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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 Section240.14a-11(c) or
Section240.14a-12
THE MACNEAL-SCHWENDLER CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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THE MACNEAL-SCHWENDLER CORPORATION
[LOGO] 815 COLORADO BOULEVARD
LOS ANGELES, CA 90041
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NOTICE OF ANNUAL MEETING
---------------------
Dear Stockholder:
On Wednesday, June 23, 1999, The MacNeal-Schwendler Corporation (the
"Company") will hold its 1999 Annual Meeting of Stockholders at the Hilton
Hotel, 150 S. Los Robles Avenue, Pasadena, California 91101. The meeting will
begin at 9:30 a.m.
Only stockholders who owned stock at the close of business on May 7, 1999
can vote at this meeting or any adjournments that may take place. At the meeting
we will:
1. Elect two Directors to the Board of Directors;
2. Vote on an amendment to the Company's Certificate of Incorporation to
change the name of the Company to MSC.Software Corporation;
3. Vote on an amendment to the Company's 1998 Stock Option Plan that
increases the number of shares authorized to be issued under the Plan by
1,500,000 shares;
4. Ratify the appointment of Ernst & Young LLP as independent auditors for
1999; and
5. Attend to other business properly presented at the meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE FOUR
PROPOSALS OUTLINED IN THIS PROXY STATEMENT.
At the meeting we will also report on the Company's 1998 business results
and other matters of interest to stockholders.
The Company recently mailed a copy of its 1998 Annual Report to all
stockholders. The approximate date of mailing for this proxy statement and
card(s) is May 14, 1999.
We hope that you like the new format of our Proxy Statement. We welcome your
comments.
By Order of the Board of Directors,
Louis A. Greco
SECRETARY AND CHIEF FINANCIAL OFFICER
May 11, 1999
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TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS..................................................... 1
PROPOSALS YOU MAY VOTE ON................................................. 4
1. Election of Directors.............................................. 4
2. Change of Name..................................................... 4
3. Increase in Shares Authorized Under 1998 Plan...................... 4
4. Ratification of the Appointment of Ernst & Young LLP as Independent
Auditors........................................................... 4
THE BOARD OF DIRECTORS.................................................... 5
Nominees for Directors................................................ 5
Continuing Directors.................................................. 5
Statement on Corporate Governance..................................... 6
Directors' Compensation............................................... 7
Security Ownership of Certain Beneficial Owners and Management........ 8
Compensation Committee Interlocks and Insider Participation........... 9
EXECUTIVE COMPENSATION.................................................... 10
Report of the Compensation Committee.................................. 10
Summary Compensation Table............................................ 12
Option Grant Table.................................................... 13
Aggregated Option Exercises and Year-End Option Values................ 15
Severance Plans and Other Information................................. 15
Performance Graph..................................................... 17
AMENDMENT TO 1998 STOCK OPTION PLAN....................................... 18
Summary Description of The Plan....................................... 18
Federal Income Tax Treatment of Options under the 1998 Plan........... 20
Specific Benefits..................................................... 20
OTHER MATTERS............................................................. 20
Information Regarding Stockholder Rights Plan......................... 20
Section 16(a) Beneficial Ownership Reporting Compliance............... 21
Exhibits to Annual Report on Form 10-K................................ 21
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QUESTIONS AND ANSWERS
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1. Q: WHAT MAY I VOTE ON?
A: (1) The election of nominees to serve on the Board of Directors;
(2) The proposed amendment to the Certificate of Incorporation to change the name
of the Company to MSC.Software Corporation;
(3) The proposed amendment to the Company's 1998 Stock Option Plan ("1998 Plan")
to increase the number of shares authorized to be issued under the 1998 Plan
by 1,500,000 shares; and
(4) The ratification of the appointment of Ernst & Young LLP as independent
auditors for 1999.
2. Q: HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSALS?
A: The Board recommends a vote FOR each of the nominees, FOR a change in the name of the
Company, FOR an increase in the 1998 Plan's authorized shares and FOR the ratification of
Ernst & Young LLP as independent auditors for 1999.
3. Q: WHO IS ENTITLED TO VOTE?
A: Stockholders as of the close of business on May 7, 1999 (the Record Date) are entitled to
vote at the Annual Meeting.
4. Q: HOW DO I VOTE?
A: Complete, sign and date each proxy card you receive and return it in the prepaid
envelope. You have the right to revoke your proxy at any time before the meeting by:
(1) notifying the Corporate Secretary of the Company in writing;
(2) voting in person; OR
(3) returning a later-dated proxy card.
5. Q: WHO WILL COUNT THE VOTE?
A: Representatives of Chase Mellon Shareholder Services L.L.C. will count the votes and act
as the inspector of election.
6. Q: IS MY VOTE CONFIDENTIAL?
A: Proxy cards, ballots and voting tabulations that identify individual stockholders are
mailed or returned directly to Chase Mellon Shareholder Services L.L.C. and are handled
in a manner that protects your voting privacy. Your vote will not be disclosed except:
(1) as needed to permit Chase Mellon Shareholder Services L.L.C. to tabulate and
certify the vote;
(2) as required by law; or
(3) in limited circumstances such as a proxy contest in opposition to the Board.
Additionally, all comments written on the proxy card or elsewhere will be forwarded to
management, but your identity will be kept confidential unless you ask that your name be
disclosed.
7. Q: WHAT SHARES ARE INCLUDED ON THE PROXY CARD(S)?
A: The shares on your proxy card(s) represent ALL of your shares. If you do not return your
proxy card(s), your shares will not be voted.
8. Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: If your shares are registered differently and are in more than one account, you will
receive more than one proxy card. Sign and return all proxy cards to ensure that all your
shares are voted. We encourage you to have all accounts registered in the same name and
address (whenever possible). You can accomplish this by contacting our transfer agent,
Chase Mellon Shareholder Services L.L.C.
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9. Q: HOW MANY SHARES CAN VOTE?
A: As of the Record Date, May 7, 1999, 13,770,447 shares of common stock, the only voting
securities of the Company, were issued and outstanding. Every stockholder of common stock
is entitled to one vote for each share held.
10. Q: WHAT IS A "QUORUM"?
A: A "quorum" is a majority of the outstanding shares entitled to vote. They may be present
or represented by proxy. For the purposes of determining a quorum, shares held by brokers
or nominees will be treated as present even if the broker or nominee does not have
discretionary power to vote on a particular matter or if instructions were never received
from the beneficial owner. These shares are called "broker non-votes." Abstentions will
be counted as present for quorum purposes and for the purpose of determining the outcome
of any matter submitted to the stockholders for a vote. However, abstentions do not
constitute a vote "for" or "against" any matter and will be disregarded in the
calculation of a plurality.
11. Q: WHAT IS REQUIRED TO APPROVE EACH PROPOSAL?
A: A quorum must have been established in order to approve each proposal. To elect
directors, the two candidates for director who receive the most votes will become
directors of the Company. To approve the change in the name of the Company, a majority of
the outstanding shares entitled to vote must be cast in favor of the proposal. To approve
the amendment to the 1998 Plan, a majority of the shares represented at the meeting,
either in person or by proxy, must be voted in favor of the amendment, with at least 50%
of the total outstanding shares of common stock of the Company voting (either "for" or
"against") on the amendment (not including abstentions and broker non-votes). To ratify
the appointment of auditors, a majority of the shares represented at the meeting, either
in person or by proxy, must be voted in favor of the auditors.
Any shares that are considered broker non-votes with respect to a particular matter will
be treated as not present and not entitled to vote with respect to that matter, even
though the same shares may be considered present for quorum purposes and may be entitled
to vote on other matters.
12. Q: HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A: Although we do not know of any business to be considered at the 1999 Annual Meeting other
than the proposals described in this proxy statement, if any other business is presented
at the Annual Meeting, your signed proxy card gives authority to Frank Perna, Jr., and
Louis A. Greco to vote on such matters in his discretion.
13. Q: HOW HAS THE PRESENTATION OF INFORMATION IN THIS PROXY STATEMENT BEEN MODIFIED BY THE
COMPANY'S RECENT CHANGE IN FISCAL YEAR?
A: On January 30, 1999, the Company determined to change its fiscal year from a January 31
year end to a December 31 year end. In order to permit comparisons of numbers among
different years, all of the disclosures in this Proxy Statement that relate to current
and prior fiscal years have been restated to reflect a fiscal year running from January 1
through December 31.
14. Q: WHEN ARE THE STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING DUE?
A: All stockholder proposals to be considered for inclusion in next year's proxy statement
must be submitted in writing to Louis A. Greco, Secretary and Chief Financial Officer,
The MacNeal-Schwendler Corporation, 815 Colorado Boulevard, Los Angeles, California 90041
by January 13, 2000. Any proposal received after this date will be considered untimely. A
stockholder proposal (other than in respect of a nominee for election to the Board of
Directors) to be presented at the next annual meeting of stockholders but not submitted
for inclusion in the proxy statement will be considered untimely under the SEC's proxy
rules if received after March 29, 2000. Each proposal must comply with the Securities and
Exchange Act of 1934 and the rules and regulations promulgated thereunder.
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15. Q: CAN A STOCKHOLDER NOMINATE SOMEONE TO BE A DIRECTOR OF THE COMPANY?
A: No. The Nominating Committee of the Board will not consider nominees recommended by the
stockholders.
16. Q: HOW MUCH DID THIS PROXY SOLICITATION COST?
A: The Company hired Chase Mellon Shareholder Services, L.L.C. to assist in the distribution
of proxy materials and solicitation of votes for $7,000, plus estimated out-of-pocket
expenses of $2,500. The Company also reimburses brokerage houses and other custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy
and solicitation materials to stockholders.
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PROPOSALS YOU MAY VOTE ON
1. ELECTION OF DIRECTORS
There are two nominees for election this year. Detailed information on each
nominee, along with information on the other continuing directors, is
provided at pages 5 and 6. Two directors are elected annually. All directors
serve for a term of three years. The Company does not expect any of the
nominees to become unavailable to stand for election, but should this
happen, the Board will designate a substitute. Proxies voting on the
original nominee will be cast for the substitute.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THESE DIRECTORS.
2. CHANGE OF NAME
The Board has approved an amendment to the Company's Certificate of
Incorporation to change the name of the Company to MSC.Software Corporation.
An amendment to the Certificate of Incorporation requires stockholder
approval. The Board believes that changing the name of the Company is
advisable and will enhance the Company's name recognition, identify the
Company with its principal products and better describe its core business.
The amendment to the Certificate of Incorporation that was approved by the
Board will amend "Article I. Name." to read as follows:
"The name of the corporation is MSC.Software Corporation (hereinafter
referred to as the "Corporation")."
In all other respects, the Certificate of Incorporation will remain
unchanged.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE CHANGE OF THE COMPANY'S
NAME TO MSC.SOFTWARE CORPORATION.
3. INCREASE IN SHARES AUTHORIZED UNDER 1998 PLAN
The Board has approved an amendment to the Company's 1998 Stock Option Plan
to increase the number of authorized shares under the 1998 Plan by 1,500,000
for a total of 2,500,000 authorized shares. The Board has recommended that
the amendment to the Plan be approved by the stockholders. The amendment to
the Plan that was approved by the Board would amend and restate subsection
"1.4.2 Share Limits" to read as follows:
"1.4.2 Share Limits. The maximum number of Shares that may be delivered
pursuant to Options granted under this Plan is 2,500,000 Shares (the
"Share Limit"). The maximum number of Shares that may be delivered
pursuant to Options granted to Non-Employee Directors is 60,000 Shares.
The maximum number of Shares subject to those Options that are granted
during any calendar year to any one individual is 200,000 Shares. Each of
the foregoing numerical limits will be subject to adjustment as
contemplated by this Section 1.4 and Section 4.2."
In all other respects, the 1998 Plan will remain unchanged.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE INCREASE IN THE AUTHORIZED
NUMBER OF SHARES UNDER THE 1998 PLAN.
4. RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
The Audit Committee has recommended, and the Board has approved, the
appointment of Ernst & Young LLP ("Ernst & Young") as our independent
auditors for 1999. Ernst & Young has served as our independent auditors
since 1983. They have unrestricted access to the Audit Committee to discuss
audit findings and other financial matters. Representatives of Ernst & Young
will attend the Annual Meeting to answer appropriate questions. They also
may make a statement if they so desire.
Audit services provided by Ernst & Young during 1998 included an audit of
the Company's consolidated financial statements, an audit of the Company's
Profit Sharing Plan and consultation on various tax and accounting matters.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF ERNST &
YOUNG'S APPOINTMENT AS INDEPENDENT AUDITORS FOR 1999.
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THE BOARD OF DIRECTORS
NOMINEES FOR DIRECTORS
The following table sets forth certain information regarding the directors
in Class II who are nominees for election to the Board of Directors for a
three-year term.
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DIRECTOR
NAME AGE LAST FIVE YEARS SINCE
- --------------------------------- --- ----------------------------------------------------------------- -------
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Donald Glickman 66 General Partner, J.F. Lehman and Company, a private equity 1998
investment firm (1993 to present). Mr. Glickman currently serves
as Chairman of Elgar Electronics (1998 to present), and a
director of Burke Industries (1997 to present), Monroe Muffler
Brake Inc. (1984 to present), General Aluminum (1988 to present)
and Massachusetts Mutual Corporate Investors (1992 to present).
Larry S. Barels 50 Principal, Pacific Capital Resources, Mr. Barels' private 1998
consulting practice (1996 to present). Chairman, Software.com,
Inc., a privately held company that develops internet and
intranet-based messaging server software (1995 to 1997). Chairman
and CEO, Wavefront Technologies, a company involved in digital
image manipulation and computer animation (1985 to 1995). Mr.
Barels is currently a director of Miramar Systems (1990 to
present).
</TABLE>
CONTINUING DIRECTORS
The following table sets forth certain information, furnished to the Company
by the respective persons named below, about the directors who comprise Class I
and Class III of the Company's Board of Directors.
Thomas Curry resigned from the Board as of April 2, 1999 in order to pursue
other opportunities. The Nominating Committee is currently searching for
candidates to fill the vacancy created by Mr. Curry's resignation. Once a
suitable candidate has been qualified and appointed, he or she will serve the
remainder of Mr. Curry's term as a Class I director and until a successor is
elected and qualified.
The following Class III directors are currently serving until the 2000
Annual Meeting and until their respective successors are elected and qualified:
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DIRECTOR
NAME AGE LAST FIVE YEARS SINCE
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George N. Riordan 65 Former Chairman of the Board of the Company (February 1, 1997 to 1983
December 14, 1998). Mr. Riordan is also Managing Director, George
Riordan & Co., investment bankers (February 1991 to present) and
is a director of Pancho's Mexican Buffet, Inc. (1993 to present).
Mr. Riordan was previously a director of Lewis Galoob Toys, Inc.
(1994 to 1996).
William F. Grun 51 President and Chief Operating Officer, Optum Software, a 1997
privately held supply chain software company (1996 to present).
Mr. Grun previously served in various senior management positions
for AlliedSignal Inc. (1989 to 1996), including
President-Aerospace Systems and Equipment, President of
AirResearch Los Angeles Division and Vice President
Operations--AlliedSignal Aerospace Company (1989).
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The following Class I director is currently serving until the 2001 Annual
Meeting and until his successor is elected and qualified:
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DIRECTOR
NAME AGE LAST FIVE YEARS SINCE
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Frank Perna 61 Chairman and Chief Executive Officer (December 14, 1998 to 1994
present) of the Company. Chairman and Chief Executive Officer,
EOS, a privately held provider of power supplies for electrical
equipment and notebook computers (1994 to 1998). Mr. Perna also
serves as a director of Software.com, Inc., a privately held
company that develops internet and intranet-based messaging
server software and Intellisys, a privately held electronics
distributor. Mr. Perna previously served as director of PDA
Engineering (1990 to 1994) and was a member of the Board of
Directors of PDA Engineering at the time it was acquired by the
Company.
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STATEMENT ON CORPORATE GOVERNANCE
The Board held eight meetings during 1998, and all of the directors attended
at least 75% of the Board meetings and committee meetings of which they were
members.
Although the full Board considers all major decisions of the Company, the
Board has established several standing committees to more fully address certain
areas of importance to the Company. The Company eliminated its Executive
Committee as of December 14, 1998. The three committees of the Board are the:
- Audit Committee;
- Nominating Committee; and
- Compensation Committee
The Committees are currently composed of:
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NAME AUDIT(1) COMPENSATION(1) NOMINATING
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Donald Glickman X X(2)
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Larry S. Barels X X(2)
George N. Riordan X
- ------------------------------------------------------------------------------------------
William F. Grun X(2) X
Frank Perna X
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NOTES TO MEMBERSHIP ROSTER:
(1) The Audit and Compensation Committees are composed entirely of outside
directors.
(2) Committee Chairman.
AUDIT COMMITTEE: The Audit Committee examines accounting processes and
reporting systems, assesses the adequacy of internal controls and risk
management, reviews and approves the Company's financial disclosures, and
communicates with the Company's independent auditors. The Audit Committee met
four times in 1998.
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NOMINATING COMMITTEE: The Nominating Committee is responsible for nominating
directors to serve on the Board. The Nominating Committee does not consider
nominees recommended by the stockholders. The Nominating Committee met three
times in 1998.
COMPENSATION COMMITTEE: The Compensation Committee reviews the compensation
paid to corporate officers and makes recommendations regarding changes in
salary, profit sharing, and yearly bonuses awarded to employees. This committee
also administers the 1991 Stock Plan and the 1998 Stock Plan. The Compensation
Committee met seven times in 1998.
BOARD EVALUATION. In 1997, the Board implemented a process to evaluate Board
performance and effectiveness. In 1998, the directors, with one abstention,
completed a Board evaluation questionnaire addressing twelve performance
standards relating to the Board as a whole. In addition to the evaluation
questionnaire, each Board member, with one abstention, also completed a director
evaluation form rating each of the other directors excluding themselves. The
Board evaluation questionnaire and the director evaluation form were both
modeled on samples provided in the Blue Ribbon Commission Report of the National
Association of Corporate Directors. The completed questionnaires and evaluation
forms were mailed confidentially to the Company's outside auditors who tabulated
the results as to the Board's overall performance. Upon receiving the tabulated
results from the auditors, the Nominating Committee reviewed the process and
analyzed the results. In April 1999, the Nominating Committee presented a
synthesis of the assessments and its recommendations to the full Board. The
composite ratings in the categories surveyed were all "above average" or higher.
The Board intends to conduct a self-evaluation process similar to that conducted
this year and last year on an annual basis. In addition, the Board will devote
time at least twice a year to review and discuss industry trends and issues and
the relative performance of the Company in comparison to its competitors and
other companies in the industry.
CHIEF EXECUTIVE OFFICER EVALUATION. The Board did not conduct a year-end
evaluation of the performance of Mr. Curry because of his removal in December
1998. Because Mr. Perna became Chief Executive Officer in mid-December 1998 the
Board did not feel it was appropriate to conduct an evaluation of Mr. Perna's
performance for fiscal 1998.
DIRECTORS' COMPENSATION
Directors who are also employees or officers of the Company do not receive
any additional compensation for their service on the Board. Currently,
non-employee directors receive a $15,000 annual retainer plus $5,000 per year
for each committee chair. Directors also receive $2,500 for each Board meeting
they attend and $1,500 for each committee meeting they attend. In addition,
non-employee directors are reimbursed for all expenses incurred in connection
with attendance at meetings of the Board and the performance of Board duties.
For his services as Chairman of the Board during 1998, George Riordan received
$200,000 plus medical benefits.
Directors who are not officers or employees of the Company are eligible to
participate in the Non-Employee Director Program. Under this program, directors
receive a grant of options to purchase 10,000 shares of common stock of the
Company upon election to the Board. On April 14, 1998, upon their appointment to
the Board, Larry Barels and Donald Glickman each received a grant of 10,000
options at an exercise price of $11.00. In addition, directors receive an annual
grant of options to purchase 3,000 shares of common stock on the first business
day of each calendar year. On January 2, 1998, Frank Perna received 3,000
options to purchase common stock of the Company at an exercise price of $9.75.
All of the options granted under the program become exercisable 12 months after
the date of grant and expire on the fifth anniversary of the grant date.
The Company has entered into consulting agreements with certain former
directors who served on the Board during 1998. Under the terms of the consulting
agreements, the Company will pay $12,500 per year plus reasonable travel
expenses to each of Harold Harrigian, Arthur Reidel, Dale Myers and Paul
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MacCready in exchange for consulting services to be provided on various Company
matters. The agreements with Messrs. Harrigian, Reidel, Myers and MacCready will
expire in 2005, 2001, 2002 and 2001 respectively.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 1999 the names, addresses,
and holdings of those persons known to the Company to be beneficial owners of
more than 5% of its common stock, the names and holdings of each director and
each nominee for director, the names and holdings of each executive officer
named in the Summary Compensation Table ("named executive officers") and the
holdings of all executive officers and directors as a group:
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AMOUNT
BENEFICIALLY
OWNED AND NATURE
OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
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David L. Babson and Company 1,341,000(3) 9.7%
Incorporated
One Memorial Drive
Cambridge, MA 02142
- -------------------------------------------------------------------------------------------
Royce & Associates, Inc. 1,253,813(4) 9.1%
1414 Avenue of the Americas
New York, NY 10019
Richard H. MacNeal 1,161,143(5) 8.5%
501 Highland Dr.
La Canada, CA 91011
- -------------------------------------------------------------------------------------------
The TCW Group, Inc. 815,200(6) 5.9%
865 South Figueroa Street
Los Angeles, CA 90017
Larry S. Barels 10,000 *
- -------------------------------------------------------------------------------------------
Donald Glickman 14,000 *
William F. Grun 13,000 *
- -------------------------------------------------------------------------------------------
Frank Perna 34,452 *
Thomas C. Curry(7) 443,007 3.1%
- -------------------------------------------------------------------------------------------
Louis A. Greco 169,773 1.2%
James B. Archer 25,000 *
- -------------------------------------------------------------------------------------------
Kenneth D. Blakely 67,582 *
George N. Riordan 93,600 *
- -------------------------------------------------------------------------------------------
All directors and executive officers as a group
(12 persons) 948,848(8) 6.5%
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NOTES TO STOCK OWNERSHIP TABLE:
* Holdings represent less than 1% of all shares outstanding.
(1) Except as provided with respect to certain shares held in trust with the
person's spouse and as otherwise provided under state community property
laws, beneficial ownership is direct (and includes shares held pursuant to
The MacNeal-Schwendler Corporation Profit Sharing Plan and the Employee
Stock Purchase Plan), and the person indicated has sole voting and
investment power over the shares
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of Common Stock indicated. The amounts shown in this column include shares
issuable upon (i) conversion of the Company's 7 7/8% Convertible
Subordinated Debentures due 2004 (the "Debentures") or (ii) exercise of
options which are exercisable on or within 60 days of March 31, 1999, in
the following amounts: Thomas C. Curry, 426,721; Frank Perna, 21,452;
George N. Riordan, 90,100; Kenneth D. Blakely, 62,250; Louis A. Greco,
142,500; James B. Archer, 25,000; Larry S. Barels, 10,000; Donald Glickman,
10,000; and William F. Grun, 13,000.
(2) All expressions of percent of class held assume that the Debentures and
options, if any, of the particular person or group in question, and no
others, have been exercised.
(3) Based upon information set forth in a Schedule 13G filed under the
Securities Exchange Act of 1934 by David L. Babson and Company Incorporated
("DLB") in January 1999. DLB, in its capacity as investment adviser, may be
deemed the beneficial owner of 1,341,000 shares of Common Stock which are
owned by numerous investment counseling clients.
(4) Based upon information set forth in a Schedule 13G filed under the
Securities Exchange Act of 1934 by Royce & Associates, Inc., Royce
Management Company and Charles M. Royce in February 1999. These entities
are filing as a group. Royce & Associates, Inc. has sole voting and
investment power with respect to 1,253,813 shares of Common Stock; Royce
Management Company has sole voting and investment power with respect to
75,700 shares of Common Stock; and Charles Royce may be deemed to be a
controlling person of these entities. Mr. Royce does not own any shares
outside of these entities, and disclaims beneficial ownership of the shares
held by Royce & Associates, Inc. and Royce Management Company.
(5) Based upon a Form 4, dated September 10, 1996, which was filed by the
Company on behalf of Richard MacNeal before he retired from the Company.
(6) Based upon information set forth in a Schedule 13G/A filed under the
Securities Exchange Act of 1934 by The TCW Group, Inc. ("TCW") and Robert
Day in February 1999. TCW has shared voting and investment power with
respect to 815,200 shares of Common Stock. Robert Day is also listed on
such 13G/A as having shared voting and investment power with respect to
815,200 shares, as an "individual who may be deemed to control The TCW
Group, Inc. and other entities which hold the Common Stock of the issuer."
(7) Thomas C. Curry was removed as President and Chief Executive Officer on
December 14, 1998 and remained employed by the Company until January 31,
1999. Mr. Curry resigned from the Board as of April 2, 1999 in order to
pursue other opportunities.
(8) Includes 862,000 shares issuable upon exercise of options granted the
directors and executive officers of the Company which are exercisable on or
within 60 days of March 31, 1999. See footnote 1 above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Former directors Paul MacCready, Dale Myers, and current directors William
Grun, Donald Glickman, Larry Barels and Frank Perna each served as members of
the Compensation Committee at various times during 1998. Frank Perna became an
officer of the Company on December 14, 1998, and as of that date, ceased to
serve on the Compensation Committee. None of the other members or former members
of the Compensation Committee are officers or employees, or former officers or
employees, of the Company or any of its subsidiaries. No interlocking
relationship exists between the members of the Board or Compensation Committee
and the board of directors or compensation committee of any other company, nor
has any such interlocking relationship existed in the past.
9
<PAGE>
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
THE COMPENSATION COMMITTEE OF THE BOARD HAS FURNISHED THE FOLLOWING REPORT
ON EMPLOYEE COMPENSATION. THIS REPORT WILL NOT BE DEEMED TO BE INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING THIS PROXY STATEMENT INTO ANY
FILING OF THE COMPANY UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES
THIS INFORMATION BY REFERENCE AND WILL NOT BE DEEMED SOLICITING MATERIAL OR
DEEMED FILED UNDER THOSE ACTS.
The Compensation Committee of the Board is composed entirely of independent
outside directors. We are responsible for the general compensation policies of
the Company, and administer the Company's various compensation plans, including
its stock option plans and annual salary and bonus plans.
Each year, we comprehensively review the compensation of the Company's Chief
Executive Officer and the other senior executive officers to assure that
compensation is appropriately tied to performance and that salary and potential
bonus compensation levels are appropriate. To focus and facilitate such review,
we developed the following compensation philosophy for the Company:
- executive compensation should be at or above the 50th percentile of
high-tech industry market levels to allow the Company to attract and
retain talented management;
- annual variable compensation should reward the executives for achieving
specific results which should lead to increased stockholder value;
- the majority of variable compensation should be directly related to
sustained increases in stockholder value;
- supplemental benefits and perquisites which reward executives without
regard to performance should be minimal; and
- all employees of the Company should be encouraged to think like
stockholders.
The compensation of the Chief Executive Officer and of the Company's other
senior executive officers is comprised of three primary components:
- Salary
- Bonus
- Stock options.
SALARY is fixed at a competitive level to attract and retain qualified
candidates. Bonuses are tied specifically to performance of the Company,
components or specific business units of the Company and/or individual
contributions. STOCK OPTIONS are awarded in amounts we believe necessary to
provide incentives for future performance, taking into account individual
performance and length of service with the Company. This mix of compensation
elements places a significant portion of compensation at risk and emphasizes
performance.
During 1998, we reexamined the Company's salary, bonus, equity incentive and
perquisite structure with the assistance of an independent consultant. We found
that base salaries and perquisites were competitive, however, equity incentives
were below competitive levels and bonus formulas, while generous, were generally
not earned. Therefore, we increased the level of equity incentives for 1998 and
have modified the bonus structure for Mr. Perna for 1999 as described below.
SALARY. Prior to his removal on December 14, 1998, Mr. Curry's salary was
set at $292,500, and was determined by us in accordance with the general
principles described above. The base salaries for the period from January 1,
1998 to December 31, 1998 for the remaining senior executive officers were
10
<PAGE>
similarly reviewed and set, with consideration also given to the relationship of
those salaries to the salary of Mr. Curry.
In connection with his appointment as Chief Executive Officer, Mr. Perna and
the Board negotiated the terms of Mr. Perna's compensation, and, the base salary
of Mr. Perna was set at $300,000, effective December 14, 1998. We considered the
compensation of chief executive officers of other relevant companies and the
proportion of compensation that would be "at risk" in setting Mr. Perna's
salary.
BONUS. For 1998, we established an expected target bonus for Mr. Curry of
50% of his annual base salary that was dependent upon Company performance, which
was not earned. (Mr. Curry received $82,500 in bonus in March 1998 due to the
Company's performance from February 1997 to January 1998.) Under the 1998
program, the target bonus of other senior executive officers was set within a
range of 35% to 40% of their annual base salary and was also dependent on both
(1) specific performance factors established in advance by the Chief Executive
Officer and (2) Company performance. Other named executive officers earned
bonuses paid in early 1998 ranging from $27,500 to $73,100 due to the Company's
performance from February 1997 to January 1998.
Mr. Perna became Chief Executive Officer in December 1998 and did not
receive a bonus in 1998. For 1999, we established competitive target bonus
opportunities for the Chief Executive Officer and the other executive officers.
The target bonus for Mr. Perna in 1999 is $200,000, with up to $100,000 payable
based on reaching certain revenue increase goals and up to $100,000 payable
based on earnings per share increases. Mr. Perna is eligible for a "super bonus"
in some circumstances if certain earnings per share targets are met. For 1999,
the expected target bonus for other senior executive officers consists of a base
salary component and an incentive component.
STOCK OPTIONS. We believe that the Company should provide greater equity
incentives to the Chief Executive Officer and other executive officers to
encourage them to think like stockholders and enhance retention and continuity
of management. Equity incentives for management at the Company have historically
been below the median level at peer companies. During 1998, we authorized
1,767,350 stock option grants under the 1991 Plan and the 1998 Plan. We assigned
option awards to Mr. Curry, Mr. Perna and other executive officers in part based
on our desire to increase equity incentives at the Company and on their
respective compensation levels, individual performance during 1998, and their
length of service with the Company.
In December 1995, the United States Internal Revenue Service issued final
regulations affecting all publicly held United States corporations (the
"Regulations") interpreting the statutory limitation on the tax deductibility of
compensation in excess of $1 million for certain executive officers. In general,
we consider the anticipated tax treatment to the Company and to its executives
of various payments and benefits. However, we will not necessarily limit
executive compensation to that which is deductible under the Regulations. We
will consider various alternatives for preserving the deductibility of
compensation payments and benefits to the extent reasonably practicable and to
the extent consistent with its other compensation objectives.
No member of the Committee is a former or current officer or employee of the
Company or any of its subsidiaries, or is employed by a company whose board of
directors includes a member of the management of the Company.
Compensation Committee:
Donald Glickman, Chairman
Larry S. Barels
William F. Grun
11
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(1)
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL COMPENSATION UNDERLYING COMPENSATION
POSITION YEAR SALARY($) BONUS($)(2) ($)(3) OPTIONS(#)(4) ($)(5)
<S> <C> <C> <C> <C> <C> <C>
Frank Perna(6) 1998 14,808 0 87,930 278,000 0
Chairman and Chief 1997 0 0 48,925 3,000 0
Executive Officer 1996 0 0 38,800 3,000 0
- -------------------------------------------------------------------------------------------
Thomas C. Curry(6) 1998 292,500 82,500 0 175,000 35,580
former Chief Executive 1997 275,000 0 0 0 51,272
Officer and President 1996 267,997 46,680 0 120,000 50,025
Louis A. Greco 1998 203,750 73,100 0 105,000 23,747
Chief Financial Officer 1997 195,000 0 0 0 35,272
1996 195,000 35,362 0 25,000 35,426
- -------------------------------------------------------------------------------------------
James B. Archer 1998 224,375 27,500 0 115,000 5,469
Senior Vice President 1997 73,333 27,500 0 30,000 0
1996 0 0 0 0 0
Kenneth D. Blakely 1998 191,000 65,000 0 115,000 22,047
Senior Vice President 1997 146,667 0 0 0 25,605
1996 146,311 18,935 0 25,000 25,688
- -------------------------------------------------------------------------------------------
George N. Riordan(6) 1998 200,000 0 0 128,000 0
former Chairman 1997 175,000 0 6,200 3,000 0
1996 0 0 42,725 3,000 0
</TABLE>
- ------------------------
NOTES TO SUMMARY COMPENSATION TABLE:
(1) The Company did not make any payments or awards that would be classifiable
under the "Restricted Stock Award" and "LTIP Payout" columns otherwise
required to be included in the Table by the applicable Securities and
Exchange Commission ("SEC") disclosure rules.
(2) Annual bonus amounts were paid in the fiscal years indicated, but were
accrued and earned in relation to performance during the previous fiscal
year. For example, bonuses shown for 1998 were paid in March 1998 but relate
to performance for the 1997 fiscal year.
(3) The amounts included in this column for each of the named executive officers
do not include the value of certain perquisites which in the aggregate did
not exceed the lower of $50,000 or 10% of each named executive's aggregate
fiscal 1996, 1997 or 1998 salary and bonus compensation. The Other Annual
Compensation earned by George N. Riordan and Frank Perna relates to
compensation received as a member of the Board of Directors and consulting
fees.
(4) Unless otherwise noted, represents shares of stock underlying options
granted under The MacNeal-Schwendler Corporation 1991 Stock Option Plan, as
amended (the "1991 Plan") and the 1998 Plan. There were no individual grants
of stock options in tandem with stock appreciation rights ("SAR's") or
freestanding SAR's made during the years ended December 31, 1996, 1997 or
1998 to the above-named executive officers.
(5) Unless otherwise noted, the amounts shown constitute Company contributions
on behalf of the named individuals to (a) The MacNeal-Schwendler Corporation
Profit Sharing Plan ("PSP") and (b) The MacNeal-Schwendler Corporation
Supplemental Retirement and Deferred Compensation Plan ("SERP") in the
following amounts: Thomas C. Curry: 1998: $12,580 to PSP, $23,000 to SERP;
1997:
12
<PAGE>
$18,772 to PSP, $32,500 to SERP; 1996: $18,926 to PSP, $31,099 to SERP;
Louis A. Greco: 1998: $12,580 to PSP, $11,167 to SERP; 1997: $18,772 to PSP,
$16,500 to SERP; 1996: $18,926 to PSP, $16,500 to SERP; Kenneth D. Blakely:
1998: $12,580 to PSP, $9,467 to SERP; 1997: $14,972 to PSP, $10,633 to SERP;
1996: $12,176 to PSP, $13,512 to SERP; James B. Archer: 1998: $3,281 to PSP,
$2,188 to SERP.
(6) Thomas C. Curry was removed as President and Chief Executive Officer on
December 14, 1998 and remained employed by the Company until January 31,
1999. George Riordan resigned from his position as Chairman of the Board on
December 14, 1998. Frank Perna was elected to succeed George Riordan as
Chairman of the Board and Thomas Curry as Chief Executive Officer. Mr.
Riordan will continue as director of the Company; Mr. Curry resigned from
the Board as of April 2, 1999.
OPTION GRANT TABLE
The following table presents additional information concerning the stock
options shown in the Summary Compensation Table and granted to the named
executive officers for fiscal year 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
<CAPTION>
INDIVIDUAL GRANTS
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE GRANT DATE
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1)(2) FISCAL YEAR 1998 ($/SH)(3) DATE VALUE($)
<S> <C> <C> <C> <C> <C>
Frank Perna 3,000(4) 0.2% 9.750 1/02/03 9,480(5)
125,000(6) 7.5% 6.375 9/14/08 396,250(7)
75,000(8) 4.5% 5.375 12/14/08 200,250(7)
75,000(9) 4.5% 5.375 12/14/08 200,250(7)
- -------------------------------------------------------------------------------------------
Thomas C. Curry 50,000(10)(11) 3.0% 9.875 1/31/04 232,500(7)
125,000(10)(12) 7.5% 9.000 1/31/04 558,750(7)
Louis A. Greco 30,000(11) 1.8% 9.875 1/14/08 139,500(7)
75,000(12) 4.5% 9.000 7/15/08 335,250(7)
- -------------------------------------------------------------------------------------------
James B. Archer 40,000(11) 2.4% 9.875 1/14/08 186,000(7)
75,000(12) 4.5% 9.000 7/15/08 335,250(7)
Kenneth D. Blakely 40,000(11) 2.4% 9.875 1/14/08 186,000(7)
75,000(12) 4.5% 9.000 7/15/08 335,250(7)
- -------------------------------------------------------------------------------------------
George N. Riordan 3,000(4) 0.2% 9.750 1/2/03 9,480(5)
125,000(10)(13) 7.5% 9.000 1/31/04 558,750(7)
</TABLE>
- ------------------------
NOTES TO OPTION GRANT TABLE:
(1) During 1998, options were granted pursuant to the 1991 Plan and the 1998
Plan. Options under the 1991 Plan and the 1998 Plan are nontransferable
other than by will or the laws of descent and distribution or, in the case
of the 1991 Plan, certain exceptions under Rule 16b-3 of the Securities
Exchange Act of 1934. Options under the 1991 Plan are exercisable only
during an optionee's term of employment, and for three months after
termination of employment if as a result of permanent disability or
retirement or resignation approved by the Board. Options under the 1998
Plan are generally exercisable for three months after resignation, twelve
months after death or disability and either three or twelve months
(depending on the nature of the option) after retirement. Both plans
provide that vesting may be accelerated in certain events related to
changes in control of the Company, unless the Compensation Committee, prior
to such change in control, determines otherwise. The 1991 Plan provides
that the Compensation Committee has discretion, subject to certain
13
<PAGE>
limits, to modify the terms of outstanding options and to regrant and
reprice options. Both plans are administered by the Compensation Committee
of the Board.
(2) The 1991 Plan provides, under certain circumstances, for the grant of
"reload options" if an optionee uses already-owned shares of Common Stock
to pay for the exercise of any options. The reload provision permits the
grantee the right to purchase the same number of shares of the Company's
Common Stock as the grantee used to exercise any options at an exercise
price equal to the fair market value of a share of Common Stock on the date
of exercise of the initial option to which the reload relates. The 1998
Plan contains no such provision.
(3) Options were granted at an exercise price equal to the fair market value on
the date of grant.
(4) Represents grant to the non-employee director of nonqualified stock options
to purchase shares of Common Stock granted on January 2, 1998 under the
1991 Plan. The options vested on January 2, 1999. These grants are not
utilized in computing the percent of total options granted to employees in
1998.
(5) Grant Date Present Value determined under Black-Scholes Valuation Method.
The estimated values under the Black-Scholes model are based on the
following assumptions: the risk-free rate of return is 7.0%, the expected
dividend yield is 0, the expected volatility is 0.419 and the expected term
is five years. The actual value, if any, an executive may realize will
depend on the excess of the stock price over the exercise price on the date
the option is exercised. Therefore, there is no assurance that the value
realized by an executive will be at or near the value estimated by the
Black-Scholes model.
(6) Represents grant to the employee of non-qualified stock options to purchase
shares of Common Stock granted on September 14, 1998 under the 1998 Plan
that are exercisable in installments, with 25% of the options becoming
exercisable one year after the date of grant and with an additional 25% of
the options becoming exercisable on each successive anniversary date. Full
vesting will occur on the fourth anniversary date. These grants are not
utilized in computing the percent of total options granted to employees in
1998.
(7) Grant Date Present Value determined under Black-Scholes Valuation Method.
The estimated values under the Black-Scholes model are based on the
following assumptions: the risk-free rate of return is 7.0%, the expected
dividend yield is 0, the expected volatility is 0.461 and the expected term
is ten years. The actual value, if any, an executive may realize will
depend on the excess of the stock price over the exercise price on the date
the option is exercised. Therefore, there is no assurance that the value
realized by an executive will be at or near the value estimated by the
Black-Scholes model.
(8) Represents grant to employee of non-qualified stock options to purchase
shares of Common Stock granted on December 14, 1998 under the 1991 Plan
that are exercisable in installments, with 25% of the options becoming
exercisable one year after the date of grant and with an additional 25% of
the options becoming exercisable on each successive anniversary date. Full
vesting will occur on the fourth anniversary date.
(9) Represents grant to employee of non-qualified stock options to purchase
shares of Common Stock granted on December 14, 1998 under the 1998 Plan
that are exercisable in installments, with 25% of the options becoming
exercisable one year after the date of grant and with an additional 25% of
the options becoming exercisable on each successive anniversary date. Full
vesting will occur on the fourth anniversary date.
(10) As part of the Separation Agreements with Thomas Curry and George Riordan,
a portion of these options were cancelled as of January 31, 1999 and
further modified as more fully described in "Severance Plans and Other
Information" below.
(11) Represents nonqualified stock options to purchase shares of Common Stock
granted on January 14, 1998 under the 1991 Plan that are exercisable in
installments, with 25% of the options becoming exercisable one year after
the date of grant and with an additional 25% of the options becoming
exercisable on each successive anniversary date, with full vesting
occurring on the fourth anniversary date.
(12) Represents grant to employee of non-qualified stock options to purchase
shares of Common Stock granted on July 15, 1998 under the 1991 Plan that
are exercisable in installments, with 25% of the options becoming
exercisable one year after the date of grant and with an additional 25% of
the
14
<PAGE>
options becoming exercisable on each successive anniversary date. Full
vesting will occur on the fourth anniversary date.
(13) Represents grant to employee of non-qualified stock options to purchase
shares of Common Stock granted on July 15, 1998 under the 1998 Plan that
are exercisable in installments, with 25% of the options becoming
exercisable one year after the date of grant and with an additional 25% of
the options becoming exercisable on each successive anniversary date. Full
vesting will occur on the fourth anniversary date
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table shows information for the named executive officers,
concerning:
(1) exercises of stock options during 1998; and
(2) the amount and values of unexercised stock options as of December 31,
1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES ACQUIRED UNDERLYING OPTIONS IN-THE-MONEY OPTIONS
ON VALUE AT FY-END(#) AT FY-END($)(1)
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Frank Perna 0 0 18,000 278,000 0 321,875
- -------------------------------------------------------------------------------------------
Thomas C. Curry 0 0 320,000 210,000(2) 0 0
Louis A. Greco 0 0 135,000 125,000(2) 5,000 0
- -------------------------------------------------------------------------------------------
James B. Archer 0 0 15,000 130,000 0 0
Kenneth D. Blakely 0 0 52,250 128,750 5,000 0
- -------------------------------------------------------------------------------------------
George N. Riordan 0 0 20,000 128,000 0 0
</TABLE>
- ------------------------
NOTES TO OPTION EXERCISE TABLE:
(1) Based on the closing price of the Company's common stock on December 31,
1998 ($7.000 per share) minus the exercise price of "in-the-money" options.
(2) As part of the Separation Agreements with Thomas Curry and George Riordan, a
portion of these options were cancelled as of January 31, 1999 and further
modified as more fully described in "Severance Plans and Other Information"
below.
SEVERANCE PLANS AND OTHER INFORMATION
The Company has entered into severance agreements with each of the named
executive officers and other key employees. These severance agreements provide
that, if the Company or the employee terminates the employee's employment with
the Company (other than as a result of death or disability) for any reason
within two years after a change of control(1) of the Company, the employee will
receive a
- ------------------------
(1) Under the severance agreements, a change in control is defined to include
the following transactions unless approved by a majority of the Board of
Directors:
(a) any person or group becomes the beneficial owner of 20% or more of the
combined voting power of the Company's then outstanding securities;
(b) the election in a contest for election of a majority of the Board who
were not directors prior to such contest;
(c) the stockholders approve the dissolution or liquidation of the Company;
(d) the stockholders approve a merger, consolidation or other reorganization
of the Company, as a result of which less than 50% of the outstanding
voting securities of the resulting entity are owned by former
stockholders of the Company, or
(e) the stockholders approve the sale of all or substantially all of the
assets of the Company to a person or entity which is not a subsidiary of
the Company.
15
<PAGE>
severance payment. The severance payments will be reduced to the extent any
payment is not deductible by the Company for federal income tax purposes. The
severance agreements are automatically renewed annually unless the Company gives
written notice that it does not wish to extend them. In addition, the agreements
will continue in effect for three years after a change in control of the
Company.
- - PERNA, GRECO, BLAKELY & ARCHER. The severance payment for Frank Perna, Louis
Greco, Kenneth Blakely and James Archer will be a cash payment of two and
one-half times the average of the cash compensation received by the employee
over the last five years.
- - OTHER KEY EMPLOYEES. Some key employees with severance agreements who have
been employed by the Company for at least five years will receive a severance
payment at least equal to the average of the employee's total cash
compensation over the last five years, increasing ratably to a maximum of two
times the average of the last five years of such employee's total cash
compensation if the employee was employed for ten years or more. Others will
receive two and a half times the average of the cash compensation received by
the employee over the last five years regardless of the length of service. A
total of 127 employees have severance agreements with the Company.
SEPARATION AND TERMINATION AGREEMENTS WITH THOMAS CURRY. In connection with
Thomas Curry's employment with the Company, the Company entered into a
Separation Agreement with Mr. Curry which provided for certain payments to Mr.
Curry upon a termination of employment. Mr. Curry was removed as President and
Chief Executive Officer on December 14, 1998 and his employment terminated
effective January 31, 1999. Under the terms of the Separation Agreement, the
Company will continue to pay Mr. Curry his base salary until July 31, 2000. The
Company will also continue Mr. Curry's participation in the Company's health
benefit plans for up to eighteen months after the termination date and reimburse
Mr. Curry's outplacement fees (up to $35,000). The Separation Agreement also
required the Company to amend 70,000 options previously granted to Mr. Curry
under the 1991 Plan to allow (1) full vesting as of January 31, 1999 and (2)
exercise of those options until January 31, 2000. In recognition of Mr. Curry's
contributions and in consideration of his agreement to remain as an employee of
the Company through January 31, 1999, the Company agreed to provide additional
benefits to Mr. Curry in a Termination and General Release Agreement. Under the
terms of the Termination and General Release Agreement, the Company (1)
permitted Mr. Curry to make his full 401(k) contribution for 1998, (2) continued
to cover Mr. Curry under the Company's insurance policies for activities related
to his employment as an officer of the Company, (3) vested 105,000 of Mr.
Curry's 210,000 outstanding options effective January 31, 1999 and cancelled the
remainder and (4) extended the exercise date of such vested options through
January 31, 2004.
GEORGE RIORDAN. Mr. Riordan resigned from his position as Chairman of the
Board on December 14, 1998. In recognition of Mr. Riordan's contributions to the
Company and in consideration of his agreement to remain as an employee of the
Company until January 31, 1999, the Company agreed to provide additional
benefits to Mr. Riordan in a Termination and General Release Agreement. Under
the terms of the Termination and General Release Agreement, the Company (1) paid
a lump sum of $100,000 to Mr. Riordan on January 31, 1999, (2) vested 62,500 of
Mr. Riordan's 125,000 outstanding options effective January 31, 1999 and
cancelled the remainder and (3) extended the exercise date of such vested
options through January 31, 2004. On February 4, 1999, in connection with Mr.
Riordan's employment as an outside director, the Company entered into a new
severance agreement with Mr. Riordan in the same form that is in effect for the
other outside directors of the Company. The new severance agreement provides
that, if either party terminates Mr. Riordan's employment with the Company
(other than as a result of death or disability) for any reason within two years
after a change of control of the Company, Mr. Riordan will receive a cash
severance payment of two and one-half times the annualized compensation received
by Mr. Riordan for his services as a director during the last year. The
severance payment may be and will be reduced to the extent any payment is not
deductible by the Company for federal income tax purposes. The severance
agreement is automatically renewed annually unless the Company gives written
notice that it does not wish to extend.
16
<PAGE>
PERFORMANCE GRAPH
The following graph provides a five year comparison of cumulative total
returns for the Company, the Standard & Poor's Software/Computer Services Index
and the New York Stock Exchange (NYSE) Market Value Index. The comparison covers
the five-year period from December 31, 1993 to December 31, 1998, and assumes
that $100 was invested at the beginning of the five-year period in the Company's
common stock and each index. Cumulative total returns assumes reinvestment of
dividends on the date the dividends were declared.
The stock price performance depicted in this graph is not necessarily
indicative of future price performance. This graph will not be deemed to be
incorporated by reference by any general statement incorporating this proxy
statement into any filing by the Company under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
soliciting material or deemed filed under those Acts.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE MACNEAL- S&P GROUP NYSE
<S> <C> <C> <C>
Dollars Schwendler Corporation Index
Dec-93 100 100 100
Dec-94 82 118 98
Dec-95 132 166 127
Dec-96 68 258 153
Dec-97 83 360 202
Dec-98 60 652 240
</TABLE>
17
<PAGE>
AMENDMENT TO 1998 STOCK OPTION PLAN
The Board has determined that the Company's 1998 Stock Option Plan should be
amended to increase the number of shares of the Company's common stock
authorized to be issued under the 1998 Plan by 1,500,000 shares to 2,500,000
shares, subject to certain adjustments as provided in the 1998 Plan and
described below.
The Board of Directors approved the amendment to the 1998 Plan based, in
part, on a belief that the number of shares that remained available for
additional awards under the 1998 Plan was insufficient to adequately provide for
future incentives to those individuals upon whose efforts the Company relies for
the continued success, development and growth of its business.
The 1998 Plan currently provides for a limit on the aggregate number of
shares of the Company's common stock that may be issued or delivered pursuant to
options of 1,000,000 shares. At March 31, 1999, 600,000 shares of the Company's
common stock remained subject to options then outstanding under the 1998 Plan
and 400,000 shares of common stock were available for grant under the 1998 Plan.
The Board has approved the amendment to the 1998 Plan. A copy the 1998 Plan
which incorporates the amendment is included as Exhibit A to this Proxy
Statement. The amendment will become effective upon the receipt of stockholder
approval. The following is a summary of the amended 1998 Plan. Please note that
the following description is qualified in its entirety by the full text of the
amended 1998 Plan and that capitalized terms used in the summary are defined in
the amended 1998 Plan.
SUMMARY DESCRIPTION OF THE PLAN
- - PURPOSE: The purpose of the 1998 Plan is to promote the success of the Company
and the interests of its stockholders by attracting, retaining, and rewarding
officers, employees, and other eligible persons through the grant of equity
incentives. The 1998 Plan also aims to attract, motivate and retain
experienced and knowledgeable independent directors.
- - ADMINISTRATION: The 1998 Plan will be administered by the Board or one or more
committees appointed by the Board (the appropriate acting body is referred to
as the "Committee"). Currently, the Company's Compensation Committee
administers the 1998 Plan. The Committee determines the number of shares that
are to be subject to Options, the exercise price of Options, and the other
terms and conditions of the Options. Subject to the other provisions of the
1998 Plan, the Committee has the authority (1) to permit the recipient of any
Option to pay the exercise price of an Option in cash, the delivery of
previously owned shares of Common Stock, or a cashless exercise; (2) to
accelerate the receipt or vesting of benefits pursuant to an Option; and (3)
to make certain adjustments to an outstanding Option and authorize the
acceleration or termination or the assumption, conversion, or substitution of
an Option.
- - ELIGIBILITY: Persons eligible to receive Options under the 1998 Plan include
directors, officers or employees of the Corporation or any of its
Subsidiaries, and certain individual consultants and advisors to the Company.
Each member of the Board who is not an officer or employee of the Company (a
"Non-Employee Director") will receive certain automatic award grants under the
1998 Plan, as described more fully below. Currently, there are four
Non-Employee Directors. If the Committee currently decided to extend
eligibility to all officers and employees of the Company, approximately 700
individuals could participate in the 1998 Plan.
- - TRANSFER RESTRICTIONS. Subject to certain exceptions contained in Section 1.8
of the 1998 Plan, participants may only transfer Options by will or the laws
of descent and distribution and may only exercise Options during his or her
lifetime. The Company will only distribute the any amounts payable or shares
issuable pursuant to an Option to the participant or a beneficiary or
representative of the participant.
- - LIMITS ON AUTHORIZED SHARES. Under the proposed amendment to the 1998 Plan, a
maximum of 2,500,000 shares of Common Stock may be delivered pursuant to
Options. The maximum number of shares that
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may be granted to Non-Employee Directors is 60,000. The maximum number of
shares subject to Options which may be granted to any participant during any
calendar year is 200,000.
- As is customary in stock option plans of this nature, the number and kind
of shares available under the 1998 Plan, as well as the exercise or
purchase prices, are subject to adjustment in the case of certain
corporate events. These events include reorganizations, mergers,
combinations, consolidations, recapitalizations, reclassifications, stock
splits, stock dividends, asset sales or other similar unusual or
extraordinary corporate events, or extraordinary dividends or
distributions of property to the stockholders.
- The 1998 Plan will not limit the ability of the Board or the Committee to
grant awards or authorize any other compensation under any other plan or
authority.
- - STOCK OPTIONS. An Option is the right to purchase shares of Common Stock at a
future date at a specified price (the "Option Price"). The Option Price per
share will be determined by the Committee, but it will not be less than the
fair market value of a share of Common Stock on the date of grant. Each Option
granted under the 1998 Plan will expire within 10 years after the date of
grant of the Option. Option recipients must pay the full Option Price (either
in cash or by another approved method) at the time of exercise.
- Options under the 1998 Plan are either Incentive Stock Options or a
Nonqualified Stock Options. Incentive Stock Options are taxed differently
from Nonqualified Stock Options, as described under "Federal Income Tax
Treatment of Options under the 1998 Plan" below. Incentive Stock Options
are also subject to more restrictive terms and are limited in amount by
the Code and the 1998 Plan.
- - AUTOMATIC OPTION GRANTS TO ELIGIBLE DIRECTORS. When the Company's 1991 Stock
Option Plan terminates in 2001, the automatic grants of certain Options to
Non-Employee Directors will be made under the 1998 Plan. Under the 1998 Plan,
the Company will grant Nonqualified Stock Options to purchase 10,000 shares of
Common Stock to each Non-Employee Director on the date he or she is first
elected or appointed to the Board. In addition, the Company will grant
Nonqualified Stock Options to purchase 3,000 shares of Common Stock on the
first business day of each calendar year to each Non-Employee Director who is
then in office. Each Option will have a five-year term and the exercise price
will equal 100% of the Fair Market Value of a share on the date of grant. Each
Option will fully vest twelve months after the date of grant.
- - ACCELERATION OF OPTIONS; POSSIBLE EARLY TERMINATION OF OPTIONS. Unless the
Committee determines otherwise, participants can generally exercise their
Options immediately upon the occurrence of a Change in Control Event. A Change
in Control Event under the 1998 Plan generally includes a dissolution or
liquidation of the Company, a reorganization resulting in a change in
ownership of at least 30% of the Company, certain changes in a majority of the
Board, certain mergers or consolidations approved by the Company's
stockholders, or stockholder approval of a sale of substantially all of the
Company's assets. Options may terminate after a Change in Control Event in
which the Company does not survive.
- - TERMINATION OR CHANGES TO THE 1998 PLAN. The Board may amend or terminate the
1998 Plan at any time and in any manner. Unless required by law or deemed
necessary or advisable by the Board, the Board will not seek stockholder
approval for any amendment to the 1998 Plan. The 1998 Plan will terminate at
the close of business on the day before the tenth anniversary of the Effective
Date of the 1998 Plan. Outstanding Options may be amended by the Committee
only in accordance with the terms of the 1998 Plan.
- - SECURITIES UNDERLYING OPTIONS. The market value of a share of Common Stock as
of May 7, 1999 was $5 13/16 per share. Upon receipt of stockholder approval of
the amendment to the 1998 Plan, the Company plans to register the additional
1,500,000 shares of common stock authorized by the amendment to the 1998 Plan
pursuant to the Securities Act of 1933.
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- - NO REPRICING. The Company will not amend, cancel or regrant, or otherwise
adjust any Option granted under the 1998 Plan in order to reduce the per share
exercise price of the Option to a price less than 100% of the fair market
value of the Common Stock on the Option Date of the initial Option (subject to
permitted adjustments pursuant to the 1998 Plan).
FEDERAL INCOME TAX TREATMENT OF OPTIONS UNDER THE 1998 PLAN
The current federal income tax consequences of the 1998 Plan are summarized
in the following general discussion of the general tax principles applicable to
the 1998 Plan. This summary is not intended to be exhaustive and does not
describe state, local, or international tax consequences.
With respect to nonqualified stock options, the Company is generally
entitled to deduct an amount equal to the difference between the option exercise
price and the fair market value of the shares at the time of exercise. With
respect to Incentive Stock Options, the Company is generally not entitled to a
similar deduction either upon grant of the option or at the time the option is
exercised. If Incentive Stock Option shares are not held for specified
qualifying periods, however, the difference between the fair market value of the
shares at the date of exercise (or, if lower, the sale price) and the cost of
such shares is taxed as ordinary income (and the Company will receive a
corresponding deduction) in the year the shares are sold.
If an Option is accelerated under the 1998 Plan in connection with a change
in control (as this term is used in the Code), the Company may not deduct the
portion of the compensation attributable to the acceleration if it exceeds
certain threshold limits under the Code. These excess payments are called
"Parachute Payments" and can sometimes trigger certain related excise taxes.
Furthermore, if the compensation attributable to awards is not
"performance-based" within the meaning of Section 162(m) of the Code, the
Company may not be permitted to deduct the aggregate non performance-based
compensation in excess of $1,000,000 in certain circumstances.
SPECIFIC BENEFITS
For information regarding options granted to executive officers of the
Company, see the material under the heading "Option Grant Table" at page 13.
The number, amount, and type of awards to be received by or allocated to
eligible persons in the future under the 1998 Plan cannot be determined at this
time because benefits or amounts, eligibility, price and certain terms are
wholly within the discretion of the Board or any committee may be designated by
the Board. The dollar value of the benefits that will be received by or
allocated to eligible persons in the future under the 1998 Plan are not
determinable because the value of such benefits depend on the grant and exercise
price of the Company's common stock in the future. The Company does not expect
to grant Options to non-employee directors under the 1998 Plan until fiscal year
2001.
OTHER MATTERS
INFORMATION REGARDING STOCKHOLDER RIGHTS PLAN
On October 5, 1998 the Board adopted a Stockholder Rights Plan. The
Stockholder Rights Plan is designed to protect all stockholders of the Company
against hostile acquirers who may seek to take advantage of the Company and its
stockholders through coercive or unfair tactics aimed at gaining control of the
Company without paying all stockholders of the Company a full and fair price. As
part of this plan, a special type of dividend was declared on the common stock
of the Company in the form of a distribution of rights to all stockholders of
record on October 16, 1998. The Board adopted the Stockholder Rights Plan and
declared the distribution of rights following the expiration of the Company's
shareholder rights plan that was in effect from September 19, 1988 until
September 19, 1998.
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The rights are not intended to prevent a fair and equitable takeover of the
Company and will not do so. However, the rights should discourage any effort to
acquire the Company in a manner or on terms not approved by the Board. The
rights are designed to deal with the serious problem of a potential acquirer
using coercive or unfair tactics to deprive the Board of any real opportunity to
determine the future of the Company and to realize the value of each
stockholder's investment in the Company.
The distribution of rights will not alter the financial strength of the
Company or interfere with its business plans. The distribution will not change
the way in which stockholders can currently trade the Company's shares and will
not be dilutive or affect reported per share results. While the distribution of
the rights was not taxable either to stockholders or to the Company,
stockholders may, depending on their individual circumstances, recognize taxable
income should the rights become exercisable.
Many publicly-traded companies have adopted stockholder rights plans similar
to the one adopted by the Company. The Board is aware that some argue that such
plans could deter legitimate acquisition proposals. The Board, assisted by the
Company's investment banking and legal advisors, carefully considered these
arguments and concluded that such arguments are speculative and do not justify
denying stockholders the protection which the rights afford against abusive
takeover tactics. Among other things, the Board considered third party studies
which suggested that rights plans do not prevent takeovers, and that companies
protected by rights plans received premiums higher than companies without such
plans in takeover contests.
The Company's overriding objective is to preserve and enhance the Company's
value for all stockholders. In declaring the rights dividend, the Board has
expressed its confidence in the Company future and its determination that
stockholders be given every opportunity to participate fully in that future.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of forms filed, director Donald Glickman and former
director Paul MacCready each filed one late report on Form 4. The Company
believes that other SEC filings of its officers, directors and ten percent
stockholders complied with the requirements of Section 16 of the Securities and
Exchange Act during 1998.
EXHIBITS TO ANNUAL REPORT ON FORM 10-K
If any person who was a beneficial owner of common stock of the Company on
the record date for the 1999 Annual Meeting desires additional information, a
copy of the exhibits to the Company's Report on Form 10-K will be furnished upon
written request and payment of copying charges. The request should identify the
person requesting the exhibits as a stockholder of the Company as of May 7, 1999
and should be directed to Mr. Louis A. Greco, Secretary, The MacNeal-Schwendler
Corporation, 815 Colorado Boulevard, Los Angeles, CA 90041.
By Order of the Board of Directors,
Louis A. Greco
Secretary and Chief Financial Officer
May 11, 1999
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EXHIBIT A
THE MACNEAL-SCHWENDLER CORPORATION
1998 STOCK OPTION PLAN
The following constitute the provisions of the 1998 Stock Option Plan of The
MacNeal-Schwendler Corporation.
1. THE PLAN.
1.1 PURPOSE. The purpose of this Plan is to promote the success of the
Company and the interests of its stockholders by attracting, retaining and
rewarding officers, employees, and other eligible persons through the grant
of equity incentives and to attract, motivate and retain experienced and
knowledgeable independent directors through the benefits provided under
Section 3. Capitalized terms used herein are defined in Section 5.
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.
1.2.1 COMMITTEE. This Plan will be administered by and all Options
to Eligible Persons will be authorized by the Committee. Action of the
Committee with respect to the administration of this Plan will be taken
pursuant to a majority vote or by unanimous written consent of its
members.
1.2.2 PLAN AWARDS; Interpretation; Powers of Committee. Subject to
the express provisions of this Plan and any express limitations on the
delegated authority of a Committee, the Committee will have the authority
to:
(a) determine eligibility and the particular Eligible Persons
who will receive Options;
(b) grant Options to Eligible Persons, determine the price at
which securities will be offered and the amount of
securities to be offered or awarded to any of such persons,
and determine the other specific terms and conditions of
such Options consistent with the express limits of this
Plan, and establish the installments (if any) in which such
Options will become exercisable or will vest, or determine
that no delayed exercisability or vesting is required, and
establish the events of termination of such Options;
(c) approve the forms of Option Agreements (which need not be
identical either as to type of Option or among
Participants);
(d) construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and
Participants under this Plan, further define the terms used
in this Plan, and prescribe, amend and rescind rules and
regulations relating to the administration of this Plan;
(e) cancel, modify, or waive the Corporation's rights with
respect to, or modify, discontinue, suspend, or terminate
any or all outstanding Options held by Eligible Persons,
subject to any required consent under Section 4.6;
(f) accelerate or extend the exercisability or extend the term
of any or all such outstanding Options within the maximum
ten-year term of Options under Section 2.3; and
(g) make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or
advisable for the administration of this Plan and the
effectuation of its purposes.
Notwithstanding the foregoing, the provisions of Section 3
relating to Non-Employee Director Options will be automatic
and, to the maximum extent
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possible, self-effectuating. To the extent required, any
interpretation or administration of this Plan in respect of
Options granted under Section 3 will be the responsibility
of the Board.
1.2.3 BINDING DETERMINATIONS. Any action taken by, or inaction of,
the Corporation, any Subsidiary, the Board or the Committee relating or
pursuant to this Plan will be within the absolute discretion of that
entity or body and will be conclusive and binding upon all persons. No
member of the Board or Committee, or officer of the Corporation or any
Subsidiary, will be liable for any such action or inaction of the entity
or body, of another person or, except in circumstances involving bad
faith, of himself or herself. Subject only to compliance with the express
provisions hereof, the Board and Committee may act in their absolute
discretion in matters within their authority related to this Plan.
1.2.4 RELIANCE ON EXPERTS. In making any determination or in taking
or not taking any action under this Plan, the Committee or the Board, as
the case may be, may obtain and may rely upon the advice of experts,
including professional advisors to the Corporation. No director, officer
or agent of the Company will be liable for any such action or
determination taken or made or omitted in good faith.
1.2.5 BIFURCATION OF PLAN ADMINISTRATION & DELEGATION. Subject to
the limits set forth in the definition of "Committee" in Section 5, the
Board may delegate different levels of authority to different Committees
with administration and grant authority under this Plan, provided that
each designated Committee granting any Options hereunder will consist
exclusively of a member or members of the Board. A majority of the
members of the acting Committee will constitute a quorum. The vote of a
majority of a quorum or the unanimous written consent of a Committee will
constitute action by the Committee. A Committee may delegate ministerial,
non-discretionary functions to individuals who are officers or employees
of the Company.
1.3 PARTICIPATION. Options may be granted by the Committee only to
those persons that the Committee determines to be Eligible Persons. An
Eligible Person who has been granted an Option may, if otherwise eligible,
be granted additional Options if the Committee so determines.
1.4 SHARES AVAILABLE FOR OPTIONS; SHARE LIMITS.
1.4.1 SHARES AVAILABLE. Subject to the provisions of Section 4.2,
the capital stock that may be delivered under this Plan will be shares of
the Corporation's Common Stock. The Shares may be delivered for any
lawful consideration.
1.4.2 SHARE LIMITS. The maximum number of Shares that may be
delivered pursuant to Options granted under this Plan is 2,500,000 Shares
(the "Share Limit"). The maximum number of Shares that may be delivered
pursuant to Options granted to Non-Employee Directors is 60,000 Shares.
The maximum number of Shares subject to those Options that are granted
during any calendar year to any one individual is 200,000 Shares. Each of
the foregoing numerical limits will be subject to adjustment as
contemplated by this Section 1.4 and Section 4.2.
1.4.3 SHARE LIMIT; REPLENISHMENT AND REISSUE OF UNVESTED
OPTIONS. No Option may be granted under this Plan unless, on the date of
grant, the sum of (i) the maximum number of Shares issuable at any time
pursuant to such Option, plus (ii) the number of Shares that have
previously been issued pursuant to Options granted under this Plan, other
than reacquired Shares available for reissue consistent with any
applicable limitations, plus (iii) the maximum number of Shares that may
be issued at any time after such date of grant pursuant to Options that
are outstanding on such date, does not exceed the Share Limit. Shares
that are subject to or underlie Options that expire or for any reason are
cancelled or terminated, are forfeited, fail to vest, or for any other
reason are not paid or delivered under this Plan, as well as reacquired
Shares, will again, except to the extent prohibited by law, be available
for subsequent Options under this Plan.
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1.5 GRANT OF OPTION. Subject to the express provisions of this Plan,
the Committee will determine the number of Shares subject to each Option and
the price to be paid for the Shares. Each Option will be evidenced by an
Option Agreement signed by the Corporation and, if required by the
Committee, by the Participant.
1.6 OPTION PERIOD. Any option and related right will expire not more
than 10 years after the date of grant; provided, however, that the delivery
of stock pursuant to an Option may be delayed until a future date if
specifically authorized by the Committee in writing.
1.7 LIMITATIONS ON EXERCISE AND VESTING OF OPTIONS.
1.7.1 PROVISIONS FOR EXERCISE. Unless the Committee otherwise
expressly provides, no Option will be exercisable or will vest until at
least six months after the initial Option Date, and once exercisable an
Option will remain exercisable until the expiration or earlier
termination of the Option.
1.7.2 PROCEDURE. Any exercisable Option will be deemed to be
exercised when the Secretary of the Corporation receives written notice
of such exercise from the Participant, together with any required payment
made in accordance with Section 2.2(b) or 3.3, as the case may be.
1.7.3 FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests
will be disregarded, but may be accumulated. The Committee, however, may
determine in the case of Eligible Persons that cash, other securities, or
other property will be paid or transferred in lieu of any fractional
share interests. No fewer than 100 Shares may be purchased on exercise of
any Option at one time unless the number purchased is the total number at
the time available for purchase under the Option.
1.8 NO TRANSFERABILITY.
1.8.1 LIMIT ON EXERCISE AND TRANSFER. Unless otherwise expressly
provided in (or pursuant to) this Section 1.8, by applicable law and by
the Option Agreement, as the same may be amended, (i) all Options are
non-transferable and will not be subject in any manner to sale, transfer,
anticipation, alienation, assignment, pledge, encumbrance or charge; (ii)
Options will be exercised only by the Participant; and (iii) amounts
payable or Shares issuable pursuant to an Option will be delivered only
to (or for the account of) the Participant.
1.8.2 EXCEPTIONS. The Committee may permit Options to be exercised
by and paid only to certain persons or entities related to the
Participant pursuant to such conditions and procedures as the Committee
may establish. Any permitted transfer will be subject to the condition
that the Committee receive evidence satisfactory to it that the transfer
is being made for estate and/or tax planning purposes and without
consideration (other than nominal consideration). Incentive Stock Options
will be subject to any and all additional transfer restrictions under the
Code (notwithstanding Section 1.8.3).
1.8.3 FURTHER EXCEPTIONS TO LIMITS ON TRANSFER. The exercise and
transfer restrictions in Section 1.8.1 will not apply to:
(a) transfers to the Corporation,
(b) the designation of a beneficiary to receive benefits if the
Participant dies or, if the Participant has died, transfers
to or exercise by the Participant's beneficiary, or, in the
absence of a validly designated beneficiary, transfers by
will or the laws of descent and distribution,
(c) transfers pursuant to a QDRO if approved or ratified by the
Committee,
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(d) if the Participant has suffered a disability, permitted
transfers or exercises on behalf of the Participant by the
Participant's legal representative, or
(e) the authorization by the Committee of "cashless exercise"
procedures with third parties who provide financing for the
purpose of (or who otherwise facilitate) the exercise of
Options consistent with applicable laws and the express
authorization of the Committee.
2. ELIGIBLE PERSON OPTIONS.
2.1 GRANTS. One or more Options may be granted under this Section 2 to
any Eligible Person. Each Option granted will be designated in the
applicable Option Agreement, by the Committee, as either an Incentive Stock
Option, subject to Section 2.4, or a Nonqualified Stock Option.
2.2 OPTION PRICE.
2.2.1 PRICING LIMITS. The purchase price per Share covered by each
Option will be determined by the Committee at the time of the grant, but
in all cases will not be less than 100% (110% in the case of a
Participant described in Section 2.4.3) of the Fair Market Value of the
Common Stock on the date of grant and in all cases will not be less than
the par value thereof.
2.2.2 PAYMENT PROVISIONS. The purchase price of any Shares
purchased on exercise of an Option granted under this Section 2 will be
paid in full at the time of each purchase in one or a combination of the
following methods: (i) in cash or by electronic funds transfer; (ii) by
certified or cashier's check payable to the order of the Corporation;
(iii) by notice and third party payment in such manner as may be
authorized by the Committee; or (iv) by the delivery of shares of Common
Stock of the Corporation already owned by the Participant, provided,
however, that the Committee may in its absolute discretion limit the
Participant's ability to exercise an Option by delivering such Shares,
and any Shares delivered that were initially acquired upon exercise of a
stock option must have been owned by the Participant at least six months
as of the date of delivery. Shares used to satisfy the exercise price of
an Option will be valued at their Fair Market Value on the date of
exercise. Without limiting the generality of the foregoing, the Committee
may provide that the Option can be exercised and payment made by
delivering a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Corporation the
amount of sale proceeds necessary to pay the exercise price and, unless
otherwise prohibited by the Committee or applicable law, any applicable
tax withholding under Section 4.5. The Corporation will not be obligated
to deliver certificates for the Shares unless and until it receives full
payment of the exercise price therefor and any related withholding
obligations have been satisfied.
2.3 VESTING; OPTION PERIOD.
2.3.1 VESTING. Subject to Section 1.6, each Option will vest and
become exercisable as of the date or dates determined by the Committee
and set forth in the applicable Option Agreement.
2.3.2 OPTION PERIOD. Subject to Section 1.6, each Option and all
rights thereunder will expire no later than 10 years after the Option
Date.
2.4 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.
2.4.1 $100,000 LIMIT. To the extent that the aggregate "FAIR MARKET
VALUE" of stock with respect to which incentive stock options first
become exercisable by a Participant in any calendar year exceeds
$100,000, taking into account both Common Stock subject to Incentive
Stock Options under this Plan and stock subject to incentive stock
options under all other plans of the Company or any parent corporation,
such options will be treated as Nonqualified Stock Options.
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For this purpose, the "FAIR MARKET VALUE" of the stock subject to options
will be determined as of the date the options were awarded. In reducing
the number of options treated as incentive stock options to meet the
$100,000 limit, the most recently granted options will be reduced first.
To the extent a reduction of simultaneously granted options is necessary
to meet the $100,000 limit, the Committee may, in the manner and to the
extent permitted by law, designate which shares are to be treated as
shares acquired pursuant to the exercise of an Incentive Stock Option.
2.4.2 OTHER CODE LIMITS. Incentive Stock Options may only be
granted to Eligible Employees of the Corporation or a Subsidiary that
satisfies the other eligibility requirements of the Code. There will be
imposed in any Option Agreement relating to Incentive Stock Options such
other terms and conditions as from time to time are required in order
that the Option be an "incentive stock option" as that term is defined in
Section 422 of the Code.
2.4.3 LIMITS ON 10% HOLDERS. No Incentive Stock Option may be
granted to any person who, at the time the Option is granted, owns (or is
deemed to own under Section 424(d) of the Code) shares of outstanding
Common Stock possessing more than 10% of the total combined voting power
of all classes of stock of the Corporation, unless the exercise price of
such Option is at least 110% of the Fair Market Value of the stock
subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.
2.5 CANCELLATION AND REGRANT/WAIVER OF RESTRICTIONS/NO
REPRICING. Subject to Section 1.4 and Section 4.6 and the specific
limitations on Options contained in this Plan, the Committee from time to
time may authorize, generally or in specific cases only, for the benefit of
any Eligible Person any adjustment in the vesting schedule, the number of
Shares subject to, or the restrictions upon or the term of, an Option
granted under this Section 2 by cancellation of an outstanding Option and a
subsequent regranting of an Option, by amendment, by substitution of an
outstanding Option, by waiver or by other legally valid means; provided,
however, that no such amendment, cancellation and regrant, or other
adjustment to an Option shall reduce the per Share exercise price of the
Option to a price less than 100% of the Fair Market Value of the Common
Stock on the Option Date of the initial Option (subject to permitted
adjustments pursuant to Section 4.2). Such amendment or other action may
provide, subject to Section 2.2, for among other changes, for a greater or
lesser number of Shares subject to the Option, or provide for a longer or
shorter vesting or exercise period.
2.6 OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER
CORPORATIONS. Options may be granted to Eligible Persons under this Plan in
substitution for employee stock options granted by other entities to persons
who are or who will become Eligible Persons in respect of the Company, in
connection with a distribution, merger or reorganization by or with the
granting entity or an affiliated entity, or the acquisition by the Company,
directly or indirectly, of all or a substantial part of the stock or assets
of the employing entity.
3. NON-EMPLOYEE DIRECTOR OPTIONS.
3.1 PARTICIPATION/COMMENCEMENT. Options under this Section 3 will be
made only to Non-Employee Directors and will be evidenced by Option
Agreements substantially in the form of EXHIBIT A hereto. No Option shall be
granted under the 1998 Plan to any Non-Employee Director until the earlier
of (i) the termination of the 1991 Plan (for any reason), or (ii) the lack
of capacity under Article III of the 1991 Plan to grant further Non-Employee
Director Options.
3.2 OPTION GRANTS.
3.2.1 INITIAL OPTIONS. After approval of this Plan by the
stockholders of the Corporation and after the commencement of this
Section 3 of the Plan upon the earlier occurance of (i) or (ii) as listed
in Section 3.1 above (the "Commencement Date"), if any person who is not
then an officer or employee of the Company becomes a Non-Employee
Director, on the date of election to the Board such person will
automatically be granted (without any action by the Board or the
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Committee) a Nonqualified Stock Option (the Option Date of which shall be
the date such person takes office) to purchase 10,000 shares of Common
Stock.
3.2.2 SUBSEQUENT ANNUAL OPTIONS. Subject to Section 3.2.3, at the
close of trading on the first business day in each calendar year during
the term of this Plan commencing in the following year after the year in
which the Commencement Date occurs, there will be granted automatically
(without any action by the Board or the Committee) a Nonqualified Stock
Option (the Option Date of which shall be such date) to each Non-Employee
Director then in office to purchase 3,000 shares of Common Stock.
3.2.3 MAXIMUM NUMBER OF OPTIONS/SHARES. Annual grants that would
otherwise exceed the maximum number of shares under Section 1.4.2 will be
prorated within such limitation.
3.3 OPTION PRICE. The purchase price per Share of the Common Stock
covered by each Option granted pursuant to Section 3.2 will be 100% of the
Fair Market Value of the Common Stock on the Option Date. The purchase price
of any Shares purchased shall be paid in full at the time of each purchase
either in cash or by check or in shares of Common Stock valued at their Fair
Market Value on the date of exercise of the Option, or partly in Shares and
partly in cash; provided that any Shares used for such payment must be owned
by the Participant at least six months prior to the date of such exercise.
3.4 OPTION PERIOD AND EXERCISABILITY. Each Option granted under
Section 3.2 and all rights or obligations thereunder will expire on the day
before the fifth anniversary of the Option Date and will be subject to
earlier termination as provided below. Each Option granted under Section 3.2
will become 100% vested and exercisable on the day before the first
anniversary of the Option Date.
3.5 TERMINATION OF DIRECTORSHIP. If a Non-Employee Director's services
as a member of the Board terminate for any reason, an Option granted
pursuant to Section 3.2 that is held by such Participant will terminate to
the extent that it is not then exercisable, and any portion of such Option
that is then exercisable may be exercised for only six months after the date
of such termination or until the expiration of the stated term of such
Option, whichever first occurs.
3.6 ADJUSTMENTS; ACCELERATION; TERMINATION. Options granted under
Section 3.2 will be subject to adjustments, accelerations, and terminations
as provided in Section 4.2, but only to the extent that such adjustment and
any Board or Committee action in respect thereof in the case of a Change in
Control is effected pursuant to the terms of a reorganization agreement
approved by stockholders of the Corporation, or is otherwise consistent with
adjustments to Options held by persons other than executive officers of the
Corporation (or, if there are none, consistent in respect of the underlying
Shares with the effect on stockholders generally).
4. OTHER PROVISIONS.
4.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.
4.1.1 EMPLOYMENT STATUS. Status as an Eligible Person will not be
construed as a commitment that any Option will be granted under this Plan
to an Eligible Person or to Eligible Persons generally.
4.1.2 NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in
any other documents related to this Plan or to any Option) will confer
upon any Eligible Person or other Participant any right to continue in
the employ or other service of the Company or constitute any contract or
agreement of employment or other service, nor will interfere in any way
with the right of the Company to change such person's compensation or
other benefits or to terminate the employment (or services) of such
person, with or without cause, but nothing contained in this Plan or any
related document will adversely affect any independent contractual right
of such person without the person's consent thereto.
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4.1.3 PLAN NOT FUNDED. Options payable under this Plan will be
payable in Shares or from the general assets of the Corporation. No
Participant, Beneficiary or other person will have any right, title or
interest in any fund or in any specific asset (including Shares, except
as expressly otherwise provided) of the Company by reason of any Option
hereunder. Neither the provisions of this Plan (or of any related
documents), nor the creation or adoption of this Plan, nor any action
taken pursuant to the provisions of this Plan will create, or be
construed to create, a trust of any kind or a fiduciary relationship
between the Company and any Participant, Beneficiary or other person. To
the extent that a Participant, Beneficiary or other person acquires a
right to receive payment pursuant to any Option hereunder, such right
will be no greater than the right of any unsecured general creditor of
the Company.
4.2 ADJUSTMENTS; ACCELERATION.
4.2.1 ADJUSTMENTS. The following provisions will apply if any
extraordinary dividend or other extraordinary distribution occurs in
respect of the Common Stock (whether in the form of cash, Common Stock,
other securities, or other property), or any reclassification,
recapitalization, stock split (including a stock split in the form of a
stock dividend), reverse stock split, reorganization, merger,
combination, consolidation, split-up, spin-off, repurchase, or exchange
of Common Stock or other securities of the Corporation, or any similar,
unusual or extraordinary corporate transaction (or event in respect of
the Common Stock) or a sale of substantially all the assets of the
Corporation as an entirety occurs. The Committee will, in such manner and
to such extent (if any) as it deems appropriate and equitable:
(a) proportionately adjust any or all of (i) the number and
type of Shares (or other securities) that thereafter may be
made the subject of Options (including the specific maxima
and numbers of Shares set forth elsewhere in this Plan),
(ii) the number, amount and type of Shares (or other
securities or property) subject to any or all outstanding
Options, (iii) the grant, purchase, or exercise price of
any or all outstanding Options, or (iv) the securities,
cash or other property deliverable upon exercise of any
outstanding Options, or
(b) in the case of an extraordinary dividend or other
distribution, recapitalization, reclassification, merger,
reorganization, consolidation, combination, sale of assets,
split up, exchange, or spin off, make provision for a cash
payment or for the substitution or exchange of any or all
outstanding Options or the cash, securities or property
deliverable to the holder of any or all outstanding Options
based upon the distribution or consideration payable to
holders of the Common Stock upon or in respect of such
event. In each case, with respect to Incentive Stock
Options, no such adjustment will be made that would cause
this Plan to violate Section 422 or 424(a) of the Code or
any successor provisions without the written consent of the
holders materially adversely affected thereby. In any of
such events, the Committee may take such action
sufficiently prior to such event if necessary to permit the
Participant to realize the benefits intended to be conveyed
with respect to the underlying shares in the same manner as
is available to stockholders generally.
4.2.2 ACCELERATION OF OPTIONS UPON CHANGE IN CONTROL. Unless prior
to a Change in Control Event the Committee determines that,
upon its occurrence, benefits under any or all Options will
not accelerate or determines that only certain or limited
benefits under any or all Options will be accelerated and the
extent to which they will be accelerated, and/or establishes a
different time in respect of such Change in Control Event for
such acceleration, then upon the occurrence of a Change in
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Control Event, each Option and Stock Appreciation Right will
become fully vested and immediately exercisable.
However, in the case of a transaction intended to be accounted
for as a pooling of interests transaction, the Committee will
have no discretion with respect to the foregoing acceleration
of Options. The Committee may override the limitations on
acceleration in this Section 4.2.2 by express provision in the
Option Agreement and may accord any Eligible Person a right to
refuse any acceleration, whether pursuant to the Option
Agreement or otherwise, in such circumstances as the Committee
may approve. Any acceleration of Options will comply with
applicable legal requirements.
4.2.3 POSSIBLE EARLY TERMINATION OF ACCELERATED OPTIONS. If any
Option under this Plan (other than an Option granted under Section 3.2)
has been fully accelerated as permitted by Section 4.2.2 but is not
exercised prior to (i) a dissolution of the Corporation, or (ii) a
reorganization event described in Section 4.2.1 that the Corporation does
not survive, or (iii) the consummation of reorganization event described
in Section 4.2.1 that results in a Change in Control Event approved by
the Board, and no provision has been made for the survival, substitution,
exchange or other settlement of such Option, such Option will thereupon
terminate.
4.3 EFFECT OF TERMINATION OF EMPLOYMENT; TERMINATION OF SUBSIDIARY
STATUS; DISCRETIONARY PROVISIONS.
4.3.1 OPTIONS--RESIGNATION OR DISMISSAL. If the Participant's
employment by (or other service specified in the Option Agreement to) the
Company terminates for any reason (the date of such termination being
referred to as the "SEVERANCE DATE") other than due to Retirement, Total
Disability or death, or "FOR CAUSE" (as determined in the discretion of
the Committee), the Participant will have, unless otherwise provided in
the Option Agreement and subject to earlier termination pursuant to or as
contemplated by Section 1.6 or Section 4.2, three months after the
Severance Date to exercise any Option to the extent it has become vested
the Severance Date. In the case of a termination "for cause", the Option
will terminate on the Severance Date (whether or not vested). In all
cases, the Option, to the extent not vested on the Severance Date, will
terminate.
4.3.2 OPTIONS--DEATH OR DISABILITY. If the Participant's employment
by (or specified service to) the Company terminates as a result of Total
Disability or death, the Participant, the Participant's Personal
Representative or the Participant's Beneficiary, as the case may be, will
have, unless otherwise provided in the Option Agreement and subject to
earlier termination pursuant to or as contemplated by Section 1.6 or
Section 4.2, until 12 months after the Severance Date to exercise any
Option to the extent it has become vested on the Severance Date. The
Option, to the extent not vested on the Severance Date, will terminate.
4.3.3 OPTIONS--RETIREMENT. If the Participant's employment by (or
specified service to) the Company terminates as a result of Retirement,
the Participant, Participant's Personal Representative or the
Participant's Beneficiary, as the case may be, will have, unless
otherwise provided in the Option Agreement and subject to earlier
termination pursuant to or as contemplated by Section 1.6 or Section 4.2,
until 12 months after the Severance Date to exercise any Nonqualified
Stock Option (three months after the Severance Date in the case of an
Incentive Stock Option) to the extent it has become vested on the
Severance Date. The Option, to the extent not vested on the Severance
Date, will terminate.
4.3.4 COMMITTEE DISCRETION. Notwithstanding the foregoing
provisions of this Section 4.3, in the event of, or in anticipation of, a
termination of employment with the Company for any
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reason, other than discharge for cause, the Committee may increase the
portion of the Participant's Option available to the Participant, or
Participant's Beneficiary or Personal Representative, as the case may be,
or, subject to the provisions of Section 1.6, extend the exercisability
period upon such terms as the Committee determines and expressly sets
forth in or by amendment to the Option Agreement.
4.4 COMPLIANCE WITH LAWS. This Plan, the granting and vesting of
Options under this Plan and the offer, issuance and delivery of securities
and/or the payment of money under this Plan or under Options granted
hereunder are subject to compliance with all applicable federal and state
laws, rules and regulations (including but not limited to state and federal
securities law and federal margin requirements) and to such approvals by any
listing, regulatory or governmental authority as may, in the opinion of
counsel for the Corporation, be necessary or advisable in connection
therewith. Any securities delivered under this Plan will be subject to such
restrictions and to any restrictions the Committee may require to preserve a
pooling of interests under generally accepted accounting principles, and the
person acquiring such securities will, if requested by the Corporation,
provide such assurances and representations to the Corporation as the
Corporation may deem necessary or desirable to assure compliance with all
applicable legal requirements.
4.5 TAX WITHHOLDING.
4.5.1 CASH OR SHARES. Upon any exercise, vesting, or payment of any
Option or upon the disposition of Shares acquired pursuant to the
exercise of an Incentive Stock Option prior to satisfaction of the
holding period requirements of Section 422 of the Code, the Company will
have the right at its option to (i) require the Participant (or Personal
Representative or Beneficiary, as the case may be) to pay or provide for
payment of the amount of any taxes which the Company may be required to
withhold with respect to such Option event or payment or (ii) deduct from
any amount payable in cash the amount of any taxes which the Company may
be required to withhold with respect to such cash payment. In any case
where a tax is required to be withheld in connection with the delivery of
shares of Common Stock under this Plan, the Committee may in its sole
discretion (subject to Section 4.4) grant (either at the time of the
Option or thereafter) to the Participant the right to elect, pursuant to
such rules and subject to such conditions as the Committee may establish,
to have the Corporation reduce the number of Shares to be delivered by
(or otherwise reacquire) the appropriate number of Shares valued at their
then Fair Market Value, to satisfy such withholding obligation.
4.5.2 TAX LOANS. The Company may, in its discretion, authorize a
loan to an Eligible Person in the amount of any taxes which the Company
may be required to withhold with respect to Shares received (or disposed
of, as the case may be) pursuant to a transaction described in Section
4.5.1. Such a loan shall be for a term, at a rate of interest and
pursuant to such other terms and conditions as the Company, under
applicable law may establish.
4.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION.
4.6.1 BOARD AUTHORIZATION. The Board may, at any time, terminate
or, from time to time, amend, modify or suspend this Plan, in whole or in
part. No Options may be granted during any suspension of this Plan or
after termination of this Plan, but the Committee shall retain
jurisdiction as to Options then outstanding in accordance with the terms
of this Plan.
4.6.2 STOCKHOLDER APPROVAL. To the extent then required under
Sections 422 and 424 of the Code or any other applicable law, or deemed
necessary or advisable by the Board, any amendment to this Plan will be
subject to stockholder approval.
4.6.3 AMENDMENTS TO OPTIONS. Without limiting any other express
authority of the Committee under but subject to the express limits of
this Plan, the Committee by agreement or resolution may waive conditions
of or limitations on Options to Eligible Persons that the
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Committee in the prior exercise of its discretion has imposed, without
the consent of a Participant, and may make other changes to the terms and
conditions of Options that do not affect in any manner materially adverse
to the Participant, his or her rights and benefits under an Option.
4.6.4 LIMITATIONS ON AMENDMENTS TO PLAN AND OPTIONS. No amendment,
suspension or termination of this Plan or change of or affecting any
outstanding Option will, without written consent of the Participant,
affect in any manner materially adverse to the Participant any rights or
benefits of the Participant or obligations of the Corporation under any
Option granted under this Plan prior to the effective date of such
change. Changes contemplated by Section 4.2 will not be deemed to
constitute changes or amendments for purposes of this Section 4.6.
4.7 PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise expressly
authorized by the Committee or this Plan, a Participant will not be entitled
to have any privilege of stock ownership as to any Shares not actually
delivered to and held of record by the Participant. No adjustment will be
made for dividends or other rights as a stockholder for which a record date
is prior to such date of delivery.
4.8 EFFECTIVE DATE OF THE PLAN. This Plan will be effective upon its
approval by the Board (the "EFFECTIVE DATE"), subject to approval by the
stockholders of the Corporation within twelve months after the date of such
Board approval.
4.9 TERM OF THE PLAN. Unless earlier terminated by the Board, this
Plan will terminate at the close of business on the day before the tenth
anniversary of the Effective Date (the "TERMINATION DATE") and no Options
may be granted under this Plan after that date. Unless otherwise expressly
provided in this Plan or in an applicable Option Agreement, any Option
theretofore granted may extend beyond such date, and all authority of the
Committee with respect to Options hereunder, including the authority to
amend an Option, will continue during any suspension of this Plan and in
respect of outstanding Options on the Termination Date.
4.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
4.10.1 CHOICE OF LAW. This Plan, the Options, all documents
evidencing Options and all other related documents will be governed by,
and construed in accordance with the laws of the State of Delaware.
4.10.2 SEVERABILITY. If a court of competent jurisdiction holds any
provision invalid and unenforceable, the remaining provisions of this
Plan will continue in effect.
4.10.3 PLAN CONSTRUCTION.
(a) RULE 16B-3. It is the intent of the Corporation that
transactions in and affecting Options in the case of
Participants who are or may be subject to Section 16 of the
Exchange Act satisfy any then applicable requirements of
Rule 16b-3 so that such persons (unless they otherwise
agree) will be entitled to the benefits of Rule 16b-3 or
other exemptive rules under Section 16 of the Exchange Act
in respect of those transactions and will not be subjected
to avoidable liability thereunder.
(b) SECTION 162(M). It is the further intent of the Company
that Options with an exercise price not less than Fair
Market Value on the date of grant that are granted to or
held by a person subject to Section 162(m) will qualify as
performance-based compensation under Section 162(m) to the
extent that the Committee authorizing the Option satisfies
the administrative requirements thereof.
This Plan will be interpreted consistent with such intent.
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4.11 CAPTIONS. Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate reference.
Such headings will not be deemed in any way material or relevant to the
construction or interpretation of this Plan or any provision thereof.
4.12 EFFECT OF CHANGE OF SUBSIDIARY STATUS. For purposes of this Plan
and any Option hereunder, if an entity ceases to be a Subsidiary, a
termination of employment and service will be deemed to have occurred with
respect to each Eligible Person in respect of such Subsidiary who does not
continue as an Eligible Person in respect of another entity within the
Company.
4.13 NON-EXCLUSIVITY OF PLAN. Nothing in this Plan will limit or be
deemed to limit the authority of the Board or the Committee to grant awards
or authorize any other compensation, with or without reference to the Common
Stock, under any other plan or authority.
5. DEFINITIONS.
"BENEFICIARY" means the person, persons, trust or trusts designated by a
Participant or, in the absence of a designation, entitled by will or the
laws of descent and distribution, to receive the benefits specified in the
Option Agreement and under this Plan if the Participant dies, and means the
Participant's executor or administrator if no other Beneficiary is
designated and able to act under the circumstances.
"BOARD" means the Board of Directors of the Corporation.
"CHANGE IN CONTROL EVENT" means any of the following:
(a) Approval by the stockholders of the Corporation of the
dissolution or liquidation of the Corporation;
(b) Approval by the stockholders of the Corporation of an agreement
to merge or consolidate, or otherwise reorganize, with or into
one or more entities that are not Subsidiaries or other
affiliates, as a result of which less than 50% of the outstanding
voting securities of the surviving or resulting entity
immediately after the reorganization are, or will be, owned,
directly or indirectly, by stockholders of the Corporation
immediately before such reorganization (assuming for purposes of
such determination that there is no change in the record
ownership of the Corporation's securities from the record date
for such approval until such reorganization and that such record
owners hold no securities of the other parties to such
reorganization), but including in such determination any
securities of the other parties to such reorganization held by
affiliates of the Corporation);
(c) Approval by the stockholders of the Corporation of the sale of
substantially all of the Corporation's business and/or assets to
a person or entity that is not a Subsidiary or other affiliate,
or;
(d) Any "PERSON" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act but excluding any person described in and
satisfying the conditions of Rule 13d-1(b)(1) thereunder) becomes
the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation
representing more than 30% of the combined voting power of the
Corporation's then outstanding securities entitled to then vote
generally in the election of directors of the Corporation; or
(e) During any period not longer than two consecutive years,
individuals who at the beginning of such period constituted the
Board cease to constitute at least a majority thereof, unless the
election, or the nomination for election by the Corporation's
stockholders, of each new Board member was approved by a vote of
at least three-
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fourths of the Board members then still in office who were Board
members at the beginning of such period (including for these
purposes, new members whose election or nomination was so
approved).
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMISSION" means the Securities and Exchange Commission.
"COMMITTEE" shall mean the Board or any one or more committees of
directors appointed by the Board to administer this Plan with respect to the
Options within the scope of authority delegated by the Board. At least one
committee will be comprised only of two or more directors, each of whom, in
respect of any decision involving both (i) a Participant affected by the
decision who is or may be subject to Section 162(m), and (ii) compensation
intended as performance-based compensation within the meaning of Section
162(m), will be Disinterested; in acting on any transaction with or for the
benefit of a Section 16 Person, the participating members of such Committee
also shall be Non-Employee Directors within the meaning of Rule 16b-3.
"COMMON STOCK" means the Common Stock of the Corporation, par value
$0.01 per share, and such other securities or property as may become the
subject of Options, or become subject to Options, pursuant to an adjustment
made under Section 4.2 of this Plan.
"COMPANY" means, collectively, the Corporation and its Subsidiaries.
"CORPORATION" means The MacNeal-Schwendler Corporation, a Delaware
corporation, and its successors.
"DISINTERESTED" means a director who is an "outside director" within the
meaning of Section 162(m) and any applicable legal or regulatory
requirements.
"ELIGIBLE EMPLOYEE" means an officer (whether or not a director) or
other employee of the Company.
"ELIGIBLE PERSON" means an Eligible Employee, or any Other Eligible
Person, as determined by the Committee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time.
"FAIR MARKET VALUE" on any date means (a) if the stock is listed or
admitted to trade on a national securities exchange, the closing price of
the stock on the Composite Tape, as published in the Western Edition of The
Wall Street Journal, of the principal national securities exchange on which
the stock is so listed or admitted to trade, on such date, or, if there is
no trading of the stock on such date, then the closing price of the stock as
quoted on such Composite Tape on the next preceding date on which there was
trading in such shares; (b) if the stock is not listed or admitted to trade
on a national securities exchange, the last/closing price for the stock on
such date, as furnished by the National Association of Securities Dealers,
Inc. ("NASD") through the NASDAQ National Market Reporting System or a
similar organization if the NASD is no longer reporting such information;
(c) if the stock is not listed or admitted to trade on a national securities
exchange and is not reported on the National Market Reporting System, the
mean between the bid and asked price for the stock on such date, as
furnished by the NASD or a similar organization; or (d) if the stock is not
listed or admitted to trade on a national securities exchange, is not
reported on the National Market Reporting System and if bid and asked prices
for the stock are not furnished by the NASD or a similar organization, the
value as established by the Committee at such time for purposes of this
Plan. Any determination as to fair market value made pursuant to this Plan
shall be determined without regard to any restriction other than a
restriction which, by its terms, will never lapse, and shall be conclusive
and binding on all persons.
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"INCENTIVE STOCK OPTION" means an Option that is designated and intended
as an incentive stock option within the meaning of Section 422 of the Code,
the award of which contains such provisions (including but not limited to
the receipt of stockholder approval of this Plan, if the award is made prior
to such approval) and is made under such circumstances and to such persons
as may be necessary to comply with that section.
"NONQUALIFIED STOCK OPTION" means an Option that is designated as a
Nonqualified Stock Option and will include any Option intended as an
Incentive Stock Option that fails to meet the applicable legal requirements
thereof. Any Option granted hereunder that is not designated as an incentive
stock option will be deemed to be designated a nonqualified stock option
under this Plan and not an incentive stock option under the Code.
"NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an
officer or employee of the Company.
"OPTION" means an option to purchase Common Stock granted under this
Plan. The Committee shall designate any Option granted to an Eligible
Employee as a Nonqualified Stock Option or an Incentive Stock Option.
Options granted under Section 3 shall be Nonqualified Stock Options.
"OPTION AGREEMENT" means any writing setting forth the terms of an
Option that has been authorized by the Committee.
"OPTION DATE" means the date upon which the Committee took the action
granting an Option or such later date as the Committee designates as the
Option Date at the time of the Option or, in the case of Options under
Section 3, the applicable dates set forth therein.
"OTHER ELIGIBLE PERSON" means any individual consultant or advisor who
or, to the extent provided in the next sentence, agent who renders or has
rendered BONA FIDE SERVICES (other than services in connection with the
offering or sale of securities of the Company in a capital raising
transaction) to the Company, and who is selected to participate in this Plan
by the Committee; provided, however, that no person shall be selected as an
Other Eligible Person if such person's participation in this Plan would
adversely affect (a) the Corporation's eligibility to use Form S-8 to
register under the Securities Act the offering of shares issuable under this
Plan by the Company or (b) the Corporation's compliance with any other
applicable laws.
"PARTICIPANT" means an Eligible Person who has been granted an Option
under this Plan and a Non-Employee Director who has been granted an Option
under Section 3.2 of this Plan.
"PERSONAL REPRESENTATIVE" means the person or persons who, upon the
disability or incompetence of a Participant, has acquired on behalf of the
Participant, by legal proceeding or otherwise, the power to exercise the
rights or receive benefits under this Plan and who by virtue of having
become the legal representative of the Participant.
"PLAN" means this The MacNeal-Schwendler Corporation 1998 Stock Option
Plan.
"QDRO" means a qualified domestic relations order as defined in Section
414(p) of the Code or Title I, Section 206(d)(3) of ERISA (to the same
extent as if this Plan were subject thereto), or the applicable rules
thereunder.
"RULE 16B-3" means Rule 16b-3 as promulgated by the Commission pursuant
to the Exchange Act, as amended from time to time.
"SECTION 16 PERSON" means a person subject to Section 16(a) of the
Exchange Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time.
"SHARE" means a share of Common Stock.
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"SUBSIDIARY" means any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned, directly or
indirectly, by the Corporation.
"TOTAL DISABILITY" means a "permanent and total disability" within the
meaning of Section 22(e)(3) of the Code and (except in the case of Incentive
Stock Options and Options granted to Non-Employee Directors) such other
disabilities, infirmities, affliction or conditions as the Committee may
include under Section 3.
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EXHIBIT A
THE MACNEAL-SCHWENDLER CORPORATION
1998 STOCK OPTION PLAN
NON-EMPLOYEE DIRECTOR STOCK
OPTION AGREEMENT
THIS NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT (this "AGREEMENT") dated
as of the ____ day of ______________, ____, by and between The
MacNeal-Schwendler Corporation, a Delaware corporation (the "CORPORATION"), and
______________, (the "DIRECTOR").
R E C I T A L S
WHEREAS, the Corporation has adopted and the stockholders of the Corporation
have approved The MacNeal-Schwendler Corporation 1998 Stock Option Plan (the
"Plan").
WHEREAS, pursuant to Section 3 of the Plan, the Corporation has granted to
the Director effective as of the ____ day of _____________________, ____ (the
"OPTION DATE") a stock option to purchase all or any part of ______ shares of
the Corporation's Common Stock ("COMMON STOCK") subject to and upon the terms
and conditions set forth in this Agreement and in the Plan.
NOW, THEREFORE, in consideration of the mutual promises and covenants made
herein and the mutual benefits to be derived herefrom, the parties agree as
follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise defined
herein shall have the meaning assigned to such terms in the Plan.
2. GRANT OF OPTION. This Agreement evidences the Corporation's grant to the
Director of the right and option to purchase, subject to and upon the terms
and conditions set forth in this Agreement and in the Plan, all or any part
of ______ shares of the Common Stock (the "SHARES") at the price of $____
per share (the "OPTION"), exercisable from time to time, subject to the
provisions of this Agreement and the Plan, prior to the close of business on
the day before the fifth anniversary of the Option Date (the "EXPIRATION
DATE"). Such price equals not less than the Fair Market Value of a Share on
the Option Date.
3. EXERCISABILITY OF OPTION. Except as provided in the Plan or in any
resolution of the Board adopted after the date hereof, the Option shall
become vested and exercisable as to 100% of the Shares on the day before the
first anniversary of the Option Date.
To the extent that the Option is vested and exercisable, if the Director
does not in any year purchase all or any part of the Shares to which the
Director is entitled, the Director has the right cumulatively thereafter to
purchase any Shares not so purchased and such right shall continue until the
Option terminates or expires. The Option shall only be exercisable in
respect of whole shares, and fractional share interests shall be
disregarded. The Option shall be exercisable by the delivery to the
Secretary of the Corporation of a written notice stating the number of
Shares to be purchased pursuant to the Option and accompanied by payment
made in accordance with and in a form permitted by Section 3.3 of the Plan
for the full purchase price of the Shares to be purchased.
4. SERVICE AND EFFECT OF TERMINATION OF SERVICE. The Director agrees to serve
as a member of the Board in accordance with the provisions of the
Corporation's Certificate of Incorporation, ByLaws, and applicable law. If
the Director's services as a member of the Board terminate for any reason,
the Option shall terminate at the time and to the extent set forth in
Section 3.5 of the Plan.
5. GENERAL TERMS. The Option and this Agreement are subject to, and the
Corporation and the Director agree to be bound by, the terms and conditions
of the Plan, incorporated herein by this reference. The
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Director acknowledges receiving a copy of the Plan and reading its
applicable provisions. The Option is subject to adjustment, acceleration,
and early termination as provided in Section 3.6 of the Plan. The Option is
nontransferable as provided in Section 1.8 of the Plan.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
DIRECTOR
THE MACNEAL-SCHWENDLER
CORPORATION (a Delaware corporation)
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SIGNATURE
By:
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PRINT NAME
Its:
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ADDRESS
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CITY, STATE, ZIP CODE
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Agreement by The
Macneal-Schwendler Corporation, I, _____________________, the spouse of the
Director therein named, do hereby agree to be bound by all of the terms and
provisions thereof and of the Plan.
Date:
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SIGNATURE OF SPOUSE
A-16
<PAGE>
THE MACNEAL-SCHWENDLER CORPORATION
ANNUAL MEETING OF STOCKHOLDERS JUNE 23, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE MACNEAL-SCHWENDLER CORPORATION
The undersigned hereby appoints Frank Perna, Jr. and Louis Greco, and
each of them, proxyholders, each with full power of substitution to vote for
the undersigned at the Annual Meeting of Stockholders of The
MacNeal-Schwendler Corporation to be held on June 23, 1999, and at any
adjournments thereof, with respect to the following matters, which were more
fully described in the Proxy Statement dated May__, 1999, receipt of which
is hereby acknowledged by the undersigned.
THIS PROXY WILL BE VOTED AS DIRECTED. UNLESS OTHERWISE DIRECTED, THIS
PROXY WILL BE VOTED (1) FOR THE ELECTION OF THE TWO DIRECTOR NOMINEES, (2)
FOR THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO CHANGE THE NAME OF
THE COMPANY TO "MSC.SOFTWARE CORPORATION", (3) FOR THE APPROVAL OF THE
AMENDMENT TO THE 1998 STOCK OPTION PLAN TO INCREASE THE NUMBER OF AUTHORIZED
SHARES, AND (4) FOR THE RATIFICATION OF THE ACCOUNTANTS.
This proxy is valid only when signed and dated.
See Reverse Side
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FOLD AND DETACH HERE
<PAGE>
The Board recommends that you vote FOR each of the nominees on Proposal
1, FOR Proposal 2, FOR Proposal 3 and FOR Proposal 4 by indicating your
choice below:
Please mark your choice like this X
FOR all nominees WITHHOLD AUTHORITY
listed below to vote for all
(except as marked nominees listed
to the contrary). below.
(1) The election of the nominees / / / /
for director specified in the
Proxy Statement to Class II
of the Board.
Donald Glickman, Larry S. Barels
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, STRIKE THROUGH HIS NAME.)
FOR AGAINST ABSTAIN
(2) Approval of the amendment to the / / / / / /
Certificate of Incorporation to
change the name of the Company to
MSC.Software Corporation.
(3) Approval of the amendment to the 1998 / / / / / /
Stock Option Plan to increase the
number of authorized shares to be issued
under that plan by 1,500,000 shares.
(4) Ratification of the appointment of / / / / / /
Ernst & Young LLP to serve as the
Company's independent auditors for
fiscal year 1999.
(5) Any other matters as may properly come
before the meeting or any adjournment
thereof. As to these other matters, the
undersigned hereby confers discretionary
authority.
Dated: ___________, 1999
_______________________________________
(Please Print Name)
_______________________________________
(Signature of holder of common stock)
_______________________________________
(Signature if Held Jointly)
NOTE: Please sign exactly as your name is printed. Each joint tenant should
sign. Executors, administrators, trustees and guardians should give
full titles when signing. Corporations and partnerships should sign in
full corporate or partnership name by an authorized person. Please mark,
sign, date and return your Proxy promptly in the enclosed envelope,
which requires no postage if mailed in the United States.
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FOLD AND DETACH HERE
