<PAGE>
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 (S) 240.14a-11(c) or (S) 240.14a-12
SAGA SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
SAGA SYSTEMS, INC.
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[SAGA LOGO APPEARS HERE]
11190 Sunrise Valley Drive
Reston, Virginia 20191
April 11, 2000
To our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
SAGA SYSTEMS, Inc. (the "Company"). The Annual Meeting will be held on
Wednesday, May 17, 2000, at 10:00 a.m., Eastern Standard Time, at the Hyatt
Regency Reston, located at 1800 Presidents Street, Reston, Virginia.
The actions expected to be taken at the Annual Meeting are described in
detail in the attached Proxy Statement and Notice of Annual Meeting of
Stockholders.
Included with the Proxy Statement is a copy of the Company's Annual Report
to Stockholders for fiscal year 1999. We encourage you to read the Annual
Report. It includes information on the Company's operations, markets, products
and services, as well as the Company's audited financial statements.
Please use this opportunity to take part in the affairs of the Company by
voting on the business to come before this meeting. Whether or not you plan to
attend the meeting, please complete, sign, date and return the accompanying
proxy in the enclosed postage-paid envelope.
We look forward to seeing you at the Annual Meeting.
Sincerely,
[/s/ DANIEL F. GILLIS]
DANIEL F. GILLIS
President and Chief Executive
Officer
<PAGE>
SAGA SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 17, 2000
To the Stockholders of SAGA SYSTEMS, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of SAGA SYSTEMS, Inc. (the "Company") will be held on Wednesday,
May 17, 2000, at 10:00 a.m., Eastern Standard Time, at the Hyatt Regency
Reston, located at 1800 Presidents Street, Reston, Virginia for the following
purposes:
1. To elect four members of the Board of Directors for the term of office
stated in the Proxy Statement.
2. To approve an amendment to the Company's 1997 Stock Option Plan
increasing the number of shares of the Company's Common Stock reserved
for issuance thereunder by 2,000,000 shares from 6,875,000 shares to
8,875,000 shares.
3. To ratify the appointment of KPMG LLP as independent public
accountants for the Company for the current fiscal year.
4. To transact any other business that may properly come before the
Meeting.
Stockholders of record at the close of business on March 24, 2000 are
entitled to notice of and to vote at the Meeting or any continuation or
adjournment thereof.
Information concerning the matters to be acted upon at the Meeting is set
forth in the accompanying Proxy Statement.
By Order of the Board of Directors,
[/s/ KATHERINE E. BUTLER]
KATHERINE E. BUTLER
Vice President, General Counsel &
Secretary
Reston, Virginia
April 11, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
SAGA SYSTEMS, INC.
----------------
PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors
of SAGA SYSTEMS, Inc. (the "Board"), a Delaware corporation (the "Company"),
for use at the Annual Meeting of Stockholders to be held on May 17, 2000, at
10:00 a.m., Eastern Standard Time, at the Hyatt Regency Reston, located at
1800 Presidents Street, Reston, Virginia, and any adjournments thereof (the
"Meeting"). The mailing address of the Company's executive office is 11190
Sunrise Valley Drive, Reston, Virginia 20191 and the telephone number is (703)
860-5050.
Only holders of record of shares of the Company's common stock, par value
$0.01 per share ("Common Stock"), at the close of business on March 24, 2000
(the "Record Date"), will be entitled to vote at the Meeting. At the close of
business on the Record Date, there were 28,615,681 shares of Common Stock
outstanding ("Outstanding Shares") and entitled to vote. The presence in
person or by proxy at the Meeting of the holders of a majority of the
Outstanding Shares (i.e., at least 14,307,841 shares) will constitute a quorum
for the transaction of business at the Meeting. With respect to the tabulation
of proxies for purposes of constituting a quorum, abstentions and broker non-
votes will be treated as being present. For purposes of the election of
directors, votes withheld and broker non-votes are not counted toward a
nominee's total. For purposes of all other matters being voted on at the
Meeting, abstentions and broker non-votes are not counted as votes cast and
will have no effect on the vote. Stockholders are entitled to one vote for
each share of Common Stock held. Shares of Common Stock may not be voted
cumulatively.
This Proxy Statement, the accompanying proxy and the Company's 1999
Annual Report to Stockholders were first mailed to stockholders on or about
April 11, 2000.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Any person signing a proxy in the form accompanying this Proxy Statement
has the power to revoke it before it is exercised. Unless revoked, the shares
represented by a properly executed proxy will be voted at the Meeting and all
adjournments thereof. A proxy may be revoked by giving written notice to the
Secretary of the Company at the Company's address set forth above prior to the
Meeting, by delivery of a later dated proxy that is signed by the person who
signed the earlier proxy to the Secretary of the Company at the Meeting prior
to a vote being taken on a particular proposal at the Meeting, or by
attendance at the Meeting and voting in person.
If the enclosed proxy form is properly executed and returned to the
Company in time to be voted at the Meeting, the shares of Common Stock
represented thereby will be voted in accordance with the instructions marked
thereon. Executed but unmarked proxies will be voted "FOR" each nominee
proposed by the Board of Directors, "FOR" the amendment of the Company's 1997
Stock Option Plan (the "Option Plan") and "FOR" the ratification of the
selection of independent public accountants. The duly appointed proxies may,
at their discretion, vote upon such other matters as may properly come before
the Meeting.
The expenses of soliciting your proxy, including the expenses of printing
and mailing proxy material, will be borne by the Company. In addition to the
solicitation of proxies by mail, solicitation may be made by the Company
through certain directors, officers and other employees of the Company by
personal interview, telephone or facsimile. The Company will pay no additional
compensation to such persons for such solicitation. The Company will request
persons, firms, corporations, brokers and nominees who hold shares of Common
Stock in their names or in the names of their nominees which shares are
beneficially owned by others, to furnish proxy material to and obtain proxies
from the beneficial owners of the shares and will reimburse such holders for
their reasonable expenses incurred in forwarding solicitation materials to
such beneficial owners.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 20, 2000,
with respect to the beneficial ownership of the Company's Common Stock by (i)
each stockholder known by the Company to be the beneficial owner of more than
5% of the Outstanding Shares of the Company's Common Stock, (ii) each
director, (iii) the Company's Chief Executive Officer and each of the four
other most highly compensated executive officers of the Company determined as
of December 31, 1999 (hereinafter referred to as the "named executive
officer(s)"), and (iv) all current executive officers and directors of the
Company as a group. Unless otherwise indicated, each person listed had sole
voting and sole investment power with respect to all shares beneficially
owned, subject to community property laws, if applicable.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Name and Address of Beneficial Owner Ownership Of Class (1)
------------------------------------ ---------- -----------
<S> <C> <C>
5% Stockholders:
Thayer Equity Investors III, L.P. ...................... 10,736,953 37.5%
1455 Pennsylvania Avenue, N.W.
Washington, DC 20004...................................
Software AG 2,450,000 8.6%
Uhlandstrasse 12
64297 Darmstadt-Eberstadt, Germany.....................
Dr. Erwin Koenigs (2)................................... 2,450,000 8.6%
Volker Dawedeit (2)..................................... 2,450,000 8.6%
Current Directors and Nominees:
Carl J. Rickertsen (3).................................. 10,823,244 37.8%
Paul A. Brands (4)...................................... 5,000 *
John F. Burton.......................................... 0 *
Dr. Philip S. Dauber (5)................................ 101,763 *
Daniel F. Gillis (6).................................... 1,849,689 6.1%
Edward E. Lucente (7)................................... 40,838 *
Frederic V. Malek (3)................................... 10,795,244 37.7%
Dr. Paul G. Stern (3)................................... 10,795,244 37.7%
Named Executive Officers who are not Directors:
Katherine E. Butler (8)................................. 39,748 *
Timothy L. Hill (9)..................................... 0 *
Harry K. McCreery (10).................................. 1,085,815 3.7%
Gary M. Voight (11)..................................... 16,042 *
All current executive officers and directors
as a group (13 persons)(12)............................ 12,917,796 42.5%
</TABLE>
- --------
* Less than 1% of the outstanding Common Stock
(1) Based on (i) 28,608,732 shares of Common Stock outstanding as of March
20, 2000, and (ii) with respect to each person, the shares of Common
Stock issuable by the Company pursuant to options held by such persons
which may be exercised within 60 days following March 20, 2000.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC") that deem shares to be
beneficially owned by any person or group who has or shares voting and
investment power with respect to such shares. Shares subject to stock
options that are or will become exercisable within 60 days are deemed to
be outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the percentage ownership of such
person, but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person or group.
(2) All 2,450,000 shares are held of record by Software AG, a German software
company ("SAG"). Dr. Koenigs is the Chairman of the Board and Chief
Executive Officer of SAG and Mr. Dawedeit is a director and the Chief
Financial Officer of SAG. Dr. Koenigs and Mr. Dawedeit may be deemed to
have or share
2
<PAGE>
voting and investment power with respect to all shares held of record by
SAG. Dr. Koenigs and Mr. Dawedeit disclaim beneficial ownership of all
shares held of record by SAG.
(3) Includes 10,736,953 shares held of record by Thayer Equity Investors III,
L.P. ("Thayer") and 58,291 shares held of record by TC Co-Investors, LLC
("TC Co-Investors"). Thayer is a Delaware limited partnership whose sole
general partner is TC Equity Partners, L.L.C. ("TC Equity Partners"), a
Delaware limited liability company, and whose managing agent is TC
Management Partners, L.L.C. ("TC Management"). TC Equity Partners
beneficially owns, and has sole voting and investment power with respect
to, the shares of Common Stock held of record by Thayer. TC Co-Investors
is a Delaware limited liability company whose managing member is TC
Management. TC Management beneficially owns, and has sole voting and
investment power with respect to, the shares of Common Stock held of
record by TC Co-Investors. Messrs. Malek and Rickertsen and Dr. Stern are
the members of TC Management and the principal members of TC Equity
Partners. Messrs. Malek and Rickertsen and Dr. Stern may be deemed to be
the beneficial owners of the shares of Common Stock held by each of
Thayer and TC Co-Investors. Messrs. Malek and Rickertsen and Dr. Stern
disclaim beneficial ownership of all shares held of record by Thayer and
TC Co-Investors.
(4) All 5,000 shares are subject to the exercise of stock options that are or
will become exercisable within 60 days.
(5) Includes (i) 88,149 shares held of record by PSERD Trust, of which Dr.
Dauber is a trustee, and (ii) 13,614 shares subject to the exercise of
stock options that are or will become exercisable within 60 days. Dr.
Dauber shares voting and investment power with respect to all shares held
by PSERD Trust and may be deemed to be the beneficial owner of all such
shares.
(6) Includes 1,645,344 shares subject to the exercise of stock options that
are or will become exercisable within 60 days.
(7) All 40,838 shares are subject to the exercise of stock options that are
or will become exercisable within 60 days.
(8) Includes 37,500 shares subject to the exercise of stock options that are
or will become exercisable within 60 days.
(9) Mr. Hill resigned from the Company and SAGA SOFTWARE, Inc., a wholly
owned subsidiary of the Company ("SAGA"), effective February 29, 2000.
(10) Includes 879,566 shares subject to the exercise of stock options that are
or will become exercisable within 60 days. Mr. McCreery retired from the
Company and SAGA effective April 3, 2000. The 879,566 shares subject to
the exercise of stock options will expire by July 3, 2000.
(11) Includes 15,000 shares subject to stock options that are or will become
exercisable within 60 days.
(12) Includes (i) 10,736,953 shares held of record by Thayer, (ii) 58,291
shares held of record by TC Co-Investors, (iii) 88,149 shares held of
record by PSERD Trust, and (iv) 1,797,322 shares subject to stock options
that are or will become exercisable within 60 days. See footnotes (3)
through (11).
3
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Meeting, the stockholders will elect four directors to hold office
until the term of the class into which he was placed expires and until
successors have been duly elected and qualified or until any such director's
earlier resignation or removal. The Company's Third Amended and Restated
Bylaws (the "Bylaws"), provide for the Company's Board to be comprised of six
directors, which number of directors may be increased or decreased by the
Board. In March 1999, the Board created two additional directorships bringing
the total number of directors of the Board to eight. The Board is divided into
three classes with staggered terms, as nearly equal in number as reasonably
possible.
The Board appointed John F. Burton to the Board effective December 20,
1999, filling the vacancy created when Dr. Erwin Koenigs resigned his
directorship effective October 7, 1999. The Board has nominated John F. Burton
for election to the Board to serve as a class II director for a term to expire
at the annual meeting of stockholders to be held in 2002 and until the
election and qualification of his successor. The Board has also nominated each
of Paul A. Brands, Carl J. Rickertsen and Dr. Paul G. Stern, the incumbent
class III directors, for re-election to the Board to serve as a class III
director for a three-year term expiring at the annual meeting of stockholders
to be held in 2003 and until the election and qualification of his successor.
The proxies solicited hereby will be voted for the election of the four
nominees recommended by the Board, unless the proxy is marked in such a manner
as to withhold authority to vote or as to vote for one or more alternate
candidates. Each of the nominees has consented to being named in this Proxy
Statement and to serve if elected. The Board has no reason to believe that any
of the nominees for election as a director will not be a candidate or will be
unable to serve if elected. If any nominee for any reason is unable to serve
or will not serve, the shares of Common Stock represented by proxies may be
voted for such substitute nominee as the Board, in its discretion, may
designate unless the proxy is marked in such a manner as to withhold authority
to vote or as to vote for one or more alternate candidates.
Required Vote
A plurality of the votes cast at the Meeting in person or by proxy is
required to elect each nominee as a director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
ELECTION OF PAUL A. BRANDS, JOHN F. BURTON, CARL J. RICKERTSEN AND
DR. PAUL G. STERN AS DIRECTORS OF THE COMPANY.
Directors
The following sets forth certain information regarding the nominees for
election to the Board and the other directors who will continue in office for
the remainder of their terms. Directors elected to succeed those directors
whose terms have expired at an annual meeting of stockholders shall be elected
for a term of office to expire at the third succeeding annual meeting of
stockholders after their election. All ages and positions set forth below are
as of April 11, 2000.
<TABLE>
<CAPTION>
Year
Term Will
Name Age Expire Positions with the Company
---- --- --------- --------------------------
<S> <C> <C> <C>
Carl J. Rickertsen...... 40 2000 Chairman of the Board & Nominee for Class III Director
Paul A. Brands.......... 58 2000 Nominee for Class III Director
John F. Burton.......... 48 2000 Nominee for Class II Director
Dr. Philip S. Dauber.... 59 2001 Director
Daniel F. Gillis........ 53 2001 Director, President and Chief Executive Officer
Edward E. Lucente....... 60 2002 Director
Frederic V. Malek....... 63 2002 Director
Dr. Paul G. Stern....... 61 2000 Nominee for Class III Director
</TABLE>
4
<PAGE>
Mr. Brands has served as a director of the Company since May 1999. Mr.
Brands is the Chairman of the Board and Chief Executive Officer of American
Management Systems, Inc. ("AMS"), an international business and information
technology consulting firm. Mr. Brands joined AMS in 1977 and has served as a
member of its Board of Directors since 1992, Chief Executive Officer since
1993, and Chairman of the Board since 1997. Prior to joining AMS, Mr. Brands
served the U.S. Environmental Protection Agency's Office of Planning and
Evaluation from 1973 to 1977 where he was the Deputy Assistant Administrator
for three years. From 1967 to 1973, Mr. Brands managed the Asian Division of
the Office of the Assistant Secretary of Defense for Systems Analysis. In
1967, Mr. Brands completed Officer Candidate School and was commissioned as an
Officer of the U.S. Army Corps of Engineers. Mr. Brands is a member of the
Board of Directors of the Professional Services Council, the Executive
Advisory Committee of the University of Rochester William E. Simon School of
Business Administration and the Dean's Council of the University of Virginia
School of Engineering and Applied Science.
Mr. Burton was appointed a director of the Company by the Board in
December 1999. The Board nominated Mr. Burton for election by the stockholders
as a director of the Company. If elected, Mr. Burton will be placed in class
II and his term as a director of the Company will expire at the annual meeting
of stockholders to be held in 2002. Since March 1997, Mr. Burton has been a
Managing Director at Updata Capital, Inc., an investment banking firm
specializing in mergers and acquisitions for the information technology
industry. Since October 1996, Mr. Burton has also served as President of
Burton Technology Partners, Ltd., an investment and strategic planning
company. From September 1995 until October 1996, Mr. Burton served as the
President and Chief Executive Officer of NatSystems International, Inc., a
software company. From March 1984 until February 1995, Mr. Burton was the
President, Chief Executive Officer and a director of LEGENT Corporation, a
public systems management software company. Mr. Burton currently serves as a
director of Banyan Systems Inc., AXENT Technologies, Inc. and TREEV, Inc.
Dr. Dauber has served as a director of the Company since April 1997. Dr.
Dauber is an independent consultant providing services to several companies
including IQI, Inc., a telemarketing firm, where he served as acting President
from February 1997 through August 1997. Before becoming an independent
consultant, Dr. Dauber served as a Senior Vice President of Unisys Corporation
from 1981 to 1987 during which time he was also Chairman and Chief Executive
Officer of Memorex, Inc., a wholly owned subsidiary of Unisys Corporation.
Before joining Unisys Corporation, Dr. Dauber was employed by IBM from 1965 to
1981 and served as secretary of its Corporate Management Committee from 1980
to 1981.
Mr. Gillis has served as President and Chief Executive Officer of the
Company and SAGA since May 1996. He also has served as a director of the
Company since February 1997. Previously, Mr. Gillis served as Senior Vice
President of U.S. Sales of SAGA from April 1995 to May 1996 and as Vice
President of Federal Systems Sales of SAGA from January 1995 to March 1995.
From August 1994 to January 1995, he was a private consultant. From May 1987
through August 1994, he was Executive Vice President at Falcon Microsystems
Inc., a computer products reseller and systems integrator.
Mr. Lucente has served as a director of the Company since April 1997.
Since January 1998, Mr. Lucente has served as President and Chief Executive
Officer of QMS, Inc. From May 1995 through January 1998, Mr. Lucente served as
the President and Chief Executive Officer of Liant Software Corporation.
Previously, from May 1994 until April 1995, he was a marketing consultant and
from March 1993 through April 1994, he was Executive Vice President of World
Wide Sales and Marketing of Digital Equipment Corporation. From February 1991
until March 1993, Mr. Lucente was Executive Vice President of Northern
Telecom, Ltd. Mr. Lucente was employed by IBM from 1961 through 1991 when he
retired as Corporate Vice President. Mr. Lucente currently serves as a
director of QMS, Inc. and Information Resources, Inc. He also serves as a
director of the Mobile Area Chamber of Commerce and is a life trustee of
Carnegie Mellon University.
5
<PAGE>
Mr. Malek has served as a director of the Company since May 1999. Mr.
Malek is Chairman of Thayer Capital Partners and is a member of TC Equity
Partners and TC Management, who are, respectively, the sole general partner
and the managing agent of Thayer. Thayer is a private equity fund based in
Washington, D.C. that targets investments in the information technology and
services industries and its investors include corporations, pension funds and
financial institutions. Prior to his involvement with Thayer, Mr. Malek served
as President of Marriott Hotels and Resorts from 1980 to 1988 and as President
and Vice Chairman of Northwest Airlines from 1989 to 1991, and as Campaign
Manager of Bush/Quayle '92 in 1992. Mr. Malek is a director of Aegis
Communications Group, Inc., American Management Systems, Inc., Automatic Data
Processing, Inc., CB Richard Ellis Services, Inc., FPL Group, Inc., Global
Vacation Group, Inc., Manor Care, Inc., Northwest Airlines, Inc. and Paine
Webber Mutual Funds.
Mr. Rickertsen has served as Chairman of the Board of the Company since
April 1997. Mr. Rickertsen is also a member of TC Equity Partners and TC
Management. From September 1994 to April 1996, Mr. Rickertsen was a partner
with Thayer Capital Partners. Prior to that, Mr. Rickertsen acted as a private
financial consultant from 1993 through August 1994, and was a partner at
Hancock Park Associates, a private equity investment firm based in Los
Angeles, from 1989 to 1993. Before joining Hancock Park Associates,
Mr. Rickertsen was an associate at Brentwood Associates from 1987 to 1989, and
worked in the high technology group at Morgan Stanley & Co., Inc. from 1983 to
1985. Mr. Rickertsen currently serves as a director of e-Plus, Inc., Global
Vacation Group, Inc. and U.S. Technologies, Inc.
Dr. Stern has served as a director of the Company since April 1997. In
1999, Dr. Stern founded Arlington Capital Partners, a private equity
investment firm. In 1995, Dr. Stern joined Thayer as a co-founder, and is also
a member of TC Equity Partners and TC Management. From June 1993 to June 1995,
Dr. Stern was a Special Limited Partner at Forstmann Little & Co., a private
investment firm. From 1989 until June 1993, Dr. Stern served as Chief
Executive Officer and Chairman of the Board of Northern Telecom Ltd. Dr. Stern
currently serves as a director of the Dow Chemical Company, Whirlpool
Corporation, Aegis Communications, Inc. and e-Plus, Inc.
Director Compensation
Beginning in 1999, the Company paid each director who is not an employee
of the Company or an affiliate of Thayer $2,000 per scheduled Board meeting
attended. The Company also reimburses directors for certain out-of-pocket
expenses incurred in connection with attendance at Board and committee
meetings.
Directors who are employees of the Company or an affiliate of Thayer are
eligible to receive grants of stock options under the Option Plan. During
1999, Messrs. Brands and Burton each were granted options to purchase 20,000
shares of the Company's Common Stock at an exercise price of $10.9375 and
$21.6875, respectively. The options vest in equal annual installments of 25%.
The first 25% installment of the options granted to Messrs. Brands and Burton
will vest on May 20, 2000 and December 20, 2000, respectively, and each of the
subsequent installments are scheduled to vest on the first, second and third
anniversaries of May 20, 2000 and December 20, 2000, respectively. The options
will become immediately exercisable in full upon a change in control of the
Company. Mr. Gillis is the President and Chief Executive Officer of the
Company and SAGA and is not separately compensated as a director of the
Company. In 1999, Mr. Gillis was not granted stock options under the Option
Plan. See "Executive Compensation--Option Grants in Last Fiscal Year."
Board of Directors' Meetings and Committees
The Board met five times at regularly scheduled meetings and twice at
special meetings during fiscal year 1999. During that same period, the Board
acted twice by written consent. The permanent committees of the Board consist
of an Audit Committee, a Compensation Committee and an Employee Stock Option
Committee (the "Stock Option Committee"). Each of the Board members other than
Mr. Lucente and Dr. Stern attended at least 75% of all meetings of the Board
and its committees on which he served during 1999.
6
<PAGE>
The Audit Committee consists of Messrs. Lucente (Chair) and Brands and
Dr. Dauber. The Audit Committee met four times during fiscal year 1999. The
Audit Committee has certain duties relating to the year-end audit, the
Company's accounting methods and internal accounting controls. In addition,
the Audit Committee is responsible for the Company's relationship with its
independent public accountants, including making recommendations concerning
the engagement of independent public accountants, reviewing the plans and
results of the audit engagement with the Company's independent public
accountants and approving professional services provided by the Company's
independent public accountants.
The Compensation Committee consists of Messrs. Rickertsen (Chair), Burton
and Malek and Drs. Dauber and Stern. The Compensation Committee met four times
during 1999. The Compensation Committee is responsible for determining the
compensation of the Company's Chief Executive Officer and other executive
officers and establishing policies and guidelines regarding the compensation
of other officers and employees of the Company and its subsidiaries. The
Compensation Committee is also authorized to administer the Option Plan,
including the power to grant stock options, and the Company's Employee Stock
Purchase Plan.
The Stock Option Committee consists of Mr. Gillis. The Board created the
Stock Option Committee for the purpose of granting stock options under the
Option Plan to persons who are not (or who will not be) at the time of such
grant subject to the requirements of Section 16 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). The Stock Option Committee is not
authorized to grant any stock option under the Option Plan to any person who
reports directly to any member of the Stock Option Committee and/or to grant
any stock option under the Option Plan that covers more than 10,000 shares of
Common Stock without the prior consent and approval of the Compensation
Committee. In addition, the Board has provided the Stock Option Committee with
specific guidance concerning stock option grants to employees other than those
who report to Mr. Gillis or those who received options to purchase at least
10,000 shares. The Stock Option Committee acted 11 times during 1999 by
written consent. All grants of stock options made by the Stock Option
Committee are reported to the Compensation Committee on a regular basis.
The Company does not have a standing nominating committee or other
committee performing similar functions. The Board will consider stockholder
nominations for directors submitted in accordance with the procedure set forth
in the Company's Bylaws. The procedure provides that a notice relating to the
nomination must be timely given in writing to the Secretary of the Company
prior to a meeting. To be timely, the notice must be delivered not later than
the time for submission of a stockholder proposal as described under
"Stockholder Proposals." Such notice must be accompanied by the nominee's
written consent and contain information relating to the business experience
and background of the nominee, and information with respect to the nominating
stockholder and persons acting in concert with the nominating stockholder.
7
<PAGE>
EXECUTIVE OFFICERS
The names of, and certain information regarding, executive officers of
the Company who are not directors of the Company are set forth below. The
executive officers serve at the discretion of the Board and the Chief
Executive Officer. All ages and positions set forth below are as of April 11,
2000.
<TABLE>
<CAPTION>
Name Age Positions with the Company
---- --- --------------------------
<S> <C> <C>
Katherine E. Butler........... 48 Vice President, General Counsel and Secretary
Alan I. Croll................. 52 Vice President, Professional Services
David S. Linthicum............ 37 Vice President and Chief Technology Officer
Gary M. Voight................ 47 Vice President, Sales
Dale E. Williams.............. 37 Vice President and Chief Financial Officer
</TABLE>
Ms. Butler has served as Vice President, General Counsel and Secretary of
the Company and SAGA since June 1998. Prior to joining the Company, Ms. Butler
served as legal counsel for the General Electric Company ("GE"). Her positions
with GE included serving as Senior European Counsel for GE Information
Services ("GEIS") from November 1988 to February 1997 based in Paris, Milan
and then London, and subsequently as Senior Transactions Counsel from February
1997 through May 1998 based in Rockville, Maryland. Ms. Butler also served as
Counsel for GEIS in Rockville, Maryland from 1986 to November 1988. Prior to
this, Ms. Butler served as lead legal counsel for Software International
Corporation in Andover, Massachusetts from 1981 until 1986.
Mr. Croll has served as Vice President, Professional Services of the
Company since January 1999. Previously, Mr. Croll served from December 1994
through December 1998 as Vice President for Nichols Research Corporation, a
diversified professional services firm. From September 1996 through August
1998, Mr. Croll also served as President of CSSi, a wholly owned subsidiary of
Nichols. From September 1991 through July 1994, Mr. Croll served as Vice
President, Digital Services and Multivendor Customer Services for Digital
Equipment Corporation's Mid-Atlantic and Southern States Region. From January
1989 through September 1991, Mr. Croll was Vice President, U.S. Government
Enterprise Integration Services for Digital Equipment Corporation.
Mr. Linthicum has served as Vice President and Chief Technology Officer
of the Company since December 1997. Prior to joining the Company, Mr.
Linthicum served from June 1997 to December 1997 as Senior Manager in the
Center of Technology Enablement for Ernst & Young LLP. From April 1995 to June
1997, Mr. Linthicum served as Senior Manager, Systems Integration Practice at
AT&T. From December 1990 to April 1995, Mr. Linthicum was Technical Director,
Treasury Department for Mobil Oil Corporation.
Mr. Voight joined the Company in December 1998 as Vice President, Sales.
Previously, Mr. Voight had served as Vice President, Worldwide Transaction
Systems for IBM Software Group beginning in January 1997, and as Vice
President, Sales for Transarc Corporation, a wholly owned subsidiary of IBM,
beginning in November 1995. From November 1982 through November 1995, Mr.
Voight was employed by Stratus Computer, Inc., a provider of fault tolerant
computers, and Isis Distributed Systems, a leader in distributed computing
software and a wholly owned subsidiary of Stratus Computer, Inc., in a variety
of sales management, operations, marketing and consumer support positions.
Before joining Stratus Computer, Inc., Mr. Voight worked for Datapoint
Corporation, a leader in dispersed data processing, from September 1977
through November 1982 in sales and sales management positions. Mr. Voight
began his career as a salesman for Burroughs Corporation in 1975.
Mr. Williams has served as the Vice President and Chief Financial Officer
of the Company and SAGA since January 2000. Before joining the Company, Mr.
Williams served as Vice President and Chief Financial Officer for GEIS since
May 1998. He joined GEIS in June 1996 as Manager-Global Financial Planning and
Analysis. After beginning his career at GE in May 1985, Mr. Williams held a
broad range of financial positions throughout GE's various divisions.
8
<PAGE>
Executive officers of the Company are elected by the Board on an annual
basis and serve until the first meeting of the Board following the next annual
meeting of stockholders after their election and until their successors have
been duly elected and qualified or until their earlier death, resignation or
removal. There are no family relationships among any of the executive officers
or directors of the Company.
Executive Compensation
Summary Compensation Table
The following table sets forth certain information concerning
compensation paid to the named executive officers for the years ended December
31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation (1) Awards
----------------------- ------------
Securities
Name and Principal Underlying All Other
Position Year Salary Bonus Options (2) Compensation (3)
------------------ ---- ------------ ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Daniel F. Gillis........ 1999 $343,072 $ 18,525 -- $ 8,000
Director, President and
Chief 1998 324,423 325,000 -- 227,678
Executive Officer 1997 275,002 340,500 2,392,500 194,461
Timothy L. Hill(4)...... 1999 $235,000 $ 4,550 40,000 $ 5,423(5)
Vice President,
Marketing 1998 228,615 65,000 -- --
And International
Operations 1997 82,212 65,000 85,250 71,916(6)
Harry K. McCreery (7)... 1999 $194,885 $ 7,410 -- $ 8,000
Vice President,
Treasurer 1998 189,827 148,200 -- 272,730
And Chief Financial
Officer 1997 174,711 236,500 1,288,100(8) 242,317
Gary M. Voight.......... 1999 $200,000 $ 6,500 40,000 $ 85,998(9)
Vice President, Sales 1998 15,385(10) -- 60,000 --
Katherine E. Butler..... 1999 $189,423 $ 6,500 50,000 $ 33,000(11)
Vice President, General 1998 96,250(12) 113,750 60,000 2,356(13)
Counsel and Secretary
</TABLE>
- --------
(1) In accordance with the rules of the SEC, other compensation in the form
of perquisites and other personal benefits has been omitted because such
perquisites and other personal benefits constituted in the aggregate less
than the lesser of $50,000 or 10% of the total annual salary and bonus
reported for the named executive officer during each of 1999, 1998 and
1997.
(2) All figures in this column reflect shares of Common Stock subject to the
exercise of stock options granted under the Option Plan.
(3) Unless otherwise indicated, consists of (i) amounts of deferred
compensation earned and credited to deferred compensation accounts of the
named executive officer during 1998 and 1997, and (ii) $8,000 of matching
contributions made under the Company's 401(k) Plan during 1999, 1998 and
1997. See "Deferred Compensation Agreements."
(4) Mr. Hill resigned from the Company and SAGA effective February 29, 2000.
(5) Consists of matching contributions made under the Company's 401(k) Plan.
(6) Consists of $52,399 of moving expenses incurred and reimbursed by the
Company and $15,183 of moving expenses paid by the Company, both of which
are taxable. Also includes $4,334 of non-taxable moving expenses paid by
the Company.
(7) Mr. McCreery retired from the Company and SAGA effective April 3, 2000.
(8) Includes 879,566 shares subject to the exercise of stock options which
will expire by July 3, 2000.
(9) Consists of (i) a special performance award of $30,000, (ii) $47,998 of
moving expenses either paid or reimbursed by the Company, of which
$40,944 was taxable and $7,054 was non-taxable, and (iii) $8,000 of
matching contributions made under the Company's 401(k) Plan.
(10) Mr. Voight's employment with the Company commenced on December 1, 1998.
9
<PAGE>
(11) Consists of (i) a special performance award of $25,000, and (ii) $8,000
of matching contributions made under the Company's 401(k) Plan.
(12) Ms. Butler's employment with the Company commenced on June 10, 1998.
(13) Consists of matching contributions made under the Company's 401(k) Plan.
Option Grants in Last Fiscal Year
The following table sets forth information concerning the grant of stock
options to each of the named executive officers in 1999.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rate of Stock
Price
Appreciation for
Individual Grants Option Term (2)
--------------------------------------------------- -----------------
Number of % of Total
Shares Options Granted
Underlying To Employees in Exercise
Options Fiscal Year Price Expiration
Name Granted (1) 1999 (per share) Date 5% 10%
---- ----------- --------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Katherine E. Butler..... 30,000(3) 3.4% $15.000 1/14/06 $183,195 $426,923
20,000(4) 2.3% 10.625 8/5/06 86,509 201,602
Timothy L. Hill......... 20,000(3) 2.3% $15.000 1/14/06 $122,130 $284,615
20,000(4) 2.3% 10.625 8/5/06 86,509 201,602
Gary M. Voight.......... 40,000(4) 4.5% $10.625 8/5/06 $173,018 $403,205
</TABLE>
- --------
(1) Unless otherwise indicated, each option granted vests at a rate of 25% per
annum on each of the first, second, third and fourth anniversaries of the
grant date. No option granted under the Option Plan is exercisable after
the seventh anniversary of the option's date of grant. Options will become
immediately exercisable under certain circumstances including a change in
control of the Company. Each option was granted under the Option Plan and
has an exercise price equal to the fair market value of the Common Stock
on the date of grant.
(2) Amounts represented hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration dates. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses
associated with the exercise of the option or the sale of the underlying
shares. The actual gains, if any, on the exercise of stock options will
depend on the future performance of the Common Stock, the option holder's
continued employment throughout the option period and the date on which
the options are exercised.
(3) Each of the indicated options was granted on January 14, 1999.
(4) Each of the indicated options was granted on August 5, 1999.
10
<PAGE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End
Values
The following table sets forth information regarding the aggregate
exercises of options by each of the named executive officers. In addition,
this table includes the number of shares covered by both exercisable and
unexercisable stock options as of December 31, 1999 and the values of "in-the-
money" options.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of the Unexercised
Options at Fiscal Year- In-The-Money Options at
Shares End Fiscal Year-End
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel F. Gillis........ 80,295 $1,297,147 1,243,678 678,331 $15,814,041 $10,403,544
Harry K. McCreery....... 0 $ 0 622,901 365,199 $ 8,004,981 $ 5,601,457
Timothy L. Hill......... 0 $ 0 42,626 82,624 $ 717,879 $ 1,002,859
Gary M. Voight.......... 0 $ 0 15,000 85,000 $ 60,938 $ 555,313
Katherine E. Butler..... 0 $ 0 15,000 95,000 $ 0 $ 334,375
</TABLE>
Deferred Compensation Agreements
The Company entered into deferred compensation agreements dated July 1,
1995 and January 1, 1991 with Messrs. Gillis and McCreery, respectively (the
"Deferred Compensation Agreements"). Pursuant to these agreements, each of
Messrs. Gillis and McCreery annually received a credit of $41,838 and $46,000,
respectively, to his deferred compensation account plus an additional credit
to such account equal to 53% and 100%, respectively, of his bonus for such
year. The deferred compensation accounts earned interest at an annual rate of
6%. Under the Deferred Compensation Agreements, no additional credits, other
than interest, were made to any of the deferred compensation accounts after
December 31, 1998. The deferred compensation accounts of Messrs. Gillis and
McCreery were fully vested on December 31, 1998. On January 1, 1999, Messrs.
Gillis and McCreery exercised their right to receive the balance in their
deferred compensation accounts. Accordingly, Messrs. Gillis and McCreery
received payment of the balance in their respective deferred compensation
accounts on January 1, 1999 and the deferred compensation accounts were
closed.
Severance Agreements
Mr. Gillis entered into a memorandum of understanding dated April 24,
1997 with the Company with respect to the termination of his employment as
President and Chief Executive Officer of the Company. Under this agreement,
the Company is required to pay Mr. Gillis a severance benefit equal to 12
months of his then-current salary plus annual bonus ($460,000 minimum
payment), and, for a period not to exceed twelve months, to continue to make
available his health and other fringe benefits if (i) the Company terminates
his employment other than for cause, or (ii) he resigns within ninety days of
a substantial change in his title or a substantial reduction in his
compensation and benefits or job responsibilities.
Mr. McCreery also entered into a memorandum of understanding dated
December 16, 1996 with the Company with respect to the termination of his
employment on terms and conditions substantially similar to Mr. Gillis'
memorandum of understanding with the Company, provided, however, that (i) the
severance benefit due each such executive officer upon termination under his
respective memorandum of understanding is equal to twelve months of his then-
current salary plus a pro-rated bonus payment, and (ii) no severance or other
benefits are due under these agreements if the executive officer resigns
within 90 days of a substantial reduction in his compensation and benefits
related to a Company-wide reduction or a substantial reduction in his job
responsibilities that is deemed to be in the best business interests of the
Company. Mr. McCreery retired effective April 3, 2000 and received no payment
under the memorandum of understanding.
Pursuant to the terms of a Shareholders Agreement dated as of April 1,
1997, each of Messrs. Gillis and McCreery has agreed that (i) prior to the
fifth anniversary of the termination of his employment with the Company, he
will not influence any employee to leave the Company, and (ii) prior to the
third anniversary of the termination of his employment with the Company
(unless such termination is by the Company without
11
<PAGE>
cause), he will not directly or indirectly compete with the Company by
soliciting any of its customers, clients or suppliers. Mr. Hill has agreed to
similar restrictions pursuant to a subscription agreement between Mr. Hill and
the Company dated as of August 22, 1997, as amended.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Company's Board currently consists of
Messrs. Burton, Malek and Rickertsen and Drs. Dauber and Stern, none of whom
is or was an officer or employee of the Company or any of its subsidiaries.
The Board appointed Mr. Burton to the Compensation Committee in January 2000.
Messrs. Malek and Rickertsen and Dr. Stern are members of TC Management and TC
Equity Partners, which are, respectively, the managing agent and the sole
general partner of Thayer, a stockholder of the Company. TC Management is also
the managing member of TC Co-Investors, a stockholder of the Company. The
Company pays an annual fee of $300,000 on a quarterly basis plus out-of-pocket
expenses to TC Management for management and consulting services. In 1999, the
Company paid a total of approximately $314,000 for services provided by TC
Management plus out-of-pocket expenses. TC Management and TC Equity Partners
beneficially own and have sole investment and voting power with respect to the
shares of Common Stock held of record by TC Co-Investors and Thayer,
respectively.
No member of the Compensation Committee was an officer or employee of the
Company or any of its subsidiaries prior to or during 1999. None of the
executive officers of the Company has served on the board of directors or on
the compensation committee of any other entity, any of whose officers served
either on the Board or on the Compensation Committee of the Company.
12
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The Compensation Committee is responsible for determining compensation
for the executive officers of SAGA SYSTEMS, Inc. (the "Company") and for
granting awards under and administering the Company's 1997 Stock Option Plan
(the "Option Plan") and the Company's Employee Stock Purchase Plan ("Employee
Stock Purchase Plan")(collectively, the "Plans"). The Compensation Committee
currently consists of Messrs. Burton, Malek and Rickertsen and Drs. Dauber and
Stern, each of whom is neither an officer nor an employee of the Company. The
Board appointed Mr. Burton to the Compensation Committee in January 2000.
Compensation Philosophy
- -----------------------
The compensation program for the executive officers of the Company and
its subsidiaries is developed and administered by the Board and its
Compensation Committee. The Compensation Committee establishes general overall
compensation policies regarding other officers of the Company, but their
specific compensation program is developed and administered by management. The
key goals of the Company's compensation program are to attract, retain and
reward the most capable executives who can contribute (both short- and long-
term) to the success of the Company and to align compensation with the
attainment of the business objectives of the Company.
The following principles guide the Company's compensation strategy:
. To attract and retain the most highly qualified management team;
. To pay competitively compared to similar organizations and to provide
reward opportunities consistent with performance compared to similar
organizations in the marketplace;
. To align compensation programs with the stockholders' interests and the
Company's annual and long-term business objectives and focus executives'
attention on the fulfillment of those objectives; and
. To strive for fairness while giving appropriate weight to individual
performance contributions as the basis of executive pay decisions.
Executive Officer Compensation
- ------------------------------
A key objective of the Company is to attract, develop and maintain strong
executive officers that are capable of maximizing the Company's performance
for the benefit of its stockholders. In furtherance of this objective, the
Compensation Committee has adopted a compensation strategy for executive
officers which utilizes reasonable salaries, while emphasizing the use of
variable incentives such as awards of cash bonuses and grants of stock options
in order to reward longer-term contributions to the Company's success.
The Company periodically compares its compensation levels, practices and
financial performance to a select group of technology companies of similar
size, geographic market and business makeup to the Company (the "Comparative
Companies"). For the purpose of determining competitive compensation practices
and identifying the Comparative Companies, the Compensation Committee will
gather data from companies with the following characteristics:
. Direct competitors for the Company's management talent; and
. Similar high quality, software and systems development organizations.
Accordingly, the Company will use both a defined peer group of
Comparative Companies and a general industry group consisting of technology
companies of similar size, geographic makeup and business makeup as its
benchmarks to determine competitive compensation practices. The companies
comprising this group of Comparative Companies may differ from those included
in the Peer Group Index appearing on page 18.
13
<PAGE>
To implement the compensation philosophy described above, the Company's
executive compensation program has three primary components: (i) a base
salary, (ii) incentive bonus awards, and (iii) long-term incentive awards. The
factors and criteria to be considered with respect to each of these components
are set forth below.
Base Salary. The first component of the Company's compensation program is
base salary. Base salaries of the Company's Chief Executive Officer ("CEO")
and executive officers are determined by competitive, market-based pay
practices, performance evaluations and expected future contributions. The
range of the base salary for an executive position will be established
primarily based on competitive salaries for positions with a similar scope of
responsibilities and job complexities at a select group of technology
companies of similar size, geographic market and business makeup to the
Company. The level of base salary within the range of competitive salaries
will be determined on the basis of individual performance, experience and
other relevant factors, such as demonstrated leadership, job knowledge and
management skills. Such determination will be made by the Compensation
Committee with regard to the Company's executive officers, and by management
with regard to all other officers consistent with the general overall
compensation policies established by the Compensation Committee.
The Compensation Committee generally targets the salaries of the
Company's CEO and executive officers at or above the median of the Comparative
Companies, while also considering the unique responsibilities and performance
of the CEO and each executive officer. Accordingly, higher compensation may be
paid if necessary or appropriate to attract or retain unusually qualified
executives. Annual or other base salary adjustments will be based on
individual performance as well as other market factors.
Corporate Incentive Plan. The second component of the Company's
compensation program is incentive bonus awards, referred to internally as the
Corporate Incentive Plan. The Corporate Incentive Plan is intended to focus
the efforts of executives on the attainment of annual financial performance
objectives. The performance objectives are proposed by management and approved
by both the Board and Compensation Committee thereby providing the basis for
calculation of the incentive bonus award. If such performance goals are
achieved, a pool of bonus funds will be available for incentive bonus awards.
In establishing this fund, the Compensation Committee considers both revenue
and pre-tax profits. The size of the pool will depend on the Company's success
in meeting such objectives. The Corporate Incentive Plan also provides for
discretionary grants of cash awards to executive officers by the Compensation
Committee.
The Compensation Committee has broad discretion in its administration of
the Corporate Incentive Plan. During the second quarter 1999, the Company's
projected revenue and pre-tax profit for the full year 1999 would not exceed
the minimum threshold of targets which had been originally established by the
Company and approved by the Compensation Committee in order for the Corporate
Incentive Plan's bonus pool to be funded and paid. Consistent with the
Company's philosophy of attracting, retaining and motivating high quality
employees, however, the Compensation Committee approved for the last two
quarters revised financial targets and a reduced bonus pool available for
distribution to reflect what the Company believed to be stretch but attainable
financial targets.
In 1999, incentive bonuses totaling approximately $52,261 were awarded to
the executive officers of the Company as a group. For information regarding
the bonuses awarded in 1999 to each of the Company's five most highly
compensated executive officers, see "Executive Compensation--Summary
Compensation Table."
The Board and the Compensation Committee also may make special cash
awards to executive officers based on their subjective assessment of
individual performance. In 1999, the Compensation Committee approved one-time
cash awards to two of the executive officers named in the Summary Compensation
Table.
Long-Term Incentive Award. The third component of the Company's
compensation program will be provided through the Company's Option Plan and
Employee Stock Purchase Plan, which are also designed to align the interests
of the officers of the Company and certain subsidiaries with those of
stockholders. The Plans also serve to focus the efforts of officers on
performance in an effort to increase the value of the Company for its
stockholders.
14
<PAGE>
Pursuant to the Option Plan, the Compensation Committee and such other
committees as may from time to time be designated by the Board, may grant
incentive stock options within the meaning of the Internal Revenue Code of
1986, as amended, and may grant non-statutory stock options to purchase shares
of common stock. Subject to the terms of the Option Plan, the Compensation
Committee and such other committees as may from time to time be designated by
the Board, will have discretion in making grants under the Plan. The
Compensation Committee and such other committees as may from time to time be
designated by the Board, may, however, consider the recommendations of
management with respect to such grants. The competitive environment for human
resources will be taken into consideration when options are granted under the
Option Plan.
The Employee Stock Purchase Plan is intended to align the interests of
all employees with the shareholders of the Company in order to maximize the
value of the Company. The Employee Stock Purchase Program provides that all
full-time employees and part-time employees of the Company and certain
subsidiaries working at least twenty (20) hours per week are eligible to
purchase the Company's common stock on the last day of two designated six-
month periods in a year, and that participating employees are able to purchase
the Company's common stock at a discount from the average price reported by
the New York Stock Exchange on either the first or the last day of the six-
month period, whichever is lower.
Chief Executive Officer Compensation
- ------------------------------------
In determining the compensation package for the CEO, the Compensation
Committee believes that it must provide a compensation package that will
motivate and retain a CEO of outstanding ability who is capable of directing
the strategic focus of the Company. Compensation of the Company's current
President and CEO, Mr. Gillis, as determined by the Compensation Committee,
has the following primary compensation components: a base salary, an annual
bonus linked to the Company's growth in revenue and pre-tax profit and stock
option grants. The components of Mr. Gillis' compensation package reflect the
determination of the principal stockholder and the Board as to the total
compensation package necessary to retain a CEO with Mr. Gillis' qualifications
and experience. The linkage of Mr. Gillis' 1999 bonus to the Company's growth
in revenue and pre-tax profit reflect their efforts to align the CEO's
compensation with stockholder interests and to encourage long-term
performance. Although Mr. Gillis is eligible to participate in the Option
Plan, Mr. Gillis did not receive any stock option grants in 1999 due to the
stock option grants awarded to Mr. Gillis in 1997 in connection with the
Company's recapitalization.
In determining its evaluation of Mr. Gillis' performance in 1999, the
Compensation Committee considered, but did not formally weight, the following
performance factors: growth in the Company's earnings, net income and revenue.
The Board, with the advice of the Compensation Committee, will re-examine
the Company's compensation philosophy and objectives each year and determine
if changes should be considered.
COMPENSATION COMMITTEE
John F. Burton
Dr. Philip S. Dauber
Frederic V. Malek
Carl J. Rickertsen
Dr. Paul G. Stern
15
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Messrs. Malek and Rickertsen and Dr. Stern, directors of the Company, are
the principal members of TC Equity Partners, the sole general partner of
Thayer. TC Equity Partners beneficially owns, and has sole voting and
investment power with respect to, the shares of Common Stock held of record by
Thayer. TC Management is the managing member of TC Co-Investors and
beneficially owns and has sole voting and investment power with respect to the
shares of Common Stock held of record by TC Co-Investors. Messrs. Malek and
Rickertsen and Dr. Stern are members of TC Management. Messrs. Malek and
Rickertsen and Dr. Stern may be deemed to be the beneficial owners of the
shares of Common Stock held by each of Thayer and TC Co-Investors. Messrs.
Malek and Rickertsen and Dr. Stern disclaim beneficial ownership of all shares
of Common Stock held of record by Thayer and TC Co-Investors.
The Company agreed to pay on a quarterly basis an annual fee of $300,000
to TC Management for management and consulting services to be provided by TC
Management to the Company in connection with the operation and conduct of the
Company's business. In 1999, 1998 and 1997, the Company paid a total of
$300,000, $300,000 and $225,000, respectively, of such fees plus out-of-pocket
expenses, and as of March 20, 2000, the Company had paid approximately $78,405
of such fees plus out-of-pocket expenses for services provided in fiscal year
2000. TC Management is the managing agent of and provides management services
to Thayer.
Mr. McCreery issued a promissory note to the Company dated August 9, 1996
with a face amount of $363,000. The note accrued interest at the rate of 6%
per annum and was due and payable upon termination of Mr. McCreery's
employment with the Company. The note did not require periodic interest or
principal payments. Mr. McCreery paid the principal and accrued interest in
full satisfaction of this promissory note in January 1999.
On March 31, 1997, the Company entered into an exclusive, perpetual
license agreement (the "Original Cooperation Agreement") with SAG, its former
German parent company. On September 30, 1999, the Company amended and restated
the Original Cooperation Agreement, the amended agreement being referred to
hereinafter as the "Cooperation Agreement."
As amended, the Cooperation Agreement allows, among other things, the
Company and SAG to expand their respective distribution channels. The
Cooperation Agreement removes certain distribution exclusivity provisions,
which were part of the Original Cooperation Agreement, allowing both companies
to sell new products in geographic territories that were previously designated
to the other.
Following the amendment of the Cooperation Agreement, the Company has
retained, with the exception of the Company's Construct product, the exclusive
right to license and service on a worldwide basis the products that it
develops or acquires. Additionally, the Company retained the exclusive and
perpetual right to license and service the core SAG product lines, including
Adabas, Natural and the existing, core Entire family products, but exclusive
of EntireX, to current Company customers in the United States, Canada and
Mexico ("North America"). The Company also retained the exclusive right to
license and service EntireX in North America, except under certain
circumstances, to current Company customers through June 2000, and a non-
exclusive right to license and service EntireX in North America after June
2000. In addition, excluding North America, the Company retained the exclusive
and perpetual right to license and service all current and future SAG products
within the Territory.
The Company has non-exclusive and perpetual rights under the Cooperation
Agreement to license and service the SAG products Bolero and Tamino as well as
SAG's future database and software development tools, if any, to current
Company customers in North America. The Company also has non-exclusive rights
to license and service certain new SAG products other than the core SAG
products, the EntireX, Bolero and Tamino products and future database and
software development tools to current Company customers in North America,
however, this right terminates on December 31, 2005 although it may continue
thereafter if
16
<PAGE>
certain circumstances exist. In addition, the Company has the non-exclusive
and perpetual right to license and service the core SAG product lines,
including Adabas, Natural and the existing, core products in the Entire
family, including EntireX, to new Company customers in North America.
The Company shall have no rights, however, to license or service new SAG
products to new SAGA customers in North America.
Under the Cooperation Agreement, as amended, SAG has the non-exclusive,
perpetual right to license the Company's Construct products outside of the
Territory. SAG has no right to license any other Company product anywhere else
in the world.
Each of the Company and SAG had to pay the other 24% of the net revenues
derived from licenses granted under the Original Cooperation Agreement. This
24% royalty rate was fixed for 20 years. Under the Cooperation Agreement, as
amended, each of the Company and SAG must still pay the other 24% of the net
revenues derived from the distribution of the other party's products and the
provision of maintenance within the Territory, in the case of the Company, and
outside of the Territory, in the case of SAG. This royalty rate shall be
effective through the year 2017 and thereafter unless the parties agree
otherwise. Except under certain circumstances, the Company must pay SAG a
minimum annual royalty payment from 1999 through 2005 which payment varies
from $17.0 million to $23.0 million. Additional payments may be made by the
Company if the Company grants certain discounts. SAG owns more than 5% of the
Company's Outstanding Shares.
On December 5, 1993, the Company and SAG entered into a Products and
Research & Development Operations Transfer Agreement (the "R&D Agreement")
which required the Company to provide certain services relating to certain SAG
employees who utilized the Company's facilities. In connection with the
Recapitalization, on March 31, 1997, the Company entered into an
Administrative Services Agreement (the "ASA") with SAG, terminating the R&D
Agreement and requiring that the Company provide services similar to those
required under the R&D Agreement. The ASA terminated December 31, 1999,
however, a deminimis level of support is being provided during a period of
transition. SAG was required under the ASA to reimburse the Company for its
costs incurred in connection with the ASA and to pay the Company during the
years 1997 through 1999 for the use of certain machinery leased by the
Company. In 1999, 1998 and 1997, the payments to the Company under the R&D
Agreement and the ASA were approximately $10.1 million, $8.5 million and $10.8
million, respectively.
On August 22, 1997, the Company entered into a subscription agreement
with Timothy L. Hill, the Company's former Vice President, Marketing and
International Operations, pursuant to which the Company issued and sold to Mr.
Hill 137,500 shares of Common Stock for an aggregate purchase price of
$202,095 (the "Subscription Agreement"). Pursuant to the Subscription
Agreement, the Company had the right to repurchase Mr. Hill's shares at $1.47
per share if Mr. Hill's employment with the Company terminated for cause or if
Mr. Hill voluntarily terminated his employment prior to August 17, 1999. This
repurchase right was not exercised by the Company. Mr. Hill sold all shares
subject to the Subscription Agreement in February 2000.
The Company and Thayer have entered into a registration rights agreement
for the benefit of all holders as of September 26, 1997 of "restricted
securities" of the Company within the meaning of Rule 144 of the SEC, and
certain transferees of such holders. Pursuant to this agreement, a majority-
in-interest of such holders has the right to require the Company to register
their restricted securities for resale under the Securities Act of 1933, as
amended, on up to five occasions (only one of which may be on Form S-1) and
such holders have been granted certain "piggy-back" registration rights with
regard to certain securities offerings initiated by the Company. The Company
has agreed to pay certain expenses in connection with such registrations.
Thayer exercised its only Form S-1 registration in 1998.
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<PAGE>
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Company's Common Stock with the cumulative total return on the Standard &
Poor's 500 Index and the Standard and Poor's Computers (Software & Services), a
published industry index, for the period commencing November 19, 1997 and
ending December 31, 1999, the approximate period for which the Common Stock has
been registered under Section 12 of the Exchange Act. The graph assumes an
investment of $100 and the reinvestment of any dividends. The points marked on
the horizontal axis of the graph correspond to the last day of the applicable
month.
The comparisons in the graph below are based upon historical data and are
not indicative of, nor intended to forecast, future performance of the
Company's Common Stock.
<TABLE>
<CAPTION>
Cumulative Total Return
-------------------------------------------------------------------------------
11/19/97 11/97 12/97 1/98 2/98 3/98 4/98 5/98 6/98 7/98 8/98 9/98 10/98 11/98
-------- ----- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAGA SYSTEMS, INC....... 100 101 144 134 193 263 246 242 291 238 168 169 149 191
S & P 500............... 100 105 106 108 115 121 122 120 125 124 106 113 122 129
S & P COMPUTERS
(SOFTWARE & SERVICES).. 100 106 96 106 118 128 127 119 145 139 118 140 136 154
<CAPTION>
Cumulative Total Return
-------------------------------------------------------------------------
12/98 1/99 2/99 3/99 4/99 5/99 6/99 7/99 8/99 9/99 10/99 11/99 12/99
-------- ----- ----- ---- ---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAGA SYSTEMS, INC....... 180 170 111 84 82 117 127 114 117 143 144 212 198
S & P 500............... 137 143 138 144 149 146 154 149 148 144 153 156 166
S & P COMPUTERS
(SOFTWARE & SERVICES).. 173 209 187 222 209 203 223 209 220 227 237 253 321
</TABLE>
18
<PAGE>
PROPOSAL NO. 2
PROPOSED APPROVAL OF AMENDMENT TO THE SAGA SYSTEMS, INC.
1997 STOCK OPTION PLAN
Stockholders are being asked to approve the amendment of the Option Plan
(i) to increase the number of shares of Common Stock reserved for issuance
under the Option Plan by 2,000,000 shares from 6,875,000 shares to a total of
8,875,000 shares, and (ii) to provide that, over the term of the Option Plan,
no employee may be granted options with respect to a number of shares in
excess of 15% of the total number of shares reserved for issuance under the
Option Plan. The Board approved the foregoing amendments to the Option Plan in
March 2000. In addition to the amendments for which stockholder approval is
being sought, since its adoption the Board has approved other amendments to
the Option Plan to update the Option Plan, reflect the Company's publicly
traded status and eliminate certain restrictions in the Option Plan no longer
required by the SEC's rules under Section 16 of the Exchange Act. As of
February 29, 2000, options to purchase an aggregate of 4,424,885 shares of
Common Stock were outstanding under the Option Plan with a weighted average
exercise price of $8.08 per share. 872,094 shares, excluding the 2,000,000
shares subject to shareholder approval at this Meeting, were available for
future grant under the Option Plan. The Option Plan authorizes the
Compensation Committee or any other committee or subcommittee appointed by the
Board to administer the Option Plan, to grant incentive and nonstatutory stock
options to eligible employees, directors, consultants, advisors or affiliates
of the Company.
The Option Plan is structured to give the Board and Compensation
Committee broad discretion in creating equity incentives to assist the Company
in attracting, retaining and motivating the best available personnel for the
successful conduct of the Company's business. Since inception of the Option
Plan, the Company has provided stock options as an incentive to its key
employees and executives as a means to promote increased stockholder value.
The Company believes that stock options are one of the best methods of
attracting and retaining key personnel responsible for the continued
development and growth of the Company's business. In addition, stock options
are generally considered a competitive necessity in the high technology
industry.
Vote Required
The affirmative vote of a majority of the shares of the Company's Common
Stock represented and voting at the Meeting will be required to approve the
proposed amendment to the Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
AMENDMENT OF THE SAGA SYSTEMS, INC. 1997 STOCK OPTION PLAN
Summary of the Option Plan
The material terms of the Option Plan are summarized below. This summary
does not purport to be a complete statement of the terms and conditions of the
Option Plan, a copy of which is available by writing to Katherine E. Butler at
the Company's address on page one of this Proxy Statement.
Purpose
The Option Plan is intended to assist the Company and its affiliates in
attracting and retaining individuals of outstanding ability and to promote the
identification of their interests with those of the stockholders of the
Company.
Administration
The Option Plan provides for its administration by the Compensation
Committee or another committee or subcommittee appointed by the Board to
administer the Option Plan. The Board created the Stock
19
<PAGE>
Option Committee for the purpose of granting stock options under the Option
Plan to persons who are not, or who will not be, at the time of such grant
subject to the requirements of Section 16 of the Exchange Act. The Stock
Option Committee is not authorized to grant any stock option to any person who
reports directly to any member of the Stock Option Committee and/or to grant
any stock option that covers more than 10,000 shares of Common Stock without
the prior consent and approval of the Compensation Committee. In addition, the
Board provided the Stock Option Committee with specific guidance concerning
stock option grants to employees other than those described in the previous
sentence.
The administrator (as used in this description, the term "administrator"
refers to the Compensation Committee and/or the Stock Option Committee and/or
any other committee or subcommittee appointed by the Board to administer
options under the Option Plan) determines the terms of the options granted
including, but not limited to, the exercise price, number of shares subject to
the option, vesting provisions, the exercisability thereof and whether an
option will be an incentive stock option or a nonstatutory stock option. The
administrator determines all questions of interpretation and its decisions are
final and binding upon all participants. Subject to the provisions of the
Option Plan, the administrator has plenary authority to construe and interpret
the Option Plan and all option agreements executed by the Company and the
optionee, to prescribe, amend and rescind rules and regulations relating to
the Option Plan and to make all other determinations deemed necessary or
advisable for the administration of the Option Plan including, but not limited
to, any determination to accelerate the vesting of outstanding options.
Eligibility
Options may be granted to employees or persons hired to be employees,
directors and consultants or advisors to the Company or any of its affiliates,
provided, however, that only employees shall be eligible to receive incentive
stock options. The administrator selects the optionees and determines the
number of shares subject to each option. In making his or her determination,
the administrator may take into account the nature of the services rendered by
the optionees, their present and potential contributions to the success of the
Company and other factors deemed relevant by the administrator. It is the
intent of the Company that incentive stock options granted under the Option
Plan qualify as such under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). There is no minimum number of option shares that may
be granted to any one employee, however, over the term of the Option Plan, no
employee may be granted options with respect to a number of shares in excess
of 15% of the total number of shares reserved for issuance under the Option
Plan.
Terms of Options
Subject to the provisions of the Option Plan, the administrator has
plenary authority and discretion to determine the terms of all options, which
must be either incentive stock options or nonstatutory stock options. Each
option granted under the Option Plan must be evidenced by an agreement between
the Company and the optionee, clearly identified as either incentive stock
option agreement or nonstatutory stock option, which specifies the terms and
conditions of the grant. The option period must be specified in the applicable
agreement, however, an option must not be exercisable after ten years (five
years in the case of an incentive stock option granted to a ten percent
stockholder of the Company) from the date of grant. Options granted under the
Option Plan may have a term of no more than 10 years. To date, the
administrator has issued options that must be exercised within seven years of
the date of grant. In the exercise of its plenary authority and discretion,
the administrator may determine, among other things, when options are granted,
how and when options may be exercised, the method of exercise and the exercise
price of options.
The administrator determines the exercise price of the options, which, in
the case of nonstatutory stock options, may be less than fair market value.
The option price of all incentive stock options granted under the Option Plan
may not be less than the fair market value of the Common Stock on the date the
option is granted. For purposes of the Option Plan, fair market value is
defined as the mean between the highest and lowest quoted selling price as
reported by The Wall Street Journal, or if no such prices are reported for
that day,
20
<PAGE>
on the last preceding day for which such prices are reported. If an optionee
owns stock representing more than 10% of the voting power of all classes of
stock of the Company at the time of grant, under Section 422 of the Code, the
option price of an incentive stock option must be at least 110% of the fair
market value on the date of grant. In the case of a nonstatutory stock option
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the exercise price must be at least 100% of the
fair market value on the date of grant.
Except as otherwise set forth in an option agreement, an option is not
transferable by the optionee other than by will or the laws of descent and
distribution. An option is exercisable only by the optionee during his or her
lifetime or, in the event of his or her legal disability, by his or her legal
representative.
Adjustment upon Changes in Capitalization
In the event of any change in the outstanding Common Stock by reason of
any stock dividend, stock split (or reverse stock split), recapitalization,
reclassification, reorganization, reincorporation, combination or exchange of
shares, merger, consolidation, liquidation or similar change in corporate
structure, the administrator may, in its sole discretion, provide for a
substitution for or adjustment in (i) the number and class of shares subject
to outstanding options, (ii) the option price of outstanding options, (iii)
the aggregate number and class of shares that may be issued under the Option
Plan, and (iv) the maximum number of shares with respect to which an employee
may be granted options over the term of the Option Plan.
Change of Control
Under the current form of option agreement, an option will vest in full
upon a change of control of the Company. A change of control has occurred if
(i) any person or group of persons, excluding the Company's employee benefit
plans, becomes the beneficial owner of 51% or more of the combined voting
power of the Company's then outstanding securities, (ii) the Company's
stockholders approve a merger or consolidation of the Company with any other
corporation unless it would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent at least 50% of
the combined voting power of the voting securities of the Company or surviving
entity outstanding immediately after the merger or consolidation, or (iii) the
Company's stockholders approve a plan of complete liquidation or winding-up of
the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
Amendment and Termination
The Board may amend, alter, suspend or terminate the Option Plan in any
respect at any time, provided, however, that approval is received by (i) the
Company's stockholders to the extent stockholder approval is required by
applicable law or regulations, and (ii) each affected optionee if the
amendment, alteration, suspension or termination would adversely affect his or
her rights or obligations under an option granted prior to the date of the
amendment, alteration, suspension or termination. No option may be granted nor
any shares issued under the Option Plan during any suspension or after
termination of the Option Plan. Unless terminated sooner by the Board, the
Option Plan will terminate in April 2007.
Tax Information
The following discussion briefly summarizes certain federal income tax
aspects of stock issued under the Option Plan. State and local tax
consequences may differ.
Incentive Stock Options. An optionee will not recognize income on the
grant or exercise of an incentive stock option. However, the difference
between the exercise price and the fair market value of the stock on the date
of exercise is an adjustment item for purposes of the alternative minimum tax.
If an optionee does not exercise an incentive stock option within certain
specified periods after termination of employment, the optionee will recognize
ordinary income on the exercise of an incentive stock option in the same
manner as on the exercise of a nonstatutory stock option, as described below.
21
<PAGE>
The general rule is that gain or loss from the sale or exchange of shares
acquired on the exercise of an incentive stock option will be treated as
capital gain or loss. If certain holding period requirements are not
satisfied, however, the optionee generally will recognize ordinary income at
the time of the disposition. Gain recognized on the disposition in excess of
the ordinary income resulting therefrom will be capital gain, and any loss
recognized will be a capital loss.
Nonstatutory Stock Options. An optionee will not recognize income on the
grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, an optionee recognizes income equal to the excess, if any, of the fair
market value of the shares on the exercise date over the exercise price.
Gain or Loss on Sale or Exchange of Shares. In general, gain or loss from
the sale or exchange of shares acquired pursuant to the exercise of options
granted under the Option Plan will be treated as capital gain or loss,
provided that the shares are held as capital assets at the time of the sale or
exchange. However, if certain holding period requirements are not satisfied at
the time of a sale or exchange of shares acquired upon exercise of an
incentive stock option (a "disqualifying disposition"), an optionee generally
will be required to recognize ordinary income upon such disposition.
Deductibility by Company. The Company generally is not allowed a
deduction in connection with the grant or exercise of an incentive stock
option. However, if an optionee is required to recognize income as a result of
a disqualifying disposition, the Company will be entitled to a deduction equal
to the amount of ordinary income so recognized. In general, in the case of a
nonstatutory stock option (including an incentive stock option that is treated
as a nonstatutory stock option, as described above), the Company will be
allowed a deduction in an amount equal to the amount of ordinary income
recognized by an optionee, provided that certain income tax reporting
requirements are satisfied.
Parachute Payments. Where payments to certain employees that are
contingent on a change in control exceed limits specified in the Code, the
employee generally is liable for a 20 percent excise tax on, and the
corporation or other entity making the payment generally is not entitled to
any deduction for, a specified portion of such payments. The accelerated
vesting of stock options would be relevant in determining whether the excise
tax and deduction disallowance rules would be triggered with respect to
certain Company employees.
Performance-Based Compensation. Subject to certain exceptions, Section
162(m) of the Code disallows federal income tax deductions for compensation
paid by a publicly-held corporation to certain executives to the extent the
amount paid to an executive exceeds $1 million for the taxable year. The
Option Plan is intended to permit the grant of options that qualify under an
exception to the deduction limit of Section 162(m) for "performance-based
compensation."
Participation in the Option Plan
The grant of options under the Option Plan to directors, executive
officers and all other eligible participants is subject to the discretion of
the administrator. As of the date of this proxy statement, there has been no
determination by any administrator with respect to any specific future awards
under the Option Plan. Accordingly, neither the probability of, nor the
details concerning, any specific future awards is determinable.
During fiscal year 1999, all directors who are not executive officers of
the Company as a group, all current executive officers as a group and all
other employees as a group were granted options to purchase 40,000, 250,000
and 590,250 shares, respectively, pursuant to the Option Plan. Messrs. Brands
and Burton, directors of the Company, were each granted options to purchase
20,000 shares of Common Stock in 1999. On March 20, 2000, the closing price of
the Company's Common Stock was $32.1250 per share. See "Executive
Compensation--Option Grants in Last Fiscal Year" on page 10 herein for option
grants made to each named executive officer in 1999.
22
<PAGE>
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Company has engaged KPMG LLP ("KPMG") as its principal independent
public accountants for the current year ended December 31, 2000. KPMG has
audited the Company's financial statements for 1994 through 1999. The Board is
submitting the appointment of KPMG as the Company's independent public
accountants for 2000 for ratification by the stockholders. KPMG has no direct
or indirect financial interest in the Company.
The Board expects that representatives of KPMG will be present at the
Meeting, will be given an opportunity to make a statement at the Meeting if
they desire to do so and will be available to respond to appropriate questions
from stockholders.
Required Vote
The ratification of the appointment of KPMG requires the affirmative vote
of the holders of a majority of shares of Common Stock present or represented
by proxy and entitled to vote at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANTS FOR THE YEAR 2000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors and persons who beneficially own more than 10% of the Company's
Common Stock (collectively, "Reporting Persons") to file reports of ownership
and changes in ownership with the SEC and the New York Stock Exchange.
Reporting Persons are required by the SEC regulations to furnish the Company
with copies of all filings made under Section 16(a) .
Based solely on its review of copies of such filings furnished to the
Company and written representations from Reporting Persons, to the Company's
knowledge, Paul A. Brands filed an Initial Report of Beneficial Ownership of
Securities on Form 3 with the SEC and New York Stock Exchange on July 8, 1999
to report his election to the Board on May 20, 1999 by the Company's
stockholders and receipt of a stock option grant on May 20, 1999. David S.
Linthicum did not report the purchase of two shares of the Company's Common
Stock by his wife timely. All other Reporting Persons filed all reports
relating to the Common Stock required under Section 16(a) of the Exchange Act
during the Company's year ended December 31, 1999 on a timely basis.
STOCKHOLDER PROPOSALS
Stockholder proposals relating to the Company's annual meeting of
stockholders to be held in 2001 (the "2001 Meeting") must be received at the
Company's executive offices by December 12, 2000. Stockholder proposals should
be addressed to Katherine E. Butler, Vice President, General Counsel and
Secretary, 11190 Sunrise Valley Drive, Reston, Virginia 20191. Stockholder
proposals not submitted in accordance with these procedures will not be
considered to be properly brought before the 2001 Meeting and will not be
voted upon.
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<PAGE>
OTHER BUSINESS
The Board does not presently intend to bring any other business before the
Meeting, and the Board does not presently know of any matters to be brought
before the Meeting for action other than those set forth herein. As to any
business that may properly come before the Meeting, however, it is intended
that proxies submitted in the form enclosed will be voted by the persons named
therein in respect thereof in accordance with such persons' best judgment.
By Order of the Board of Directors,
KATHERINE E. BUTLER
Vice President, General Counsel
& Secretary
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THANK YOU FOR YOUR PROMPT
ATTENTION TO THIS MATTER.
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<PAGE>
SAGA SYSTEMS, INC.
1997 STOCK OPTION PLAN
(conformed copy reflecting all Plan amendments through March 24, 2000)
1. DEFINITIONS
In this Plan, except where the context otherwise indicates, the following
definitions apply:
1.1. "Affiliate" means (a) for purposes of Incentive Stock Options,
parent or subsidiary corporations of the Company, as defined in Sections 424(e)
and (f) of the Code (but substituting "the Company" for "employer
corporation"), including parents or subsidiaries of the Company which become
such after adoption of the Plan, and (b) for all other purposes, a person or
entity that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Company.
1.2. "Agreement" means a written agreement granting an Option that is
executed by the Company and the Optionee.
1.3. "Board" means the Board of Directors of the Company.
1.4. "Code" means the Internal Revenue Code of 1986, as amended.
1.5. "Committee" means such committee(s), subcommittee(s) or person(s)
appointed by the Board to administer this Plan or to make and/or administer
specific Option awards hereunder. If no such committee is in effect at any
time, "Committee" shall mean the Compensation Committee of the Board.
1.6. "Common Stock" means the common stock, par value $.01 per share, of
the Company.
1.7. "Company" means SAGA SYSTEMS, Inc., a Delaware corporation.
1.8. "Date of Exercise" means the date on which the Company receives
notice of the exercise of an Option in accordance with the terms of Article 7.
1.9. "Date of Grant" means the date on which an Option is granted under
the Plan.
1.10. "Director" means a member of the Board of Directors of the Company
or any Affiliate.
1.11. "Eligible Individual" means (i) any Employee or Director or (ii) any
consultant or advisor to the Company or an Affiliate who renders bona fide
services to the Company or an Affiliate other than services in connection with
the offer or sale of securities in a capital raising transaction.
<PAGE>
1.12. "Employee" means any employee of the Company or an Affiliate or any
person who has been hired to be an employee of the Company or an Affiliate.
1.13. "Fair Market Value" means the mean between the highest and lowest
quoted selling price as reported by the Wall Street Journal, or if no such
prices are reported for that day, on the last preceding day for which such
prices are reported.
1.14. "Incentive Stock Option" means an Option granted under the Plan that
qualifies as an incentive stock option under Section 422 of the Code and that
the Company designates as such in the Agreement granting the Option.
1.15. "Nonstatutory Stock Option" means an Option granted under the Plan
that is not an Incentive Stock Option.
1.16. "Option" means an option to purchase Shares granted under the Plan.
1.17. "Option Period" means the period during which an Option may be
exercised.
1.18. "Option Price" means the price per Share at which an Option may be
exercised. The Option Price shall be determined by the Committee, provided,
however, that, in the case of Incentive Stock Options the Option Price shall not
be less than the Fair Market Value as of the Date of Grant. Notwithstanding the
foregoing, in the case of an Incentive Stock Option granted to an Optionee who
(applying the rules of Section 424(d) of the Code) owns stock possessing more
than ten percent of the total combined voting power of all classes of stock of
the Company or an Affiliate (a "Ten-Percent Stockholder"), the Option Price
shall not be less than one hundred and ten percent (110%) of the Fair Market
Value on the Date of Grant. The Option Price of any Option shall be subject to
adjustment to the extent provided in Article 9 hereof.
1.19. "Optionee" means an Eligible Individual to whom an Option has been
granted.
1.20. "Plan" means the SAGA SYSTEMS, Inc. 1997 Stock Option Plan.
1.21. "Share" means a share of Common Stock.
2. PUPORSE
The Plan is intended to assist the Company and its Affiliates in attracting
and retaining Eligible Individuals of outstanding ability and to promote the
identification of their interests with those of the stockholders of the Company.
2
<PAGE>
3. ADMINISTRATION
The Committee shall administer the Plan and shall have plenary authority,
in its discretion, to award Options to Eligible Individuals, subject to the
provisions of the Plan. The Committee shall have plenary authority and
discretion, subject to the provisions of the Plan, to determine the terms (which
terms need not be identical) of all Options including, but not limited to, which
Eligible Individuals shall be granted Options, the time or times at which
Options are granted, the Option Price, the number of Shares subject to an
Option, whether an Option shall be an Incentive Stock Option or a Nonstatutory
Stock Option, any provisions relating to vesting, any circumstances in which
Options terminate or Shares may be repurchased by the Company, the period during
which Options may be exercised and any other restrictions on Options. In making
these determinations, the Committee may take into account the nature of the
services rendered by the Optionees, their present and potential contributions to
the success of the Company and its Affiliates, and such other factors as the
Committee in its discretion shall deem relevant. Subject to the provisions of
the Plan, the Committee shall have plenary authority to construe and interpret
the Plan and the Agreements, to prescribe, amend and rescind rules and
regulations relating to the Plan and to make all other determinations deemed
necessary or advisable for the administration of the Plan, including, but not
limited to, any determination to accelerate the vesting of outstanding Options.
The determinations of the Committee on the matters referred to in this Article 3
shall be binding and final.
4. ELIGIBILITY
Options may be granted only to Eligible Individuals, provided, however,
that only Employees shall be eligible to receive Incentive Stock Options.
5. STOCK SUBJECT TO THE PLAN
5.1. Subject to adjustment as provided in Article 9, (a) the maximum
number of Shares that may be issued under the Plan is 8,875,000(1) Shares, and
(b) the maximum number of Shares with respect to which an Employee may be
granted Options under this Plan during its term is fifteen percent of the
maximum number of Shares set forth in the preceding clause (a).
5.2. If an Option expires or terminates for any reason without having been
fully exercised, the unissued Shares which had been subject to such Option shall
become available for the grant of additional Options.
_____________
(1) As adjusted by the Compensation Committee to reflect a 275-for-1 stock
split effected as a stock dividend on November 17, 1997.
3
<PAGE>
6. OPTIONS
6.1. Options granted under the Plan shall be either Incentive Stock
Options or Nonstatutory Stock Options, as designated by the Committee. Each
Option granted under the Plan shall be clearly identified either as an
Incentive Stock Option or a Nonstatutory Stock Option and shall be evidenced
by an Agreement that specifies the terms and conditions of the grant. Options
granted to Eligible Individuals shall be subject to the terms and conditions
set forth in this Article 6 and such other terms and conditions not
inconsistent with this Plan as the Committee may specify. All Incentive Stock
Options shall comply with the provisions of the Code governing incentive stock
options and with all other applicable rules and regulations.
6.2. The Option Period for Options granted to Eligible Individuals shall
be determined by the Committee and specifically set forth in the Agreement,
provided, however, that an Option shall not be exercisable after ten years (five
years in the case of an Incentive Stock Option granted to a Ten-Percent
Stockholder) from its Date of Grant.
7. EXERCISE OF OPTIONS
7.1. An Option may, subject to the terms of the applicable Agreement under
which it is granted, be exercised in whole or in part by the delivery to the
Company of written notice of the exercise, in such form as the Committee may
prescribe, accompanied by full payment of the Option Price for the Shares with
respect to which the Option is exercised as provided in Section 7.2 hereof.
7.2. Payment of the aggregate Option Price for the Shares with respect
to which an Option is being exercised shall be made in cash; provided, however,
that the Committee, in its sole discretion, may provide in an Agreement that
part or all of such payment may be made by the Optionee in one or more of the
following manners: (a) by delivery (including constructive delivery) to the
Company of Shares valued at Fair Market Value on Date of Exercise; (b) by
delivery on a form prescribed by the Committee of a properly executed exercise
notice and irrevocable instructions to a registered securities broker approved
by the Committee to sell Shares and promptly deliver cash to the Company; (c) by
delivery of a promissory note as provided in Section 7.3 hereof; or (d) by
surrender to the Company of an Option (or a portion thereof) that has become
exercisable and the receipt from the Company upon such surrender, without any
payment to the Company (other than required tax withholding amounts), of (x)
that number of Shares (equal to the highest whole number of Shares) having an
aggregate Fair Market Value as of the date of surrender equal to that number of
Shares subject to the Option (or portion thereof) being surrendered multiplied
by an amount equal to the excess of (i) the Fair Market Value on the date of
surrender over (ii) the Option Price, plus (y) an amount of cash equal to the
Fair Market Value of any fractional Share to which the Optionee would be
entitled but for the parenthetical in clause (x) above relating to whole number
of Shares.
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7.3. To the extent provided in an Option Agreement and permitted by
applicable law, the Committee may accept as payment of the Option Price a
promissory note executed by the Optionee evidencing his or her obligation to
make future cash payment thereof; provided, however, that in no event may the
Committee accept a promissory note for an amount in excess of the difference
between the aggregate Option Price and the par value of the Shares. Promissory
notes made pursuant to this Section 7.3 shall be payable upon such terms as may
be determined by the Committee, shall be secured by a pledge of the Shares
received upon exercise of the Option and shall bear interest at a rate fixed by
the Committee.
8. RESTRICTIONS ON TRANSFER
Except as otherwise set forth in an Agreement, Options shall not be
transferable other than by will or the laws of descent and distribution, and an
Option may be exercised during the Optionee's lifetime only by the Optionee or,
in the event of his or her legal disability, by his or her legal representative.
9. CAPITIAL ADJUSTMENTS
In the event of any change in the outstanding Common Stock by reason of any
stock dividend, split-up (or reverse stock split), recapitalization,
reclassification, reorganization, reincorporation, combination or exchange of
shares, merger, consolidation, liquidation or similar change in corporate
structure, the Committee may, in its discretion, provide for a substitution for
or adjustment in (i) the number and class of Shares subject to outstanding
Options, (ii) the Option Price of outstanding Options, (iii) the aggregate
number and class of Shares that may be issued under the Plan, and (iv) the
maximum number of Shares with respect to which an Employee may be granted
Options during the period specified in Section 5.1(b).
10. TERMINATION OR AMENDMENT
The Board may amend, alter, suspend or terminate the Plan in any respect at
any time; provided, however, that after the Plan has been approved by the
stockholders of the Company, no amendment, alteration, suspension or termination
of the Plan shall be made by the Board without approval of (i) the Company's
stockholders to the extent stockholder approval is required by applicable law or
regulations and (ii) each affected Optionee if such amendment, alteration,
suspension or termination would adversely affect his or her rights or
obligations under any Option granted prior to the date of such amendment,
alteration, suspension or termination. No Option may be granted nor any Shares
issued under the Plan during any suspension or after termination of the Plan.
11. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS; SUBSTITUTED OPTIONS
11.1. Subject to the terms and conditions of the Plan, the Committee may
modify, extend or renew the terms of any outstanding Options, or accept the
surrender of outstanding Options granted under the Plan or options and stock
appreciation rights granted under any other plan of the Company or an Affiliate
(to the extent not theretofore
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exercised) and authorize the granting of new Options in substitution therefor
(to the extent not theretofore exercised). Any such substituted Options may
specify a lower exercise price than the surrendered options and stock
appreciation rights, a longer term than the surrendered options and stock
appreciation rights, or have any other provisions that are authorized by the
Plan. Notwithstanding the foregoing, however, no modification of an Option
shall, without the consent of the Optionee, alter or impair any of the
Optionee's rights or obligations under such Option.
11.2. Anything contained herein to the contrary notwithstanding, Options
may, at the discretion of the Committee, be granted under the Plan in
substitution for stock appreciation rights and options to purchase shares of
capital stock of another corporation which is merged into, consolidated with,
or all or a substantial portion of the property or stock of which is acquired
by, the Company or one of its Affiliates. The terms and conditions of the
substitute Options so granted may vary from the terms and conditions set forth
in this Plan to such extent as the Committee may deem appropriate in order to
conform, in whole or part, to the provisions of the options and stock
appreciation rights in substitution for which they are granted. Such
substitute Options granted hereunder shall not be counted toward the Share
limit imposed by Section 5.1(b), except to the extent it is determined by the
Committee that counting such Options is required in order for Options
hereunder to be eligible to qualify as "performance-based compensation" within
the meaning of Section 162(m) of the Code.
12. EFFECTIVENESS OF THE PLAN
The Plan and any amendment thereto shall be effective on the date on which
it is adopted by the Board, provided that any such adoption requiring
stockholder approval is subject to approval by vote of the stockholders of the
Company within 12 months after such adoption by the Board. Options may be
granted prior to stockholder approval of the Plan, and the date on which any
such Option is granted shall be the Date of Grant for all purposes provided that
(a) each such Option shall be subject to stockholder approval of the Plan, (b)
no Option may be exercised prior to such stockholder approval, and (c) any such
Option shall be void ab initio if such stockholder approval is not obtained.
13. WITHHOLDING
The Company's obligation to deliver Shares or pay any amount pursuant to
the terms of any Option shall be subject to the satisfaction of applicable
federal, state and local tax withholding requirements. To the extent provided
in the applicable Agreement and in accordance with rules prescribed by the
Committee, an Optionee may satisfy any such withholding tax obligation by any of
the following means or by a combination of such means: (i) tendering a cash
payment, (ii) authorizing the Company to withhold Shares otherwise issuable to
the Optionee, or (iii) delivering to the Company already owned and unencumbered
Shares.
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14. TERM OF THE PLAN
Unless sooner terminated by the Board pursuant to Section 10, the Plan
shall terminate on April 11, 2007, and no Options may be granted after such
date. The termination of the Plan shall not affect the validity of any Option
outstanding on the date of termination.
15. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
Directors or as members of the Committee, the members of the Committee shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees, actually and reasonably incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any Option granted hereunder, and
against all amounts reasonably paid by them in settlement thereof or paid by
them in satisfaction of a judgment in any such action, suit or proceeding, if
such members acted in good faith and in a manner which they believed to be in,
and not opposed to, the best interests of the Company.
16. GENERAL PROVISIONS
16.1. The establishment of the Plan shall not confer upon any Eligible
Individual any legal or equitable right against the Company, any Affiliate or
the Committee, except as expressly provided in the Plan.
16.2. The Plan does not constitute inducement or consideration for the
employment or service of any Eligible Individual, nor is it a contract between
the Company or any Affiliate and any Eligible Individual. Participation in the
Plan shall not give an Eligible Individual any right to be retained in the
service of the Company or any Affiliate.
16.3. Neither the adoption of this Plan nor its submission to the
stockholders, shall be taken to impose any limitations on the powers of the
Company or its Affiliates to issue, grant, or assume options, warrants, rights,
or restricted stock, otherwise than under this Plan, or to adopt other stock
option or restricted stock plans or to impose any requirement of stockholder
approval upon the same.
16.4. The interests of any Eligible Individual under the Plan are not
subject to the claims of creditors and may not, in any way, be assigned,
alienated or encumbered except as provided in an Agreement.
16.5. The Plan shall be governed, construed and administered in
accordance with the laws of the State of Delaware and it is the intention of
the Company that Incentive Stock Options granted under the Plan qualify as
such under Section 422 of the Code.
16.6. The Committee may require each person acquiring Shares pursuant to
Options hereunder to represent to and agree with the Company in writing that
such person is acquiring the Shares without a view to distribution thereof. The
certificates for such
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Shares may include any legend which the Committee deems appropriate to reflect
any restrictions on transfer. All certificates for Shares issued pursuant to the
Plan shall be subject to such stock transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange or
interdealer quotation system upon which the Common Stock is then listed or
quoted, and any applicable federal or state securities laws. The Committee may
place a legend or legends on any such certificates to make appropriate reference
to such restrictions. The certificates for Shares acquired pursuant to an Option
may also include any legend which the Committee deems appropriate to reflect
restrictions contained in this Plan or in the applicable Agreement or to comply
with the Delaware General Corporation Law.
16.7. The Company shall not be required to issue any certificate or
certificates for Shares upon the exercise of Options, or record any person as a
holder of record of such Shares, without obtaining, to the complete satisfaction
of the Committee, the approval of all regulatory bodies deemed necessary by the
Committee, and without complying to the Committee's complete satisfaction, with
all rules and regulations, under federal, state or local law deemed applicable
by the Committee.
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