<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COSTAR GROUP, 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:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
[COSTAR LOGO]
May 1, 2000
Dear Stockholder:
You are cordially invited to attend the 2000 Annual Meeting of Stockholders
of CoStar Group, Inc., to be held at 10:00 a.m. on Wednesday, June 21, 2000 at 2
Bethesda Metro Center, Bethesda, Maryland 20814.
At the Annual Meeting, you will be asked to elect six directors, to ratify
the appointment of Ernst & Young LLP as the Company's independent public
accountants for 2000 and to approve amendments to the CoStar Group, Inc. 1998
Stock Incentive Plan. The accompanying Notice of 2000 Annual Meeting of
Stockholders and Proxy Statement describe these matters.
The Board of Directors unanimously recommends that stockholders vote in
favor of each of these proposals.
Whether or not you plan to attend the Annual Meeting, please mark, sign,
date and return your proxy card in the enclosed envelope as soon as possible.
Your stock will be voted in accordance with the instructions you have given in
your proxy card.
Sincerely,
/s/ Andrew C. Florance
ANDREW C. FLORANCE
President and Chief Executive Officer
<PAGE> 3
COSTAR GROUP, INC.
MAY 1, 2000
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD WEDNESDAY, JUNE 21, 2000
The 2000 Annual Meeting of Stockholders (the "Annual Meeting") of CoStar
Group, Inc. ("we" or the "Company") will be held at 2 Bethesda Metro Center,
Bethesda, Maryland 20814, at 10:00 a.m. on Wednesday, June 21, 2000, for the
following purposes:
1. To elect six directors to hold office until the next annual meeting of
stockholders or until their respective successors are elected and
qualified;
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent public accountants for 2000;
3. To approve amendments to the CoStar Group, Inc. 1998 Stock Incentive
Plan; and
4. To transact any other business properly presented before the Annual
Meeting.
The Board of Directors has fixed Monday, April 24, 2000 as the record date
for determining stockholders entitled to receive notice of and to vote at the
Annual Meeting (or any adjournment or postponement of it). Only stockholders of
record at the close of business on that date are entitled to notice of and to
vote at the Annual Meeting.
WE INVITE YOU TO ATTEND THE ANNUAL MEETING IN PERSON, BUT WHETHER OR NOT
YOU EXPECT TO ATTEND, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
AS PROMPTLY AS POSSIBLE IN THE POSTAGE-PAID ENVELOPE PROVIDED.
By Order of the Board of Directors
/s/ Carla J. Garrett
CARLA J. GARRETT
Secretary
<PAGE> 4
COSTAR GROUP, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, JUNE 21, 2000
The Board of Directors of CoStar Group, Inc. ("we" or the "Company")
solicits your proxy for use at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at 10:00 a.m. on Wednesday, June 21, 2000, at 2 Bethesda
Metro Center, Bethesda, Maryland 20814, and at any adjournment or postponement
of the Annual Meeting.
Our headquarters are located at 2 Bethesda Metro Center, Tenth Floor,
Bethesda, Maryland 20814. We are mailing this Proxy Statement and the
accompanying proxy card to our eligible stockholders on or about May 1, 2000.
OUTSTANDING SECURITIES, VOTING RIGHTS AND QUORUM
At the close of business on the record date, Monday, April 24, 2000, we had
15,383,418 shares of common stock outstanding and entitled to vote at the Annual
Meeting. Each outstanding share of common stock is entitled to one vote on each
proposal.
The presence at the Annual Meeting, in person or by proxy, of a majority of
the outstanding shares as of the record date constitutes a quorum for the
meeting. Both abstentions and broker non-votes will be counted as shares present
for purposes of obtaining a quorum, but will be disregarded in calculating the
total votes on each of the proposals.
The required vote and the calculation method for each of the matters
scheduled for consideration at the Annual Meeting are as follows:
Item 1 -- Election of Directors. Each outstanding share of common stock is
entitled to cast one vote for up to six nominees. The six nominees who receive
the most votes will be elected as directors.
Item 2 -- Ratification of the Appointment of Independent Public
Accountants. For stockholders to approve this proposal, the number of votes
cast in favor must exceed the number of votes cast against.
Item 3 -- Approval of Amendments to the CoStar Group, Inc. 1998 Stock
Incentive Plan. For stockholders to approve this proposal, the number of votes
cast in favor must exceed the number of votes cast against.
PROXY VOTING AND REVOCATION
If you properly execute your proxy card and return it before the Annual
Meeting:
- Your shares will be voted in accordance with your instructions on the
proxy card.
- For any items for which you do not provide instructions, your shares will
be voted "FOR" the item, as recommended by the Board of Directors.
You may revoke your proxy at any time before it is voted by:
- delivering to the Corporate Secretary written notice that you are
revoking your proxy;
- submitting a properly-executed proxy bearing a later date; or
- attending the Annual Meeting and voting in person. (If you are not the
owner of record, but rather hold your shares through a broker or bank,
you should take appropriate steps to obtain a legal proxy from the owner
of record if you wish to vote at the Annual Meeting.)
If you intend to attend the Annual Meeting, please mark your proxy card
accordingly.
<PAGE> 5
ITEM 1
ELECTION OF DIRECTORS
The Board has fixed the number of directors constituting the Board at six.
The Board has nominated each of the current directors for re-election. The
persons named as proxy holders on the proxy card will vote your shares FOR each
of these six nominees unless you instruct otherwise on your proxy card.
All of our directors will serve until the next Annual Meeting of
Stockholders or until their successors are elected and qualified. If any of the
nominees should become unable to serve prior to the Annual Meeting, proxies that
do not withhold authority to vote for directors may be voted for any other
nominee or nominees selected by the Board unless the Board votes to reduce the
size of the Board to the actual number of nominees. In no event may proxies be
voted for a greater number of persons than the number of nominees named.
Information about each of the nominees appears below.
NOMINEES FOR THE BOARD OF DIRECTORS
Michael R. Klein has been the Chairman of our Board of Directors since he
and Mr. Florance founded the Company in 1987. He has been a partner of the law
firm Wilmer, Cutler & Pickering since 1974. Mr. Klein serves as a director (and
a member of the executive committee) of Perini Corporation, and as a director of
SRA International, Inc. and several privately held entities in which he is an
investor. Mr. Klein is 58 years old.
Andrew C. Florance is also one of our founders and has served as our
President and as a director since 1987 and as our Chief Executive Officer since
1995. Prior to founding the Company, Mr. Florance held primary responsibility
for developing the first generation of software products for Federal Filings, an
SEC Form 13-D tracking service, which was later acquired by Dow Jones. Mr.
Florance was a co-founder of a commercial real estate information trade
association (REI-NEX) and served on its board from 1993 to 1996. He received a
B.A. in economics from Princeton University. Mr. Florance is 36 years old.
David Bonderman is principal of Texas Pacific Group and an indirect general
partner of TPG Partners I, L.P. and TPG Partners II, L.P. Mr. Bonderman
currently serves on the boards of directors of Continental Airlines, Inc., Bell
& Howell Company, Ducati Motor Holding S.p.A., Beringer Wine Estates, Denbury
Resources, Inc., Ryanair, P.L.C., Washington Mutual, Inc., Oxford Health Plans,
Inc., Magellan Health Services, Inc., SCG Holding Corporation and Paradyne
Networks, Inc. Mr. Bonderman serves as a member of the compensation committee of
Ducati Motor Holding S.p.A. and of Bell & Howell Company. He has been one of our
directors since 1987. Mr. Bonderman is 57 years old.
Warren H. Haber has been, for more than twenty-five years, Chairman of the
Board and Chief Executive of Founders Equity, Inc. and its affiliates, private
investment concerns engaged in the business of identifying businesses for
acquisition in principal transactions and managing such businesses for their own
accounts. Mr. Haber currently serves on the boards of directors of Beverly Glen
Medical Systems, American Lifecare, Grand Charter, Ltd. and Warnex Pharma. He
has served as one of our directors since 1995. Mr. Haber is 59 years old.
Josiah O. Low III is a Managing Director of the investment banking firm of
Donaldson, Lufkin & Jenrette, where he directs efforts in investment banking and
in the equity capital markets. Prior to joining that firm in 1985, Mr. Low
worked at Merrill Lynch, Pierce, Fenner & Smith and was a founding Managing
Director of the Merrill Lynch Capital Market Group in 1977. He serves on the
boards of directors of Centex Development Co., The Musicland Group, and St.
Laurent Paperboard Inc. Mr. Low has served on our Board of Directors since 1999.
Mr. Low is 60 years old.
John Simon is a Managing Director of the investment banking firm Allen &
Company Incorporated, with which he has been associated for over 20 years. Mr.
Simon currently serves on the boards of directors of Women First Healthcare,
Neurogen Corporation, and Advanced Technical Products, Inc. Mr. Simon has served
on our Board of Directors since 1996. Mr. Simon is 57 years old.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THESE
NOMINEES.
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<PAGE> 6
ITEM 2
RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee recommended, and the Board approved, the appointment of
Ernst & Young LLP as independent public accountants for the Company for 2000.
The Board would like stockholders to ratify this appointment, even though
ratification is not legally necessary. If stockholders do not ratify this
appointment, the Board may reconsider such appointment.
Ernst & Young LLP has served as independent accountants for the Company,
its subsidiaries, and its predecessors since 1994. A representative from Ernst &
Young LLP will attend the annual meeting, may make a statement, and will be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR RATIFYING
THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS.
ITEM 3
APPROVAL OF AMENDMENTS TO OUR 1998 STOCK INCENTIVE PLAN
The Board of Directors has adopted, subject to stockholder approval,
amendments to the CoStar Group, Inc. 1998 Stock Incentive Plan (the "Plan").
These amendments include:
- increasing the number of shares of common stock reserved for issuance
under the Plan by 1,550,000 shares; and
- replacing the formula stock grants for non-employee directors with annual
automatic option grants.
Increase in number of shares. Since our stockholders approved the Plan in
June 1998, we have acquired five companies and have grown from approximately 160
to approximately 960 eligible participants under the Plan. To keep pace with
this growth and to permit us to continue to grow internally and through
acquisitions, the Board of Directors has amended the Plan to increase the number
of shares available for issuance under the Plan. This increase is important so
we can continue to grant stock options that are essential to attract and retain
qualified employees. We have found that stock options are vital to our ability
to attract and retain outstanding and highly skilled individuals in the
extremely competitive labor markets in which we operate. Our employees are our
most valuable asset and attracting and retaining them is crucial to our
business. In addition, stock options allow our key employees to have an interest
parallel to the interests of the Company's stockholders.
Annual automatic option grants. Under the amendments to the Plan, each
non-employee director serving on the Board at the first meeting of the Board of
Directors immediately following each annual meeting of stockholders would
receive an annual automatic grant of options to purchase 1,000 shares of common
stock. These options will have an exercise price equal to the fair market value
of the common stock on the date of grant, and will vest and become exercisable
one year from the date of grant, as long as the non-employee director is still
serving on our Board of Directors on such date. This automatic option grant
replaces an annual formula grant, under which each non-employee director
received fully-vested shares of common stock equal to $15,000, valued as of the
date of the annual meeting.
We believe that the amendment to the automatic director grant feature is in
the best interests of stockholders for several reasons. First, the delayed
vesting feature requires non-employee directors to continue their service on the
board for at least one year before they can exercise the options, whereas under
the former provision the non-employee director received actual shares of stock
on the date of grant. Second, the exercise
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<PAGE> 7
price of the options will be set at fair market value so that the non-employee
directors will only receive value from the options if the stock price increases,
which reinforces a director's incentive for the stock price to rise. Finally,
non-employee directors will receive a fixed number of options, rather than an
amount of shares based on a fixed dollar value, which more closely aligns the
directors' interests with the interests of stockholders.
We are asking our stockholders to approve the amendments to the Plan so
that we can have additional options to offer, attract and retain our key
employees, and so that we can continue to grant incentive stock options to our
employees and directors and receive a federal income tax deduction for
compensation paid under the Plan. Should the amendments not be approved, the
original Plan will remain in full force and effect (with the exception of
insignificant changes), and any options that the Company has granted or grants
above the original 1,450,000 reserved shares shall be options granted outside of
the Plan and the director formula grants in the original version of the Plan
will remain.
MATERIAL TERMS OF THE PLAN, AS AMENDED
The following is a summary of the material terms of the Plan. A copy of the
Plan is available to any stockholder upon written request.
Our Board of Directors adopted the Plan before our initial public offering,
and our stockholders approved it in June 1998. The purpose of the Plan is to
advance the best interests of the Company and its subsidiaries by providing
employees, officers and directors with an additional incentive to contribute to
the growth and success of the Company by increasing their proprietary interest
in the Company. The Plan also provides the Company with an additional tool to
attract, reward and retain executives and critical employees and to compensate
directors for their time spent serving on the Board. Additionally, the Plan
helps to more closely align the interests of key employees with the interests of
the Company's stockholders.
Shares Reserved for Options. We originally reserved 1,450,000 shares of
our common stock for issuance under the Plan. Under the amendments to the Plan,
there will be an additional 1,550,000 shares reserved for issuance, for a total
of 3,000,000 shares available for issuance. If any award granted under the Plan
expires, is canceled or terminates for any reason, the shares of common stock
available under that award will again be available for the granting of new
awards (but will be counted against that calendar year's limit for a given
individual).
Eligible Participants. Each officer, director and employee of the Company
and its subsidiaries is eligible to receive awards under the Plan. As of April
1, 2000, we had approximately 960 eligible participants.
Discretionary Awards. The plan permits three types of discretionary
awards: stock grants, incentive stock options within the meaning of Section 422
of the Internal Revenue Code (ISOs) and non-qualified stock options (NSOs). To
date, the Administrator has granted only ISOs and NSOs. The exercise price for
ISOs and NSOs may not be less than the fair market value of our common stock on
the date of grant. However, the exercise price per share for ISOs granted to an
individual who on the date of grant owns more than 10% of the voting power of
the common stock cannot be less than 110% of the fair market value on the date
of grant.
Automatic Grants. Under the amendments to the Plan, each non-employee
director serving on the Board at the first meeting of the Board of Directors
immediately following each annual meeting of stockholders would receive an
annual automatic grant of options to purchase 1,000 shares of common stock.
These options will have an exercise price equal to the fair market value of the
common stock on the date of grant, and will vest and become exercisable one year
from the date of grant, as long as the non-employee director is still serving on
our Board of Directors on such date.
Administrator. The Compensation Committee of the Board of Directors
administers the Plan. Subject to provisions of the Plan, the Administrator may
decide:
- the participants to receive awards;
- the terms of any awards;
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<PAGE> 8
- the schedule of exercisability or vesting of awards;
- the time and conditions for expiration of awards; and
- the form of payment due upon exercise of an award.
Limitations. The Plan limits grants to any one eligible participant during
a calendar year to 400,000 shares. The maximum term of options granted under the
Plan is ten years (or five years in the case of an ISO granted to a more than
10% stockholder). In cases of death, termination of employment and disability,
unless otherwise provided in the award agreement, vested options will expire (i)
twelve months after the participant's death, (ii) ninety days after the
participant's employment terminates, or (iii) in the case of disability, the
earlier of (A) the first anniversary of termination of employment or (B) thirty
days after the participant ceases to have a disability; provided, however, that
vested options may not be exercised after the expiration of the maximum ten-year
term.
Effect of a Change of Control. Upon a "change of control" as defined in
the Plan, all of our outstanding unexercisable options under the Plan
immediately become exercisable. Upon a "substantial corporate change," which
includes circumstances that may constitute a "change of control," as well as
other types of corporate transactions, the exercisability of all unexercisable
options will accelerate unless the Board determines otherwise or unless the
options are assumed or substituted by another entity. Exercisable options that
are not exercised upon a "substantial corporate change" will be terminated.
Amendments. The Board may amend, suspend or terminate the Plan at any
time, without the consent of the participants or their beneficiaries, provided
that an amendment may not deprive any participant or beneficiary of any
previously declared grant, modify the terms and conditions of a grant so as to
adversely affect a participant without such participant's consent, or terminate
or adversely affect any right or obligation under any outstanding grant without
the participant's consent.
Transferability. Unless approved by the Administrator, awards may not be
transferred other than by will or by the laws of descent and distribution.
Termination. Unless terminated sooner by the Board of Directors, the Plan
will terminate on May 8, 2008.
Tax Treatment. An optionee generally will not be taxed when an option is
granted under the Plan. When an optionee exercises a NSO, the optionee generally
will have compensation equal to the amount by which the then fair market value
of the stock exceeds the option exercise price. The Company generally will
receive a deduction equal to the amount of compensation income recognized by the
optionee. An optionee holding an ISO who complies with the applicable holding
periods before disposing of the stock acquired upon exercise of the incentive
option will generally qualify for favorable tax treatment, and in such case the
Company generally will not receive a tax deduction. An optionee holding an ISO
may, however, be subject to an alternative minimum tax when an ISO is exercised.
If the optionee holding an ISO fails to comply with the applicable holding
periods required by the Internal Revenue Code to obtain favorable tax treatment,
the rules applicable to NSOs generally will apply to both the optionee and the
Company.
Share Price. The closing price per share of the common stock on the Nasdaq
Stock Market on April 24, 2000 was $26 5/8.
5
<PAGE> 9
OPTIONS GRANTED TO CERTAIN INDIVIDUALS AND GROUPS
The following table sets forth the total number of options granted under
the Plan to the listed individuals and groups as of April 1, 2000:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
GRANTED AS OF
NAME OF INDIVIDUAL OR GROUP APRIL 1, 2000
--------------------------- -----------------
<S> <C>
Andrew C. Florance.......................................... 383,104
Frank A. Carchedi........................................... 75,150
David M. Schaffel........................................... 72,120
Fred A. Heitzman III........................................ 105,000
Curtis M. Ricketts.......................................... 57,120
All executive officers as a group (5 persons)............... 692,494
All directors (other than executive officers) as a group (5
persons).................................................. 4,000
All employees (other than executive officers) as a group.... 838,491
</TABLE>
NEW PLAN BENEFITS
The benefits that will be received in the future under the Plan, as
amended, by each participant are not determinable. If the amendments to the Plan
are approved, each of our non-employee directors will receive an automatic
annual grant of options to purchase 1,000 shares of common stock at an exercise
price equal to the fair market value on the date of the grant. See "Director
Compensation."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE AMENDMENTS TO THE COSTAR GROUP, INC. 1998 STOCK INCENTIVE PLAN.
OTHER MATTERS
We do not know of any other matter that will be presented for consideration
at the Annual Meeting. If any other matter does properly come before the Annual
Meeting, the proxy holders will, unless otherwise specified in the proxy, vote
on it as they think best.
STOCKHOLDER PROPOSALS AND NOMINATIONS
FOR DIRECTORS FOR THE 2001 ANNUAL MEETING
For a stockholder proposal to be considered for inclusion in the proxy
statement for our 2001 Annual Meeting of Stockholders, the proposal must be
received by our Corporate Secretary by January 1, 2000.
To properly nominate a director or bring another proposal before the 2001
Annual Meeting of Stockholders, our bylaws require that stockholders send their
nominations or proposals to us no less than 60 nor more than 90 days before the
first anniversary date of the preceding year's annual meeting. Accordingly,
stockholders who wish to nominate persons for election as directors or bring
other proposals at the 2001 Annual Meeting must give notice of their intention
to make a nomination in writing to the Corporate Secretary on or before April
22, 2001, but no sooner than March 23, 2001.
ADDITIONAL INFORMATION
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During 1999, the Board held seven meetings and acted on three occasions by
unanimous consent. The Board of Directors has an Audit Committee that reviews
the results and scope of the annual audit and other services provided by our
independent public accountants. Warren H. Haber (Chairman), Michael R. Klein and
John Simon are the members of this Committee. During 1999, the Committee met one
time. The Board
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also has a Compensation Committee that makes recommendations concerning salaries
and incentive compensation for our officers. The Board of Directors has
designated the Compensation Committee as the administrator of the Company's 1998
Stock Incentive Plan. The members of the Compensation Committee are Warren H.
Haber (Chairman), David Bonderman and Michael R. Klein. The Committee met one
time in 1999 and acted on three occasions by unanimous written consent. The
Board does not currently have a nominating committee. All directors attended at
least 75% of the meetings of the Board and the Committees of which they were
members.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Bonderman and Haber are both non-employee directors, and Mr. Klein
serves as the Chairman of the Board of the Company. During fiscal year 1999,
none of the Company's executive officers served as a director or compensation
committee member of any entity with an executive officer or director who served
as a director or compensation committee member of the Company.
In February 2000, Michael R. Klein, our Chairman, exercised warrants to
acquire 45,450 shares of the Company's common stock at an exercise price of
$8.10 per share, for a total transaction amount of $368,145. Incident to the
exercise of the warrants, the Company withheld issuance of 10,156 shares,
representing payment of the full exercise price of the warrants based on the
$36.25 per share closing price of the common stock on the date of exercise. This
resulted in a net issuance of 35,294 shares of common stock to Mr. Klein.
DIRECTOR COMPENSATION
Automatic Option Grant. Upon stockholder approval of the amendments to the
Plan, each non-employee director will receive an automatic annual grant of
options to purchase 1,000 shares of common stock at an exercise price equal to
the fair market value on the date of the grant. During 1999, each non-employee
director received a grant of options to purchase 1,000 shares of common stock at
an exercise price of $46.81 per share.
Attendance Fees. Each non-employee director receives $2,500 for each
meeting of the Board of Directors attended in person or by telephone and $500
(or $1,000 in the case of the Chairman of a committee) for each meeting of a
committee of the Board of Directors attended in person or by telephone.
Expenses. Each non-employee director is entitled to his or her expenses
for attending each meeting of the Board of Directors and each meeting of any
committee.
Chairman. The Chairman of the Board of Directors receives $120,000
annually as compensation for additional services that he is required to perform
in his role as chairman of the Company.
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<PAGE> 11
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table lists our executive officers and key employees:
<TABLE>
<CAPTION>
YEARS
NAME AGE OF SERVICE POSITION
---- --- ---------- --------
<S> <C> <C> <C>
Andrew C. Florance*................ 36 13 Chief Executive Officer, President and Director
Frank A. Carchedi*................. 42 3 Chief Financial Officer and Treasurer
David M. Schaffel*................. 39 11 Vice President of Product Development
John Place*........................ 38 0 Executive Vice President
Fred A. Heitzman III*.............. 50 11** Senior Vice President
Robert J. Caulfield, Jr............ 44 2 Vice President of Sales
Dean Violagis...................... 33 10 Vice President of Research
Carla J. Garrett................... 32 1 General Counsel and Secretary
Craig Farrington................... 42 17** Chief Operational Officer of Comps, Inc.
Gregory Benkert.................... 44 11** Vice President
</TABLE>
- ---------------
* Executive Officer.
** Includes years of service with acquired companies.
Information about Mr. Florance appears above under "Item 1 -- Election of
Directors." Information about each of the other individuals appears below.
Frank A. Carchedi, our Chief Financial Officer and Treasurer, joined us in
May 1997 from ITC Learning Corporation, a publicly held publisher and
distributor of multi-media training products, where he had been Vice President,
Treasurer and Chief Financial Officer since 1995. Prior to that, Mr. Carchedi
was with Ernst & Young, LLP for ten years, most recently as a consultant in the
firm's New York Merger and Acquisitions Group and its Entrepreneurial Services
Group in Washington, D.C. He received a B.S. in accounting from Wake Forest
University.
David M. Schaffel, our Vice President of Product Development, has been with
us since 1989. Mr. Schaffel is responsible for the design, development, and
maintenance of our software services and products as well as any new services.
From 1987 until joining us, Mr. Schaffel was president of Biscayne Technical
Services, Inc., where he developed a logistics tracking application for the
United States Air Force. Mr. Schaffel received a M.S. -- Operations
Research/Statistics from the University of Miami and a B.S. in business from the
University of Florida.
John Place, our Executive Vice President, joined us in April 2000. Mr.
Place oversees our national research operations for the Company and its
subsidiaries. Prior to joining the Company, Mr. Place spent 13 years with
Bloomberg L.P., most recently as the leader of Equity and Fixed Income Research
and Data Collection. Mr. Place received a B.A. in political science from
Hartwick College.
Fred A. Heitzman III, Senior Vice President, joined us upon the acquisition
of LeaseTrend, Inc. in January 1999, where he had served as President since he
founded the company in 1988. Prior to that, he was the President of Ameristate,
Inc., a real estate information company providing ownership and comparable sales
information, which he founded in 1978. Mr. Heitzman is a member of the
Cincinnati Real Estate Roundtable, REEAC, CEO Roundtable, and a director of
Enerfab, Inc. Mr. Heitzman received a B.A. in economics from Denison University.
Robert J. Caulfield, Jr., our Vice President of Sales, joined us in March
1998. Prior to joining the Company, Mr. Caulfield was Director of Sales and
Business Manager of the Southeast District of Reuters America, Inc. from 1988 to
1998, where he managed a media sales unit. Prior to joining Reuters, he was a
marketing manager of Southern California Technology Executives Network. Mr.
Caulfield received a B.S. in marketing from Villanova University and his M.B.A.
in international marketing from The George Washington University.
8
<PAGE> 12
Dean Violagis, our Vice President of Research, is responsible for our
CoStar research department, of which he has been a manager since 1989. Mr.
Violagis received a B.A. in real estate finance from the American University in
Washington, D.C.
Carla J. Garrett, our General Counsel and Secretary, joined us in June
1999. Prior to joining CoStar, Ms. Garrett was at Sullivan & Cromwell, a New
York based law firm, where she had been a corporate and securities attorney
since 1996. Prior to joining Sullivan & Cromwell, she was an associate with
Wilson Sonsini Goodwrich & Rosati, a Palo Alto based law firm, where she
practiced corporate law and advised technology companies. Ms. Garrett received a
B.A. in mathematics from Vanderbuilt University and her J.D. from Stanford
University.
Craig Farrington, the Chief Operational Officer of our Comps, Inc.
subsidiary, joined us upon the acquisition of COMPS.COM, Inc., in February of
2000, where he served as Vice President of Product Marketing and Development
since September 1996. Prior to that, Mr. Farrington served as Vice President of
the CallCOMPS division from January 1993 until August 1996 and held various
other positions with COMPS.COM since 1983. Mr. Farrington received his B.A. in
business and economics from Westmont College.
Gregory Benkert, who serves as Vice President, joined us upon the
acquisition of LeaseTrend, Inc. in January 1999, where he had been Vice
President since 1991. Prior to that, he was Vice President and Chief Financial
Officer of Ameristate, Inc. for five years, and prior to that an Audit Manager
with Arthur Andersen & Co. Mr. Benkert is a Certified Public Accountant and
received a B.A. and an M.B.A from Xavier University.
STOCK OWNERSHIP INFORMATION
The following table provides certain information regarding the beneficial
ownership of our common stock as of April 1, 2000 by:
- our Chief Executive Officer and President and each of our four most
highly compensated executive officers who earned more than $100,000 in
salary and bonus in 1999 (who we refer to collectively in this proxy
statement as the "named executive officers");
- each of our directors;
- each person we know to be the beneficial owner of more than 5% of the
outstanding common stock; and
- all of our executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
NAME AND ADDRESS(1) BENEFICIALLY OWNED(1) OUTSTANDING SHARES(1)
------------------- --------------------- ---------------------
<S> <C> <C>
Michael R. Klein(2)..................................... 1,814,895 11.8%
Andrew C. Florance(3)................................... 553,012 3.5
Frank A. Carchedi(4).................................... 52,483 *
David M. Schaffel(5).................................... 67,760 *
Fred A. Heitzman III(6)................................. 174,503 1.1
Curtis M. Ricketts(7)................................... 79,323 *
David Bonderman......................................... 446,370 2.9
Warren H. Haber(8)...................................... 130,513 *
Josiah O. Low III....................................... -- *
John Simon(9)........................................... 68,914 *
J. & W. Seligman & Co., Inc.(10)........................ 1,089,200 7.1
William C. Morris(10)................................... 1,089,200 7.1
Standish, Ayer & Wood, Inc.(11)......................... 709,600 4.6
Capital Guardian Trust Company(12)...................... 1,043,000 6.8
All ten directors and executive officers as a
group(13)............................................. 3,387,773 21.4
</TABLE>
9
<PAGE> 13
- ---------------
(1) Unless otherwise noted, each listed person's address is c/o CoStar Group,
Inc., 2 Bethesda Metro Center, Tenth Floor, Bethesda, Maryland 20814.
Beneficial ownership, as determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, includes sole or shared power to vote or
direct the voting of, or to dispose or direct the disposition of, shares,
as well as the right to acquire beneficial ownership within 60 days of
April 1, 2000, through the exercise of an option or otherwise. Except as
indicated in the footnotes to the table, we believe that the persons named
in the table have sole voting and investment power with respect to the
indicated shares of common stock. The use of * indicates ownership of less
than 1%. As of April 1, 2000, the Company had 15,375,748 shares of common
stock outstanding.
(2) Includes 14,496 shares held in trust by Mr. Klein and his spouse for his
nieces, for which Mr. Klein and his spouse share voting and dispositive
power, and 14,496 shares held by another as trustee for Mr. Klein's
children, for which Mr. Klein may be deemed to share voting and dispositive
power. Mr. Klein disclaims beneficial ownership of these shares. See
"Certain Relationships and Related Transactions."
(3) Includes 316,854 shares issuable upon options exercisable within 60 days of
April 1, 2000.
(4) Includes 48,483 shares issuable upon options exercisable within 60 days of
April 1, 2000.
(5) Includes 42,333 shares issuable upon options exercisable within 60 days of
April 1, 2000. Also includes 200 shares held by Mr. Schaffel's minor
children.
(6) Represents 174,503 shares held by the Heitzman Business Trust, of which Mr.
Heitzman is the sole beneficiary.
(7) Includes 43,003 shares issuable upon options exercisable within 60 days of
April 1, 2000. Mr. Ricketts resigned from the Company effective April 14,
2000.
(8) Includes 18,846 held by Mr. Haber's spouse and excludes 46,128 shares held
by Mr. Haber's adult children for which Mr. Haber disclaims beneficial
ownership.
(9) Excludes 152,752 shares held by Allen & Company Incorporated (of which Mr.
Simon is a Managing Director) and certain of its other officers and
affiliates; Mr. Simon disclaims beneficial ownership of such shares. See
"Certain Relationships and Related Transactions." Mr. Simon's address is
c/o Allen & Company Incorporated, 711 Fifth Avenue, New York, New York
10022.
(10) According to Schedule 13G filed on February 10, 2000, J.&W. Seligman & Co.,
Inc. ("Seligman") and William C. Morris ("Morris") may share beneficial
ownership of 1,089,200 shares of common stock of the Company. Based solely
on this Schedule 13G, Seligman and Morris share voting power with respect
to 994,070 of such shares and share dispositive power with respect to all
1,089,200 of such shares. The address of both Seligman and Morris is 100
Park Avenue, New York, NY 10017.
(11) According to a Schedule 13G filed on February 9, 2000, Standish, Ayer &
Wood, Inc. ("Standish") beneficially owns 709,600 shares of common stock of
the Company. Based solely on this Schedule 13G, Standish has sole power to
vote and dispose of such shares, and Standish disclaims any beneficial
interest in any of the shares. The address of Standish is One Financial
Center, Boston, MA 02111-2690.
(12) According to a Schedule 13G filed on February 15, 2000, Capital Guardian
Trust Company ("CGT") beneficially owns 1,043,000 shares of common stock of
the Company. Based solely on this Schedule 13G, CGT has sole voting power
with respect to 723,000 of such shares and has sole dispositive power with
respect to all 1,043,000 of such shares. Further, based solely on this
Schedule 13G, Capital Group International, Inc. ("CGI") is the parent
holding company of CGT and may be deemed to beneficially own such shares,
and both CGT and CGI disclaim any beneficial ownership of such shares. The
address of both CGT and CGI is 11100 Santa Monica Blvd., Los Angeles, CA
90025.
(13) Includes 450,673 shares issuable upon options exercisable within 60 days of
April 1, 2000.
10
<PAGE> 14
EXECUTIVE COMPENSATION
The following table provides the annual salary, bonuses, and all other
compensation awards and payouts to our named executive officers for 1997 through
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------------------- ---------------------
FISCAL OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
--------------------------- ------ -------- -------- ------------ --------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Andrew C. Florance........... 1999 $228,365 $175,000 -- 150,000 $ 4,865(1)
Chief Executive Officer 1998 $166,346 -- -- 65,000 $ 2,309
and President 1997 $150,000 $100,000 $150,000(2) -- $ 2,122
Frank A. Carchedi............ 1999 $146,346 $101,000 -- 20,000 $ 4,231(1)
Chief Financial 1998 $117,096 $ 27,029 -- 40,000 $ 865
Officer and Treasurer 1997 $ 70,654(3) $ 20,000 -- 15,150 --
David M. Schaffel............ 1999 $149,360 $ 61,000 -- 20,000 $ 6,472(1)
Vice President of 1998 $136,871 $ 3,044 -- 40,000 $19,097
Product Development 1997 $117,898 $ 3,000 -- -- $ 9,478
Fred A. Heitzman III......... 1999 $120,250 $ 45,000 -- -- $ 5,550(1)
Senior Vice President 1998 -- -- -- 105,000 --
1997 -- -- -- -- --
Curtis M. Ricketts........... 1999 $102,272 $ 42,250 -- 20,000 $ 4,716(1)
Senior Vice President(4) 1998 $104,362 $ 47,126 -- 25,000 $ 2,108
1997 $ 83,077 $ 46,166 -- -- $ 1,700
</TABLE>
- ---------------
(1) Represents 401(k) contributions made by the Company.
(2) In 1997, we paid Mr. Florance additional compensation in the form of shares
of a predecessor company valued at the equivalent of $4.62 per share for our
common stock.
(3) Mr. Carchedi joined us as Chief Financial Officer in May 1997. On an
annualized basis, his base salary was $110,000 per year in 1997.
(4) Mr. Ricketts was on leave from the Company for a portion of fiscal year
1999. On an annualized basis, Mr. Ricketts' salary was $130,000 per year in
1999. Mr. Ricketts resigned from the Company effective April 14, 2000.
EMPLOYMENT AGREEMENTS
We have employment agreements with each of our named executive officers.
With respect to Messrs. Florance, Carchedi, Ricketts and Schaffel, each of these
agreements became effective as of January 1, 1998. With respect to Mr. Heitzman,
his agreement became effective January 8, 1999. Each entitles the executive to a
specified base salary, a bonus award up to a specified percentage of base
compensation based upon achievement of performance objectives, and an award of
stock options vesting over time. The executive also may participate in any
insurance, medical, disability or pension plan generally made available to our
senior executive officers.
The agreements are for initial terms of two years (three in the case of
Messrs. Florance and Heitzman) and are automatically renewable for successive
one-year terms unless we or the executive terminate the agreement. Each
agreement contains a covenant not to compete with us for the two years
immediately following termination, but applicable law may limit the term or
scope of this covenant. The agreements generally provide that, if we terminate
the executive's employment without cause (which include "changes of control" of
the Company under certain circumstances), the executive is entitled to his base
salary for the greater of six months or whatever period remains under the
agreement, to a prorated share of his bonus for the year in which termination
occurred, and to the immediate vesting of all stock options due to vest within
the following 12 months (or, with respect to Mr. Heitzman only, to the immediate
vesting of the 105,000 options granted to him on December 14, 1998).
11
<PAGE> 15
The termination provisions of Mr. Florance's agreement differ in that they
also apply if he terminates the agreement for good cause, in that his
termination payments will be for the greater of 12 months or the remaining
period under the agreement, in that he will receive a gross-up payment to cover
any taxes assessed under Section 4999 of the Internal Revenue Code, and in that
all of his unvested stock options will vest. The termination provisions of Mr.
Heitzman's agreement also differ in that the Company may terminate Mr. Heitzman
for failure to perform or insubordination, and if the Company does so, he shall
only be entitled to the immediate vesting of the portion of his 105,000 options
due to vest within 18 months of the date of termination.
The following table gives specific economic terms of these agreements as of
December 31, 1999.
<TABLE>
<CAPTION>
MAXIMUM BONUS
AS A PERCENTAGE OF
NAME INITIAL BASE SALARY BASE COMPENSATION
---- ------------------- ------------------
<S> <C> <C>
Andrew C. Florance.......................................... $250,000 100%
Frank A. Carchedi........................................... $155,000 75%
David M. Schaffel........................................... $135,000 50%
Fred A. Heitzman III........................................ $120,000 75%
Curtis M. Ricketts.......................................... $130,000 75%
</TABLE>
OPTION GRANTS
The following table provides certain information about grants of stock
options to our named executive officers during 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------
NUMBER
OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTION EMPLOYEES IN PRICE EXPIRATION GRANT DATE
NAME GRANTED FISCAL YEAR ($/SHARE) DATE PRESENT VALUE(1)
---- ---------- ------------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Andrew C. Florance................. 150,000(2) 23.6% $30 03/31/09 $3,357,000
Frank A. Carchedi.................. 20,000(2) 3.1% $30 03/31/09 447,600
David M. Schaffel.................. 20,000(2) 3.1% $30 03/31/09 447,600
Fred A. Heitzman III............... -- -- -- -- --
Curtis M. Ricketts................. 20,000(2) 3.1% $30 03/31/09 447,600
</TABLE>
- ---------------
(1) The grant date present value is computed using the Black-Scholes
option-pricing model with the following assumptions: expected volatility of
94%, dividend yield of 0%, risk-free interest rate of 5.7%, and expected
life of 5 years. These assumptions are not a forecast of future stock price
performance or volatility or of future dividend policy. There is no
assurance that the value received by an executive will be at or near the
value estimated by the Black-Scholes model. The actual value of options will
depend on the market value of the Company's common stock on the dates upon
which the options are exercised.
(2) The options were granted on April 1, 1999 and have an exercise price equal
to the fair market value of the Company's common stock on the grant date.
The options vest and become exercisable in three equal installments on each
of April 1, 1999, April 1, 2000 and April 1, 2001.
12
<PAGE> 16
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides certain information regarding fiscal 1999
stock option exercises by, and unexercised options held as of December 31, 1999
by, the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END 1999 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS HELD IN THE MONEY OPTIONS AT
ACQUIRED AT DECEMBER 31, 1999 FISCAL YEAR-END(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Andrew C. Florance...... -- -- 266,854 116,250 $7,054,678 $1,024,219
Frank A. Carchedi....... -- -- 46,766 28,384 1,166,643 507,702
David M. Schaffel....... -- -- 48,786 23,334 1,238,412 347,087
Fred A. Heitzman III.... 52,500(2) $898,613 -- 52,500 -- 1,424,063
Curtis M. Ricketts...... 1,200(3) $ 25,500 36,337 19,583 543,069 246,306
</TABLE>
- ---------------
(1) Calculated based on the amount by which the fair market value of the
underlying security (assumed to be equal to its year-end closing price of
$35 7/8 per share) exceeds the option exercise price.
(2) On November 18, 1999, Mr. Heitzman exercised options to acquire 10,054
shares of common stock at $8.75 per share and sold those shares the same day
for $22.75 per share. On November 19, 1999, Mr. Heitzman exercised options
to acquire 16,196 shares of common stock at $8.75 per share and sold those
shares the same day for $22.75 per share. On December 22, 1999, Mr. Heitzman
exercised options to acquire 16,250 shares of common stock at $8.75 per
share and sold those shares the same day for $28.32 per share. On December
30, 1999, Mr. Heitzman exercised options to acquire 10,000 shares of common
stock at $8.75 per share and sold those shares the same day for $30.06 per
share.
(3) Mr. Ricketts exercised options to acquire 1,200 shares of common stock at
$9.00 per share on December 22, 1999. The value received is calculated based
on the closing price of the common stock on December 22, 1999, which was
$30.25 per share.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Philosophy and Review
The compensation philosophy of the Company is to provide a competitive
total compensation package so that the Company can attract, retain, and motivate
talented employees and executives. The Company also believes in maximizing value
for stockholders by linking compensation to individual achievement of agreed
goals as they relate to overall corporate performance. It also strives, as much
as possible, to align the Company's human resource strategy with its high-growth
business strategy.
In determining compensation levels for 1998 and beyond, the Company
commissioned a third-party consultant to perform a special study with respect to
the base salary, total annual cash compensation, and long-term incentive
compensation of similarly situated officers within its peer group. The peer
group consists of companies that are in the specialized industry of electronic
information technology, are high-growth companies, and are of a size comparable
to the Company's. Implementation of the consultant's recommendations over time
will result in compensation levels that are competitive with the Company's
peers.
The Company's Compensation Committee believes that compensation for the
Company's executives should be competitive in order to encourage and reward
superior performance.
Elements of Executive Officer Compensation
The Company's executive compensation consists primarily of base salary,
health insurance and similar benefits, annual cash bonuses, and the award of
stock options. The Company has employment agreements
13
<PAGE> 17
with the top tier of its executive officers. Each of these agreements entitles
the executive to a specified base salary, a bonus award up to a specified
percentage of base compensation based upon achievement of performance
objectives, and a competitive award of stock options vesting over time. The
compensation of executives covered by employment agreements is reviewed on an
annual basis.
Chief Executive Officer Compensation
In establishing the salary and bonus for Mr. Florance, our Chief Executive
Officer and President, the Committee relied on the strong belief that Mr.
Florance, as Chief Executive Officer, significantly and directly influences the
Company's overall performance. Accordingly, the Committee sought to achieve the
following objectives: (i) establish a base salary competitive with that paid to
other chief executive officers of high growth companies in the peer group; (ii)
reward Mr. Florance for superior performance in connection with his contribution
to the Company; and (iii) reward Mr. Florance for outstanding corporate
performance by the Company for the fiscal year. Based on these factors, in 1999
the Committee set Mr. Florance's salary at $250,000 and paid Mr. Florance a
bonus of $175,000. In addition, in 1999 Mr. Florance received an option to
purchase 150,000 shares of the Company's common stock at an exercise price of
$30.00 per share, the fair market value of the common stock on the date of
grant. The Committee believes that granting options to Mr. Florance is important
to align Mr. Florance's interest with the interests of the Company's
stockholders.
Base Salaries
Salary levels of the Company's senior executives are reviewed annually, and
may be adjusted to reflect a senior executive's individual responsibilities and
performance as well as the Company's corporate performance. The Compensation
Committee also considers salaries paid to executive officers of the peer group
in determining base salary levels. Base salaries should be generally competitive
with high growth companies in the peer group.
Annual Incentive Programs
The Compensation Committee administers an annual incentive plan for senior
level executives, under which these executives may receive a cash bonus based on
individual and corporate performance. The bonuses range from 0% to 100% of base
salary. The Compensation Committee considers the annual incentive awards offered
by members of the peer group in determining annual incentive award levels and
would like annual incentive awards to be more than competitive for superior
performance.
Long-Term Incentive Plans
The Compensation Committee believes that granting stock options to
executive officers is critical to the Company's success. These awards play a
vital role in attracting, retaining and rewarding executive officers of the
Company. The Committee believes that options are also important in motivating
executive officers to achieve the Company's goals.
Each executive officer is eligible to receive stock options under the
CoStar Group, Inc. 1998 Stock Incentive Plan. The Compensation Committee
generally awards stock options to each executive officer when he or she joins
the Company. Thereafter, the Compensation Committee, in its discretion, makes
periodic grants to reward or retain executive officers and to provide incentives
for future performance. Although executive officers may receive stock options
based on the Corporation's financial performance, as well as on his or her
individual performance, there is no established formula or criteria for grants
under the Plan, and options may be granted on a subjective basis at intervals
determined by the Compensation Committee.
Employment Agreements
The Company has employment agreements with the named executive officers
that are currently employed by the Company -- Messrs. Florance, Carchedi,
Schaffel and Heitzman -- and other of its senior officers. With respect to
Messrs. Florance, Carchedi and Schaffel, each of these agreements became
effective as of January 1, 1998. With respect to Mr. Heitzman, his agreement
became effective as of January 8, 1999.
14
<PAGE> 18
Each entitles the executive to a specified base salary, a bonus award up to a
specified percentage of base compensation based upon achievement of performance
objectives, and an award of stock options vesting over time. The executive also
may participate in any insurance, medical, disability or pension plan generally
made available to the Company's senior executive officers.
The agreements are for initial terms of two years (three in the case of
Messrs. Florance and Heitzman) and are automatically renewable for successive
one-year terms unless the Company or the executive terminates the agreement.
Each agreement contains a covenant not to compete with the Company for the two
years immediately following termination, but applicable law may limit the term
or scope of this covenant. The agreements generally provide that, if the Company
terminates the executive's employment without cause (which include "changes of
control" of the Company under certain circumstances), the executive is entitled
to his base salary for the greater of six months or whatever period remains
under the agreement, to a prorated share of his bonus for the year in which
termination occurred, and to the immediate vesting of all stock options due to
vest within the following 12 months (or, with respect to Mr. Heitzman only, to
the immediate vesting of the 105,000 options granted to him on December 14,
1998).
The termination provisions of Mr. Florance's agreement differ in that they
also apply if he terminates the agreement for good cause, in that his
termination payments will be for the greater of 12 months or the remaining
period under the agreement, in that he will receive a gross-up payment to cover
any taxes assessed under Section 4999 of the Internal Revenue Code, and in that
all of his unvested stock options will vest. The termination provisions of Mr.
Heitzman's agreement also differ in that the Company may terminate Mr. Heitzman
for failure to perform or insubordination, and if the Company does so, he shall
only be entitled to the immediate vesting of the portion of his 105,000 options
due to vest within 18 months of the date of termination.
Policy on Deductibility of Compensation
Section 162(m) of the Internal Revenue Code disallows the deduction of
compensation by a company to its Chief Executive Officer and any of its four
most highly compensated executive officers that is in excess of $1 million.
Compensation that is considered "performance-based" is excluded from the $1
million limit if, among other requirements, the compensation is payable only
upon attainment of pre-established, objective performance goals under a plan
approved by the stockholders. The Compensation Committee will continue to
monitor total compensation and, should the 162(m) limitation become an issue,
take the measures that they deem appropriate.
By the Compensation Committee
of the Board of Directors.
Warren H. Haber, Chairman
David Bonderman
Michael R. Klein
STOCK PRICE PERFORMANCE GRAPH
The stock performance graph below shows how an initial investment of $100
in our common stock would have compared to:
- An equal investment in the S&P 500 Index.
- An equal investment in the S&P Computers (Software) Index.
- An equal investment divided equally among the peer group formerly used by
the Company (the "Former Peer Group"). The Former Peer Group consists of
Factset Research System Incorporated, Forrester Research Incorporated,
and ProBusiness Services Incorporated. Abacus Direct Corp., a company
included in the Former Peer Group in the Company's 1999 Proxy Statement,
was acquired in 1999 and no longer exists as a separate publicly traded
corporate entity. For this reason, Abacus Direct Corp. has been removed
from the Former Peer Group in connection with this year's stock
performance
15
<PAGE> 19
graph. The Company has decided to switch from the Former Peer Group to
the S&P Computers (Software) Index because the Company believes the S&P
Computers (Software) Index provides a broader, more stable and more
comprehensively representative group against which to compare the
Company's stock performance.
The comparison covers the period beginning July 1, 1998, the first day of
public trading of our common stock, and ending on December 31, 1999, and assumes
the reinvestment of any dividends. You should note that this performance is
historical and is not necessarily indicative of future price performance.
<TABLE>
<CAPTION>
S&P COMPUTERS
COSTAR GROUP, INC. S&P 500 (SOFTWARE) FORMER PEER GROUP
------------------ ------- ------------- -----------------
<S> <C> <C> <C> <C>
7/1/98 $ 100.00 $ 100.00 $ 100.00 $ 100.00
12/31/98 137.41 107.02 119.54 138.00
12/31/99 343.02 131.10 221.07 161.90
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1999, some of our executive officers and directors have
engaged in or had a direct or indirect interest in the following transactions
with us in addition to those described above under "Compensation Committee
Interlocks and Insider Participation."
Josiah O. Low III is a managing director of Donaldson, Lufkin & Jenrette
and is one of our directors. Donaldson, Lufkin & Jenrette served and received
fees as one of the underwriters in our follow-on public offering in May 1999.
John Simon is a managing director of Allen & Company Incorporated and is
one of our directors. Allen & Company Incorporated served and received fees as
one of the underwriters in our follow-on public offering in May 1999.
Fred A. Heitzman III, who is one of our Senior Vice Presidents, was an
officer, director, and beneficial stockholder of LeaseTrend, Inc., which merged,
effective January 8, 1999, with a subsidiary we formed for that purpose. The
total consideration we paid to LeaseTrend stockholders in connection with the
merger was $4.5 million in cash and 566,671 shares of our common stock. Of this
consideration, a trust of which Mr. Heitzman was the sole beneficiary received
$1,684,074 in cash and 174,503 shares of our common stock. Effective December
31, 1999, LeaseTrend, Inc. merged with and into CoStar Realty Information, Inc.,
a wholly-owned subsidiary of the Company, and no longer exists as a separate
corporate entity.
16
<PAGE> 20
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that our
directors and executive officers, and anyone who owns more than 10% of our
common stock, file with the Securities and Exchange Commission reports of
initial ownership and reports of changes in ownership of our common stock, and
to furnish us with copies of those reports. Based solely on a review of the
reports furnished to us, we believe that during 1999, our directors, executive
officers, and 10% stockholders complied with these requirements, except as
follows: A report on Form 3 reporting the initial holdings of options to acquire
our common stock held by Mr. Heitzman, who became one of our Senior Vice
Presidents on January 8, 1999, was not timely filed with the SEC, as the
required report was filed with the SEC on Form 5 on March 4, 1999. A report on
Form 4 for January 1999 reporting the acquisition of shares of our common stock
in connection with our acquisition of LeaseTrend, Inc. by a trust of which Mr.
Heitzman is the sole beneficiary was not timely filed, as the required report
was filed with the SEC on March 24, 1999. In addition, Messrs. Klein, Bonderman,
Haber, Low and Simon, and Mr. Lanning Macfarland III (a former director of the
Company), each did not timely report the acquisition of 1,666 shares of common
stock on July 7, 1998 in connection with the Company's initial public offering.
The required disclosure was made by each individual on a Form 4 for July 1999
and filed with the SEC on August 10, 1999.
OTHER INFORMATION
We have included a copy of our Annual Report for the year ended December
31, 1999 with this Proxy Statement. YOU MAY OBTAIN A COPY OF OUR ANNUAL REPORT
ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES, WITHOUT CHARGE BY SENDING A WRITTEN REQUEST TO PAMELA S. SILBERMAN,
VICE PRESIDENT OF INVESTOR AND PUBLIC RELATIONS, COSTAR GROUP, INC., 2 BETHESDA
METRO CENTER, TENTH FLOOR, BETHESDA, MARYLAND 20814.
This proxy is solicited on behalf of the Board of Directors. The Company
will bear all expenses in connection with the Annual Meeting and this proxy
solicitation. We have retained Innisfree M&A Incorporated to assist in
distribution of these proxy materials and soliciting proxy voting instructions,
at an estimated cost of $9,000 plus reasonable expenses. They may solicit
proxies in person, by telephone, by mail, telegram, facsimile, or other
electronic or other means, and will request that brokerage houses, banks, and
other custodians forward proxy material to beneficial owners of our common
stock. We will reimburse brokerage houses, banks, and other custodians for their
reasonable expenses for forwarding these materials to beneficial owners.
American Stock Transfer and Trust Company will act as proxy tabulator.
17
<PAGE> 21
APPENDIX A
PROXY PROXY
COSTAR GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS - JUNE 21, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned stockholder of CoStar Group, Inc., a Delaware corporation
(the "Company"), hereby acknowledges receipt of the Notice of 2000 Annual
Meeting of Stockholders and Proxy Statement, each dated May 1, 2000, and the
1999 Annual Report, hereby revokes any proxy or proxies previously given and
hereby appoints Michael R. Klein, Andrew C. Florance and Frank A. Carchedi, or
any of them, with full power to each of substitution on behalf and in the name
of the undersigned, as the proxies and attorneys-in-fact to vote and otherwise
represent all of the shares registered in the name of the undersigned at the
2000 Annual Meeting of Stockholders of the Company (the "Annual Meeting") to be
held at 2 Bethesda Metro Center, Bethesda, Maryland 20814, at 10:00 a.m. local
time on Wednesday, June 21, 2000, and any adjournment or postponement thereof,
with the same effect as if the undersigned were present and voting such shares,
on the matters and in the manner set forth on the reverse side of this Proxy
card.
THIS PROXY, WHEN PROPERLY EXECUTED AND TIMELY DELIVERED, WILL BE VOTED IN
THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. UNLESS CONTRARY
DIRECTIONS ARE GIVEN, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF THE
NOMINEES LISTED IN THE ACCOMPANYING PROXY STATEMENT, "FOR" RATIFYING THE
APPOINTMENT OF THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR 2000, "FOR"
APPROVING THE AMENDMENTS TO THE COMPANY'S 1998 STOCK INCENTIVE PLAN, AND IN
ACCORDANCE WITH THE DISCRETION OF THE PROXIES AS TO OTHER MATTERS.
(Continued and to be signed and dated on the reverse side.)
<PAGE> 22
PLEASE MARK, SIGN, DATE AND RETURN THIS CARD PROMPTLY
USING THE ENCLOSED RETURN ENVELOPE.
ANNUAL MEETING OF STOCKHOLDERS
COSTAR GROUP, INC.
JUNE 21, 2000
\/ Please Detach and Mail in the Envelope Provided \/
- ------------------------------------------------------------------------------
/X/ Please mark your
votes as in this example.
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
EACH OF THE PROPOSALS.
<S> <C>
(1) Proposal to elect the following persons as directors of the Company. NOMINEES: Michael R. Klein
Andrew C. Florance
David Bonderman
FOR ALL WITHHOLD ALL Warren H. Haber
/ / / / Josiah O. Low III
John Simon
</TABLE>
FOR ALL (EXCEPT NOMINEE(S) WRITTEN BELOW)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
(2) Proposal to ratify the appointment of Ernst & Young LLP as the / / / / / /
Company's independent public accountants for 2000.
(3) Proposal to approve amendments to the Company's 1998 / / / / / /
Stock Incentive Plan.
(4) To vote or otherwise represent the shares on any other business which
may properly come before the meeting or any adjournment or postponement
thereof, according to their discretion and in their discretion.
</TABLE>
The shares represented by this proxy will be voted in accordance with the
specification made. If no specification is made, the shares represented by
this proxy will be voted FOR each of the above persons and proposals, and
for or against such other matters as may properly come before the meeting
as the proxyholders in their discretion deem advisable.
I PLAN TO ATTEND THE MEETING: YES NO
----- -----
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE COMPLETE,
SIGN, DATE AND RETURN EACH CARD.
<TABLE>
<CAPTION>
Signature(s) Dated: , 2000
<S> <C> <C> <C>
------------------- ------------------ ------------------------ ----------------
Title if appropriate
</TABLE>
NOTE: Sign exactly as your name(s) appears on the stock certificate. A
corporation should sign in its full corporate name by a duly authorized
officer, with the office held designated. Executors, administrators,
trustees and guardians should sign in their official capacity giving
their full title as such. If stock is registered in more than one name,
each person should sign. If a partnership or limited liability company,
please sign in the partnership or limited liability company's name by
an authorized person(s).
<PAGE> 23
APPENDIX B
COSTAR GROUP, INC.
1998 STOCK INCENTIVE PLAN
(AS AMENDED)
<TABLE>
<CAPTION>
<S> <C>
PURPOSE CoStar Group, Inc., a Delaware corporation "CoStar" or the "Company"), wishes to recruit,
reward, and retain employees and outside directors. To further these objectives,
the Company hereby sets forth the CoStar Group, Inc. 1998 Stock Incentive Plan
(the "Plan") to provide options ("Options") or direct grants ("Stock Grants"
and, together with the Options, "Awards") to employees and outside directors
with respect to shares of the Company's common stock (the "Common Stock"). The
Plan is effective as of the effective date (the "Effective Date") of the
Company's registration under Section 12 of the Securities Exchange Act of 1934
(the "Exchange Act") with respect to its initial public offering ("IPO").
PARTICIPANTS All Employees of CoStar and any Eligible Subsidiaries are eligible for Options and
Stock Grants under this Plan, as are the directors of CoStar and the Eligible
Subsidiaries who are not employees ("Eligible Directors"). Eligible employees and
directors become "optionees" when the Administrator grants them an option under
this Plan or "recipients" when they receive a direct grant of Common Stock.
(Optionees and recipients are referred to collectively as "participants." The term
participant also includes, where appropriate, a person authorized to exercise an
Award in place of the original optionee.) The Administrator may also grant Options
or make Stock Grants to certain other service providers.
Employee means any person employed as a common law employee of the Company or an
Eligible Subsidiary.
ADMINISTRATOR The Administrator will be the Compensation Committee of the Board of Directors of COSTAR (the
"Compensation Committee"), unless the Board specifies another committee. The Board
may also act under the Plan as though it were the Compensation Committee.
The Administrator is responsible for the general operation and administration of
the Plan and for carrying out its provisions and has full discretion in
interpreting and administering the provisions of the Plan. Subject to the express
provisions of the Plan, the Administrator may exercise such powers and authority of
the Board as the Administrator may find necessary or
</TABLE>
1
<PAGE> 24
<TABLE>
<CAPTION>
<S> <C>
appropriate to carry out its functions. The Administrator may delegate its functions
(other than those described in the GRANTING OF AWARDS section) to officers or employees of COSTAR.
The Administrator's powers will include, but not be limited to, the power to amend,
waive, or extend any provision or limitation of any Award. The Administrator may
act through meetings of a majority of its members or by unanimous consent.
GRANTING OF Subject to the terms of the Plan, the Administrator will, in its sole
AWARDS discretion, determine
- the participants who receive Awards,
- the terms of such Awards,
- the schedule for exercisability or nonforfeitability (including any
requirements that the participant or the Company satisfy performance
criteria),
- the time and conditions for expiration of the Award, and
- the form of payment due upon exercise, if any.
The Administrator's determinations under the Plan need not be uniform and need not
consider whether possible participants are similarly situated.
Options granted to employees may be nonqualified stock options ("NQSOs") or
"incentive stock options" ("ISOs") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended from time to time (the "Code"), or the
corresponding provision of any subsequently enacted tax statute. Options granted
to Eligible Directors must be NQSOs. The Administrator will not grant ISOs unless
the stockholders have approved the Plan.
The Administrator may impose such conditions on or charge such price for the Stock
Grants as it deems appropriate.
SUBSTITUTIONS The Administrator may also grant Awards in substitution for options or other equity
interests held by individuals (i) as a result of their employment by or services to
CoStar Group, L.P. or (ii) who become Employees of the Company or of an Eligible
Subsidiary as a result of the Company's acquiring or merging with the individual's
employer or acquiring its assets. If necessary
</TABLE>
2
<PAGE> 25
<TABLE>
<CAPTION>
<S> <C>
to conform the Awards to the interests for which they are substitutes, the Administrator may
grant substitute Awards under terms and conditions that vary from those the Plan otherwise requires.
DIRECTOR Each Eligible Director of the Company shall be entitled to receive at the first meeting
FORMULA of the Board of Directors immediately following each of the Company's Annual Meeting of Stockholders
OPTIONS an Option to purchase 1,000 shares of the Company's Common Stock at an exercise price equal to the
Fair Market Value (as defined below) on such date of grant. Such Options shall vest in full on the
first anniversary of the date of grant, provided that such Director is still a Director of the
Company.
DATE OF GRANT The Date of Grant will be the date as of which this Plan or the Administrator grants an Award
to a participant, as specified in the Plan or in the Administrator's minutes.
EXERCISE PRICE The Exercise Price is the value of the consideration that a participant must provide in
exchange for one share of Common Stock. The Administrator will determine the
Exercise Price under each Award and may set the Exercise Price without regard to
the Exercise Price of any other Awards granted at the same or any other time. The
Company may use the consideration it receives from the participant for general
corporate purposes.
The Exercise Price per share for NQSOs may not be less than 100% of the Fair Market
Value of a share on the Date of Grant. If an Option is intended to be an ISO, the
Exercise Price per share may not be less than 100% of the Fair Market Value (on the
Date of Grant) of a share of Common Stock covered by the Option; provided, however,
that if the Administrator decides to grant an ISO to someone covered by Sections
422(b)(6) and 424(d) (as a more-than-10%-stock-owner), the Exercise Price of the
Option must be at least 110% of the Fair Market Value (on the Date of Grant).
The Administrator may satisfy any state law requirements regarding adequate
consideration for Stock Grants by (i) issuing Common Stock held as treasury stock
or (ii) charging the recipients at least the par value for the shares covered by
the Stock Grant. The Administrator may designate that a recipient may satisfy (ii)
either by direct payments or by the Administrator's withholding from other payments
due to the recipient.
FAIR MARKET Fair Market Value of a share of Common Stock for purposes of the
VALUE Plan will be determined as follows:
</TABLE>
3
<PAGE> 26
<TABLE>
<CAPTION>
<S> <C>
- if the Common Stock is traded on a national securities exchange, the closing
sale price on that date;
- if the Common Stock is not traded on any such exchange, the closing sale price
as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System ("Nasdaq") for such date;
- if no such closing sale price information is available, the average of the
closing bid and asked prices as reported by Nasdaq for such date; or
- if there are no such closing bid and asked prices, the average of the closing
bid and asked prices as reported by any other commercial service for such
date.
For any date that is not a trading day, the Fair Market Value of a share of Common
Stock for such date shall be determined by using the closing sale price or the
average of the closing bid and asked prices, as appropriate, for the immediately
preceding trading day.
The Fair Market Value will be deemed equal to the IPO price for any Options granted
as of the date on which the IPO's underwriters price the IPO.
EXERCISABILITY The Administrator will determine the times and conditions for exercise of or purchase under
each Award but may not extend the period for exercise beyond the tenth anniversary
of its Date of Grant (or five years for ISOs granted to 10% owners covered by Code
Sections 422(b)(6) and 424(d)).
Awards will become exercisable at such times and in such manner as the
Administrator determines and the Award Agreement, if any, indicates; provided,
however, that the Administrator may, on such terms and conditions as it determines
appropriate, accelerate the time at which the participant may exercise any portion
of an Award or at which restrictions on Stock Grants lapse. For Stock Grants,
"exercise" refers to acceptance of the Award or lapse of restrictions, as
appropriate in context.
If the Administrator does not specify otherwise, Options will become exercisable
and restrictions on Stock Grants (other than the Director Formula Grants) will
lapse as to one-third of the covered shares on each of the first, second, and third
anniversaries of the Date of Grant.
</TABLE>
4
<PAGE> 27
<TABLE>
<CAPTION>
<S> <C>
No portion of an Award that is unexercisable at a participant's termination of
employment will thereafter become exercisable, unless the Award Agreement provides
otherwise, either initially or by amendment.
CHANGE OF Upon a Change of Control (as defined below), all Options held by
CONTROL current Employees and directors will become fully exercisable and all restrictions on Stock
Grants will lapse. A Change of Control for this purpose means the occurrence,
after the Company's IPO, of any one or more of the following events:
- a person, entity, or group (other than the Company, any Company subsidiary,
any Company benefit plan, or any underwriter temporarily holding
securities for an offering of such securities) acquires ownership of more
than 80% of the undiluted total voting power of the Company's
then-outstanding securities eligible to vote to elect members of the Board
("Company Voting Securities");
- consummation of a merger or consolidation of the Company into any other entity
-- unless the holders of the Company Voting Securities outstanding
immediately before such consummation, together with any trustee or other
fiduciary holding securities under a Company benefit plan, hold
securities that represent immediately after such merger or consolidation
at least 20% of the combined voting power of the then outstanding voting
securities of either the Company or the other surviving entity or its
parent; or
- the stockholders of the Company approve (i) a plan of complete liquidation or
dissolution of the Company or (ii) an agreement for the Company's sale or
disposition of all or substantially all the Company's assets, and such
liquidation, dissolution, sale, or disposition is consummated.
Even if other tests are met, a Change of Control has not occurred under any
circumstance in which the Company files for bankruptcy protection or is reorganized
following a bankruptcy filing.
The ADJUSTMENT UPON CHANGES IN CAPITAL STOCK provisions will also apply if the
Change of Control is a SUBSTANTIAL CORPORATE CHANGE (as defined in those
provisions).
</TABLE>
5
<PAGE> 28
<TABLE>
<CAPTION>
<S> <C>
LIMITATION ON An Option granted to an employee will be an ISO only to the extent that
ISOs the aggregate Fair Market Value (determined at the Date of Grant) of the stock with
respect to which ISOs are exercisable for the first time by the optionee during any
calendar year (under the Plan and all other plans of the Company and its subsidiary
corporations, within the meaning of Code Section 422(d)), does not exceed $100,000.
This limitation will be applied by taking Options into account in the order in
which such Options were granted. If, by design or operation, the Option exceeds
this limit, the excess will be treated as an NQSO.
METHOD OF To exercise any exercisable portion of an Award, the participant must:
EXERCISE
- Deliver a written notice of exercise to the Secretary of the Company (or to
whomever the Administrator designates), in a form complying with any
rules the Administrator may issue, signed by the participant, and
specifying the number of shares of Common Stock underlying the portion of
the Award the participant is exercising;
- Pay the full Exercise Price, if any, by cashier's or certified check for the
shares of Common Stock with respect to which the Award is being
exercised, unless the Administrator consents to another form of payment
(which could include the use of Common Stock); and
- Deliver to the Administrator such representations and documents as the
Administrator, in its sole discretion, may consider necessary or
advisable.
Payment in full of the Exercise Price need not accompany the written notice of
exercise provided the notice directs that the stock certificates for the shares
issued upon the exercise be delivered to a licensed broker acceptable to the
Company as the agent for the individual exercising the option and at the time of
closing of the sale of the Common Stock issued upon exercise of the Option, the
broker will tender to the Company cash or cash equivalents acceptable to the
Company and equal to the Exercise Price.
If the Administrator agrees to payment through the tender to the Company of shares
of Common Stock, the individual must have held the stock being tendered for at
least six months at the time of surrender. Shares of stock offered as payment will
be valued, for purposes of determining the extent to which the participant has paid
the Exercise Price, at their Fair Market Value on the date of exercise. The
Administrator may also, in its discretion, accept attestation of ownership of
Common Stock and issue a net number of shares upon Option exercise.
</TABLE>
6
<PAGE> 29
<TABLE>
<CAPTION>
<S> <C>
AWARD No one may exercise an Award more than ten years after its Date of
EXPIRATION Grant (or five years, for an ISO granted to a more-than-10% shareholder). Unless
the Award Agreement provides otherwise, either initially or by amendment, no one
may exercise an Award after the first to occur of:
EMPLOYMENT The 90th day after the date of termination of employment (other
TERMINATION than for death or Disability), where termination of employment means the time
when the employer-employee or other service-providing relationship between
the employee and the Company ends for any reason, including retirement.
Unless the Award Agreement provides otherwise, termination of employment does
not include instances in which the Company immediately rehires a common law
employee as an independent contractor. The Administrator, in its sole
discretion, will determine all questions of whether particular terminations
or leaves of absence are terminations of employment;
DISABILITY For disability, the earlier of (i) the first anniversary of the participant's
termination of employment for disability and (ii) thirty (30) days after the
participant no longer has a disability, where "disability" means the
inability to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to
result in death or that has lasted or can be expected to last for a
continuous period of not less than twelve months; or
DEATH The date twelve months after the participant's death.
If exercise is permitted after termination of employment, the Award will
nevertheless expire as of the date that the former service provider violates any
covenant not to compete in effect between the Company and the former employee. In
addition, an optionee who exercises an Option more than 90 days after termination
of employment with the Company and/or the Eligible Subsidiaries will only receive
ISO treatment to the extent permitted by law, and becoming or remaining an employee
of another related company (that is not an Eligible Subsidiary) or an independent
contractor to the Company will not prevent loss of ISO status as a result of the
formal termination of employment.
Nothing in this Plan extends the term of an Award beyond the tenth anniversary of
its Date of Grant, nor does anything in this AWARD EXPIRATION section make an Award
exercisable that has not otherwise become exercisable.
</TABLE>
7
<PAGE> 30
<TABLE>
<CAPTION>
<S> <C>
AWARD Option Agreements will set forth the terms of each Option and will
AGREEMENT include such terms and conditions, consistent with the Plan, as the Administrator may
determine are necessary or advisable. To the extent the agreement is inconsistent
with the Plan, the Plan will govern. The Option Agreements may contain special
rules. The Administrator may, but is not required to, issue agreements for Stock
Grants.
STOCK SUBJECT Except as adjusted below under CORPORATE CHANGES, the aggregate
TO PLAN number of shares of Common Stock that may be issued under the Awards (whether ISOs, NQSOs, or
Stock Grants) may not exceed 3,000,000 shares and the maximum number of shares that
may be granted under Awards for a single individual in a calendar year may not
exceed 400,000 shares. (The individual maximum applies only to Awards first made
under this Plan and not to Awards made in substitution of a prior employer's
options or other incentives, except as Code Section 162(m) otherwise requires.) The
Common Stock will come from either authorized but unissued shares or from
previously issued shares that the Company reacquires, including shares it purchases
on the open market. If any Award expires, is canceled, or terminates for any other
reason, the shares of Common Stock available under that Award will again be
available for the granting of new Awards (but will be counted against that calendar
year's limit for a given individual).
No adjustment will be made for a dividend or other right for which the record date
precedes the date of exercise.
The participant will have no rights of a stockholder with respect to the shares of
stock subject to an Award except to the extent that the Company has issued
certificates for, or otherwise confirmed ownership of, such shares upon the
exercise of the Award.
The Company will not issue fractional shares pursuant to the exercise of an Award,
but the Administrator may, in its discretion, direct the Company to make a cash
payment in lieu of fractional shares.
PERSON WHO During the participant's lifetime, only the participant or his duly
MAY EXERCISE appointed guardian or personal representative may exercise the Awards. After his
death, his personal representative or any other person authorized under a will or
under the laws of descent and distribution may exercise any then exercisable
portion of an Award. If someone other than the original recipient seeks to
exercise any portion of an Award, the Administrator may request such proof as it
may consider necessary or appropriate of the person's right to exercise the Award.
</TABLE>
8
<PAGE> 31
<TABLE>
<CAPTION>
<S> <C>
ADJUSTMENTS Subject to any required action by the Company (which it shall
UPON CHANGES promptly take) or its stockholders, and subject to the provisions of
IN CAPITAL STOCK applicable corporate law, if, after the Date of Grant of an Award,
- the outstanding shares of Common Stock increase or decrease or change into or
are exchanged for a different number or kind of security by reason of any
recapitalization, reclassification, stock split, reverse stock split,
combination of shares, exchange of shares, stock dividend, or other
distribution payable in capital stock, or
- some other increase or decrease in such Common Stock occurs without the
Company's receiving consideration,
the Administrator may make a proportionate and appropriate adjustment in the number
of shares of Common Stock underlying each Award, so that the proportionate interest
of the participant immediately following such event will, to the extent
practicable, be the same as immediately before such event. (This adjustment does
not apply to Common Stock that the optionee has already purchased nor to Stock
Grants that are already nonforfeitable, except to the extent of similar treatment
for all stockholders.) Unless the Administrator determines another method would be
appropriate, any such adjustment to an Award will not change the total price with
respect to shares of Common Stock underlying the unexercised portion of the Award
but will include a corresponding proportionate adjustment in the Award's Exercise
Price.
The Administrator will make a commensurate change to the maximum number and kind of
shares provided in the STOCK SUBJECT TO PLAN section.
Any issue by the Company of any class of preferred stock, or securities convertible
into shares of common or preferred stock of any class, will not affect, and no
adjustment by reason thereof will be made with respect to, the number of shares of
Common Stock subject to any Award or the Exercise Price except as this ADJUSTMENTS
section specifically provides. The grant of an Award under the Plan will not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business structure,
or to merge or to consolidate, or to dissolve, liquidate, sell, or transfer all or
any part of its business or assets.
SUBSTANTIAL Upon a Substantial Corporate Change, the Plan and any unexercised
CORPORATE Awards will terminate unless provision is made in writing in connection
CHANGE with such transaction for
</TABLE>
9
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C>
- the assumption or continuation of outstanding Awards, or
- the substitution for such options or grants of any options or grants covering
the stock or securities of a successor employer corporation, or a parent
or subsidiary of such successor, with appropriate adjustments as to the
number and kind of shares of stock and prices, in which event the Awards
will continue in the manner and under the terms so provided.
Unless the Board determines otherwise, if an Award would otherwise terminate
pursuant to the preceding sentence, participants who are then Employees or
directors of the Company will have the right, at such time before the consummation
of the transaction causing such termination as the Board reasonably designates, to
exercise any unexercised portions of the Award, whether or not they had previously
become exercisable. However, unless the Board determines otherwise, the
acceleration will not occur if it would render unavailable "pooling of interest"
accounting for any reorganization, merger, or consolidation of the Company.
A Substantial Corporate Change means the
- dissolution or liquidation of the Company,
- merger, consolidation, or reorganization of the Company with one or more
corporations in which the Company is not the surviving corporation,
- the sale of substantially all of the assets of the Company to another
corporation, or
- any transaction (including a merger or reorganization in which the Company
survives) approved by the Board that results in any person or entity
(other than any affiliate of the Company as defined in Rule 144(a)(1)
under the Securities Act) owning 100% of the combined voting power of all
classes of stock of the Company.
SUBSIDIARY Employees of Company Subsidiaries will be entitled to participate in
EMPLOYEES the Plan, except as otherwise designated by the Board of Directors or the Committee.
Eligible Subsidiary means each of the Company's Subsidiaries, except as the Board
otherwise specifies. For ISO grants, Subsidiary means any corporation
</TABLE>
10
<PAGE> 33
<TABLE>
<CAPTION>
<S> <C>
(other than the Company) in an unbroken chain of corporations beginning with the Company if, at
the time an ISO is granted to a Participant under the Plan, each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain. For NQSOs, the Board or the
Committee can use a different definition of Subsidiary in its discretion.
LEGAL The Company will not issue any shares of Common Stock under an
COMPLIANCE Award until all applicable requirements imposed by Federal and state securities and
other laws, rules, and regulations, and by any applicable regulatory agencies or
stock exchanges, have been fully met. To that end, the Company may require the
participant to take any reasonable action to comply with such requirements before
issuing such shares. No provision in the Plan or action taken under it authorizes
any action that is otherwise prohibited by Federal or state laws.
The Plan is intended to conform to the extent necessary with all provisions of the
Securities Act of 1933 ("Securities Act") and the Exchange Act and all regulations
and rules the Securities and Exchange Commission issues under those laws.
Notwithstanding anything in the Plan to the contrary, the Administrator must
administer the Plan, and Awards may be granted and exercised, only in a way that
conforms to such laws, rules, and regulations. To the extent permitted by
applicable law, the Plan and any Awards will be deemed amended to the extent
necessary to conform to such laws, rules, and regulations.
PURCHASE FOR Unless a registration statement under the Securities Act covers the
INVESTMENT shares of Common Stock a participant receives upon exercise of his
AND OTHER Award, the Administrator may require, at the time of such exercise or
RESTRICTIONS receipt of a grant, that the participant agree in writing to acquire such shares
for investment and not for public resale or distribution, unless and until the
shares subject to the Award are registered under the Securities Act. Unless the
shares are registered under the Securities Act, the participant must acknowledge:
- that the shares purchased on exercise of the Award are not so registered,
- that the participant may not sell or otherwise transfer the shares unless
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
- the shares have been registered under the Securities Act in
connection with the sale or transfer thereof, or
- counsel satisfactory to the Company has issued an opinion
satisfactory to the Company that the sale or other transfer of
such shares is exempt from registration under the Securities
Act, and
- such sale or transfer complies with all other applicable laws, rules,
and regulations, including all applicable Federal and state
securities laws, rules, and regulations.
Additionally, the Common Stock, when issued upon the exercise of an Award, will be
subject to any other transfer restrictions, rights of first refusal, and rights of
repurchase set forth in or incorporated by reference into other applicable
documents, including the Company's articles or certificate of incorporation,
by-laws, or generally applicable stockholders' agreements.
The Administrator may, in its sole discretion, take whatever additional actions it
deems appropriate to comply with such restrictions and applicable laws, including
placing legends on certificates and issuing stop-transfer orders to transfer agents
and registrars.
TAX WITHHOLDING The participant must satisfy all applicable Federal, state, and local income and employment
tax withholding requirements before the Company will deliver stock certificates
upon the exercise of an Award. The Company may decide to satisfy the withholding
obligations through additional withholding on salary or wages. If the Company does
not or cannot withhold from other compensation, the participant must pay the
Company, with a cashier's check or certified check, the full amounts required by
withholding. Payment of withholding obligations is due before the Company issues
shares with respect to the Award. If the Committee so determines, the participant
may instead satisfy the withholding obligations by directing the Company to retain
shares from the Award exercise, by tendering previously owned shares, or by
attesting to his ownership of shares (with the distribution of net shares).
TRANSFERS, Unless the Administrator otherwise approves in advance in writing, an
ASSIGNMENTS, Award may not be assigned, pledged, or otherwise transferred in any
AND PLEDGES way, whether by operation of law or otherwise or through any legal or equitable
proceedings (including bankruptcy), by the participant to any person, except by
will or by operation of applicable laws of descent and distribution. If Rule 16b-3
then applies to an Award, the participant may not transfer or pledge shares of
Common Stock acquired under a Stock Grant or
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
upon exercise of an Option until at least six (6) months have elapsed from
(but excluding) the Date of Grant, unless
the Administrator approves otherwise in advance in writing.
AMENDMENT OR The Board may amend, suspend, or terminate the Plan at any time,
TERMINATION without the consent of the participants or their beneficiaries; provided,
OF PLAN AND however, that no amendment will deprive any participant or beneficiary
OPTIONS of any previously declared Award. Except as required by law or by the CORPORATE CHANGES
section, the Administrator may not, without the participant's or beneficiary's
consent, modify the terms and conditions of an Award so as to adversely affect the
participant. No amendment, suspension, or termination of the Plan will, without
the participant's or beneficiary's consent, terminate or adversely affect any right
or obligations under any outstanding Awards.
PRIVILEGES OF No participant and no beneficiary or other person claiming under or
STOCK OWNERSHIP through such participant will have any right, title, or interest in or to any shares of Common
Stock allocated or reserved under the Plan or subject to any Award except as to
such shares of Common Stock, if any, that have been issued to such participant.
EFFECT ON Whether exercising or receiving an Award causes the participant to
OTHER PLANS accrue or receive additional benefits under any pension or other plan is governed
solely by the terms of such other plan.
LIMITATIONS ON Notwithstanding any other provisions of the Plan, no individual
LIABILITY acting as a director, employee, or agent of the Company shall be liable to any participant,
former participant, spouse, beneficiary, or any other person for any claim, loss,
liability, or expense incurred in connection with the Plan, nor shall such
individual be personally liable because of any contract or other instrument he
executes in such other capacity. The Company will indemnify and hold harmless each
director, employee, or agent of the Company to whom any duty or power relating to
the administration or interpretation of the Plan has been or will be delegated,
against any cost or expense (including attorneys' fees) or liability (including any
sum paid in settlement of a claim with the Board's approval) arising out of any act
or omission to act concerning this Plan unless arising out of such person's own
fraud or bad faith.
NO EMPLOYMENT Nothing contained in this Plan constitutes an employment contract
CONTRACT between the Company and the participants. The Plan does not give any
participant any right to be retained in the Company's employ, nor does it
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
enlarge or diminish the Company's right to terminate the participant's employment.
APPLICABLE LAW The laws of the State of Delaware (other than its choice of law provisions) govern this Plan
and its interpretation.
DURATION OF PLAN Unless the Board extends the Plan's term, the Administrator may not grant Awards after May 8,
2008. The Plan will then terminate but will continue to govern unexercised and
unexpired Awards.
14
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