SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
BOOLE & BABBAGE, INC.
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(Name of Registrant as Specified In Its Charter)
BOOLE & BABBAGE, INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box)
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
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(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
/ / 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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<PAGE>
BOOLE & BABBAGE, INC.
3131 Zanker Road
San Jose, California 95134
January 17, 1996
Dear Stockholder:
On behalf of Boole & Babbage, Inc. (the "Company"), I cordially invite you
to attend the annual meeting of stockholders at 12:00 p.m. local time on
Thursday, February 22, 1996, at the Company's principal executive offices in San
Jose, California. At the meeting, stockholders will be asked to elect two
directors to the Company's Board of Directors to serve three-year terms expiring
on the date of the Company's 1999 annual meeting of stockholders, to approve an
amendment to the Company's Restated Certificate of Incorporation to increase the
authorized number of shares of Common Stock, to adopt the Company's 1995 Stock
Option Plan and to ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the next fiscal year. The accompanying Notice and Proxy
Statement describe these proposals. We urge you to read this information
carefully.
The directors and officers of the Company hope that as many stockholders
as possible will be present at the meeting. Because the vote of each stockholder
is important, we ask that you sign and return the enclosed proxy card in the
envelope provided, whether or not you now plan to attend the meeting. This will
not limit your right to change your vote at the meeting or to attend the
meeting.
We appreciate your cooperation and interest in the Company. To assist us
in preparation for the meeting, please return your proxy card at your earliest
convenience.
Sincerely yours,
FRANKLIN P. JOHNSON, JR.
Chairman of the Board
<PAGE>
BOOLE & BABBAGE, INC.
3131 Zanker Road
San Jose, California 95134
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 22, 1996
TO THE STOCKHOLDERS OF BOOLE & BABBAGE, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Boole &
Babbage, Inc., a Delaware corporation (the "Company"), will be held on Thursday,
February 22, 1996 at 12:00 p.m. local time at the principal executive offices of
the Company, 3131 Zanker Road, San Jose, California, for the following purposes:
1. To elect two directors to hold office until the 1999 Annual Meeting of
Stockholders;
2. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of Common
Stock from 15,000,000 to 30,000,000;
3. To approve the Company's 1995 Stock Option Plan, which is intended to
replace the expiring 1986 Incentive Stock Option Plan and the expiring
1986 Supplemental Stock Option Plan, and to approve the reservation of
750,000 shares under the 1995 Stock Option Plan;
4. To consider and vote upon a proposal to ratify the selection of Ernst &
Young LLP as independent auditors of the Company for its fiscal year
ending September 30, 1996; and
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on January 2, 1996
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
Arthur F. Knapp, Jr., Secretary
San Jose, California
January 17, 1996
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ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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<PAGE>
BOOLE & BABBAGE, INC.
3131 Zanker Road
San Jose, California 95134
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Boole & Babbage, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on February 22, 1996, at 12:00 p.m.
local time (the "Annual Meeting") or at any adjournment or postponement thereof,
for the purposes set forth herein and in the accompanying Notice of Annual
Meeting. The Annual Meeting will be held at the principal executive offices of
the Company at 3131 Zanker Road, San Jose, California. The Company intends to
mail this proxy statement and accompanying proxy card on or about January 17,
1996, to all stockholders entitled to vote at the Annual Meeting. All
information provided herein gives effect to the 3-for-2 stock split of the
Company's Common Stock on December 6, 1995.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on January
2, 1996 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on January 2, 1996 the Company had outstanding and entitled to
vote shares of Common Stock. Each holder of record of Common Stock on
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such date will be entitled to one vote for each share held on all matters to be
voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulations of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Except for Proposal 2, broker non-votes
are not counted for any purpose in determining whether a matter has been
approved. Broker non-votes cast with respect to Proposal 2 will have the same
effect as negative votes.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive offices, 3131
Zanker Road, San Jose, California 95134, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
Annual Meeting and voting in person. Attendance at the Annual Meeting will not,
by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1997 Annual Meeting of Stockholders must be received by the Company
not later than September 19, 1996 in order to be included in the proxy statement
and proxy relating to that Annual Meeting.
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation and By-laws provide that the
Board of Directors shall be divided into three classes, each class consisting,
as nearly as possible, of one-third of the total number of directors, with each
class having a three-year term. Vacancies on the Board may be filled by persons
elected by a majority of the remaining directors or by the affirmative vote of
the holders of a majority of the Company's outstanding capital stock. A director
elected by the Board to fill a vacancy (including a vacancy created by an
increase in the size of the Board of Directors) shall serve for the remainder of
the full term of the class of directors in which the vacancy occurred and until
such director's successor is elected and qualified.
The Board of Directors is presently composed of six members. There are two
directors in the class whose term of office expires in 1996. Each of the
nominees for election to this class is currently a director of the Company who
was previously elected by the stockholders. If elected at the Annual Meeting,
each of the nominees would serve until the 1999 annual meeting and until his
successor is elected and has qualified, or until such director's earlier death,
resignation or removal. Each nominee has agreed to serve if elected, and
management has no reason to believe that any nominee will be unable to serve.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of the two nominees named below. In the event that any nominee should
be unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose.
Set forth below is biographical information for each person nominated and
each person whose term of office as a director will continue after the Annual
Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 1999 ANNUAL MEETING
PAUL E. NEWTON
Paul E. Newton, age 52, has served as a director of the Company since
April 1988 and was appointed President and Chief Executive Officer of the
Company in October 1991. He served as President and director of Ingres
Corporation, a relational database software company ("Ingres"), from January
1987 to October 1990. Mr. Newton served as Chief Operating Officer of Ingres
from January 1987 until September 1988 and as Chief Executive Officer of Ingres
from September 1988 through October 1990.
RAYMOND E. CAIRNS
Raymond E. Cairns, age 63, has served as a director of the Company since
November 1992. In 1992, Mr. Cairns retired from E.I. Dupont De Nemours, a
chemical company, where he had been employed since 1962, most recently as Senior
Vice President - Information Systems and Member of the Corporate Operating
Committee.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
2.
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DIRECTORS CONTINUING IN OFFICE UNTIL THE 1997 ANNUAL MEETING
FRANKLIN P. JOHNSON, JR.
Franklin P. Johnson, Jr., age 67, has served as a director of the Company
since 1967 and was elected Chairman of the Board in 1971. He is a general
partner of Asset Management Partners, a venture capital partnership, and other
related venture capital partnerships. He has been a venture capital investor for
more than five years. Mr. Johnson is also a director of Amgen Inc., Tandem
Computers Incorporated and IDEC Pharmaceuticals Corp.
JOHANNES S. BRUGGELING
Johannes S. Bruggeling, age 50, has served as a director of the Company
since July 1988. He was appointed Executive Vice President, International
Operations of the Company and President, Boole & Babbage Europe, in October
1991. He was a co-founder in 1978 of The European Software Company, now the
Company's wholly-owned subsidiary, Boole & Babbage Europe, and was its President
from 1982 until April 1989. He also served as President and Chief Executive
Officer of the Company from July 1988 through October 1991.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING
TERRY R. MCGOWAN
Terry R. McGowan, age 48, has served as a director of the Company since
February 1992. Mr. McGowan has been the President and Chief Executive Officer of
Action Technologies, Inc., a software company, since May 24, 1995. Previously,
he served as President and Chief Operating Officer of KnowledgeWare, Inc., a
computer-aided software company, from August 1985 until September 1991. Mr.
McGowan is also a director of Connect, Inc., a software company, and an advisor
to the board of directors of several other software companies.
CARL H. REYNOLDS
Carl H. Reynolds, age 70, has served as a director of the Company since
1975. He has 30 years of experience in the computer software field. In October
1989, he retired from Hughes Aircraft Company where he had been the Staff Vice
President, Communications and Data Processing since 1983.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended September 30, 1995, the Board of Directors
held five meetings. The Board has an Audit Committee and a Compensation
Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. The Audit Committee is composed of four non-employee
directors: Messrs. Cairns, Johnson, McGowan and Reynolds. The Audit Committee
met two times during the fiscal year ended September 30, 1995.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The
3.
<PAGE>
Compensation Committee is composed of three non-employee directors: Messrs.
McGowan, Johnson and Reynolds. The Compensation Committee met two times during
the fiscal year ended September 30, 1995.
During the fiscal year ended September 30, 1995, all directors attended at
least 75% of the aggregate of the meetings of the Board and of the committees on
which they served, held during the period for which they were a director or
committee member, respectively.
4.
<PAGE>
PROPOSAL 2
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Restated Certificate of Incorporation to increase the
Company's authorized number of shares of Common Stock from 15,000,000 shares to
30,000,000 shares.
The additional Common Stock to be authorized by adoption of the amendment
would have rights identical to the currently outstanding Common Stock of the
Company. Adoption of the proposed amendment and issuance of the Common Stock
would not affect the rights of the holders of currently outstanding Common Stock
of the Company, except for effects incidental to increasing the number of shares
of the Company's Common Stock outstanding, such as dilution of the earnings per
share and voting rights of current holders of Common Stock. If the amendment is
adopted, it will become effective upon filing of a Certificate of Amendment of
the Company's Restated Certificate of Incorporation with the Secretary of State
of Delaware.
In addition to the shares of Common Stock outstanding at
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January 2, 1996, the Board has reserved shares for issuance upon
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exercise of options and rights granted under the Company's stock option plans,
stock purchase plan and stock incentive plan. Subject to stockholder approval of
this proposed increase in the number of authorized shares and of the 1995 Stock
Option Plan (see Proposal 3), the Board of Directors has reserved an additional
750,000 shares for issuance pursuant to the 1995 Stock Option Plan.
Although at present the Board of Directors has no other plans to issue the
additional shares of Common Stock, it desires to have such shares available to
provide additional flexibility to use its capital stock for business and
financial purposes in the future. The additional shares may be used, without
further stockholder approval, for various purposes including, without
limitation, raising capital, providing equity incentives to employees, officers
or directors, establishing strategic relationships with other companies and
expanding the company's business or product lines through the acquisition of
other businesses or products.
The additional shares of Common Stock that would become available for
issuance if the proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further stockholder approval,
the Board could strategically sell shares of Common Stock in a private
transaction to purchasers who would oppose a takeover or favor the current
Board. Although this proposal to increase the authorized Common Stock has been
prompted by business and financial considerations and not by the threat of any
hostile takeover attempt (nor is the Board currently aware of any such attempts
directed at the Company), stockholders nevertheless should be aware that
approval of proposal could facilitate future efforts by the Company to deter or
prevent changes in control of the Company, including transactions in which the
stockholders might otherwise receive a premium for their shares over then
current market prices.
The affirmative vote of the holders of a majority of the outstanding
shares of the common stock will be required to approve this amendment to the
Company's Restated Certificate of Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
5.
<PAGE>
PROPOSAL 3
APPROVAL OF THE 1995 STOCK OPTION PLAN
In October 1995, the Board of Directors adopted the Company's 1995 Stock
Option Plan (the "1995 Option Plan") and authorized for issuance under the 1995
Option Plan (a) 750,000 newly reserved shares of Common Stock, subject to
stockholder approval of the 1995 Option Plan and of the proposed increase in the
number of authorized shares of Common Stock (see Proposal 2), plus (b)
350,957 shares of Common Stock previously reserved under the Company's 1986
Incentive Stock Option Plan and 1986 Supplemental Stock Option Plan (the "1986
Option Plans") that were not, as of October 25, 1995, the date of adoption of
the 1995 Option Plan, (i) issued pursuant to the exercise of options under the
1986 Option Plans or (ii) subject to options outstanding under the 1986 Option
Plans (plus any shares returned to the reserved pool under such plans as a
result of expirations or other terminations). The 1995 Option Plan is intended
to replace the 1986 Option Plans, which will expire this year. As of November
30, 1995, no options had been granted under the 1995 Option Plan.
Certain provisions of the 1995 Option Plan, subject to stockholder
approval, if satisfied, have been included to permit the Company, under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), to be able
to deduct as a business expense certain compensation attributable to the
exercise of stock options granted under the 1995 Option Plan. Section 162(m)
denies a deduction to any publicly held corporation for certain compensation
paid to specified employees in a taxable year to the extent that the
compensation exceeds $1,000,000 for any covered employee. See "Federal Income
Tax Information" below for a discussion of the application of Section 162(m). In
light of the Section 162(m) requirements, the 1995 Option Plan includes a
limitation providing that no employee may be granted options under the 1995
Option Plan during a calendar year to purchase in excess of 450,000 shares of
Common Stock. Previously, no such formal limitation was placed on the number of
shares available for option grants to an employee. In addition, the 1995 Option
Plan provides that, in the Board's discretion, directors who grant options to
covered employees generally will be "outside directors" as defined in Section
162(m). For a description of this requirement, see "Administration."
Stockholders are requested in this Proposal 3 to approve the 1995 Option
Plan. If the stockholders fail to approve this Proposal 3, options granted under
the 1995 Option Plan after the Annual Meeting will not qualify as
performance-based compensation and, in some circumstances, the Company may be
denied a business expense deduction for compensation recognized in connection
with the exercise of these stock options. The affirmative vote of the holders of
a majority of the shares present in person or represented by proxy and entitled
to vote at the meeting will be required to approve the 1995 Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the 1995 Option Plan are outlined below:
GENERAL
The 1995 Option Plan provides for the grant of both incentive and
nonstatutory stock options. Incentive stock options granted under the 1995
Option Plan are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Code. Nonstatutory stock options granted under the
1995 Option Plan are intended not to qualify as incentive stock options under
the Code. See "Federal Income Tax Information" for a discussion of the tax
treatment of incentive and nonstatutory stock options.
PURPOSE
The 1995 Option Plan was adopted to provide a means by which selected
officers and employees of and consultants to the Company and its affiliates
could be given an opportunity to purchase stock in the Company, to assist in
retaining the services of employees holding key positions, to secure and retain
the services of persons capable of filling such positions in the future and to
provide incentives for such persons to exert maximum efforts
6.
<PAGE>
for the success of the Company. All of the Company's approximately 754 full-time
employees and consultants are eligible to participate in the 1995 Option Plan.
ADMINISTRATION
The 1995 Option Plan is administered by the Board of Directors of the
Company. The Board has the power to construe and interpret the 1995 Option Plan
and, subject to the provisions of the 1995 Option Plan, to determine the persons
to whom and the dates on which options will be granted, the number of shares to
be subject to each option, the time or times during the term of each option
within which all or a portion of such option may be exercised, the exercise
price, the type of consideration and other terms of the option. The Board of
Directors is authorized to delegate administration of the 1995 Option Plan to a
committee composed of not fewer than two members of the Board. The Board has
delegated administration of the 1995 Option Plan to the Compensation Committee
of the Board. As used herein with respect to the 1995 Option Plan, the "Board"
refers to the Compensation Committee as well as to the Board of Directors
itself.
The 1995 Option Plan provides that, in the Board's discretion, directors
serving on the Compensation Committee will also be "outside directors" within
the meaning of Section 162(m). This limitation would exclude from the
Compensation Committee (i) current employees of the Company, (ii) former
employees of the Company receiving compensation for past services (other than
benefits under a tax-qualified pension plan), (iii) current and former officers
of the Company, (iv) directors currently receiving direct or indirect
remuneration from the Company in any capacity (other than as a director), unless
any such person is otherwise considered an "outside director" for purposes of
Section 162(m).
ELIGIBILITY
Incentive stock options may be granted under the 1995 Option Plan only to
selected key employees (including officers) of the Company and its affiliates.
Selected key employees (including officers) and consultants are eligible to
receive nonstatutory stock options under the 1995 Option Plan.
No option may be granted under the 1995 Option Plan to any person who, at
the time of the grant, owns (or is deemed to own) stock possessing more than 10%
of the total combined voting power of the Company or any affiliate of the
Company, unless the option exercise price is at least 110% of the fair market
value of the stock subject to the option on the date of grant, and the term of
the option does not exceed five years from the date of grant. For incentive
stock options granted under the 1995 Option Plan, the aggregate fair market
value, determined at the time of grant, of the shares of Common Stock with
respect to which such options are exercisable for the first time by an optionee
during any calendar year (under all such plans of the Company and its
affiliates) may not exceed $100,000.
No person may be granted options exercisable for more than 450,000 shares
of Common Stock in any calendar year. The purpose of adding this limitation is
generally to permit the Company to continue to be able to deduct for tax
purposes the compensation attributable to the exercise of options granted under
the 1995 Option Plan.
STOCK SUBJECT TO THE 1995 OPTION PLAN
If options granted under the 1995 Option Plan expire or otherwise
terminate without being exercised, the Common Stock not purchased pursuant to
such options again becomes available for issuance under the 1995 Option Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the 1995 Option Plan. Individual option grants may be more restrictive as to any
or all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the 1995 Option Plan may not be less than the fair market value of the
Common Stock subject to the option on the date of the option grant, and
7.
<PAGE>
in some cases (see "Eligibility" above), may not be less than 110% of such fair
market value. The exercise price of nonstatutory options under the 1995 Option
Plan may not be less than 85% of the fair market value of the Common Stock
subject to the option on the date of the option grant. However, if options were
granted with exercise prices below market value, deductions for compensation
attributable to the exercise of such options could be limited by Section 162(m).
See "Federal Income Tax Information." At January 2, 1996, the closing price of
the Company's Common Stock as reported on the Nasdaq National Market was $
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per share.
In the event of a decline in the value of the Company' s Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. To the extent required by Section 162(m), an option
repriced under the 1995 Option Plan is deemed to be canceled and a new option
granted. Both the option deemed to be canceled and the new option deemed to be
granted will be counted against the 450,000 share limitation.
The exercise price of options granted under the 1995 Option Plan must be
paid either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement or (c) in any other form of
legal consideration acceptable to the Board.
Option Exercise. Options granted under the 1995 Option Plan may become
exercisable ("vest") in cumulative increments as determined by the Board. The
Board has the power to accelerate the time during which an option may be
exercised. In addition, options granted under the 1995 Option Plan may permit
exercise prior to vesting, but in such event the optionee may be required to
enter into an early exercise stock purchase agreement that allows the Company to
repurchase shares not yet vested at their exercise price should the optionee
leave the employ of the Company before vesting. To the extent provided by the
terms of an option, an optionee may satisfy any federal, state or local tax
withholding obligation relating to the exercise of such option by a cash payment
upon exercise, by authorizing the Company to withhold a portion of the stock
otherwise issuable to the optionee, by delivering already-owned stock of the
Company or by a combination of these means.
Term. The maximum term of options under the 1995 Option Plan is 10 years,
except that in certain cases (see "Eligibility") the maximum term is five years.
Options under the 1995 Option Plan terminate three months after termination of
the optionee's employment or relationship as a consultant or director of the
Company or any affiliate of the Company, unless (a) such termination is due to
such person's permanent and total disability (as defined in the Code), in which
case the option may, but need not, provide that it may be exercised at any time
within one year of such termination; (b) the optionee dies while employed by or
serving as a consultant or director of the Company or any affiliate of the
Company, or within three months after termination of such relationship, in which
case the option may, but need not, provide that it may be exercised (to the
extent the option was exercisable at the time of the optionee's death) within 18
months of the optionee's death by the person or persons to whom the rights to
such option pass by will or by the laws of descent and distribution; or (c) the
option by its terms specifically provides otherwise. Individual nonstatutory
options by their terms may provide for exercise within a longer period of time
following termination of employment or the consulting relationship. The option
term may also be extended in the event that exercise of the option within these
periods is prohibited for specified reasons.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1995 Option Plan or
subject to any option granted under the 1995 Option Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
1995 Option Plan and options outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to such plan,
the maximum number of shares which may be granted to an employee during a
calendar year, and the class, number of shares and price per share of stock
subject to such outstanding options.
8.
<PAGE>
EFFECT OF CERTAIN CORPORATE EVENTS
The 1995 Option Plan provides that, in the event of a dissolution or
liquidation of the Company, specified type of merger or other corporate
reorganization, to the extent permitted by law, any surviving corporation will
be required to either assume options outstanding under the 1995 Option Plan or
substitute similar options for those outstanding under such plan, or such
outstanding options will continue in full force and effect. In the event that
any surviving corporation declines to assume or continue options outstanding
under the 1995 Option Plan, or to substitute similar options, then the time
during which such options may be exercised will be accelerated and the options
terminated if not exercised during such time. The acceleration of an option in
the event of an acquisition or similar corporate event may have the effect of
discouraging a proposal to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1995 Option Plan without
stockholder approval or ratification at any time or from time to time. Unless
sooner terminated, the 1995 Option Plan will terminate on October 24, 2005.
The Board may also amend the 1995 Option Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within twelve months before or after its adoption by
the Board if the amendment would: (a) modify the requirements as to eligibility
for participation (to the extent such modification requires stockholder approval
in order for the Plan to satisfy Section 422 of the Code, if applicable, or Rule
16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")); (b) increase the number of shares reserved for issuance upon
exercise of options; or (c) change any other provision of the Plan in any other
way if such modification requires stockholder approval in order to comply with
Rule 16b-3 or satisfy the requirements of Section 422 of the Code. The Board may
submit any other amendment to the 1995 Option Plan for stockholder approval,
including, but not limited to, amendments intended to satisfy the requirements
of Section 162(m) of the Code regarding the exclusion of performance-based
compensation from the limitation on the deductibility of compensation paid to
certain employees.
RESTRICTIONS ON TRANSFER
Under the 1995 Option Plan, an incentive stock option may not be
transferred by the optionee otherwise than by will or by the laws of descent and
distribution and during the lifetime of the optionee, may be exercised only by
the optionee. A nonstatutory stock option may not be transferred except by will
or by the laws of descent and distribution or pursuant to a "qualified domestic
relations order." In any case, the optionee may designate in writing a third
party who may exercise the option in the event of the optionee's death. In
addition, shares subject to repurchase by the Company under an early exercise
stock purchase agreement may be subject to restrictions on transfer which the
Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1995 Option
Plan are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain, or any loss, upon the
9.
<PAGE>
disqualifying disposition will be a capital gain or loss, which will be
long-term or short-term depending on whether the stock was held for more than
one year. Long-term capital gains currently are generally subject to lower tax
rates than ordinary income. The maximum capital gains rate for federal income
tax purposes is currently 28% while the maximum ordinary income rate is
effectively 39.6% at the present time. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
1995 Option Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be long
or short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to stock options, when combined with all other types
of compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with proposed Treasury regulations issued under Section 162(m),
compensation attributable to stock options will qualify as performance-based
compensation, provided that the option is granted by a compensation committee
comprised solely of "outside directors" and either: (i) the option plan contains
a per-employee limitation on the number of shares for which options may be
granted during a specified period, the per-employee limitation is approved by
the stockholders, and the exercise price of the option is no less than the fair
market value of the stock on the date of grant; or (ii) the option is granted
(or exercisable) only upon the achievement (as certified in writing by the
compensation committee) of an objective performance goal established in writing
by the compensation committee while the outcome is substantially uncertain, and
the option is approved by the stockholders.
10.
<PAGE>
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP ("Ernst & Young") as
the Company's independent auditors for the fiscal year ending September 30, 1996
and has further directed that management submit the selection of independent
auditors for ratification by the stockholders at the Annual Meeting. Ernst &
Young has audited the Company's financial statements since its inception in
1967. Representatives of Ernst & Young are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Ernst & Young to
the stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of a different independent accounting firm at any time during the
year if they determine that such a change would be in the best interests of the
Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Ernst & Young.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
11.
<PAGE>
ADDITIONAL INFORMATION
Officers are appointed annually by the Board and serve at the discretion
of the Board. Set forth below is information regarding executive officers of the
Company who are not directors of the Company:
NAME AGE POSITION
- ------------------- ----- ------------------------------------------------
James E.C. Black 47 Senior Vice President, Engineering
Timothy A. Dreisbach 46 Senior Vice President, North American
Field Operations
Arthur F. Knapp, Jr. 47 Senior Vice President, Chief Financial Officer
and Secretary
Saverio Merlo 44 Senior Vice President, Marketing
Mr. Black joined the Company in April 1994 as Senior Vice President of
Engineering. From 1991 to March 1994, he was a principal at Diablo Management
Group, an organization specializing in assisting companies with dynamic market
changes. Previously, Mr. Black held technology positions at Ingres Corporation,
UCCEL Corporation, a software company, Texas Instruments, an electronics
company, and CAP Gemini, a computer consulting company.
Mr. Dreisbach joined the Company in April 1992 as Senior Vice President
of North American Field Operations. From March 1989 to 1991, he was employed by
Legent Corp., a worldwide developer and distributor of productivity enhancement
system software, serving as Vice President and General Manager of the Systems
Productivity Division. From 1986 through March 1989, he was employed by Duquesne
Systems, Inc. (a predecessor company to Legent Corp.), where he served as Vice
President of Worldwide Sales.
Mr. Knapp joined the Company in November 1991 as Chief Financial Officer
and Senior Vice President. From March 1989 to October 1991, he was employed by
Legent Corp., serving as Vice President and Chief Financial Officer. From 1984
through March 1989, he was employed by Duquesne Systems, Inc., where he served
as Vice President, Controller and Chief Financial Officer. Mr. Knapp is a
Certified Public Accountant and a Certified Management Accountant.
Mr. Merlo has been employed by the Company for the past 14 years in
various operational, technical and marketing capacities. After a four-year
tenure as director of the MVS product center, Mr. Merlo served as Vice President
of Marketing for Boole & Babbage Europe from 1989 until 1991. During fiscal
1991, Mr. Merlo was appointed Senior Vice President of Marketing.
12.
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of November 30, 1995 by: (i) each
director and nominee for director; (ii) each of the executive officers named in
the Summary Compensation Table; (iii) all executive officers and directors of
the Company as a group; and (iv) all those known by the Company to be beneficial
owners of more than five percent (5%) of its Common Stock. Information in the
table reflects the 3-for-2 split in the Company's Common Stock effected on
December 6, 1995.
BENEFICIAL OWNERSHIP(1)
--------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- ------------------------------------------- ----------- ----------
Franklin P. Johnson, Jr.(2) 900,542 8.3%
c/o Asset Management Partners
2275 East Bayshore, Suite 150
Palo Alto, CA 94303
Princeton Services, Inc. and related entities(3) 884,664 8.1%
World Financial Center, North Tower
250 Vesey Street
New York, NY 10281
Wellington Management Company(4) 849,982 7.8%
75 State Street
Boston, MA 02109
Private Capital Management, Inc.
and related entities(5) 813,496 7.5%
3003 Tamiami Trail North
Naples, FL 33940
John M. Bryan(6) 691,714 6.4%
600 Montgomery Street, 35th Floor
San Francisco, CA 94111
Winston Partners, L.P. and related entities(7) 640,594 5.9%
888 Seventh Avenue
New York, NY 10106
Vanguard Explorer Fund, Inc.(8) 618,975 5.7%
P.O.Box 2600
Valley Forge, PA 19482-2600
Paul E. Newton(9) 510,067 4.5%
Johannes S. Bruggeling(9) 357,916 3.3%
Arthur F. Knapp, Jr.(9) 156,181 1.4%
Timothy A. Dreisbach(9) 107,452 1.0%
Saverio Merlo(9) 62,473 *
James E.C. Black(9) 48,750 *
13.
<PAGE>
Carl H. Reynolds(9)(10) 30,468 *
Terry R. McGowan(9) 23,268 *
Raymond E. Cairns(9) 21,300 *
All executive officers and directors
as a group (10 persons)(11) 2,218,417 18.9%
- ---------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "Commission"). Where information regarding
stockholders is based on Schedules 13D and 13G, the number of shares owned
is as of the date of for which information is provided in such Schedules,
as noted. Unless otherwise indicated in the footnotes to this table and
subject to community property laws where applicable, each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned. Applicable
percentages are based on 10,867,762 shares outstanding on November 30,
1995, adjusted as required by rules promulgated by the Commission.
(2) Includes 78,922 shares held by Mr. Johnson's wife. Mr. Johnson may be
deemed to beneficially own these shares but disclaims beneficial ownership
of such shares. Also includes 164,250 shares held by Asset Management
Partners, a limited partnership, of which Mr. Johnson is a general partner.
Mr. Johnson disclaims beneficial ownership of two-thirds of such shares.
(3) The shares are held by subsidiaries of Princeton Services, Inc. ("PSI"),
which is a wholly-owned direct subsidiary of Merrill Lynch Group, Inc. ("ML
Group"). ML Group is a direct wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML&Co."). ML Group may be deemed to beneficially own the
shares, but disclaims beneficial ownership thereof. ML&Co. and PSI may each
be deemed to beneficially own 881,550 of the 884,664 shares, but each
disclaims beneficial ownership thereof. The stated number of shares
beneficially owned is as of February 10, 1995.
(4) Wellington Management Company ("Wellington"), in its capacity as investment
advisor, may be deemed beneficial owner of these shares which are owned by
numerous investment counselling clients. Wellington has shared voting
authority over 35,257 of these shares, and shared dispositive power over
all 849,982 of these shares. The stated number of shares beneficially owned
is as of January 24, 1995.
(5) Private Capital Management, Inc. ("PCM"), in its capacity as investment
advisor, and Bruce Sherman, PCM's President, may each be deemed beneficial
owners of 796,846 of these shares, which are held by PCM on behalf of its
clients. PCM and Bruce Sherman have shared dispositive power over these
796,846 shares. SPS Partners, L.P. ("SPS"), in its capacity as investment
advisor for the Entrepreneurial Value Fund, L.P., and Bruce Sherman, SPS's
Managing General Partner, may each be deemed beneficial owners of 16,650 of
these shares, and each has shared dispositive power over these 16,650
shares. Michael Seaman, who has shared power to vote or direct the vote of,
and shared power to dispose of, 9,000 of these shares, is an employee of
PCM or affiliates thereof and (i) does not exercise sole or shared
dispositive or voting power with respect to the shares held by PCM or SPS,
(ii) disclaims beneficial ownership of shares held by Mr. Sherman, PCM and
SPS, and (iii) disclaims, along with Mr. Sherman, the existence of a group.
The stated number of shares beneficially owned is as of February 13, 1995.
(6) Includes 296,875 shares held by the J.M. Bryan Family Trust and 10,800
shares held by the John M. Bryan Family Fund, for each of which Mr. Bryan
is a trustee. Also includes 261,000 shares held by JMB/FEB Partners, Ltd.;
41,166 shares held by AAB Partners, Ltd.; 41,166 shares held by ALB
Partners, Ltd.; 26,541 shares held by SEB Partners, Ltd.; and 14,166 shares
held by KBH Partners, Ltd., for each of which Mr. Bryan is a general
partner. Mr. Bryan may be deemed to beneficially own all such shares but
disclaims beneficial ownership of the 430,714 shares held in aggregate by
the J.M. Bryan Family Trust, the John M.
14.
<PAGE>
Bryan Family Fund, AAB Partners, Ltd., ALB Partners, Ltd., SEB Partners,
Ltd. and KBH Partners, Ltd. except to the extent of his partnership
interest therein.
(7) The shares are held by Winston Partners, L.P. Chatterjee Fund Management
L.P., is the sole general partner of Winston Partners, L.P. and Purnendu
Chatterjee is the sole general partner of Chatterjee Fund Management, L.P.
(8) Vanguard Explorer Fund, Inc., an investment company, has shared dispositive
power over these shares. The stated number of shares beneficially owned is
as of February 10, 1995.
(9) Includes shares which certain executive officers, directors and principal
stockholders of the Company have the right to acquire within 60 days after
the date of this table pursuant to outstanding options as follows: James
E.C. Black, 48,750 shares; Johannes S. Bruggeling, 28,125 shares; Raymond
E. Cairns, 19,050 shares; Timothy A. Dreisbach, 103,803 shares; Arthur F.
Knapp, Jr., 147,655 shares; Terry R. McGowan, 23,268 shares; Saverio Merlo,
59,437 shares; Paul E. Newton, 465,000 shares; Carl H. Reynolds, 2,175
shares and all executive officers and directors as a group, 897,263 shares.
(10) All shares are held by the Carl H. and Carol Jean Reynolds Revocable Trust
U/A/D 8/1/79 over which Mr. Reynolds has shared voting and investment
power.
(11) Includes shares described in notes (2), (9) and (10) above.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Commission initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Offices, directors
and greater than ten percent stockholders are required by Commission regulation
to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 30, 1995, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives a quarterly retainer
fee of $2,000 (plus $5,250 for serving as Chairman of the Board) and a per
meeting fee of $400 (except for the Chairman). In the fiscal year ended
September 30, 1995, the total compensation paid to non-employee directors was
$58,600. The members of the Board of Directors are also eligible for
reimbursement for their expenses incurred in connection with attendance at Board
meetings in accordance with Company policy.
Under the terms of the 1993 Non-Employee Directors' Stock Option Plan,
each non-employee director of the Company automatically receives an option to
purchase 4,500 shares of the Company's Common Stock, as an incentive to
encourage maximum efforts for the success of the Company and continued service
on the Board. In the fiscal year ended September 30, 1995, Messrs. Reynolds,
McGowan and Cairns were each granted options to purchase 4,500 shares of Common
Stock pursuant to the Company's 1993 Non-Employee Directors' Stock Option Plan
at an exercise price of $19.00 per share, which was equal to the fair market
value on the date of the grant.
15.
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended September 30, 1993,
1994 and 1995, compensation awarded or paid to, or earned by the Company's Chief
Executive Officer and its five other executive officers at September 30, 1995
(the "Named Executive Officers"):
16.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
- ------------------------------------------------------------------------------ ---------------------------------
SECURITIES ALL OTHER
NAME AND UNDERLYING COMPEN-
PRINCIPAL SALARY BONUS OPTIONS(1) SATION(2)
POSITION YEAR ($) ($) (#) ($)
- ------------------------------------- ------------ -------------- -------------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
Mr. Paul E. Newton 1995 300,000 268,335 240,000 613
President and Chief Executive 1994 286,136 186,785 -- 875
Officer 1993 269,459 162,240 -- 875
Mr. Johannes S. Bruggeling 1995(3) 313,260 196,471 45,000 --
Executive Vice President, 1994 262,138 161,215 45,000 --
International Operations and 1993 259,002 155,401 -- --
President, Boole & Babbage
Europe
Mr. James E.C. Black 1995 174,252 89,362 37,500 --
Senior Vice President 1994(4) 85,301 35,700 90,000 --
Engineering 1993 -- -- -- --
Mr. Timothy A. Dreisbach 1995 166,602 85,442 37,500 613
Senior Vice President, North 1994 162,193 87,219 15,750 11,718
American Field Operations 1993 153,000 79,634 11,250 137,581
Mr. Arthur F. Knapp, Jr. 1995 170,680 85,787 45,000 613
Senior Vice President and Chief 1994 165,193 68,544 22,500 23,880
Financial Officer 1993 155,500 62,338 16,875 81,010
Mr. Saverio Merlo 1995 166,001 84,105 37,500 613
Senior Vice President, 1994 161,181 67,200 18,000 875
Marketing 1993 150,480 60,005 11,250 875
<FN>
- ---------------------
(1) The Company has no stock appreciation rights (SARs).
(2) Includes the Company's matching payments under its 401(k) plan. Also
includes payments to Mr. Knapp in 1994 of $5,411 and $17,594, and in 1993
of $16,980 and $63,155, for relocation expenses and tax gross-up payments,
respectively. Includes payments to Mr. Dreisbach in 1994 of $10,843 for tax
gross-up payments, and in 1993 of $94,954 and $41,752 for relocation
expenses and tax gross-up payments, respectively. As permitted by rules
promulgated by the Commission, no amounts are shown with respect to certain
"perquisites," where such amounts do not exceed the lesser of 10% of salary
and bonus or $50,000.
(3) Mr. Bruggeling's compensation was paid in non-U.S. currency and has been
translated to U.S. dollars at the average currency exchange rate for the
indicated year.
(4) Mr. Black joined the Company in April 1994. Excludes $68,400 in payments
for consulting services in 1994 prior to his joining the Company.
</FN>
</TABLE>
17.
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1986
Incentive Stock Option Plan (the "1986 ISO Plan"), its 1986 Supplemental Stock
Option Plan (the "1986 Supplemental Plan") and the 1995 Stock Option Plan (the
"1995 Option Plan", collectively the "Option Plans"). As of November 30, 1995,
options to purchase a total of 2,769,942 shares had been granted and were
outstanding under the Option Plans and options to purchase 350,957 shares
remained available for grant thereunder. See Proposal 3.
The following tables show for the fiscal year ended September 30, 1995,
certain information regarding options granted to, exercised by, and held at year
end by the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(3)
- ------------------------------------------------------------------------ -----------------------
% OF
TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES OR BASE EXPIRA-
GRANTED IN FISCAL PRICE TION
NAME (#)(1) YEAR(2) ($/SHARE) DATE 5% ($) 10% ($)
- ---- -------- --------- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Mr. Newton 240,000 30.2 16.50 11/21/04 2,490,423 6,311,220
Mr. Bruggeling 45,000 5.7 16.50 11/21/04 466,954 1,183,354
Mr. Black 37,500 4.7 16.50 11/21/04 389,129 986,128
Mr. Dreisbach 37,500 4.7 16.50 11/21/04 389,129 986,128
Mr. Knapp 45,000 5.7 16.50 11/21/04 466,954 1,183,354
Mr. Merlo 37,500 4.7 16.50 11/21/04 389,129 986,128
<FN>
(1) Options vest in cumulative increments over a period of four years. Option
grants to executive officers prior to September 10, 1993 generally include
a provision whereby upon the sale, acquisition or merger of the Company in
a transaction or series of transactions, the vesting of such options shall
accelerate such that an additional two months of vesting shall accrue for
each month that such executive officer shall have been employed by the
Company between October 1, 1991 (or the date of commencement of such
executive officer's employment with the Company, if later) and the closing
date of any such transaction or series of transactions. Option grants to
executive officers on or after September 10, 1993 include a provision
whereby upon the termination or resignation of an executive officer within
one year following the sale, acquisition or merger of the Company, such
officer's options shall immediately vest in full. Share amounts presented
herein reflect the 3-for-2 split of the Company's Common Stock effected
December 6, 1995.
(2) Based on options to purchase 795,750 shares granted to all employees in
fiscal year 1995.
(3) The potential realizable value is based on the term of the option at its
time of grant (10 years). It is calculated by assuming that the stock price
on the date of grant appreciates at the indicated annual rate, compounded
annually for the entire term of the option and that the option is exercised
and sold on the last day of its term for the appreciated stock price. No
gain to the optionee is possible unless the stock price increases over the
option term which will benefit all stockholders.
</FN>
</TABLE>
18.
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR-END OPTION VALUES
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#)(2) FY-END($)(3)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED(1)($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- -------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Mr. Newton -- -- 392,343/252,657 6,265,286/1,061,318
Mr. Bruggeling -- -- 11,250/78,750 86,525/420,675
Mr. Black -- -- 28,125/99,375 266,313/720,138
Mr. Dreisbach -- -- 86,482/62,393 1,041,404/403,353
Mr. Knapp -- -- 126,910/69,965 1,822,678/425,218
Mr. Merlo -- -- 48,234/52,266 682,361/278,278
<FN>
- --------------------
(1) Value realized is based on the fair market value of the Company's Common
Stock on the date of exercise minus the exercise price and does not
necessarily indicate that the optionee sold such stock.
(2) Share amounts presented herein reflect the 3-for-2 split of the Company's
Common Stock effected on December 6, 1995.
(3) Fair market value of the Company's Common Stock at September 30, 1995
($20.08) minus the exercise price of the options.
</FN>
</TABLE>
19.
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION(1)
The Compensation Committee of the Board of Directors has provided the
following report with respect to the compensation of executive officers for
fiscal 1995:
Compensation for the Company's executive officers is determined by the
Compensation Committee of the Company's Board of Directors (the "Committee"),
none of whom is an employee of the Company. The Committee establishes base
salary levels and target bonuses for the Chief Executive Officer ("CEO") and
other executive officers of the Company at or about the beginning of each fiscal
year.
The Company and its Board believe that the compensation of all
employees, including executive officers, must be sufficient to attract and
retain highly qualified personnel and must align compensation with the Company's
short-term and long-term business strategies and performance goals. However, the
current compensation philosophy is to minimize the amount of salary increase in
favor of (i) more performance based compensation such as bonuses and (ii) more
incentives linked to stockholder value such as stock options. There are three
basic elements to executive officer compensation:
SALARY. To insure that its compensation practices remain competitive,
the Company regularly compares its executive compensation to the middle of the
range of compensation paid to executives in comparable positions in other
software companies in the industry and also in technology companies of similar
size located in Silicon Valley. Salary increases are granted generally on an
annual basis and are based on both individual performance and the standard
percentage of salary increase granted to other employees. Upon recommendation of
the Committee, the Board approved the Company's fiscal 1995 salary guidelines
applicable to all employees, including executives, pursuant to which salary
increases would be targeted at no more than five percent (5%) of current
salaries.
BONUSES. The Committee awards bonuses to the Company's executive
officers and other key employees pursuant to an employee incentive plan
established and approved in the early part of the Company's fiscal year by the
Committee. The bonus amounts and persons who will receive bonuses can vary from
year to year. The bonus pool is calculated based on a formula tied to the
Company's targeted earnings per share. In 1995, the plan included minimal
payouts based on attainment of 85% of target EPS with no bonus being paid if
results were below the 85% threshold level. As actual results approach targeted
levels, the bonus payout increases at an accelerated level. In fiscal year 1995,
target amounts for individual executive officers represented between 27.5% and
67% of base salary.
STOCK OPTIONS. The Company believes that employee equity ownership
provides significant additional motivation to executive officers to maximize
value for the Company's stockholders. With the exception of the Chief Executive
Officer who receives larger but less frequent option grants, the Committee
typically grants stock options each year to executive officers and other key
employees. These grants are based on a variety of factors, including total
options outstanding and total unvested options outstanding for each officer and
key employee, the financial performance of the Company and assessment of
personal performance. Whereas the bonus plan recognizes specific annual
operational achievements, the Company considers the cumulative stock option
grants as a measure of the individual's long-term potential impact on the
Company's results. The Committee feels that stock options are the best method of
providing incentives for executive officers to maximize the long-term success of
the Company.
- ---------------
(1) The material in this report is not "soliciting material," is not deemed
filed with the Commission and is not to be incorporated in any filing of
the Company under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, whether made before or after the date
hereof and irrespective of any general incorporation language in any
filing.
20.
<PAGE>
CHIEF EXECUTIVE OFFICER'S COMPENSATION. The Committee determined that a
4.8% increase in the Chief Executive Officer's base salary represented a minimal
increase in accordance with the Company's policy of increasing salaries by no
more than five percent (5%). The Committee also determined that a cash bonus of
$268,335 (out of a total executive officer bonus pool of $779,451) for fiscal
1995 was appropriate in light of the Company's strong financial performance,
including record revenues, profits and earnings per share.
COMPLIANCE WITH SECTION 162(m) OF THE INTERNAL REVENUE CODE. Section
162(m) of the Internal Revenue Code (the "Code") limits the Company to a
deduction for federal income tax purposes of no more than $1 million of
compensation paid to certain Named Executive Officers in a taxable year.
Compensation above $1 million may be deducted if it is "performance-based
compensation" within the meaning of the Code. The Compensation Committee has
determined that stock options granted under the Company's 1995 Option Plan with
an exercise price at least equal to the fair market value of the Company's
common stock on the date of grant shall be treated as "performance-based
compensation." As a result, the Company's stockholders have been asked to
approve this plan which would allow any compensation recognized by a Named
Executive Officer as a result of the grant of such a stock option to be
deductible by the Company.
COMPENSATION COMMITTEE
Franklin P. Johnson, Jr.
Terry R. McGowan
Carl H. Reynolds
21.
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON(1)
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG BOOLE & BABBAGE, THE H&Q TECHNOLOGY INDEX,
AND THE NASDAQ STOCK MARKET - US INDEX
9/90 9/91 9/92 9/93 9/94 9/95
- ---------------------------------------------------------------------------
Boole & Babbage $100 $79 $157 $206 $262 $385
H&Q Technology $100 $145 $165 $197 $223 $374
NASDAQ-US $100 $157 $176 $231 $233 $321
* $100 invested on 9/30/90 in stock or index,
including reinvestment of dividends.
- --------
(1) The material in this performance measurement comparison is not "soliciting
material," is not deemed filed with the Commission and is not to be
incorporated in any filing of the Company under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended, whether
made before or after the date hereof and irrespective of any general
incorporation language in any filing.
22.
<PAGE>
CERTAIN TRANSACTIONS
The Company has entered into indemnity agreements with certain officers
and directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party by
reason of his position as a director, officer or other agent of the Company, and
otherwise to the full extent permitted under Delaware law and the Company's
By-laws.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented
for consideration at the Annual Meeting. If any other matters are properly
brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
Arthur F. Knapp, Jr.
Secretary
January 17, 1996
23.
<PAGE>
APPENDIX A
FORM OF PROXY
BOOLE & BABBAGE, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 22, 1996
The undersigned hereby appoints Paul E. Newton and Arthur F. Knapp,
Jr., and each of them, as attorneys and proxies of the undersigned with full
power of substitution, to vote all of the shares of stock of Boole & Babbage,
Inc. (the "Company") which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the principal executive
offices of the Company, 3131 Zanker Road, San Jose, California on Thursday,
February 22, 1996 at 12:00 p.m., and at any and all postponements, continuations
and adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
THE NOMINEES NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
<PAGE>
PLEASE MARK
/X/ VOTES AS IN
THIS EXAMPLE
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR NAMED BELOW.
1. To elect two directors of the Company to serve for the ensuing three years
until the Company's 1999 Annual Meeting of Stockholders and until their
successors are elected.
NOMINEES: Paul E. Newton, Raymond E. Cairns
FOR / / WITHHELD / / Mark Here / /
For Address
Change and
Note at Left
/ /
- ---------------------------------------------------------------
For all nominees except as noted above
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2, 3 AND 4.
FOR AGAINST ABSTAIN
--------- ------- -------
2. To approve an amendment to / / / / / /
the Company's Restated
Certificate of Incorporation
to increase the authorized
number of shares of Common
Stock from 15,000,000 to
30,000,000.
3. To approve the Company's / / / / / /
1995 Stock Option Plan and
the reservation of 750,000
shares thereunder.
4. To ratify the selection of / / / / / /
Ernst & Young LLP as the
Company's independent
auditors for the fiscal year
ending September 30, 1996.
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their title. If the signer
is a partnership, please sign in partnership name by authorized person.
Please vote, date and promptly return this proxy in the enclosed envelope which
is postage prepaid if mailed in the United States.
Signature_______________________________________Date___________
Signature_______________________________________Date___________
<PAGE>
APPENDIX B
BOOLE & BABBAGE, INC.
STOCK OPTION PLAN
ADOPTED OCTOBER 25, 1995
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either Incentive Stock Options or Supplemental Stock Options. All Options shall
be separately designated Incentive Stock Options or Supplemental Stock Options
at the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
<PAGE>
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "Company" means Boole & Babbage, Inc., a Delaware corporation.
(f) "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "Continuous Status as an Employee, Director or Consultant" means
that the service of an individual to the Company, whether as an Employee,
Director or Consultant, is not interrupted or terminated. The Board, in its sole
discretion, may determine whether Continuous Status as an Employee, Director or
Consultant shall be considered interrupted in the case of: (i) any leave of
absence approved by the Board, including sick leave, military leave, or any
other personal leave; or (ii) transfers between the Company, Affiliates or their
successors.
(h) "Covered Employee" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be
2.
<PAGE>
reported to shareholders under the Exchange Act, as determined for purposes of
Section 162(m) of the Code.
(i) "Director" means a member of the Board.
(j) "Disinterested Person" means a Director who either (i) was not
during the one year prior to service as an administrator of the Plan granted or
awarded equity securities pursuant to the Plan or any other plan of the Company
or any Affiliate entitling the participants therein to acquire equity securities
of the Company or any Affiliate except as permitted by Rule 16b-3(c)(2)(i); or
(ii) is otherwise considered to be a "disinterested person" in accordance with
Rule 16b-3(c)(2)(i), or any other applicable rules, regulations or
interpretations of the Securities and Exchange Commission.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of the common
stock of the Company determined as follows:
(1) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the day of determination (if the
day of determination is a market trading day), and if the day of determination
is not a market trading
3.
<PAGE>
day, then on the last market trading day prior to the day of determination, as
reported in the Wall Street Journal or such other source as the Board deems
reliable;
(2) If the common stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean between the bid and asked prices for
the common stock on the day of determination (if the day of determination is a
market trading day), and if the day of determination is not a market trading
day, then on the last market trading day prior to the day of determination, as
reported in the Wall Street Journal or such other source as the Board deems
reliable;
(3) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
(n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "Option" means a stock option granted pursuant to the Plan.
(q) "Option Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(r) "Optionee" means an Employee, Director or Consultant who holds an
outstanding Option.
4.
<PAGE>
(s) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(t) "Plan" means this Boole & Babbage 1995 Stock Option Plan.
(u) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(v) "Supplemental Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Options; when and how each Option shall be
granted; whether an Option will be an Incentive Stock Option or a Supplemental
Stock Option; the provisions of each Option granted (which need not be
identical), including the time or times such Option may be exercised
5.
<PAGE>
in whole or in part; and the number of shares for which an Option shall be
granted to each such person.
(2) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(3) To amend the Plan or an Option as provided in Section 11.
(4) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be Disinterested Persons and may also be, in the
discretion of the Board, Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan. Notwithstanding
anything in this Section 3 to the contrary, the Board or the Committee may
delegate to a committee of one or more members of the Board the authority to
grant Options to eligible persons who (1) are not then subject to Section 16 of
the Exchange Act and/or (2) are either (i) not then Covered Employees and are
not expected to be Covered Employees at the time of recognition of income
resulting from such Option, or (ii)
6.
<PAGE>
not persons with respect to whom the Company wishes to comply with Section
162(m) of the Code.
(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply if the Board or the Committee expressly
declares that such requirement shall not apply. Any Disinterested Person shall
otherwise comply with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to Options shall not
exceed in the aggregate seven hundred fifty thousand (750,000) shares of the
Company's common stock (after taking into account the three-for-two stock split
approved by the Board at its October 25, 1995 meeting (the "1995 Stock Split"),
plus any shares of the Company's common stock previously reserved under the
Company's 1986 Incentive Stock Option Plan and 1986 Supplemental Stock Option
Plan (the "Option Plans") (also as adjusted to reflect the 1995 Stock Split)
which (i) have not, as of the date of adoption of this Plan, previously been
issued pursuant to the exercise of options under the Option Plans, and (ii) are
not, as of the date of adoption of this Plan, subject to options outstanding
under the Option Plans. If any Option granted under this Plan or any stock
option granted under the Option Plans shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised in full, the stock
not acquired shall revert to and again become available for issuance under this
Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
7.
<PAGE>
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Supplemental Stock Options may be granted only to Employees, Directors or
Consultants.
(b) A Director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of the Director
as a person to whom Options may be granted, or in the determination of the
number of shares which may be covered by Options granted to the Director: (i)
the Board has delegated its discretionary authority over the Plan to a Committee
which consists solely of Disinterested Persons; or (ii) the Plan otherwise
complies with the requirements of Rule 16b-3. The Board shall otherwise comply
with the requirements of Rule 16b-3. This subsection 5(b) shall not apply if the
Board or Committee expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Option is at least one
hundred ten percent (110%) of the Fair Market Value of such stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant.
(d) Subject to the provisions of Section 10 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Options
covering more than three hundred thousand (300,000) shares of the Company's
common stock in any calendar year.
8.
<PAGE>
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Supplemental Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Supplemental Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant
9.
<PAGE>
to subsection 6(d), or (C) in any other form of legal consideration that may be
acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) Transferability. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Supplemental Stock Option shall
not be transferable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order satisfying the requirements of
Rule 16b-3 and the rules thereunder (a "QDRO"), and shall be exercisable during
the lifetime of the person to whom the Option is granted only by such person or
any transferee pursuant to a QDRO. The person to whom the Option is granted may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the Optionee,
shall thereafter be entitled to exercise the Option.
(e) Vesting. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be
10.
<PAGE>
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The provisions of this subsection 6(e) are subject to any
Option provisions governing the minimum number of shares as to which an Option
may be exercised.
(f) Securities Law Compliance. The Company may require any Optionee, or
any person to whom an Option is transferred under subsection 6(d), as a
condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Option; and (2) to give written assurances satisfactory to the
Company stating that such person is acquiring the stock subject to the Option
for such person's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (i) the issuance of
the shares upon the exercise of the Option has been registered under a then
currently effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may require the Optionee to provide such other representations, written
assurances or information which the Company shall determine is necessary,
desirable or appropriate to comply with applicable securities and other laws as
a condition of granting an Option to such Optionee or permitting the Optionee to
exercise such Option. The Company may, upon advice of counsel to the Company,
place legends on stock certificates issued under the Plan as such counsel deems
11.
<PAGE>
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(g) Termination of Employment or Relationship as a Director or
Consultant. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant, or such longer or shorter period specified in the Option Agreement,
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) Disability of Optionee. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and again become available for issuance under the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and
12.
<PAGE>
the shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(i) Death of Optionee. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(j) Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(k) Withholding. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise
13.
<PAGE>
of such Option by any of the following means or by a combination of such means:
(1) tendering a cash payment; (2) authorizing the Company to withhold shares
from the shares of the common stock otherwise issuable to the Optionee as a
result of the exercise of the Option; or (3) delivering to the Company owned and
unencumbered shares of the common stock of the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep available
at all times the number of shares of stock required to satisfy such Options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Options; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or issuable
pursuant to any such Option. If, after reasonable efforts, the Company is unable
to obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
14.
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9. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which an
Option may first be exercised or the time during which an Option or any part
thereof will vest pursuant to subsection 6(e), notwithstanding the provisions in
the Option stating the time at which it may first be exercised or the time
during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Option unless and
until such person has satisfied all requirements for exercise of the Option
pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment of any Employee, with or
without cause, to remove any Director as provided in the Company's ByLaws and
the provisions of General Corporation Law of the State of Delaware, or to
terminate the relationship of any Consultant in accordance with the terms of
that Consultant's agreement with the Company or Affiliate to which such
Consultant is providing services.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Supplemental Stock
Options.
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(e) (1) The Board or the Committee shall have the authority to effect,
at any time and from time to time (i) the repricing of any outstanding Options
under the Plan and/or (ii) with the consent of the affected holders of Options,
the cancellation of any outstanding Options and the grant in substitution
therefor of new Options under the Plan covering the same or different numbers of
shares of Common Stock, but having an exercise price per share not less than
eighty-five percent (85%) of the Fair Market Value (one hundred percent (100%)
of the Fair Market Value in the case of an Incentive Stock Option or, in the
case of an Incentive Stock Option granted to a ten percent (10%) stockholder (as
defined in subsection 5(c)), not less than one hundred and ten percent (110%) of
the Fair Market Value) per share of Common Stock on the new grant date.
(2) Shares subject to an Option canceled under this subsection 9(e)
shall continue to be counted against the maximum award of Options permitted to
be granted pursuant to subsection 5(d) of the Plan. The repricing of an Option
under this subsection 9(e), resulting in a reduction of the exercise price,
shall be deemed to be a cancellation of the original Option and the grant of a
substitute Option; in the event of such repricing, both the original and the
substituted Options shall be counted against the maximum awards of Options
permitted to be granted pursuant to subsection 5(d) of the Plan. The provisions
of this subsection 9(e) shall be applicable only to the extent required by
Section 162(m) of the Code.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Option (through merger, consolidation, reorganization, recapitalization,
stock dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of
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consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a) and the maximum number of shares subject to award to any person
during any calendar year pursuant to subsection 5(d), and the outstanding
Options will be appropriately adjusted in the class(es) and number of shares and
price per share of stock subject to such outstanding Options. Such adjustments
shall be made by the Board or Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Act, or comparable successor rule) of securities of the Company representing at
least fifty percent (50%) of the combined voting power entitled to vote in the
election of directors, then to the extent permitted by applicable law: (i) any
surviving or acquiring corporation shall assume any Options outstanding under
the Plan or shall substitute similar Options (including an option to acquire the
same consideration paid to the stockholders in the transaction described in this
subsection 10(b)) for those outstanding under the Plan, or (ii) such Options
shall continue
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in full force and effect. In the event any surviving or acquiring corporation
refuses to assume such Options, or to substitute similar options for those
outstanding under the Plan, then, with respect to Options held by persons then
performing services as Employees, Directors or Consultants, the time during
which such Options may be exercised shall be accelerated prior to such event and
the Options terminated if not exercised after such acceleration and at or prior
to such event.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 10 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for Options under the
Plan;
(2) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to satisfy the requirements of Section 422 of the Code); or
(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
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(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(d) Rights and obligations under any Option granted before amendment of
the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Options; provided, however, that the rights and obligations
under any Option shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on October 24, 2005, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Options may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the written consent of the person to whom the Option was granted.
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13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Options granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
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