<PAGE>
SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
<TABLE>
<S> <C>
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 Section240.14a-11(c) or
Section240.14a-12
</TABLE>
BLUESTONE SOFTWARE, INC.
-------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
5) Total fee paid.
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
1) Amount Previously Paid:
----------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
3) Filing Party:
----------------------------------------------------------
4) Date Filed:
----------------------------------------------------------
</TABLE>
<PAGE>
BLUESTONE SOFTWARE, INC.
300 STEVENS DRIVE
PHILADELPHIA, PENNSYLVANIA 19113
DEAR STOCKHOLDER:
You are cordially invited to attend the Special Meeting of Stockholders of
Bluestone Software, Inc. to be held on Monday, January 31, 2000 at 10:00 A.M.,
local time, at the Radisson Hotel--Philadelphia Airport.
As more fully discussed in the attached materials, the proposals for the
Special Meeting relate to:
1. the ratification and approval of our 1996 Incentive and Non-Qualified
Stock Option Plan; and
2. the approval of an amendment to our 1996 Incentive and Non-Qualified
Stock Option Plan increasing the number of shares of common stock
available for awards under the plan.
We look forward to seeing you at the Special Meeting. Whether or not you are
planning to attend, we urge you to return the enclosed proxy at your earliest
convenience.
Sincerely,
/s/ P. Kevin Kilroy
P. Kevin Kilroy
President and Chief Executive Officer
<PAGE>
BLUESTONE SOFTWARE, INC.
[LOGO]
300 STEVENS DRIVE
PHILADELPHIA, PENNSYLVANIA 19113
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 31, 2000
------------------------
To the Stockholders of
Bluestone Software, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Bluestone Software, Inc. (the "Company") will be held at the
Radisson Hotel--Philadelphia Airport, 500 Stevens Drive, Philadelphia,
Pennsylvania 19113 on Monday, January 31, 2000 at 10:00 A.M., local time, for
the following purposes:
1. Ratification and approval of our 1996 Incentive and Non-Qualified Stock
Option Plan;
2. Approval of an amendment to our 1996 Incentive and Non-Qualified Stock
Option Plan increasing the number of shares of common stock reserved for
issuance from 3,290,328 to 6,750,000; and
3. To transact any other business as may properly be brought before the
Special Meeting.
Any action may be taken on the foregoing matters at the Special Meeting on
the date specified above, or on any date or dates to which the Special Meeting
may be adjourned.
The board of directors has fixed the close of business on January 10, 2000
as the record date for determining the stockholders entitled to notice of and to
vote at the Special Meeting and at any adjournments or postponements thereof.
Only stockholders of record of the Company's common stock at the close of
business on that date will be entitled to notice of and to vote at the Special
Meeting and at any adjournments or postponements thereof.
Your attention is directed to the accompanying Proxy Statement for the text
of the resolutions to be proposed at the Special Meeting and further information
regarding each proposal to be made.
All stockholders are cordially invited to attend the Special Meeting.
Whether or not you plan to attend the Special Meeting, all holders of the
Company's common stock are urged to complete and sign the enclosed proxy, and
return it promptly to the Company. At any time prior to their being voted,
proxies are revocable by delivering written notice to the Company in accordance
with the instructions set forth in the Proxy Statement or by voting at the
Special Meeting in person.
STOCKHOLDERS UNABLE TO ATTEND THE SPECIAL MEETING IN PERSON ARE ASKED TO VOTE,
SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ENCLOSED SELF-ADDRESSED
ENVELOPE, WHICH DOES NOT REQUIRE ANY POSTAGE IF MAILED IN THE UNITED STATES.
By order of the Board of Directors
/s/ THOMAS R. STILING
Thomas R. Stiling
Secretary
Philadelphia, Pennsylvania
January 14, 2000
<PAGE>
BLUESTONE SOFTWARE, INC.
[LOGO]
300 STEVENS DRIVE
PHILADELPHIA, PENNSYLVANIA 19113
------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 31, 2000
------------------------
PROXY STATEMENT
This Proxy Statement (the "Proxy Statement") has been prepared and is being
distributed in connection with the solicitation by the board of directors (the
"Board") of Bluestone Software, Inc. (the "Company" or "Bluestone") of a Proxy
(the "Proxy") in the enclosed form for use at the Special Meeting of
Stockholders of the Company (the "Special Meeting") to be held on Monday,
January 31, 2000, at 10:00 A.M., local time, at the Radisson Hotel--Philadelphia
Airport, 500 Stevens Drive, Philadelphia, Pennsylvania 19113, and any
adjournment(s) or postponement(s) thereof.
VOTING AND REVOCABILITY OF PROXIES
Stockholders of record as of the close of business on January 10, 2000 (the
"Record Date") will be entitled to vote at the Special Meeting and any
adjournment thereof. As of the Record Date, 18,239,087 shares of common stock,
par value $.001 per share, of the Company (the "Common Stock") were outstanding
and entitled to one vote each. Execution of a Proxy will not in any way affect a
stockholder's right to attend the Special Meeting and vote in person. Any
stockholder submitting a Proxy has the right to revoke it at any time before it
is exercised by another instrument or transmission revoking it or by filing a
properly created Proxy bearing a later date with the Secretary of the Company.
Shares represented by properly executed Proxies for which no instructions
are received will be voted "for" both proposals being voted upon. The persons
named as proxies are either officers or directors of the Company.
The presence, in person or by Proxy, of stockholders entitled to cast at
least a majority of the votes that all stockholders are entitled to cast shall
constitute a quorum. Abstentions and broker non-votes are each included in the
number of shares present at the Special Meeting for purposes of establishing a
quorum. The affirmative vote of the holders of a majority of shares of Common
Stock voted, in person or by Proxy, at the Special Meeting is required for the
approval of a proposal. If any other matter should be presented at the Special
Meeting upon which it is proper to take a vote, shares represented by all
Proxies received will be voted with respect thereto in accordance with the
judgment of the persons named as proxies.
This Proxy Statement and the accompanying materials were first sent to the
stockholders on or about January 14, 2000.
ADDITIONAL INFORMATION
The Company will furnish without charge to any stockholder, upon written or
oral request, a copy of the Company's registration statement and other documents
filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934. Requests for such documents should be addressed to the Chief
Financial Officer of Bluestone, 300 Stevens Drive, Philadelphia, Pennsylvania
19113, telephone number (610) 915-5000.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1999, certain information
with regard to beneficial ownership (as determined in accordance with
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of
outstanding shares of the Company's Common Stock by (i) each person known by the
Company to beneficially own five percent (5%) or more of the outstanding shares
of the Company's Common Stock, (ii) the Company's directors, chief executive
officer and the current executive officers named in the Summary Compensation
table below, individually, and (iii) all executive officers and directors of the
Company as a group. Unless otherwise indicated, the address of each person
identified is c/o Bluestone Software, Inc. 300 Stevens Drive, Philadelphia,
Pennsylvania 19113.
<TABLE>
<CAPTION>
PERCENTAGE OF CLASS
TOTAL NUMBER OF SHARES OF COMMON STOCK
NAME AND ADDRESS OF OF COMMON STOCK BENEFICIALLY
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNED(1)
- ------------------- ---------------------- -------------------
<S> <C> <C>
P. Melan Baiada...................................... 2,661,082(2) 14.6%
General Electric Capital Corporation................. 2,658,562(3) 14.5%
260 Long Ridge Road
Stamford, Connecticut 06927
Entities affiliated with Patricof & Co. Ventures,
Inc.................................................. 5,259,626(4) 28.8%
445 Park Avenue
New York, New York 10022
Fostin Capital Partners II, L.P...................... 1,600,315(5) 8.8%
518 Broad Street
Sewickley, Pennsylvania 15143
P. Kevin Kilroy...................................... 209,751(6) 1.1%
S. Craig Huke........................................ 11,466(7) *
Joseph K. Krivickas.................................. 16,336(6) *
Robert W. Bickel..................................... 179,038(6) *
John H. Capobianco................................... 134,919(8) *
Gregory M. Case...................................... 5,263,532(9) 28.9%
c/o Patricof & Co. Ventures, Inc.
455 S. Gulph Road, Suite 410
King of Prussia, Pennsylvania 19406
William C. Hulley.................................... 1,604,221(10) 8.8%
c/o Fostin Capital Partners II, L.P.
518 Broad Street
Sewickley, Pennsylvania 15143
Anton Simunovic...................................... 2,661,687(11) 14.6%
c/o General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06927
Andrew J. Filipowski................................. 28,906(6) *
c/o Platinum technology, inc.
1815 South Meyers Road
Oakbrook Terrace, Illinois 06181
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF CLASS
TOTAL NUMBER OF SHARES OF COMMON STOCK
NAME AND ADDRESS OF OF COMMON STOCK BENEFICIALLY
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNED(1)
- ------------------- ---------------------- -------------------
<S> <C> <C>
Paul E. Blondin...................................... 7,031(6) *
50 Battery Street
Boston, Massachusetts 02109
Enrico Ballezzi...................................... 73,128(12) *
c/o Ballezzi and Associates
2223 Brunswick Pike
Lawrenceville, New Jersey 08648
All directors and executive
officers as a group (12 persons)..................... 11,178,817(13) 59.4%
</TABLE>
- ------------------------
* Represents less than 1% of the outstanding Common Stock.
(1) As used in this table, beneficial ownership means the sole or shared power
to vote or direct the voting of a security, or the sole or shared investment
power with respect to a security (i.e., the power to dispose, or direct the
disposition, of a security). A person is deemed as of any date to have
beneficial ownership of any security that such person has the right to
acquire within 60 days after such date. Percentage ownership is based upon
18,234,517 shares of Common Stock outstanding as of December 31, 1999.
(2) Includes 779,336 shares of Common Stock owned by four trusts for which
Mr. Baiada or his wife act as trustees and 12,321 shares of Common Stock
issuable upon exercise of currently exercisable stock options.
(3) Includes 50,644 shares of Common Stock underlying warrants. General Electric
Capital Corporation is a subsidiary of the General Electric Company. The
directors of General Electric Company are James I. Cash, Jr., Silas S.
Cathcart, Dennis D. Dammerman, Paolo Fresco, Claudio X. Gonzalez, Andrea
Jung, Kenneth G. Langone, Gertrude G. Michelson, Eugene F. Murphy, Sam Nunn,
John D. Opie, Roger S. Penske, Frank H. T. Rhodes, Andrew C. Sigler, Douglas
A. Warner III, and John F. Welch, Jr.
(4) The directors and managing directors of Patricof & Co. Ventures, Inc. are
Alan Patricof-Director, Co-Chairman, Patricia Cloherty-Director,
Co-Chairman, Ronald Cohen-Director, Maurice Tchenio-Director, Robert
Chefitz-Managing Director, Salem Shuchman-Managing Director, David Landau-
Managing Director, Thomas Hirschfeld-Managing Director, George
Jenkins-Managing Director, Greg Case-Managing Director, Paul Vais-Managing
Director, George Phipps-Managing Director, and Janet Effland-Managing
Director. The share amount is comprised of:
(A) 1,600,315 shares of Common Stock held by The P/A Fund, L.P.; Fostin
Capital Partners II, L.P. and APA Pennsylvania Partners II, L.P. (a
Patricof affiliate) are the general partners of The P/A Fund, L.P. The
address of the P/A Fund, L.P. is 455 South Gulph Road, Suite 410, King of
Prussia, PA 19406.
(B) 3,060,645 shares of Common Stock held by APA Excelsior IV, L.P.;
Patricof & Co. Managers, Inc. is the general partner of APA Excelsior IV
Partners, which is the general partner of APA Excelsior IV, L.P. The
address of APA Excelsior IV, L.P. is 445 Park Avenue, New York, NY 10022.
(C) 540,115 shares of Common Stock held by APA Excelsior IV/Offshore, L.P.;
Patricof & Co. Managers, Inc. is the general partner of APA Excelsior IV
Partners, which is the general
3
<PAGE>
partner of APA Excelsior IV/Offshore, L.P. The address of APA Excelsior
IV/Offshore, L.P. is c/o Patricof & Co. Ventures, Inc. 445 Park Avenue,
New York, NY 10022.
(D) 58,551 shares of Common Stock held by Patricof Private Investment Club,
L.P.; Patricof & Co. Managers, Inc. is the general partner of APA
Excelsior IV Partners, which is the general partner of Patricof Private
Investment Club, L.P. The address of Patricof Private Investment Club,
L.P. is 445 Park Avenue, New York, NY 10022.
(5) Fostin Capital Partners II, L.P. is a general partner of The P/A Fund, L.P.
William C. Hulley and Joel P. Adams are general partners of Fostin Capital
Partners II, L.P.
(6) Represents the total number of shares of Common Stock issuable upon exercise
of stock options which are currently exercisable and which are exercisable
within 60 days after December 31, 1999.
(7) Includes 10,716 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
(8) Includes 96,020 shares of Common Stock issuable upon exercise of stock
options which are currently exercisable and which are exercisable within
60 days after December 31, 1999.
(9) Includes 3,906 shares of Common Stock issuable upon exercise of stock
options which are currently exercisable. Mr. Case is a Vice President of
Patricof & Co. Managers, Inc., the general partner of each of APA Excelsior
IV, L.P., APA Excelsior IV/Offshore, L.P. and Patricof Private Investment
Club, L.P. Mr. Case is a Managing Director of Patricof & Co.
Ventures, Inc., the investment advisor of APA Excelsior IV/Offshore, L.P.
Mr. Case is a general partner of APA Pennsylvania Partners II, L.P., a
general partner of The P/A Fund, L.P. Mr. Case shares voting and investment
powers with respect to the shares owned by these funds.
(10) Includes 3,906 shares of Common Stock issuable upon exercise of currently
exercisable stock options. Mr. Hulley is a general partner of Fostin Capital
Partners II, L.P., which is a general partner of The P/A Fund, L.P.
Mr. Hulley shares voting and investment powers with respect to the shares
owned by The P/A Fund, L.P.
(11) Includes 3,125 shares of Common Stock issuable upon exercise of currently
exercisable stock options. Mr. Simunovic is a Senior Vice President of the
GE Capital Equity Capital Group, a wholly owned subsidiary of General
Electric Capital Corporation, a subsidiary of General Electric Company.
(12) Includes 72,378 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
(13) Includes 571,056 shares of Common Stock issuable upon the exercise of stock
options which are currently exercisable and which are exercisable within
60 days after December 31, 1999.
4
<PAGE>
DIRECTORS
COMPENSATION OF DIRECTORS
On June 10, 1999, the Board adopted the Directors' Compensation Plan and
reserved 156,250 shares of Common Stock to be used in connection with the plan.
The plan provides that non-employee directors will receive options at the
intervals and for the number of shares of Common Stock as follows:
- 6,250 shares upon the initial election to the Board;
- 3,125 shares upon the anniversary date each year after their election,
provided there is continuous service;
- 781 shares upon appointment to serve on the Compensation, Audit or other
duly constituted committee of the Board, plus an additional 781 shares on
each anniversary date of their appointment, provided there is continuous
service on the committee; and
- 3,125 shares upon appointment to serve as the chairperson of the Board.
The options will be fully vested upon issuance. In addition to these option
grants, non-employee directors shall be entitled to compensation as follows:
- $4,000 for in-person board meetings, of which four are anticipated each
year;
- $1,000 for telephone board meetings, of which six are anticipated each
year; and
- $500 for Audit and Compensation Committee meetings, if held independently
of an in-person board meeting.
In addition, reasonable travel and related expenses shall be paid to
non-employee directors for attending board meetings or while on Company approved
business.
The Company entered into a consulting agreement with Andrew Filipowski in
May 1999 under which Mr. Filipowski will provide strategic and general business
consulting services to the Company from that date until May 2001. In
consideration of these consulting services, the Company granted to
Mr. Filipowski a fully vested option to purchase 21,875 shares of Common Stock
at an exercise price of $4.13 per share.
The Company entered into an employment agreement with Mel Baiada in
April 1997 which was modified in January 1999 and which expired without being
renewed on June 30, 1999. This agreement imposes a one year period after
termination in which Mr. Baiada may not compete against the Company. This
agreement also provides that Mr. Baiada will retain a position on the Board
until the later of:
- the date that his ownership interest in the Company's outstanding Common
Stock, assuming conversion of all outstanding convertible securities,
drops below 10%; and
- June 30, 2000.
For the twelve months commencing on July 1, 1999, Mr. Baiada will receive
$150,000 plus customary benefits as severance under his agreement.
5
<PAGE>
EXECUTIVE OFFICERS
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The table below summarizes the compensation paid to or earned by Bluestone's
Chief Executive Officer and five other executive officers whose salary and bonus
for services rendered in all capacities to Bluestone for the fiscal year ended
December 31, 1999 exceeded $100,000. The Company will use the term "Named
Executive Officers" to refer collectively to these individuals hereafter in this
Proxy. The table does not include cash and option amounts attributable to
bonuses relating to the Company's 1999 fourth quarter and annual results. Such
amounts will be determined in February 2000 and are based upon certain
pre-determined revenue and loss goals.
Other annual compensation represents commissions paid to Mr. Kilroy and
Mr. Krivickas. Other annual compensation for Mr. Huke represents amounts paid
for relocation expenses during 1999. Other annual compensation for Mr. Ballezzi
represents amounts paid for severance during 1999. All other compensation
includes amounts paid by the Company with respect to life insurance premiums for
the benefit of the Named Executive Officers and the Company's contributions to
the 401(k) accounts of these officers as follows:
- Mr. Kilroy, $285 for life insurance premiums;
- Mr. Bickel, $600 in 401(k) contributions and $186 for life insurance
premiums; and
- Mr. Capobianco, $228 for life insurance premiums;
- Mr. Huke, $600 in 401(k) contributions and $160 for life insurance
premiums;
- Mr. Krivickas, $600 in 401(k) contributions and $100 for life insurance
premiums;
- Mr. Ballezzi, $600 in 401(k) contributions.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
---------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(#) COMPENSATION
- --------------------------- -------- -------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
P. Kevin Kilroy.................................. 1999 $225,095 $31,925 $153,983 782,936 $285
President and Chief 1998 148,077 9,140 83,509 146,257 260
Executive Officer(1)
Robert W. Bickel................................. 1999 178,919 48,825 -- 81,173 786
Senior Vice President, 1998 155,330 19,554 -- 56,778 796
Products
John H. Capobianco............................... 1999 219,231 89,506 -- 104,410 228
Senior Vice President 1998 170,077 74,294 -- 142,716 218
Marketing
S. Craig Huke.................................... 1999 111,450 35,000 65,500 87,216 760
Senior Vice President 1998 -- -- -- -- --
and Chief Financial
Officer (2)
Joseph K. Krivickas.............................. 1999 113,750 59,168 108,656 172,587 700
Senior Vice President, 1998 -- -- -- -- --
Worldwide Sales (3)
Enrico J. Ballezzi Chief......................... 1999 114,600 22,176 42,000 28,502 600
Financial Officer (4) 1998 123,557 19,992 -- 40,108 600
</TABLE>
- ------------------------------
(1) During 1998, Mr. Kilroy served as our Senior Vice President, Worldwide
Sales. He became President in January 1999.
(2) Mr. Huke became Senior Vice President and Chief Financial Officer on
April 15, 1999.
(3) Mr. Krivickas became Senior Vice President, Worldwide Sales on May 15, 1999.
(4) Mr. Ballezzi served as the Company's Chief Financial Officer until
April 15, 1999. Mr. Ballezzi resigned from his employment with the Company
effective September 30, 1999.
6
<PAGE>
STOCK OPTION GRANTS
The following table summarizes the options granted to each of our Named
Executive Officers during the fiscal year ended 1999. The potential realizable
value set forth below is calculated based on the term of the option at the time
of the grants (10 years).
OPTIONS GRANTED IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM (10 YEARS)(2)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ---------- --------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
P. Kevin Kilroy.................. 291,244 16% 3.07 1/25/09 $1,456,426 $2,319,115
428,418 24% 8.70 4/24/09 6,071,276 9,667,492
21,055 1% 8.70 3/31/09 298,378 475,118
20,344 1% 9.92 6/30/09 328,731 523,450
21,875 1% 23.13 9/30/09 823,992 1,312,069
Robert W. Bickel................. 60,123 3% 3.07 1/25/09 300,657 478,747
6,820 * 8.70 3/31/09 96,649 153,897
6,857 * 9.92 6/30/09 110,800 176,430
7,373 * 23.13 9/30/09 277,728 442,235
John H. Capobianco............... 81,691 5% 3.07 1/25/09 408,513 650,488
7,560 * 8.70 3/31/09 107,136 170,596
7,305 * 9.92 6/30/09 118,039 187,957
7,854 * 23.13 9/30/09 295,846 471,085
S. Craig Huke.................... 76,500 4% 3.07 4/15/09 382,554 609,153
5,358 * 9.92 6/30/09 86,578 137,861
5,358 * 23.13 9/30/09 201,826 321,374
Joseph Krivickas................. 156,251 9% 3.07 5/10/09 781,365 1,244,194
8,168 * 9.92 6/30/09 131,984 210,162
8,168 * 23.13 9/30/09 307,674 489,919
Enrico Ballezzi.................. 28,502 2% 3.07 1/25/09 142,530 226,955
</TABLE>
- ------------------------
* Represents less than 1%.
(1) The securities underlying the options are shares of Common Stock.
(2) "Potential Realizable Value" of each grant is calculated assuming that the
market price of the underlying security appreciates at annualized rates of
5% and 10% over the ten-year term of the option. The result of these
calculations are based on rates set forth by the Securities and Exchange
Commission and are not necessarily intended to forecast possible future
appreciation of the price of the Company's Common Stock. This table does not
take into account actual appreciation in the price of the Common Stock to
date.
7
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table shows option exercises by the Named Executive Officers
in 1999 and year-end amounts of shares of Common Stock underlying outstanding
options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN THE MONEY OPTIONS
SHARES DECEMBER 31, 1999 AT DECEMBER 31, 1999 (1)
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
P. Kevin Kilroy.............. 70,000 $ 848,069 209,751 649,444 $22,177,725 $70,922,175
Robert W. Bickel............. -- -- 179,038 52,665 19,864,814 5,914,247
John H. Capobianco........... 38,899 1,553,240 39,920 168,307 4,218,092 18,896,962
S. Craig Huke................ -- -- 10,716 76,500 1,055,258 8,562,645
Joseph Krivickas............. -- -- 16,336 156,251 1,608,688 17,489,174
Enrico Ballezzi.............. 15,000 547,735 72,378 -- 8,123,965 --
</TABLE>
- ------------------------
(1) Based on the closing price per share of $115.00 on the Nasdaq National
Market on December 31, 1999.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Robert W. Bickel in
April 1997 which may be terminated by the Company or Mr. Bickel at any time,
with or without cause. Under this agreement, in 1999 the Company paid
Mr. Bickel a base salary of $178,919 and a bonus of $48,825. Future increases to
these amounts are at the discretion of the Board. This employment agreement
calls for the payment of customary fringe benefits. Under this employment
agreement, Mr. Bickel has agreed not to compete against the Company for a period
of one year after the termination of his employment. In addition, as part of
this employment agreement, the Company granted to Mr. Bickel an option to
purchase 93,750 shares of Common Stock at an exercise price of $2.24 per share,
the fair market value of the Common Stock on the date of grant. The option vests
in 16 equal installments on a quarterly basis over a four-year period on the
date of grant.
SEVERANCE AGREEMENTS
Messrs. Kilroy, Bickel and Capobianco are parties to separate severance
agreements with the Company which call for the following payments and benefits
to be received upon the termination of their employment other than for cause:
- 12 months of salary and benefits plus an additional month of salary and
benefits for each year of service;
- accrued vacation;
- 6 months of outplacement services up to $12,000; and
- 50% vesting on all outstanding unvested options and the extension of the
exercise period on all vested options to five years.
Messrs. Huke and Krivickas have similar severance agreements except that
they will receive 6 (instead of 12) months of salary and benefits plus an
additional month of salary and benefits for each year of service.
EMPLOYEE CONFIDENTIALITY AGREEMENTS
The Company enters into agreements with all employees containing provisions
regarding confidentiality and assignment of inventions.
8
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PROPOSAL NO. 1--RATIFICATION AND APPROVAL OF
1996 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
On July 1, 1998, the Board adopted the Amended and Restated Bluestone
Software, Inc. 1996 Incentive and Non-Qualified Stock Option Plan. The purpose
of the option plan is to offer certain of the Company's employees, associates
and directors options to acquire equity interests in Bluestone, thereby
providing them with an opportunity to share in the potential capital
appreciation of the Common Stock. The summary of the Company's option plan
provided below is qualified in its entirety by the provisions contained in the
option plan, a copy of which is attached to this Proxy Statement as Annex A. The
Common Stock share amounts contained in the option plan have been adjusted to
reflect a 1 for 3.2 reverse split of the Common Stock effective on
September 23, 1999. On December 29, 1999, the Board adopted, subject to
stockholder approval, an amendment to the Company's option plan that would
increase the number of shares of Common Stock available for issuance under the
option plan from 3,290,328 shares to 6,750,000 shares. See Proposal No. 2.
162(M) IMPLICATIONS
A public company is generally not entitled to deduct compensation in excess
of $1,000,000 paid to its chief executive officer and four other most highly
compensated officers for whom disclosure is required to be reported in certain
SEC filings. However, conditioned upon stockholder approval and certain other
requirements, there is an exception under Section 162(m) of the Internal Revenue
Code, and its regulations, permitting a deduction for performance-based
compensation arrangements. Stock options generally are considered to be
performance-based compensation because the amount of compensation is tied to an
increase in the issuing company's stock price.
The Company's option plan is a performance-based compensation arrangement
that meets the stockholder approval requirement, and certain other requirements,
entitling the Company to deduct performance-based compensation in excess of
$1,000,000 for each executive officer described above, under Section 162(m) of
the Internal Revenue Code. It is possible, depending on the price of the Common
Stock, that a gain on stock options could cause an individual's taxable
compensation to exceed $1,000,000.
The Company is required under Section 162(m) to seek re-approval of the
option plan within approximately three years following its initial public
offering. Accordingly, the Company is seeking stockholder approval of the option
plan at this time in order to retain the favorable tax treatment to which the
Company is already entitled by virtue of prior stockholder approval. The option
plan will remain in effect even if it is not ratified under this proposal.
DESCRIPTION OF THE OPTION PLAN
The option plan presently provides for the award of up to 3,290,328 shares
of Common Stock to the Company's employees, directors, consultants and other
individuals who perform services for the Company. Of these shares, 2,996,940
shares of Common Stock have been utilized for stock options already granted
under the option plan. As of December 31, 1999, the Company had 190 employees, 5
consultants and 7 directors, all of whom were eligible to participate in the
option plan. If the Company's stockholders approve the amendment to the option
plan described in this proposal, the option plan will be amended to provide for
the award of up to 6,750,000 shares of Common Stock.
The option plan is administered by the Board or a committee of at least two
persons appointed by the Board. The option plan permits the payment of the
exercise price to be in the form of cash, check, cashless exercise and such
other consideration and method of payment as the administrator of the option
plan may, from time to time, determine.
9
<PAGE>
Until the option plan terminates, any unpurchased shares of Common Stock
underlying all options that expire, are terminated or become unexercisable for
any reason, are returned to the option plan and become available for future
grants. The number of shares of Common Stock underlying an option, the total
number of shares of Common Stock authorized under the option plan but for which
no options have been granted, and the exercise price per share of the Common
Stock underlying all outstanding options are proportionately adjusted for any
increase or decrease in the number of outstanding shares of Common Stock
resulting from stock splits, reverse stock splits, stock dividends,
reclassifications and recapitalizations.
The option plan provides for the grant of either incentive stock options or
non-qualified stock options, except that consultants and directors of Bluestone
who are not also employees are not entitled to receive incentive stock options
under the option plan. Exercise prices for incentive stock options may not be
less than the fair market value per share of Common Stock on the date of grant,
or 110% of the fair market value in the case of incentive stock options granted
to any person who owns the Company's stock possessing 10% or more of the total
voting power of all of the Company's capital stock. Exercise prices for
nonqualified stock options may be less than the fair market value per share, but
must be at least $0.01 per share. Unless there is an established market for the
Common Stock, the Board, at its discretion, determines the fair market value of
a share of Common Stock. Unless otherwise specified by the terms of an option
agreement, options granted under the option plan vest at a rate of 25% of the
shares underlying the option per year during the consecutive 4 year period
beginning on the date of grant and expire 10 years after the date of grant, or
5 years after the date of grant with respect to incentive stock options granted
to any person who owns the Company's stock possessing 10% or more of the total
voting power of all of its capital stock. In July 1998, the Board authorized the
Company to grant options to employees with a vesting period that commences on
the later of:
- the first anniversary of their date of hire; or
- March 1, 1996 (the inception date of the option plan).
Generally, all employee stock option grants made after July 1998 contain this
modified vesting arrangement.
The number of shares of Common Stock covered by incentive stock options
granted to any optionee is limited so that the total fair market value of stock,
determined as of the date of grant, with respect to which incentive stock
options are exercisable for the first time by such optionee in any calendar year
does not exceed $100,000. Any options in excess of such limits would be treated
as nonqualified stock options.
In the event of a sale of Bluestone, as defined in the option plan, 50% of
all options that have not vested as of the date of the sale become immediately
vested and exercisable. All remaining options vest in accordance with the
vesting schedule set forth in the applicable option agreement. In the event of a
change in control of Bluestone, as defined in the option plan, the Board has the
right, in its sole discretion, to accelerate the vesting of all options that
have not vested as of the date of the change in control or establish an earlier
date for the expiration of the exercise of an option or both. In addition, in
the event of a change in control of Bluestone, the Board may, in its sole
discretion, subject to and conditioned upon a sale of Bluestone, arrange for the
successor entity to assume all of the rights and obligations under the option
plan. Alternatively, the Board may, in its sole discretion, terminate the option
plan and:
- with respect to those options that are vested as of the date of the sale
of Bluestone, pay an amount equal to the amount over which the fair market
value of a share of Common Stock, exceeds the underlying exercise price
for those options;
10
<PAGE>
- arrange for the exchange of all options for options to purchase common
stock in the successor entity; or
- distribute to each optionee other property in an amount equal to and in
the same form as the optionee would have received from the successor
entity if the optionee had owned the shares of Common Stock underlying
options that were vested as of the date of the sale of Bluestone rather
than the option at the time of the sale of Bluestone. In this instance,
the fair market value will be determined as of the termination date of the
option plan. The form of payment or distribution to the optionee is to be
determined by the Board, in its sole discretion.
The granting of awards under the option plan is discretionary, as more fully
described below, and the number of individuals receiving awards varies from year
to year depending upon factors such as the number of promotions and the
Company's hiring needs during the year. The Company cannot now determine the
number of shares of Common Stock to be awarded in the future to any particular
person or group. From the initial adoption of the option plan through
December 31, 1999: options to purchase an aggregate of 929,195 shares thereunder
had been granted to P. Kevin Kilroy, President and Chief Executive Officer of
the Company; options to purchase an aggregate of 231,703 shares thereunder had
been granted to Robert W. Bickel, Senior Vice President, Products; options to
purchase an aggregate of 247,126 shares thereunder had been granted to John H.
Capobianco, Senior Vice President, Marketing; options to purchase an aggregate
of 87,216 shares thereunder had been granted to S. Craig Huke, Senior Vice
President and Chief Financial Officer; options to purchase an aggregate of
172,587 shares thereunder had been granted to Joseph K. Krivickas, Senior Vice
President, Worldwide Sales; options to purchase an aggregate of 99,860 shares
thereunder had been granted to Enrico Ballezzi, the Company's former Chief
Financial Officer; options to purchase an aggregate of 1,667,827 shares
thereunder had been granted to all current executive officers of the Company as
a group; options to purchase an aggregate of 34,375 shares thereunder had been
granted to all current directors who are not executive officers of the Company
as a group; and options to purchase an aggregate of 1,294,738 shares thereunder
had been granted to all employees of the Company who are not executive officers.
On December 31, 1999, the last reported sales price of the Company's Common
Stock on the Nasdaq National Market was $115.00 per share.
FEDERAL INCOME TAX MATTERS
The rules governing the tax treatment of awards under the option plan are
complex. Therefore, the description of the federal income tax consequences set
forth below is necessarily general in nature and does not purport to be
complete. Moreover, statutory provisions are subject to change, as are their
interpretations, and their applications may vary in individual circumstances.
Finally, the tax consequences under applicable state and local income tax laws
may not be the same as under the federal income tax laws.
NON-QUALIFIED STOCK OPTIONS. In general, a participant will not recognize
income on the grant of a non-qualified stock option. Upon exercise of a
non-qualified stock option, the participant will recognize ordinary income equal
to the excess of the fair market value of the shares on the date of exercise
over the exercise price of the option, unless the shares received are shares of
restricted stock, in which case, unless the exercising participant elects to
recognize such income, the income recognition is deferred until the restrictions
lapse or the restricted stock becomes transferable. The Company will generally
be entitled to a compensation deduction in the same amount and at the same time
as the participant recognizes ordinary income, and will comply with applicable
withholding requirements with respect to such compensation. There are no tax
consequences to a participant or to the Company if a non-qualified stock option
lapses before it is exercised or forfeited.
INCENTIVE STOCK OPTIONS. In general, a participant will not recognize
income on the grant or exercise of an incentive stock option. Upon exercise, the
excess, if any, of the fair market value over
11
<PAGE>
the exercise price will be an item of adjustment for purposes of the
participant's alternative minimum tax. If a participant holds shares acquired
upon the exercise of an incentive stock option for more than two years after the
date of grant and one year after the date of exercise, the participant will
recognize, upon a subsequent sale of the shares, the excess, if any, of the
sales proceeds over the exercise price as long-term capital gain. The Company
will not be entitled to a deduction. If the participant disposes of the shares
before the incentive stock option holding periods referred to immediately above
lapse, the participant will recognize ordinary income in an amount equal to the
difference between the exercise price and the fair market value of a share on
the date the option is exercised, or the amount of gain recognized on the sale,
if less. The amount recognized as ordinary income is added to the participant's
basis in the shares. The Company will be entitled to a deduction equal to the
amount of any ordinary income so recognized. The participant will recognize as
capital gain an amount equal to the difference between the sales proceeds and
the participant's basis in the shares. If the shares are not held for the
incentive stock option holding periods and the amount realized upon sale is less
than the exercise price, such difference will be a capital loss to the
participant. There are no tax consequences to a participant or to the Company if
an incentive stock option lapses before it is exercised or forfeited.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
"FOR" PROPOSAL NO. 1
12
<PAGE>
PROPOSAL 2--APPROVAL OF AN AMENDMENT TO
THE 1996 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
As of December 31, 1999, the Company had granted options to purchase
2,996,940 shares, or 91.1%, of the 3,290,328 shares of Common Stock currently
reserved for issuance under the option plan. On December 29, 1999, the Board
adopted, subject to stockholder approval at this Special Meeting, an amendment
to the option plan which increases the total number of shares of Common Stock
authorized for issuance under the option plan by 3,459,672 from 3,290,328 to
6,750,000 shares.
In unanimously recommending the approval of this increase to the full Board,
the Compensation Committee of the Board reviewed its projected impact on the
Company and its stockholders. Among other things, the Compensation Committee
considered the following:
- additional option shares will be needed for the retention of present
employees and the future recruitment of suitable management and technical
talent; and
- greater reliance on options may lessen the need to make cash bonus
payments in future years, thus conserving cash for reinvestment in
Bluestone.
The Company believes that its growth and long-term success depend in large
part upon attracting, retaining and motivating key personnel, and that such
retention and motivation can be achieved in part through the grant of stock
options. The Company also believes that stock options will play an important
role in the Company's success by encouraging and enabling the directors,
officers and other employees of Bluestone--upon whose judgement, initiative and
efforts the Company depends--to acquire a proprietary interest in Bluestone's
long-term performance. The Company anticipates that providing these persons with
a direct stake in Bluestone will ensure a closer identification of the interests
of the participants in the plan with those of Bluestone, thereby stimulating the
efforts of these participants to promote the Company's future success and
strengthen their desire to remain with the Company. The Company believes that
the proposed increase in the number of shares issuable under the option plan
will help the Company accomplish these goals and will keep the Company's equity
incentive compensation in line with that of other companies comparable to the
Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
"FOR" PROPOSAL NO. 2
13
<PAGE>
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any stockholder proposal intended to be presented at the Company's 2000
annual meeting of stockholders must be received by the Company at its office in
Philadelphia, Pennsylvania on or before February 1, 2000 in order to be
considered for inclusion in the Company's proxy statement and form of proxy
relating to such annual meeting.
If a stockholder of the Company wishes to present a proposal before the 2000
annual meeting, but does not wish to have the proposal considered for inclusion
in the Company's proxy statement and proxy card, such stockholder must also give
written notice to the Company at the address noted above. The Company's bylaws
require that such notice be received no less than 90 days nor more than
120 days prior to the first anniversary of the preceding year's annual meeting.
With respect to the Company's 2000 annual meeting of stockholders, if the
Company is not provided notice of a stockholder proposal which the stockholder
has not previously sought to include in our proxy statement under Rule 14a-8 by
February 1, 2000, the proxies will be allowed to use their discretionary
authority to vote on any such proposals.
OTHER MATTERS
The Board does not intend to bring any matters before the Special Meeting,
other than as stated in this Proxy Statement, and is not aware that any other
matters will be presented for action at the Special Meeting. If any other
matters come before the Special Meeting, the persons named in the enclosed Proxy
will vote the Proxy with respect thereto, in accordance with their best
judgment, pursuant to the discretionary authority granted by the Proxy.
EXPENSES OF SOLICITATION
The cost of preparing, assembling, mailing and soliciting the Proxies will
be borne by the Company. In addition to the use of the mails, Proxies may be
solicited by regular employees of the Company, either personally or by
telephone. The Company does not expect to pay any compensation for the
solicitation of Proxies, but may reimburse brokers and other persons holding
shares in their names or in the names of nominees for expenses in sending Proxy
materials to beneficial owners and obtaining Proxies from such owners.
All properly executed Proxies delivered pursuant to this solicitation and
not revoked will be voted at the Special Meeting in accordance with the
directions given. With respect to the items to be voted upon, stockholders may
vote in favor of the item or against the item or may abstain from voting.
Stockholders should specify their choices on the enclosed Proxy. If no specific
instructions are given with respect to the matters to be acted upon, and the
Proxy is returned properly executed, then the shares represented by the Proxy
will be voted FOR: (1) the proposal to ratify and approve the Bluestone
Software, Inc. 1996 Amended and Restated Incentive and Non-Qualified Stock
Option Plan and (2) the proposal to approve an amendment to such plan increasing
the number of shares of Common Stock available for awards under the plan.
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED IF IT IS MAILED IN THE UNITED STATES.
BLUESTONE SOFTWARE, INC.
14
<PAGE>
ANNEX A
BLUESTONE SOFTWARE, INC.
1996 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN
AS AMENDED AND RESTATED EFFECTIVE AUGUST 20, 1999*
* COMMON STOCK SHARE AMOUNTS CONTAINED HEREIN HAVE BEEN ADJUSTED TO REFLECT THE
1 FOR 3.2 REVERSE SPLIT OF THE COMMON STOCK EFFECTIVE SEPTEMBER 23, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Section 1. NAME AND PURPOSES........................................... A-1
Section 2. DEFINITIONS................................................. A-1
Section 3. ADMINISTRATION.............................................. A-4
Section 4. ELIGIBILITY................................................. A-5
Section 5. STOCK SUBJECT TO THE PLAN................................... A-5
Section 6. TERMS AND CONDITIONS OF OPTIONS............................. A-6
Section 7. FAIR MARKET VALUE OF COMMON STOCK........................... A-8
Section 8. ADJUSTMENTS................................................. A-9
Section 9. RIGHTS AS A STOCKHOLDER..................................... A-9
Section 10. FORFEITURE.................................................. A-9
Section 11. TIME OF GRANTING OPTIONS.................................... A-9
Section 12. MODIFICATION, EXTENSION, RENEWAL OF OPTION.................. A-10
Section 13. TRANSFERABILITY............................................. A-10
Section 14. POWER OF BOARD IF CHANGE OF CONTROL......................... A-10
Section 15. AMENDMENT OR TERMINATION OF THE PLAN........................ A-10
Section 16. APPLICATION OF FUNDS........................................ A-10
Section 17. NO OBLIGATION TO EXERCISE OPTION............................ A-11
Section 18. APPROVAL OF STOCKHOLDERS.................................... A-11
Section 19. CONDITIONS UPON ISSUANCE OF SHARES.......................... A-11
Section 20. RESERVATION OF SHARES....................................... A-11
Section 21. OTHER AGREEMENTS............................................ A-11
Section 22. TAXES, FEES, EXPENSES AND WITHHOLDING....................... A-12
Section 23. NOTICES..................................................... A-12
Section 24. NO ENLARGEMENT OF RIGHTS.................................... A-12
Section 25. INFORMATION TO OPTIONEES.................................... A-13
Section 26. AVAILABILITY OF PLAN........................................ A-13
Section 27. INVALID PROVISIONS.......................................... A-13
Section 28. APPLICABLE LAW.............................................. A-13
Section 29. BOARD ACTION................................................ A-13
Section 30. MISCELLANEOUS............................................... A-13
</TABLE>
A-i
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BLUESTONE SOFTWARE, INC.
1996 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN
Section 1. NAME AND PURPOSES OF THE PLAN.
(a) NAME. The Plan will be known as the Bluestone Software, Inc. 1996
Incentive and Non-Qualified Stock Option Plan. The Plan was formerly known as
the Bluestone Consulting, Inc. 1996 Incentive and Non-Qualified Stock Option
Plan, but pursuant to a corporate transaction in which Bluestone
Consulting, Inc., a New Jersey corporation, merged into Bluestone
Software, Inc., a Delaware corporation, Bluestone Software, Inc. became the
successor sponsor of the Plan.
(b) PURPOSES. The purpose of the Plan is to provide key Employees and
Consultants with an opportunity to share in the capital appreciation of the
Common Stock of the Company. The Options granted pursuant to the Plan are
intended to constitute either Incentive Stock Options or Non-Qualified Stock
Options, as determined by the Administrator of the Plan at the time of grant.
Section 2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "ADMINISTRATOR" shall be the Board or a Committee appointed by the Board
pursuant to Section 3 of the Plan, which shall administer the Plan.
(b) "AFFILIATE" shall mean, whether now or hereafter existing, a person or
entity that directly, or indirectly controls or is controlled by, or is under
common control with, the Company, except that when used in connection with an
Incentive Stock Option, "Affiliate" shall mean a Subsidiary.
(c) "BCI" shall mean Bluestone Consulting, Inc., a Delaware corporation,
that was spun off from the Company on April 17, 1997.
(d) "BOARD" shall mean the Board of Directors of the Company, as constituted
from time to time.
(e) "CHANGE OF CONTROL" shall mean the happening of an event (excluding a
Public Offering) that shall be deemed to have occurred upon the earliest to
occur of the following events:
(i) the date the stockholders of the Company (or the Board, if
stockholder action is not required) approve a plan or other
arrangement pursuant to which the Company will be dissolved or
liquidated;
(ii) the date the stockholders of the Company (or the Board, if
stockholder action is not required) approve a definitive agreement to
sell or otherwise dispose of all or substantially all of the assets
of the Company, or
(iii) the date the stockholders of the Company (or the Board, if
stockholder action is not required) and the stockholders of the other
constituent corporations (or their respective boards of directors, if
and to the extent that stockholder action is not required) have
approved a definitive agreement to merge or consolidate the Company
with or into another corporation, other than, in either case, a
merger or consolidation of the Company in which holders of shares of
the Company's voting capital stock immediately prior to the merger or
consolidation will have at least fifty percent (50%) of the ownership
of voting capital stock of the surviving corporation immediately
after the merger or consolidation (on a fully diluted basis), which
voting capital stock is to be held in the same proportion (on a fully
diluted basis) as such holders' ownership of voting capital stock of
the Company immediately before the merger or consolidation, or
(iv) the date any entity, person or group (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than
(A) the Company, (B) any of its Subsidiaries, (C) any of the holders
of the capital stock of the Company, as determined
A-1
<PAGE>
on the date that this Plan is adopted by the Board, (D) any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any of its Subsidiaries or (E) any Affiliate of any of the
foregoing, shall have acquired beneficial ownership of, or shall have
acquired voting control over more than fifty percent (50%) of the
outstanding shares of the Company's voting capital stock (on a fully
diluted basis), unless the transaction pursuant to which such person,
entity or group acquired such beneficial ownership or control
resulted from the original issuance by the Company of shares of its
voting capital stock and was approved by at least a majority of
directors who shall have been members of the Board for at least
twelve (12) months prior to the date of such approval, or
(v) the first day after the date of this Plan when directors are elected
such that there shall have been a change in the composition of the
Board such that a majority of the Board shall have been members of
the Board for less than twelve (12) months, unless the nomination for
election of each new director who was not a director at the beginning
of such twelve (12) month period was approved by a vote of at least
sixty percent (60%) of the directors then still in office who were
directors at the beginning of such period, or
(vi) the date upon which the Board determines (in its sole discretion)
that based on then current available information, the events
described in clause (iv) are reasonably likely to occur.
(f) "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(g) "COMMITTEE" shall mean the Committee appointed by the Board in
accordance with Section 3(a) of the Plan, if one is appointed, in which event
the Committee shall possess the power and authority of the Board with respect to
the Plan as set forth in Section 3(b) of the Plan.
(h) "COMMON STOCK" shall mean the common stock of the Company, $.001 par
value per share.
(i) "COMPANY" shall mean BLUESTONE SOFTWARE, INC., a Delaware corporation,
formerly known as Bluestone Consulting, Inc., a New Jersey corporation, and any
successor in interest that agrees to assume and maintain the Plan.
(j) "CONSULTANT" shall mean (i) any person associated with the Company who
is engaged by the Company to render services and is compensated by the Company
for such services, including but not limited to, an advisor or independent
contractor; (ii) any director of the Company whether or not compensated for such
services in his capacity as a director; and (iii) solely for purposes of the
Plan, any person employed by BCI or any other company so designated by the
Board.
(k) "DISABILITY" or "DISABLED" with respect to an Optionee shall mean
(i) when the Optionee is determined to be disabled within the meaning of any
long-term disability policy or program sponsored by the Company or BCI covering
the Optionee, as in effect as of the date of such determination, or (ii) if no
such policy or program shall be in effect, when the Optionee is unable to engage
in any substantial gainful activity by reason of a physical or mental impairment
that can be expected to result in death or that has lasted or can be expected to
last for a continuous period of not less than twelve (12) months. The
determination of whether an Optionee is Disabled pursuant to subparagraph
(ii) shall be determined by the Board of Directors, whose determination shall be
conclusive; provided that, (iii) if an Optionee is bound by the terms of an
employment agreement between the Optionee and the Company or Optionee and BCI,
whether the Optionee is "Disabled" for purposes of the Plan shall be determined
in accordance with the procedures set forth in said employment agreement, if
such procedures are therein provided; and (iv) an Optionee bound by such an
employment agreement shall not be determined to be Disabled under the Plan any
earlier than he or she would be determined to be disabled under his or her
employment agreement.
A-2
<PAGE>
(l) "EMPLOYEE" shall mean any person, including but not limited to, officers
and directors, employed by the Company or any Subsidiary of the Company. The
payment of directors' fees by the Company shall not be sufficient to constitute
"employment" by the Company.
(m) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" shall mean, as of any date, the fair market value of
a share of Common Stock as determined pursuant to Section 7 hereof.
(o) "INCENTIVE STOCK OPTION" shall mean any Option that is intended to be
and is designated as an Incentive Stock Option within the meaning of
Section 422 of the Code.
(p) "NON-EMPLOYEE DIRECTOR" shall have the meaning set forth in
Rule 16b-3(b)(3)(i) promulgated by the Securities and Exchange Commission under
the Exchange Act, or any successor definition adopted by the Securities and
Exchange Commission; provided, however, that the Administrator may, in its sole
discretion, determine from time to time whether the rules and regulations under
Section 162(m) of the Code shall apply for purposes of determining which
individuals are "Non-Employee Directors."
(q) "NON-QUALIFIED STOCK OPTION" shall mean any Option that is not intended
to qualify as an Incentive Stock Option.
(r) "OPTION" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option as the case may be, granted pursuant to the Plan.
(s) "OPTION AGREEMENT" shall mean the written agreement by and between the
Company and an Optionee under which Optionee may purchase the Shares pursuant to
the exercise of an Option.
(t) "OPTIONEE" shall mean an Employee or Consultant to whom an Option is
granted.
(u) "PLAN" shall mean this Bluestone Software, Inc. 1996 Incentive and
Non-Qualified Stock Option Plan, as amended from time to time.
(v) "PUBLIC OFFERING" shall mean the consummation of a firm commitment
underwritten public offering of equity securities of the Company registered
under the Securities Act.
(w) "SALE OF THE COMPANY" shall mean the earliest of: (i) the closing of a
sale, transfer or other disposition of all or substantially all of the shares of
the capital stock then outstanding of the Company (except if such transferee is
then an Affiliate); (ii) the closing of a sale, transfer or other disposition of
all or substantially all of the assets of the Company (except if such transferee
is then an Affiliate); or (iii) the merger or consolidation of the Company with
or into another corporation (except an Affiliate), other than a merger or
consolidation of the Company in which the holders of shares of the Company's
voting capital stock outstanding immediately before such merger or consolidation
hold greater than fifty percent (50%) of the surviving entity's voting capital
stock after such consolidation or merger.
(x) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
(y) "SECURITIES BROKER" means a registered securities broker acceptable to
the Board who agrees to effect the cashless exercise of an Option.
(z) "SHARE" or "SHARES" shall mean a share or shares of Common Stock, as
adjusted in accordance with Section 8 of the Plan, that is allocated to the
Plan.
(aa) "STOCK PURCHASE AND RESTRICTION AGREEMENT" shall mean an agreement in
such form or forms as the Board (subject to the terms and conditions of this
Plan) may from time to time approve, which an Optionee shall be required to
execute as a condition of purchasing Shares upon the exercise of an Option.
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(bb) "SUBSIDIARY" shall mean, whether now or hereafter existing, a
subsidiary or parent corporation of the Company as such term is defined in
Sections 424(e), (f) and (g) of the Code.
(cc) "TRANSFER" or "TRANSFERRED" shall mean the transfer of employment or
other engagement from the Company to BCI, or from BCI to the Company.
Section 3. ADMINISTRATION.
(a) PROCEDURE. The Plan shall be administered by the Board or a Committee
consisting of not less than two persons appointed by the Board (in either case,
the "Administrator"). Members of the Board or the Committee who are eligible for
Options or who have been granted Options may vote on any matters affecting the
administration of the Plan or the grant of any Options pursuant to the Plan,
except that no such member shall act upon the granting of an Option to himself
or herself, but any such member may be counted in determining the existence of a
quorum at any meeting of the Board or the Committee during which action is taken
with respect to the granting of Options to such member.
In the event the Company has a class of equity securities registered under
Section 12 of the Exchange Act, the Plan shall be administered either by the
Board, or by a Committee, appointed in the same manner and subject to the same
terms as provided in the preceding sentence of this subsection 3(a), provided
that said Committee shall consist of not less than two (2) persons, each of whom
is a Non-Employee Director.
(b) COMMITTEE. If a Committee is appointed by the Board, then the
Committee shall possess the power and authority of the Board in administering
the Plan on behalf of the Board, subject to the terms and conditions as the
Board may prescribe. Members of the Committee may or may not be members of the
Board and shall serve for such period of time as the Board may determine. From
time to time, the Board may increase the size of the Committee and appoint
additional members thereto, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee and thereafter directly administer the Plan.
(c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan
(and, in the case of the Committee, the specific duties delegated by the Board
to such Committee), the Administrator shall have the authority, in its sole
discretion:
(i) to determine whether and to what extent Options are granted
hereunder;
(ii) to determine the Fair Market Value of the Common Stock based upon
review of relevant information and in accordance with Section 7 of the Plan;
(iii) to determine the exercise price of the Options in accordance with
Section 6(b) of the Plan;
(iv) to select the Optionees to whom Options may from time to time be
granted;
(v) to determine the number of Shares to be subject to each Option
granted hereunder;
(vi) to prescribe, amend and rescind rules and regulations relating to
the Plan;
(vii) to determine the terms and provisions of each Option granted under
the Plan, each Option Agreement and each other agreement that in the sole
discretion of the Administrator may be required (all of which agreements
need not be identical with the terms of other Options, Option Agreements or
other agreements);
(viii) to determine the circumstances under which the vesting or
exercise date of an Option will be accelerated;
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(ix) to interpret the Plan or any agreement entered into with respect to
the grant or exercise of Options;
(x) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted
by the Board or to take such other actions as may be necessary or
appropriate with respect to the Company's rights pursuant to Options or
agreements relating to the granting or exercise thereof;
(xi) to determine whether and under what circumstances an Option may be
exercised without a payment of cash under Section 6(c) hereof;
(xii) to terminate the Plan in the event of a Change of Control;
(xiii) to determine whether or not a Transfer has occurred; and
(xiv) to make such other determinations and establish such other
procedures as it deems necessary or advisable for the administration of the
Plan.
(d) EFFECT OF THE ADMINISTRATOR'S DECISION. All decisions, determinations
and interpretations of the Administrator pursuant to the provisions of the Plan
shall be final and binding on all Optionees and any other holders of Options.
(e) LIMITATION OF LIABILITY. Notwithstanding anything herein to the
contrary, no member of the Board or the Committee shall be liable for any good
faith determination, act or failure to act in connection with the Plan or any
Option awarded hereunder.
Section 4. ELIGIBILITY.
(a) ELIGIBLE PERSONS. Options may be granted at any time and from time to
time to any Employee or Consultant who shall be selected by the Administrator.
Any grant of Options may include or exclude any Employee or Consultant as the
Administrator shall determine in its sole discretion. Consultants who are not
also Employees of the Company are eligible to be granted Non-Qualified Stock
Options under the Plan but are not eligible to be granted Incentive Stock
Options under the Plan.
(b) VESTING OF OPTIONS. Subject to the provisions of Section 6 hereof and
except to the extent the Board provides otherwise, each Option shall vest at a
rate of twenty-five percent (25%) of the Shares subject to the Option per year
(the total number of Shares so vested being the "Vested Amount") during the
consecutive four (4) year period commencing on the date of grant. Options that
are not vested may not be exercised.
(c) EFFECT UPON ENGAGEMENT. The Plan will not confer upon any Optionee any
right with respect to the continuation of any employment, consulting or any
other relationship with the Company or BCI nor will it interfere in any way with
such Optionee's right or the Company's or BCI's right to terminate that
Optionee's employment, consulting or other relationship with the Company or BCI
at any time, whether with or without cause.
Section 5. STOCK SUBJECT TO THE PLAN.
(a) MAXIMUM NUMBER OF SHARES. Subject to the provisions of Section 8 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is Three Million Two Hundred Ninety Thousand Three Hundred
Twenty-eight (3,290,328) Shares. The Shares may be authorized, but unissued or
reacquired, Common Stock. Notwithstanding the foregoing, no individual shall
receive, over the term of the Plan, awards for more than an aggregate of Three
Million Two Hundred Ninety Thousand Three Hundred Twenty-eight (3,290,328)
Shares authorized for grant under the Plan.
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(b) RETURN OF SHARES TO THE PLAN. If an Option expires, is terminated or
become unexercisable for any reason without having been exercised in full, then
the unpurchased Shares subject thereto shall, unless the Plan shall have been
terminated, return to the Plan and become available for future grant under the
Plan.
Section 6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under the Plan shall be authorized by the Board and
shall be evidenced by an Option Agreement which shall state or incorporate by
reference all other terms and conditions of the Plan including, without
limitation, the following terms and conditions:
(a) NUMBER OF SHARES. The Option Agreement shall state the number of
Shares subject to the Option.
(b) OPTION EXERCISE PRICE. The per Share exercise price for the Shares to
be issued pursuant to the exercise of an Incentive Stock Option shall be stated
in the Option Agreement and shall be no less than the Fair Market Value per
share of the Common Stock on the date such Option is granted, without regard to
any restriction other than a restriction that by its terms will never lapse;
provided, however, that any Incentive Stock Option granted under this Plan to an
Employee who, at the time such Option is granted, owns more than ten percent
(10%) of the current total combined voting power of all classes of the capital
stock of the Company, shall have an exercise price per Share of not less than
one hundred ten percent (110%) of the Fair Market Value of the Common Stock on
the date such Option is granted. The per Share exercise price for the Shares to
be issued pursuant to the exercise of a Non-Qualified Stock Option shall be
stated in the Option Agreement and shall be determined by the Administrator but
shall be at least $.01 per Share.
(c) CONSIDERATION. The consideration to be paid for the Shares to be
issued upon the exercise of an Option, including the method of payment, shall be
determined by the Administrator and may consist entirely of: (i) cash;
(ii) check; (iii) authorization from the Company to retain from the total number
of Shares as to which the Option is exercised that number of Shares having a
Fair Market Value on the date of exercise equal to the exercise price for the
total Shares as to which the Option is exercised; (iv) to the extent permitted
under the Exchange Act, the delivery of a properly executed exercise notice
together with irrevocable instructions to a Securities Broker to promptly
deliver to the Company the amount of sale or loan proceeds required to pay the
exercise price; or (v) such other consideration and method of payment as the
Administrator may from time to time determine. In making its determination as to
the type of consideration to accept, the Administrator shall consider if the
acceptance of such consideration may be reasonably expected to benefit the
Company.
(d) FORM OF OPTION. The Option Agreement shall state whether the Option
granted thereunder is intended to be an Incentive Stock Option or a
Non-Qualified Stock Option and shall, subject to the terms of the Option
Agreement, constitute a binding determination as to the form of Option granted
thereunder.
(e) EXERCISE OF AN OPTION.
(i) Unless otherwise provided by the Board, any Option granted hereunder
shall be exercisable, in whole or in part, in accordance with the vesting
schedule set forth in Section 4(b) hereof and shall be exercisable at such
times and under such further conditions as may be determined by the Board
and as set forth in the Option Agreement.
(ii) An Option may not be exercised for a fraction of a Share. In the
event of a "cashless exercise" as permitted under Section 6(c) hereof, the
Company shall issue shares for, the whole number of shares acquired through
such cashless exercise and cash for the value of any fractional share.
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(iii) An Option may not be exercised after the date of expiration of its
term as shall be set forth in the Option Agreement.
(iv) An Option shall be deemed to be exercised when written notice of
such exercise has been received by the Company at its principal executive
office in accordance with the terms of the Option Agreement by the person
entitled to exercise the Option, and full payment for the Shares with
respect to which the Option is exercised has been received by the Company,
accompanied by an executed Stock Purchase and Restriction Agreement and any
other agreements required by the Administrator or the terms of the Plan
and/or Option Agreement. An Optionee shall have no right to vote or receive
dividends and shall have no other rights as a stockholder with respect to
the Shares, notwithstanding the exercise of the Option, until the issuance
(as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares. No adjustment shall be made for a dividend or other
right for which the record date is prior to the date a stock certificate
with respect to the Shares is issued.
(v) As soon as practicable after the proper exercise of an Option in
accordance with the provisions of the Plan, the Company shall, without
transfer or issue tax to the Optionee, deliver to the Optionee at the
principal executive office of the Company or such other place as shall be
mutually agreed upon between the Company and the Optionee, a certificate or
certificates representing the Shares for which the Option shall have been
exercised. The time of issuance and delivery of the certificate(s)
representing the Shares for which the Option shall have been exercised may
be postponed by the Company for such period as may be required by the
Company, with reasonable diligence, to comply with any applicable listing
requirements of any national or regional securities exchange or any law or
regulation applicable to the issuance or delivery of such Shares.
(vi) The exercise of an Option in any manner shall result in a decrease
in the number of Shares that thereafter may be available both for purposes
of the Plan and for sale under the Option by the number of Shares as to
which the Option is exercised.
(f) TERMINATION OF OPTIONS.
(i) TERMINATION IN GENERAL. Unless sooner terminated as provided in this
Plan, each Option shall be exercisable for the period of time as shall be
determined by the Administrator and set forth in the Option Agreement and
shall be void and unexercisable thereafter.
(ii) TERMINATION OF RELATIONSHIP WITH THE COMPANY. Unless sooner
terminated as provided in this Plan, in the event of the termination of an
Optionee's employment or consulting relationship with the Company (as the
case may be), including termination of employment or consulting relationship
with BCI, for any reason other than the death or Disability of the Optionee,
such Optionee may, within three (3) months (or such other period of time as
is determined by the Board) from the date of such termination (but in no
event later than the expiration date of the term of such Option as set forth
in the Option Agreement), exercise the Option up to the Vested Amount as of
the date of termination provided that the Optionee was entitled to exercise
the Option on the date of such termination; provided, however, that an
Optionee who has Transferred shall not be considered to have terminated his
relationship with the Company. To the extent the Optionee was not entitled
to exercise the Option on the date of such termination, or if the Optionee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option will terminate.
(iii) DEATH OR DISABILITY. Unless sooner terminated as provided in this
Plan, in the event of the death or Disability of an Optionee while employed
or engaged by the Company (as the case may be), including termination of
employment or service with BCI, due to death or Disability, Options
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held by such Optionee that are exercisable on the date of Disability or
death shall be exercisable up to the Vested Amount as of the date of
Disability or death for a period of twelve (12) months commencing on the
date of the Optionee's Disability or death. Such Options may be exercisable
by the Optionee or his or her legal guardian or representative or, in the
case of death, by his or her executor(s) or administrator(s); provided,
however, if such disabled Optionee shall commence any employment or
engagement during such twelve (12) month period with or by a competitor of
the Company (including, but not limited to, full or part-time employment or
independent consulting work, but EXCLUDING any employment or engagement by
BCI), as determined solely in the judgment of the Administrator, then all
Options held by such Optionee that have not yet been exercised shall
terminate immediately upon the commencement thereof.
(iv) AGREEMENT TO TERMINATE. Options may be terminated at any time by
agreement between the Company and the Optionee.
(g) OTHER PROVISIONS.
(i) Notwithstanding any provision in this Plan or an Option Agreement to
the contrary, no Option granted to any Optionee under this Plan shall be
treated as an Incentive Stock Option to the extent that such Option would
cause the aggregate Fair Market Value of all Shares with respect to which
Incentive Stock Options are exercisable by such Optionee for the first time
during any calendar year (determined as of the date of grant of each such
Option) to exceed $100,000. For purposes of determining whether an Incentive
Stock Option granted to an Optionee would cause the aggregate Fair Market
Value to exceed the $100,000 limitation, such Incentive Stock Options shall
be taken into account in the order granted. For purposes of this subsection,
Incentive Stock Options granted to an Optionee shall include all incentive
stock options under all plans of the Company that are incentive stock option
plans within the meaning of Section 422 of the Code. Options may be
exercised in any order elected by the Optionee, whether or not the Optionee
holds any unexercised Options under this Plan or any other plan of the
Company.
(ii) Notwithstanding any other provision of this Plan or an Option
Agreement to the contrary, no Option shall be (A) granted under this Plan
after ten (10) years from the date on which this Plan is adopted by the
Board, or (B) exercisable more than ten (10) years from the date of grant;
provided that if an Incentive Stock Option shall be granted under this Plan
to any Employee who, at the time of the grant of such Option, owns stock
possessing more than ten percent (10%) of the total combined voting power
for all classes of the Company's capital stock, the foregoing clause (B)
shall be deemed modified by substituting the term "five (5) years" for the
term "ten (10) years" that appears therein.
Section 7. FAIR MARKET VALUE OF COMMON STOCK.
The Fair Market Value of a Share of Common Stock, as of any date, shall be
determined as follows:
(a) If the Shares of Common Stock are listed on a national or regional
securities exchange or traded through NASDAQ/NMS, then the Fair Market Value of
a share of Common Stock shall be the closing price for a share of Common Stock
on the exchange or on NASDAQ/NMS, as reported in THE WALL STREET JOURNAL or such
other source as the Administrator deems reliable on the relevant valuation date,
or if there is no trading on that date, on the next trading date.
(b) If the Shares of Common Stock are traded in the over-the-counter market,
then the Fair Market Value of a share of Common Stock shall be the mean of the
bid and asked prices for a share of Common Stock on the relevant valuation date
as reported in The WALL STREET JOURNAL or other source the Administrator deems
reliable (or, if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotations ("NASDAQ") System or the
NASD OTC Bulletin Board), or if there is no trading on such date, on the next
trading date.
(c) In the absence of an established market for the Common Stock, the Fair
Market Value of a share of Common Stock shall be determined by the Board in its
sole discretion.
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Section 8. ADJUSTMENTS.
(a) ADJUSTMENTS. Subject to any required action by the stockholders of the
Company, the number of Shares covered by each outstanding Option, the number of
Shares that have been authorized for issuance under the Plan but as to which no
Options have yet been granted or that have been returned to the Plan upon
cancellation or expiration of an Option, and the price per Share of the Common
Stock covered by an Option will each be proportionately adjusted for any
increase or decrease in the number of outstanding shares of Common Stock
resulting from stock splits, reverse stock splits, stock dividends,
reclassifications and recapitalizations. Such adjustment shall be made by the
Board whose determination in that respect will be final, binding and conclusive.
Except as provided herein, no issuance by the Company of shares of stock of any
class or securities convertible into shares of stock of any class, will affect,
and no adjustment by reason thereof will be made with respect to, the number or
price of shares of Common Stock subject to an Option.
(b) NO FRACTIONAL SHARES. No fractional Shares shall be issuable on
account of any action aforesaid, and the aggregate number of Shares into which
Shares then covered by the Option, when changed as the result of such action,
shall be reduced to the number of whole Shares resulting from such action,
unless the Board, in its sole discretion, shall determine to issue scrip
certificates in respect to any fractional Shares, which scrip certificates shall
be in a form and have such terms and conditions as the Board in its discretion
shall prescribe.
Section 9. RIGHTS AS A STOCKHOLDER.
An Optionee shall have no rights as a stockholder of the Company and shall
not have the right to vote nor receive dividends with respect to any Shares
subject to an Option until such Option has been exercised and a stock
certificate with respect to the Shares purchased upon such exercise of the
Option has been issued to Optionee as set forth in Section 6(e)(iv) and
(v) hereof.
Section 10. FORFEITURE.
Notwithstanding any other provision of this Plan, if an Optionee's
employment or consulting relationship with the Company (as the case may be) is
terminated by the Company or BCI and the Board makes a determination that the
Optionee (i) has engaged in any type of disloyalty to the Company or BCI,
including without limitation, fraud, embezzlement, theft, or dishonesty in the
course of Optionee's employment or consulting relationship, (ii) has been
convicted of a felony or other crime involving a breach of trust or fiduciary
duty owed to the Company or BCI, (iii) has made an unauthorized disclosure of
trade secrets or confidential information of the Company or BCI, or (iv) has
breached any confidentiality agreement or non-competition agreement with the
Company or BCI in any material respect, then, at the election of the Board, all
unexercised Options held by the Optionee (whether or not then exercisable) shall
terminate. In the event of such an election by the Board, in addition to
immediate termination of all unexercised Options, the Optionee shall forfeit all
Shares for which the Company has not yet delivered stock certificates to the
Optionee and the Company shall refund to the Optionee the exercise price paid to
it upon exercise of the Option with respect to such Shares. Notwithstanding
anything herein to the contrary, the Company may withhold delivery of stock
certificates pending the resolution of any inquiry that could lead to a finding
resulting in forfeiture.
Section 11. TIME OF GRANTING OPTIONS.
The date of grant of an Option shall, for all purposes, be the date on which
the Administrator makes the determination to grant the Option or such other date
as is determined by the Administrator. Notice of the determination shall be
given to each Optionee to whom an Option is so granted within a reasonable time
after the date of such grant.
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Section 12. MODIFICATION, EXTENSION, RENEWAL OF OPTION.
Subject to the terms and conditions of the Plan, the Board may modify,
extend or renew an Option, or accept the surrender of an Option (to the extent
not theretofore exercised); provided that no Incentive Stock Option may be
modified, extended or renewed if such action would cause such Option to cease to
be an "incentive stock option" within the meaning of Section 422 of the Code.
Section 13. TRANSFERABILITY.
No Option may be sold, pledged, assigned, transferred or disposed of in any
manner other than by will or by the laws of descent and distribution. During the
lifetime of the Optionee, his or her Options shall be exercisable only by the
Optionee, or, in the event of his or her legal incapacity or Disability, by the
legal guardian or representative of the Optionee.
Section 14. POWER OF BOARD IF CHANGE OF CONTROL.
Notwithstanding anything to the contrary set forth in this Plan, in the
event of a Sale of the Company, fifty percent (50%) of all Options that have not
vested as of the date of a Sale of the Company shall become immediately vested
and exercisable. All remaining unvested Options shall vest in accordance with
the vesting schedule set forth in the applicable Option Agreement.
Notwithstanding the preceding, the Board shall have the right, in its sole
discretion, to accelerate the vesting of all Options that have not vested as of
the date of the Change of Control and/or to establish an earlier date for the
expiration of the exercise of an Option (notwithstanding a later expiration of
exercisability set forth in an Option Agreement). In addition, in the event of a
Change of Control of the Company, the Board shall have the right, in its sole
discretion, subject to and conditioned upon a Sale of the Company: (i) to
arrange for the successor company (or other entity) to assume all of the rights
and obligations of the Company under this Plan; or (ii) to terminate this Plan
and (A) to pay to all Optionees cash with respect to those Options that are
vested as of the date of the Sale of the Company in an amount equal to the
difference between the Option Price and the Fair Market Value of a Share of
Common Stock (determined as of the date the Plan is terminated) multiplied by
the number of Options that are vested as of the date of the Sale of the Company
which are held by the Optionee as of the date of the Sale of the Company, or
(B) to arrange for the exchange of all Options for options to purchase common
stock in the successor corporation, or (C) to distribute to each Optionee other
property in an amount equal to and in the same form as the Optionee would have
received from the successor corporation if the Optionee had owned the Shares
subject to Options that are vested as of the date of the Sale of the Company
rather than the Option at the time of the Sale of the Company. The form of
payment or distribution to the Optionee pursuant to this Section shall be
determined by the Board in its sole discretion.
Section 15. AMENDMENT OR TERMINATION OF THE PLAN.
Insofar as permitted by law and the Plan, the Board may at any time suspend,
terminate, discontinue, alter or amend the Plan in any respect whatsoever;
provided, however, that without prior approval of at least a majority of the
stockholders entitled to vote thereon, no such revision or amendment may change
the aggregate number of Shares for which Options may be granted hereunder,
change the designation of the class of Optionees eligible to receive Options or
decrease the price at which Options may be granted. Any other provision of this
Section notwithstanding, the Board specifically is authorized to adopt any
amendment to this Plan deemed by the Board to be necessary or advisable to
assure that the Incentive Stock Options or the Non-Qualified Stock Options
available under the Plan continue to be treated as such, respectively, under all
applicable laws.
Section 16. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Shares pursuant to the
exercise of Options shall be used for general corporate purposes.
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Section 17. NO OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obligation upon the Optionee to
exercise such Option.
Section 18. APPROVAL OF STOCKHOLDERS.
This Plan shall become effective on the date that it is adopted by the
Board; provided that it shall become limited to a non-qualified stock option
plan if it is not approved by the stockholders of a majority of the Company's
outstanding voting stock within one year (365 days) of its adoption by the
Board. The Board may grant Options hereunder prior to approval of the Plan, or
any material amendments thereto, by the holders of a majority of the Company's
outstanding voting stock; provided that any and all Options so granted shall be
converted into non-qualified stock options if the Plan, or a material amendment,
is not approved by such stockholders within 365 days of its adoption or material
amendment.
Section 19. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Options granted under the Plan are conditioned upon the Company
obtaining any required permit or order from appropriate governmental agencies,
authorizing the Company to issue such Options and Shares issuable upon the
exercise thereof.
(b) Shares shall not be issued pursuant to the exercise of an Option unless
the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act, the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(c) As a condition to the exercise of an Option, the Board may require the
person exercising such Option to execute an agreement with, and/or may require
the person exercising such Option to make any representation and/or warranty to,
the Company as may be, in the judgment of counsel to the Company, required under
applicable law or regulation, including but not limited to, a representation and
warranty that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation and warranty is appropriate under
any of the aforementioned relevant provisions of law.
Section 20. RESERVATION OF SHARES.
(a) The Company, during the term of this Plan, shall at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
(b) The Company, during the term of this Plan, shall use its best efforts to
seek to obtain from appropriate regulatory agencies any requisite authorization
in order to issue and sell such number of Shares as shall be sufficient to
satisfy the requirements of the Plan. The inability of the Company to obtain
from any such regulatory agency having jurisdiction the requisite
authorization(s) deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any Shares hereunder, or the inability of the Company to
confirm to its satisfaction that any issuance and sale of any Shares hereunder
will meet applicable legal requirements, shall relieve the Company of any
liability in respect to the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
Section 21. OTHER AGREEMENTS.
Options shall be evidenced by an Option Agreement in such form or forms as
the Board (subject to the terms and conditions of this Plan) may from time to
time approve, which Option Agreement shall evidence and reflect the terms and
conditions of an Option as set forth in Section 6 hereof. Upon exercise of an
Option, the Optionee shall execute and deliver to the Company a Stock Purchase
and
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Restriction Agreement in such form or forms as the Board shall approve from time
to time. The Administrator may, from time to time, require such other agreements
in connection with the Option as it, in its sole discretion, deems advisable.
The Option Agreement and the Stock Purchase and Restriction Agreement and any
other agreement required by the Plan or the Option Agreement, as determined by
the Board, may contain such other provisions as the Board in its discretion
deems advisable and that are not inconsistent with the provisions of this Plan,
including, without limitation, restrictions upon or conditions precedent to the
exercise of the Option.
Section 22. TAXES, FEES, EXPENSES AND WITHHOLDING.
(a) The Company shall pay all original issue and transfer taxes (but not
income taxes, if any) with respect to the grant of an Option and/or the issue
and transfer of Shares pursuant to the exercise thereof, and all other fees and
expenses necessarily incurred by the Company in connection therewith, and will,
from time to time, use its best efforts to comply with all laws and regulations
that, in the opinion of counsel for the Company, shall be applicable thereto.
(b) The granting of Options hereunder and the issuance of Shares pursuant to
the exercise thereof is conditioned upon the Company's reservation of the right
to withhold in accordance with any applicable law, from any compensation or
other amounts payable to the Optionee, any taxes required to be withheld under
federal, state or local law as a result of the grant or exercise of such Option
or the sale of the Shares issued upon exercise thereof. To the extent that
compensation or other amounts, if any, payable to the Optionee is insufficient
to pay any taxes required to be so withheld, the Company may, in its sole
discretion, require the Optionee (or such other person entitled herein to
exercise the Option), as a condition to the exercise of an Option, to pay in
cash to the Company an amount sufficient to cover such tax liability or
otherwise to make adequate provision for the Company's satisfaction of its
withholding obligations under federal, state and local law.
Section 23. NOTICES.
Any notice to be given to the Company pursuant to the provisions of this
Plan shall be addressed to the Company in care of its Secretary (or such other
person as the Company may designate from time to time) at its principal
executive office, and any notice to be given to an Optionee shall be delivered
personally or addressed to the Optionee at the address given beneath the
signature of the Optionee on his or her Option Agreement, or at such other
address as such Optionee or his or her permitted transferee (upon the transfer
of the Shares) may hereafter designate in writing to the Company. Any such
notice shall be deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, registered or certified, and deposited, postage
and registry or certification fee prepaid, in a post office or branch post
office regularly maintained by the United States Postal Service. It shall be the
obligation of each Optionee and each permitted transferee holding Shares
purchased upon exercise of an Option to provide the Secretary of the Company, by
letter mailed as provided herein, with written notice of his or her direct
mailing address.
Section 24. NO ENLARGEMENT OF RIGHTS.
This Plan is purely voluntary on the part of the Company, and the
continuance of the Plan shall not be deemed to constitute a contract between the
Company and any Employee or Consultant, or to be consideration for or a
condition of the employment or service of any Employee or Consultant as the case
may be. Nothing contained in this Plan shall be deemed to give any Employee or
Consultant the right to be retained in the employ or service of the Company or
BCI, or to interfere with the right of the Company or BCI to discharge or retire
any Employee or Consultant thereof at any time. No Employee or Consultant shall
have any right to or interest in Options authorized hereunder prior to the grant
thereof to such Employee or Consultant, and upon such grant such Employee or
Consultant shall have only such rights and interests as are expressly provided
herein, subject, however, to all
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<PAGE>
applicable provisions of the Company's Certificate of Incorporation, as the same
may be amended from time to time.
Section 25. INFORMATION TO OPTIONEES.
The Company, upon request, shall provide without charge to each Optionee
copies of such annual and periodic reports as are provided by the Company to its
stockholders generally.
Section 26. AVAILABILITY OF PLAN.
A copy of this Plan shall be delivered to the Secretary of the Company and
shall be shown to any eligible person making reasonable inquiry concerning it.
Section 27. INVALID PROVISIONS.
In the event that any provision of this Plan is found to be invalid or
otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein as invalid or unenforceable, and all such other provisions
shall be given full force and effect to the same extent as though the invalid or
unenforceable provision was not contained herein.
Section 28. APPLICABLE LAW.
This Plan shall be governed by and construed in accordance with the laws of
the State of New Jersey.
Section 29. BOARD ACTION.
Notwithstanding anything to the contrary set forth in this Plan, any and all
actions of the Board or Committee, as the case may be, taken under or in
connection with this Plan and any agreements, instruments, documents,
certificates or other writings entered into, executed, granted, issued and/or
delivered pursuant to the terms hereof, shall be subject to and limited by any
and all votes, consents, approvals, waivers or other actions of all or certain
stockholders of the Company or other persons required pursuant to (a) the
Company's Certificate of Incorporation (as the same may be amended and/or
restated from time to time), (b) the Company's Bylaws (as the same may be
amended and/or restated from time to time), and (c) any other agreement,
instrument, document or writing now or hereafter existing, between or among the
Company and its stockholders or other persons (as the same may be amended from
time to time).
Section 30. MISCELLANEOUS.
This Plan is intended to comply with the conditions and requirements for
employee benefit plans under Rule 16b-3, as promulgated under Section 16 of the
Exchange Act, such that Options granted pursuant to the Plan will be exempted
from the provisions of Section 16(b) thereof. To the extent that any provision
of the Plan would cause a conflict with such requirements, such provision shall
be deemed null and void to the extent permitted by applicable law. This section
shall not be applicable if no class of the Company's equity securities is then
registered pursuant to Section 12 of the Exchange Act.
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<PAGE>
BLUESTONE SOFTWARE, INC.
PROXY PROXY
SPECIAL MEETING OF STOCKHOLDERS--JANUARY 31, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BLUESTONE
SOFTWARE, INC.
The undersigned, having duly received notice of the meeting and the proxy
statement therefor, and revoking all prior proxies, hereby appoint(s)
Paul T. Porrini and S. Craig Huke, and each of them, attorneys or attorney of
the undersigned (with full power of substitution in them and each of them), for
and in the name(s) of the undersigned, to attend the Special Meeting of
Stockholders of Bluestone Software, Inc. to be held at the Radisson
Hotel--Philadelphia Airport, 500 Stevens Drive, Philadelphia, Pennsylvania
19113, at 10:00 A.M. (local time), on Monday, January 31, 2000 and any adjourned
sessions thereof, and to vote and act upon the matters set forth herein in
respect of shares of Common Stock of Bluestone which the undersigned would be
entitled to vote or act upon, with all powers the undersigned would possess, if
personally present. Each of the matters set forth herein is being proposed by
Bluestone.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENT THEREOF.
[X] Please mark your votes as in this example.
- --------------------------------------------------------------------------------
1. Ratification and Approval of the Bluestone Software, Inc. 1996 Incentive
and Non-Qualified Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
(To Be Signed on Reverse Side)
<PAGE>
2. Approval of an amendment to the Bluestone Software, Inc. 1996 Incentive and
Non-Qualified Stock Option Plan increasing the number of shares of Common
Stock reserved for issuance by 3,459,672 from 3,290,328 to 6,750,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY PROPOSAL SPECIFIED
ABOVE, THIS PROXY WILL BE VOTED "FOR" SUCH PROPOSAL.
Attendance of the undersigned at the meeting, or at any adjourned session
thereof, will not be deemed to revoke this proxy unless the undersigned shall
affirmatively indicate at such meeting or session the intention of the
undersigned to vote said share(s) in person. If the undersigned hold(s) any of
the shares of Bluestone in a fiduciary, custodial or joint capacity or
capacities, this proxy is signed by the undersigned in every such capacity, as
well as individually.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
DATE: _____________________________
___________________________________
SIGNATURE
___________________________________
SIGNATURE(if jointly owned)
Note: Please sign name(s) exactly
as appearing hereon. When signing
as attorney, executor,
administrator or other fiduciary,
please give your full title as
such. Joint owners should each sign
personally.
