<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES ACT OF 1934
Filed by Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)
(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[PEGASUS SYSTEMS LOGO]
3811 TURTLE CREEK BOULEVARD, SUITE 1100
DALLAS, TEXAS 75219
---------------------
NOTICE OF ANNUAL MEETING
---------------------
Dear Stockholders:
On Tuesday, May 2, 2000, Pegasus Systems, Inc. will hold its annual meeting
of stockholders at the Hotel Crescent Court, 400 Crescent Court, Dallas, Texas.
The meeting will begin at 10:00 a.m.
Only stockholders that own stock at the close of business March 9, 2000 can
vote at this meeting. At the meeting we will:
1. Elect two Class III Directors to the Board of Directors;
2. Approve changing our name from Pegasus Systems, Inc. to Pegasus
Solutions, Inc.;
3. Approve amendments to our 1997 Amended Stock Option Plan that
increase the number of shares of common stock reserved for issuance under
the plan and make other changes; and
4. Attend to any other business properly brought before the meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE THREE
PROPOSALS OUTLINED IN THIS PROXY STATEMENT.
By Order of the Board of Directors,
Ric L. Floyd,
Secretary
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD OR VOTE VIA THE INTERNET OR TELEPHONE FOLLOWING THE INSTRUCTIONS ON THE
PROXY CARD.
March 10, 2000
<PAGE> 3
[PEGASUS SYSTEMS LOGO]
3811 TURTLE CREEK BOULEVARD, SUITE 1100
DALLAS, TEXAS 75219
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Questions and Answers....................................... 1
Proposals You May Vote On................................... 4
Nominees for Directors...................................... 5
Directors Continuing in Office.............................. 6
Statement of Corporate Governance........................... 6
Directors' Compensation..................................... 7
Executive Officers.......................................... 8
Executive Compensation...................................... 9
Compensation Committee Report............................... 15
Directors' and Officers' Ownership of Our Common Stock...... 16
Certain Transactions........................................ 18
Stock Performance Graph..................................... 19
Section 16(a) Beneficial Ownership Reporting Compliance..... 20
Independent Accountants..................................... 20
Other Matters............................................... 20
Annual Report............................................... 20
</TABLE>
ii
<PAGE> 4
QUESTIONS AND ANSWERS
<TABLE>
<S> <C>
1. Q: WHY AM I RECEIVING THIS PROXY STATEMENT?
A: The Board of Directors of Pegasus Systems, Inc., a Delaware
corporation, is furnishing this proxy statement to
stockholders of Pegasus as of March 9, 2000 in connection
with the solicitation of proxies to be voted at Pegasus'
annual meeting of stockholders, or at any adjournment of the
meeting, for the purposes set forth in the accompanying
Notice of Annual Meeting of stockholders. The meeting will
be held at the Hotel Crescent Court, 400 Crescent Court,
Dallas, Texas, on Tuesday, May 2, 2000 at 10:00 a.m.,
Dallas, Texas time.
2. Q: WHO IS SOLICITING MY VOTE?
A: This proxy statement is furnished in connection with the
solicitation of your vote by the Board of Directors of
Pegasus Systems, Inc. Pegasus will bear the cost of
solicitation of proxies. Pegasus has engaged American Stock
Transfer & Trust Company to solicit proxies from beneficial
owners of shares standing in the name of brokers and other
nominees. Pegasus has agreed to pay American Stock Transfer
& Trust Company an estimated $600 per month as a fee and
reimburse American Stock Transfer & Trust Company for
expenses related to this 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 Pegasus.
Pegasus will also supply brokers, nominees or other
custodians with the number of proxy forms, proxy statements,
and annual reports they may require for forwarding to
beneficial owners, and Pegasus will reimburse these persons
for their expenses.
3. Q: WHEN WAS THIS PROXY STATEMENT MAILED TO STOCKHOLDERS?
A: This proxy statement was first mailed to stockholders on or
about March 20, 2000.
4. Q: WHAT MAY I VOTE ON?
A: (1) The election of nominees to serve on the Board of
Directors
(2) The approval of our name change from Pegasus Systems,
Inc. to Pegasus Solutions, Inc.
(3) The approval of amendments to our 1997 Amended Stock
Option Plan that increase the number of shares of common
stock reserved for issuance under the plan and make
other changes; and
(4) 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.
5. Q: HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSALS?
A: (1) The Board recommends a vote FOR each of the nominees to
serve on the Board of Directors.
(2) The Board recommends a vote FOR the name change to
Pegasus Solutions, Inc.
(3) The Board recommends a vote FOR the approval of
amendments to our 1997 Amended Stock Option Plan that
increase the number of shares of common stock reserved
for issuance under the plan and make other changes.
6. Q: WHO IS ENTITLED TO VOTE?
A: Stockholders of record at the close of business on March 9,
2000 (the record date) may vote at this meeting.
7. Q: HOW DO I VOTE?
A: Stockholders entitled to vote may vote by any one of the
following methods:
- By signing, dating and completing the enclosed proxy card
and returning it in the enclosed self-addressed envelope by
mail
- By telephone using the toll free telephone number and
following the instructions for voting by telephone set forth
on your proxy card
</TABLE>
1
<PAGE> 5
<TABLE>
<S> <C>
- Via the Internet following the instructions for voting by
the Internet set forth on your proxy card; or
- In person, at the meeting
If you hold your shares though a bank, broker or other
nominee, they will give you separate instructions for voting
your shares.
8. Q: HOW CAN I REVOKE OR CHANGE MY VOTE?
A: If you have already voted and wish to change or revoke your
proxy, you may do so at any time prior to the meeting by any
one of the following methods:
(1) notifying in writing Ric L. Floyd, Secretary, Pegasus
Systems, Inc., 3811 Turtle Creek Boulevard, Suite 1100,
Dallas, Texas 75219;
(2) voting in person at the meeting;
(3) returning a later-dated proxy card that is received
prior to the meeting; or
(4) subsequently voting by telephone or via the Internet
following the instructions found on your proxy card.
9. Q: WHO WILL COUNT THE VOTE?
A: A representative of our transfer agent, American Stock
Transfer & Trust Company, will count the votes and act as
the inspector of the election.
10. Q: IS MY VOTE CONFIDENTIAL?
A: Proxy cards, ballots and voting tabulations of Internet and
telephone votes that identify individual stockholders are
mailed or returned directly to American Stock Transfer &
Trust Company, and handled in a manner that protects your
voting privacy. Your vote will not be disclosed except: (1)
as needed to permit American Stock Transfer & Trust Company
to tabulate and certify the vote or (2) as required by law.
Your identity will be kept confidential unless you ask that
your name be disclosed.
11. Q: HOW MANY SHARES CAN I VOTE?
A: As of the close of business on March 9, 2000, 20,353,135
shares of common stock were issued and outstanding. Every
stockholder is entitled to one (1) vote for each share of
common stock held.
12. Q: WHAT IS A "QUORUM" AND WHAT VOTE IS REQUIRED TO PASS
PROPOSALS?
A: A "quorum" is a majority of the outstanding shares. The
person with the right to vote the shares may be present at
the meeting or represented by proxy. There must be a quorum
for the meeting to be held. The affirmative vote of a
plurality of the shares of outstanding Pegasus 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 Pegasus
common stock is required for the amendment of Pegasus'
Certificate of Incorporation to change Pegasus' name to
Pegasus Solutions, Inc. Approval of the amendments to the
1997 Amended Stock Option Plan will be decided by a majority
of the shares of outstanding common stock represented at the
meeting and entitled to vote. Cumulative voting is not
permitted in the election of Directors. Abstentions 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.
Abstentions and broker non-votes have the effect of negative
votes on matters requiring approval of a specified
percentage of the outstanding shares of Pegasus common
stock. On a matter requiring the approval of a specified
percentage of outstanding shares represented at the annual
meeting and entitled to vote on the matter, 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.
</TABLE>
2
<PAGE> 6
<TABLE>
<S> <C>
13. Q: WHO CAN ATTEND THE ANNUAL MEETING AND HOW DO I GET ON THE
GUEST LIST?
A: All stockholders as of the close of business on March 9,
2000 can attend. To be included on the guest list, you may
check the box on your proxy card. If your shares are held by
a broker and you would like to attend, please write to Ric
L. Floyd, Secretary, Pegasus Systems, Inc., 3811 Turtle
Creek Boulevard, Suite 1100, Dallas, Texas, 75219. Include a
copy of your brokerage account statement or omnibus proxy
(which you can get from your broker), and we will place your
name on the guest list.
14. Q: HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A: We do not know of any business to be considered at the 2000
annual meeting other than the proposals described in this
proxy statement. If any other business is presented at the
annual meeting, your signed proxy card gives discretionary
authority to John F. Davis, III, President and Chief
Executive Officer, or Ric L. Floyd, Secretary and General
Counsel, to vote on such matters.
15. Q: WHEN ARE THE STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL
MEETING DUE?
A: All stockholder proposals to be considered for inclusion in
next year's proxy statement must be submitted in writing to
Ric L. Floyd, Secretary, Pegasus Systems, Inc., 3811 Turtle
Creek Boulevard, Suite 1100, Dallas, Texas 75219 prior to
November 24, 2000. Additionally, the proxy for the annual
meeting may confer discretionary authority to Pegasus to
vote on any matter at its 2001 annual meeting of
stockholders if Pegasus did not have notice of the matter at
least 45 days before the date on which the registrant first
mailed its proxy materials for its 2000 annual meeting of
stockholders.
</TABLE>
3
<PAGE> 7
PROPOSALS YOU MAY VOTE ON
1. ELECTION OF DIRECTORS
The Company currently has authorized nine Directors with seven Directors
currently holding office. The Directors are divided into three classes with
staggered terms as follows:
- Class I Directors, which include William C. Hammett, Jr., Thomas F.
O'Toole and Paul Brown, whose terms will expire at the annual meeting to
be held in 2001.
- Class II Directors, which include Robert B. Collier and Bruce W. Wolff,
whose terms will expire at the annual meeting to be held in 2002.
- Class III Directors, which include Michael A. Barnett and John F. Davis,
III, whose terms will expire at the annual meeting to be held on May 2,
2000.
Vacancies on the Board of Directors or newly created directorships may be
filled by a vote of the majority of the Directors then in office, and any
Director so chosen will hold office until the next election of the class for
which that Director was chosen.
At the annual meeting of stockholders to be held on May 2, 2000, two
Directors will be elected as Class III Directors for terms expiring at the
annual meeting to be held in 2003 and until their respective successors are
elected and qualified. Nominees for election this year are: Michael A. Barnett
and John F. Davis, III. Shares represented by returned and executed proxies will
be voted , unless otherwise specified, in favor of the two nominees for the
Board of Directors named below. If any Director is unable to stand for re-
election, the Board may reduce the Board's size or designate a substitute. If a
substitute is designated, proxies voting on the original Director candidate will
be cast for the substituted candidate. You may withhold authority to vote for
any nominee by marking the proxy as indicated for that purpose on the proxy
card.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THESE DIRECTORS.
2. COMPANY NAME CHANGE
As a result of our pending transaction to acquire REZ, Inc. the Board of
Directors unanimously approved a change of the Company's name to Pegasus
Solutions, Inc. This name change will be implemented by amending Article I of
Pegasus' Certificate of Incorporation to read "The name of the corporation is
Pegasus Solutions, Inc." The Board believes the new name will be more
descriptive of the combined entity and our services.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR CHANGING OUR NAME TO PEGASUS
SOLUTIONS, INC.
3. AMENDMENTS TO OUR 1997 AMENDED STOCK OPTION PLAN
The Company's 1997 Amended Stock Option Plan was originally adopted by the
Board of Directors and stockholders on March 25, 1997. It was later amended by
the Board and approved by the stockholders at the 1998 and 1999 annual meetings
of stockholders. The 1997 plan currently has a total of 1,244,643 shares
reserved for issuance in the form of stock options. As of February 29, 2000,
1,240,061 of the shares reserved for issuance of options under the 1997 plan
have been allocated to current option grants, leaving only 4,582 shares of
common stock reserved for future option grants.
The Company also has a 1996 Amended Stock Option Plan with 1,300,000 shares
reserved for issuance in the form of stock options. It has only 84 shares
remaining as of February 29, 2000 for the issuance of future stock option
grants. Thus, Pegasus has only 4,188 total shares reserved for future stock
option grants under its option plans.
The 1997 plan also provides for fixed annual grants of options to
non-employee directors with an exercise price equal to 85% of fair market value.
4
<PAGE> 8
On September 9, 1999 and February 28, 2000, the Board of Directors
unanimously approved amendments to the 1997 plan, subject to stockholder
approval at the 2000 annual meeting. The amendments provide for:
- An increase in the fixed number of shares reserved for issuance under the
plan from 1,050,000 to 1,500,000
- An annual increase in the number of shares reserved for issuance under
the plan
- The deletion of non-employee Directors' annual option grants of 1,500
shares at an exercise price equal to 85% of fair market value
- The plan administrator having discretionary rights to make stock option
grants to non-employee directors at fair market value
The proposed annual increase of shares reserved for issuance under the plan
provides that the number of shares reserved for issuance under the 1997 plan
increases by an amount equal to 15% of the number of shares outstanding as of
the last business day of April of each year less the number of shares reserved
under all of our stock option plans as of that date. The proposed amendments
protect against stockholder dilution by providing for an aggregate maximum
number of shares reserved for issuance under all stock option plans which does
not exceed 15% of the number of outstanding shares.
The proposed amendments to the 1997 plan enable us to continue to provide
stock based incentives for the foreseeable future. In particular, we anticipate
needing additional shares for:
- Issuing options to additional employees resulting from the REZ
acquisition
- Attracting new employees
- Retaining existing employees
The proposed amendment deleting non-employee Directors' annual option
grants will eliminate fixed annual option grants to Directors and the adverse
financial impact of grants at less than fair market value.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE AMENDMENTS TO OUR 1997
AMENDED STOCK OPTION PLAN.
NOMINEES FOR DIRECTORS
MICHAEL A. BARNETT, age 47 and a Director since 1999, has served as
Chairman of the Board and Chief Executive Officer of Benchmark Bank since 1988.
Since 1983, Mr. Barnett has served as President and Chairman of the Board of
Barnett Interests, Inc., a diversified real estate management company. Since
1986, Mr. Barnett has served as President and Director of Quinlan Bancshares,
Inc., a bank holding company. Since 1984, Mr. Barnett has served as Chairman of
the Board of Barnett Lane Investments, Inc., a real estate investment and
management company. Mr. Barnett also served as a Director of The Hotel Clearing
Corporation, a predecessor of Pegasus, from 1993 to 1996.
JOHN F. DAVIS, III, age 47 and a Director since July 1995, has served as
President and Chief Executive Officer of Pegasus Systems, Inc. since February
1989. Before joining Pegasus, Mr. Davis was the founder, President and a
Director of Advanced Telemarketing Company, a provider of inbound and outbound
telemarketing services. He was also one of the founders of 1-800-Flowers, LTD, a
company offering quality floral arrangements by telephone.
5
<PAGE> 9
DIRECTORS CONTINUING IN OFFICE
PAUL J. BROWN, age 32 and a Director since August 1999, has served as
President and Chief Operating Officer of Global eVentures, an e-commerce
business generation company since January 2000. From January 1999 to December
1999, Mr. Brown served as Senior Vice President, Strategic Services for Bass
Hotels & Resorts, parent of Holiday Inn, Crowne Plaza Hotels and Resorts,
Holiday Inn Express, Staybridge Suites and Inter-Continental Hotels and Resorts.
From April 1998 to January 1999, Mr. Brown served as Vice President of Strategic
Planning for Bass. Prior to joining Bass, Mr. Brown held the position of
Consultant for Boston Consulting Group from August 1994 to April 1998.
ROBERT B. COLLIER, age 60 and a Director since July 1998, has served as
President of RBC Associates since September 1998. From January 1997 to September
1998, Mr. Collier held the position of Vice Chairman of Saison Overseas
Holdings, a majority shareholder of Inter-Continental Hotels and Resorts. From
January 1994 to January 1997, Mr. Collier served as Joint Managing Director of
Inter-Continental.
WILLIAM C. HAMMETT, JR., age 53 and a Director since October 1995, has
served as Chairman of the Board of Directors of Pegasus Systems, Inc. since May
1998. From October 1995 to May 1998, Mr. Hammett served as Vice Chairman of the
Board of Directors of Pegasus. Since July 1998, Mr. Hammett has served as
President of Dogwood Creek Food Systems, Inc., a private restaurant management
company. From September 1997 to July 1998, Mr. Hammett served as President of
DB&K Enterprises, Inc., a private investment company. From August 1996 to
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.
THOMAS F. O'TOOLE, age 42 and a Director since May 1998, has served as
Senior Vice President, Marketing for Hyatt Hotels Corporation since March 1999.
From July 1995 to March 1999, Mr. O'Toole served as Vice President, Marketing
for Hyatt. From March 1993 to June 1995, Mr. O'Toole served as Vice President,
Marketing for Renaissance Hotels International (Americas).
BRUCE W. WOLFF, age 56 and a Director since October 1995, has served as
Senior Vice President, Distribution, Sales and Marketing for the lodging
division of Marriott International, Inc. since 1998. From 1993 to 1998, Mr.
Wolff served as Vice President, Distribution, Sales and Marketing for the
lodging division of Marriott.
STATEMENT OF CORPORATE GOVERNANCE
The Board of Directors held five meetings in 1999. All Directors except
Bruce W. Wolff attended at least seventy-five percent of the Board meetings, and
all committee members attended at least seventy-five percent of the meetings of
the Board committees on which that Director served.
The Board considers all major decisions. The Board has established three
standing committees so that certain areas can be addressed in more depth than
may be possible at a full Board meeting.
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. Members
of the Audit Committee include Michael A. Barnett, William C. Hammett, Jr.
and Thomas F. O'Toole. Bruce W. Wolff served on the committee from January
1 through May 13, 1999. The Audit Committee met four times during 1999.
Compensation Committee. The Compensation Committee makes
recommendations to the Board of Directors concerning salaries and incentive
compensation for Pegasus officers and employees and administers our
employee stock purchase plan and stock option plans. Members of the
Compensation Committee include Michael A. Barnett, Robert B. Collier and
William C. Hammett, Jr. Mark C. Wells served on the committee during 1999
and until January 14, 2000 when he resigned and was replaced by Mr.
Barnett. The Compensation Committee met four times during 1999.
6
<PAGE> 10
Nominating Committee. The Nominating Committee makes recommendations
to the Board of Directors regarding nominees for election to the Board of
Directors. Members of the Nominating Committee include Michael A. Barnett,
John F. Davis, III, William C. Hammett, Jr., Thomas F. O'Toole and Bruce W.
Wolff. The Nominating Committee did not meet during 1999.
DIRECTORS' COMPENSATION
The Chairman of the Board receives $15,000 per year. The other non-employee
Directors receive $10,000 per year. In addition, each Director receives $2,500
for each Board meeting attended and $250 for each committee meeting attended.
Each committee chairman receives an additional $250 for each committee meeting
attended. Directors are also reimbursed for all reasonable expenses incurred
while performing their duties as Directors of Pegasus. Non-employee Directors
also receive options for 1,500 shares of Pegasus common stock upon election or
re-election to the Board and on the date of each annual meeting held during a
Director's multi-year term. These options have an exercise price of 85% of the
closing price at the end of the business day immediately preceding the grant
date and vest over twelve months. If a Director serves a minimum of six months
but less than a full year, a portion of the Director's option will vest at the
end of that year. If the proposed amendments to the 1997 Amended Stock Option
Plan are approved at the annual meeting, these automatic annual option grants
will be eliminated and any option grants to non-employee Directors would be
within the discretion of the plan administrator which is currently the
Compensation Committee of the Board.
7
<PAGE> 11
EXECUTIVE OFFICERS
The executive officers of Pegasus are as follows:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
John F. Davis, III....................... President, Chief Executive Officer and
Director
Joseph W. Nicholson...................... Chief Operating Officer
Jerome L. Galant......................... Chief Financial Officer
Mark C. Wells............................ Executive Vice President
Ric L. Floyd............................. Secretary and General Counsel
Steven L. Reynolds....................... Chief Information Officer
</TABLE>
Set forth below is information concerning the business experience of the
executive officers of Pegasus that are not also Directors:
JOSEPH W. NICHOLSON, age 39, has served as the Chief Operating Officer of
Pegasus since September 1998. From September 1989 to September 1998, Mr.
Nicholson served as the Chief Information Officer of Pegasus.
JEROME L. GALANT, age 50, has served as the Chief Financial Officer of
Pegasus 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.
MARK C. WELLS, age 50, has served as Executive Vice President of Pegasus
since January 2000. Mr. Wells served on the Board of Directors of Pegasus from
September 1996 to January 2000. Mr. Wells served as Senior Vice President,
Marketing of Choice Hotels International, Inc. from May 1998 to January 2000.
From February 1996 to May 1998, Mr. Wells served as Senior Vice President,
Franchise Operations for Promus Hotel Corporation. From April 1995 to February
1996, Mr. Wells served as Senior Vice President, Marketing for Promus. From 1993
to April 1995, Mr. Wells served as Senior Vice President, Marketing for Embassy
Suites.
RIC L. FLOYD, age 48, has served as Secretary and General Counsel of
Pegasus since July 1997. From April 1993 to July 1997, Mr. Floyd served as
Assistant Secretary and General Counsel of Pegasus. From March 1995 to December
1999, Mr. Floyd served as President of Floyd & Sloan, P.C., a law firm based in
Dallas, Texas.
STEVEN L. REYNOLDS, age 40, has served as the Chief Information Officer of
Pegasus since September 1998. From April 1996 to September 1998, Mr. Reynolds
served as Vice President of Information Technology of Pegasus. From November
1992 to April 1996, Mr. Reynolds served as Director of Systems Development of
Pegasus.
8
<PAGE> 12
EXECUTIVE COMPENSATION
All references to shares and share prices have been retroactively adjusted
for a three-for-two stock split effected January 7, 2000 to stockholders of
record on December 20, 1999.
Summary Compensation Table. The following table sets forth the compensation
earned by our 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, 1999 were in excess of
$100,000.
In accordance with the rules of the Commission, the compensation described
in the following table does not include medical insurance, group life insurance
or other benefits received by the Named Executive Officers that are available
generally to all salaried Pegasus employees. In addition, the compensation
described in the following table may not include certain perquisites and other
personal benefits received by the Named Executive Officers that do not exceed
the lesser of $50,000 or 10% of the officer's salary and bonus disclosed in the
table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
AWARDS
ANNUAL COMPENSATION ----------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS(#) COMPENSATION(2)
--------------------------- ---- -------- -------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John F. Davis, III(3)........ 1999 $300,469 $120,188 $8,000 112,500 $10,356
President and Chief 1998 300,000 150,000 8,000 120,000 10,292
Executive Officer 1997 275,385 175,000 7,917 -- 9,397
Joseph W. Nicholson(3)....... 1999 $210,140 $ 73,549 $7,263 75,000 $ 3,269
Chief Information Officer 1998 195,833 68,548 8,000 60,000 3,191
1997 175,159 74,750 7,596 -- 2,847
Jerome L. Galant............. 1999 $170,028 $ 51,008 $6,900 26,250 $ 571
Chief Financial Officer 1998 163,625 57,269 8,000 24,000 546
1997 147,944 69,167 7,523 22,500 --
Steven L. Reynolds........... 1999 $147,586 $ 44,276 $7,375 15,000 $ 476
Chief Information Officer 1998 122,833 30,713 6,613 15,000 378
1997 101,500 24,380 5,188 18,000 354
William S. Lush.............. 1999 $136,923 $ 27,385 $6,845 -- $ 476
Vice President, 1998 132,267 33,075 6,613 -- 462
Business Development 1997 128,000 41,140 6,229 7,500 438
</TABLE>
- ---------------
(1) Reflects matching contributions made by Pegasus pursuant to our 401(k) plan.
(2) Includes premiums paid for life insurance policies for the benefit of the
Named Executive Officers.
(3) The salaries of Messrs. Davis, Nicholson and Galant were paid in accordance
with the terms of their respective employment agreements.
Option Grants In Last Fiscal Year. The following table sets forth each
stock option grant made during the year ended December 31, 1999 to the Named
Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE GRANT DATE
UNDERLYING OPTIONS GRANTED IN PRICE PER EXPIRATION PRESENT
NAME GRANTED(1) 1999(2) SHARE(3) DATE(4) VALUE(5)
---- ------------------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
John F. Davis, III................ 112,500 21.43% $24.50 10/4/09 $1,912,500
Joseph W. Nicholson............... 75,000 14.29% $24.50 10/4/09 1,275,000
Jerome L. Galant.................. 26,250 5.00% $24.50 10/4/09 446,250
Steven L. Reynolds................ 15,000 2.86% $24.50 10/4/09 255,000
</TABLE>
9
<PAGE> 13
- ---------------
(1) The options vest over a four-year period with 25% of the shares vesting
after one year and one-twelfth of the balance of the shares vesting each
quarter thereafter for the next twelve quarters. These options are subject
to acceleration upon an acquisition event as described in our stock option
plans.
(2) Based on options to purchase an aggregate of 524,875 shares of common stock
granted during 1999.
(3) The exercise prices for options are equal to the closing price of the common
stock as quoted on the Nasdaq National Market on the date immediately
preceding the grant date.
(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 Securities and Exchange Commission for estimating the present value of
options. The Black-Scholes Option Pricing Model is based on assumptions as
to the variables 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 were based on the following assumptions:
- volatility -- 95.39%
- risk free rate of return -- 5.0%
- dividend yield -- 0.0%
- expected life -- 4 years
Aggregate Fiscal Year-End Option Values. The following table sets forth
information concerning options exercised during 1999 and options held on
December 31, 1999 by our named executive officers whose salary and bonus
exceeded $100,000 for 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING OPTIONS VALUE OF IN-THE-MONEY OPTIONS
SHARES AT YEAR-END(#) AT YEAR-END(2)
ACQUIRED ON VALUE --------------------------- -----------------------------
NAME EXERCISE(#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
John F. Davis, III.... 102,000 $2,964,464 321,750 258,750 $12,356,086 $7,002,281
Joseph W. Nicholson... 105,000 2,851,296 106,875 148,125 4,079,153 3,795,672
Jerome L. Galant...... 23,250 632,394 50,469 68,531 1,812,983 1,873,209
Steven L. Reynolds.... 21,750 541,034 11,426 37,425 361,663 969,157
William S. Lush....... 25,800 676,206 30,794 16,407 1,170,611 599,069
</TABLE>
- ---------------
(1) Based on the difference between the option exercise price and the closing
sale price of the Pegasus common stock as reported on the Nasdaq National
Market on the exercise date.
(2) Based on the difference between the option exercise price and the closing
sale price of $40.21 of Pegasus common stock as reported on the Nasdaq
National Market on December 31, 1999, the last trading day prior to the
closing of our fiscal year multiplied by the number of shares underlying the
options.
Employment Agreements. Pegasus has employment agreements with executives
John F. Davis, III, Joseph W. Nicholson, Mark C. Wells, Jerome L. Galant and Ric
L. Floyd. Each agreement has a term expiring January 1, 2004. The agreements
provide that Messrs. Davis, Nicholson, Wells, Galant and Floyd will receive base
annual salaries of $400,000, $265,000, $265,000, $205,000 and $200,000,
respectively, and will be eligible to receive a discretionary annual bonus in
accordance with a bonus plan approved by the Compensation Committee.
Additionally, each executive is entitled to participate in the Company's
Supplemental Employee Retirement Plan.
10
<PAGE> 14
Each employment agreement provides that Pegasus may terminate the
executive's employment for cause, upon death or disability. Each of the
executives may terminate the agreement for good reason. Pegasus may terminate
the executive's employment for cause if the executive:
(i) has been convicted of or pleads guilty or no contest to a felony;
(ii) intentionally and with an absence of good faith and reasonable
belief that his action or failure to act was in the best interest of
Pegasus, engages in conduct demonstrably and materially injurious to
Pegasus;
(iii) commits gross malfeasance or intentionally fails to perform his
duties after notice and opportunity to cure; or
(iv) violates any valid noncompetition or nondisclosure agreement or
Pegasus' insider trading policy.
The executive's right to terminate employment for good reason means the
occurrence of any of the following events:
(i) the executive no longer serving in the capacity set forth in the
agreement;
(ii) a reduction in base salary of the executive or the failure to pay
any other compensation or benefit required by the agreement;
(iii) a change of control of Pegasus, defined as
- an acquisition of more than 50% of the voting securities of Pegasus,
- a change in the Board of Directors by more than half resulting from
the election of members not nominated or elected by the Board or
- the liquidation, dissolution or sale of substantially all of the
assets of Pegasus;
(iv) breach of the agreement by Pegasus with notice and failure to
cure;
(v) a termination for cause by the Company found by a court or
arbitrator to not comply with the agreement; or
(vi) failure of Pegasus to obtain satisfactory agreement from any
successor or assign of Pegasus to assume the agreement.
Additionally, the executive or Pegasus may voluntarily terminate the
executive's employment at any time upon 30 days prior written notice.
If the executive's employment is terminated by Pegasus for cause or
voluntarily by the executive, Pegasus is obligated to pay the executive all
amounts earned and accrued through the date of termination.
If the executive's employment is terminated by Pegasus for disability, the
executive is entitled to all amounts earned and accrued through the termination
date, base salary and a pro rata bonus for one year and a monthly payment upon
reaching age 60 as provided by the Supplemental Employee Retirement Plan.
If the executive's employment is terminated by Pegasus on account of the
executive's death, the executive is entitled to all amounts earned and accrued
through the date of termination, base salary and a pro rata bonus for one year
and a single payment equal to the executive's total accrued benefit under the
Supplemental Employee Retirement Plan.
If the executive's employment is voluntarily terminated by Pegasus or by
the executive for good reason, the Company is obligated to pay executive the
following:
(i) all accrued compensation and a pro rata bonus;
(ii) base salary and bonus for a period of 24 months following
termination;
11
<PAGE> 15
(iii) customary and usual benefits for 12 months;
(iv) all restrictions on any outstanding stock options granted to
executive shall lapse and the options shall be 100% vested;
(v) continue for 2 years to contribute to the Supplemental Employee
Retirement Plan for the benefit of executive; and
(vi) reimbursement for outplacement services costs not to exceed
$15,000.
Supplemental Employee Retirement Plan. The Board of Directors of Pegasus
has adopted a Supplemental Employee Retirement Plan effective as of January 1,
2000. The purpose of the plan is to provide supplemental retirement benefits to
certain management employees of Pegasus selected by the Compensation Committee.
No person has the automatic right to become a participant of the plan.
Benefits under the plan will be distributed to the participant or his or
her beneficiary, as applicable, upon the retirement, death, total and permanent
disability or termination of employment for other than for cause of the
participant. Upon retirement, total and permanent disability or termination of
employment for other than for cause, the participant will receive monthly
benefits equal to an amount calculated based on his or her average compensation.
In the event of death, the beneficiary of the participant will receive a lump
sum payment equal to an actuarial equivalent amount with an interest rate of 8%
compounded annually.
At the option of the participant, benefits may be paid as a single life
annuity during the participant's lifetime or as an actuarial equivalent amount
to the participant or, upon his or her death, to a beneficiary of the
participant. All amounts paid under the plan will be paid in cash from the
general assets of Pegasus or other funding vehicle as the Board of Directors may
determine. All assets in such funding vehicle will be subject to the general
creditors of Pegasus.
DESCRIPTION OF THE 1997 AMENDED STOCK OPTION PLAN
The following description of the 1997 Amended Stock Option 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, consultants and non-employee directors of
Pegasus. Options granted under the 1997 plan may be incentive stock options or
non-qualified 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 otherwise surrendered, the unpurchased shares may be
available for future grants or sale under the 1997 plan. The 1997 plan will
terminate on March 25, 2007.
Eligibility. Persons eligible to participate in the 1997 plan include all
employees, consultants and non-employee directors of Pegasus. As of February 29,
2000, Pegasus has six non-employee directors and 172 employees. Non-qualified
stock options may be granted to employees, consultants and non-employee
directors. Incentive stock options may be granted only to employees. During any
fiscal year, not more than 500,000 stock options may be awarded to any one
employee, consultant or non-employee director.
Administration. The 1997 plan is administered by the Board of Directors or
a committee appointed by the Board (the "Administrator"). Currently, the
Compensation Committee of the Board 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 is determined by
the Administrator. The 1997 plan requires that the exercise price per share be
at least 100% of the fair market value on the date of grant, with the following
limited exceptions.
12
<PAGE> 16
First, incentive stock options awarded to an employee who owns more than 10% of
the voting power of all classes of stock of Pegasus must have an exercise price
of at least 110% of the fair market value on the date of grant. Second,
non-qualified stock options may be granted for not less than 85% of the fair
market value of the common stock on the date of grant if the grant is made to an
employee expressly in lieu of a reasonable amount of salary or cash bonus. The
Administrator may not reduce the exercise price of any stock option unless such
reduction: (i) affects less than 10% of the shares reserved for issuance under
the 1997 plan; (ii) is for a legitimate corporate purpose such as retention of
one or more key persons; and (iii) is for the purpose of maintaining option
value due to extreme circumstances beyond management's control.
Shares Reserved for Issuance Under the plan. Pursuant to the amendments
recently approved by the Board of Directors, the maximum aggregate number of
shares which may be optioned and sold under the plan is 1,500,000 shares. This
amount will increase as of May 1 of each fiscal year commencing May 1, 2000 by
an amount that, when aggregated with the number of shares reserved for issuance
as stock options under all stock option plans sponsored by Pegasus, equals 15%
of the number of shares outstanding as of the close of business on the last
business day of April of each year. For amendments to the 1997 plan approved by
the Board, see "Proposals You May Vote On -- Amendments to Our 1997 Amended
Stock Option Plan."
Grants to Non-Employee Directors. Pursuant to the amendments recently
approved by the Board of Directors, fixed annual grants of 1,500 shares to
non-employee Directors at an exercise price equal to 85% of fair market value
would be deleted. The amendment approved by the Board of Directors would grant
the plan Administrator the right to make discretionary grants to non-employee
Directors at fair market value. See "Proposals You May Vote On -- Amendments to
Our 1997 Amended Stock Option Plan."
Adjustments, Terminations and Amendment. In the event of any change in
Pegasus' 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 Pegasus, 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 shall mean (i)
certain mergers or consolidations of Pegasus with or into another corporation;
(ii) the sale of substantially all of the assets of Pegasus; (iii) the complete
liquidation of Pegasus; or (iv) the acquisition by another entity of beneficial
ownership of Pegasus' securities representing 50% or more of the combined voting
power of Pegasus' then outstanding securities, the Board of Directors of Pegasus
may (x) provide that each outstanding option shall be assumed and/or an
equivalent option be substituted by the successor corporation or an affiliate
thereof; (y) 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 (z) if 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 therefore, 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 "Act"), the
Code or other legal or regulatory requirements. No suspension, termination,
alteration or amendment of the 1997 plan may alter or impair the rights of any
optionee under options previously granted.
For additional information concerning options granted to or held by
executive officers and Directors of Pegasus, see "Executive Compensation."
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.
13
<PAGE> 17
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 and does not dispose of the shares
acquired within two years from the date of the grant of the option nor within
one year from the date of exercise, the optionee will not realize any income by
reason of the exercise and Pegasus 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. Pegasus
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 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").
Non-qualified Stock Options. Non-qualified stock options do not qualify for
the special tax treatment accorded to ISO's 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 non-qualified 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 non-qualified stock option,
Pegasus will be entitled to deduct as compensation an amount equal to the amount
included in the optionee's gross income. Pegasus' deduction will be taken in
Pegasus' 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 non-qualified 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 other 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 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
Code. The employee receiving an excess parachute payment incurs an excise tax of
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 Pegasus is not entitled to a deduction for such payment.
14
<PAGE> 18
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board generally makes decisions on
compensation of our executive officers. Each Compensation Committee member is a
non-employee Director. The Board reviews all Compensation Committee decisions
relating to compensation of our executive officers. The Compensation Committee
solely makes decisions with respect to awards under Pegasus' stock option plans
for such awards to satisfy Securities Exchange Act Rule 16b-3. No member of the
Compensation Committee was at any time during 1999, or at any other time, an
officer or employee of Pegasus. Furthermore, there were no "interlocks" with any
other company within the meaning of the Securities Act of 1933. The Compensation
Committee's report addressing our executive compensation policies for 1999 is
set forth below.
The Compensation Committee's executive compensation policies are designed
to:
- provide competitive levels of compensation that integrate pay with
Pegasus' annual and long-term performance goals
- reward above average corporate performance
- recognize individual initiative and achievements
- attract and retain qualified executives.
We believe stock ownership by management and performance-based compensation
arrangements are beneficial in aligning management's interests with those of
stockholders. In addition to stock-based awards in the form of stock option
grants, each of our executive officers receives an annual base salary and is
eligible to receive an annual bonus. The Compensation Committee determines
annual bonuses based on a percentage of the executive's annual salary and
established financial and other corporate goals. An executive's bonus increases
to the extent established goals are exceeded up to a maximum amount per year.
Targeted levels of total executive compensation are generally set at levels we
believe to be consistent with others in our industry. Actual compensation levels
in any particular year may be above or below those of our competitors depending
on the executive's or Pegasus' performance.
1999 Chief Executive Officer Compensation. Mr. Davis' compensation for 1999
as Chief Executive Officer of Pegasus principally consisted of a base salary,
bonus and stock options. The Compensation Committee determined Mr. Davis' 1999
base salary, bonus and stock option grant based upon the terms of his employment
agreement and the factors discussed above relating to executive compensation in
general. Mr. Davis also received matching contributions under Pegasus' 401(k)
plan, and Pegasus pays for life insurance premiums on Mr. Davis' behalf. Mr.
Davis does not participate in the Compensation Committee's decision regarding
his compensation.
Limit on Deductibility of Executive Compensation. In 1993, Congress amended
the Internal Revenue Code to add Section 162(m). This Section of the Internal
Revenue Code limits the deductibility of compensation paid to specified
executive officers to $1,000,000 per officer in any one year. Compensation which
qualifies as performance based compensation is not taken into account for the
purposes of this limitation. Pegasus obtained stockholder approval at the 1999
annual meeting of an amendment to the 1997 plan to allow Pegasus to deduct the
compensation expense paid upon the exercise of stock options granted under the
1997 plan even if the compensation paid to any of the Named Executive Officers
exceeds the deductible limit. The Compensation Committee intends to recommend
further action in connection with Pegasus' other benefit plans and salary and
bonus policies to address this issue if and when circumstances arise.
Submitted by the Compensation
Committee
of the Board of Directors
Michael A. Barnett
Robert B. Collier
William C. Hammett, Jr.
15
<PAGE> 19
DIRECTORS' AND OFFICERS' OWNERSHIP OF OUR COMMON STOCK
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 9, 2000, for:
- each person who is known by us to beneficially own more than 5% of the
outstanding shares of our common stock;
- each of our Directors;
- each of our Named Executive Officers; and
- all of our Directors and executive officers as a group.
The percentages of shares owned provided in the table is based on
20,353,135 shares outstanding as of March 9, 2000. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities. Except as indicated by footnote, the persons named in the table have
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them. The determination of whether these persons
have sole voting and investment power is based on information provided by them.
In computing an individual's beneficial ownership, the number of shares of
common stock subject to options held by that individual that are exercisable
within 60 days of March 9, 2000 are also deemed outstanding. These shares,
however, are not deemed outstanding for the purpose of computing the beneficial
ownership of any other person.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
-------------------
NAME NUMBER PERCENT
- ---- --------- -------
<S> <C> <C>
FMR Corp.(1)................................................ 2,624,865 12.90%
The TCW Group, Inc.(2)...................................... 1,731,213 8.51%
Wellington Management Company, LLP(3)....................... 1,546,950 7.60%
Capital Research and Management Company(4).................. 1,080,000 5.31%
John F. Davis, III(5)....................................... 389,358 1.88%
Joseph W. Nicholson(6)...................................... 133,510 0.65%
Jerome L. Galant(7)......................................... 62,745 0.31%
Mark C. Wells(8)............................................ 6,750 0.03%
Ric L. Floyd(9)............................................. 7,773 0.04%
Steven L. Reynolds(10)...................................... 16,484 0.08%
Gideon Dean(11)............................................. 6,077 0.03%
William S. Lush(12)......................................... 37,700 0.18%
Michael A. Barnett(13)...................................... 57,198 0.28%
Paul J. Brown............................................... 0 0.00%
Robert B. Collier........................................... 2,400 0.01%
William C. Hammett, Jr.(14)................................. 17,897 0.09%
Thomas F. O'Toole(15)....................................... 3,000 0.01%
Bruce W. Wolff(16).......................................... 6,000 0.03%
Directors and executive officers as a group (14
persons)(17).............................................. 746,892 3.56%
</TABLE>
- ---------------
(1) Information obtained from a filing with the Securities and Exchange
Commission with an effective date of December 31, 1999. The address of FMR
Corporation is 82 Devonshire Street, Boston, Massachusetts 02109.
(2) Information obtained from a filing with the Securities and Exchange
Commission with an effective date of December 31, 1999. The address of The
TCW Group, Inc. is 865 South Figueroa Street, Los Angeles, California
90017.
16
<PAGE> 20
(3) Information obtained from a filing with the Securities and Exchange
Commission with an effective date of December 31, 1999. The address of
Wellington Management Company, LLP is 75 State Street, 19th Floor, Boston,
MA 02109.
(4) Information obtained from a filing with the Securities and Exchange
Commission with an effective date of December 31, 1999. The address of
Capital Research and Management Company is 333 South Hope Street, Los
Angeles, California 90071.
(5) Includes exercisable options held by Mr. Davis to purchase 348,000 shares
of common stock and options exercisable within 60 days of March 9, 2000 to
purchase 26,250 shares of common stock.
(6) Includes exercisable options held by Mr. Nicholson to purchase 120,000
shares of common stock and options exercisable within 60 days of March 9,
2000 to purchase 13,125 shares of common stock.
(7) Includes exercisable options held by Mr. Galant to purchase 54,737 shares
of common stock and options exercisable within 60 days of March 9, 2000 to
purchase 6,240 shares of common stock.
(8) Includes exercisable options held by Mr. Wells to purchase 6,000 shares of
common stock.
(9) Includes exercisable options held by Mr. Floyd to purchase 4,036 shares of
common stock and options exercisable within 60 days of March 9, 2000 to
purchase 2,488 shares of common stock.
(10) Includes exercisable options held by Mr. Reynolds to purchase 11,424 shares
of common stock and options exercisable within 60 days of March 9, 2000 to
purchase 3,475 shares of common stock.
(11) Represents exercisable options held by Mr. Dean to purchase 4,218 shares of
common stock and options exercisable within 60 days of March 9, 2000 to
purchase 1,859 shares of common stock.
(12) Includes exercisable options held by Mr. Lush to purchase 30,792 shares of
common stock and options exercisable within 60 days of March 9, 2000 to
purchase 4,844 shares of common stock.
(13) Includes 54,198 shares of common stock held by Lodging Partners-Barnett
Joint Venture, a partnership controlled by Mr. Barnett.
(14) Includes exercisable options held by Mr. Hammett to purchase 6,000 shares
of common stock.
(15) Represents exercisable options held by Mr. O'Toole to purchase 3,000 shares
of common stock.
(16) Represents exercisable options held by Mr. Wolff to purchase 6,000 shares
of common stock.
(17) Includes exercisable options held by Messrs. Davis, Nicholson, Galant,
Wells, Floyd, Reynolds, Dean, Lush, Barnett, Brown, Collier, Hammett,
O'Toole and Wolff as a group to purchase 597,207 shares of common stock and
options exercisable within 60 days of March 9, 2000 to purchase, as a
group, 58,281 shares of common stock.
17
<PAGE> 21
CERTAIN TRANSACTIONS
Prior to becoming Executive Vice President of Pegasus, Mr. Wells was a
Director of Pegasus and served as Senior Vice President, Marketing with Choice
Hotels International. In 1999, Pegasus received $671,994 from Choice or its
affiliates for electronic distribution and commission processing services.
During 1999, Pegasus paid Choice or its affiliates $23,558 for consolidating
commission data and funds from its properties.
Mr. Wolff is a Director of Pegasus and serves as Senior Vice President,
Distribution, Sales and Marketing for the lodging division of Marriott
International, Inc. In 1999, Pegasus received $2,143,894 from Marriott or its
affiliates for electronic distribution and business intelligence services and
paid Marriott $1,486,730 for consolidating commission data and funds from its
properties.
Mr. O'Toole is a Director of Pegasus and serves as Senior Vice President,
Marketing with Hyatt Hotels Corporation. In 1999, Pegasus received $882,111 from
Hyatt for electronic distribution and commission processing services.
Mr. Brown is a Director of Pegasus and served as Senior Vice President,
Strategic Services with Bass Hotels and Resorts, Inc. through December 1999. In
1999, Pegasus received $1,678,616 from Bass or its affiliates for electronic
distribution, commission processing and business intelligence services and paid
Bass $1,462,803 for consolidating commission data and funds from its properties.
In May 1999, Pegasus issued and sold 518,584 shares to Bass at a purchase price
of $4.80 per share resulting in an aggregate purchase price of $2,489,208
pursuant to the exercise of a warrant issued in May 1997 to Holiday Hospitality
Corporation, the predecessor of Bass. On July 6, 1999, a Form S-3 Registration
Statement was declared effective by the Securities and Exchange Commission
covering 37,500 shares issued to Bass in connection with the exercise of the
warrant. The remainder of the shares issued to Bass remain unregistered.
18
<PAGE> 22
STOCK PERFORMANCE GRAPH
Research Data Group, Inc. prepared the following graph. It shows how an
initial investment of $100 in Pegasus common stock on August 7, 1997 (the date
of our initial public offering) would have compared to an equal investment in
the Russell 2000 Composite Stock Market Index, in the Hambrecht & Quist Services
Index or in our old peer group. Due to the frequency of mergers and acquisitions
in our industry and, more specifically, within our old peer group, we will no
longer use a peer group to compare our cumulative total return. We believe that
the Hambrecht & Quist Information Services Index is a broader industry index and
will provide a more consistent basis for comparison.
The old peer group includes QRS Corporation, National Processing, Inc.,
Transaction Network Services, Inc. and E*Trade Group, Inc. This old peer group
included PMT Services, Inc., and ENVOY Corporation, which were acquired by Nova
Corporation and Quintiles Transnational Corporation, respectively. The results
of the old peer group have been restated to eliminate PMT Services, Inc. and
ENVOY Corporation. Pegasus is also included in the calculations of Hambrecht &
Quist Information Services Index and old peer group cumulative total return on
investment.
COMPARISON OF 29 MONTH CUMULATIVE TOTAL RETURN*
AMONG PEGASUS SYSTEMS, INC., THE RUSSELL 2000 INDEX,
THE HAMBRECHT & QUIST INFORMATION SERVICES INDEX
AND A PEER GROUP
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
HAMBRECHT &
PEGASUS SYSTEMS QUIST INFORMAT
INC. PEER GROUP RUSSELL 2000 SERVICES
--------------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
8/7/97 100.00 100.00 100.00 100.00
12/97 114.42 88.63 110.16 107.46
12/98 276.92 133.38 103.05 178.79
12/99 463.95 299.90 101.52 291.14
</TABLE>
CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
8/7/97 12/97 12/98 12/99
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PEGASUS SYSTEMS, INC. 100.00 114.42 276.92 463.95
PEER GROUP 100.00 88.63 133.38 299.90
RUSSELL 2000 100.00 110.16 103.05 101.52
HAMBRECHT & QUIST INFORMATION SERVICES 100.00 107.46 178.79 291.14
</TABLE>
* $100 INVESTED ON 8/7/97 IN STOCK OR ON 7/13/97 IN INDEX -- INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
19
<PAGE> 23
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
We believe that, during the year ended December 31, 1999, all SEC filings
of Directors, officers and 10% stockholders complied with the requirements of
Section 16 of the Securities and Exchange Act. This belief is based on our
review of forms filed or written notice that no forms were required.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP served as our independent accountants for the
year ended December 31, 1999 and are expected to serve in that capacity for the
current year. Representatives of PricewaterhouseCoopers 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.
OTHER MATTERS
We do not know of any matter other than those discussed in the foregoing
materials contemplated for action at the annual meeting. Should any other matter
be properly brought before the annual meeting, it is the intention of the
persons named in the proxies to vote in accordance with the recommendation of
the Board. Discretionary authority for them to do so is contained in the proxy.
ANNUAL REPORT
We will provide a copy of our 1999 Annual Report on Form 10-K without
charge to any stockholder who makes a written request to Ric L. Floyd,
Secretary, Pegasus Systems, Inc., 3811 Turtle Creek Boulevard, Suite 1100,
Dallas, Texas 75219.
By Order of the Board of Directors,
RIC L. FLOYD
Secretary
March 10, 2000
20
<PAGE> 24
APPENDIX A
1997 AMENDED 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:
(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
A-1
<PAGE> 25
(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 1997 Amended 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 1,500,000 shares, increased, as of May 1 of each fiscal year
commencing May 1, 2000, by an amount that, when aggregated with the number of
shares reserved for issuance as stock options under all stock option plans
sponsored by the Company, equals fifteen percent (15%) of the number of Shares
outstanding as of the close of business on the last business day of April each
year. The maximum number of Shares with respect to which Options may be awarded
under the Plan during any fiscal year to any Employee shall be 500,000. 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); 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) Plan Procedure. With respect to Option grants awarded 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
A-2
<PAGE> 26
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.
(b) 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 only in the event the reduction of the
exercise price (i) effects less than ten percent (10%) of the Shares
authorized for grant under the Plan, (ii) is for a legitimate corporate
purpose such as retention of one or more key persons and (iii) is for
the purpose of maintaining option value due to extreme circumstances
beyond management's control;
(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
(x) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(c) 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.
A-3
<PAGE> 27
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 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 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option, the per share
exercise price shall be determined by the Administrator but shall not be
less than one hundred percent (100%) of the Fair Market Value per Share
on the date of grant; provided, however, that a per share exercise price
of no less than eighty-five percent (85%) of the Fair Market Value per
Share on the date of grant shall be permitted for a Nonstatutory Stock
Option expressly awarded to an Employee in lieu of a reasonable amount
of salary or cash bonus.
(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.
A-4
<PAGE> 28
9. Grants to Non-Employee Directors. The Administrator may, from time to
time, in its discretion, award Nonstatutory Stock Options to Non-Employee
Directors, for the number of shares of Common Stock, and upon such terms and
conditions as may be consistent with the Plan, based in each case on such
factors as the Administrator, in its sole discretion, shall determine.
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 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
A-5
<PAGE> 29
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.
(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
A-6
<PAGE> 30
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 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
(1) 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
A-7
<PAGE> 31
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.
(2) 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 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
A-8
<PAGE> 32
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.
A-9
<PAGE> 33
PEGASUS SYSTEMS, INC.
3811 TURTLE CREEK BLVD., SUITE 1100
DALLAS, TEXAS 75219
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 2, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JOHN F. DAVIS, III and RIC L. FLOYD,
and each of them, Proxies, with full power of substitution in each of them, in
the name, place and stead of the undersigned, to vote at the Annual Meeting of
Stockholders of Pegasus Systems, Inc. (the "Company") on Tuesday, May 2, 2000,
at The Crescent Hotel, 400 Crescent Court, Dallas, Texas or at any adjournment
or adjournments thereof, according to the number of votes that the undersigned
would be entitled to vote if personally present upon the following matters:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 34
ANNUAL MEETING OF STOCKHOLDERS OF
PEGASUS SYSTEMS, INC.
MAY 2, 2000
PROXY VOTING INSTRUCTIONS
TO VOTE BY MAIL
PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD IN THE ENVELOPE PROVIDED AS SOON AS
POSSIBLE.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
PLEASE CALL TOLL-FREE 1-800-776-9437 AND FOLLOW THE INSTRUCTIONS. HAVE YOUR
CONTROL NUMBER AND PROXY CARD AVAILABLE WHEN YOU CALL.
TO VOTE BY INTERNET
PLEASE ACCESS THE WEB PAGE AT www.voteproxy.com AND FOLLOW THE ON-SCREEN
INSTRUCTIONS. HAVE YOUR CONTROL NUMBER AND PROXY CARD AVAILABLE WHEN YOU ACCESS
THE WEB PAGE.
YOUR CONTROL NUMBER IS ->
--------------------------
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
[X] PLEASE MARK YOUR
VOTE AS IN THIS
EXAMPLE
<TABLE>
<CAPTION>
FOR all nominees WITHHOLD
listed at right AUTHORITY to
(except as vote for all
marked to the nominees
contrary below) listed to the
right
<S> <C> <C> <C>
1. ELECTION OF
CLASS III [ ] [ ] Nominees: John F. Davis, III
DIRECTORS Michael A. Barnett
(INSTRUCTION: To withhold authority to vote for an
individual nominee, write that nominee's name in
the space below)
- -------------------------------------------------------------------------------
2. Approval of Amendments to the Company's FOR AGAINST ABSTAIN
1997 Amended Stock Option Plan [ ] [ ] [ ]
3. Approval of an Amendment to Article I of
Pegasus' Certificate of Incorporation to
read "The name of the corporation is
Pegasus Solutions, Inc." [ ] [ ] [ ]
4. In their discretion to vote upon such
other business as may properly come
before the meeting
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ABOVE. IF NO
INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR THOSE NOMINEES AND THE
PROPOSALS LISTED ABOVE.
Please mark, sign, date and return this proxy card using the enclosed envelope.
SIGNATURE SIGNATURE IF HELD JOINTLY DATED , 2000
--------------------------- ------------------ ----------------
NOTE: 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 IN FULL CORPORATE NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP BY AUTHORIZED PERSON.
</TABLE>
