<PAGE> 1
SCHEDULE 14A
(RULE 14-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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 sec. 240.14a-11(c) or sec. 240.14a-12
NEW ERA OF NETWORKS, INC.
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(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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NEW ERA OF NETWORKS, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of New Era
of Networks, Inc., a Delaware corporation (the "Company"), will be held on May
14, 1998 at 2:00 p.m., Mountain Daylight Time, at the offices of the Company
located at 7400 East Orchard Road, Suite 230, Englewood, Colorado 80111, for the
following purposes:
1. To elect three Class III directors to serve for terms of three years and
until their successors are duly elected and qualified.
2. To approve an amendment to the Company's Amended and Restated 1995 Stock
Option Plan to increase the number of shares of Common Stock reserved
for issuance thereunder by 500,000 shares, and to include a provision
providing for the automatic increase in the number of shares available
for grant each fiscal year.
3. To approve an amendment to the Company's 1997 Employee Stock Purchase
Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 100,000 shares, and to include a provision
providing for the automatic increase in the number of shares available
for grant each fiscal year.
4. To ratify the appointment of Arthur Andersen LLP as independent auditors
for the Company for the fiscal year ending December 31, 1998.
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 16, 1998 are
entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to sign and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the Annual Meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors
of New Era of Networks, Inc.
/s/ LEONARD M. GOLDSTEIN
LEONARD M. GOLDSTEIN
Senior Vice President, Senior
Counsel and Secretary
Englewood, Colorado
April 15, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO COMPLETE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
<PAGE> 3
NEW ERA OF NETWORKS, INC.
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PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
---------------------
PROCEDURAL MATTERS
GENERAL
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of New Era of Networks, Inc. (the
"Company") for use at the Annual Meeting of Stockholders (the "Annual Meeting")
to be held on May 14, 1998 at 2:00 p.m., Mountain Daylight Time, and at any
adjournment thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Stockholders.
The Annual Meeting will be held at the offices of the Company located at
7400 East Orchard Road, Suite 230, Englewood, Colorado 80111. The Company's
telephone number is (303) 694-3933.
These proxy solicitation materials were mailed on or about April 15, 1998,
together with the Company's 1998 Annual Report to Stockholders (which includes
the Company's Form 10-K for its 1997 fiscal year), to all stockholders entitled
to vote at the Annual Meeting. Stockholders may obtain, for the cost of copying,
a copy of any exhibits to the Company's 10-K by writing to the Secretary of the
Company at the Company's headquarters.
VOTING AT THE ANNUAL MEETING; RECORD DATE
Only stockholders of record of the Company's Common Stock at the close of
business on March 16, 1998 (the "Record Date") are entitled to notice of and to
vote at the Annual Meeting. Such stockholders are entitled to cast one vote for
each share of Common Stock held as of the Record Date and to vote on all matters
properly submitted for the vote of stockholders at the Annual Meeting. As of the
Record Date, 9,203,794 shares of the Company's Common Stock, $.0001 par value,
were issued and outstanding. No shares of Preferred Stock were outstanding. For
information regarding security ownership by management and by the beneficial
owners of more than 5% of the Company's Common Stock, see "Beneficial Share
Ownership by Principal Stockholders and Management." The closing sales price of
the Company's Common Stock on the NASDAQ National Market on the Record Date was
$24.875 per share.
QUORUM; ABSTENTIONS; BROKER NON-VOTES; REQUIRED VOTE
The presence, in person or by proxy, of the holders of a majority of the
shares entitled to be voted generally at the Annual Meeting is necessary to
constitute a quorum at the Annual Meeting. A plurality of the votes duly cast is
required for the election of directors. The affirmative vote of a majority of
the votes duly cast is required to ratify the amendment of the Company's Amended
and Restated 1995 Stock Option Plan and 1997 Employee Stock Purchase Plan and
the appointment of auditors.
Under the General Corporation Law of the State of Delaware, an abstaining
vote and a broker "non-vote" are counted as present and entitled to vote and
are, therefore, included for purposes of determining whether a quorum of shares
is present at a meeting; however, such votes are not deemed to be "votes cast."
As a result, abstentions and broker "non-votes" are not included in the
tabulation of the voting results on the election of directors or issues
requiring approval of a majority of the votes cast and, therefore, do not have
the effect of votes in opposition in such tabulations. A broker "non-vote"
occurs when a nominee holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have discretionary voting power
with respect to that item and has not received instructions from the beneficial
owner.
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REVOCABILITY OF PROXIES
All shares entitled to vote and represented by properly executed proxies
received prior to the Annual Meeting, and not revoked, will be voted at the
Annual Meeting in accordance with the instructions indicated on those proxies.
If no instructions are indicated on a properly executed proxy, the shares
represented by that proxy will be voted as recommended by the Board of
Directors. If any other matters are properly presented for consideration at the
Annual Meeting, including, among other things, consideration of a motion to
adjourn the Annual Meeting to another time or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the enclosed proxy and acting thereunder will have discretion to vote on
those matters in accordance with their best judgment. The Company does not
currently anticipate that any other matters will be raised at the Annual
Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. A proxy may be revoked (i) by filing
with the Secretary of the Company, at or before the taking of the vote at the
Annual Meeting, a written notice of revocation or a duly executed proxy, in
either case later dated than the prior proxy relating to the same shares or (ii)
by attending the Annual Meeting and voting in person (although attendance at the
Annual Meeting will not of itself revoke a proxy). Any written notice of
revocation or subsequent proxy must be received by the Secretary of the Company
prior to the taking of the vote at the Annual Meeting. Such written notice of
revocation or subsequent proxy should be hand delivered to the Secretary of the
Company or should be sent so as to be delivered to New Era of Networks, Inc.,
7400 East Orchard Road, Suite 230, Englewood, Colorado 80111, Attention:
Secretary.
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by the Company. The Company may
reimburse brokerage firms, custodians, nominees, fiduciaries and other persons
representing beneficial owners of the Company's Common Stock for their
reasonable expenses in forwarding solicitation material to such beneficial
owners. Directors, officers and employees of the Company may also solicit
proxies in person or by telephone, telegram, letter, facsimile or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but they may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation.
PROCEDURE FOR SUBMITTING STOCKHOLDER PROPOSALS
Stockholders may present proper proposals for inclusion in the Company's
proxy statement and for consideration at the next annual meeting of its
stockholders by submitting their proposals in writing to the Secretary of the
Company in a timely manner. In order to be included in the Company's proxy
materials for the 1999 annual meeting of stockholders, stockholder proposals
must be received by the Secretary of the Company no later than December 5, 1998,
and must otherwise comply with the requirements of Rule 14a-8 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
In addition, the Company's Bylaws establish an advance notice procedure
with regard to certain matters, including stockholder proposals not included in
the Company's proxy statement, to be brought before an annual meeting of the
stockholders. To be properly brought before an annual meeting or special
meeting, nominations for the election of director or other business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors or other person so authorized pursuant
to the Company's Bylaws, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors or (c) otherwise properly brought
before the meeting by a stockholder. For such nominations or other business to
be considered properly brought before the meeting by a stockholder, such
stockholder must have given timely notice and in proper form of his or her
intent to bring such business before such meeting.
To be timely, such stockholder's notice must be delivered to or mailed and
received by the secretary of the Company not less than 90 days prior to the
meeting; provided, however, that in the case of a meeting called by or on behalf
of the Board of Directors of the Company where prior notice, or public
disclosure, of the meeting has not been given or made at least 100 days prior to
such meeting, notice by the stockholder to be
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timely must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. To be in proper form, a stockholder's notice to
the secretary shall set forth: (i) the name and address of the stockholder who
intends to make the nominations, propose the business, and, as the case may be,
the name and address of the person or persons to be nominated or the nature of
the business to be proposed; (ii) a representation that the stockholder is a
holder of record of stock of the Company entitled to vote at such meeting and,
if applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice or introduce the business
specified in the notice; (iii) if applicable, a description of all arrangements
or understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (iv) such other information
regarding each nominee or each matter of business to be proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated, or intended to be nominated, or the matter been
proposed, or intended to be proposed by the Board of Directors' and (v) if
applicable, the consent of each nominee to serve as director of the Company if
so elected. The chairman of the meeting may refuse to acknowledge the nomination
of any person or the proposal of any business not made in compliance with the
foregoing procedures. All notices of proposals by stockholders, whether or not
included in the Company's proxy materials should be sent to New Era of Networks,
Inc., 7400 East Orchard Road, Suite 230, Englewood, Colorado 80111, Attention:
Secretary.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
GENERAL
The Company's Board of Directors is currently comprised of seven members
who are divided into three classes with overlapping three-year terms. A director
serves in office until his or her respective successor is duly elected and
qualified or until his or her earlier death or resignation. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of an equal number of directors.
NOMINEES FOR CLASS III DIRECTORS
Three Class III directors are to be elected at the Annual Meeting for
three-year terms ending on the date of the annual stockholder's meeting in 2001.
The Board of Directors has nominated Mark L. Gordon, Elisabeth W. Ireland and
Patrick J. Fortune for election as Class III directors. Unless otherwise
instructed, the persons named in the enclosed proxy intend to vote proxies
received by them for the election of Mr. Gordon, Ms. Ireland and Dr. Fortune.
The Company expects that Mr. Gordon, Ms. Ireland and Dr. Fortune will accept
such nomination; however, in the event that Mr. Gordon, Ms. Ireland or Dr.
Fortune are unable or decline to serve as a director at the time of the Annual
Meeting, proxies will be voted for a substitute nominee or nominees designated
by the present Board of Directors to fill the vacancy. The term of office of the
persons elected as directors will continue until such directors' terms expire in
2001 or until such directors' successors have been elected and qualified.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE NOMINEES LISTED ABOVE.
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INFORMATION REGARDING NOMINEE AND OTHER DIRECTORS
Set forth below is certain information regarding the nominees for Class III
directors and each other director of the Company whose term of office continues
after the Annual Meeting.
NOMINEES FOR CLASS III DIRECTORS FOR TERMS EXPIRING IN 2001
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
- ---- --- --------------------------------------------
<S> <C> <C>
Mark L. Gordon............... 47 Attorney at Law. Mr. Gordon has served as a Director of
the Company since the Company's inception. Since 1979,
Mr. Gordon has been a partner in the law firm of Gordon
& Glickson PC, directing the firm's information
communications and technology practice. Mr. Gordon
holds a B.A. degree from the University of Michigan and
a J.D. degree from the Northwestern University School
of Law.
Elisabeth W. Ireland......... 40 Partner, The Hamilton Companies. Ms. Ireland has served
as a Director of the Company since January 1998. Since
January 1994, Ms. Ireland has been a partner with The
Hamilton Companies, an investment partnership. From
1988 to 1994, Ms. Ireland was a private investor and
consultant. From 1986 to 1988, Ms. Ireland was Director
of Marketing and Sales for Bloomberg L.P., a financial
information service. Ms. Ireland holds an A.B. degree
from Smith College and an M.B.A. from The Wharton
School at the University of Pennsylvania.
Patrick J. Fortune........... 50 Vice President, Information Technology, and Chief
Information Officer, Monsanto Company. Dr. Fortune has
served as a Director of the Company since February
1998. Since October 1995, Dr. Fortune has been Vice
President, Information Technology, and Chief
Information Officer for Monsanto Company. From
September 1994 to September 1995, Dr. Fortune served as
President and Chief Operating Officer of Coram
Healthcare Corporation in Colorado. From December 1991
to August 1994, Dr. Fortune was Vice President,
Information Management, at Bristol-Myers Squibb. Dr.
Fortune holds a B.A. degree from the University of
Wisconsin, an M.B.A. from Northwestern University and a
Ph.D. in physical chemistry from the University of
Wisconsin.
</TABLE>
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INCUMBENT CLASS II DIRECTORS WHOSE TERMS EXPIRE IN 1999
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
- ---- --- --------------------------------------------
<S> <C> <C>
Harold A. Piskiel............ 51 Executive Vice President, Chief Technology Officer of
the Company. Mr. Piskiel has served as Executive Vice
President, Chief Technology Officer and a Director of
the Company since joining the Company in March 1995.
From 1993 to 1995, Mr. Piskiel served as the Chief
Architect and Project Manager for the Information
Technology Division of Merrill Lynch & Co. From 1984 to
1993, Mr. Piskiel served as Vice President of Data
Administration and Distribution Architecture at
Goldman, Sachs & Co. Mr. Piskiel holds a B.A. degree
from Long Island University.
James Reep................... 46 Consultant. Mr. Reep has served as a Director of the
Company since March 1996. Since 1980, Mr. Reep has
served as Chairman and Director of First Consulting
Group, an information consulting firm specializing in
health care systems that he co-founded. Mr. Reep holds
a B.S. degree from California State University at Long
Beach and an M.B.A. degree from the University of
Chicago.
</TABLE>
INCUMBENT CLASS I DIRECTORS WHOSE TERMS EXPIRE IN 2000
<TABLE>
<S> <C> <C>
George F. (Rick) Adam, Jr.... 51 Chairman of the Board of Directors, CEO and President
of the Company. Mr. Adam has served as Chairman of the
Board, Chief Executive Officer, President and a
Director of the Company since founding the Company in
June 1993. From 1987 to 1993, Mr. Adam was a General
Partner of Goldman, Sachs & Co. and served as the Chief
Information Technology Officer. From 1980 to 1987, Mr.
Adam was Chief Information Officer and Vice President
of Personnel for Baxter Health Care Corporation. Mr.
Adam received a B.S. degree from the U.S. Military
Academy, West Point, New York and an M.B.A. from
Florida State University.
Steve Lazarus................ 66 Venture Capitalist. Mr. Lazarus has served as a
Director of the Company since April 1995. Since 1986,
Mr. Lazarus has served as a senior principal of various
venture capital funds associated with ARCH Venture,
including President and Chief Executive Officer of ARCH
Development Corporation and Managing Director of ARCH
Venture Partners. From 1986 to 1994, Mr. Lazarus served
as the Associate Dean of the Graduate School of
Business of the University of Chicago. He currently
serves as a director of Amgen, Primark, Nanophase
Technologies and Illinois Superconductor. Mr. Lazarus
holds a B.A. degree from Dartmouth College and an
M.B.A. degree from the Harvard Graduate School of
Business.
</TABLE>
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of ten meetings (including regularly
scheduled and special meetings) during fiscal 1997. During the last fiscal year,
no incumbent director while a member of the Board of Directors, except for Mr.
Reep, attended fewer than 75% of the aggregate of (i) the total number of
meetings of the Board of Directors and (ii) the total number of meetings held by
all committees on which such director served. Mr. Reep attended 60% of the total
number of Board of Directors meetings.
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The Board of Directors of the Company has three standing committees: an
Audit Committee, a Compensation Committee and a Nominating Committee.
The Audit Committee, which currently consists of Ms. Ireland and Messrs.
Lazarus and Reep, is responsible for (i) recommending engagement of the
Company's independent auditors, (ii) approving the services performed by such
auditors, (iii) consulting with such auditors and reviewing with them the
results of their examination, (iv) reviewing and approving any material
accounting policy changes affecting the Company's operating results, (v)
reviewing the Company's control procedures and personnel, and (vi) reviewing and
evaluating the Company's accounting principles and its system of internal
accounting controls. The Audit Committee held one meeting during fiscal 1997.
The Compensation Committee, which currently consists of Messrs. Lazarus and
Gordon, is responsible for (i) reviewing and approving the compensation and
benefits for the Company's officers and other employees, (ii) administering the
Company's stock purchase and stock option plans, and (iii) making
recommendations to the Board of Directors regarding such matters. The
Compensation Committee held one meeting during fiscal 1997. Neither Mr. Lazarus
nor Mr. Gordon is an officer or employee of the Company.
The Nominating Committee, which currently consists of Messrs. Lazarus and
Adam (i) recommends candidates to fill vacancies on the Board of Directors and a
slate of directors for election at the Annual Meeting, (ii) evaluates the size
and composition of the Board of Directors, and recommends criteria for the
selection of persons to the Board of Directors, and (iii) periodically reviews
and makes recommendations to the Board of Directors with respect to the
Company's overall compensation programs for directors.
COMPENSATION OF DIRECTORS
With the exception of Mr. Gordon, directors received no cash remuneration
for serving on the Board of Directors in fiscal 1997. In fiscal year 1997, Mr.
Gordon was paid a stipend of $10,833 for serving as a director. For fiscal 1998,
each of the directors, including Mr. Gordon, will receive $1,000 per meeting,
plus all expenses associated with attendance at Board of Directors meetings, as
their sole cash remuneration.
In addition, non-employee directors participate in the Company's 1997
Director Option Plan (the "Director Plan"). The Board of Directors adopted and
the stockholders of the Company approved the 1997 Director Option Plan (the
"Director Plan") in June 1997 to provide for the automatic grant to non-employee
directors of the Company of options to purchase shares of Common Stock. The
Director Plan is administered by the Board of Directors, unless the Board
delegates administration to a committee. An aggregate of 100,000 shares of
Common Stock has been reserved for issuance under the Director Plan, subject to
adjustment in the event of certain capital changes. Each non-employee director
shall automatically be granted an option to purchase 16,666 shares on the date
such person first becomes a non-employee director. In addition, each non-
employee director shall be automatically granted an option to purchase 5,000
shares for each subsequent year of service, on the day after the annual
stockholder meeting.
Options granted under the Director Plan expire ten years after the date of
grant unless terminated sooner upon termination of optionee's status as a
director or otherwise pursuant to the Director Plan, and have an exercise price
equal to 100% of the fair market value of the Common Stock on the date of grant.
Initial options granted under the Director Plan shall become exercisable
cumulatively over a three-year period as to one-third of the shares subject to
the option on each anniversary of the grant date, provided the optionee
continues to serve as a director. Each annual grant under the Director Plan
shall become exercisable in full on the third anniversary of the grant date,
provided the optionee continues to serve as a director. In the event of any
change in control of the Company, as defined in the Director Plan, outstanding
options under the Director Plan must be assumed (or an equivalent option
substituted) by the successor corporation, or the options shall become
exercisable in full for at least 15 days after notice of the change of control
is given by the Company to the optionee. In addition, if within one year
following such a change in control a director shall involuntarily cease to be a
director, such director shall be entitled to option vesting through the date of
termination as a director plus one additional year thereafter.
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Prior to the adoption of the Director Plan, the directors of the Company
received the following grants under the Company's Amended and Restated 1995
Stock Option Plan: each of Mr. Gordon and Mr. Reep was granted options to
purchase 13,333 shares of Common Stock at an exercise price of $2.25 per share,
of which Mr. Gordon and Mr. Reep each had 6,667 shares that were vested at March
16, 1998.
On June 17, 1997, the Company, under the Director Plan, granted Mr. Gordon
and Mr. Reep each 5,000 options to purchase Common Stock at an exercise price of
$12.00 per share, of which no shares were vested as of March 16, 1998. On
January 15 and February 22, 1998, the Company granted each of Ms. Ireland and
Mr. Fortune 16,666 options to purchase shares of Common Stock under the Director
Plan at exercise prices of $9.875 and $16.50 per share, respectively, of which
no shares were vested as of March 16, 1998. On January 30, 1998, Mr. Lazarus was
granted options, pursuant to the Amended and Restated 1995 Stock Option Plan, to
purchase 18,333 shares of Common Stock at an exercise price of $12.5625, of
which 6,667 shares are vested as of March 16, 1998.
REQUIRED VOTE
The three nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them shall be elected
as directors. Votes withheld from any director are counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but they have no legal effect under Delaware law.
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PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO THE COMPANY'S
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
GENERAL
The Company's Amended and Restated 1995 Stock Option Plan (the "Option
Plan") was adopted in 1995, amended in 1996 and amended and restated in its
entirety in January 1997. The Option Plan provides for the grant to employees of
the Company (including officers and employee directors) of incentive stock
options and stock purchase rights ("SPRs") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and for the grant of
nonstatutory stock options to employees and consultants of the Company. The
Option Plan is administered by the Board of Directors or a committee designated
by the Board of Directors, which selects the optionees, determines the number of
shares to be subject to each option and determines the exercise price of each
option. An aggregate of 2,333,333 shares of Common Stock are reserved for
issuance under the Option Plan, of which, as of March 16, 1998, options to
purchase an aggregate of 2,135,425 shares were outstanding and an aggregate of
17,425 shares remained available for future grants.
PROPOSAL
At the Annual Meeting, the stockholders are being requested to approve the
amendment to the Option Plan to (i) increase the number of shares reserved for
issuance thereunder by 500,000 shares for an aggregate of 2,833,333 shares
reserved for issuance thereunder, and (ii) provide for the automatic increase in
the number of shares of Common Stock reserved for issuance under the Option Plan
upon the expiration of each fiscal year following the date of Annual Meeting in
an amount equal to the lesser of (i) 350,000, (ii) 3% of the outstanding shares
of the Company's Common Stock on such date or (iii) a lesser amount determined
by the Board of Directors. The amendment to increase the number of shares
reserved under the Option Plan is proposed in order to give the Board of
Directors greater flexibility to grant stock options and stock purchase rights.
The Company believes that granting stock options motivates high levels of
performance and provides an effective means of recognizing employee
contributions to the success of the Company. The Company believes that this
policy is of great value in recruiting and retaining highly qualified technical
and other key personnel who are in great demand, as well as rewarding and
incenting current employees. The Board of Directors believes that the ability to
grant options and stock purchase rights will be important to the future success
of the Company by allowing it to accomplish these objectives.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock will be required to approve the Board of Directors'
amendment to the Option Plan.
SUMMARY OF THE OPTION PLAN
Certain features of the Option Plan are outlined below.
Administration. The Option Plan may be administered by the Board of
Directors or a committee of the Board of Directors (the "Administrator"), which
committee is required to be constituted so as to comply with Section 16(b) of
the Exchange Act and applicable laws. Subject to the other provisions of the
Option Plan, the Administrator has the power to determine the terms of any stock
options purchase rights granted, including the exercise price, the number of
shares subject to the options or stock purchase right and the exercisability
thereof. The Option Plan is currently administered by the Compensation Committee
of the Board of Directors.
Eligibility and Terms of Options. The Option Plan provides that
nonstatutory stock options and stock purchase rights may be granted only to
employees and consultants. Incentive stock options may be granted only to
employees. An optionee who has been granted an option may, if he or she is
otherwise eligible, be
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<PAGE> 12
granted additional options or stock purchase rights. With respect to any
optionee who owns stock possessing more than 10% of the voting power of all
classes of stock of the Company (a "10% Stockholder"), the exercise price of any
incentive stock option granted must equal at least 110% of the fair market value
on the grant date and the maximum term of the option must not exceed five years.
The term of all other options under the Option Plan may not exceed ten years.
The Administrator selects the optionees and determines the number of shares to
be subject to each option. In making such determination, there is taken into
account the duties and responsibilities of the employee or consultant, the value
of his or her services, his or her present and potential contribution to the
success of the Company, the anticipated number of years of future service to the
Company and other relevant factors.
Terms and Conditions of Options. Each option granted under the Option Plan
is evidenced by a written stock option agreement between the optionee and the
Company and is subject to the following terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price of
options to purchase shares of Common Stock at the time the options are
granted. However, the exercise price of an incentive stock option must not
be less than 100% (110% if issued to a 10% Stockholder) of the fair market
value of the Common Stock on the date the option is granted. For so long as
the Company's Common Stock is traded on the NASDAQ National 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 system on the date of grant.
(b) Exercise of the Option. Each stock option agreement will specify
the term of the option and the date when the option is to become
exercisable. The terms of such vesting are to be determined by the
Administrator. Options granted under the Option Plan have a five-year term
and to date generally become exercisable over three years at the rate of
one-sixth upon the expiration of the first year, one-third upon the
expiration of the following year and one-half of the shares subject to such
options upon the expiration of the third year following the grant date. An
option is exercised by giving written notice of exercise to the Company,
specifying the number of full shares of Common Stock to be purchased and by
tendering full payment of the purchase price to the Company.
(c) Form of Consideration. The consideration to be paid for the shares
of Common Stock issued upon exercise of an option shall be determined by
the Administrator and is set forth in the option agreement. Such form of
consideration may vary for each option, and may consist entirely of cash,
check, promissory note, other shares of the Company's Common Stock meeting
certain criteria, any combination thereof, or any other legally permissible
form of consideration as may be provided in the Option Plan or the option
agreement.
(d) Termination of Employment. In the event an optionee's continuous
status as an employee or consultant terminates for any reason (other than
upon the optionee's death or disability), the optionee may exercise his or
her option, but only within such period of time set forth in the option
agreement not to exceed two months in the case of an incentive stock
option) from the date of such termination and only to the extent that the
optionee was entitled to exercise it at the date of such termination (but
in no event later than the expiration of the term of such option as set
forth in the option agreement). If no period of time is specified in the
option agreement, the optionee may exercise his or her option for sixty
days, subject to the same limitations set forth above. Options granted
under the Option Plan to date have generally provided that optionees may
exercise their options within sixty days from the date of termination of
employment (other than for death or disability).
(e) Disability. In the event an optionee's continuous status as an
employee or consultant terminates as a result of permanent and total
disability (as defined in Section 22(e)(3) of the Code), the optionee may
exercise his or her option, but only within twelve months from the date of
such termination, and only to the extent that the optionee was entitled to
exercise it at the date of such termination (but in no event later than the
expiration of the term of such option as set forth in the option
agreement).
10
<PAGE> 13
(f) Death. In the event of an optionee's death, the optionee's estate
or a person who acquired the right to exercise the deceased optionee's
option by bequest or inheritance may exercise the option, but only within
twelve months following the date of death, and only to the extent that the
optionee was entitled to exercise it at the date of death (but in no event
later than the expiration of the term of such option as set forth in the
option agreement).
(g) Termination of Options. Excluding incentive stock options issued
to 10% Stockholders, options granted under the Option Plan expire on the
date set forth in the option agreement (not to exceed five years from the
date of grant). Incentive stock options granted to 10% Stockholders expire
five years from the date of grant (or such shorter period set forth in the
option agreement). No option may be exercised by any person after the
expiration of its term.
(h) Nontransferability of Options. An option is nontransferable by the
optionee, other than by will or the laws of descent and distribution, and
is exercisable during the optionee's lifetime only by the optionee. In the
event of the optionee's death, options may be exercised by a person who
acquires the right to exercise the option by bequest or inheritance.
(i) Value Limitation. If the aggregate fair market value of all shares
of Common Stock subject to an optionee's incentive stock option which are
exercisable for the first time during any calendar year exceeds $100,000,
the excess options shall be treated as nonstatutory options.
(j) Other Provisions. The stock option agreement may contain such
other terms, provisions and conditions not inconsistent with the Option
Plan as may be determined by the Administrator.
Terms and Conditions of Stock Purchase Rights. Each stock purchase right
granted under the Option Plan is evidenced by a written offer that sets forth
the terms, conditions and restrictions related to the offer, including the
number of shares subject to the offer, the price per share, and the time in
which the offeree must accept the offer (which may not exceed ninety days from
the date the Administrator determined to grant the stock purchase right). The
offer must be accepted by executing a purchase agreement with such terms and
conditions as determined by the Administrator. The stock purchased pursuant to a
stock purchase right shall be subject to a repurchase option (unless the
Administrator determines otherwise) upon the voluntary or involuntary
termination of the purchaser's employment with the Company (including
termination as a result of death or disability). Pursuant to such repurchase
option, the Company shall be able to repurchase any shares of stock as to which
the repurchase option has not lapsed at the price per share originally paid by
the purchaser. The Administrator shall determine the rate at which the
repurchase option lapses. A purchaser of stock pursuant to a stock purchase
right shall have the rights equivalent to those of a stockholder.
Adjustment Upon Changes in Capitalization; Change in Control. Subject to
any required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding option and stock purchase right, and
the number of shares of Common Stock which have been authorized for issuance
under the Option Plan but as to which no options or stock purchase rights have
yet been granted or which have been returned to the Option Plan upon
cancellation or expiration of an option or stock purchase right, as well as the
price per share of Common Stock covered by each such outstanding option or stock
purchase right, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of issued shares
of Common Stock effected without receipt of consideration by the Company. Except
as expressly provided in the Option Plan, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option
or stock purchase right.
Upon any change in control of the Company, as defined in the Option Plan,
each outstanding option may be assumed or an equivalent option may be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event the successor corporation refuses to assume
or substitute for the option, the optionee shall fully vest in and have the
right to exercise the option as to all of the optioned stock, including such
shares as to which the option would not otherwise be vested or exercisable. If
an option
11
<PAGE> 14
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a change in control, the Administrator shall notify the optionee
that the option is fully vested and exercisable for a period of fifteen days
from the date of such notice and the option shall be canceled upon the
expiration of such period. In addition, upon any termination of the optionee's
status as a service provider without cause or as a result of optionee's
constructive termination at any time within one year after a change in control,
each option then held by an optionee (including any assumed or substituted
option upon the change in control) shall immediately become vested and
exercisable with respect to all shares which would otherwise become vested and
exercisable within one year of the date of such termination of the optionee's
status as a service provider.
Amendment and Termination of the Option Plan. The Board of Directors may at
any time amend, alter, suspend or terminate the Option Plan. The Company shall
obtain stockholder approval of any amendment to the Option Plan in such a manner
and to such a degree as is necessary and desirable to comply with Rule 16b-3
under the Exchange Act or Section 422 of the Code (or any other applicable law
or regulation, including the requirements of any exchange or quotation system on
which the Common Stock is traded). Any amendment or termination of the Option
Plan shall not affect options already granted and such options shall remain in
full force and effect as if the Option Plan had not been amended or terminated,
unless mutually agreed otherwise between the optionee and the Company, which
agreement must be in writing and signed by the optionee and the Company. In any
event, the Option Plan shall terminate in August 2005. Any options outstanding
under the Option Plan at the time of its termination shall remain outstanding
until they expire by their terms.
FEDERAL TAX INFORMATION
Options granted under the Option Plan may be either "incentive stock
options," as defined in Section 422 of the Code, or nonstatutory options.
Incentive Stock Options. If an option granted under the Option Plan is an
incentive stock option, the optionee will recognize no income upon grant of the
incentive stock option and incur no tax liability due to the exercise unless the
optionee is subject to the alternative minimum tax. Upon the sale or exchange of
the shares more than two years after grant of the option and one year after
exercising the option, any gain or loss will be treated as long-term capital
gain or loss. If these holding periods are not satisfied, the optionee will
recognize ordinary income equal to the difference between the exercise price and
the lower of (i) the fair market value of the stock at the date of the option
exercise or (ii) the sale price of the stock. A different rule for measuring
ordinary income upon such a premature disposition may apply if the optionee is
also an officer, director or 10% Stockholder of the Company. The Company will be
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Any gain or loss recognized on such a premature disposition of the
shares in excess of the amount treated as ordinary income will be characterized
as long-term or short-term capital gain or loss, depending on the holding
period.
Nonstatutory Stock Options. All other options that do not qualify as
incentive stock options are referred to as nonstatutory options. An optionee
will not recognize any taxable income at the time a nonstatutory option is
granted. However, upon exercise of a nonstatutory option, the optionee will
recognize taxable income generally measured as the excess of the then fair
market value of the shares purchased over the exercise price. Any taxable income
recognized in connection with an option exercise by an optionee who is also an
employee of the Company will be subject to income tax withholding by the
Company. The Company is entitled to a deduction in the same amount as the
ordinary income recognized by the optionee. Upon a disposition of such shares by
the optionee, any difference between the sale price and the exercise price, to
the extent not recognized as taxable income as described above, will be treated
as long-term or short-term capital gain or loss, depending on the holding
period.
Stock Purchase Rights. Stock purchase rights will generally be taxed in the
same manner as nonstatutory stock options. However, restricted stock is
generally purchased upon the exercise of a stock purchase right. At the time of
purchase, restricted stock is subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code. As a result, the purchaser will
not recognize ordinary income at the time of purchase. Instead, the purchaser
will recognize ordinary income on the dates when stock ceases to be subject to a
12
<PAGE> 15
substantial risk of forfeiture. The stock will generally cease to be subject to
a substantial risk of forfeiture when it is no longer subject to the Company's
right to repurchase the stock upon the purchaser's termination of employment
with the Company. At such times, the purchaser will recognize ordinary income
measured as the difference between the purchase price and the fair market value
of the stock on the date the stock is no longer subject to a substantial risk of
forfeiture. The purchaser may accelerate to the date of purchase his or her
recognition of ordinary income, if any, and the beginning of any capital gain
holding period by timely filing an election pursuant to Section 83(b) of the
Code. In such event, the ordinary income recognized, if any, is measured as the
difference between the purchase price and the fair market value of the stock on
the date of purchase, and the capital gain holding period commences on such
date. The ordinary income recognized by a purchaser who is an employee will be
subject to tax withholding by the Company. Different rules may apply if the
purchaser is also an officer, director, or 10% Stockholder of the Company.
Long-Term Performance Awards. Generally, no income will be recognized by a
recipient in connection with the grant of a long-term performance award, unless
an election under Section 83(b) of the Code is filed with the Internal Revenue
Service within 30 days of the date of grant. Otherwise, at the time the
long-term performance award vests, the recipient will generally recognize
compensation income in an amount equal to the fair market value of the award at
the time of vesting. Generally, the recipient will be subject to the tax
consequences discussed under "Nonstatutory Stock Options." In the case of a
recipient who is also an employee, any amount included in income will be subject
to withholding by the Company. The Company will be entitled to a tax deduction
in the amount and at the time the recipient recognizes ordinary income with
respect to a long-term performance award.
THE FOREGOING SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON
OPTIONEES, HOLDERS OF STOCK PURCHASE RIGHTS AND THE COMPANY WITH RESPECT TO THE
GRANT AND EXERCISE OF OPTIONS AND STOCK PURCHASE RIGHTS UNDER THE OPTION PLAN
DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE SHOULD BE MADE TO THE APPLICABLE
PROVISIONS OF THE CODE. IN ADDITION, THIS SUMMARY DOES NOT DISCUSS THE TAX
CONSEQUENCES OF THE OPTIONEE'S DEATH OR THE INCOME TAX LAWS OF ANY MUNICIPALITY,
STATE OR FOREIGN COUNTRY IN WHICH AN OPTIONEE MAY RESIDE.
PARTICIPATION IN THE OPTION PLAN
The following table sets forth information with respect to options granted
under the Option Plan during the fiscal year ended December 31, 1997 to (i) each
of the officers named in the Summary Compensation Table on page 20 hereof, (ii)
all executive officers as a group, and (iii) all other employees (excluding
executive officers) as a group:
<TABLE>
<CAPTION>
SHARES SUBJECT WEIGHTED
TO OPTIONS AVERAGE EXERCISE
NAME AND POSITION GRANTED PRICE PER SHARE
----------------- -------------- ----------------
<S> <C> <C>
George F. (Rick) Adam, Jr. ............................. 11,000 $13.425
Frank A. Russo, Jr. .................................... 30,275 $12.445
Kevin Scully............................................ 48,396 $11.335
Stephen E. Webb......................................... 11,000 $12.205
Harold A. Piskiel....................................... 13,000 $12.173
All executive officers as a group (12 persons).......... 223,734 $11.309
All other employees (excluding executive officers) as a
group................................................. 1,007,837 $11.782
</TABLE>
PLAN BENEFITS
The Company cannot currently determine the number of shares for which
options will be granted in the future pursuant to the Option Plan to all
executive officers as a group or all employees (including current officers who
are not executive officers) as a group. However, See "Management -- Option
Grants in Last Fiscal Year" for the number of stock options granted to the
officers named in the Summary Compensation Table in the last fiscal year. In the
fiscal year ended December 31, 1997, options to purchase an aggregate of 223,734
shares of Common Stock of the Company were granted to executive officers as a
group at a weighted average exercise price of approximately $11.31, and options
to purchase an aggregate of 1,007,837 shares of
13
<PAGE> 16
Common Stock of the Company were granted to all other employees (including
current officers who are not executive officers) as a group at a weighted
average exercise price of approximately $11.78.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE OPTION PLAN.
THE EFFECT OF AN ABSTENTION IS THE SAME AS A VOTE AGAINST THE AMENDMENT TO THE
OPTION PLAN.
14
<PAGE> 17
PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO THE COMPANY'S
1997 EMPLOYEE STOCK PURCHASE PLAN
The 1997 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by
the Board of Directors in January 1997 and became effective upon the closing of
the Company's initial public offering. As of March 16, 1998, 48,644 shares had
been issued, and an aggregate of 168,022 shares were available for issuance,
pursuant to the Purchase Plan. Based on present participation levels, the
Company expects that it will issue all such available shares pursuant to current
obligations under the Purchase Plan within the next year.
The stockholders are being asked to approve the amendment to the Purchase
Plan and the reservation of an additional 100,000 shares thereunder, plus an
annual increase (the "Evergreen Feature") to be made on the last day of each
fiscal year equal to the lesser of 100,000 shares, 1.5% of the total number of
shares of the Company's Common Stock outstanding on such date or such lesser
number of shares that the Board of Directors may determine, plus any shares
reacquired by the Company during the fiscal year ending on such date. The
Company believes that the Purchase Plan is a key component of its strategy to
attract and retain skilled employees and quality management. The Board of
Directors believes it is in the Company's best interests to amend the Purchase
Plan so that the Company may continue to provide eligible employees the
opportunity to purchase the Company's Common Stock through payroll deductions,
thereby aligning their individual financial interests more closely with those of
the Company's stockholders. While it believes that the Purchase Plan will
continue to encourage employees to be stockholders, the Company also recognizes
that employee share purchases under the Purchase Plan can result in dilution to
existing stockholders.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock will be required to approve the Board of Directors'
amendment to the Purchase Plan.
SUMMARY OF 1997 EMPLOYEE STOCK PURCHASE PLAN
Administration. The Purchase Plan is administered by the Board of Directors
or a committee appointed by the Board (the "Administrator"). Every finding,
decision and determination by the Administrator shall, to the full extent
permitted by law, be final and binding upon all parties.
Eligibility. All persons who are employed by the Company and otherwise
eligible by law on a given enrollment date and who are customarily employed by
the Company for at least twenty hours per week and more than five months per
calendar year are eligible to participate in the Purchase Plan. Participation in
the Purchase Plan ends automatically upon termination of employment with the
Company. An eligible employee may become a participant by completing a
subscription agreement authorizing payroll deductions and filing it with the
Company's payroll office prior to the applicable enrollment date.
Offering and Purchase Periods. The Purchase Plan is implemented by
consecutive, overlapping Offering Periods ("Offering Periods"), each of which is
of such duration (not to exceed 24 months) as the Board of Directors determines
from time to time in its discretion, and each of which consists of such number
of Purchase Periods ("Purchase Periods") as the Board of Directors determines
from time to time in its discretion. The initial Offering Period commenced on
June 18, 1997, the effective date of the Company's initial public offering, and
ended on the last business day prior to August 15, 1997. Unless otherwise
specified by the Board of Directors, Offering Periods subsequent to the initial
Offering Period are six months in duration, with the second Offering Period
commencing on the first business on or after August 16, 1997 and ending on the
last business day on or before February 15, 1998. The Board of Directors has the
power to change the duration of Offering Periods (including the commencement
dates thereof) at any time or from time to time, and has the power to implement
multiple Purchase Periods within any Offering Period, provided that (except as
the shareholders may otherwise approve) any such change is effected only with
respect to Offering Periods commencing after the date on which the change is
made.
15
<PAGE> 18
Grant of Option; Purchase Price. On the first day of each Offering Period
(the "Offering Date"), each eligible employee participating in the Purchase Plan
is granted an option to purchase on the last day of each Exercise Period in such
Offering Period (the "Exercise Date") a number of shares of Common Stock of the
Company determined by dividing such employee's accumulated payroll deductions by
the lower of: (i) 85% of the fair market value of one share of the Company's
Common Stock on the Offering Date or (ii) 85% of the fair market value of one
share of the Company's Common Stock on the applicable Exercise Date. Unless a
participating employee withdraws from the Purchase Plan, his or her option is
automatically exercised on each Exercise Date of the Offering Period; provided
that in no event will an employee be permitted to purchase during an Offering
Period a number of shares in excess of the number determined by dividing $12,500
by the fair market value of a share of the Company's Common Stock on the
Offering Date. The fair market value of the Common Stock on a given date is the
closing sale price of the Common Stock for such date as quoted on the NASDAQ
National Market.
In addition, no employee will be permitted to subscribe for shares under
the Purchase Plan if, immediately after such subscription, the employee would
own 5% or more of the voting power or value of all classes of stock of the
Company or of any of its subsidiaries (including stock which may be purchased
under the Purchase Plan or pursuant to any other options), nor will any employee
be permitted to participate to the extent such employee could buy under all
employee stock purchase plans of the Company more than $25,000 worth of stock
(determined at the fair market value of the shares at the time the option is
granted) in any calendar year.
Limitation on Annual Increase in Shares. Notwithstanding the Evergreen
Feature of the Purchase Plan, in no event may the number of shares added to the
Purchase Plan in any fiscal year exceed (i) 100,000, (ii) 1.5% of the
outstanding shares of the Company's Common Stock on such date or (iii) or such
lesser number of shares that the Board of Directors may determine.
Payroll Deductions. The purchase price for the shares is accumulated by
payroll deductions during the Offering Period. The deductions may not exceed 10%
of a participant's eligible compensation, which is defined in the Purchase Plan
to include all base straight time gross earnings paid in cash including
commissions, overtime, shift premium, incentive compensation, incentive
payments, bonuses and other cash compensation, but excluding any income received
from the exercise of options for a given Offering Period. However, the Board of
Directors has the power to change the payroll deduction rate up to a maximum
rate of twenty percent (20%) at any time or from time to time; provided that
(except as the stockholders may otherwise approve) any such change shall be
effected only with respect to Offering Periods commencing after the date the
change is made. A participant may discontinue his or her participation in the
Purchase Plan at any time during the Offering Period. Payroll deductions
commence on the first payday following the Offering Date, and continue at the
same rate with automatic enrollment in subsequent Offering Periods, unless
sooner terminated by the participant.
Withdrawal; Termination of Employment. Employees may end their
participation in an offering at any time during the Offering Period, and
participation ends automatically on termination of employment with the Company
or failure of the participant to remain in the continuous scheduled employment
of the Company for at least 20 hours per week and more than five months in any
calendar year. Once a participant withdraws from a particular offering, that
participant may not participate again in the same offering. A participant may
withdraw all, but not less than all, of the payroll deductions credited to such
participant's account by giving written notice to the Company.
Transferability. No rights or accumulated payroll deductions of a
participant under the Purchase Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or pursuant to the Purchase Plan), and any such attempt may be
treated by the Company as an election to withdraw from the Purchase Plan.
Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset Sale
or Change of Control. The shares reserved under the Purchase Plan, as well as
the price per share of Common Stock covered by each option under the Purchase
Plan that has not yet been exercised, will be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse
16
<PAGE> 19
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company. In the event of the
proposed dissolution or liquidation of the Company, the pending Offering Period
will terminate immediately prior to the consummation of such proposed action,
unless otherwise provided by the Board of Directors. In the event of a proposed
sale of all or substantially all the assets of the Company or a merger of the
Company with or into another corporation, the Purchase Plan provides that any
Offering Periods then in progress shall be shortened by setting a new Exercise
Date (the "New Exercise Date") and any Offering Periods then in progress shall
end on the New Exercise Date. The New Exercise Date shall be before the date of
the Company's proposed sale or merger. The Board of Directors shall notify each
participant in writing, at least ten business days prior to the New Exercise
Date, that the Exercise Date for the participant's option has been changed to
the New Exercise Date and that the participant's option shall be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period.
Amendment and Termination. The Board of Directors of the Company may at any
time and for any reason terminate or amend the Purchase Plan. Except as provided
in the Purchase Plan, no termination can affect options previously granted, nor
may any amendment make any change in any option already granted that adversely
affects the rights of any participant. Shareholder approval may be required for
certain amendments in order to comply with the federal securities or tax laws,
or any other applicable law or regulation.
Unless terminated sooner, the Purchase Plan will terminate 10 years from
its effective date.
FEDERAL TAX INFORMATION
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). Under these provisions,
no income will be taxable to a participant until the shares purchased under the
Purchase Plan are sold or otherwise disposed of. Upon sale or other disposition
of the shares, the participant will generally be subject to tax and the amount
of the tax will depend upon the holding period. If the shares are sold or
otherwise disposed of more than two years from the first day of the Offering
Period and one year from the date the shares are purchased, the participant will
recognize ordinary income measured as the lesser of (a) the excess of the fair
market value of the shares at the time of such sale or disposition over the
purchase price, or (b) an amount equal to fifteen (15%) of the fair market value
of the shares as of the first day of the Offering Period. Any additional gain
will be treated as long-term capital gain. If the shares are sold or otherwise
disposed of before the expiration of these holding periods, the participant will
recognize ordinary income generally measured as the excess of the fair market
value of the shares on the date the shares are purchased over the purchase
price. Any additional gain or loss on such sale or disposition will be long-term
or short-term capital gain or loss, depending on the holding period. The Company
is not entitled to a deduction for amounts taxed as ordinary income or capital
gain to a participant except to the extent of ordinary income recognized by
participants upon a sale or disposition of shares prior to the expiration of the
holding periods described above.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON THE PARTICIPANT AND THE COMPANY WITH RESPECT TO THE SHARES PURCHASED UNDER
THE PURCHASE PLAN. REFERENCE SHOULD BE MADE TO THE APPLICABLE PROVISIONS OF THE
CODE. IN ADDITION, THE SUMMARY DOES NOT DISCUSS THE TAX CONSEQUENCES OF A
PARTICIPANT'S DEATH OR THE INCOME TAX LAWS OF ANY STATE OR FOREIGN COUNTRY IN
WHICH THE PARTICIPANT MAY RESIDE.
PARTICIPATION IN THE PURCHASE PLAN
Eligible employees participate in the Purchase Plan voluntarily and each
such employee determines his or her level of payroll deductions within the
guidelines fixed by the Purchase Plan. Accordingly, future purchases under the
Purchase Plan are not determinable at this time.
17
<PAGE> 20
PLAN BENEFITS
The Company cannot currently determine the number of shares employees of
the Company, including all officers and executive officers, will purchase in the
future pursuant to the Purchase Plan. No employees of the Company, including all
officers and executive officers, purchased shares pursuant to the Purchase Plan
in the last fiscal year.
THE BOARD OF DIRECTORS RECOMMENDS THAT
THE STOCKHOLDERS VOTE "FOR" AMENDMENT TO THE PURCHASE PLAN.
18
<PAGE> 21
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending December 31, 1998. Arthur Andersen LLP has audited the Company's
financial statements since the Company's inception. A representative of Arthur
Andersen LLP is expected to be present at the Annual Meeting, will have the
opportunity to make a statement, and is expected to be available to respond to
appropriate questions.
REQUIRED VOTE
The Board of Directors has conditioned its appointment of the Company's
independent auditors upon the receipt of the affirmative vote of a majority of
the shares represented, in person or by proxy, and voting at the Annual Meeting,
which shares voting affirmatively also constitute at least a majority of the
required quorum. In the event that the stockholders do not approve the selection
of Arthur Andersen LLP, the appointment of the independent auditors will be
reconsidered by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP, AS
INDEPENDENT AUDITORS FOR FISCAL YEAR ENDING DECEMBER 31, 1998.
THE EFFECT OF AN ABSTENTION IS THE SAME AS A VOTE AGAINST
THE RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT AUDITORS.
19
<PAGE> 22
BENEFICIAL SHARE OWNERSHIP BY
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of March 16, 1998 for the following: (i) each person or entity
who is known by the Company to own beneficially more than 5% of the outstanding
shares of the Company's Common Stock; (ii) each of the Company's directors;
(iii) the Company's Chief Executive Officer and each of the officers named in
the Summary Compensation Table on page 22 hereof; and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
5% STOCKHOLDERS, DIRECTORS AND OFFICERS(1) OWNED(2) OWNED
- ------------------------------------------ ------------ ------------
<S> <C> <C>
George F. (Rick) Adam, Jr.(3)............................... 2,827,384 30.72%
c/o New Era of Networks, Inc.
New Era of Networks, Inc.
7400 East Orchard Road
Suite 230
Englewood, Colorado 80111
Harold A. Piskiel(4)........................................ 162,776 *
c/o New Era of Networks, Inc.
New Era of Networks, Inc.
7400 East Orchard Road
Suite 230
Englewood, Colorado 80111
Venrock Associates.......................................... 650,086 7.06%
30 Rockefeller Plaza
Room 5508
New York, NY 10112
Venrock Associates II....................................... 317,019 *
30 Rockefeller Plaza
Room 5508
New York, NY 10112
ARCH Venture Fund II........................................ 949,836 10.32%
8735 W. Higgins Road
Suite 235
Chicago, IL 60631
Edgemont Asset Management................................... 600,000 6.52%
140 East 45th Street
43rd Floor
New York, NY 10017
DIRECTORS
Steve Lazarus(5)............................................ 956,503 10.39%
Mark L. Gordon(6)........................................... 7,667 *
Elisabeth W. Ireland(7)..................................... 14,465 *
James Reep(8)............................................... 6,667 *
Patrick J. Fortune(9)....................................... -- --
EXECUTIVE OFFICERS
Frank A. Russo(10).......................................... 41,376 *
Kevin Scully(11)............................................ 73,753 *
Stephen E. Webb............................................. 10,919 *
All directors and executive officers as a group (12
persons)(12).............................................. 4,101,510 44.56%
</TABLE>
20
<PAGE> 23
- ---------------
* Less than 1%.
(1) This information was obtained from filings made with the SEC pursuant to
Sections 13(d) or 13(g) of the Exchange Act.
(2) The number and percentage of shares beneficially owned is determined under
rules of the Securities and Exchange Commission ("SEC"), and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares
as to which the individual has sole or shared voting power or investment
power and also any shares which the individual has the right to acquire
within 60 days of March 16, 1998 through the exercise of any stock option
or other right. Unless otherwise indicated in the footnotes, each person
has sole voting and investment power (or shares such powers with his or her
spouse) with respect to the shares shown as beneficially owned.
(3) Mr. Adam is also Chairman of the Board, President and Chief Executive
Officer of the Company. Includes 40,991 shares of Common Stock held in the
name of Adam's Investments I, LLLP, George F. Adam, III; 40,991 shares of
Common Stock held in the name of Adam's Investments II, LLLP, John C. Adam;
15,302 shares of Common Stock held in the name of Adam's Investments III,
LLLP, George F. Adam, Jr., Trustee for Gregory S. Adam; and 15,302 shares
of Common Stock held in the name of Adam's Investments IV LLLP, George F.
Adam, Jr., Trustee for Rebecca Adam; and 28,000 shares of Common Stock held
in the name of the Adam Family Foundation, George F. Adam, Jr., Trustee.
(4) Mr. Piskiel is also Executive Vice President, Chief Technology Officer of
the Company. Includes 34,443 shares of Common Stock issuable upon exercise
of stock options that are exercisable within 60 days of March 16, 1998.
(5) Includes 949,836 shares of Common Stock registered in the name of ARCH
Venture Fund II, L.P., a limited partnership of which Steve Lazarus is a
general partner. Also includes 6,667 shares of Common Stock issuable upon
exercise of stock options that are exercisable within 60 days of March 16,
1998.
(6) Includes 6,667 shares of Common Stock issuable upon exercise of stock
options that are exercisable within 60 days of March 16, 1998.
(7) The Hamilton Companies, of which Ms. Ireland is a manager, holds a
registered certificate for 180,814 shares of Common Stock of the Company.
The Hamilton Companies distributed to Ms. Ireland an 8% interest in these
shares, or 14,465 shares of Common Stock. The actual distribution of the
14,465 shares was 7,233 shares of Common Stock to Elisabeth W. Ireland, and
7,231 shares to Elisabeth W. Ireland and George R. Ireland as joint
tenants.
(8) Includes 6,667 shares of Common Stock issuable upon exercise of stock
options that are exercisable within 60 days of March 16, 1998.
(9) Patrick J. Fortune joined the Board of Directors of the Company on February
22, 1998. Mr. Fortune owns no Common Stock and is not yet vested in any
stock options.
(10) Includes 41,376 shares of Common Stock issuable upon the exercise of stock
options exercisable within 60 days of March 16, 1998.
(11) Mr. Scully, as of February 28, 1998, resigned as an executive officer of
the Company. Includes 4,000 shares of Common Stock held in the name of Mary
Ann Dore, Mr. Scully's spouse; 500 shares of Common Stock held in the name
of Kevin Scully, Custodian F/B/O Caitlin Scully, minor; 500 shares of
Common Stock held in the name of Kevin Scully, Custodian F/B/O Micaela
Scully, minor; 500 shares of Common Stock held in the name of Mary Ann
Dore, Custodian F/B/O Kelly O'Connell, minor; 500 shares of Common Stock
held in the name of Mary Ann Dore, Custodian F/B/O Christian O'Connell,
minor. Also includes 66,753 shares of Common Stock issuable upon exercise
of stock options that are exercisable within 60 days of March 16, 1998.
(12) Includes 162,573 shares of Common Stock issuable upon the exercise of stock
options exercisable within 60 days of March 16, 1998.
21
<PAGE> 24
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the
Securities and Exchange Commission (the "SEC") and the National Association of
Securities Dealers, Inc. Such officers, directors and ten-percent stockholders
are also required by SEC rules to furnish the Company with copies of all such
forms that they file.
Based solely on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons that no Forms
5 were required for such persons, the Company believes that during fiscal 1997
all Section 16(a) filing requirements applicable to its officers, directors and
ten-percent stockholders were complied with.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee currently consists of Messrs. Lazarus
and Gordon. No interlocking relationship exists between any member of the
Company's Board of Directors or Compensation Committee and any member of the
Board of Directors or compensation committee of any other Company, nor has any
such interlocking relationship existed in the past. No member of the
Compensation Committee is or was formerly an officer or an employee of the
Company or its subsidiaries.
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning total
compensation received by the Chief Executive Officer and each of the four most
highly compensated executive officers whose salary plus bonus exceeded $100,000
during the last fiscal year for services rendered to the Company in all
capacities during the last three fiscal years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
---------------------- SECURITIES ALL OTHER
FISCAL BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) ($) OPTIONS(#) ($)
- --------------------------- ------ ------------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
George F. (Rick) Adam, Jr. 1997 $162,500 -- 11,000 --
Chairman of the Board, President and 1996 $140,000 $40,000 -- --
Chief Executive Officer
Frank A. Russo, Jr. 1997 $233,362 -- 30,275 --
President of U.S. Sales and Field
Operations 1996 $118,921 -- 46,932 --
Kevin Scully 1997 $355,418 -- 48,396 --
Senior Vice President of Sales and 1996 $182,290 -- 57,064 --
Field Operations, Financial Services
Stephen E. Webb 1997 $139,167 $45,079 11,000 --
Senior Vice President and 1996 $ 1,000 -- 67,999 --
Chief Financial Officer
Harold A. Piskiel 1997 $152,500 -- 13,000 --
Executive Vice President and 1996 $140,000 -- 26,666 --
Chief Technology Officer
</TABLE>
22
<PAGE> 25
- ---------------
(1) These amounts reflect salary paid for the full fiscal year 1997. Excludes
certain perquisites and other personal benefits, such as life insurance
premiums paid by the Company. In the case of Kevin Scully and Frank A.
Russo, Jr., salary includes commissions earned in 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows, as to each of the officers named in the Summary
Compensation Table, information concerning stock options granted during the
fiscal year ended December 31, 1997.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(4)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR(2) PRICE DATE(3) 5% 10%
- ---- ---------- -------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
George F. (Rick) Adam, Jr............. 5,000 0.41% $ 13.20 6/16/02 $18,235 $40,294
6,000 0.49% $13.6125 11/13/02 $22,565 $49,863
Frank A. Russo, Jr.(6)................ 266 0.02% $ 9.00 2/27/02 $ 661 $ 1,462
800 0.06% $ 9.00 3/30/02 $ 1,989 $ 4,396
1,333 0.11% $ 9.00 5/29/02 $ 3,315 $ 7,324
5,000 0.41% $ 12.00 6/16/02 $16,577 $36,631
3,388 0.28% $ 16.50 6/29/02 $15,445 $34,129
602 0.05% $ 16.50 6/29/02 $ 2,744 $ 6,064
1,064 0.09% $ 13.875 7/30/02 $ 4,079 $ 9,013
1,330 0.11% $ 13.75 8/28/02 $ 5,052 $11,165
2,926 0.24% $ 13.75 9/29/02 $11,115 $24,562
532 0.04% $ 12.50 10/30/02 $ 1,837 $ 4,060
1,862 0.15% $ 12.75 11/29/02 $ 6,559 $14,494
11,172 0.91% $ 11.25 12/30/02 $34,724 $76,732
Kevin Scully(5)(6).................... 1,333 0.11% $ 9.00 1/30/02 $ 3,315 $ 7,324
1,333 0.11% $ 9.00 2/27/02 $ 3,315 $ 7,324
7,278 0.59% $ 9.00 3/30/02 $18,097 $39,990
988 0.08% $ 9.00 3/30/02 $ 2,457 $ 5,429
179 0.01% $ 9.00 4/29/02 $ 445 $ 984
3,820 0.31% $ 9.00 4/29/02 $ 9,499 $20,989
1,333 0.11% $ 9.00 5/29/02 $ 3,315 $ 7,324
5,000 0.41% $ 12.00 6/16/02 $16,577 $36,631
2,128 0.17% $ 16.50 6/29/02 $ 9,701 $21,436
798 0.06% $ 13.875 7/30/02 $ 3,059 $ 6,760
1,596 0.13% $ 13.750 8/28/02 $ 6,063 $13,398
5,054 0.41% $ 13.750 9/29/02 $19,199 $42,426
532 0.04% $ 12.50 10/30/02 $ 1,837 $ 4,060
4,256 0.35% $ 12.750 11/29/02 $14,992 $33,129
12,768 1.04% $ 11.25 12/30/02 $39,685 $87,694
Stephen E. Webb....................... 5,000 0.41% $ 12.00 6/16/02 $16,577 $36,631
6,000 0.49% $ 12.375 11/13/02 $20,514 $45,330
Harold A. Piskiel..................... 7,000 0.57% $ 12.00 6/16/02 $23,208 $51,283
6,000 0.49% $ 12.375 11/13/02 $20,514 $45,330
</TABLE>
- ---------------
(1) All options in this table are incentive stock options and were granted under
the Amended and Restated 1995 Stock Option Plan and have exercise prices
equal to the fair market value on the date of grant. All such options have
five-year terms. All options vest over a three-year period, except as noted
in footnote six below, at the rate of one-sixth, one-third and one-half at
the end of each year from the date of grant.
(2) The Company granted options to purchase 1,231,571 shares of Common Stock to
employees and consultants in fiscal 1997.
23
<PAGE> 26
(3) Options may terminate before their expiration upon the termination of
optionee's status as an employee or consultant, the optionee's death or an
acquisition of the Company.
(4) Potential realizable value assumes that the stock price increases from the
exercise price from the date of grant until the end of the option term (10
years) at the annual rate specified (5% and 10%). Annual compounding results
in total appreciation of approximately 63% (at 5% per year) and 159% (at 10%
per year). If the price of the Company's Common Stock were to increase at
such rates from the price at 1997 fiscal year end ($11.25 per share) over
the next 10 years, the resulting stock price at 5% and 10% appreciation
would be $18.33 and $29.18, respectively. The assumed annual rates of
appreciation are specified in SEC rules and do not represent the Company's
estimate or projection of future stock price growth. The Company does not
necessarily agree that this method can properly determine the value of an
option.
(5) Mr. Scully, as of February 28, 1998, resigned as an executive officer of the
Company. Under the provisions of an employment agreement between Mr. Scully
and the Company, all unexercised options will terminate on March 9, 1999.
(6) A total of 25,275 options granted to Mr. Russo and 43,396 options granted to
Mr. Scully vest at the earlier of the collection of certain sales
receivables by the Company or the third anniversary from the date of grant.
OPTION EXERCISES AND HOLDINGS
The following table sets forth, for each of the officers in the Summary
Compensation Table, certain information concerning stock options exercised
during fiscal 1997, and the number of shares subject to both exercisable stock
options as of December 31, 1997. Also reported are values for "in-the-money"
options that represent the positive spread between the respective exercise
prices of outstanding stock options and the fair market value of the Company's
Common Stock as of December 31, 1997.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND FISCAL 1997 YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES VALUE OPTIONS AT FISCAL YEAR END FISCAL YEAR END($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George F. (Rick) Adam, Jr. ..... -- -- -- 11,000 $ -- $ --
Frank A. Russo, Jr. ............ -- -- 19,754 57,453 $ 76,474 $349,983
Kevin Scully(2)................. -- -- 44,813 60,647 $154,439 $350,001
Stephen E. Webb................. -- -- 11,333 67,666 $ 25,499 $127,499
Harold A. Piskiel............... -- -- 27,777 58,555 $242,494 $372,499
</TABLE>
- ---------------
(1) Market value of underlying securities based on the closing price of
Company's Common Stock on December 31, 1997 (the last trading day of fiscal
1997) on the NASDAQ National Market of $11.25 minus the exercise price.
(2) Mr. Scully, as of February 28, 1998, resigned as an executive officer of the
Company.
24
<PAGE> 27
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors (the "Committee")
consists of directors Steve Lazarus and Mark L. Gordon, neither of whom is an
employee or officer of the Company. The Committee sets policy and administers
the Company's cash and equity incentive programs for the purpose of attracting
and retaining highly skilled executives who will promote the Company's business
goals and build long-term stockholder value. The Committee is also responsible
for reviewing and making recommendations to the Board of Directors regarding all
forms of compensation to be provided to the executive officers and directors of
the Company, including stock compensation and loans, and all bonus and stock
compensation to all employees.
To the extent appropriate, the Company intends to take the necessary steps
to conform its compensation practices to comply with the $1 million compensation
deduction cap under Section 162(m) of the Internal Revenue Code of 1986, as
amended.
COMPENSATION PHILOSOPHY AND POLICIES
The policy of the Committee is to attract and retain key personnel through
the payment of competitive base salaries and to encourage and reward performance
through bonuses and stock ownership. The Committee's objectives are to:
- ensure that there is an appropriate relationship between executive
compensation and the creation of stockholder value;
- ensure that the total compensation program will motivate, retain and
attract executives of outstanding abilities; and
- ensure that current cash and equity incentive opportunities are
competitive with comparable companies.
ELEMENTS OF COMPENSATION
Compensation for officers and key employees includes both cash and equity
elements.
Cash compensation consists of base salary, which is determined on the basis
of the level of responsibility, expertise and experience of the employee, and
competitive conditions in the industry. The Committee believes that the salaries
of its officers fall within the software industry norm. In addition, cash
bonuses may be awarded to officers and other key employees; however, no
executive officer, other than Stephen E. Webb, received a cash bonus in 1997.
Compensation of sales personnel also includes sales commissions tied to
quarterly targets.
Ownership of the Company's Common Stock is a key element of executive
compensation. Officers and other employees of the Company are eligible to
participate in the Amended and Restated 1995 Stock Option Plan (the "Option
Plan") and the 1997 Employee Stock Purchase Plan (the "Purchase Plan"), each of
which were adopted prior to the Company's initial public offering in June 1997.
The Option Plan permits the Board of Directors or the Committee to grant stock
options to employees on such terms as the Board of Directors or the Committee
may determine. The Committee has the sole authority to grant stock options to
executive officers of the Company and is currently administering stock option
grants to all employees. In determining the size of a stock option grant to a
new officer or other key employee, the Committee takes into account equity
participation by comparable employees within the Company, external competitive
circumstances and other relevant factors. Additional options may be granted to
current employees to reward exceptional performance or to provide additional
unvested equity incentives. The Purchase Plan permits employees to acquire
Common Stock of the Company through payroll deductions and promotes broad-based
equity participation throughout the Company. The Committee believes that such
stock plans align the interests of the employees with the long-term interests of
the stockholders.
The Company also maintains a 401(k) Plan to provide retirement benefits
through tax deferred salary deductions for all its employees. The Company does
not contribute to the 401(k) Plan.
25
<PAGE> 28
1997 EXECUTIVE COMPENSATION
Executive compensation for 1997 included base salary, cash and equity-based
incentive compensation and, in the case of sales executives, sales commissions.
Cash incentive compensation is designed to motivate executives to attain
corporate, business unit and individual goals. The Company's policy is to have a
significant portion of an executive's total compensation at risk based on the
Company's overall performance. Executive officers, like other employees, were
eligible for option grants under the Option Plan.
CHIEF EXECUTIVE OFFICER COMPENSATION
Compensation for the Chief Executive Officer is determined by a process
similar to that discussed above for executive officers. The Chief Executive
Officer's target base pay level has been analyzed using data for comparable
software companies. Mr. Adam receives no other material compensation or benefits
not provided to all executive officers.
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code of 1986, as amended, which limits the tax deductibility of
cash compensation paid to individual executive officers to $1 million per
officer. The cash compensation to be paid to the Company's executive officers in
fiscal 1998 is not expected to exceed the $1 million limit per individual
officer.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
STEVE LAZARUS
MARK L. GORDON
26
<PAGE> 29
COMPANY STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders on
the Company's Common Stock with the cumulative return of the NASDAQ Composite
Stock Market Index (the "NASDAQ Composite Index") and the Standard & Poor's 500
Index (the "S&P 500 Index"). The graph assumes that $100 was invested on June
18, 1997 in the Company's Common Stock, the NASDAQ Composite Index and the S&P
500 Index, including reinvestment of dividends, as measured on the second Friday
of each calendar month. No dividends have been declared or paid on the Company's
Common Stock. Historic price performance is not indicative of future stock price
performance.
COMPARISON OF 8 MONTH CUMULATIVE TOTAL RETURN
AMONG NEW ERA OF NETWORKS, INC., THE S&P 500 INDEX AND THE NASDAQ COMPOSITE
INDEX
[CHART]
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Neon NASDAQ S&P 500
<S> <C> <C> <C>
06/18/97 100 100 100
07/11/97 106 105 103
08/08/97 96 112 105
09/12/97 100 115 104
10/10/97 98 121 109
11/14/97 84 111 104
12/12/97 81 107 107
01/09/98 71 105 104
02/20/98 106 121 116
03/13/98 166 124 120
</TABLE>
27
<PAGE> 30
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Company may recommend.
It is important that your shares be presented at the meeting, regardless of
the number of shares which you hold. You are, therefore, urged to execute and
return, at your earliest convenience, the accompanying proxy card in the
envelope which has been enclosed.
THE BOARD OF DIRECTORS
Englewood, Colorado
April 15, 1998
28
<PAGE> 31
DETACH HERE
PROXY
NEW ERA OF NETWORKS, INC.
7400 EAST ORCHARD ROAD
ENGLEWOOD, CO 80111
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints George F. Adam, Steve Webb and Leonard
Goldstein each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated on the reverse side, all shares of
common stock of New Era of Networks, Inc. (the "Company") held of record by the
undersigned on March 16, 1998 at the Annual Meeting of Shareholders to be held
on May 14, 1998 and any adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE
VOTED FOR SUCH PROPOSAL.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
- ------------- ---------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ------------- ---------------
<PAGE> 32
Dear Shareholder:
Please take note of the important information enclosed with this Proxy. There
are a number of issues related to the operation of the Company that require your
immediate attention.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on the proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy in the enclosed
postage paid envelope.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
New Era of Networks, Inc.
DETACH HERE
PLEASE MARK
[ X ] VOTES AS IN
THIS EXAMPLE.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1. Election of Directors 2. To approve an amendment to the
NOMINEES: Mark L. Gordon, Elisabeth W. Ireland Company's Amended and Restated [ ] [ ] [ ]
and Patrick J. Fortune 1995 Stock Option Plan.
FOR WITHHELD
[ ] [ ] 3. To approve an amendment to the
Company's 1997 Employee Stock [ ] [ ] [ ]
Purchase Plan.
[ ]
-------------------------------------- 4. To ratify the appointment of
For all nominees except as noted above Arthur Andersen LLP as [ ] [ ] [ ]
independent auditors for the
Company.
5. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the meeting
or any adjournments thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign exactly as name appears hereon. Joint owners
should each sign. Executors, administrators, trustees,
guardians or other fiduciaries should give full title as
such. If signing for a corporation, please sign in full
corporate name by a duly authorized officer.
Signature: Date: Signature: Date:
--------------------------------- -------------- ----------------------------- ----------------
</TABLE>
