<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(C) or 240.14a-12
PEGASUS SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[PASTE UP LOGO]
3811 TURTLE CREEK BOULEVARD, SUITE 1100
DALLAS, TEXAS 75219
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 5, 1998
---------------
To the Stockholders of
PEGASUS SYSTEMS, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Pegasus Systems, Inc., a Delaware corporation (the "Company"), will be held in
the Salon Rooms A and B of the Crescent Hotel, Dallas, Texas, on Tuesday, May,
5, 1998, at 10:00 a.m., Dallas, Texas time, for the following purposes:
1. To elect three Class I directors to hold office for a term
of three years or until their respective successors are elected and qualified;
2. To approve an amendment to the Company's Second Amended and
Restated Certificate of Incorporation that decreases the number of authorized
shares of common stock, $.01 par value per share (the "Common Stock"), from 100
million to 50 million;
3. To approve amendments to the 1997 Stock Option Plan that
increase the number of shares of Common Stock reserved for issuance under the
Plan and that provide for grants of options to the Company's non-employee
directors;
4. To approve the adoption of the 1997 Employee Stock Purchase
Plan; and
5. To transact such other business as properly may come before
the meeting or any adjournment thereof.
The close of business on March 25, 1998 has been fixed by the Board of
Directors as the record date for the Annual Meeting. Only stockholders of record
on that date will be entitled to notice of and to vote at the Annual Meeting or
any adjournment thereof, notwithstanding transfer of any stock on the books of
the Company after such record date. The stock transfer books will not be closed.
A Proxy Statement, form of Proxy and copy of the Annual Report on the
Company's operations during the fiscal year ended December 31, 1997 accompany
this notice.
It is important that your shares be represented at the Annual Meeting.
If you do not expect to attend in person, please sign and date the form of Proxy
and return it in the enclosed envelope. The form of Proxy is enclosed in the
mailing envelope in which this Proxy Statement is contained. Stockholders who
attend the Annual Meeting may revoke their proxies and vote in person if they
desire.
By Order of the Board of Directors
Ric L. Floyd,
Secretary
April ____, 1998
<PAGE> 3
[PASTE UP LOGO]
3811 TURTLE CREEK BOULEVARD, SUITE 1100
DALLAS, TEXAS 75219
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 5, 1998
SOLICITATION OF PROXIES
This Proxy Statement is furnished to stockholders of Pegasus Systems,
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors to be voted at the Annual
Meeting of Stockholders of the Company to be held in the Salon Rooms A and B of
the Crescent Hotel, Dallas, Texas, on Tuesday, May, 5, 1998, at 10:00 a.m.,
Dallas, Texas time, or at any adjournment thereof, for the purposes set forth in
the accompanying Notice of Annual Meeting of Stockholders. References herein to
the "Company" include its predecessors and consolidated subsidiaries, unless the
context otherwise requires.
This Proxy Statement and form of Proxy are being mailed to stockholders
on or about April 6, 1998. If the enclosed form of Proxy is executed and
returned, it may nevertheless be revoked by the stockholder at any time by
filing with the Secretary of the Company a written revocation or a duly executed
Proxy bearing a later date. A stockholder who attends the meeting in person may
revoke his or her Proxy at that time and vote in person if so desired. All
proxies duly signed, dated, and returned will be voted as specified therein, but
unless otherwise specified, will be deemed to grant authority to vote:
(1) FOR the election of the three nominees listed under
"Election of Directors" as nominees of the Company for election as
directors;
(2) FOR the amendment to the Company's Second Amended and
Restated Certificate of Incorporation (the "Certificate") that
decreases the number of authorized shares of common stock, $.01 par
value per share (the "Common Stock"), from 100 million to 50 million;
(3) FOR the amendment to the 1997 Stock Option Plan that
increase the number of shares of Common Stock reserved for issuance
under the Plan and that provide for grants of options to the Company's
non-employee directors;
(4) FOR the adoption of the 1997 Employee Stock Purchase Plan;
and
(5) at the discretion of the persons named in the enclosed
form of Proxy, on any other matter that may properly come before the
meeting or any adjournment thereof.
The enclosed Proxy is solicited by and on behalf of the Board of
Directors of the Company. The Company is unaware of any additional matters not
set forth in the Notice of Annual Meeting of Stockholders that will be presented
for consideration at the Annual Meeting. If any other matters are properly
brought before the Annual Meeting and presented for a vote of the stockholders,
the persons named in the Proxy will vote in accordance with their best judgment
upon such matters, unless otherwise restricted by law.
The cost of solicitation of proxies will be borne by the Company. The
Company has engaged American Securities Transfer & Trust, Inc. ("ASTT") to
solicit proxies from beneficial owners of shares standing in the name of brokers
and other nominees. The Company has agreed to pay ASTT an estimated $5,000 for
ASTT's fee and the amount of ASTT's expenses for such service. In addition to
the use of the mails, proxies may also be solicited by personal interview,
facsimile transmission, and telephone by directors, officers, employees, and
agents of the Company. The Company will also supply brokers, nominees or other
custodians with the numbers of Proxy forms, Proxy Statements, and Annual Reports
they may require for forwarding to beneficial owners, and the Company will
reimburse such persons for their expense in so doing.
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<PAGE> 4
OUTSTANDING CAPITAL STOCK AND STOCK OWNERSHIP OF
DIRECTORS, CERTAIN EXECUTIVE OFFICERS
AND PRINCIPAL STOCKHOLDERS
The record date for the determination of the stockholders entitled to
notice of and to vote at the Annual Meeting has been established by the Board of
Directors as the close of business on March 25, 1998. As of the record date, the
Company had issued and outstanding and entitled to vote at the Annual Meeting
______________ shares of Common Stock.
The following table sets forth information as of February 28, 1998,
regarding the beneficial ownership of the Company's Common Stock (i) by each
person or group known by management of the Company to own more than five percent
of the outstanding shares of Common Stock of the Company, (ii) by each of the
Company's executive officers named in the Summary Compensation Table under
"Executive Compensation and Other Matters", (iii) by each of the Company's
directors and nominees, and (iv) by all of its directors and executive officers
as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned(1)
Name Number Percent
- ---- --------- -------
<S> <C> <C>
The TCW Group, Inc.(2).................................................. 1,026,719 9.8%
Entities affiliated with Trident Capital(3)............................. 848,497 8.1
FMR Corp.(4)............................................................ 716,400 6.8
John F. Davis, III(5)................................................... 225,500 2.1
Joseph W. Nicholson(5).................................................. 102,750 1.0
Phillip A. Mytom-Hart................................................... 28,325 *
M. Nicholas Jent(5)..................................................... 22,375 *
Jerome L. Galant(5)..................................................... 21,111 *
William S. Lush......................................................... 14,500 *
Michael R. Donahue...................................................... _ *
John W. Biggs........................................................... -- *
Donald R. Dixon(3)...................................................... -- *
William C. Hammett, Jr.................................................. -- *
I. Malcolm Highet....................................................... -- *
Rockwell A. Schnabel(3)................................................. -- *
Paul J. Travers......................................................... -- *
Mark C. Wells........................................................... -- *
Bruce Wolff............................................................. -- *
Directors and executive officers as a group (15 persons)(2)............. 414,561 3.9
</TABLE>
- ----------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally
includes voting or investment power with respect to securities. Except
as indicated by footnote and subject to community property law where
applicable, the Company believes, based on information furnished by
such persons, that the persons named in the table above have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. Percentage of beneficial ownership
is based on 10,475,531 shares of Common Stock outstanding as of
February 28, 1998. In computing an individual's beneficial ownership,
the number of shares of Common Stock subject to options held by that
individual that are exercisable as of or within 60 days of February 28,
1998, beneficial shares are deemed outstanding. Such shares, however,
are not deemed outstanding for the purpose of computing the beneficial
ownership of any other person.
(2) Information obtained from a filing with the Commission. The address of
The TCW Group, Inc. is 865 South Figueroa Street, Los Angeles,
California 90017.
(3) Of the total shares indicated as beneficially owned by entities
affiliated with Trident Capital, Information Associates, L.P. owns
825,461 shares and Information Associates, C.V. owns 23,036 shares.
Information Associates, C.V. is a Netherlands Antilles limited
partnership and Information Associates, L.P. is a Delaware limited
partnership. The general partner of each of these entities is Trident
Capital Management, L.L.C., a Delaware limited liability company
("Trident Capital"), the members of which include Rockwell
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<PAGE> 5
A. Schnabel, who is a current director of the Company. The address of
Trident Capital is 2480 Sand Hill Road, Suite 100, Menlo Park,
California 94025.
(4) Information obtained from a filing with the Commission. The address of
FMR Corporation is 82 Devonshire Street, Boston, Massachusetts 02109.
(5) Includes exercisable options held by Messrs. Davis, Nicholson, Galant,
Jent, Hart and Lush to purchase 125,000, 62,500, 68,889, 3,375, 4,925
and 14,500 shares of Common Stock, respectively, and options
exercisable within 60 days of February 28, 1998 held by Messrs. Davis,
Nicholson and Galant of 12,500, 6,250 and 2,222 shares of Common Stock,
respectively.
QUORUM AND VOTING
The presence, in person or by Proxy, of the holders of a majority of
the shares of outstanding Common Stock entitled to vote is necessary to
constitute a quorum at the Annual Meeting. The affirmative vote of a plurality
of the shares of outstanding Common Stock represented at the meeting and
entitled to vote is required for the election of directors. The affirmative vote
of a majority of the issued and outstanding shares of the Company's Common Stock
is required for the Amendment of the Company's Certificate of Incorporation to
decrease the number of authorized shares of Common Stock. Approval of the
amendments to the 1997 Stock Option Plan and approval of the 1997 Employee Stock
Purchase Plan will be decided by a majority of the shares of outstanding Common
Stock represented at the meeting and entitled to vote. A holder of shares of
Common Stock will be entitled to one vote per share of Common Stock as to each
matter properly brought before the meeting. Cumulative voting is not permitted
in the election of directors. Abstentions, votes "withheld" and broker non-votes
are each included in the determination of the number of shares present at the
meeting for purposes of determining a quorum. Abstentions and broker non-votes
have no effect on determinations of plurality, except to the extent that they
affect the total votes received by any particular candidate, and have the effect
of negative votes on matters requiring approval of a specified percentage of the
outstanding shares. For any other matters requiring approval of a specified
percentage of the outstanding shares represented at the Annual Meeting,
abstentions will have the effect of negative votes but broker non-votes will
have no effect since they are not treated as shares entitled to vote on such
matter.
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<PAGE> 6
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company's Certificate provides for classified directors with
staggered terms. The Company currently has authorized nine directors. The terms
of office of the Board of Directors are divided into three classes: Class I,
which currently consists of Messrs. John W. Biggs, Donald R. Dixon and William
C. Hammett, Jr. will expire at the Annual Meeting of Stockholders to be held on
May 5, 1998; Class II, which consists of Messrs. I. Malcolm Highet, Mark C.
Wells and Bruce Wolff, will expire at the Annual Meeting of Stockholders to be
held in 1999; and Class III, which consists of Messrs. John F. Davis, III,
Rockwell A. Schnabel and Paul J. Travers, will expire at the Annual Meeting of
Stockholders to be held in 2000. At each annual meeting of stockholders
beginning with the 1998 Annual Meeting, the successors to directors whose terms
will then expire will be elected to serve from the time of election and
qualification until the third annual meeting following election and until their
successors have been duly elected and qualified, or until their earlier
resignation or removal.
At the Annual Meeting of Stockholders to be held on May 5, 1998, three
directors will be elected for terms expiring at the Annual Meeting of
Stockholders to be held in 2001 and until their respective successors are duly
elected and qualified.
Shares represented by Proxies returned duly executed will be voted,
unless otherwise specified, in favor of the three nominees for the Board of
Directors named below. The Proxies cannot be voted for more than three nominees.
The nominees have indicated that they are able and willing to serve as
directors. If any (or all) such persons should be unable to serve, the persons
named in the enclosed Proxy will vote the shares covered thereby for such
substitute nominee (or nominees) as the Board of Directors may select.
Stockholders may withhold authority to vote for any nominee by marking the Proxy
as indicated for such purpose on the form of Proxy.
NOMINEES FOR DIRECTORS
ROBERT E. DIRKS, age 51, has served as Senior Vice President, Marketing
for Hilton Hotels Corporation since September 1994. From 1992 until assuming his
current position, Mr. Dirks served as vice president of marketing for Hilton
Hotels Corporation.
WILLIAM C. HAMMETT, JR., age 51, has served as a Class I director and
Vice Chairman of the Board of the Company since October 1995. Since September
1997, Mr. Hammett has served as President of DB&K Enterprises, Inc., a private
investment company. From August 1996 through September 1997, Mr. Hammett served
as Senior Vice President and Chief Financial Officer of La Quinta Inns, Inc.
From June 1992 to August 1996, Mr. Hammett served as Senior Vice President,
Accounting and Administration of La Quinta Inns, Inc.
THOMAS O'TOOLE, age 40, has served as Vice President, Marketing for
Hyatt Hotels Corporation since July 1995. From March 1993 through June 1995, Mr.
O'Toole served as Vice President, Marketing for Renaissance Hotels International
(Americas).
DIRECTORS CONTINUING IN OFFICE
JOHN F. DAVIS, III, age 45, has served as the President and Chief
Executive Officer of the Company since February 1989 and as a director of the
Company since July 1995. Before joining the Company, Mr. Davis was the founder,
President and director of Advanced Telemarketing Company, a provider of inbound
and outbound telemarketing services. He was also one of the founders of
1-800-Flowers, Limited, a company offering quality floral arrangements by
telephone.
I. MALCOLM HIGHET, age 46, has served as a director of the Company
since October 1995. Mr. Highet has served as Executive Vice President, Corporate
Development for Reed Elsevier Inc. since October 1996. From 1989 through October
1996, Mr. Highet served as Chief Financial Officer and later as Chief Operations
Officer for a major division of Reed Elsevier Inc. Mr. Highet serves on the
Board of Directors for Reed Elsevier Inc. and REZsolutions, Inc.
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<PAGE> 7
ROCKWELL A. SCHNABEL, age 61, has served as a director of the Company
since June 1996. Since 1993, Mr. Schnabel has been associated with Trident
Capital, which he helped found. From 1989 to 1992, Mr. Schnabel served as acting
Secretary of Commerce and the Deputy Secretary of Commerce during the Bush
Administration. Mr. Schnabel serves on the Board of Directors of Cyprus Amax
Minerals Company, International Game Technology, Inc., CSG Systems, Inc. and
REZsolutions, Inc.
PAUL J. TRAVERS, age 44, has served as a director and Chairman of the
Board of the Company since October 1995. Since January 1998, Mr. Travers has
served as the Chief Financial Officer of REZsolutions, Inc. From 1994 through
December 1997, Mr. Travers served as the Senior Vice President, Property
Management for Inter-Continental Hotels Corporation ("Inter-Continental"). From
1990 to 1994, Mr. Travers served as Vice President, Finance and Group Controller
of Inter-Continental. Mr. Travers serves on the Board of Directors for
REZsolutions, Inc.
MARK C. WELLS, age 48, has served as a director of the Company since
September 1996. Mr. Wells has served as Senior Vice President, Franchise
Services for Promus Hotel Corporation ("Promus") since February 1996. From April
1995 to February 1996, Mr. Wells served as Senior Vice President, Marketing for
Promus.
BRUCE WOLFF, age 54, has served as a director of the Company since
October 1995. Mr. Wolff has served as Vice President, Distribution Sales and
Marketing for the lodging division of Marriott International, Inc. since 1986.
MEETINGS AND COMMITTEES OF BOARD OF DIRECTORS
The Board of Directors held a total of six meetings in 1997. During
1997, each director attended at least seventy-five percent (75%) of all of the
meetings held by the Board of Directors and each director attended all of the
meetings held by committees of the Board on which he served. The Board of
Directors has an Audit Committee, consisting of Messrs, Hammett, Highet and
Travers and a Compensation Committee, consisting of Messrs. Biggs, Schnabel and
Travers. The Board of Directors does not have a nominating committee.
Audit Committee. The Audit Committee makes recommendations to the Board
of Directors regarding the selection of independent auditors, reviews the
results and scope of the audit and other accounting related services and reviews
and evaluates the Company's internal control functions. The Audit Committee met
three times during fiscal 1997.
Compensation Committee. The Compensation Committee makes
recommendations to the Board of Directors concerning salaries and incentive
compensation for the Company's officers and employees and administers the
Company's 1996 Stock Option Plan, 1997 Stock Option Plan and 1997 Employee Stock
Purchase Plan. The Compensation Committee met three times during fiscal 1997.
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<PAGE> 8
PROPOSAL TWO
PROPOSAL TO DECREASE AUTHORIZED COMMON STOCK
The Certificate presently authorizes the issuance of a total of
100,000,000 shares of Common Stock, and 2,000,000 shares of Preferred Stock,
$.01 par value per share (the "Preferred Stock"). On March 25, 1998, the record
date of the Annual Meeting, shares of Common Stock were issued and outstanding
and no shares of Preferred Stock were issued and outstanding.
On February 16, 1998, the Board of Directors adopted a resolution
proposing and declaring the advisability of an amendment to the Certificate
decreasing the number of authorized shares of Common Stock from 100,000,000 to
50,000,000. The Board of Directors directed that this proposed amendment to be
considered at the 1998 Annual Meeting. The first paragraph of Article IV of the
Certificate, as proposed to be amended, is set forth as follows:
This Corporation is authorized to issue two classes of stock,
designated "Common Stock" and "Preferred Stock". The total number
of shares which this Corporation is authorized to issue is
52,000,000 shares. The number of shares of Common Stock which
this Corporation is authorized to issue is 50,000,000 shares, par
value $0.01 per share. The number of shares of Preferred Stock
which this Corporation is authorized to issue is 2,000,000 shares,
par value $0.01 per share, which shall initially be undesignated
as to series. Approval of this amendment requires the favorable
vote of the holders of a majority of all outstanding shares of the
Company's Common Stock.
The reduction in authorized shares of Common Stock will allow the
Company to reduce certain franchise tax expenses. The Company is a Delaware
corporation and is subject to an annual franchise tax payment under Delaware
law. Delaware's annual franchise tax payment is calculated by one of two
methods, the authorized number of shares method or the assumed capital (par and
no-par) method. Between the two methods, the lesser tax is payable. Because of
the size of the Company's total assets, the authorized shares will, ipso facto,
reduce the amount of tax due as calculated by the authorized shares method.
While the Company cannot predict the precise savings it will achieve
each year, the franchise tax payable by the Company in 1998 provides an example
of the available savings. Based on 102,000,000 authorized shares (the aggregate
of authorized Common Stock and authorized Preferred Stock) the Company estimates
its Delaware franchise tax liability to be approximately $109,000. Had the
Company's proposed decrease in authorized shares been in effect, the Company's
Delaware franchise tax liability would have been approximately $55,000, a
savings of approximately $54,000. Although the Company cannot predict with
absolute accuracy the savings it will realize in future years by decreasing the
authorized Common Stock, it believes that the savings would be comparable to the
above-mentioned savings.
The Company's Board of Directors believes that, following approval of
the reduction in the authorized shares of Common Stock, there will be sufficient
authorized but unissued shares of Common Stock and Preferred Stock to provide
the Company with the number of outstanding shares it will need in the future.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the issued and outstanding shares
of the Company's Common Stock is required for approval of this Proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE
COMPANY'S CERTIFICATE DECREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK.
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<PAGE> 9
PROPOSAL THREE
AMENDMENT OF THE PEGASUS SYSTEMS, INC. 1997
STOCK OPTION PLAN
The Company's 1997 Stock Option Plan (the "1997 Plan") was adopted by
the Board of Directors and stockholders on March 25, 1997. On September 23, 1997
and on February 16, 1997, the Board of Directors adopted the proposed amendments
to the 1997 Plan, subject to stockholder approval, and directed that the
proposed amendments be considered at the 1998 Annual Meeting. Under one of the
amendments, the number of shares of Common Stock reserved for issuance under the
1997 Plan will be increased from 333,333 to 600,000. At February 28, 1998,
224,333 shares of Common Stock had been allocated for options previously issued
under the 1997 Plan, leaving 109,000 shares of Common Stock available for future
grant. The Board of Directors believes that the use of long term incentives
based on the value of the Common Stock is helpful in attracting and retaining
qualified key executives and other key employees and motivating such personnel
to achieve long-range goals through providing compensation opportunities that
are competitive with those offered by other corporations similar to the Company.
The amendment to increase the number of shares reserved for issuance under the
1997 Plan has been proposed in order to enable the Company to continue to
provide stock-based incentives for the foreseeable future.
Under the other proposed amendment to the 1997 Plan, upon election to
the Board of Directors, non-employee directors will be granted Nonstatutory
options for 2,000 shares of Common Stock with an exercise price of eighty-five
percent (85%) of the trading price at the end of business on the date
immediately preceding the date of such grant. Also, each non-employee director
serving for more than a one year term will be granted on the date of each annual
meeting of the Company's stockholders preceding each additional year of such
term Nonstatutory options for 2,000 shares of Common Stock at an exercise price
of eighty-five percent (85%) of the trading price for the Common Stock on the
date immediately preceding the date of such grant. The options to be granted to
non-employee directors under this proposed amendment will vest 12 months
following the date of grant. Options granted to non-employee directors have a
term of three years. In addition, under this proposed amendment all currently
serving non-employee directors of the Company were granted options for 2,000
shares of the Company's Common Stock at an exercise price of eighty-five percent
(85%) of the market price of the Common Stock as of September 22, 1997, the date
immediately preceding the date of grant. If the proposed amendment is approved,
these options will vest on the date of the 1998 Annual Meeting and will have a
term of three years. As of March 19, 1998 the last reported per share sales
price of the Common Stock was $23.38. The proposed amendment to the 1997 Plan is
intended to provide a means of compensating non-employee directors who currently
are not otherwise compensated. This proposed amendment also is intended to
provide a method by which the Company's non-employee directors may acquire a
proprietary interest in the Company through ownership of Common Stock or options
to purchase Common Stock. If the stockholders do not approve the proposed
amendment any options previously granted to non-employee directors of the
Company under the proposed amendment will terminate.
The following description of the 1997 Plan is qualified in its entirety
by reference to the full text of the 1997 Plan, a copy of which is attached as
Appendix "A" to this Proxy Statement in the form as amended pursuant to this
Proposal.
Scope. The 1997 Plan is designed to attract and retain qualified and
competent personnel for positions of substantial responsibility and to provide
additional incentive to employees, non-employee directors and consultants of the
Company. Options granted under the 1997 Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator (as hereinafter
defined) at the time of grant and subject to the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). If an option granted
under the 1997 Plan expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an option exchange program, the
unpurchased shares may be available for future grants or sale under the Plan.
The 1997 Plan will terminate on March 25, 2007.
Eligibility. Persons eligible to participate in the 1997 Plan include
all employees and all consultants of the Company. For purposes of describing the
1997 Plan, the term employee means any person employed by the Company or any
parent or subsidiary of the Company. At January 26, 1998, the Company had 105
employees. For purposes of describing the 1997 Plan, the term consultant means
any person who is engaged by the Company or any parent or subsidiary of the
Company to render consulting or advisory services and is compensated for such
services. Subject to approval of this Proposal by the Company's stockholders,
non-employee directors will be eligible to participate in the 1997 Plan, and the
term "non-
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<PAGE> 10
employee director" means any director of the Company who is not an employee of
the Company. Currently, the Company has eight non-employee directors.
Nonstatutory Stock Options may be granted to employees and consultants.
Incentive Stock Options may be granted only to employees.
Administration. The 1997 Plan is administered by the Board of Directors
or the Committee appointed by the Board (the "Administrator"). Currently, the
Compensation Committee is the Administrator. The Administrator has the authority
to grant options under the 1997 Plan and to determine the vesting schedule and
the exercise price of the options. The Administrator also has full power and
authority to construe, interpret and administer the 1997 Plan.
Option Exercise Price. The exercise price per share for the shares to
be issued pursuant to exercise of an option under the 1997 Plan shall be such
price as is determined by the Administrator. In the case of an Incentive Stock
Option granted to an employee, who at the time of the grant owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any parent or subsidiary, the exercise price per share
shall be no less than one hundred ten percent (110%) of the fair market value
per share on the date of grant. In the case of an Incentive Stock Option granted
to any employee other than an employee described in the foregoing sentence, the
per share exercise price shall be no less than one hundred percent (100%) of the
fair market value per share on the date of grant. In the case of a Nonstatutory
Stock Option, the per-share exercise price shall be determined by the
Administrator and shall be no less than fifty percent (50%) of the fair market
value.
Adjustments, Terminations and Amendment. In the event of any change in
the Company's capitalization, including any stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company, appropriate
adjustments will be made to the number of shares available under the 1997 Plan
as well as the price per share of Common Stock covered by each outstanding
option. Upon the occurrence of an acquisition event ("Acquisition Event") which
means (i) certain mergers or consolidations of the Company with or into another
corporation; (ii) the sale of substantially all of the assets of the Company;
(iii) the complete liquidation of the Company; or (iv) the acquisition by
another entity of beneficial ownership of the Company's securities representing
fifty percent (50%) or more of the combined voting power of the Company's then
outstanding securities, the Board of Directors of the Company may (i) provide
that each outstanding option shall be assumed and/or an equivalent option be
substituted by the successor corporation or an affiliate thereof; (ii) upon
written notice to the optionees, provide that all options then unexercised will
become exercisable in full as of a specified date prior to the Acquisition Event
and will terminate immediately prior to the consummation of such Acquisition
Event; or (iii) in the event of an Acquisition Event under the terms of which
holders of Common Stock will receive a cash payment for each share of Common
Stock surrendered, provide that all outstanding options shall terminate upon
consummation of such Acquisition Event, and each optionee shall receive, in
exchange therefor, a cash payment equal to the amount (if any) by which the
acquisition price multiplied by the number of shares of Common Stock subject to
such outstanding Options (whether or not then exercisable), exceeds the
aggregate exercise price of such options. The 1997 Plan may be suspended,
terminated, altered or amended in any way by the Board of Directors, provided
that, stockholder approval of any plan amendment will be required to the extent
necessary and desirable to comply with applicable provisions of the Securities
Exchange Act of 1934, as amended, the Code or other legal requirements. No
suspension, termination, alteration or amendment of the Plan may alter or impair
the rights of any optionee under options previously granted.
The following table summarizes the stock options that have been granted
under the amendment to the 1997 Plan that is a subject of this Proposal:
<TABLE>
<CAPTION>
Name and Position Underlying Options
<S> <C>
John F. Davis, III................................ --
Joseph W. Nicholson .............................. --
Jerome L. Galant ................................. --
M. Nicholas Jent ................................. --
Michael R. Donahue ............................... --
Executive Group ..................................
Non-Executive Director Group ..................... 16,000
Non-Executive Officer Employee Group.............. --
</TABLE>
-8-
<PAGE> 11
Federal Income Tax Consequences. The following summary of the federal
income tax consequences of the 1997 Plan is not comprehensive and is based on
current income tax laws, regulations and rulings.
Incentive Stock Options. An optionee does not recognize income on the
grant of an ISO. Subject to the effect of the alternative minimum tax, discussed
below, if an optionee exercises an ISO in accordance with the terms of the
option and does not dispose of the shares acquired within two years from the
date of the grant of the option or within one year from the date of exercise,
the optionee will not realize any income by reason of the exercise and the
Company will be allowed no deduction by reason of the grant or exercise. The
optionee's basis in the shares acquired upon exercise will be the amount paid
upon exercise. Provided the optionee holds the shares as a capital asset at the
time of sale or other disposition of the shares, his gain or loss, if any,
recognized on the sale or other disposition will be capital gain or loss. The
amount of his gain or loss will be the difference between the amount realized on
the disposition of the shares and his basis in the shares.
If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise (an "Early
Disposition"), the optionee will realize ordinary income at the time of such
Early Disposition which will equal the excess, if any, of the lesser of (i) the
amount realized on the Early Disposition, or (ii) the fair market value of the
shares on the date of exercise, over the optionee's basis in the shares. The
Company will be entitled to a deduction in an amount equal to such income. The
excess, if any, of the amount realized on the Early Disposition of such shares
over the fair market value of the shares on the date of exercise will be
long-term, mid-term or short-term capital gain, depending upon the holding
period of the shares, provided the optionee holds the shares as a capital asset
at the time of Early Disposition. If an optionee disposes of such shares for
less than his basis in the shares, the difference between the amount realized
and his basis will be a long-term or short-term capital loss, depending upon the
holding period of the shares, provided the optionee holds the shares as a
capital asset at the time of disposition.
The excess of the fair market value of the shares at the time the ISO
is exercised over the exercise price for the shares is an amount included in an
optionee's alternative minimum taxable income (the "Stock Option Preference").
Nonstatutory Stock Options. Nonstatutory stock options do not qualify
for the special tax treatment accorded to ISOs under the Code. Although an
optionee does not recognize income at the time of the grant of the option, he
recognizes ordinary income upon the exercise of a nonstatutory option in an
amount equal to the difference between the fair market value of the stock on the
date of exercise of the option and the amount of the exercise price.
As a result of the optionee's exercise of a nonstatutory stock option,
the Company will be entitled to deduct as compensation an amount equal to the
amount included in the optionee's gross income. The Company's deduction will be
taken in the Company's taxable year in which the option is exercised.
The excess of the fair market value of the stock on the date of
exercise of a nonstatutory stock option over the exercise price is not an item
of tax preference.
Taxation of Preference Items. Section 55 of the Code imposes an
alternative minimum tax equal to the excess, if any, of (i) 26% of the
optionee's "alternative minimum taxable income" that does not exceed $175,000,
plus 28% of his "alternative minimum taxable income" in excess of $175,000, over
(ii) his "regular" federal income tax. Alternative minimum taxable income is
determined by adding the optionee's Stock Option Preference and any items of tax
preference to the optionee's adjusted gross income and then subtracting certain
allowable deductions and an exemption amount. The exemption amount is $33,750
for single taxpayers, $45,000 for married taxpayers
-9-
<PAGE> 12
filing jointly, and $22,500 for married taxpayers filing separately. However,
these exemption amounts are phased out beginning at certain levels of
alternative minimum taxable income.
Change of Control. If there is an acceleration of the vesting of
benefits and/or an acceleration of the exercisability of stock options upon a
Change of Control (as defined in the 1997 Plan), all or a portion of the
accelerated benefits may constitute "excess parachute payments" under Section
280G of the Internal Revenue Code. The employee receiving an excess parachute
payment incurs an excise tax of twenty percent (20%) of the amount of the
payment in excess of the employee's average annual compensation over the five
calendar years preceding the year of the Change of Control, and the Company is
not entitled to a deduction for such payment.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the shares of Common Stock
entitled to vote on this Proposal and represented in person or by Proxy is
required for approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE 1997 PLAN.
-10-
<PAGE> 13
PROPOSAL FOUR
PROPOSAL TO APPROVE
THE 1997 EMPLOYEE STOCK PURCHASE PLAN
On September 23, 1997, the Board of Directors of the Company adopted
the 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan"), subject to
approval by the Company's stockholders. The 1997 Purchase Plan is intended to
provide a method whereby all eligible employees of the Company may acquire a
proprietary interest in the Company through the purchase of shares of Common
Stock. The complete text of the 1997 Purchase Plan is attached hereto as
Appendix "B." In the event that stockholder approval is not received, the 1997
Purchase Plan will be terminated.
Scope. The purpose of the 1997 Purchase Plan is to encourage and
facilitate the purchase of the Company's Common Stock by eligible employees as
an incentive for employees so that they may share in the growth of the Company.
The right of a participating employee to purchase shares of Common Stock under
the 1997 Purchase Plan is referred to as an "option." The 1997 Purchase Plan
authorizes up to 500,000 shares of Common Stock to be granted as options to
eligible employees. The 1997 Purchase Plan does not have a stated term.
Offerings Under the 1997 Purchase Plan. Each year, the Company will
offer eligible employees the option to purchase Common Stock through voluntary
payroll deductions of up to ten percent (10%) of their compensation. The
purchase price for a share of Common Stock under the 1997 Purchase Plan will be
eighty-five percent (85%) of the closing price of the Common Stock on Nasdaq or
any other national securities exchange at the beginning of each year of the 1997
Purchase Plan (the "Offering Commencement Date") or at the end of that year (the
"Offering Termination Date"), whichever is lower. The Offering Commencement Date
is November 15 of each year of the 1997 Purchase Plan, and the Offering
Termination Date is November 14 of the year following the Offering Commencement
Date. Eligible employees may purchase up to that number of full shares that can
be purchased at the option price with an amount not to exceed ten percent (10%)
of their compensation. The maximum annual deduction allowed per employee is
$25,000.
Unless the participant provides prior notice otherwise and subject to
the limits on the number of shares available under the 1997 Purchase Plan and
amounts that can be contributed by a participant under the 1997 Purchase Plan,
all funds contributed by a participant as of the Offering Termination Date will
be applied to purchase whole shares of Common Stock at a price equal to the
lower of (i) eighty-five percent (85%) of the closing price of the Common Stock
on the Offering Commencement Date or (ii) eighty-five percent (85%) of the
closing price of the Company's Common Stock on the Offering Termination Date.
Eligibility. The employees eligible to participate in the 1997 Purchase
Plan include all employees of the Company and its subsidiaries who have
completed 90 days of employment. Notwithstanding the foregoing, no employee may
participate in the 1997 Purchase Plan to the extent that such employee will,
immediately after the grant, own (within the meaning of Section 424(d) of the
Code) stock and/or hold outstanding options to purchase stock, possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company, or to the extent such employee's rights to purchase
stock under employee stock purchase plans of the Company will accrue at a rate
that exceeds $25,000 in fair market value (determined at the time such option is
granted) for each calendar year in which such option is outstanding.
Administration. The 1997 Purchase Plan is administered by the
Compensation Committee, which has full power and authority to interpret and
construe any and all provisions of the 1997 Purchase Plan, to adopt rules and
regulations for administering the 1997 Purchase Plan, and to make all other
determinations deemed necessary or advisable for administering the 1997 Purchase
Plan. The expenses of the administration of the 1997 Purchase Plan, including
interest paid on payroll deduction accounts that are refunded to participants,
are borne by the Company.
Adjustments; Termination and Amendment. In the event of any change in
the Company's capitalization, including any merger, consolidation, acquisition
or stock split, appropriate adjustments will be made to the number and class of
shares available under the 1997 Purchase Plan, the price per share and the
associated share purchase rights. The Board of Directors may terminate or amend
the 1997 Purchase Plan; provided, however, that, in the absence of stockholder
approval, the Board may not: (i) increase the maximum number of shares which may
be issued during an Employee Plan year, subject to certain exceptions or (ii)
amend the requirements as to the class of employees eligible to purchase stock
under the 1997 Purchase Plan or permit the members of the Committee to
-11-
<PAGE> 14
purchase stock under the 1997 Purchase Plan. No termination, modification, or
amendment of the 1997 Purchase Plan may, without the consent of an employee then
having an option under the 1997 Purchase Plan to purchase stock, adversely
affect the rights of such employee under such option.
Tax Treatment of the Participating Employees. Participating employees
will not recognize income for federal income tax purposes either upon enrollment
in the 1997 Purchase Plan or upon the purchase of shares. All tax consequences
are deferred until a participating employee sells the shares, disposes of the
shares by gift or dies.
If shares are held for more than one year after the date of purchase
and more than two years from the applicable offering Commencement Date, or if
the participating employee dies while owning the shares, the participating
employee realizes ordinary income on a sale (or a disposition by way of gift or
upon death) to the extent of the lessor of (1) 15% of the fair market value of
the shares or (2) the actual gain (the amount by which the market value of the
shares on the date of sale, gift or death exceeds the purchase price). All
additional gain upon the sale of shares is treated as long-term capital gain. If
the shares are sold and the sale price is less than the purchase price, there is
no ordinary income and the participating employee has a long-term capital loss
for the difference between the sale price and the purchase price.
If the shares are sole or are otherwise disposed of including by way of
gift (but not death, bequest or inheritance) (in any case a "disqualifying
disposition") within either the one-year or the two-year holding periods
described above, the participating employee realizes ordinary income at the time
of sale or other disposition, taxable to the extent that the fair market value
of the shares at the date of purchase is greater than the purchase price. This
excess will constitute ordinary income (currently subject to withholding) in the
year of the sale or other disposition even if no gain is realized on the sale or
if a gratuitous transfer is made. The difference, if any, between the proceeds
of sale and the fair market value of the shares at the date of purchase is a
capital gain or loss. Capital gains may be offset by capital losses, and up to
$3,000 of capital losses may be used annually against ordinary income.
Tax Treatment of the Company. The Company will be entitled to a
deduction in connection with the disposition of shares acquired under the 1997
Purchase Plan only to the extent that the participating employee recognizes
ordinary income on a disqualifying disposition of the shares. The Company will
treat any transfer of record ownership of shares as a disposition, unless it is
notified to the contrary. In order to enable the Company to learn of
disqualifying dispositions and ascertain the amount of the deductions to which
it is entitled, participating employees will be required to notify the Company
in writing of the date and terms of any disposition of shares purchased under
the 1997 Purchase Plan.
The above discussion is intended to summarize the applicable provisions
of the Internal Code that are in effect as of the date hereof. The tax
consequences of participating in the 1997 Purchase Plan may vary with respect to
individual situations. Accordingly, employees should consult with their tax
advisors in regard to the tax consequences of participating in the 1997 Purchase
Plan as to both federal and state income tax considerations.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the shares of Common Stock
entitled to vote on this Proposal and represented in person or by Proxy is
required for approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 1997
PURCHASE PLAN.
-12-
<PAGE> 15
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Position
- ---- --------
<S> <C>
John F. Davis, III.................. President, Chief Executive Officer, and
Director
Joseph W. Nicholson................. Chief Information Officer
Jerome L. Galant.................... Chief Financial Officer
Michael R. Donahue.................. Chief Marketing Officer
Phillip A. Mytom-Hart............... Vice President, International Sales and
Marketing
M. Nicholas Jent.................... Vice President, Sales and Marketing
William S. Lush..................... Vice President, Business Development
</TABLE>
Information concerning the business experience of members of the
Company's Board of Directors is provided under the caption "Election of
Directors" above. Set forth below is information concerning the business
experience of the other executive officers of the Company.
JOSEPH W. NICHOLSON, age 37, has served as the Chief Information
Officer of the Company since 1989. Prior to joining Pegasus, he spent ten years
at Texas Instruments in various positions, including Systems Analyst and Systems
Manager.
JEROME L. GALANT, age 48, has served as the Chief Financial Officer of
the Company since September 1996. From April 1996 to September 1996, Mr. Galant
served as the Chief Financial Officer of Personnel Security & Safety Systems,
Inc., a technology development company. From 1990 to February 1996, Mr. Galant
served in a variety of positions for The SABRE Group, including Managing
Director, Finance.
MICHAEL R. DONAHUE, age 44, has served as Chief Marketing Officer of
the Company since May 1997. From 1988 to May 1997, Mr. Donahue served as Vice
President of Marketing and Development for Lane Hospitality, a hotel management
firm.
PHILLIP A. MYTOM-HART, age 44, has served as the Vice President,
International Sales and Marketing of the Company since September 1993. From 1991
to September 1993, Mr. Hart served as Vice President, Sales and Marketing for
Hilton International.
M. NICHOLAS JENT, age 56, has served as the Vice President, Sales and
Marketing of the Company since August 1992. From 1988 to March 1991, Mr. Jent
served as Senior Vice President, Sales and Marketing for Telesphere
Communications, Inc., a long distance communications company.
WILLIAM S. LUSH, age 56, has served as Vice President, Business
Development of the Company since May 1995. From 1990 to May 1995, Mr. Lush
served as Vice President, Service Development in the travel management services
group of American Express Travel Related Services.
-13-
<PAGE> 16
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth for the periods indicated the
compensation earned by the Company's Chief Executive Officer and the four other
most highly compensated executive officers (collectively, the "Named Executive
Officers") whose salary and bonus for the fiscal year ended December 31, 1997
were in excess of $100,000 for services rendered in all capacities to the
Company for that year:
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Awards
------------------------------------------------ ----------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($)(2) Options(#) Compensation($)(3)
- --------------------------- ---- --------- -------- ------------------ ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
John F. Davis, III(4) 1997 $ 275,385 $175,000 $ 7,917 -- $ 9,397
President and Chief Executive 1996 261,708 302,208 7,500 300,000 10,511
Officer
Joseph W. Nicholson(4) 1997 175,159 74,750 7,596 -- 2,847
Chief Information Officer 1996 164,000 56,292 7,500 150,000 3,335
Jerome L. Galant(5) 1997 147,944 69,167 7,523 15,000 --
Chief Financial Officer 1996 45,313 14,014 1,889 53,333 --
M. Nicholas Jent 1997 151,722 53,288 7,576 10,000 --
Vice President, Sales and 1996 145,000 38,667 7,500 9,333 --
Marketing
Michael R Donahue(6) 1997 116,135 43,657 4,305 53,333 --
Chief Marketing Officer
</TABLE>
- ----------
(1) In accordance with the rules of the Securities and Exchange Commission
(the "Commission") the compensation described in this table does not
include medical, group life insurance or other benefits received by the
Named Executive Officers that are available generally to all salaried
employees of the Company, and certain perquisites and other personal
benefits received by the Named Executive Officers that do not exceed
the lesser of $50,000 or ten percent (10%) of any such officer's salary
and bonus disclosed in the table.
(2) Reflects matching contributions made by the Company pursuant to its
401(k) Savings Plan.
(3) Includes premiums paid for life insurance policies for the benefit of
the Named Executive Officers.
(4) The salaries of Messrs. Davis and Nicholson were paid in accordance
with the terms of their respective employment agreements. The bonus of
Mr. Davis includes a one time $200,000 employment agreement signing
bonus paid in 1996. See "-- Employment Agreements."
(5) The 1996 salary of Mr. Galant represents remuneration paid to him from
September 1996 to December 1996. Mr. Galant commenced employment with
the Company in September 1996.
(6) The 1997 salary of Mr. Donahue represents remuneration paid to him from
May 1997 to December 1997. Mr. Donahue commenced employment with the
Company in May 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during
the fiscal year ended December 31, 1997 to the Named Executive Officers:
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------
Number of Securities % of total Exercise Market Price Grant Date
Underlying Options Options granted Price per on Date of Expiration present Value
Name Granted(1) in 1997(2) Share(3) Grant(3) Date(4) ($)(5)
---- -------------------- --------------- --------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jerome L. Galant 15,000 4.5% $ 15.30 $ 16.00 12/31/06 $ 86,655
M. Nicholas Jent 10,000 3.0 11.05 13.00 12/31/06 53,500
Michael R. Donahue 53,333 16.0 5.25 8.00 12/31/06 210,665
</TABLE>
- ------------------
footnotes on following page
-14-
<PAGE> 17
(1) The options held by Messrs. Galant, Jent and Donahue vest over a
four-year period with twenty-five percent (25%) of the shares vesting
after one year and 1/16th of the shares vesting each quarter for the
next 12 quarters. Such options are subject to acceleration upon an
Acquisition Event as described under "Amendment of the Pegasus
Systems, Inc. 1997 Stock Option Plan."
(2) Based on an aggregate of 331,666 shares subject to options granted in
1997.
(3) The exercise price of the options held by Messrs. Galant and Donahue
are established by each of their employment agreements with the
Company. The market price for the Common Stock set forth in the table
for Messrs. Galant and Jent is based on the closing price of the Common
Stock as quoted on the Nasdaq National Market on the date of
determination by Compensation Committee. The market price for the
Common Stock set forth in the table for Mr. Donahue is based upon an
appraisal performed by an independent consulting firm engaged by the
Company.
(4) Options may terminate before their expiration date upon the death,
disability or termination of employment of the optionee.
(5) These values are determined using the Black-Scholes Option Pricing
Model. The Black-Scholes Option Pricing Model is one of the methods
permitted by the Commission for estimating the present value of
options. The Black-Scholes Option Pricing Model is based on assumptions
as to certain variables as described below and it is not intended to
estimate, and has no direct correlation to, the value of stock options
that an individual will actually realize. The actual value of the stock
options that a Named Executive Officer may realize, if any, will depend
on the excess of the market price on the date of exercise over the
exercise price. The values listed above for Mr. Donahue were based on
the following assumptions: volatility -- 0.0%; risk free rate of return
-- 6.5%; dividend yield -- 0.0%; and expected life -- 4 years. The
values listed above for Messrs Galant and Jent were based on the
following assumptions: volatility -- 30%; risk free rate of return --
6.5%; dividend yield -- 0.0%; and expected life -- 4 years.
AGGREGATE FISCAL YEAR-END OPTION VALUES
The following table sets forth, for each of the Named Executive
Officers, information concerning the number and value of securities underlying
unexercised options held on December 31, 1997. No options were exercised by such
persons during 1997.
<TABLE>
<CAPTION>
Number of Securities
Underlying Options at Year Value of In-The-Money
End Options at Year-End (1)
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John F. Davis, III.... 112,500 187,500 $ 1,447,313 $ 2,412,188
Joseph W. Nicholson... 56,250 93,750 723,656 1,206,094
Jerome L. Galant...... 16,667 51,666 214,421 471,708
M. Nicholas Jent...... 2,917 16,416 34,333 113,766
Michael R. Donahue.... -- 53,333 -- 513,330
</TABLE>
- ----------
(1) Based on the difference between the option exercise price and the closing
sale price of $14.88 of the Company's Common Stock as reported on the Nasdaq
National Market on December 31, 1997, the last trading day prior to the closing
of the Company's 1997 fiscal year multiplied by the number of shares underlying
the options.
-15-
<PAGE> 18
EMPLOYMENT AGREEMENTS
The Company is a party to employment agreements with each of Messrs.
Davis and Nicholson. Each agreement has a term extending through June 25, 2000,
and automatically renews for additional one year terms if neither the Company
nor the employee has notified the other party 60 days prior to the date of
renewal of its intention to terminate the agreement. The agreements provide that
Messrs. Davis and Nicholson will receive base annual salaries of $275,000 and
$175,000, respectively, and will be eligible to receive incentive compensation
determined by the Compensation Committee of the Board of Directors based on the
achievement of performance objectives established by the Compensation Committee
from time to time. The base annual salaries are subject to increase annually at
the discretion of the Compensation Committee. The agreements also provide that
Messrs. Davis and Nicholson will receive options for a total of 300,000 and
150,000 shares of Common Stock, respectively, at an exercise price of $2.01 per
share. These options were granted on June 25, 1996. The options will fully vest
no later than June 25, 2000. Each agreement obligates the Company to the extent
commercially practicable to maintain life insurance with respect to Messrs.
Davis and Nicholson. In accordance with the employment agreement with Mr. Davis,
the Company currently maintains coverage with respect to Mr. Davis in the amount
of $2.5 million with the Company as the sole beneficiary. In accordance with the
employment agreement with Mr. Nicholson, the Company currently maintains
coverage with respect to Mr. Nicholson in the amount of $1.0 million with the
Company as the sole beneficiary.
Each employment agreement provides that either the Company or the
employee has the right to terminate the employment at any time during the term
of the agreement with or without cause by delivering written notice of
termination to the other 30 days prior to the date of termination. Each
agreement provides for a severance payment if the agreement is terminated by the
Company without cause. Under such circumstances, Messrs. Davis and Nicholson
would receive their base annual salary for a period of 12 months following the
date of termination, payable over such 12-month period at such times as
executives of the Company receive their regular salary payments; all accrued
salary, any benefits under any plans of the Company in which the employee is a
participant to the full extent of such employee's rights under such plans and
any appropriate out-of-pocket business expense reimbursements; and, vesting of
the options granted under the applicable employment agreement shall accelerate
so that (i) if termination of employment occurs prior to July 25, 1999, such
employee's options shall vest for an additional 75,000 and 37,500 shares of
Common Stock, respectively (in addition to shares vested as of the date of
termination), or (ii) if termination of employment occurs on or after July 25,
1999, such employee's options shall fully vest. If the agreements are terminated
voluntarily either by the employee or by the Company with cause, or by reason of
death or disability, then Mr. Davis or Mr. Nicholson, as the case may be, or
their respective estate will be entitled to payment of all accrued salary,
vesting of the options granted through the date of termination only, any further
benefits under any plans of the Company in which such person is a participant to
the full extent of such person's rights under such plans through the date of
termination only, and any appropriate out-of-pocket business expense
reimbursements.
The Company has entered into a letter agreement with Jerome L. Galant,
Chief Financial Officer. The agreement provides that Mr. Galant will receive
annual base salary of $145,000 (subject to adjustment), plus a bonus of up to
thirty percent (30%) of such annual base salary. Pursuant to this agreement, Mr.
Galant has been granted options to purchase up to 53,333 shares of Common Stock
at an exercise price of $2.01 per share.
The Company has entered into a letter agreement with Michael R.
Donahue, Chief Marketing Officer. The agreement provides that Mr. Donahue will
receive annual base salary of $165,000 (subject to adjustment), and will be
eligible to receive incentive compensation based on the achievement of certain
performance objectives. Pursuant to this agreement, Mr. Donahue has been granted
options to purchase up to 53,333 shares of Common Stock at an exercise price of
$5.25 per share. These options will vest over four years. In addition, under
certain circumstances Mr. Donahue will receive a severance payment equal to (i)
six- months base salary if the employment terminates after 12 months; (ii)
nine-months base salary if employment terminates after 24 months; and (iii)
twelve-months base salary if employment terminates after 36 months.
-16-
<PAGE> 19
COMPENSATION OF DIRECTORS
Directors currently do not receive any cash compensation from the
Company for their service as members of the Board of Directors, although they
are reimbursed for all reasonable expenses incurred in connection with the
performance of their duties as directors of the Company.
Under an amendment to the 1997 Plan, which is subject to approval at
the Company's 1998 Annual Meeting, each non-employee director was granted
effective September 23, 1997, options for 2,000 shares of Common Stock at an
option price of eighty-five percent (85%) of the trading price at the end of
business on September 22, 1997. Subject to stockholder approval at the 1998
Annual Meeting, these options vest on the date of the Company's Annual Meeting.
These options will terminate if the amendment to the 1997 Plan set forth in this
Proxy is not approved by the stockholders. Each year thereafter, upon election
to the Board of Directors and for each additional year of service for terms of
more than one year, non-employee directors will be granted options for 2,000
shares of Common Stock with an option price of eighty-five (85%) of the trading
price at the end of business on the date of grant and such options will vest 12
months following such grant. See "Amendment of the Pegasus Systems, Inc. 1997
Stock Option Plan."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Commission requires that each Registrant's executive officers and
directors, and beneficial owners of more than ten percent (10%) of any class of
equity security registered pursuant to the Act, to make certain filings under
section 16(a) of the Act. Each of the Company's executive officers and
directors, as well as Information Associates, L.P. and Information Associates,
C.V. (entities affiliated with Trident Capital), filed such person's or entity's
initial filing on Form 3 required under Section 16(a) of the Act, although such
filings were made shortly after the effective date of the registration statement
related to the Company's initial public offering rather than contemporaneously
with it as required by Section 16(a).
CERTAIN TRANSACTIONS
Messrs. Highet, Schnabel and Travers are directors of the Company and
are associated with REZsolutions, Inc. In 1997, the Company received from
REZsolutions, Inc. as remuneration for services $724,973. In addition, in 1997
the Company paid to REZsolutions, Inc. $67,622 in principal and interest as full
repayment of an outstanding loan. Furthermore, REZsolutions, Inc. provides
services to the Company which include facility management and maintenance,
consulting and software development. During 1997, the Company paid $617,313 for
these services.
Mr. Highet also is associated with Reed Travel Group. In 1997, the
Company paid to Reed Travel Group $4,524,941 in principal and interest as full
repayment of an outstanding loan.
Additionally, in 1997 Mr. Travers was associated with
Inter-Continental. In 1997, the Company received from Inter-Continental as
remuneration for services $387,462. In addition, in 1997 the Company paid to
Inter-Continental $117,849 in principal and interest as full repayment of an
outstanding loan.
-17-
<PAGE> 20
Mr. Hammett is a director of the Company and in 1997 was associated with La
Quinta Inns, Inc. ("La Quinta"). In 1997, the Company received from La Quinta as
remuneration for services $313,171. In addition, in 1997 the Company paid to La
Quinta $117,904 in principal and interest as full repayment of an outstanding
loan.
Mr. Wells is a director of the Company and is associated with Promus. In
1997, the Company received from Promus as remuneration for services $807,736. In
addition, in 1997 the Company paid to Promus $107,142 in principal and interest
as full repayment of an outstanding loan.
Mr. Wolff is a director of the Company and is associated with Marriott
International, Inc. ("Marriott"). In 1997, the Company received from Marriott as
remuneration for services $385,260. In addition, in 1997 the Company paid to
Marriott $27,913 in principal and interest as full repayment of an outstanding
loan.
Mr. Dirks is a nominee for director of the Company and is associated with
Hilton Hotels Corporation ("Hilton"). In 1997, the Company received from Hilton
as remuneration for services $365,128. In addition, in 1997 the Company paid to
Hilton $47,991 in principal and interest as full repayment of an outstanding
loan.
Mr. O'Toole is a nominee for director of the Company and is associated with
Hyatt Hotels Corporation ("Hyatt"). In 1997, the Company received from Hyatt as
remuneration for services $765,219. In addition, in 1997 the Company paid to
Hyatt $104,176 in principal and interest as full repayment of an outstanding
loan.
REPORT ON EXECUTIVE COMPENSATION
Decisions on compensation of the Company's executive officers generally are
made by the three-member Compensation Committee of the Board. Each member of the
Compensation Committee is a non-employee director. All decisions by the
Compensation Committee relating to compensation of the Company's executive
officers are reviewed by the Board. Decisions with respect to awards under
certain of the Company's employee benefit Plans are made solely by the
Compensation Committee in order for such awards to satisfy Securities Exchange
Act Rule 16b-3. Set forth below is a report prepared by Messrs. Biggs, Schnabel
and Travers in their capacity as all of the members the Compensation Committee
addressing the Company's compensation policies for 1997 as they affected the
Company's executive officers, including the Company's Chief Executive Officer,
Mr. Davis.
The Compensation Committee's executive compensation policies are designed
to provide competitive levels of compensation that integrate pay with the
Company's annual and long-term performance goals, reward above average corporate
performance, recognize individual initiative and achievements, and assist the
Company in attracting and retaining qualified executives. Targeted levels of
total executive compensation are generally set at levels that the Compensation
Committee believes to be consistent with others in the Company's industry,
although actual compensation levels in any particular year may be above or below
those of the Company's competitors, depending upon the Company's performance.
The Compensation Committee endorses the position that stock ownership by
management and performance based compensation arrangements are beneficial in
aligning management's and stockholders' interests in the enhancement of
stockholder value.
In addition to stock-based awards in the form of option grants, there are
two other components of the Company's non-stock-based compensation program.
First, annual base salary which is believed to be consistent with similar
positions in the industry and in many cases is paid in accordance with the
executive officer's employment agreement. Secondly, each executive officer is
eligible to be awarded an annual bonus equal to a percentage of annual salary
based upon meeting and exceeding established financial and other corporate goals
set by the Compensation Committee. An executive's bonus increases to the extent
the established goals are exceeded up to a maximum bonus amount per year. The
Compensation Committee believes these principal components of the Company's
compensation plan are commensurate with others in the industry.
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<PAGE> 21
FISCAL 1997 CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Davis' compensation for 1997 as Chief Executive Officer of the
Company principally consisted of a base salary and bonus. Mr. Davis' base salary
for 1997 was established pursuant to an employment agreement with the Company
described under "Executive Compensation and Other Matters." The bonus paid to
Mr. Davis in 1997 was determined considering the terms of his employment
agreement and utilizing the factors discussed above relating to executive
officers in general. Mr. Davis received other compensation in fiscal 1997
comprised of the Company's matching contributions under its 401(k) Plan and the
payment of certain life insurance premiums. Mr. Davis does not participate in
the Compensation Committee's decision regarding his compensation.
Submitted by the Compensation Committee
of the Board of Directors
John W. Biggs
Rockwell A. Schnabel
Paul J. Travers
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<PAGE> 22
PERFORMANCE GRAPH
The following graph compares the annual cumulative total stockholder
return on an investment of $100 on August 7, 1997 in the Company's Common Stock,
based on the market price of the Common Stock, with the cumulative total return
of a similar investment in companies on the Russell 2000 Composite Stock Market
Index and in a group of peer companies selected by the Company on a
line-of-business basis and weighted for market capitalization. Peer companies
included are PMT Services, Inc., QuickResponse Services, Inc., Transaction
Network Services, Inc., ENVOY Corporation, National Processing, Inc. and E Trade
Group, Inc. The Company is also included in the calculations of peer group
cumulative total stockholder return on investment.
Research Data Group Total Return - Data Summary
PEGS
<TABLE>
<CAPTION>
Cumulative Total Return
--------------------------------------------------------
8/07/97 12/31/97
<S> <C> <C> <C>
PEGASUS SYS INC. PEGS 100.00 114.42
PEER GROUP PPEER1 100.00 92.63
RUSSELL 2000 IR20 100.00 106.10
</TABLE>
ANNUAL REPORT ON FORM 10-K
UPON WRITTEN REQUEST OF ANY BENEFICIAL STOCKHOLDER OR STOCKHOLDER OF
RECORD, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1997 (INCLUDING THE EXHIBITS, FINANCIAL STATEMENTS, AND THE
SCHEDULES THERETO) REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 13A-1 UNDER THE SECURITIES EXCHANGE ACT OF 1934, MAY
BE OBTAINED, WITHOUT CHARGE, FROM RIC L. FLOYD, SECRETARY, 3811 TURTLE CREEK
BOULEVARD, SUITE 1100, DALLAS, TEXAS 75219.
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<PAGE> 23
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, independent accountants, served as independent
accountants for the Company for the fiscal year ended December 31, 1997, and
are expected to serve in such capacity for the current fiscal year.
Representatives of Price Waterhouse LLP will be present at the Annual Meeting,
will have the opportunity to make a statement if they desire to do so, and will
be available to respond to appropriate questions presented at the Annual
Meeting.
In January 1997, the Company advised Belew Averitt LLP ("Belew
Averitt") that it would no longer retain the firm as independent accountants.
The reports of Belew Averitt on the Company, formerly The Hotel Industry Switch
Company, and The Hotel Clearing Corporation for previous years (1993, 1994 and
1995) did not contain an adverse opinion or a disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles. The decision to change accountants was precipitated by the
Company's plan to complete a public offering in 1997 and was approved by the
Board of Directors on January 7, 1997. During the periods audited by Belew
Averitt and through January 7, 1997 there were no disagreements with Belew
Averitt on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement(s) if
not resolved to the satisfaction of Belew Averitt, would have caused it to make
reference to the subject matter of the disagreements in connection with its
reports. Price Waterhouse LLP was engaged by the Company as its independent
accountants on January 7, 1997.
STOCKHOLDER PROPOSALS
Stockholder proposals to be presented at the 1999 Annual Meeting of
Stockholders, for inclusion in the Company's Proxy Statement and form of Proxy
relating to that meeting, must be received by the Company at its offices in
Dallas, Texas, addressed to the Secretary of the Company, not later than
December 8, 1998. Such proposals must comply with the Bylaws of the Company and
the requirements of Regulation 14A of the Securities Exchange Act of 1934.
OTHER MATTERS
At the date of this Proxy Statement, management was not aware that any
matters not referred to in this Proxy Statement would be presented for action at
the meeting. If any other matters should come before the meeting, the persons
named in the accompanying form of Proxy will have discretionary authority to
vote all proxies in accordance with their best judgment, unless otherwise
restricted by law.
By Order of the Board of Directors
RIC L. FLOYD,
Secretary
Dated: April __, 1998
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<PAGE> 24
APPENDIX A
PEGASUS SYSTEMS, INC.
AMENDED 1997 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and any Parent or Subsidiary, to compensate Non-Employee Directors
of the Company and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code and the
regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or the Compensation Committee
appointed by the Board.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Compensation Committee appointed by the
Board of Directors.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Pegasus Systems, Inc.
(g) "Consultant" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services.
(h) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company, any Parent or
Subsidiary is not interrupted or terminated. Continuous Status as an
Employee or Consultant shall not be considered interrupted in the case of
(i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor. A leave of absence approved by the Company
shall include sick leave, military leave, or any other personal leave. For
purposes of Incentive Stock Options, no such leave may exceed 90 days,
unless reemployment upon expiration of such leave is guaranteed by statute
or contract, including Company policies. If reemployment upon expiration of
a leave of absence approved by the Company is not so guaranteed, on the
181st day of such leave any Incentive Stock Option held by the Optionee
shall cease to be treated as an Incentive Stock Option and shall be treated
for tax purposes as a Nonstatutory Stock Option.
(i) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(j) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The
payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
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<PAGE> 25
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation
the Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing
sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market
trading day prior to the time of determination, as reported in The
Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to
the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by
the Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(n) "Non-Employee Director" means any person who is a member of the
Board who is not an Employee.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Option" means a stock option granted pursuant to the Plan.
(q) "Optioned Stock" means the Common Stock subject to an Option.
(r) "Optionee" means an Employee, Consultant or Non-Employee
Director who receives an Option.
(s) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(t) "Permitted Transferee" means a member of a holder's immediate
family, trusts for the benefit of such immediate family members, and
partnerships in which the holder and such immediate family members are the
only partners, provided that no consideration is provided for the
transfer.
(u) "Plan" means this Amended 1997 Stock Option Plan.
(v) "Section 16(b)" means Section 16(b) of the Securities Exchange
Act of 1934, as amended.
(w) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 below.
(x) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is _____________ Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an option exchange program
authorized by the Administrator, the unpurchased Shares which were subject
thereto shall become available for future grant or sale under the Plan (unless
the Plan has terminated);
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<PAGE> 26
provided, however, that Shares that have actually been issued under the Plan
shall not be returned to the Plan and shall not become available for future
distribution under the Plan, except that if unvested Shares are repurchased by
the Company at their original purchase price, such Shares shall become available
for future grant under the Plan.
4. Administration of the Plan.
(a) Initial Plan Procedure. Prior to the date, if any, upon which the
Company becomes subject to the Exchange Act, the Plan shall be
administered by the Board or the Compensation Committee appointed by the
Board.
(b) Plan Procedure after the Date, if any, upon Which the Company
becomes Subject to the Exchange Act. With respect to Option grants made to
Employees, Consultants or Non-Employee Directors, the Plan shall be
administered by (A) the Board or (B) the Compensation Committee designated
by the Board, which committee shall be constituted to satisfy the legal
requirements, if any, relating to the administration of incentive stock
option plans of state corporate and securities laws, of the Code, and of
any stock exchange or national market system upon which the Common Stock
is then listed or traded (the "Applicable Laws"). Once appointed, such
Committee shall serve in its designated capacity until otherwise directed
by the Board. The Board may increase the size of the Committee and appoint
additional members, remove members (with or without cause) and substitute
new members, fill vacancies (however caused), and remove all members of
the Committee and thereafter directly administer the Plan, all to the
extent permitted by Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the Plan
and approval of any relevant authorities, including the approval, if
required, of any stock exchange or national market system upon which the
Common Stock is then listed, the Administrator shall have the authority,
in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder. Such terms and
conditions may include, but are not limited to, the exercise price, the
time or times when Options may be exercised, any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or the Shares relating thereto, based in each case
on such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under Section 10(e) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was
granted;
(ix) to provide for the early exercise of Options for the purchase
of unvested Shares, subject to such terms and conditions as the
Administrator may determine; and
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<PAGE> 27
(x) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to Employees, Consultants
and Non-Employee Directors. Incentive Stock Options may be granted only to
Employees. An Employee, Consultant or Non-Employee Director who has been
granted an Option may, if otherwise eligible, be granted additional
Options.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by the Optionee during any calendar
year (under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 5(b), Incentive Stock Options shall be taken
into account in the order in which they were granted, and the Fair Market Value
of the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(c) The Plan shall not confer upon any Optionee any right with respect
to the continuation of the Optionee's employment or consulting relationship
with the Company, nor shall it interfere in any way with the Optionee's
right or the Company's right to terminate the Optionee's employment or
consulting relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the stockholders of
the Company, as described in Section 15 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 15 of the
Plan.
7. Term of Option. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued pursuant to
exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price
shall be no less than one hundred ten percent (110%) of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in the preceding paragraph, the per Share exercise price shall be no
less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.
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<PAGE> 28
(ii) In the case of a Nonstatutory Stock Option, the per share
exercise price shall be determined by the Administrator but shall, in
no event, be less than fifty percent (50%) of the Fair Market Value per
Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall
be determined at the time of grant) and may consist entirely of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of
Shares acquired upon exercise of an Option have been owned by the Optionee
for more than six months on the date of surrender and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price
of the Shares as to which such Option shall be exercised, (5) delivery of a
properly executed exercise notice together with such other documentation as
the Administrator and the broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the sale or loan
proceeds required to pay the exercise price, or (6) any combination of the
foregoing methods of payment. In making its determination as to the type of
consideration to accept, the Administrator shall consider if acceptance of
such consideration may be reasonably expected to benefit the Company.
9. Grants to Non-Employee Directors. Notwithstanding any other provision of
the Plan, each Non-Employee Director shall, on each date of election or
re-election as a Board member be granted a Nonstatutory Stock Option for two
thousand (2,000) Shares of Common Stock of the Company at an exercise price
equal to eighty five percent (85%) of the Fair Market Value of the Shares at the
end of the business day immediately preceding the date of election or
re-election of the Non-Employee Director. Additionally, each Non-Employee
Director serving more than a one (1) year term shall, on the date of each annual
meeting of the Company's stockholders preceding each additional year of office,
be granted an additional Nonstatutory Stock Option for two thousand (2,000)
Shares of Common Stock of the Company at an exercise price equal to eighty five
percent (85%) of the Fair Market Value of the Shares at the end of the business
day immediately preceding the date of each meeting. Each such Option shall fully
vest at the expiration of twelve (12) months from the date of the grant;
provided further, that each Non-Employee Director holding office for all or part
of the year prior to the annual stockholder meeting during 1998 shall be granted
a Nonstatutory Stock Option for two thousand (2,000) Shares of Common Stock of
the Company at an exercise price equal to eighty five percent (85%) of the Fair
Market Value of the Shares at the end of the business day on September 22, 1997
for those Board members holding office on that date and each Non-Employee
Director not holding office as of September 22, 1997 but holding office after
that date but prior to the annual stockholder meeting during 1998 shall be
granted a Nonstatutory Stock Option for two thousand (2,000) Shares of Common
Stock of the Company at an exercise price equal to eighty five percent (85%) of
the Fair Market Value of the Shares at the end of the business day immediately
preceding the date of election. Each Option granted to a Non-Employee Director
holding office for all or part of the year prior to the annual stockholder
meeting during 1998 shall be subject to approval by the Company's stockholders
at the annual stockholders meeting during 1998 and shall vest, if so approved by
the stockholders, in full on the later of (i) the date of the Company's annual
stockholder meeting during 1998 or (ii) six (6) months following the date such
Option is granted. Each Non-Employee Director Option shall have a term of three
(3) years. Expiration of a Non-Employee Director's term of office shall not
affect a Non-Employee Director's right to exercise its Option to the extent such
Option is vested at any time prior to the expiration of the Director's term.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option 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. Full
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payment may, as authorized by the Administrator, consist of any consideration
and method of payment allowable under Section 8(b) of the Plan. 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 right to vote or receive dividends or any other
rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 13 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which 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.
(b) Termination of Employment or Consulting Relationship. Upon
termination of an Optionee's Continuous Status as an Employee or
Consultant, other than upon the Optionee's death or Disability, the
Optionee may exercise his or her Option, but only within such period of
time as is specified in the Notice of Grant, and only to the extent that
the Optionee was entitled to exercise it at the date of termination (but in
no event later than the expiration of the term of such Option as set forth
in the Notice of Grant). In the absence of a specified time in the Notice
of Grant, the Option shall remain exercisable for three (3) months
following the Optionee's termination. In the case of an Incentive Stock
Option, such period of time for exercise shall not exceed three (3) months
from the date of termination. If, on the date of termination, the Optionee
is not entitled to exercise the Optionee's entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the
Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
Notwithstanding the above, in the event of an Optionee's change in status
from Consultant to Employee or Employee to Consultant, an Optionee's Continuous
Status as an Employee or Consultant shall not automatically terminate solely as
a result of such change in status. However, in such event, an Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option
three months and one day following such change of status.
The provisions of this Section 10(b) shall not be applicable to
Non-Employee Directors.
(c) Disability of Optionee. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of
his or her Disability, the Optionee may, but only within twelve (12) months
from the date of such termination (and in no event later than the
expiration date of the term of his or her Option as set forth in the Option
Agreement), exercise the Option to the extent the Optionee was otherwise
entitled to exercise it on the date of such termination. To the extent that
the Optionee is not entitled to exercise the Option on the date of
termination, or if the Optionee does not exercise the Option to the extent
so entitled within the time specified herein, the Option shall terminate,
and the Shares covered by the Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of
such Option as set forth in the Notice of Grant), by the Optionee's estate
or by a person who has acquired the right to exercise the Option by bequest
or inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of death. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall immediately revert
to the Plan. If, after death, the Optionee's estate or a person who
acquires the right to exercise the Option by bequest or inheritance does
not exercise the Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
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<PAGE> 30
(e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
(f) Rule 16b-3. Options granted to persons subject to Section 16(b) of
the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this Section 11 . When an Optionee incurs tax liability in
connection with an Option which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by electing to have the Company withhold
from the Shares to be issued upon exercise of the Option that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose shall
be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option is exercised but such Optionee
shall be unconditionally obligated to tender back to the Company the proper
number of Shares on the Tax Date.
12. Transferability of Options and Rights. Incentive Stock Options granted
under the Plan shall not be transferable otherwise than by will or the laws of
descent and distribution, or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder. Incentive Stock Options shall be
exercisable during the lifetime of the Employee only by the Employee or by the
Employee's guardian or legal representative (unless such exercise would
disqualify it as an Incentive Stock Option). Unless the Administrator otherwise
provides in an agreement regarding the award of non-qualified stock options or
rights (not granted in connection with an Incentive Stock Option), non-qualified
stock options or rights (not granted in connection with Incentive Stock Options)
may be transferred by the holder to Permitted Transferees, provided that there
cannot be any consideration for the transfer.
13. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, and the number of shares of Common Stock which
have been authorized for issuance under the Plan but as to which no Options
have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock,
or any other increase or decrease in the number of issued shares of Common
Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall
not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that
respect shall
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be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify
each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for
an Optionee to have the right to exercise his or her Option until ten (10)
days prior to such transaction as to all of the Optioned Stock covered
thereby, including Shares as to which the Option would not otherwise be
exercisable. In addition, the Administrator may provide that any Company
repurchase option applicable to any Shares purchased upon exercise of an
Option shall lapse as to all such Shares, provided the proposed dissolution
or liquidation takes place at the time and in the manner contemplated. To
the extent it has not been previously exercised, an Option will terminate
immediately prior to the consummation of such proposed action.
(c) Acquisition Events.
(i) Consequences of Acquisition Events. Upon the occurrence of an
Acquisition Event (as defined below), or the execution by the Company
of any agreement with respect to an Acquisition Event, the Board shall
take any one or more of the following actions with respect to then
outstanding Options: (i) provide that outstanding Options shall be
assumed or equivalent Options shall be substituted by the acquiring or
succeeding entity (or an affiliate thereof), provided that any such
Options substituted for Incentive Stock Options shall satisfy, in the
determination of the Board, the requirements of Section 422(a) of the
Code; (ii) upon written notice to the Optionees, provide that all then
unexercised Options will become exercisable in full as of a specified
date (the "Acceleration Date") prior to the Acquisition Event and will
terminate immediately prior to the consummation of such Acquisition
Event, except to the extent exercised by the Optionees between the
Acceleration Date and the consummation of the Acquisition Event or
(iii) in the event of an Acquisition Event under the terms of which
holders of Common Stock will receive upon consummation thereof a cash
payment for each share of Common Stock surrendered pursuant to such
Acquisition Event (the "Acquisition Price") provide that all
outstanding Options shall terminate upon consummation of such
Acquisition Event and each Optionee shall receive, in exchange
therefor, a cash payment equal to the amount (if any) by which (A) the
Acquisition Price multiplied by the number of shares of Common Stock
subject to such outstanding Options (whether or not then exercisable),
exceeds (B) the aggregate exercise price of such Options.
An "Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or acquiring entity) less than
60% of the combined voting power of the voting securities of the Company or such
surviving or acquiring entity outstanding immediately after such merger or
consolidation; (b) any sale of all or substantially all of the assets of the
Company; (c) the complete liquidation of the Company; or (d) the acquisition of
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities (other than through a merger or
consolidation or an acquisition of securities directly from the Company) by any
"person", as such term is used in Sections 13 (d) and 14 (d) of the Exchange Act
other than the Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, or any entity owned directly or
indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of stock of the Company.
(ii) Assumption of Options Upon Certain Events. The Board may
grant options under the Plan in substitution for stock and stock-based
awards held by employees of another entity who become Employees as a
result of a merger or consolidation of the employing
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<PAGE> 32
entity with the Company or the acquisition by the Company of property
or stock of the employing entity. The substitute options shall be
granted on such terms and conditions as the Board considers
appropriate in the circumstances.
14. 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
granting such Option, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option is so granted within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act or with Section 422 of the Code (or any other
applicable law or regulation, including the requirements of any stock
exchange or national market system upon which the Common Stock is then
listed), the Company shall obtain stockholder approval of any Plan
amendment in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the
Optionee and the Board, which agreement must be in writing and signed by
the Optionee and the Company.
16. Conditions Upon Issuance of Shares. 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 of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange or national market system upon which the
Common Stock is then listed or traded, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise 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 is required by any of the
aforementioned relevant provisions of law.
17. Reservation of Shares. 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.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
18. Agreements. Options shall be evidenced by written agreements in such
form as the Administrator shall approve from time to time.
19. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange or national market system upon which the Common
Stock is then listed or traded.
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PEGASUS SYSTEMS, INC.
1997 AMENDED STOCK OPTION PLAN
NOTICE OF GRANT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
[Optionee's Name and Address]
____________________________
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Stock Option Agreement,
as follows:
Grant Number____________________
Date of Grant____________________
Vesting Commencement Date____________________
Exercise Price per Share$___________________
Total Number of Shares Granted____________________
Total Exercise Price $____________________
Type of Option:____Incentive Stock Option
____Nonstatutory Stock Option
Term/Expiration Date:_____________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
________________________________________
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<PAGE> 34
Termination Period:
This Option may be exercised for three (3) months after termination of
employment or consulting relationship, or such longer period as may be
applicable upon death or Disability of Optionee as provided in the Plan, but in
no event later than the Term/Expiration Date as provided above.
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PEGASUS SYSTEMS, INC.
1997 AMENDED STOCK OPTION PLAN
OPTION AGREEMENT
1. Grant of Option. Pegasus Systems, Inc. (the "Company"), hereby grants to
the Optionee (the "Optionee") named in the Notice of Grant, an option (the
"Option") to purchase the total number of shares of Common Stock (the "Shares")
set forth in the Notice of Grant, at the exercise price per share set forth in
the Notice of Grant (the "Exercise Price") subject to the terms, definitions and
provisions of the 1997 Stock Option Plan (the "Plan") adopted by the Company,
which is incorporated herein by reference. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Option
Agreement.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and with the
provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
(i) This Option may not be exercised for a fraction of a Share.
(ii) In the event of Optionee's death, disability or other
termination of the Optionee's Continuous Status as an Employee or
Consultant, the exercisability of the Option is governed by Sections 6,
7 and 8 below, subject to the limitation contained in subsection 2(i)
(c).
(iii) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of
Grant.
(b) Method of Exercise. This Option shall be exercisable by written
notice (in the form attached as Exhibit A) which shall state the election
to exercise the Option, the number of Shares in respect of which the Option
is being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as
may be required by the Company pursuant to the provisions of the Plan. Such
written notice shall be signed by the Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The written
notice shall be accompanied by payment of the Exercise Price. This Option
shall be deemed to be exercised upon receipt by the Company of such written
notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange or national market system upon which the
Common Stock is then listed. Assuming such compliance, for income tax purposes
the Shares shall be considered transferred to the Optionee on the date on which
the Option is exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable pursuant
to the exercise of this Option have not been registered under the Securities Act
of 1933, as amended, at the time this Option is exercised, Optionee shall, if
required by the Company, concurrently with the exercise of all or any portion of
this Option, deliver to the Company his or her Investment Representation
Statement in the form attached hereto as Exhibit B.
4. Lock-Up Period. Optionee hereby agrees that if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
longer period as may be requested in
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<PAGE> 36
writing by the Managing Underwriter and agreed to in writing by the Company)
(the "Market Standoff Period") following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however, that
such restriction shall apply only to the first registration statement of the
Company to become effective under the Securities Act that includes securities to
be sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such Market Standoff Period.
5. Method of Payment. Payment of the Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
(a) cash; or
(b) check; or
(c) surrender of other shares of Common Stock of the Company which (A)
in the case of Shares acquired pursuant to the exercise of a Company
option, have been owned by the Optionee for more than six (6) months on the
date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the Exercise Price of the Shares as to which the Option
is being exercised; or
(d) to the extent authorized by the Company, delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the sale or loan
proceeds required to pay the Exercise Price.
6. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
7. Termination of Relationship. In the event an Optionee's Continuous
Status as an Employee or Consultant terminates, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Grant. To the extent that Optionee was not entitled to exercise this Option at
the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section 6
above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his or her Disability, Optionee may, but
only within twelve (12) months from the date of such termination (and in no
event later than the expiration date of the term of such Option as set forth in
the Notice of Grant) exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee is not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
9. Death of Optionee. In the event of termination of Optionee's Continuous
Status as an Employee or Consultant as a result of the death of Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section 10 below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee could exercise the Option at the date of death.
10. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by
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<PAGE> 37
Optionee. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
11. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) stockholders shall apply to
this Option.
12. Tax Consequences. Set forth below is a brief summary as of the date of
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of an ISO. If this Option qualifies as an ISO, there will
be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the
date of exercise over the Exercise Price will be treated as an adjustment
to the alternative minimum tax for federal tax purposes and may subject the
Optionee to the alternative minimum tax in the year of exercise.
(b) Exercise of an NSO. There may be a regular federal income tax
liability upon the exercise of an NSO. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates)
equal to the excess, if any, of the Fair Market Value of the Shares on the
date of exercise over the Exercise Price. If Optionee is an Employee, the
Company will be required to withhold from Optionee's compensation or
collect from Optionee and pay to the applicable taxing authorities an
amount equal to a percentage of this compensation income at the time of
exercise.
(c) Disposition of Shares. In the case of an NSO, if Shares are held
for at least one year, any gain realized on disposition of the Shares will
be treated as long-term capital gain for federal income tax purposes. In
the case of an ISO, if Shares transferred pursuant to the Option are held
for at least one year after exercise and are disposed of at least two years
after the Date of Grant, any gain realized on disposition of the Shares
will also be treated as long-term capital gain for federal income tax
purposes. If Shares purchased under an ISO are disposed of within such
one-year period or within two years after the Date of Grant, any gain
realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the difference between
the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares.
(d) Notice of Disqualifying Disposition of ISO Shares. If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date
one year after the date of exercise, the Optionee shall immediately notify
the Company in writing of such disposition. Optionee agrees that Optionee
may be subject to income tax withholding by the Company on the compensation
income recognized by the Optionee.
Pegasus Systems, Inc.
By:
-----------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S 1997 STOCK OPTION
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<PAGE> 38
PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY
RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY,
NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT
TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he is
familiar with the terms and provisions thereof, and hereby accepts this Option
subject to all of the terms and provisions thereof. Optionee has reviewed the
Plan and this Option in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Option and fully understands all
provisions of the Option. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Administrator upon
any questions arising under the Plan or this Option. Optionee further agrees to
notify the Company upon any change in the residence address indicated below.
Dated:
----------------
Optionee
Residence Address:
- ---------------------------------------------
- ---------------------------------------------
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<PAGE> 39
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
----------------------------------------
Spouse of Optionee
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<PAGE> 40
EXHIBIT A
PEGASUS SYSTEMS, INC.
1997 STOCK OPTION PLAN
EXERCISE NOTICE
Pegasus Systems, Inc.
3811 Turtle Creek Boulevard
Suite 1100
Dallas, Texas 75219
Attention: Secretary
1. Exercise of Option. Effective as of today, ___________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Pegasus Systems, Inc.
(the "Company") under and pursuant to the 1997 Stock Option Plan, as amended
(the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated
________, 19__ (the "Stock Option Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Stock Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Optionee shall enjoy rights as a stockholder until such time as Optionee
disposes of the Shares or the Company and/or its assignee(s) exercises the Right
of First Refusal hereunder. Upon such exercise, Optionee shall have no further
rights as a holder of the Shares so purchased except the right to receive
payment for the Shares so purchased in accordance with the provisions of this
Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the
Shares so purchased to be surrendered to the Company for transfer or
cancellation.
4. Company's Right of First Refusal. Before any Shares held by Optionee or
any transferee (either being sometimes referred to herein as the "Holder") may
be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares;
(ii) the name of each proposed purchaser or other transferee (the "Proposed
Transferee"); (iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the bona fide cash price or other consideration for
which the Holder proposes to transfer the Shares (the "Offered Price"), and
the Holder shall offer the Shares at the Offered Price to the Company or
its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty (30)
days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of
the Proposed Transferees, at the purchase price determined in accordance
with subsection (c) below.
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<PAGE> 41
(c) Purchase Price. The purchase price (the "Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Administrator in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash, by check, by
cancellation of all or a portion of any outstanding indebtedness of the
Holder to the Company (or, in the case of repurchase by an assignee, to the
assignee), or by any combination thereof within 30 days after receipt of
the Notice or in the manner and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed
Transferee at the Offered Price or at a higher price, provided that such
sale or other transfer is consummated within 120 days after the date of the
Notice and provided further that any such sale or other transfer is
effected in accordance with any applicable securities laws and the Proposed
Transferee agrees in writing that the provisions of this Section shall
continue to apply to the Shares in the hands of such Proposed Transferee.
If the Shares described in the Notice are not transferred to the Proposed
Transferee within such period, a new Notice shall be given to the Company,
and the Company and/or its assignees shall again be offered the Right of
First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
contained in this Section notwithstanding, the transfer of any or all of
the Shares during the Optionee's lifetime or on the Optionee's death by
will or intestacy to the Optionee's immediate family or a trust for the
benefit of the Optionee's immediate family shall be exempt from the
provisions of this Section. "Immediate Family" as used herein shall mean
spouse, lineal descendant or antecedent, father, mother, brother or sister.
In such case, the transferee or other recipient shall receive and hold the
Shares so transferred subject to the provisions of this Section, and there
shall be no further transfer of such Shares except in accordance with the
terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
shall terminate upon the closing of the first sale of Common Stock of the
Company to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
5. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the
Shares together with any other legends that may be required by state or
federal securities laws at the time of the issuance of the Shares:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER THE ACT OR THE ISSUER OF THE SHARES (THE "ISSUER") HAS RECEIVED AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT
SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH
THE ACT.
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THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR
ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND
THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF
FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THE SHARES REPRESENTED HEREBY.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise
transferred in violation of any of the provisions of this Agreement or (ii)
to treat as owner of such Shares or to accord the right to vote or pay
dividends to any purchaser or other transferee to whom such Shares shall
have been so transferred.
7. Successors and Assigns. The Company may assign any of its rights under
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator of the Plan, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Administrator shall be final
and binding on the Company and on Optionee.
9. Governing Law; Severability. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas excluding that body
of law pertaining to conflicts of law. Should any provision of this Agreement be
determined by a court of law to be illegal or unenforceable, the other
provisions shall nevertheless remain effective and shall remain enforceable.
10. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
13. Lock-Up Period. Optionee hereby agrees that if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
longer period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall apply only to the
first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
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14. Entire Agreement. The Plan, the Notice of Grant, and the Stock Option
Agreement are incorporated herein by reference. This Agreement, the Plan, the
Notice of Grant, the Stock Option Agreement and the Investment Representation
Statement (if applicable) constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof.
Submitted by:Accepted by:
OPTIONEE: Pegasus Systems, Inc.
By:
---------------------------------------
Its:
--------------------------------------
------------------------------------------
(Signature)
Address:
----------------------------------
------------------------------------------
------------------------------------------
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<PAGE> 44
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
COMPANY:
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Optionee's
investment intent as expressed herein. In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory basis
for such exemption may be unavailable if Optionee's representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future. Optionee
further understands that the Securities must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. Optionee further acknowledges and understands that
the Company is under no obligation to register the Securities. Optionee
understands that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel
satisfactory to the Company and any other legend required under then applicable
state or federal securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly from the
issuer thereof, in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of the grant of the Option to the Optionee, the exercise will be exempt
from registration under the Securities Act. In the event the Company becomes
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") ninety (90) days
thereafter (or such longer period as any market stand-off agreement may require)
the Securities exempt under Rule 701 may be resold, subject to the satisfaction
of certain of the conditions specified by Rule 144, including: (1) the resale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Exchange Act); and, in the case of an affiliate, (2) the availability of certain
public information about the Company, (3) the amount of Securities being sold
during any three month period not exceeding the limitations specified in Rule
144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or
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<PAGE> 45
the date the Securities were sold by an affiliate of the Company, within the
meaning of Rule 144; and, in the case of acquisition of the Securities by an
affiliate, or by a non-affiliate who subsequently holds the Securities less than
three years, the satisfaction of the conditions set forth in sections (1), (2),
(3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A under the Securities Act, or some
other registration exemption will be required; and that, notwithstanding the
fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and
Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rules 144 or 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk. Optionee understands that no
assurances can be given that any such other registration exemption will be
available in such event.
Signature of Optionee:
______________________________________
Date: ________________, 19______
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<PAGE> 46
APPENDIX B
PEGASUS SYSTEMS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I-PURPOSE
1.1. PURPOSE.
The Pegasus Systems, Inc. 1997 Employee Stock Purchase Plan (the
"Plan") is intended to provide a method whereby employees of Pegasus Systems,
Inc. and its subsidiary corporations (hereinafter referred to, unless the
context otherwise requires, as the "Company") will have an opportunity to
acquire a proprietary interest in the Company through the purchase of shares of
the common stock of the Company. It is the intention of the Company to have the
Plan qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the
Plan shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
ARTICLE II-DEFINITIONS
2.1. BASE PAY
"Base Pay" shall mean regular straight-time earnings excluding payments
for overtime, shift premium, bonuses and other special payments, commissions and
other marketing incentive payments.
2.2. COMMITTEE
"Committee" shall mean the individuals described in Article XI.
2.3. EMPLOYEE
"Employee" means any person who is customarily employed on a full-time
or part-time basis by the Company or Subsidiary Corporation and is regularly
scheduled to work more than 20 hours per week and five months per year.
2.4. SUBSIDIARY CORPORATION
"Subsidiary Corporation" shall mean any present or future corporation
that (i) would be a "subsidiary corporation" of Pegasus Systems, Inc., as that
term is defined in Section 424 of the Code, and (ii) is designated as a
participating employer under the Plan by the Committee.
ARTICLE III-ELIGIBILITY AND PARTICIPATION
3.1. INITIAL ELIGIBILITY.
Any Employee who shall have completed 90 days' employment and shall be
employed by the Company on the date his or her participation in the Plan is to
become effective shall be eligible to participate in offerings under the Plan
which commence on or after such 90-day period has concluded.
3.2. LEAVE OF ABSENCE.
For purposes of participation in the Plan, an Employee on leave of
absence shall be deemed to remain an Employee for the first ninety (90) days of
such leave of absence and such Employee's employment shall be deemed to have
terminated at the close of business on the ninetieth day of such leave of
absence unless such Employee shall have returned to regular full-time or
part-time employment (as the case may be) prior to the close of business on such
ninetieth day. Termination by the Company of any Employee's leave of absence,
other than termination of such leave of absence on return to full-time or
part-time employment, shall terminate an Employee's employment for all purposes
of the Plan and shall terminate such Employee's participation in the Plan and
right to exercise any option.
3.3. RESTRICTIONS ON PARTICIPATION.
Notwithstanding any provisions of the Plan to the contrary, no Employee
shall be granted an option to participate in the Plan:
(a) if, immediately after the grant, such Employee would own stock,
and/or hold outstanding options to purchase stock, possessing five percent (5%)
or more of the total combined voting power or value of all classes of stock of
the Company (for purposes of this paragraph, the rules of Section 424(d) of the
Code shall apply in determining stock ownership of any Employee); or
(b) that permits such Employee's rights to purchase stock under all
employee stock purchase plans of the Company to accrue at a rate which exceeds
$25,000 in fair market value of the stock
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(determined at the time such option is granted) for each calendar year in which
such option is outstanding.
3.4. COMMENCEMENT OF PARTICIPATION.
An eligible Employee may become a participant by completing an
authorization for a payroll deduction on the form provided by the Company and
filing it with the Company on or before the date set therefor by the Committee,
which date shall be prior to the Offering Commencement Date for the Offering (as
such terms are defined below). Payroll deductions for a participant shall
commence on the applicable Offering Commencement Date when the authorization for
a payroll deduction becomes effective and shall end on the Offering Termination
Date of the Offering to which such authorization is applicable unless sooner
terminated by the participant as provided in Article VIII. This ss.3.04 is
subject to the Company's right to terminate the Plan as provided in ss.12.05.
ARTICLE IV-OFFERINGS
4.1. ANNUAL OFFERINGS.
The Plan will be implemented by annual offerings of the Company's
common stock (the "Offerings") beginning on each November 15 and terminating on
the following November 14. As used in the Plan, "Offering Commencement Date"
means the November 15 on which the particular Offering begins, and "Offering
Termination Date" means the November 14 on which the particular Offering
terminates.
ARTICLE V-PAYROLL DEDUCTIONS
5.1. AMOUNT OF DEDUCTION.
At the time of filing an authorization for payroll deduction, a
participant shall elect to have deductions made from his or her pay on each
payday while a participant in an Offering at the rate of any whole percentage
(not to exceed 10%) of such Employee's Base Pay in effect at the Offering
Commencement Date of such Offering. In the case of a part-time hourly Employee,
such Employee's Base Pay during an Offering shall be determined by multiplying
such Employee's hourly rate of pay in effect on the Offering Commencement Date
by the number of regularly scheduled hours of work for such Employee during the
Offering.
5.2. PARTICIPANT'S ACCOUNT.
All payroll deductions made for a participant shall be credited to such
participant's account under the Plan. A participant may not make any separate
cash payment into such account except when on leave of absence, and then only as
provided in ss.5.04.
5.3. CHANGES IN PAYROLL DEDUCTIONS.
A participant may discontinue participation in the Plan as provided in
Article VIII, but no other change can be made during an Offering and,
specifically, a participant may not alter the amount of payroll deductions for
that Offering.
5.4. LEAVE OF ABSENCE.
If a participant goes on a leave of absence, such participant may elect
to: (a) withdraw the balance in his or her account pursuant to ss.7.02, (b)
discontinuE contributions to the Plan but remain a participant in the Plan, or
(c) remain a participant in the Plan during such leave of absence, authorizing
deductions to be made from payments by the Company to the participant during
such leave of absence and undertaking to make cash payments to the Plan at the
end of each payroll period to the extent that amounts payable by the Company to
such participant are insufficient to meet such participant's authorized Plan
deductions.
ARTICLE VI-GRANTING OF OPTION
6.1. NUMBER OF OPTION SHARES.
On the Commencement Date of each Offering, a participating Employee
shall be deemed to have been granted an option to purchase a maximum number of
shares of the stock of the Company equal to an amount determined as follows: an
amount equal to (i) the percentage of the Employee's Base Pay that he or she
elected to have withheld (but not in any case in excess of 10%) multiplied by
(ii) the Employee's Base Pay during the period of the offering (iii) divided by
85% of the market value of the stock of the Company on the applicable Offering
Commencement Date. The market value of the Company's stock shall be determined
as provided in ss.6.02, below. An Employee's Base Pay during the period of an
Offering shall be determined by multiplying his or her normal weekly rate of pay
(as in effect on the last day prior to the Commencement Date of the particular
Offering) by 52 or the hourly rate by 2080, as the case may be; provided that,
in the case of a part-time Employee, the Employee's Base Pay during the period
of an Offering shall be determined by multiplying such Employee's hourly rate by
the number of regularly scheduled hours of work for such Employee during the
Offering (or, for a part-time salaried employee, by multiplying such Employee's
normal weekly rate of pay by the number of weeks such Employee is expected to
work during the period of the Offering).
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6.2. OPTION PRICE.
The option price of stock purchased with payroll deductions made during
such Offering for a participant therein shall be the lower of:
(a) 85% of the closing price of the Company's common stock on the
Offering Commencement Date or the nearest prior business day on which trading
occurred on Nasdaq or any other national stock exchange; or
(b) 85% of the closing price of the Company's common stock on the
Offering Termination Date or the nearest prior business day on which trading
occurred on Nasdaq or any other national stock exchange. If the common stock of
the Company is not admitted to trading on any of the aforesaid dates for which
closing prices of the stock are to be determined, then reference shall be made
to the fair market value of the stock on that date, as determined on such basis
as shall be established or specified for the purpose by the Committee.
ARTICLE VII-EXERCISE OF OPTION
7.1. EXERCISE.
Unless a participant gives written notice to the Company as hereinafter
provided, his or her option to purchase stock with payroll deductions made
during any Offering will be deemed to have been exercised automatically on the
Offering Termination Date applicable to such Offering, for the purchase of the
number of full shares of stock which the accumulated payroll deductions in his
or her account at that time will purchase at the applicable option price.
Alternatively, the participant may make a lump-sum payment of the exercise
price. In no case, however, shall the participant purchase more shares than were
granted pursuant to ss.6.01, and any excess in his or her account at that time
will be returned to the participant.
7.2. WITHDRAWAL OF ACCOUNT.
By written notice to the Company, at any time prior to the Offering
Termination Date applicable to any Offering, a participant may elect to withdraw
all the accumulated payroll deductions at such time.
7.3. FRACTIONAL SHARES.
Fractional shares will not be issued under the Plan and any accumulated
payroll deductions which would have been used to purchase fractional shares will
be returned to any Employee promptly following the termination of an Offering.
7.4. TRANSFERABILITY OF OPTION.
During a participant's lifetime, options held by such participant shall
be exercisable only by that participant.
7.5. DELIVERY OF STOCK.
As promptly as practicable after the Offering Termination Date of each
Offering, the Company will deliver to each participant, as appropriate, the
stock purchased upon exercise of the option.
ARTICLE VIII-WITHDRAWAL
8.1. IN GENERAL.
As indicated in ss.7.02, a participant maY withdraw payroll deductions
credited to his or her account under the Plan at any time by giving written
notice to the Company. All of the participant's payroll deductions credited to
such participant's account will be paid promptly after receipt of notice of
withdrawal, and no further payroll deductions will be allowed during such
Offering. The Company may, at its option, treat any attempt to borrow by an
Employee on the security of accumulated payroll deductions as an election, under
ss.7.02, to withdraw such deduction.
8.2. EFFECT ON SUBSEQUENT PARTICIPATION.
A participant's withdrawal from any Offering will not have any effect
upon eligibility to participate in any succeeding Offering or in any similar
plan which may hereafter be adopted by the Company.
8.3. TERMINATION OF EMPLOYMENT.
Upon termination of the participant's employment for any reason,
including retirement (but excluding death while in the employ of the Company or
continuation of a leave of absence for a period beyond 90 days), the payroll
deductions credited to such participant account will be returned, or, in the
case of death subsequent to the termination of employment, to the person or
persons entitled thereto under ss.12.01.
8.4. TERMINATION OF EMPLOYMENT DUE TO DEATH.
Upon termination of the participant's employment because of death, his
or her beneficiary (as defined in ss.12.01) shall have the right to elect, by
written notice given to the Company prior to the earlier of the Offering
Termination Date or the expiration of a period of sixty (60) days commencing
with the date of the death of the participant, either to:
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(a) withdraw all of the payroll deductions credited to the
participant's account under the Plan, or
(b) exercise the participant's option for the purchase of stock on the
Offering Termination Date next following the date of the participant's death for
the purchase of the number of full shares of stock which the accumulated payroll
deductions in the participant's account at the date of the participant's death
will purchase at the applicable option price, and any excess in such account
will be returned to said beneficiary.
In the event that no such written notice of election shall be duly
received by the office of the Company, the beneficiary shall automatically be
deemed to have elected, pursuant to paragraph (b), to exercise the participant's
option.
8.5. LEAVE OF ABSENCE.
A participant on leave of absence shall, subject to the election made
by such participant pursuant to ss.5.04, continue to be a participant in the
Plan so long as such participant is on continuous leave of absence. A
participant who has been on leave of absence for more than ninety days and who
therefore is not an Employee for the purpose of the Plan shall not be entitled
to participate in any offering commencing after the ninetieth day of such leave
of absence. Notwithstanding any other provisions of the Plan, unless a
participant on leave of absence returns to regular full-time or part-time
employment with the Company at the earlier of: (a) the termination of such leave
of absence or (b) three months from the ninetieth day of such leave of absence,
such participant's participation in the Plan shall terminate on whichever of
such dates first occurs.
ARTICLE IX-INTEREST
9.1. PAYMENT OF INTEREST.
Interest shall be paid on amounts contributed to the Plan that were not
used to purchase shares of the Company's common stock. Such amounts will be
deemed to have earned simple interest during the period from the date of
withholding to the date of return at the regular passbook savings account rates
per annum in effect at the NationsBank, during the applicable offering period
or, if such rates are not published or otherwise available for such purpose, at
the regular passbook savings account rates per annum in effect during such
period at another major commercial bank selected by the Committee.
ARTICLE X-STOCK
10.1. MAXIMUM SHARES.
The maximum number of shares which shall be issued under the Plan,
subject to adjustment upon changes in capitalization of the Company as provided
in ss.12.04 shall not to exceed 500,000 for all Offerings. If the total number
of shares for which options are exercised on any Offering Termination Date in
accordance with Article VI exceeds the maximum number of shares for the
applicable offering, the Company shall make a pro rata allocation of the shares
available for delivery and distribution in as nearly a uniform manner as shall
be practicable and as it shall determine to be equitable, and the balance of
payroll deductions credited to the account of each participant under the Plan
shall be returned to him or her as promptly as possible.
10.2. PARTICIPANT'S INTEREST IN OPTION STOCK.
The participant will have no interest in stock covered by an option
until such option has been exercised.
10.3. REGISTRATION OF STOCK.
Stock to be delivered to a participant under the Plan will be
registered in the name of the participant, or, if the participant so directs by
written notice to the Company prior to the Offering Termination Date applicable
thereto, in the names of the participant and one such other person as may be
designate by the participant, as joint tenants with rights of survivorship or as
tenants by the entireties, to the extent permitted by applicable law.
10.4. RESTRICTIONS ON EXERCISE.
The Board of Directors may, in its discretion, require as conditions to
the exercise of any option that the shares of common stock reserved for issuance
upon the exercise of the option shall have been duly listed, upon official
notice of issuance, upon a stock exchange, and that either:
(a) a Registration Statement under the Securities Act of 1933, as
amended, with respect to said shares shall be effective, or
(b) the participant shall have represented at the time of purchase, in
form and substance satisfactory to the Company, that such participant intends to
purchase the shares for investment and not for resale or distribution.
ARTICLE XI-ADMINISTRATION
11.1. APPOINTMENT OF COMMITTEE.
The Board of Directors shall appoint a committee (the "Committee") to
administer the Plan,
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which shall consist of no fewer than three members of the Board of Directors. No
member of the Committee shall be eligible to purchase stock under the Plan.
11.2. AUTHORITY OF COMMITTEE.
Subject to the express provisions of the Plan, the Committee shall have
plenary authority in its discretion to interpret and construe any and all
provisions of the Plan, to adopt rules and regulations for administering the
Plan, and to make all other determinations deemed necessary or advisable for
administering the Plan. The Committee's determination on the foregoing matters
shall be conclusive.
11.3. RULES GOVERNING THE ADMINISTRATION OF THE COMMITTEE.
The Board of Directors may from time to time appoint members of the
Committee in substitution for or in addition to members previously appointed and
may fill vacancies, however caused, in the Committee. The Committee may select
one of its members as its Chairman and shall hold its meetings at such times and
places as it shall deem advisable and may hold telephonic meetings. A majority
of its members shall constitute a quorum. All determinations of the Committee
shall be made by a majority of its members. The Committee may correct any defect
or omission or reconcile any inconsistency in the Plan, in the manner and to the
extent is shall deem desirable. Any decision or determination reduced to writing
and signed by a majority of the members of the Committee shall be as fully
effective as if it had been made by a majority vote at a meeting duly called and
held. The Committee may appoint a secretary and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
ARTICLE XII-MISCELLANEOUS
12.1. DESIGNATION OF BENEFICIARY.
A participant may file a written designation of a beneficiary who is to
receive any stock and/or cash. Such designation of beneficiary may be changed by
the participant at any time by written notice to the Company. Upon the death of
a participant and upon receipt by the Company of proof of identity and existence
at the participant's death of a beneficiary validly designated by him under the
Plan, the Company shall deliver such stock and/or cash to such beneficiary. In
the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such stock and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such stock and/or cash to the spouse
or to any one or more dependents of the participant as the Company may
designate. No beneficiary shall, prior to the death of the participant by whom
he has been designated, acquire any interest in the stock or cash credited to
the participant under the Plan.
12.2. TRANSFERABILITY.
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or to receive stock under the
Plan may be assigned, transferred, pledged, or otherwise disposed of in any way
by the participant other than by will or the laws of descent and distribution.
Any such attempted assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with ss.7.02.
12.3. USE OF FUNDS.
All payroll deductions received or held by the Company under this Plan
may be used by the Company for any corporate purpose and the Company shall be
not be obligated to segregate such payroll deductions.
12.4. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) If, while any options are outstanding, the outstanding shares of
common stock of the Company have increased, decreased, changed into, or been
exchanged for a different number or kind of shares or securities of the Company
through reorganization, merger, recapitalization, reclassification, stock split,
reverse stock split or similar transaction, appropriate and proportionate
adjustments may be made by the Committee in the number and/or kind of shares
which are subject to purchase under outstanding options and on the option
exercise price or prices applicable to such outstanding options. In addition, in
any such event, the number and/or kind of shares which may be offered in the
Offerings described in Article IV hereof shall also be proportionately adjusted.
No adjustments shall be made for stock dividends. For the purposes of this
paragraph, any distribution of shares to shareholders in an amount aggregating
20% or more of the outstanding shares shall be deemed a stock split and any
distributions of shares aggregating less than 20% of the outstanding shares
shall be deemed a stock dividend.
(b) Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
B-5
<PAGE> 51
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all of the property or stock of the Company to
another corporation, the holder of each option then outstanding under the Plan
will thereafter be entitled to receive at the next Offering Termination Date
upon the exercise of such option for each share as to which such option shall be
exercised, as nearly as reasonable may be determined, the cash, securities
and/or property which a holder of one share of the Common stock was entitled to
receive upon and at the time of such transaction. The Board of Directors shall
take such steps in connection with such transactions as the Board shall deem
necessary to assure that the provisions of this ss.12.04 shall thereafter be
applicable, as nearly as reasonable may be determined, in relation to the said
cash, securities and/or property as to which such holder of such option might
thereafter be entitled to receive.
12.5. AMENDMENT AND TERMINATION.
The Board of Directors shall have complete power and authority to
terminate or amend the Plan; provided, however, that the Board of Directors
shall not, without the approval of the stockholders of the Corporation (i)
increase the maximum number of shares which may be issued under any Offering
(except pursuant to ss.12.04); or (ii) amend the requirements as to the class of
employees eligible to purchase stock under the Plan or permit the members of the
Committee to purchase stock under the Plan. No termination, modification, or
amendment of the Plan may, without the consent of an Employee then having an
option under the Plan to purchase stock, adversely affect the rights of such
Employee under such option.
12.6. EFFECTIVE DATE.
The Plan shall be effective as of September 23, 1997, subject to
approval by the holders of the majority of the common stock present and
represented at a special or annual meeting of the shareholders (or by any other
method of approval adequate under Texas sate law). If the Plan is not so
approved within 12 months of the date the Plan is adopted by the Company's board
of directors, the Plan shall be deemed to have not become effective.
12.7. NO EMPLOYMENT RIGHTS.
The Plan does not, directly or indirectly, create any right for the
benefit of any Employee or class of Employees to purchase any shares under the
Plan, or create in any Employee or class of Employees any right with respect to
continuation of employment by the Company, and it shall not be deemed to
interfere in any way with the Company's right to terminate, or otherwise modify,
an Employee's employment at any time.
12.8. EFFECT OF PLAN.
The provisions of the Plan shall, in accordance with its terms, be
binding upon, and inure to the benefit of, all successors of each Employee
participating in the Plan, including, without limitation, such Employee's estate
and the executors, administrators or trustees thereof, heirs and legatees, and
any receiver, trustee in bankruptcy or representative of creditors of such
Employee.
12.9. NOTICES.
All notices or other communications by a participant to the Company
under or in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by the
person, that is designated by the Company from time to time for the receipt
thereof, and, in the absence of such a designation, the Company's Human
Resources Department.
12.10. GOVERNING LAW.
The law of the State of Texas will govern all matters relating to this
Plan except to the extent it is superseded by the laws of the United States.
B-6
<PAGE> 52
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
PEGASUS SYSTEMS, INC.
The undersigned hereby appoints John F. Davis, III, Jerome L. Galent and
Ric L. Floyd or either of them, as proxies, each with the power to appoint his
substitute, and hereby authorizes each of them to represent and to vote, as
designated on the reverse side, all of the shares of Common Stock of Pegasus
Systems, Inc., held of record by the undersigned on March 25, 1998, at the
Annual Meeting of stockholders to be held on May 5, 1998, or any adjournment
thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE NOMINEES AND THE
PROPOSALS LISTED HEREON. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS
GIVEN, THIS PROXY WILL BE VOTED FOR THE NOMINEES AND THE PROPOSALS.
(PLEASE SEE REVERSE SIDE)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
Please mark
your votes as /X/
indicated in
this example
1. To elect three Directors:
FOR all nominees WITHHOLD
listed to the right AUTHORITY
(except as marked to vote for all
to the contrary) nominees listed
/ / / /
2. Proposal to approve amendment to the Second Amended and Restated Certificate
of Incorporation.
FOR AGAINST ABSTAIN
/ / / / / /
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW:
Robert E. Dirks, William C. Hammett, Jr., Thomas F. O'Toole
3. Proposal to approve amendments to the 1997 Stock Option Plan.
FOR AGAINST ABSTAIN
/ / / / / /
4. Proposal to approve the adoption of the
1997 Employee Stock Purchase Plan.
FOR AGAINST ABSTAIN
/ / / / / /
5. In their discretion to vote upon such other business as may properly come
before the meeting.
FOR AGAINST ABSTAIN
/ / / / / /
DATED:__________________, 1998
--------------------------------------------
(SIGNATURE OF STOCKHOLDER)
--------------------------------------------
(SIGNATURE IF HELD JOINTLY)
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON.
WHEN SHARES ARE HELD BY JOINT TENANTS BOTH
SHOULD SIGN. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF
A CORPORATION, PLEASE SIGN FULL CORPORATE
NAME BY PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
