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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Rogue Wave Software, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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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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Notes:
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ROGUE WAVE SOFTWARE, INC.
5500 FLATIRON PARKWAY
BOULDER, COLORADO 80301
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 21, 1999
TO THE STOCKHOLDERS OF ROGUE WAVE SOFTWARE, INC.:
Notice Is Hereby Given that the Annual Meeting of Stockholders of Rogue
Wave Software, Inc., a Delaware corporation (the "Company"), will be held on
Thursday, January 21, 1999, at 9:00 a.m. local time at the offices of the
Company, located at 5500 Flatiron Parkway, Boulder, Colorado, 80301 for the
following purpose:
1. To elect directors to serve for the ensuing year and until their successors
are elected.
2. To approve the Company's 1996 Equity Incentive Plan, as amended, to increase
the aggregate number of shares of Common Stock authorized for issuance under
such plan by 500,000 shares.
3. To approve the Company's Employee Stock Purchase Plan, as amended and
restated, to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 100,000 shares.
4. To ratify the selection of KPMG Peat Marwick LLP as independent auditors of
the Company for its fiscal year ending September 30, 1999.
5. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on November 30,
1998, as the record date for the determination of stockholders entitled to
notice of and to vote at this Annual Meeting and at any adjournment or
postponement thereof.
By Order of the Board of Directors
/s/ Robert M. Holburn, Jr.
Robert M. Holburn, Jr.
Secretary
Boulder, Colorado
December 11, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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ROGUE WAVE SOFTWARE, INC.
5500 FLATIRON PARKWAY
BOULDER, COLORADO 80301
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
JANUARY 21, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Rogue Wave Software, Inc., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders to be held on Thursday, January 21, 1999, at
9:00 a.m. local time (the "Annual Meeting"), or at any adjournment or
postponement thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting. The Annual Meeting will be held at the offices of the
Company, located at 5500 Flatiron Parkway, Boulder, Colorado, 80301. The Company
intends to mail this proxy statement and accompanying proxy card on or about
December 11, 1998, to all stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company
or, at the Company's request, ChaseMellon Shareholder Services. No additional
compensation will be paid to directors, officers or other regular employees for
such services, but ChaseMellon Shareholder Services will be paid its customary
fee, estimated to be about $12,500, if it renders solicitation services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on November
30, 1998, will be entitled to notice of and to vote at the Annual Meeting. At
the close of business on November 30, 1998, the Company had outstanding and
entitled to vote 10,475,394 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
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REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 5500
Flatiron Parkway, Boulder, Colorado, 80301, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2000 annual
meeting of stockholders pursuant to Rule 14a-8, "Shareholder Proposals," of the
Securities and Exchange Commission is August 13, 1999. The deadline for
submitting a stockholder proposal or a nomination for director that is not to be
included in such proxy statement and proxy is November 22, 1999. Stockholders
are also advised to review the Company's By-laws, which contain additional
requirements with respect to advance notice of stockholder proposals and
director nominations.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and Bylaws provide that
the number of directors which shall constitute the whole Board of Directors
shall be fixed exclusively by one or more resolutions adopted by the Board of
Directors. Each director shall be elected at each annual meeting of stockholders
for a term of one year. Vacancies on the Board may be filled only by persons
elected by a majority of the remaining directors. A director elected by the
Board to fill a vacancy (including a vacancy created by an increase in the Board
of Directors) shall serve for the remainder of the full term in which the
vacancy occurred and until such director's successor is elected and qualified.
The Board of Directors is presently composed of six members. Each of the
nominees for election is currently a director of the Company. If elected at the
Annual Meeting, each of the nominees would serve until the next Annual Meeting
of Stockholders and until his or her successor is elected and has qualified, or
until such director's earlier death, resignation or removal.
Directors are elected by a plurality of the votes present or represented by
proxy and entitled to vote at the meeting. Shares represented by executed
proxies will be voted, if authority to do so is not withheld, for the election
of the nominees named below. In the event that any nominee should be unavailable
for election as a result of an unexpected occurrence, such shares will be voted
for the election of such substitute nominee as management may propose. Each
person nominated for election has agreed to serve if elected, and management has
no reason to believe that any nominee will be unable to serve.
NOMINEES
The name of the nominees and certain biographical information about them
are set forth below:
<TABLE>
<CAPTION>
Name Age Position
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<S> <C> <C>
Thomas Keffer, Ph.D. (1).............................. 46 Chairman of the Board
Michael J. Scally..................................... 47 President, Chief Executive Officer and Director
Thomas M. Atwood...................................... 50 Director
Louis C. Cole......................................... 55 Director
Richard P. Magnuson(1)(2)............................. 42 Director
Thomas H. Peterson(1)(2).............................. 42 Director
- ------------------------------------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
</TABLE>
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Set forth below is biographical information for each person nominated.
THOMAS KEFFER, PH.D.
Dr. Keffer, Chairman of the Board of Directors, has been with the Company
since its inception in 1989. Dr. Keffer was a founder of the Company and served
as its President and Chief Executive Officer until October 22, 1998. Prior to
1989, Dr. Keffer was an Assistant Professor of Oceanography at the University of
Washington. Dr. Keffer received his Ph.D. in Physical Oceanography from Oregon
State University and his B.A. from Cornell University.
MICHAEL J. SCALLY
Mr. Scally was appointed to the Board of Directors of the Company in
October 1997, elected President on January 28, 1998, and elected Chief Executive
Officer of the Company on October 22, 1998. From June 1996 to October 22, 1998,
he served as the Company's Chief Operating Officer. From May 1994 until June
1996, he served as Vice President, National Telesales of Intersolv, a software
company. From November 1988 until April 1994, he was the Vice President, General
Manager of Carnegie Group Inc., a computer consulting company. Mr. Scally
received his B.S. from Michigan Technological University.
THOMAS M. ATWOOD
Mr. Atwood has been a director of the Company since October 1994. From June
1996 until June 1997, Mr. Atwood was Chief Executive Officer of Cinebase
Software, a software company. Prior to that, he founded Object Design, a
software company, in 1988 and served as its Chairman through December 1995.
LOUIS C. COLE
Mr. Cole has been a director of the Company since July 1997. Mr. Cole is
currently the President, Chief Executive Officer and Chairman of the Board of
Legato Systems, Inc., a network storage management software company. Prior to
that, from March 1987 until July 1988, Mr. Cole served as Executive Vice
President of Novell, Inc., a manufacturer of computer networking equipment and
software.
RICHARD P. MAGNUSON
Mr. Magnuson has been a director of the Company since November 1995. Mr.
Magnuson served as a general partner of Menlo Ventures, a venture capital firm,
from 1984 until December 1995. Mr. Magnuson also serves as a director of OrCAD,
Inc., a software company, California Water Service Group, a water utility, and
several privately held companies.
THOMAS H. PETERSON
Mr. Peterson has been a director of the Company since July 1994. Mr.
Peterson has been a general partner of certain venture capital funds associated
with El Dorado Ventures, a venture capital company, since May 1991. From 1986 to
May 1991, Mr. Peterson was an associate with El Dorado Ventures. Mr. Peterson
serves as a director of several privately held companies.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
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BOARD COMMITTEES AND MEETINGS
During the fiscal year ended September 30, 1998, the Board of Directors
held eight meetings. The Board has an Audit Committee and a Compensation
Committee.
The Audit Committee has primary responsibility to review accounting
procedures and methods employed in connection with audit programs and related
management policies. Its duties include (1) recommending the independent
auditors for the Company, (2) reviewing the scope of the audit to be conducted
by them, (3) meeting with the independent auditors concerning the results of
their audit, and (4) overseeing the scope and accuracy of the Company's system
of internal accounting controls. The Audit Committee is the principal liaison
between the Board of Directors and the independent auditors for the Company. The
Audit Committee is composed of two non-employee directors: Mr. Magnuson and Mr.
Peterson. During the fiscal year ending September 30, 1998, the Audit Committee
conducted one meeting.
The Compensation Committee is responsible for continually reviewing the
Company's compensation and benefit programs and making recommendations regarding
these programs to the Board of Directors from time to time. The Committee
consists of Dr. Keffer, Mr. Magnuson and Mr. Peterson. The Compensation
Committee conducted one meeting during the fiscal year ended September 30, 1998.
During the fiscal year ended September 30, 1998, each Board member attended
75% or more of the aggregated of the meetings of the Board and of the committees
on which he served, held during the period for which he was a director or
committee member, respectively.
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PROPOSAL 2
APPROVAL OF 1996 EQUITY INCENTIVE PLAN, AS AMENDED
The Company's 1996 Equity Incentive Plan (the "1996 Plan") was adopted by
the Board of Directors in June 1996 and approved by the stockholders in October
1996. Prior to the amendment the stockholders are being asked to approve in
Proposal 2, as of September 30, 1998, there were 3,000,000 shares reserved for
issuance under the 1996 Plan.
At September 30, 1998, options (net of cancelled or expired options)
covering an aggregate of 2,635,545 shares had been granted under the 1996 Plan
and only 364,455 shares (plus any shares that might in the future be returned to
the 1996 Plan as a result of cancellations or expiration of options) remained
available for future grant under the Plan. In October 1998, the Board approved
an amendment to the 1996 Plan, subject to stockholder approval, to increase the
number of shares authorized for issuance under the 1996 Plan from 3,000,000
shares to 3,500,000 shares. This amendment is intended to afford the Company
greater flexibility in providing employees with stock incentives and ensures
that the Company can continue to provide such incentives at levels determined
appropriate by the Board.
Stockholders are requested in this Proposal 2 to approve the 1996 Plan, as
amended. The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting will be
required to approve the 1996 Plan, as amended. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes. Broker non-votes are counted
towards a quorum, but are not counted for any purpose in determining whether
this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the 1996 Plan, as amended, are outlined below:
GENERAL
The 1996 Plan provides for the grant of (1) both incentive and nonstatutory
stock options, (2) stock bonuses, (3) rights to purchase restricted stock and
(4) stock appreciation rights (collectively, "Stock Awards"). Incentive stock
options granted under the 1996 Plan are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Code. Nonstatutory stock
options granted under the 1996 Plan are intended not to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of Stock Awards.
PURPOSE
The 1996 Plan was adopted by the Board of Directors in June 1996 and was
approved by the stockholders in October 1996. The 1996 Plan amends and restates
the Company's 1994 Stock Option Plan and the Inmark Stock Option Plan. The 1996
Plan provide a means by which selected officers and employees of and consultants
to the Company and its affiliates could be given an opportunity to purchase
stock in the Company, to assist in retaining the services of employees holding
key positions, to secure and retain the services of persons capable of filling
such positions and to provide incentives for such persons to exert maximum
efforts for the success of the Company.
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ADMINISTRATION
The 1996 Plan is administered by the Board of Directors of the Company. The
Board has the power to construe and interpret the 1996 Plan and, subject to the
provisions of the 1996 Plan, to determine the persons to whom and the dates on
which Stock Awards will be granted; whether a Stock Award will be an incentive
stock option, a nonstatutory stock option, a stock bonus, a right to purchase
restricted stock, a stock appreciation right or a combination of the foregoing;
the provisions of each Stock Award granted (which need not be identical),
including the time or times when a person shall be permitted to receive stock
pursuant to a Stock Award; whether a person shall be permitted to receive stock
upon exercise of an independent stock appreciation right; and the number of
shares with respect to which a Stock Award shall be granted to each such person.
The Board of Directors is authorized to delegate administration of the 1996 Plan
to a committee composed of not fewer than two members of the Board. The Board
has delegated administration of the 1996 Plan to the Compensation Committee of
the Board. As used herein with respect to the 1996 Plan, the "Board" refers to
the Compensation Committee as well as to the Board of Directors itself.
ELIGIBILITY
Incentive stock options and stock appreciation rights related to incentive
stock options may be granted under the 1996 Plan only to selected employees
(including officers and directors who are employees) of the Company and its
affiliates. Selected employees, non-employee directors and consultants are
eligible to receive Stock Awards other than incentive stock options and such
stock appreciation rights under the 1996 Plan. Non-employee directors are
eligible only for nonstatutory stock options.
No incentive stock option may be granted under the 1996 Plan to any person
who, at the time of the grant, owns (or is deemed to own) stock possessing more
than 10% of the total combined voting power of the Company or any affiliate of
the Company, unless the incentive stock option exercise price is at least 110%
of the fair market value of the stock subject to the incentive stock option on
the date of grant, and the term of the option does not exceed five years from
the date of grant. For incentive stock options granted under the 1996 Plan, the
aggregate fair market value, determined at the time of grant, of the shares of
Common Stock with respect to which such options are exercisable for the first
time by an optionee during any calendar year (under all such plans of the
Company and its affiliates) may not exceed $100,000.
Non-employee directors are eligible only for nonstatutory stock options.
Each person who becomes a non-employee director will automatically be granted an
option to purchase 10,000 shares of Common Stock on the date of his or her
election to the Board. Such options will vest in 36 equal monthly installments.
On the date of each annual meeting of the Stockholders of the Company commencing
after September 30, 1997, each non-employee director who has continuously served
as a non-employee director since the last annual meeting will be granted an
option to purchase 3,500 shares of Common Stock, and each other person who is
then a non-employee director will be granted an option to purchase a prorated
number of shares of Common Stock based on the number of days such person has
continuously served as a non-employee director since the last annual meeting.
These options will be fully vested when granted.
STOCK SUBJECT TO THE 1996 PLAN
The Company has reserved a total of 3,500,000 shares of Common Stock for
issuance under the 1996 Plan. As of September 30, 1998, 968,119 shares of Common
Stock have been issued upon the exercise of options granted under the 1996 Plan,
options to purchase 1,667,426 shares of Common Stock at a weighted average
exercise price of $8.48 per share were outstanding and 864,455 shares remained
available for future option grants. In October 1998, the Board approved an
amendment to the 1996 Plan, subject to stockholder approval, to increase the
number of shares authorized for issuance under the 1996 Plan from 3,000,000
shares to 3,500,000 shares. If any Stock Award granted under the 1996 Plan
expires or otherwise terminates without being exercised, the Common Stock not
purchased pursuant to such Stock Awards again becomes available for issuance
under the 1996 Plan.
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TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the 1996 Plan. Individual option grants may be more restrictive as to any or all
of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the 1996 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The exercise price of nonstatutory options under the 1996 Plan may not be less
than 85% of the fair market value of the Common Stock subject to the option on
the date of the option grant. However, if options were granted with exercise
prices below fair market value, deductions for compensation attributable to the
exercise of such options could be limited by Section 162(m). See "Federal Income
Tax Information." At September 30, 1998, the closing price of the Company's
Common Stock as reported on the Nasdaq National Market System was $7.25 per
share.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. To date, the Board has not exercised such authority. To
the extent required by Section 162(m), an option repriced under the 1996 Plan is
deemed to be canceled and a new option granted. Both the options deemed to be
canceled and the new options deemed to be granted will be counted against the
1996 Plan share limitation.
The exercise price of options granted under the 1996 Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement or (c) in any other form of
legal consideration acceptable to the Board.
Option Exercise. Options granted under the 1996 Plan may become exercisable
("vest") in cumulative increments as determined by the Board. Shares covered by
options granted in the future under the 1996 Plan may be subject to different
vesting terms. The Board has the power to accelerate the time during which an
option may be exercised. In addition, options granted under the 1996 Plan may
permit exercise prior to vesting, but in such event the optionee may be required
to enter into an early exercise stock purchase agreement that allows the Company
to repurchase shares not yet vested at their exercise price should the optionee
leave the employ of the Company before vesting. To the extent provided by the
terms of an option, an optionee may satisfy any federal, state or local tax
withholding obligation relating to the exercise of such option by a cash payment
upon exercise, by authorizing the Company to withhold a portion of the stock
otherwise issuable to the optionee, by delivering already-owned stock of the
Company or by a combination of these means.
Term. The maximum term of options under the 1996 Plan is 10 years. Options
under the 1996 Plan terminate three months after termination of the optionee's
employment or relationship as a consultant or director of the Company or any
affiliate of the Company, unless (a) such termination is due to such person's
permanent and total disability (as defined in the Code), in which case the
option may, but need not, provide that it may be exercised at any time not
exceeding twelve months following such termination; (b) the optionee dies while
employed by or serving as a consultant or director of the Company or any
affiliate of the Company, or within three months after termination of such
relationship, in which case the option may be exercised (to the extent the
option was exercisable at the time of the optionee's death) within twelve months
of the optionee's death by the person or persons to whom the rights to such
option pass by will or by the laws of descent and distribution; or (c) the
option by its terms specifically provides otherwise. Individual options by their
terms may provide for exercise within a longer period of time following
termination of employment or the consulting relationship. The option term may
also be extended in the event that exercise of the option within these periods
is prohibited for specified reasons.
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TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
The following is a description of the permissible terms of stock bonuses
and restricted stock purchase agreements under the 1996 Plan. The terms and
conditions of stock bonus or restricted stock purchase agreements may change
from time to time, and the terms and conditions of separate agreements need not
be identical, but each stock bonus or restricted stock purchase agreement
includes the substance of each of the following provisions as appropriate:
Purchase Price. The purchase price under each restricted stock purchase
agreement is such amount as the Board may determine and designate in such
agreement, but in no event may the purchase price be less than eighty-five
percent (85%) of the stock's fair market value on the date such award is made.
Notwithstanding the foregoing, the Board may determine that eligible
participants in the 1996 Plan may be awarded stock pursuant to a stock bonus
agreement in consideration for past services actually rendered to the Company
for its benefit.
Consideration. The purchase price of stock acquired pursuant to a stock
purchase agreement must be paid either: (i) in cash at the time of purchase;
(ii) at the discretion of the Board or the Committee, according to a deferred
payment or other arrangement with the person to whom the stock is sold; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion. Notwithstanding the foregoing, the Board may award stock
pursuant to a stock bonus agreement in consideration for past services actually
rendered to the Company or for its benefit.
Vesting. Shares of stock sold or awarded under the Plan may, but need not,
be subject to a repurchase option in favor of the Company in accordance with a
vesting schedule to be determined by the Board.
Termination of Employment or Relationship as a Director or Consultant. In
the event a participant's continuous status as an employee, director or
consultant terminates, the Company may repurchase or otherwise re-acquire any or
all of the shares of stock held by that person which have not vested as of the
date of termination under the terms of the stock bonus or restricted stock
purchase agreement between the Company and such person.
STOCK APPRECIATION RIGHTS
The three types of Stock Appreciation Rights that are authorized for
issuance under the 1996 Plan are as follows:
Tandem Stock Appreciation Rights. Tandem stock appreciation rights may be
granted appurtenant to an option, and are generally subject to the same terms
and conditions applicable to the particular option grant to which they pertain.
Tandem stock appreciation rights require the holder to elect between the
exercise of the underlying option for shares of stock and the surrender, in
whole or in part, of such option for an appreciation distribution. The
appreciation distribution payable on the exercised tandem right is in cash (or,
if so provided, in an equivalent number of shares of stock based on fair market
value on the date of the option surrender) in an amount up to the excess of (i)
the fair market value (on the date of the option surrender) of the number of
shares of stock covered by that portion of the surrendered option in which the
optionee is vested over (ii) the aggregate exercise price payable for such
vested shares.
Concurrent Stock Appreciation Rights. Concurrent stock appreciation rights
may be granted appurtenant to an option and may apply to all or any portion of
the shares of stock subject to the underlying option and are generally subject
to the same terms and conditions applicable to the particular option grant to
which they pertain. A concurrent right is exercised automatically at the same
time the underlying option is exercised with respect to the particular shares of
stock to which the concurrent right pertains. The appreciation distribution
payable on an exercised concurrent right is in cash (or, if so provided, in an
equivalent number of shares of stock based on fair market value on the date of
the exercise of the concurrent right) in an amount equal to such portion as
shall be determined by the Board at the time of the grant of the excess of (i)
the aggregate fair market value (on the date of the exercise of the concurrent
right) of the vested shares of stock purchased under the underlying option which
have concurrent rights appurtenant to them over (ii) the aggregate exercise
price paid for such shares.
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Independent Stock Appreciation Rights. Independent stock appreciation
rights may be granted independently of any option and are generally subject to
the same terms and conditions applicable to nonstatutory stock options. The
appreciation distribution payable on an exercised independent right may not be
greater than an amount equal to the excess of (i) the aggregate fair market
value (on the date of the exercise of the independent right) of a number of
shares of Company stock equal to the number of share equivalents in which the
holder is vested under such independent right, and with respect to which the
holder is exercising the independent right on such date, over (ii) the aggregate
fair market value (on the date of the grant of the independent right) of such
number of shares of Company stock. The appreciation distribution payable on the
exercised independent right is in cash or, if so provided, in an equivalent
number of shares of stock based on fair market value on the date of the exercise
of the independent right.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1996 Plan or subject to
any Stock Award granted under the 1996 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the 1996 Plan and Stock
Awards outstanding thereunder will be appropriately adjusted as to the class and
the maximum number of shares subject to such plan, and the class, number of
shares and price per share of stock subject to such outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1996 Plan provides that, in the event of a dissolution or liquidation
of the Company, specified type of merger or other corporate reorganization (a
"Change-in-Control"), to the extent permitted by law, any surviving corporation
will be required to either assume Stock Awards outstanding under the 1996 Plan
or substitute similar options for those outstanding under such plan, or such
outstanding options will continue in full force and effect. In the event that
any surviving corporation declines to assume or continue Stock Awards
outstanding under the 1996 Plan, or to substitute similar Stock Awards, then the
time during which such Stock Awards may be exercised shall be accelerated and
the Stock Awards terminated if not exercised during such time. Individual
options may contain more liberal vesting acceleration provisions. The options
granted to Ms. Webster and to Messrs. Scally, Holburn, Doerr, Ernst, Foreman,
Vermeulen and Wingo provided that 50%, and in some cases 100%, of their unvested
options will become immediately exercisable upon a Change-in-Control. The
acceleration of a Stock Award in the event of a Change-in-Control may be viewed
as an anti-takeover provision, which may have the effect of discouraging a
proposal to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1996 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1996 Plan will terminate on June 6, 2006.
The Board may also amend the 1996 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would: (a) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the Plan to satisfy Section 422 of the Code, if applicable, or Rule
16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")); (b) increase the number of shares reserved for issuance upon
exercise of options; or (c) change any other provision of the Plan in any other
way if such modification requires stockholder approval in order to comply with
Rule 16b-3 or satisfy the requirements of Section 422 of the Code. The Board may
submit any other amendment to the 1996 Plan for stockholder approval, including,
but not limited to, amendments intended to satisfy the requirements of Section
162(m) of the Code regarding the exclusion of performance-based compensation
from the limitation on the deductibility of compensation paid to certain
employees.
10
<PAGE>
RESTRICTIONS ON TRANSFER
Under the 1996 Plan, an incentive stock option may not be transferred by
the optionee otherwise than by will or by the laws of descent and distribution
and during the lifetime of the optionee, may be exercised only by the optionee.
A nonstatutory stock option may not be transferred except by will or by the laws
of descent and distribution unless otherwise specified in the option agreement,
in which case the nonstatutory stock option may be transferred upon such terms
and conditions as set forth in the option, including pursuant to a domestic
relations order. In any case, the optionee may designate in writing a third
party who may exercise the option in the event of the optionee's death. In
addition, shares subject to repurchase by the Company under an early exercise
stock purchase agreement may be subject to restrictions on transfer which the
Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1996 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term or short-term depending on how
long the stock was held. Long-term capital gains currently are generally subject
to lower tax rates than short-term capital gains (which are taxed at the
ordinary income rate). The maximum long-term capital gains rate for federal
income tax purposes is currently 20% while the maximum ordinary income rate is
effectively 39.6% at the present time. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
1996 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be long
or short-term depending on how long the stock was held. Slightly different rules
may apply to optionees who acquire stock subject to certain repurchase options
or who are subject to Section 16(b) of the Exchange Act.
11
<PAGE>
Restricted Stock and Stock Bonuses. Restricted stock and stock bonuses
granted under the 1996 Plan generally have the following federal income tax
consequences:
Upon acquisition of stock under a restricted stock or stock bonus award,
the recipient normally will recognize taxable ordinary income equal to the
excess of the stock's fair market value over the purchase price, if any.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse unless the recipient elects to be taxed on receipt of the stock.
Generally, with respect to employees, the Company is required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the recipient. Upon disposition of the stock, the
recipient will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock, if any, plus
any amount recognized as ordinary income upon acquisition (or vesting) of the
stock. Such gain or loss will be long or short-term depending on how long the
stock was held from the date ordinary income is measured. Slightly different
rules may apply to persons who acquire stock subject to forfeiture.
Stock Appreciation Rights. No taxable income is realized upon the receipt
of a stock appreciation right, but upon exercise of the stock appreciation
right, the fair market value of the shares (or cash in lieu of shares) received
must be treated as compensation taxable as ordinary income to the recipient in
the year of such exercise. Generally, with respect to employees, the Company is
required to withhold from the payment made on exercise of the stock appreciation
right or from regular wages or supplemental wage payments an amount based on the
ordinary income recognized. Subject to the requirement of reasonableness,
Section 162(m) of the Code and the satisfaction of a reporting obligation, the
Company will be entitled to a business expense deduction equal to the taxable
ordinary income recognized by the recipient.
Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1 million for a covered employee. It is possible that
compensation attributable to awards under the 1996 Plan, when combined with all
other types of compensation received by a covered employee from the Company, may
cause this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that: (i) the stock award plan contains a per-employee limitation on
the number of shares for which stock options and stock appreciation rights may
be granted during a specified period; (ii) the per-employee limitation is
approved by the stockholders; (iii) the award is granted by a compensation
committee comprised solely of "outside directors"; and (iv) the exercise price
of the award is no less than the fair market value of the stock on the date of
grant. Compensation attributable to restricted stock will qualify as
performance-based compensation, provided that: (i) the award is granted by a
compensation committee comprised solely of "outside directors"; and (ii) the
purchase price of the award is no less than the fair market value of the stock
on the date of grant. Stock bonuses qualify as performance-based compensation
under the Treasury regulations only if: (i) the award is granted by a
compensation committee comprised solely of "outside directors"; (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain; (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied; and (iv) prior to the granting (or
exercisability) of the award, stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
(or formula used to calculate the amount) payable upon attainment of the
performance goal).
12
<PAGE>
No options have been granted on the basis of the proposed share increase.
Because grants to the Company's employees under the 1996 Plan are discretionary,
benefits received by such individual optionees are not determinable. The
Company's non-employee directors, however, are entitled to a non-discretionary
grant of a specified number of options under the 1996 Plan each year. All or a
portion of the future non-discretionary option grants to non-employee directors
may be made from the addition to the 1996 Plan shares being submitted to for
stockholder approval at the Annual Meeting. In accordance with the 1996 Plan, on
the date of each annual meeting of the Stockholders of the Company commencing
after September 30, 1997, each non-employee director who has continuously served
as a non-employee director since the last annual meeting will be granted an
option to purchase 3,500 shares of Common Stock under the 1996 Plan, and each
other person who is then a non-employee director will be granted an option to
purchase a prorated number of shares of Common Stock based on the number of days
such person has continuously served as a non-employee director since the last
annual meeting.
13
<PAGE>
PROPOSAL 3
APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED AND RESTATED
In June 1996, the Board of Directors adopted the Employee Stock Purchase
Plan (the "Purchase Plan") authorizing the issuance of 350,000 shares of the
Company's Common Stock. The stockholders of the Company approved the adoption
and the amendments to the Purchase Plan in October 1996. At September 30, 1998,
an aggregate of 131,813 shares had been issued under the Purchase Plan and only
218,187 shares remained for the grant of future rights under the Plan. In
October 1998, the Board of Directors of the Company approved an amendment to the
Purchase Plan to increase the number of shares authorized for issuance under the
Purchase Plan to 100,000 shares. This amendment is intended to afford the
Company greater flexibility in providing employees with stock incentives and
ensures that the Company can continue to provide such incentives at levels
determined appropriate by the Board. During the last fiscal year, shares were
purchased in the amounts and at the weighted average prices per share under the
Purchase Plan as follows: Mr. Doerr 2,558 shares ($7.63), Mr. Ernst 313 shares
($7.65), Mr. Michael M. Foreman 3,515 shares ($7.74), Mr. Holburn 627 shares
($7.65), Mr. Scally 4,463 shares ($7.80), and Mr. Vermeulen 2,457 shares
($7.73), all current executive officers as a group 13,933 shares ($7.73), and
all employees (excluding executive officers) as a group 81,207 shares ($9.46).
Stockholders are requested in this Proposal 3 to approve the Purchase Plan,
as amended and restated. The affirmative vote of the holders of a majority of
the shares present in person or represented by proxy and entitled to vote at the
meeting will be required to approve the Purchase Plan, as amended and restated.
Abstentions will be counted toward the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Purchase Plan, as amended and restated, are
outlined below:
EMPLOYEE STOCK PURCHASE PLAN
PURPOSE
The purpose of the Company's Purchase Plan is to provide a means by which
employees of the Company (and any parent or subsidiary of the Company designated
by the Board of Directors to participate in the Purchase Plan) may be given an
opportunity to purchase Common Stock of the Company through payroll deductions,
to assist the Company in retaining the services of its employees, to secure and
retain the services of new employees, and to provide incentives for such persons
to exert maximum efforts for the success of the Company. All of the Company's
approximately 292 employees (as of September 30, 1998) who own less than 5% of
the Company's outstanding Common Stock are eligible to participate in the
Purchase Plan.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Code.
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors, which has the
final power to construe and interpret the Purchase Plan and the rights granted
under it. The Board has the power, subject to the provisions of the Purchase
Plan, to determine when and how rights to purchase Common Stock of the Company
will be granted, the provisions of each offering of such rights (which need not
be identical), and whether any parent or subsidiary of the Company shall be
eligible to participate in such plan. The Board has the power to delegate
administration of such plan to a committee of not less than two Board members.
The Board may abolish any such committee at any time and revest in the Board the
administration of the Purchase Plan. The Board has delegated administration of
the Purchase Plan to the Compensation Committee.
14
<PAGE>
OFFERINGS
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. The offering period for any offering
may be no more than 27 months. The initial offering period commenced on November
21, 1996, and shall end on January 31, 1999. Thereafter, an offering shall
begin on February 1 every two (2) years, beginning with February 1 1999, and
shall end on the earlier to occur of (1) the day prior to the second anniversary
of its offering date or (2) the day after any purchase date during an offering
(i.e., any February 1 or August 1) where the fair market value of the Common
Stock is less than it was on the date of the commencement for that offering. If
an offering terminates prior to the second anniversary of such offering as
described in clause 2 above, then on the date after such old offering terminates
a new offering shall begin.
ELIGIBILITY
Unless otherwise specifically provided in any particular offering, any
person who is customarily employed at least 20 hours per week and five months
per calendar year by the Company (or by any parent or subsidiary of the Company
designated from time to time by the Board) on the first day of an offering
period (or the first day of a Purchase Period within an offering period) is
eligible to participate in that offering under the Purchase Plan, provided such
employee has been in the continuous employ of the Company for such period
preceding the first day of the offering period (or the first day of a Purchase
Period, as the case may be) as determined by the Board (not to exceed two
years). The Board may provide in any offering that officers of the Company who
are "highly compensated" as defined in the Code are not eligible to be granted
rights under the Purchase Plan.
Notwithstanding the foregoing, no employee is eligible for the grant of any
rights under the Purchase Plan if, immediately after such grant, the employee
would own, directly or indirectly, stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or of any
parent or subsidiary of the Company (including any stock which such employee may
purchase under all outstanding rights and options), nor will any employee be
granted rights that would permit him to buy more than $25,000 worth of stock
(determined at the fair market value of the shares at the time such rights are
granted) under all employee stock purchase plans of the Company in any calendar
year.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the Purchase Plan by delivering
to the Company, prior to the date selected by the Board as the offering date for
the offering, an agreement authorizing payroll deductions of up to 15% of such
employee's earnings during the Purchase Period.
PURCHASE PRICE
For each Purchase Period, the purchase price per share at which shares are
sold under the Purchase Plan will not be less than the lower of (i) 85% of the
fair market value of a share of Common Stock on the date of commencement of the
offering or, if lower, the first day of such Purchase Period or any previous
Purchase Period within the offering, and (ii) 85% of the fair market value of a
share of Common Stock on the last day of the Purchase Period.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering period. At any time during any Purchase Period, a participant may
terminate his or her payroll deductions. A participant may reduce, increase or
begin such payroll deductions after the beginning of any offering period, only
as provided for in the applicable offering. All payroll deductions made for a
participant are credited to his or her account under the Purchase Plan and
deposited with the general funds of the Company. A participant may not make any
additional payments into such account.
15
<PAGE>
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, the employee
is entitled to purchase shares under such plan. In connection with offerings
made under the Purchase Plan, the Board may specify a maximum number of shares
any employee may be granted the right to purchase and the maximum aggregate
number of shares which may be purchased pursuant to such offering by all
participants. If the aggregate number of shares to be purchased upon exercise of
rights granted in the offering would exceed such maximum aggregate number, the
Board would make a pro rata allocation of shares available in a uniform and
equitable manner. Unless the employee's participation is discontinued, his or
her right to purchase shares is exercised automatically at the end of the
purchase period at the applicable price. See "Withdrawal" below.
WITHDRAWAL
While each participant in the Purchase Plan is required to sign an
agreement authorizing payroll deductions, the participant may withdraw from a
given offering by terminating his or her payroll deductions' and by delivering
to the Company a notice of withdrawal from the Purchase Plan. Such withdrawal
may be elected at any time prior to the end of the applicable offering period,
subject to any specific limitations in the offering.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, less any accumulated deductions previously applied to the purchase of
stock on the employee's behalf during such offering, and such employee's
interest in the offering will be automatically terminated. The employee is not
entitled to again participate in such offering. An employee's withdrawal from
an offering will not have any effect upon such employee's eligibility to
participate in subsequent offerings under the Purchase Plan.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Purchase Plan terminate
immediately upon cessation of an employee's employment for any reason, and the
Company will distribute to such employee all of his or her accumulated payroll
deductions, without interest.
RESTRICTIONS ON TRANSFER
Rights granted under the Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Purchase Plan in its discretion.
Unless terminated earlier, the Purchase Plan will terminate at such time that
all of the shares subject to the Purchase Plan's reserve have been issued under
the terms of the Purchase Plan.
The Board may also amend the Purchase Plan in its discretion. Any amendment
of the Purchase Plan must be approved by the stockholders within 12 months of
its adoption by the Board if the amendment would (i) increase the number of
shares of Common Stock reserved for issuance under the Purchase Plan, (ii)
modify the requirements relating to eligibility for participation in the
Purchase Plan, or (iii) modify any other provision of the Purchase Plan in a
manner that would materially increase the benefits accruing to participants
under the Purchase Plan, if such approval is required in order to comply with
the requirements of Rule 16b-3 under the Exchange Act.
Rights granted before amendment or termination of the Purchase Plan will
not be impaired by an amendment or termination of the Purchase Plan without
consent of the person to whom such rights were granted.
16
<PAGE>
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution, liquidation or specified type of merger of
the Company, the surviving corporation either will assume the rights under the
Purchase Plan or substitute similar rights, or the exercise date of any ongoing
offering will be accelerated such that the outstanding rights may be exercised
immediately prior to, or concurrent with, any such event.
STOCK SUBJECT TO PURCHASE PLAN
The Company has reserved a total of 450,000 shares of Common Stock for
issuance under the Purchase Plan. As of September 30, 1998, a total of 131,813
shares had been sold under the Purchase Plan and 318,187 shares remained
available for future issuance. If rights granted under the Purchase Plan
expire, lapse or otherwise terminate without being exercised, the Common Stock
not purchased under such rights again becomes available for issuance under the
Purchase Plan.
FEDERAL INCOME TAX INFORMATION
Rights granted under the Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under an
employee stock purchase plan which qualifies under provisions of Section 423 of
the Code.
A participant will be taxed on amounts withheld for the purchase of shares
as if such amounts were actually received. Other than this, no income will be
taxable to a participant until disposition of the shares acquired, and the
method of taxation will depend upon the holding period of the purchase shares.
If the stock is disposed of at least two years after the beginning of the
offering period and at least one year after the stock is transferred to the
participant, then the lesser of (i) the excess of the fair market value of the
stock at the time of such disposition over the exercise price or (ii) the excess
of the fair market value of the stock as of the beginning of the offering period
over the exercise price (determined as of the beginning of the offering period)
will be treated as ordinary income. Any further gain or any loss will be taxed
as a long-term capital gain or loss depending on how long the stock was held.
Capital gains currently are generally subject to lower tax rates than ordinary
income. The maximum long-term capital gains rate for federal income tax purposes
is 20% while the maximum ordinary rate is effectively 39.6% at the present time.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the exercise date over the exercise price will be treated as ordinary
income at the time of such disposition, and the Company may, in the future, be
required to withhold income taxes relating to such ordinary income from other
payments made to the participant. The balance of any gain will be treated as
capital gain. Even if the stock is later disposed of for less than its fair
market value on the exercise date, the same amount of ordinary income is
attributed to the participant, and a capital loss is recognized equal to the
difference between the sales price and the fair market value of the stock on
such exercise date. Any capital gain or loss will be long or short-term
depending on how long the stock has been held year.
There are no federal income tax consequences to the Company by reason of
the grant or exercise of rights under the Purchase Plan. The Company is entitled
to a deduction to the extent amounts are taxed as ordinary income to a
participant (subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting obligation).
17
<PAGE>
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending September 30, 1999, and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Representatives of
KPMG Peat Marwick LLP are expected to be present at the Annual Meeting, will
have an opportunity to make a statement if they so desire and will be available
to respond to appropriate questions.
Stockholder ratification of the selection of KPMG Peat Marwick LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of KPMG Peat Marwick
LLP to the stockholders for ratification as a matter of good corporate practice.
If the stockholders fail to ratify the selection, the Audit Committee and the
Board will reconsider whether or not to retain that firm. Even if the selection
is ratified, the Audit Committee and the Board in their discretion may direct
the appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of KPMG Peat Marwick LLP. Abstentions will
be counted toward the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
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<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of September 30, 1998, by: (i) each director
and nominee for director; (ii) each of the executive officers named in the
Summary Compensation Table employed by the Company in that capacity on September
30, 1998; (iii) all executive officers and directors of the Company as a group;
and (iv) all those known by the Company to be beneficial owners of more than
five percent of its Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
------------------------------------------------
PRINCIPAL STOCKHOLDERS, DIRECTORS AND OFFICERS NUMBER OF SHARES PERCENT OF TOTAL
- ----------------------------------------------------------------- --------------------- -------------------------
<S> <C> <C>
Thomas Keffer.................................................... 1,317,260 12.6%
Thomas H. Peterson (2)........................................... 705,153 6.7
Entities affiliated with
El Dorado Ventures III, L.P. (3)
2400 Sand Hill Road, Suite 100
Menlo Park, CA 94025.......................................... 694,987 6.6
Michael Scally (4)............................................... 177,409 1.7
Robert M. Holburn, Jr. (5)....................................... 87,775 *
Michael M. Foreman (6)........................................... 23,134 *
Michael Ernst (7)................................................ 20,704 *
Thomas M. Atwood (8)............................................. 23,499 *
Richard Magnuson (9)............................................. 26,832 *
Louis C. Cole (10)............................................... 6,256 *
All executive officers and directors
as a group (13 persons)(11).................................... 3,010,574 27.6%
_______________________________
</TABLE>
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G (if any) filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise indicated
in the footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in this
table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
10,457,486 shares outstanding on September 30, 1998, adjusted as required by
rules promulgated by the SEC.
(2) Includes all shares held by entities affiliated with El Dorado Ventures III,
L.P. ("El Dorado III"). Mr. Peterson, is a general partner of the general
partner of the entities affiliated with El Dorado III and may be deemed to
share voting and investment power as to all the shares held by the entities
affiliated with El Dorado III (described in note (3) below), and therefore,
may be deemed to be a beneficial owner of such shares. Mr. Peterson
disclaims beneficial ownership of any such shares except to the extent of
his partnership interest therein. Also includes 10,166 shares subject to
stock options held by Mr. Peterson that are exercisable within 60 days of
September 30, 1998.
(3) Represents 660,595 shares held by El Dorado III, 22,159 shares held by El
Dorado Technology IV, L.P. and 12,233 shares held by El Dorado C&L Fund,
L.P. Mr. Peterson, a director of the Company, is a general partner of the
El Dorado Venture Partners III, the general partner of the entities
affiliated with El Dorado III.
(4) Includes 172,946 shares issuable pursuant to options exercisable within 60
days of September 30, 1998
19
<PAGE>
(5) Includes 57,148 shares issuable pursuant to options exercisable within 60
days of September 30, 1998
(6) Includes 18,240 shares issuable pursuant to options exercisable within 60
days of September 30, 1998.
(7) Includes 19,790 shares issuable pursuant to options exercisable within 60
days of September 30, 1998.
(8) Includes 23,499 shares issuable pursuant to options exercisable within 60
days of September 30, 1998.
(9) Represents 16,666 shares held by Richard P. and Amy C. Magnuson, Trustees
of the Magnuson Revocable Trust dated 1/14/94 and 10,166 shares issuable
pursuant to options exercisable within 60 days of September 30, 1998.
(10) Includes 6,256 shares issuable pursuant to options exercisable within 60
days of September 30, 1998.
(11) Includes 2,560,683 shares of Common Stock, 449,891 shares subject to
options exercisable within 60 days of September 30, 1998, held by directors
and executive officers of the Company and entities affiliated with such
persons. See Notes 2 through 10 above.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 30, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with; except that two
reports, covering an aggregate of four transactions, were filed late by Mr.
Holburn.
20
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Beginning January 1999 the Company's non-employee directors will receive
$1,500 for each Directors meeting attended in addition to being reimbursed for
certain expenses in connection with their attendance at Board and committee
meetings. In November 1996, Messrs. Atwood, Magnuson and Peterson were each
granted an option to purchase 10,000 shares of the Company's Common Stock at an
exercise price of $12.00 per share. In July 1997, Mr. Cole was granted an
option to purchase 10,000 shares of the Company's Common Stock at an exercise
price of $12.50 per share. Each such grant was made pursuant to the 1996 Equity
Incentive Plan (or its predecessor). On the date of each annual meeting of the
Stockholders of the Company commencing after September 30, 1997, each non-
employee director who has continuously served as a non-employee director since
the last annual meeting will be granted an option to purchase 3,500 shares of
Common Stock, and each other person who is then a non-employee director will be
granted an option to purchase a prorated number of shares of Common Stock based
on the number of days such person has continuously served as a non-employee
director since the last annual meeting. These options will be fully vested when
granted.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal year ended September 30, 1998,
compensation awarded or paid to, or earned by, the Company's Chief Executive
Officer and its other four most highly compensated executive officers at
September 30, 1998 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- -------------------
SECURITIES ALL OTHER
FISCAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS(#) ($)(1)
- ------------------------------------------- --------- ---------- ---------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Thomas Keffer
Chief Executive Officer 1998 $200,000 $ 37,500 0 $ 7,773
and Chairman of the Board 1997 $160,000 $ 25,000 0 $ 7,510
Michael Scally 1998 $210,000 $ 35,000 100,000 $43,500(2)
President and Chief Operating Officer 1997 $182,296 $ 25,000 100,000 $65,803(2)
Michael M. Foreman 1998 $ 96,500 $118,038 45,000 $ 7,348
Vice President, North American Sales 1997 $ 86,000 $ 84,576 10,000 $ 8,338
Robert M. Holburn, Jr. 1998 $150,000 $ 35,000 80,000 $50,100(3)
Vice President, Chief Financial Officer 1997 $118,336 $ 25,000 20,000 $ 5,926
and Secretary
Michael Ernst(4) 1998 $130,000 $ 42,749 0 $ 5,718
Vice President, Professional Services 1997 $ 45,000 $ 16,820 50,000 $ 3,625
and Support
</TABLE>
(1) Consists of amounts received pursuant Company's Profit Sharing Plan, 401(k)
Company Matching Funds, and employee stock purchase plan proceeds, as
applicable.
(2) Includes relocation compensation of $36,600 for 1998 and $54,643 for 1997.
(3) Includes relocation compensation of $41,000.
(4) Michael Ernst, who joined the Company in April 1997 as Vice President
Professional Services and was paid an annual salary of $108,000.
21
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The Company has granted incentive stock options to its executive officers
under the 1996 Equity Incentive Plan.
The following tables show for the fiscal year ended September 30, 1998,
certain information regarding options granted to, exercised by, and held at
year-end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------------
Number of % of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of Stock Price
Underlying Granted to Exercise or Appreciation for Option Term($)(4)
Options Employees in Base Price Expiration -----------------------------------
Name Granted(#)(1) Fiscal Year(2) ($/Sh)(3) Date 5% 10%
- ------------------ -------------------- -------------------- --------------- -------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Scally 100,000 8.9% $10.875 10/28/2007 $683,923 $1,733,195
Mr. Foreman 10,000 0.9% $10.875 10/28/2007 $ 68,392 $ 173,319
20,000 1.8% $ 7.750 6/2/2008 $ 97,478 $ 247,030
5,000 0.4% $ 7.500 7/31/2008 $ 23,583 $ 59,765
10,000 0.9% $ 5.750 9/4/2008 $ 36,161 $ 91,640
Mr. Holburn 30,000 2.7% $10.875 10/28/2007 $205,177 $ 519,958
50,000 4.4% $ 7.750 6/2/2008 $243,697 $ 617,575
</TABLE>
(1) Options shown were granted under the Company's 1996 Equity Incentive Plan.
Options have a maximum term of 10 years measured from the date of grant,
subject to earlier termination upon the optionee's cessation of service with
the Company. One hundred percent (100%) of any unvested options become
immediately exercisable if there is a change in control.
(2) Based on options to purchase 1,128,820 shares granted to employees in fiscal
year 1998, including grants to the Named Executive Officers.
(3) The exercise price is equal to the fair market value of the Common Stock on
the date of grant, based on the closing sales price as reported on the
Nasdaq National Market.
(4) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years). It is calculated assuming that the stock
price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. These amounts represent certain assumed rates of appreciation only,
in accordance with the rules of the SEC, and do not reflect the Company's
estimate or projection of future stock price performance. Actual gains, if
any, are dependent on the actual future performance of the Company's Common
Stock.
22
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND SEPTEMBER 30, 1998
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-THE-
UNEXERCISED OPTIONS MONEY OPTIONS AT
AT FY-END (#) FY-END ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE(2)
- ---------------------------- --------------------- -------------------- -------------------------- ---------------------------
<S> <C> <C> <C> <C>
Mr. Scally 0 N/A 163,432 / 211,564 $58,331 / $29,167
Mr. Foreman 0 N/A 13,069 / 54,185 $30,875 / $33,222
Mr. Holburn 20,000 $198,041 50,481 / 92,850 $80,497 / $46,367
Mr. Ernst 0 N/A 17,708 / 32,292 $ 0 / $ 0
</TABLE>
- ----------------------------
(1) Based on the fair market value per share of the Common Stock (the closing
sales price reported by the NASDAQ National Market) at date of exercise,
less the exercise price.
(2) Based on the fair market value of the Common Stock ($7.25) as of September
30, 1998, as reported on the NASDAQ National Market, less the exercise
price, multiplied by the number of shares underlying the option.
23
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is responsible for developing and making recommendations to the Board with
respect to the Company's executive compensation policies. The Committee
consists of Thomas Keffer and outside directors Richard P. Magnuson and Thomas
H. Peterson.
COMPENSATION PHILOSOPHY
The Company's executive compensation program is based on the following
four objectives: (i) to link the interests of management with those of
stockholders by encouraging stock ownership in the Company; (ii) to attract and
retain superior executives by providing them with the opportunity to earn total
compensation packages that are competitive with the industry; (iii) to reward
individual results by recognizing performance through salary, annual cash
incentives and long-term stock based incentives; and (iv) to manage compensation
based on the level of skill, knowledge, effort and responsibility needed to
perform the job successfully.
The components of the Company's compensation program for its executive
officers include (i) base salary, (ii) performance-based cash bonuses, and (iii)
incentive compensation in the form of stock options.
BASE SALARY. Base salary levels for the Company's executive officers are
determined, in part, through comparisons with companies in the software
industry, other companies with which the Company competes for personnel, and
general geographic market conditions. Additionally, the Committee evaluates
individual experience and performance and the overall performance of the
Company. The Committee reviews each executive's salary on an annual basis and
may increase each executive's salary based on (i) the individual's increased
contribution to the Company over the preceding year; (ii) the individual's
increased responsibilities over the preceding year; and (iii) any increase in
median competitive pay levels.
ANNUAL CASH BONUSES. The Compensation Committee recommends the payment of
bonuses from time-to-time to the Company's employees, including its executive
officers, to provide an incentive to these persons to be productive over the
course of each fiscal year. These bonuses are awarded only if the Company
achieves or exceeds certain corporate performance objectives relating to revenue
and net income. The size of the cash bonus to each executive officer is based on
the individual executive's performance during the preceding year as well as that
level of combination of cash compensation and stock options that would be
required from a competitive point of view to retain the services of a valued
executive officer.
EQUITY INCENTIVE PLAN. The Company believes that a key component to
the compensation of its executive officers should be through stock options.
Stock options utilized by the Company for this purpose have been designed to
provide an incentive to these employees by allowing them to directly participate
in any increase in the long-term value of the Company. This incentive is
intended to reward, motivate and retain the services of executive employees.
The Company has historically rewarded its executive employees through the grant
of Incentive Stock Options and Nonstatutory Stock Options.
Incentive Stock Options and Nonstatutory Stock Options are allocated
to both executive and non-executive employees on an annual basis by either the
Compensation Committee or the Board of Directors. The Company's 1996 Equity
Incentive Plan (the "1996 Plan") provides for the grant of up to 3,500,000
shares of the Company's Common Stock (assuming stockholder approval of the
recent increase), of which as of September 30, 1998, 968,119 shares have been
issued upon the exercise of options, options to purchase 1,667,426 shares were
outstanding and 864,455 shares remained available for future grant. Stock
options are typically granted with exercise prices equal to the prevailing
market value of the Company's common stock on the date of grant, have 10-year
terms and are subject to vesting periods established from time to time by the
Committee.
24
<PAGE>
The Compensation Committee employs no particular set of mechanical criteria
in awarding stock options. Rather, it evaluates a series of factors including:
(i) the overall performance of the Company for the fiscal year in question; (ii)
the performance of the individual in question; (iii) the anticipated
contribution by the individual to the Company on an overall basis; (iv) the
historical level of compensation of the individual; (v) the level of
compensation of similarly situated executives in the Company's industry; and
(vi) that level of combination of cash compensation and stock options that would
be required from a competitive point of view to retain the services of a valued
executive officer.
CEO COMPENSATION
Mr. Keffer's base salary has been adjusted from time-to-time in accordance
with the criteria for the determination of executive officer compensation as
described above in the section captioned "Base Salary." In setting the
compensation for Mr. Keffer for fiscal year 1998, the Company sought to retain a
key executive officer with a competitive salary. Mr. Keffer takes no part in
discussions relating to his own compensation.
By the Compensation Committee
Thomas Keffer
Richard P. Magnuson
Thomas H. Peterson
25
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the Company's compensation committee consists of Messrs.
Keffer, Magnuson and Peterson. No member of the Compensation Committee of the
Company serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee. See "Certain
Transactions" for a description of transactions between the Company and entities
affiliated with members of the Compensation Committee.
PERFORMANCE MEASUREMENT COMPARISON (1)
The following graph and table show the total stockholder return of an
investment of $100 in cash on November 22, 1996 (the date of the Company's
initial public offering) for the Company's Common Stock, the NASDAQ Stock Market
(U.S.) Index and (iii) the Hambrecht & Quist High Technology Index, an index
based on companies in a group of public companies in the high technology
industry. All values assume reinvestment of the full amount of all dividends
and are calculated as of September 30, 1998:
RWAV NASDAQ H&Q TECH
[PLOT POINTS TO COME]
11/22/96
12/31/96
03/31/97
06/30/97
09/30/97
12/31/97
03/31/98
06/30/98
09/30/98
_______________
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
26
<PAGE>
CERTAIN TRANSACTIONS
In February 1997, the Company acquired 100% of the outstanding stock of PVI
Precision Software GmbH ("Precision") for $1.2 million in cash and discounted
notes payable. In connection with the Precision acquisition, Rolf Doerr, a
significant equity holder in Precision, became an officer of the Company.
During 1998, the note payable balance of $273,000 was retired.
In April 1997, the Company acquired in a transaction with Copper Lake
Investments, LLC ("Copper Lake") a Boulder, Colorado consulting organization,
certain capital assets for $250,000 and covenants not to compete from certain
key employees in the amount of $250,000. In connection with the Copper Lake
acquisition, Michael Ernst, a significant investor in Copper Lake, became an
officer of the Company.
In February 1998, the Company acquired all of the capital stock of Stingray
Software, Inc. ("Stingray") in exchange for 1.65 million shares of the Company's
common stock in a transaction accounted for as a pooling of interests. In
connection with the Stingray acquisition, Mitchell Scot Wingo, a significant
investor with Stingray, became an officer of the Company.
During fiscal year 1998, in connection with the relocation of the Company's
headquarters to Boulder, Colorado, the Company entered into home loan agreements
with Messrs. Scally and Holburn in the amounts of $150,000 and $100,000,
respectively. Under the terms of those agreements, the loans shall be forgiven
if any of the following should occur: a) change of control or management of the
Company; b) termination by the Company for convenience; or c) the executives
remain employed by the Company for five (5) years. In the event executives'
employment with the Company terminates prior to the fifth anniversary, only a
pro-rated portion of the principle amount will be forgiven. The remainder of
the amount will bear interest at a 7% annual rate and be payable within one
year of the termination date.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been otherwise
obtained from unaffiliated third parties.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ Robert M. Holburn, Jr.
Robert M. Holburn, Jr.
Secretary
December 11, 1998
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998, IS
AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY, ROGUE
WAVE SOFTWARE, INC., 5500 FLATIRON PARKWAY, BOULDER, COLORADO 80301.
<PAGE>
ROGUE WAVE SOFTWARE, INC.
1996 EQUITY INCENTIVE PLAN
ADOPTED ON JUNE 6, 1996
APPROVED BY STOCKHOLDERS ON OCTOBER 30, 1996
AMENDED BY THE BOARD OF DIRECTORS ON OCTOBER 13, 1998
APPROVED BY STOCKHOLDERS ON ______________
INTRODUCTION.
In June 1996, the Board of Directors adopted this 1996 Equity Incentive
Plan as an amendment and restatement of the Company's 1994 Stock Option Plan and
the Inmark Stock Option Plan.
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the common stock
of the Company ("Common Stock") through the granting of (i) Incentive Stock
Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to
purchase restricted stock, and (v) stock appreciation rights, all as defined
below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 or 7 hereof, including
Incentive Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or
rights to purchase restricted stock granted pursuant to Section 8 hereof, or
(iii) stock appreciation rights granted pursuant to Section 8 hereof. All
Options shall be separately designated Incentive Stock Options or Nonstatutory
Stock Options at the time of grant, and a separate certificate or certificates
will be issued for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
<PAGE>
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance with
subsection 3(c) of the Plan.
(e) "COMPANY" means Rogue Wave Software, Inc.
(f) "CONCURRENT STOCK APPRECIATION RIGHT" OR "CONCURRENT RIGHT" means a
right granted pursuant to subsection 9(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(i) "DIRECTOR" means a member of the Board.
(j) "EMPLOYEE" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company. Neither service as a Director
nor payment of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(1) If the Common Stock is listed on any established stock exchange, or
traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in Common Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(2) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
2
<PAGE>
(n) "INDEPENDENT STOCK APPRECIATION RIGHT" means a right granted pursuant
to subsection 9(b)(3) of the Plan.
(o) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(p) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(q) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(t) "OPTIONEE" means a person to whom an Option is granted pursuant to the
Plan.
(u) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(v) "PLAN" means this Rogue Wave Software, Inc. 1996 Equity Incentive Plan.
(w) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(x) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 9 of the Plan.
(y) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
3
<PAGE>
(z) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.
(aa) "TANDEM STOCK APPRECIATION RIGHT" OR "TANDEM RIGHT" means a right
granted pursuant to subsection 9(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how each Stock Award shall be
granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory
Stock Option, a stock bonus, a right to purchase restricted stock, a Stock
Appreciation Right, or a combination of the foregoing; the provisions of each
Stock Award granted (which need not be identical), including the time or times
when a person shall be permitted to receive stock pursuant to a Stock Award;
whether a person shall be permitted to receive stock upon exercise of an
Independent Stock Appreciation Right; and the number of shares with respect to
which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 15.
(4) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company
which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee or
committees ("Committee") of one or more members of the Board. In the discretion
of the Board, a Committee may consist solely of two or more Outside Directors,
in accordance with Code Section 162(m), or solely of two or more Non-Employee
Directors, in accordance with Rule 16b-3. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan.
4
<PAGE>
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate three million five hundred thousand (3,500,000)
shares of Common Stock (determined without giving effect to any stock split that
may be made in anticipation of the Company's initial public offering of the
Common Stock). If any Stock Award shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised in full (or vested
in the case of Restricted Stock), the stock not acquired under such Stock Award
shall revert to and again become available for issuance under the Plan. Shares
subject to Stock Appreciation Rights exercised in accordance with Section 9 of
the Plan shall not be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of such stock at the date of grant
and the Option is not exercisable after the expiration of five (5) years from
the date of grant.
(c) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options and Stock
Appreciation Rights covering more than seven hundred fifty thousand (750,000)
shares of Common Stock (determined without giving effect to any stock split that
may be made in anticipation of the Company's initial public offering of the
Common Stock) in any calendar year. This subsection 5(c) shall not apply until
(i) the earliest of: (A) the first material modification of the Plan (including
any increase to the number of shares reserved for issuance under the Plan in
accordance with Section 4); (B) the issuance of all of the shares of Common
Stock reserved for issuance under the Plan; (C) the expiration of the Plan; or
(D) the first meeting of stockholders at which directors are to be elected that
occurs after the close of the third calendar year following the calendar year in
which occurred the first registration of an equity security under Section 12 of
the Exchange Act; or (ii) such other date required by Section 162(m) of the Code
and the rules and regulations promulgated thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each
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Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other Common Stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other Common Stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be payable
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option may be transferred
to the extent provided in the Option Agreement; provided that if the Option
Agreement does not expressly permit the transfer of a Nonstatutory Stock Option,
the Nonstatutory Stock Option shall not be transferable except by will, by the
laws of descent and distribution or pursuant to a domestic relations order
satisfying the requirements of Rule 16b-3, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person or any
transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that
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period, and may be exercised with respect to some or all of the shares allotted
to such period and/or any prior period as to which the Option became vested but
was not fully exercised. The Option may be subject to such other terms and
conditions on the time or times when it may be exercised (which may be based on
performance or other criteria) as the Board may deem appropriate. The provisions
of this subsection 6(e) are subject to any Option provisions governing the
minimum number of shares as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise his or her Option (to the extent that the Optionee was
entitled to exercise it at the date of termination) but only within such period
of time ending on the earlier of (i) the date three (3) months after the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a three-month period (or 12 month period in the case of totally
disabled Optionees) after the termination of, the Optionee's Continuous Status
as an Employee, Director or Consultant, the Option shall be fully vested and may
be exercised by the Optionee's estate, by a person who acquired the right to
exercise the Option by bequest or inheritance or by a person designated to
exercise the option upon the Optionee's death pursuant to subsection 6(d), but
only within the period ending on the earlier of (i) the date twelve (12) months
following the date of death (or such longer or shorter period specified in the
Option Agreement), or (ii) the expiration of the term of such Option as set
forth in the Option Agreement. If, at the time of death, the Optionee was not
entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
under the Plan.
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(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the Re-
Load Option on the date of exercise of the original Option. Notwithstanding the
foregoing, a Re-Load Option which is an Incentive Stock Option and which is
granted to a 10% stockholder (as described in subsection 5(b)), shall have an
exercise price which is equal to one hundred ten percent (110%) of the Fair
Market Value of the stock subject to the Re-Load Option on the date of exercise
of the original Option and shall have a term which is no longer than five (5)
years.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board or Committee may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 13(d) of the Plan and in Section 422(d) of the
Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load
Option shall be subject to the availability of sufficient shares under
subsection 4(a) and shall be subject to such other terms and conditions as the
Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.
7. OPTION GRANTS FOR NON-EMPLOYEE DIRECTORS. Unless otherwise explicitly
provided by the Board, Non-Employee Directors shall not be eligible for any
Stock Awards under the Plan other than the nonstatutory stock options provided
under this Section 7 on the following terms and conditions:
(a) INITIAL GRANT FOR NON-EMPLOYEE DIRECTORS. Each person who is a Non-
Employee Director at the date the Company's initial public offering of shares of
common stock is effective or who becomes a Non-Employee Director as of any date
thereafter shall, upon such date, be granted an option to purchase fifteen
thousand (15,000) shares of Common Stock (determined without giving effect to
any stock split that may be made in anticipation of the Company's initial public
offering of the Common Stock) on the terms and conditions set forth herein.
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(b) ANNUAL GRANT. Following each annual meeting of the Company's
stockholders occuring after the effectiveness of the initial public offering of
the Common Stock, (i) each person who continuously has been a Non-Employee
Director for a full year since the last annual meeting of the Company's
stockholders automatically shall be granted an option to purchase five thousand
two hundred (5,250) shares of Common Stock (determined without giving effect to
any stock split that may be made in anticipation of the Company's initial public
offering of the Common Stock) on the terms and conditions set forth herein, and
(ii) each other person who is then a Non-Employee Director automatically shall
be granted an option to purchase, on the terms and conditions set forth herein,
the number of shares of common stock of the Company (rounded up to the nearest
whole share) determined by multiplying five thousand two hundred fifty (5,250)
shares (determined without giving effect to any stock split that may be made in
anticipation of the Company's initial public offering of the Common Stock) by a
fraction, the numerator of which is the number of days the person continuously
has been a Non-Employee Director as of the date of such grant and the
denominator of which is 365.
(c) TERM. The term of each Non-Employee Director's option commences on
the date it is granted and, unless sooner terminated as set forth herein,
expires on the date ("Expiration Date") ten (10) years from the date of grant.
If the Non-Employee Director's Continuous Status as an Employee, Director or
Consultant terminates, the option shall terminate on the earlier of the
Expiration Date or the date three (3) months following the date of termination
of such Continuous Status (twelve (12) months if such termination is due to
death or disability). In any and all circumstances, a Non-Employee Director's
option may be exercised following termination of his or her Continuous Status as
an Employee, Director or Consultant only as to that number of shares as to which
it was exercisable on the date of termination of such status under the
provisions of subsection 7(g).
(d) PRICE. The exercise price of each Non-Employee Director's option
shall be one hundred percent (100%) of the fair market value of the stock
subject to such option on the date such option is granted.
(e) CONSIDERATION. Payment of the exercise price of each option is due
in full in cash upon any exercise when the number of shares being purchased upon
such exercise is less than 1,000 shares. However, when the number of shares
being purchased upon an exercise is 1,000 or more shares, the Non-Employee
Director may elect to make payment of the exercise price under one of the
following alternatives:
(1) Payment of the exercise price per share in cash or by check
at the time of exercise; or
(2) Provided that at the time of the exercise the Company's common
stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at its fair market
value on the date preceding the date of exercise; or
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(3) Payment by a combination of the methods of payment specified
in paragraphs (1) and (2) above.
Notwithstanding the foregoing, a Non-Employee Director's option may be
exercised pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board which results in the receipt of cash (or check) by the
Company prior to the issuance of shares of the Company's common stock.
(f) TRANSFERABILITY. A Non-Employee Director's option shall not
be transferable except by will or by the laws of descent and distribution, or
pursuant to a domestic relations order satisfying the requirements of Rule 16b-3
and shall be exercisable during the lifetime of the Non-Employee Director only
by such person (or by his guardian or legal representative) or transferee
pursuant to such an order. Notwithstanding the foregoing, a Non-Employee
Director may, by delivering written notice to the Company in a form satisfactory
to the Company, designate a third party who, in the event of the death of the
Non-Employee Director, shall thereafter be entitled to exercise the option.
(g) VESTING. A Non-Employee Director's initial grant under
Section 7(a) shall become exercisable in installments over a period of three (3)
years at the rate of one thirty-sixth (1/36th) per month; provided that the
optionee has, during the entire period prior to such vesting date, continuously
served as a Non-Employee Director or employee of or consultant to the Company or
any Affiliate, whereupon such option shall become fully exercisable in
accordance with its terms with respect to that portion of the shares represented
by that installment. A Non-Employee Director's annual grant under Section 7(b)
shall be fully vested at all times.
8. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(A) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.
(B) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or, if the agreement so provides, pursuant to a domestic
relations order satisfying the requirements of
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Rule 16b-3, so long as stock awarded under such agreement remains subject to the
terms of the agreement.
(C) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(D) VESTING. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or the Committee.
(E) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.
9. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority, exercisable
in its sole discretion, to grant Stock Appreciation Rights under the Plan to
Employees, Directors and Consultants. To exercise any outstanding Stock
Appreciation Right, the holder must provide written notice of exercise to the
Company in compliance with the provisions of the Stock Award Agreement
evidencing such right. Except as provided in subsection 5(c), no limitation
shall exist on the aggregate amount of cash payments the Company may make under
the Plan in connection with the exercise of a Stock Appreciation Right.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation
Rights will be granted appurtenant to an Option, and shall, except as
specifically set forth in this Section 9, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of stock based on Fair
Market Value on the date of the Option surrender) in an amount up to the excess
of (A) the Fair Market Value (on the date of the Option surrender) of the number
of shares of stock covered by that portion of the surrendered Option in which
the Optionee is vested over (B) the aggregate exercise price payable for such
vested shares.
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(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 9, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on
an exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights will be
granted independently of any Option and shall, except as specifically set forth
in this Section 9, be subject to the same terms and conditions applicable to
Nonstatutory Stock Options as set forth in Section 6. They shall be denominated
in share equivalents. The appreciation distribution payable on the exercised
Independent Right shall be not greater than an amount equal to the excess of (A)
the aggregate Fair Market Value (on the date of the exercise of the Independent
Right) of a number of shares of Company stock equal to the number of share
equivalents in which the holder is vested under such Independent Right, and with
respect to which the holder is exercising the Independent Right on such date,
over (B) the aggregate Fair Market Value (on the date of the grant of the
Independent Right) of such number of shares of Company stock. The appreciation
distribution payable on the exercised Independent Right shall be in cash or, if
so provided, in an equivalent number of shares of stock based on Fair Market
Value on the date of the exercise of the Independent Right.
10. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options and/or
any Stock Appreciation Rights under the Plan and/or (ii) with the consent of any
adversely affected holders of Options and/or Stock Appreciation Rights, the
cancellation of any outstanding Options and/or any Stock Appreciation Rights
under the Plan and the grant in substitution therefor of new Options and/or
Stock Appreciation Rights under the Plan covering the same or different numbers
of shares of stock, but having an exercise price per share not less than:
eighty-five percent (85%) of the Fair Market Value for a Nonstatutory Stock
Option, one hundred percent (100%) of the Fair Market Value in the case of an
Incentive Stock Option or, in the case of an Incentive Stock Option held by a
10% stockholder (as described in subsection 5(b)), not less than one hundred ten
percent (110%) of the Fair Market Value per share of stock on the new grant
date. Notwithstanding the foregoing, the Board or the Committee may grant an
Option and/or Stock Appreciation Right with an exercise price lower than that
set forth above if such Option and/or Stock Appreciation Right is granted as
part of a transaction to which section 424(a) of the Code applies.
(b) Shares subject to an Option or Stock Appreciation Right canceled under
this Section 10 shall continue to be counted against the maximum award of
Options and Stock
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Appreciation Rights permitted to be granted pursuant to the Plan. The repricing
of an Option and/or Stock Appreciation Right hereunder resulting in a reduction
of the exercise price, shall be deemed to be a cancellation of the original
Option and/or Stock Appreciation Right and the grant of a substitute Option
and/or Stock Appreciation Right; in the event of such repricing, both the
original and the substituted Options and Stock Appreciation Rights shall be
counted against the maximum awards of Options and Stock Appreciation Rights
permitted to be granted pursuant to the Plan, to the extent required by Section
162(m) of the Code.
11. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or
any stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such Stock Awards unless and until such authority is obtained.
12. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
13. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director nor a Consultant nor any person to whom a
Stock Award is transferred in accordance with the Plan shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Stock Award unless and until such person has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Consultant or other holder of
Stock Awards any right to continue in the employ of the Company or any
Affiliate, or to continue serving as a Consultant and Director, or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without notice and with or without cause, or the right to
terminate the relationship of any Consultant pursuant to the terms of such
Consultant's
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agreement with the Company or Affiliate or service as a Director pursuant to the
Company's By-Laws.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is granted, or
any person to whom a Stock Award is transferred in accordance with the Plan, as
a condition of exercising or acquiring stock under any Stock Award, (1) to give
written assurances satisfactory to the Company as to such person's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters, and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (2) to give written assurances
satisfactory to the Company stating that such person is acquiring the stock
subject to the Stock Award for such person's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act, or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the Common Stock
of the Company.
14. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of
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shares subject to the Plan and the maximum number of shares subject to award to
any person during any calendar year, and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of shares and price per share
of stock subject to such outstanding Stock Awards. Such adjustments shall be
made by the Board or the Committee, the determination of which shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then to the extent permitted by applicable law: (i) any surviving
corporation or an Affiliate of such surviving corporation shall assume any Stock
Awards outstanding under the Plan or shall substitute similar Stock Awards for
those outstanding under the Plan, or (ii) such Stock Awards shall continue in
full force and effect. In the event any surviving corporation and its
Affiliates refuse to assume or continue such Stock Awards, or to substitute
similar options for those outstanding under the Plan, then, with respect to
Stock Awards held by persons then performing services as Employees, Directors or
Consultants, the time during which such Stock Awards may be exercised shall be
accelerated and the Stock Awards terminated if not exercised prior to such
event.
15. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 14 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder is necessary for the Plan to satisfy the
requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities
exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations thereunder regarding the exclusion of performance-based compensation
from the limit on corporate deductibility of compensation paid to certain
executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
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<PAGE>
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
16. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate ten (10) years from the date the Plan is
adopted by the Board or approved by the stockholders of the Company, whichever
is earlier. No Stock Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Stock Award was granted.
17. EFFECTIVE DATE OF PLAN.
This amendment and restatement of the Plan shall become effective on the
date of closing of the initial public offering pursuant to an effective
registration statement covering the offer and sale of Common Stock to the
public, but no Stock Awards granted under the Plan shall be exercised unless and
until the Plan has been approved by the stockholders of the Company, which
approval shall be within twelve (12) months before or after the date the Plan is
adopted by the Board.
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<PAGE>
ROGUE WAVE SOFTWARE, INC.
EMPLOYEE STOCK PURCHASE PLAN
ADOPTED JUNE 6, 1996
APPROVED BY STOCKHOLDERS OCTOBER 30, 1996
AMENDED OCTOBER 13, 1998
APPROVED BY STOCKHOLDERS ________________
TERMINATION DATE: NONE
1. PURPOSE.
(a) The purpose of the Employee Stock Purchase Plan (the "Plan") is to
provide a means by which employees of Rogue Wave Software, Inc., a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the Company
shall be granted and the provisions of each offering of such rights (which need
not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective.
<PAGE>
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company
and its Affiliates and to carry out the intent that the Plan be treated as an
"employee stock purchase plan" within the meaning of Section 423 of the Code.
(c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee")
constituted in accordance with the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934 (the "Exchange Act" and "Rule 16b-3"); provided
that the Committee shall be required to satisfy the foregoing requirements only
to the extent required to exempt transactions under the Plan pursuant to Rule
16b-3. If administration is delegated to a Committee, the Committee shall have,
in connection with the administration of the Plan, the powers theretofore
possessed by the Board, subject, however, to such resolutions, not inconsistent
with the provisions of the Plan, as may be adopted from time to time by the
Board. The Board may abolish the Committee at any time and revest in the Board
the administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to rights granted under
the Plan shall not exceed in the aggregate four hundred fifty thousand (450,000)
shares (before giving effect to any stock split, stock dividend or the like) of
the Company's common stock (the "Common Stock"). If any right granted under the
Plan shall for any reason terminate without having been exercised, the Common
Stock not purchased under such right shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for the
grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 5 through 8, inclusive.
2
<PAGE>
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the Board
or the Committee may designate as provided in subparagraph 2(b), to employees of
any Affiliate of the Company. Except as provided in subparagraph 5(b), an
employee of the Company or any Affiliate shall not be eligible to be granted
rights under the Plan, unless, on the Offering Date, such employee has been in
the employ of the Company or any Affiliate for such continuous period preceding
such grant as the Board or the Committee may require, but in no event shall the
required period of continuous employment be equal to or greater than two (2)
years. In addition, unless otherwise determined by the Board or the Committee
and set forth in the terms of the applicable Offering, no employee of the
Company or any Affiliate shall be eligible to be granted rights under the Plan,
unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that, each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right;
(ii) the period of the Offering with respect to such right shall begin
on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person first
becomes an eligible employee within a specified period of time before the end of
the Offering, he or she will not receive any right under that Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of
this subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such employee's rights to purchase stock of the Company
or any Affiliate to accrue at a rate which exceeds twenty-five thousand dollars
($25,000) of fair market value of such stock (determined at the time such rights
are granted) for each calendar year in which such rights are outstanding at any
time.
3
<PAGE>
(e) Officers of the Company and any designated Affiliate shall be eligible
to participate in Offerings under the Plan, provided, however, that the Board
may provide in an Offering that certain employees who are highly compensated
employees within the meaning of Section 423(b)(4)(D) of the Code shall not be
eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an Offering
made under the Plan, shall be granted the right to purchase up to the number of
shares of Common Stock of the Company purchasable with a percentage designated
by the Board or the Committee not exceeding fifteen percent (15%) of such
employee's Earnings (as defined by the Board or the Committee in each Offering)
during the period which begins on the Offering Date (or such later date as the
Board or the Committee determines for a particular Offering) and ends on the
date stated in the Offering, which date shall be no later than the end of the
Offering. The Board or the Committee shall establish one or more dates during
an Offering (the "Purchase Date(s)") on which rights granted under the Plan
shall be exercised and purchases of Common Stock carried out in accordance with
such Offering.
(b) In connection with each Offering made under the Plan, the Board or the
Committee may specify a maximum number of shares that may be purchased by any
employee as well as a maximum aggregate number of shares that may be purchased
by all eligible employees pursuant to such Offering. In addition, in connection
with each Offering that contains more than one Purchase Date, the Board or the
Committee may specify a maximum aggregate number of shares which may be
purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted under
the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering (as defined by the Board or Committee in each Offering). The payroll
deductions made for each participant shall be credited to an account for such
participant under the Plan and shall be deposited with the general funds of the
Company. A participant may reduce (including to zero) or increase such payroll
deductions, and an eligible employee may begin such payroll deductions, after
the beginning of any Offering only as
4
<PAGE>
provided for in the Offering. A participant may make additional payments into
his or her account only if specifically provided for in the Offering and only if
the participant has not had the maximum amount withheld during the Offering.
(b) At any time during an Offering, a participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides.
Such withdrawal may be elected at any time prior to the end of the Offering
except as provided by the Board or the Committee in the Offering. Upon such
withdrawal from the Offering by a participant, the Company shall distribute to
such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating employee's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee) under the Offering, without interest.
(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such rights
are granted.
8. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering, each
participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated payroll deductions remaining in each
participant's account after the purchase of shares which is less than the amount
required to purchase one share of stock on the final Purchase Date of an
Offering shall be held in each such participant's account for the purchase of
shares under the next Offering under the Plan, unless such participant withdraws
from such next Offering, as provided in subparagraph 7(b), or is no longer
eligible to be granted rights under the Plan, as provided in paragraph 5, in
which case such amount shall be distributed to the participant after such final
Purchase Date, without interest. The amount, if any, of accumulated payroll
deductions remaining in any participant's account after the purchase of shares
which is equal to the amount required to purchase whole shares of stock on the
final Purchase Date of an Offering shall be distributed in full to the
participant after such Purchase Date, without interest.
5
<PAGE>
(b) No rights granted under the Plan may be exercised to any extent unless
the shares to be issued upon such exercise under the Plan (including rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is
in material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the Plan
shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other transaction
not involving the receipt of consideration by the Company), the Plan and
outstanding rights will be appropriately adjusted in the class(es) and maximum
number of shares subject to
6
<PAGE>
the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the Company; (2)
a merger or consolidation in which the Company is not the surviving corporation;
(3) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (4) the acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the Exchange Act
or any comparable successor provisions (excluding any employee benefit plan, or
related trust, sponsored or maintained by the Company or any Affiliate of the
Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of securities
of the Company representing at least fifty percent (50%) of the combined voting
power entitled to vote in the election of directors, then, as determined by the
Board in its sole discretion (i) any surviving or acquiring corporation may
assume outstanding rights or substitute similar rights for those under the Plan,
(ii) such rights may continue in full force and effect, or (iii) participants'
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for rights under the Plan;
(ii) Modify the provisions as to eligibility for participation in the
Plan (to the extent such modification requires stockholder approval in
order for the Plan to obtain employee stock purchase plan treatment under
Section 423 of the Code; or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(b) Rights and obligations under any rights granted before amendment of the
Plan shall not be impaired by any amendment of the Plan, except with the consent
of the person to whom such rights were granted, or except as necessary to comply
with any laws or governmental
7
<PAGE>
regulations, or except as necessary to ensure that the Plan and/or rights
granted under the Plan comply with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its sole discretion, may deliver such shares
and/or cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan at any
time. No rights may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
rights granted under the Plan comply with the requirements of Section 423 of the
Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the same day that the Company's initial
public offering of shares of common stock becomes effective (the "Effective
Date"), but no rights granted under the Plan shall be exercised unless and until
the Plan has been approved by the stockholders of the Company within twelve (12)
months before or after the date the Plan is adopted by the Board or the
Committee, which date may be prior to the Effective Date.
8
<PAGE>
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ROGUE WAVE SOFTWARE, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 21, 1999
The undersigned hereby appoints Michael J. Scally and Robert M. Holburn, Jr.,
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of Rogue Wave Software, Inc.
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of Rogue Wave Software, Inc. to be held at 5500 Flatiron Parkway,
Boulder, Colorado 80301 on Thursday, January 21, 1999, at 9:00 a.m., local time,
and at any and all postponements, continuations and adjournments thereof, with
all powers that the undersigned would possess if personally present, upon and in
respect of the following matters and in accordance with the following
instructions, with discretionary authority as to any and all other matters that
may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4 AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
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FOLD AND DETACH HERE
<PAGE>
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Please mark
your votes as
indicated in
this example [X]
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES
FOR DIRECTOR LISTED BELOW.
WITHHELD
Proposal 1: To elect directors to hold office FOR FOR ALL
for the ensuing year and until their [_] [_]
successors are elected.
Nominees: Thomas Keffer, Ph.D., Michael J.
Scally, Thomas M. Atwood, Louis C. Cole,
Richard P. Magnuson and
Thomas H. Peterson
To withhold authority to vote for any nominee(s) write such
nominee(s)' name(s) below:
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
Proposal 2: To approve an FOR AGAINST ABSTAIN
amendment to the Company's [_] [_] [_]
1996 Equity Incentive Plan to
increase the aggregate number
of shares of Common Stock
authorized for issuance
thereunder from 3,000,000
shares to 3,500,000 shares.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 3.
Proposal 3: To approve an FOR AGAINST ABSTAIN
amendment and restatement of [_] [_] [_]
the Company's Employee Stock
Purchase Plan as described in
the Proxy Statement, including
an increase in the aggregate number of shares of Common Stock
authorized for issuance thereunder from 350,000 shares to 450,000 shares.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 4.
Proposal 4: To ratify the FOR AGAINST ABSTAIN
selection of KPMG Peat [_] [_] [_]
Marwick LLP as independent
auditors of the Company for
its fiscal year ending
September 30, 1999.
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Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If signer
is a corporation, please give full corporate name and have a duly authorized
officer sign, stating title. If signer is a partnership, please sign in
partnership name by authorized person.
Signature(s) _________________________________________ Date _________________
Please vote, date and promptly return this proxy in the enclosed return envelope
that is postage prepaid if mailed in the United States.
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FOLD AND DETACH HERE
