminated without cause in connection
with a Change in Control (as such term is defined in the agreement), his
outstanding options will vest immediately.
In March 1997, the Company entered into a letter agreement with Keith M.
Roberts, the Company's Vice President and General Counsel. Pursuant to the
letter agreement, Mr. Roberts is to receive a base salary of $125,000 for the
1997 calendar year and is eligible for such annual cash bonuses as the Board of
Directors in its discretion shall award. The letter agreement also includes (i)
a provision entitling Mr. Roberts to an option to purchase 85,000 shares of
Common Stock at an exercise price of $9.625 per share, and (ii) a severance
provision pursuant to which Mr. Roberts, upon a change in control, or
termination without cause, will receive six months' salary and his outstanding
options will vest immediately.
In July 1997, the Company entered into a letter agreement with Lemuel C.
Stewart, Jr., the Company's Executive Vice President and President, EDI
Division. Pursuant to the letter agreement, Mr. Stewart is to receive a base
salary of $175,000 for the 1997 calendar year, subject to annual adjustments at
the discretion of the Board of Directors and is eligible for such annual bonuses
as the Board of Directors in its discretion shall award. The letter agreement
also includes the following severance provisions: (i) if Mr. Stewart dies, his
estate will receive a special termination payment equal to one month's salary
and (ii) if Mr. Stewart is terminated
16
<PAGE> 19
(a) by reason of disability, (b) in an Involuntary Termination other than a
Termination for Cause or (c) in connection with a Change in Control (as those
terms are defined in the letter agreement), Mr. Stewart will receive an
aggregate amount equal to his average annual rate of base salary for the two
immediately preceding calendar years and will continue to receive for a period
of 12 months his life, health and disability and other benefits. In addition,
upon an Involuntary Termination other than a Termination for Cause in connection
with a Change in Control (as such term is defined in the agreement) his
outstanding options will vest immediately. The letter agreement terminates on
June 30, 1999, but will automatically renew for a term of one year on such date
and each succeeding anniversary of such date, unless the Company provides
written notice to Mr. Stewart, not later than three months prior to such
anniversary date, that it will not extend the term of the letter agreement.
In November 1997, the Company entered into a letter agreement with John V.
Cracchiolo, the Company's Chief Financial Officer. Pursuant to the letter
agreement, Mr. Cracchiolo is to receive a base salary of $175,000 for the 1997
calendar year and is eligible for such annual cash bonuses as the Board of
Directors in its discretion shall award. In addition, Mr. Cracchiolo will
receive a car allowance of approximately $300 per month during the term of his
employment. The letter agreement also contains the following severance
provisions: (i) if Mr. Cracchiolo dies, his estate will receive a special
termination payment equal to one months' salary and (ii) if Mr. Cracchiolo is
terminated by reason of disability or an Involuntary Termination other than a
Termination for Cause (as those terms are defined in the letter agreement), Mr.
Cracchiolo will receive an aggregate amount equal to his average annual rate of
base salary for the two immediately preceding calendar years and will also
continue to receive for a period of 12 months his life, health and disability
and other benefits. In addition, upon a Change in Control or an Involuntary
Termination other than a Termination for Cause, Mr. Cracchiolo's outstanding
options will vest immediately. The term of the agreement is one year from the
effective date and shall be extended automatically on each succeeding
anniversary of the effective date of the agreement for an additional one (1)
year period unless, not later than three (3) months preceding such anniversary
date, the Company shall have given written notice to Mr. Cracchiolo that it will
not extend the term of the letter agreement.
In November 1997, the Company entered into a letter agreement with James D.
Durham, the Company's President and Chief Executive Officer. Pursuant to the
letter agreement, Mr. Durham is to receive a base salary of $225,000 for the
1997 calendar year. In addition, Mr. Durham (i) is eligible for such annual cash
bonuses as the Board of Directors in its discretion shall award, based upon the
recommendation of the Board's Compensation Committee, and (ii) will receive a
car allowance of approximately $500 per month during the term of his employment.
The letter agreement also contains the following severance provisions: (i) if
Mr. Durham dies, his estate will receive a special termination payment equal to
one months' salary and (ii) if Mr. Durham is terminated by reason of disability
or an Involuntary Termination other than a Termination for Cause (as those terms
are defined in the letter agreement), Mr. Durham will receive an aggregate
amount equal to the sum of (a) his average annual rate of base salary and (b)
his average bonus paid to him by the Company, in each case for service rendered
by Mr. Durham in the two immediately preceding calendar years and will also
continue to receive for a period of 12 months (24 months if Mr. Durham's
termination is effected in connection with a Change in Control, as defined in
the letter agreement) his life, health and disability and other benefits. In
addition, upon a Change in Control or an Involuntary Termination other than a
Termination for Cause, Mr. Durham's outstanding options will vest immediately.
The letter agreement terminates on December 31, 1999, and will automatically
renew for a term of one year on such date and each succeeding anniversary of
such date, unless the Company provides written notice to Mr. Durham, not later
than three months prior to such anniversary date, that it will not extend the
term of the letter agreement.
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 Company's 1994 Stock Plan (the predecessor equity
incentive program to the 1996 Plan) or the 1996 Plan will automatically
accelerate in full, except to the extent such options are to be assumed by the
successor corporation. In addition, the Compensation Committee as Plan
Administrator of the 1996 Plan will have the authority to provide for the
accelerated vesting of the shares of Common Stock subject to outstanding options
held by the Chief Executive Officer or any other executive officer or any
unvested shares of Common Stock subject to direct issuances held by such
individual, in connection with the termination of the officer's employment
following: (i) a merger or
17
<PAGE> 20
asset sale in which these options are assumed or are assigned or (ii) certain
hostile changes in control of the Company.
DIRECTOR COMPENSATION
Non-employee directors are reimbursed for their reasonable expenses
incurred in connection with attending board meetings. Any non-employee director
who first joins the Board after the May 20, 1996 effective date of the Company's
1996 Stock Incentive Plan (the "1996 Plan") is granted an option to purchase
10,000 shares of Common Stock upon joining the Board. In addition, at each
annual meeting of stockholders, each non-employee director is awarded an option
to purchase an additional 4,000 shares of Common Stock. Such options are
immediately exercisable and will have a maximum term of 10 years. However, any
unvested shares purchased under such option will be subject to repurchase by the
Company, at the exercise price paid per share, upon the optionee's cessation of
service as a director prior to vesting in those shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee currently consists of Dr. Austin, Ms.
Neuscheler and Mr. Ryan. No member of such Committee was at any time during the
1997 fiscal year or at any other time an officer or employee of the Company. No
executive officer of the Company served on the compensation committee of another
entity or on any other committee of the board of directors of another entity
performing similar functions during the Company's last fiscal year.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
It is the duty of the Compensation Committee to review and determine the
salaries and bonuses of executive officers of the Company, including the Chief
Executive Officer, and to establish the general compensation policies for such
individuals. The Compensation Committee also has the authority to make
discretionary option grants to the Company's executive officers under the
Company's 1996 Plan.
The Compensation Committee believes that the compensation programs for the
Company's executive officers should reflect the Company's performance and the
value created for the Company's stockholders. In addition, the compensation
programs should support the short-term and long-term strategic goals and values
of the Company and should reward individual contribution to the Company's
success. The Company is engaged in a very competitive industry, and the
Company's success depends upon its ability to attract and retain qualified
executives through the competitive compensation packages it offers to such
individuals.
GENERAL COMPENSATION POLICY
The Compensation Committee's policy is to provide the Company's executive
officers with compensation opportunities which are tied to their personal
performance, the financial performance of the Company and their contribution to
that performance and which are competitive enough to attract and retain highly
skilled individuals. Each executive officer's compensation package is comprised
of three elements: (i) base salary, (ii) variable incentive awards and (iii)
long-term, equity-based incentive awards.
The Compensation Committee has retained the services of an independent
compensation consulting firm to provide advice on executive compensation
matters, including the base salary levels for executive officers, including the
Chief Executive Officer and the incentive compensation payable to all executive
officers. Specifically, the consulting firm furnished the Committee with
compensation data for purposes of comparing the Company's executive compensation
levels with those at companies within and outside the industry with which the
Company competes for executive talent and provided the Committee with specific
recommendations for maintaining the Company's executive compensation at a level
competitive with the marketplace.
FACTORS. The principal factors that were taken into account in establishing
each executive officer's compensation package for the 1997 fiscal year are
described below. However, the Compensation Committee may in its discretion apply
entirely different factors, such as different measures of financial performance,
for future fiscal years.
18
<PAGE> 21
CHIEF EXECUTIVE OFFICER COMPENSATION. In setting the base salary level
payable for the 1997 fiscal year to the Company's Chief Executive Officer, James
D. Durham, the Committee reviewed a detailed performance evaluation compiled for
Mr. Durham. The performance evaluation took into consideration Mr. Durham's
qualifications, the level of experience brought to his position and gained while
in the position, the Company goals for which Mr. Durham had responsibility,
specific accomplishments to date, and the importance of Mr. Durham's individual
contributions to the achievement of the Company goals and objectives set for the
prior fiscal year. In addition, the Compensation Committee sought to provide him
with a level of base salary which it believed, on the basis of its understanding
of the salary levels in effect for other chief executive officers at
similar-sized companies in the industry, to be competitive with those base
salary levels.
Mr. Durham has an existing employment agreement with the Company which has
a term of two (2) years (ending December 31, 1999). The annual base salary for
Mr. Durham for 1997 was $225,000. Mr. Durham's variable incentive award for 1997
will be based on the actual financial performance of the Company relative to
corporate objectives and a measure of his individual contribution. His award was
based on the incentive plan used for all executive officers. The option grants
made to Mr. Durham during 1997 were based upon his performance and leadership
with the Company.
OTHER EXECUTIVE OFFICER COMPENSATION. In setting base salaries for
executive officers other than the Chief Executive Officer, the Compensation
Committee reviewed the compensation data and surveys provided by the independent
consultant for comparative compensation purposes. A peer group of companies was
identified for such comparative purposes. In selecting the peer group companies,
the Compensation Committee focused primarily on whether those companies were
actually competitive with the Company in seeking executive talent, whether those
companies had a management style and corporate culture similar to the Company's
and whether similar positions existed within their corporate structure.
The base salary for each executive officer other the Chief Executive
Officer reflects the salary levels for comparable positions at the peer group
companies as well as the individual's personal performance and internal
alignment considerations. The relative weight given to each factor varies with
each individual in the sole discretion of the Compensation Committee. Each
executive officer's base salary is adjusted each year on the basis of (i) the
Compensation Committee's evaluation of the officer's personal performance for
the year and (ii) the competitive marketplace for persons in comparable
positions.
VARIABLE INCENTIVE AWARDS. To reinforce the attainment of Company goals,
the Committee believes that a substantial portion of the annual compensation of
each executive officer should be in the form of variable incentive pay. The
annual incentive pool for executive officers is determined on the basis of the
Company's achievement of the financial performance targets established at the
beginning of the fiscal year and the executive's individual contribution.
LONG-TERM, EQUITY-BASED INCENTIVE AWARDS. The goal of the Company's
long-term equity-based incentive awards is to align the interests of executive
officers with stockholders and to provide each executive officer with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. The Committee determines the size of
long-term, equity-based incentives according to each executive's position within
the Company and sets the incentives at a level it considers appropriate to
create a meaningful opportunity for stock ownership. In addition, the Committee
takes into account an individual's recent performance, his or her potential for
future responsibility and promotion, and comparable awards made to individuals
in similar positions with comparable companies. The relative weight given to
each of these factors varies among individuals at the Committee's discretion.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code disallows a tax deduction to
publicly held companies for compensation paid to certain of their executive
officers, to the extent that compensation exceeds $1 million per covered officer
in any fiscal year. The limitation applies only to compensation which is not
considered to be performance-based. Non-performance based compensation paid to
the Company's executive officers for the 1997 fiscal year did not exceed the $1
million limit per officer, and the Compensation Committee does not anticipate
that the non-performance based compensation to be paid to the Company's
executive officers for
19
<PAGE> 22
fiscal 1998 will exceed that limit. Because it is 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 action to limit or
restructure the elements of cash compensation payable to the Company's executive
officers. The Compensation Committee will reconsider this decision should the
individual cash compensation of any executive officer ever approach the $1
million level.
The Board of Directors did not modify any action or recommendation made by
the Compensation Committee with respect to executive compensation for the 1997
fiscal year. It is the opinion of the Compensation Committee that the 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 through the use of competitive and equitable executive compensation
in a balanced and reasonable manner, for both the short and long-term.
Submitted by the Compensation Committee of the Company's Board of
Directors:
Dr. John Austin, Joan Neuscheler and Cornelius Ryan.
20
<PAGE> 23
PERFORMANCE GRAPH
The following chart, which was produced by Research Data Group, depicts the
Company's performance for the period beginning on October 10, 1996 (the
Company's initial public offering date) and ending December 31, 1997, as
measured by total stockholder return on the Company's Common Stock compared with
the total return of the NASDAQ Stock Market (U.S.) Index and the NASDAQ Computer
and Data Processing Index. Upon request, the Company will furnish stockholders a
list of the component companies of such indexes.
COMPARISON OF 14 MONTH CUMULATIVE TOTAL RETURN*
AMONG QUADRAMED CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD QUADRAMED NASDAQ STOCK NASDAQ COMPUTER &
(FISCAL YEAR COVERED) CORPORATION MARKET (U.S.) DATA PROCESSING
<S> <C> <C> <C>
10/10/96 100 100 100
12/96 95 104 103
11/97 130 135
12/97 227 + +
</TABLE>
* ASSUMES $100 INVESTED ON 10/10/96 IN STOCK OR INDEX - INCLUDING REINVESTMENT
OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
+ DATA NOT AVAILABLE SUBSEQUENT TO NOVEMBER 30, 1997.
21
<PAGE> 24
STOCKHOLDER PROPOSALS
From time to time stockholders present proposals which may be proper
subjects for inclusion in the proxy statement and for consideration at an annual
meeting. To be included in the proxy statement for the 1998 annual meeting,
proposals must have been received by the Company no later than December 12,
1997.
Stockholders may present proposals which are proper subjects for
consideration at an annual meeting, even if the proposal is not submitted by the
deadline for inclusion in the proxy statement. To do so, the stockholder must
comply with the procedures specified by the Company's By-laws. The Company's
By-laws require all stockholders who intend to make proposals at an annual
stockholders meeting to submit their proposals to the Company 60 to 90 days
before the anniversary date of the previous year's annual meeting. To be
eligible for consideration at the 1998 annual meeting, proposals which have not
been submitted by the deadline for inclusion in the proxy statement must be
received by the Company between February 20 and March 21, 1998. The provision is
intended to allow all stockholders to have an opportunity to consider business
expected to be raised at the meeting.
OTHER MATTERS
Management does not know of any matters to be presented at the Special
Meeting other than those set forth herein and in the Notice accompanying this
Proxy Statement. If a stockholder vote is necessary to transact any other
business at the Special Meeting, the proxyholders intend to vote their proxies
in accordance with their best judgment related to such business.
It is important that your shares be represented at the meeting, regardless
of the number of shares that you hold. YOU ARE, THEREFORE, URGED TO EXECUTE
PROMPTLY AND RETURN THE ACCOMPANYING PROXY IN THE ENVELOPE THAT HAS BEEN
ENCLOSED FOR YOUR CONVENIENCE. Stockholders who are present at the meeting may
revoke their proxies and vote in person or, if they prefer, may abstain from
voting in person and allow their proxies to be voted.
By Order of the Board of Directors,
James D. Durham
Chairman of the Board
January 16, 1998
Larkspur, California
22
<PAGE> 25
CONFIDENTIAL, FOR USE OF THE PRELIMINARY COPY
COMMISSION ONLY FILED PURSUANT
TO RULE 14a-6(E)
QUADRAMED CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 6, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JOHN V. CRACCHIOLO and KEITH M. ROBERTS
and each of them, the attorneys and proxies of the undersigned, each with full
power of substitution, to vote all the shares of Common Stock of QuadraMed
Corporation (the "Company") which the undersigned is entitled to vote at the
Special Meeting of Stockholders of the Company to be held at 80 East Sir Francis
Drake Boulevard, Larkspur, California 94939 at 9:00 a.m. on February 6, 1998,
and at any adjournments or postponements thereof, and authorizes and instructs
the proxies to vote in the manner directed below:
1. On the proposal to approve and adopt the amendments to the Company's 1996
Stock Incentive Plan including a 750,000-share increase in the number of
shares of Common Stock authorized for issuance over the term of such plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, proxies are authorized to transact and vote upon such
other business as may properly come before the meeting or any adjournments
or postponements thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL SET FORTH ABOVE. IF NO
INSTRUCTION TO THE CONTRARY IS INDICATED, THIS PROXY WILL BE VOTED FOR ITEM 1.
Dated: ______________________________, 1998
_______________________________________________________
Signature
_______________________________________________________
Signature if jointly held (if joint or common ownership)
Please sign exactly as name or names appear at left,
including the title "Executor," "Guardian," etc. if the
same is indicated. When joint names appear both should
sign. If stock is held by a corporation this proxy
should be executed by a proper officer thereof, whose
title should be given.
PLEASE MARK, SIGN, DATE AND RETURN THIS CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE TODAY
<PAGE> 26
QUADRAMED CORPORATION
1996 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
III. PURPOSE OF THE PLAN
This 1996 Stock Incentive Plan is intended to promote the interests
of QuadraMed Corporation, a Delaware corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
IV. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- 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,
- 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 option grants,
- 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),
- 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, and
- the Director Fee Option Grant Program under which
non-employee Board members may elect to have all or any portion of their annual
retainer fee otherwise payable in cash applied to a special option grant.
<PAGE> 27
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
V. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12 Registration Date, the Discretionary
Option Grant and Stock Issuance Programs shall be administered by the Board.
Beginning with the Section 12 Registration Date, the Board shall have the
authority to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders but may delegate such authority in
whole or in part to the Primary Committee. The Board or the Primary Committee
shall have the sole and exclusive authority to exercise all discretionary
functions under the Salary Investment Option Grant Program.
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant,
Salary Investment Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of such
programs and any outstanding options or stock issuances thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator within the
scope of its administrative functions under the Plan shall be final and binding
on all parties who have an interest in the Discretionary Option Grant, Salary
Investment Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
2.
<PAGE> 28
F. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
VI. ELIGIBILITY
A. The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. 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.
D. 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.
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 who have not previously
received a stock option grant from the Corporation, (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
3.
<PAGE> 29
Stockholders Meetings held after the Underwriting Date. A non-employee Board
member who has previously been in the employ of the Corporation (or any Parent
or Subsidiary) shall not be eligible to receive an 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.
F. All non-employee Board members shall be eligible to
participate in the Director Fee Option Grant Program.
VII. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock initially reserved for issuance over the term of the Plan shall not exceed
2,388,297 shares. 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 which were incorporated
into the Plan and the additional shares which would have been available for
future grant1, (ii) an additional increase of 783,653 shares authorized by the
Board and approved by the stockholders prior to the Section 12 Registration
Date, (iii) an additional increase of 90,165 shares effective as of January 2,
1997, pursuant to the annual automatic share increase provided for by Section
V.B. of this Article One, (iv) an additional increase of 750,000 shares approved
by the Board in 1997, subject to approval by the Corporation's stockholders, and
(v) an additional increase of 179,741 shares effective as of January 2, 1998,
pursuant to the annual automatic share increase provided for by Section V.B. of
this Article One.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of each
calendar year during the term of the Plan, beginning with the 1997 calendar
year, by an amount equal to one and one-half percent (1.5%) of the shares of
Common Stock outstanding on the last trading day of the immediately preceding
calendar year. No Incentive Options may be granted on the basis of the
additional shares of Common Stock resulting from such annual increases.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,0002 shares of Common Stock in the aggregate per calendar year,
beginning with the 1997 calendar year.
- --------
1 Estimated to be 585,738 shares of Common Stock as of June 28, 1996.
2 In July 1997 the Board increased this maximum limit from 200,000 shares to
500,000 shares, subject to approval by the stockholders.
4.
<PAGE> 30
D. Shares of Common Stock subject to outstanding options
(including options incorporated into this Plan from the Predecessor Plan) shall
be available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original issue price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants or direct stock issuances under the Plan. However, should the exercise
price of an option under the Plan be paid with shares of Common Stock or should
shares of Common Stock otherwise issuable under the Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection with
the exercise of an option or the vesting of a stock issuance under the Plan,
then the number of shares of Common Stock available for issuance under the Plan
shall be reduced by the gross number of shares for which the option is exercised
or which vest under the stock issuance, and not by the net number of shares of
Common Stock issued to the holder of such option or stock issuance.
E. If any change is made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities for which any one
person may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances under this Plan per calendar year, (iii) 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, (iv) the number and/or class of securities and the exercise price
per share in effect under each outstanding option under the Plan and (v) the
number and/or class of securities and price per share in effect under each
outstanding option incorporated into this Plan from the 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 under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
5.
<PAGE> 31
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Six and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(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
to (a) a Corporation- designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
6.
<PAGE> 32
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of
any options held by the Optionee at the time of cessation of Service or death:
dave
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain exercisable
for such period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.
(iii) 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.
(iv) 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 outstanding for
any vested shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding to the extent the option is not
otherwise at that time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of Service from
the limited exercise period otherwise in effect for that option to such
greater period of time as the
7.
<PAGE> 33
Plan Administrator shall deem appropriate, but in no event beyond the
expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the Optionee
would have vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non- Statutory Options
when issued under the Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
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<PAGE> 34
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable 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. However, an outstanding option
shall not so accelerate if and to the extent: (i) such option is, in connection
with the Corporate Transaction, either to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof), (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing on the unvested
option shares at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
such option or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
The determination of option comparability under clause (i) above shall be made
by the Plan Administrator, and its determination shall be final, binding and
conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights 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 the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
9.
<PAGE> 35
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 to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year.
E. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed or replaced and do not
otherwise accelerate. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination. In addition, the Plan Administrator may
provide that one or more of the Corporation's outstanding repurchase rights with
respect to shares held by the Optionee at the time of such Involuntary
Termination shall immediately terminate, and the shares subject to those
terminated repurchase rights shall accordingly vest in full.
F. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control. Each option so accelerated shall remain exercisable for fully-vested
shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination. In addition, the Plan Administrator may provide that
one or more of the Corporation's outstanding repurchase rights with respect to
shares held by the Optionee at the time of such Involuntary Termination shall
immediately terminate, and the shares subject to those terminated repurchase
rights shall accordingly vest in full.
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
H. The outstanding options 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.
10.
<PAGE> 36
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of
tandem stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution from
the Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price payable
for such shares.
(ii) No such option surrender shall be effective unless
it is approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so approved,
then the distribution to which the Optionee shall be entitled may be made
in shares of Common Stock valued at Fair Market Value on the option
surrender date, in cash, or partly in shares and partly in cash, as the
Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by
the Plan Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion thereof)
on the option surrender date and may exercise such rights at any time
prior to the later of (a) five (5) business days after the receipt of the
rejection notice or (b) the last day on which the option is otherwise
exercisable in accordance with the terms of the documents evidencing such
option, but in no event may such rights be exercised more than ten (10)
years after the option grant date.
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<PAGE> 37
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted
limited stock appreciation rights with respect to their outstanding
options.
(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for a
thirty (30)-day period following such Hostile Take-Over) to surrender each
such option to the Corporation, to the extent the option is at the time
exercisable for vested shares of Common Stock. In return for the
surrendered option, the Optionee shall receive a cash distribution from
the Corporation in an amount equal to the excess of (A) the Take-Over
Price of the shares of Common Stock which are at the time vested under
each surrendered option (or surrendered portion thereof) over (B) the
aggregate exercise price payable for such shares. Such cash distribution
shall be paid within five (5) days following the option surrender date.
(iii) Stockholder approval of the Plan and any
amendments thereto shall constitute pre-approval of the grant of each such
limited stock appreciation right and the subsequent exercise of such right
in accordance with the terms and provisions of this Section V.C. No
additional approval or consent of the Plan Administrator or the Board
shall be required in connection with such option surrender and cash
distribution.
(iv) The balance of the option (if any) shall remain
outstanding and exercisable in accordance with the documents evidencing
such option.
12.
<PAGE> 38
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary 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). The Primary Committee shall have complete
discretion to determine whether to approve the filed authorization in whole or
in part. To the extent the Primary Committee approves the authorization, the
individual who filed that authorization shall be granted an option under the
Salary Investment Grant Program on or before the last trading day in January for
the calendar year for which the salary reduction is to be in effect. All grants
under the Salary Investment Option Grant Program shall be at the sole discretion
of the Primary Committee.
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):
13.
<PAGE> 39
X = A divided by (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the approved reduction in the
Optionee's base salary for the calendar year, and
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
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<PAGE> 40
exercisable for the fully-vested shares until theof (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.
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
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. Stockholder approval of the Plan and any amendments
thereto shall constitute pre-approval of the grant of each such option surrender
right and the subsequent exercise of such right in accordance with the terms and
provisions of this Section III.C. No additional approval or consent of the Plan
Administrator or the Board shall be required in connection with such option
surrender and cash distribution.
D. 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.
III. 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.
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<PAGE> 41
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the
Participant or the performance objectives to be attained,
(ii) the number of installments in which the shares are
to vest,
(iii) the interval or intervals (if any) which are to
lapse between installments, and
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<PAGE> 42
(iv) the effect which death, Permanent Disability or
other event designated by the Plan Administrator is to have upon the
vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares 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/cancellation
rights under the Stock Issuance Program shall terminate automatically, and all
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction,
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<PAGE> 43
except to the extent (i) those repurchase/cancellation 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 in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase/cancellation rights
are assigned to the successor corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
18.
<PAGE> 44
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 serving as a non-employee Board member
on the Underwriting Date shall automatically be granted at that time 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 and has not previously received a stock option grant from
the Corporation.
2. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, 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, 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 4,000 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 4,000-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) or who have otherwise received a stock
option grant from the Corporation prior to the Underwriting Date 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.
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<PAGE> 45
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each initial 10,000-share grant shall
vest, and the Corporation's repurchase right shall lapse, as follows: (i)
one-third of the option shares shall vest upon the Optionee's completion of one
(1) year of Board service measured from the option grant date and (ii) the
balance of the option shares shall vest in a series of twenty-four (24)
successive equal monthly installments upon the Optionee's completion of each
additional month of Board service over the twenty-four (24)-month period
measured from the first anniversary of such grant date. Each annual 4,000-share
grant shall vest, and the Corporation's repurchase right shall lapse, in a
series of 12 successive equal monthly installments over the optionee's period of
Board service measured from the 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
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<PAGE> 46
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 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 of
his or her outstanding automatic option grants. 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 each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. Stockholder approval
of the Plan and any amendments thereto shall constitute pre-approval of the
grant of each such option surrender right and the subsequent exercise of such
right in accordance with the terms and provisions of this Section II.C. No
additional approval or consent of the Plan Administrator or the Board 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.
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E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
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ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
Each non-employee Board member may elect to apply all or any portion
of the annual retainer fee otherwise payable in cash for his or her service on
the Board to the acquisition of a special option grant under this Director Fee
Option Grant Program. Such election must be filed with the Corporation's Chief
Financial Officer prior to first day of the calendar year for which the annual
retainer fee which is the subject of that election is otherwise payable. Each
non-employee Board member who files such a timely election shall automatically
be granted an option under this Director Fee Option Grant Program on the first
trading day in January in the calendar year for which the annual retainer fee
which is the subject of that election would otherwise be payable.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms
and conditions 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 / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the
non-employee Board member's election, and
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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 for fifty-percent (50%) of the option shares upon the Optionee's
completion of six (6) months of Board service in the calendar year for which his
or her election under this Director Fee Option Grant Program is in effect, and
the balance of the option shares shall become exercisable in a series of six (6)
successive equal monthly installments upon the Optionee's completion of each
additional month of Board service during that calendar year. Each option shall
have a maximum term of ten (10) years measured from the option grant date.
D. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, 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 Board 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 Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately 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.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's service
as a Board member cease by reason of death or Permanent Disability, then each
option held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as 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 such cessation of Board service.
Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, 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 Board 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 Board service.
24.
<PAGE> 50
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee 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 Board 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 Director
Fee 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.
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
outstanding option granted him or her under the Director Fee Option Grant
Program. 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 each surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. Stockholder approval of the Plan and any amendments
thereto shall constitute pre-approval of the grant of each such option surrender
right and the subsequent exercise of such right in accordance with the terms and
provisions of this Section III.C. No additional approval or consent of the Plan
Administrator or the Board shall be required in connection with such option
surrender and cash distribution.
D. The grant of options under the Director Fee 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.
25.
<PAGE> 51
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
26.
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ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan (other than the options granted or the shares issued under the
Automatic Option Grant or Director Fee 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.
27.
<PAGE> 53
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective on June 26, 1996, the Plan Effective
Date and was subsequently approved by the Corporations's stockholders. However,
the Salary Investment Option Grant Program shall not be implemented until such
time as the Primary Committee may deem appropriate. Options may be granted under
the Discretionary Option Grant or Automatic Option Grant Program at any time on
or after the Plan Effective Date.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Section 12 Registration Date. All options outstanding
under the Predecessor Plan on the Section 12 Registration Date shall be
incorporated into the Plan at that time and shall be treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i) May
25, 2006, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully-vested shares or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Upon such
plan termination, all outstanding option grants and unvested stock issuances
shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to stock options or unvested stock issuances at the time outstanding
under the Plan unless the Optionee or the Participant consents to such amendment
or modification. In addition, certain amendments may require stockholder
approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant and Salary Investment Option Grant Programs
and shares of Common Stock may be issued under the Stock Issuance Program that
are in each instance in excess of the number of shares then available for
issuance under the Plan, provided any excess shares actually issued under those
programs shall be held in escrow until there is obtained stockholder approval of
28.
<PAGE> 54
an amendment sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan. If such stockholder approval is not
obtained within twelve (12) months after the date the first such excess
issuances are made, then (i) any unexercised options granted on the basis of
such excess shares shall terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees and the Participants the
exercise or purchase price paid for any excess shares issued under the Plan and
held in escrow, together with interest (at the applicable Short Term Federal
Rate) for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock
option under the Plan and the issuance of any shares of Common Stock (i) upon
the exercise of any granted option or (ii) under the Stock Issuance Program
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the stock
options granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
29.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board does
not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
A-1.
<PAGE> 56
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
G. CORPORATION shall mean QuadraMed Corporation, a Delaware
corporation, and its successors.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member
eligible to participate in the Automatic Option Grant Program in accordance with
the eligibility provisions of Article One.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
A-2.
<PAGE> 57
(iii) 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.
(iv) For purposes of any option grants made prior to the
Underwriting Date, the Fair Market Value shall be determined by the Plan
Administrator, after taking into account such factors as it deems
appropriate.
N. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and
participation in any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without the individual's consent.
Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
A-3.
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R. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
S. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant, Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.
U. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant,
Salary Investment Option Grant and Director Fee Option Grant Programs, Permanent
Disability or Permanently Disabled shall mean the inability of the non-employee
Board member to perform his or her usual duties as a Board member by reason of
any medically determinable physical or mental impairment expected to result in
death or to be of continuous duration of twelve (12) months or more.
X. PLAN shall mean the Corporation's 1996 Stock Incentive Plan,
as set forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is authorized
to administer the Discretionary Option Grant, Salary Investment Option Grant and
Stock Issuance Programs with respect to one or more classes of eligible persons,
to the extent such entity is carrying out its administrative functions under
those programs with respect to the persons under its jurisdiction.
Z. PLAN EFFECTIVE DATE shall mean June 26, 1996, the date on
which the Plan was adopted by the Board.
AA. PREDECESSOR PLAN shall mean the Corporation's pre-existing
Stock Option Plan in effect immediately prior to the Plan Effective Date
hereunder.
A-4.
<PAGE> 59
BB. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program with
respect to all eligible individuals.
CC. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment option grant program in effect under the Plan.
DD. SECONDARY COMMITTEE shall mean a committee of two (2) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
EE. SECTION 12 REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12(g) of Section 16 of the 1934
Act.
FF. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
GG. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
HH. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
II. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
JJ. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.
KK. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
LL. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror
A-5.
<PAGE> 60
in effecting such Hostile Take-Over. However, if the surrendered option is an
Incentive Option, Take-Over Price shall not exceed the clause (i) price per
share.
MM. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
NN. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
OO. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
PP. UNDERWRITING DATE shall mean October 9, 1996, the date on
which the Underwriting Agreement was executed and priced in connection with an
initial public offering of the Common Stock.
A-6.
