SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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:
[ ] Preliminary Proxy Statement [X] Definitive Proxy Statement
[ ] Definitive Additional
Materials [ ] Soliciting Materials Pursuant
to Section 240.14a-11(c) or
Section 240.14a-12
[ ] Confidential, for use of
the Commission Only (as
permitted by Rule 14a-6(e)(2))
COVER-ALL TECHNOLOGIES INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement
if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction
applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
amount on which the filing fee is calculated and state
how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously.
Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its
filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
COVER-ALL TECHNOLOGIES INC.
BRIAN MAGOWAN
Chairman of the Board and Chief Executive Officer
April 30, 1997
To All Cover-All Stockholders:
I invite you to attend the Annual Meeting of Stockholders
which will be held at the Stony Hill Inn, 231 Polifly Road,
Hackensack, New Jersey, on Thursday, June 19, 1997 at 9:30 a.m.,
local time.
The annual election of directors will take place at the
Meeting. Personal information about the nominee for the Board
of Directors as well as information about the functions of the
Board and its committees are contained in the Proxy Statement.
At the Meeting, you will also be asked to consider, vote
upon and approve the adoption by the Board of Directors of an
amendment to Cover-All's 1995 Employee Stock Option Plan (the
"Plan") to increase the aggregate number of shares of Common
Stock reserved for grant under the Plan from 600,000 to 2,000,000
and expand the eligibility requirements to receive grants under
the Plan to include non-employee directors and consultants of the
Company. Such amendment was adopted by the Board of Directors on
April 29, 1997 with the proviso that if it is approved by
stockholders, the Company will cease granting options under its
1991 Key Employee Stock Option Plan, under which 279,938 shares
of Common Stock were available for grant on the April 28, 1997,
the record date for the Meeting. The Board of Directors believes
that the increase in shares reserved under the Plan and expansion
of who is eligible to receive grants will provide the Company
with the flexibility to attract, retain and motivate a talented
workforce, including not only employees but directors and
consultants whose expertise benefit the Company.
It is important that your shares be represented at the
Meeting. Even if you plan to attend the Meeting, please sign,
date and mail promptly the enclosed proxy in the postage-paid
envelope. The vote of each stockholder is important, and it
should be recognized that a failure to return a properly executed
and dated proxy card in a timely fashion or vote in person at the
Meeting in effect constitutes a vote against each of the
proposals.
Please read the formal notice of the Annual Meeting and the
Proxy Statement carefully. For those of you who cannot be
present at the Meeting, I urge you to participate by completing,
signing and returning your Proxy in the enclosed envelope. Your
vote is important, and the management of Cover-All Technologies
Inc. appreciates the cooperation of stockholders in directing
proxies to vote at the Meeting.
Sincerely,
BRIAN MAGOWAN,
Chairman of the Board and Chief
Executive Officer
<PAGE>
COVER-ALL TECHNOLOGIES INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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TO THE STOCKHOLDERS OF COVER-ALL TECHNOLOGIES INC.:
The Annual Meeting of Stockholders (the "Meeting") of Cover-
All Technologies Inc., a Delaware corporation (the "Company"),
will be held on June 19, 1997 at 9:30 a.m., local time, at the
Stony Hill Inn, 231 Polifly Road, Hackensack, New Jersey 07601 to
consider and act upon the following:
1. To elect a class of directors consisting of one director
to serve for a term of three years and until his successor
shall have been duly elected and qualified ("Proposal No.
1").
2. To approve the adoption by the Board of Directors of an
amendment to the Company's 1995 Employee Stock Option Plan
(the "Plan") to increase the aggregate number of shares of
Common Stock reserved for grant under the Plan from 600,000
to 2,000,000 and expand the eligibility requirements to
receive grants under the Plan to include non-employee
directors and consultants of the Company. ("Proposal No.
2").
3. To transact such other business as may properly come
before the Meeting or any adjournment thereof.
Stockholders of record at the close of business on April 28,
1997, which is the record date for the Meeting, are entitled to
receive notice of, and to vote at, the Meeting and at any
adjournment thereof. A Proxy and a Proxy Statement for the
Meeting are enclosed.
All stockholders are cordially invited to attend the Meeting
in person. Whether or not you plan to attend the Meeting, please
complete, sign, date and return the enclosed Proxy, which is
solicited by the Board of Directors of the Company, to ensure
that your shares are represented at the Meeting. Stockholders
who attend the Meeting may revoke their proxies and vote their
shares in person.
By Order of the Board of Directors
ANN F. MASSEY
Secretary
Date: April 30, 1997
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IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE MARK, DATE AND
SIGN THE ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE.
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<PAGE>
COVER-ALL TECHNOLOGIES INC.
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 19, 1997
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GENERAL
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Cover-All
Technologies Inc., a Delaware corporation (the "Company"), to be
voted at the Annual Meeting of Stockholders of the Company (the
"Meeting") which will be held at the Stony Hill Inn, 231 Polifly
Road, Hackensack, New Jersey 07601, on June 19, 1997 at 9:30
a.m., local time, and at any adjournment thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting
of Stockholders and in this Proxy Statement.
The principal executive offices of the Company are located
at 18-01 Pollitt Drive, Fair Lawn, New Jersey 07410. The
approximate date on which this Proxy Statement and accompanying
Proxy will first be sent or given to stockholders is April 30,
1997.
VOTING SECURITIES AND VOTE REQUIRED
Stockholders of record as of the close of business on April
28, 1997 (the "Record Date") will be entitled to notice of, and
to vote at, the Meeting or any adjournment or adjournments
thereof. As of the Record Date, there is only one class of
voting securities of the Company outstanding, that being Common
Stock. Each holder of Common Stock on the Record Date is
entitled to one vote for each share held by such holder. The
presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Common Stock is necessary to constitute
a quorum at the Meeting. Assuming a quorum is present, (i) the
nominee for director receiving a plurality of the votes cast at
the Meeting shall be elected and (ii) the affirmative vote of the
holders of a majority of the shares of Common Stock voting at the
Meeting will be required to approve Proposal No. 2.
With regard to the election of directors, votes may be cast
in favor or withheld; votes that are withheld will be excluded
entirely from the vote and will have no effect except that votes
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withheld will be counted toward determining the presence of a
quorum for the transaction of business.
Abstentions and broker "non-votes" will be counted toward
determining the presence of a quorum for the transaction of
business. Abstentions may be specified on all proposals except
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the election of directors. With respect to proposals other
than the election of directors, abstentions will have the effect
of a negative vote. A broker "non-vote" will have no effect on
the outcome of any other proposals. The treatment of abstentions
and broker "non-votes" is consistent with applicable Delaware law
and the Company's By-Laws.
As of April 28, 1997, 16,720,297 shares of the Company's
Common Stock were issued and outstanding.
<PAGE>
VOTING OF PROXIES
Proxies are solicited by the Board of Directors of the
Company in order to provide every stockholder with an opportunity
to vote on all matters that properly come before the Meeting,
whether or not the stockholder attends in person. When the
enclosed form of proxy is properly signed, dated and returned,
the shares represented will be voted by the persons named as
proxies in accordance with the stockholder's direction. If no
direction is indicated, the shares will be voted as recommended
by the Board of Directors. The enclosed proxy confers
discretionary authority to vote with respect to the transaction
of such other business of a procedural nature or incidental to
the Meeting as may properly come before the Meeting. As of the
date of this Proxy Statement, the Board of Directors of the
Company does not know of any other matter to be brought before
the Meeting. However, if any other matters not mentioned in the
Proxy Statement are properly brought before the Meeting or any
adjournment thereof, the persons named in the enclosed Proxy or
their substitutes will have discretionary authority to vote
proxies given in said form, or otherwise act, in respect of such
matters in accordance with their best judgment. Any stockholder
executing a form of proxy may revoke that proxy or may submit a
revised form of proxy at any time before it is voted. A
stockholder may also vote by ballot at the Annual Meeting,
thereby canceling any proxy previously returned.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS
The following table contains information as of the Record
Date as to the number of shares of Common Stock beneficially
owned by (i) each person known by the Company to own beneficially
more than 5% of the Company's Common Stock, (ii) each person who
is a director of the Company, (iii) the executive officers for
whom information is included in the Summary Compensation Table,
and (iv) all persons as a group who are directors and executive
officers of the Company, and as to the percentage of outstanding
shares held by such person on that date.
Amount Percent
Status of Beneficially of
Name and Address Beneficial Owner Owned(1) Class(2)
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Harvey Krieger Beneficial Owner of 1,191,253(3) 7.1%
18-01 Pollitt Drive more than 5% of the
Fair Lawn, NJ 07410 Company's Common
Stock and current
Consultant to the
Company
Alfred J. Moccia Former Chairman of the 1,393 *
23 Dante Street Board and Former Chief
Larchmont, NY 10538 Executive Officer
James R. Stallard Director 10,000(4) *
1601 Chestnut Street -
TLP 44
Two Liberty Place
Philadelphia, PA 19192
Brian Magowan Chairman of the Board 100,000(5) *
18-01 Pollitt Drive and Chief Executive
Fair Lawn, NJ 07410 Officer
Earl Gallegos Director and a 37,500(6) *
18-01 Pollitt Drive Consultant to the
Fair Lawn, NJ 07410 Company
Ian Meredith Director 0 *
18-01 Pollitt Drive
Fair Lawn, NJ 07410
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Amount Percent
Status of Beneficially of
Name and Address Beneficial Owner Owned(1) Class(2)
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Mark D. Johnston Chief Financial Officer 205,000(7) *
P.O. Box 839 and Director
St. Helier, Jersey
Channel Islands, JE4 9NZ
Peter C. Lynch President and Chief 49,900(8) *
18-01 Pollitt Drive Operating Officer of
Fair Lawn, NJ 07410 the Company and
President and Chief
Operations Officer of
COVER-ALL
Raul F. Calvo Vice President and 32,350(9) *
18-01 Pollitt Drive Chief Accounting
Fair Lawn, NJ 07410 Officer
Software Investments Beneficial Owner of 3,903,706 23.3%
Limited more than 5% of the
Abbot Building Company's Common
P.O. Box 3186 Stock
Main Street
Road Town
Tortola, British Virgin
Islands
Care Corporation Limited Beneficial Owner of 2,500,000 15.0%
Abbot Building more than 5% of the
P.O. Box 3186 Company's Common
Main Street Stock
Road Town
Tortola, British Virgin
Islands
Atlantic Employers Beneficial Owner of 1,238,273 7.4%
Insurance Company more than 5% of the
1601 Chestnut Street Company's Common
Two Liberty Place Stock
Philadelphia, PA 19192
All directors and 434,750(4) 2.6%
executive officers (5)(6)(7)
as a group (consisting (8)
of 7 persons)
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* Less than one percent.
(1) Includes options exercisable within sixty (60) days of the date as of
which beneficial ownership is determined, pursuant to Rule 13d-3 under
the Securities Exchange Act of 1934, as amended.
(2) Based upon 16,720,297 total outstanding shares of Common Stock on the
Record Date.
(3) Includes 22,989 shares owned by Mr. Krieger's wife and minor children,
as to which Mr. Krieger disclaims beneficial ownership.
(4) Represents options to purchase 10,000 shares at an exercise price of
$4.50 per share pursuant to the Company's 1994 Stock Option Plan for
Independent Directors.
(5) Represents options to purchase 100,000 shares at an exercise price of
$1.25 per share pursuant to the Company's 1995 Employee Stock Option
Plan.
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(6) Represents options to purchase 37,500 shares at an exercise price of
$1.25 per share pursuant to the Company's 1995 Employee Stock Option
Plan.
(7) Represents options to purchase 10,000 shares at an exercise price of
$4.50 per share pursuant to the Company's 1994 Stock Option Plan for
Independent Directors and options to purchase 195,000 shares at an
exercise price of $2.00 per share pursuant to the Company's 1995
Employee Stock Option Plan.
(8) Represents options to purchase 12,500 shares at an exercise price of
$2.25 per share pursuant to the Company's 1991 Key Employee Stock
Option Plan and options to purchase 5,000 shares at an exercise price
of $1.75 per share, options to purchase 20,000 shares at an exercise
price of $5.00 per share and options to purchase 12,400 shares at an
exercise price of $2.00 per share pursuant to the Company's 1995
Employee Stock Option Plan.
(9) Represents options to purchase 7,500 shares at an exercise price of
$2.25 per share pursuant to the Company's 1991 Key Employee Stock
Option Plan and options to purchase 5,000 shares at an exercise price
of $1.75 per share, options to purchase 10,000 shares at an exercise
price of $5.00 per share, and options to purchase 9,850 shares at an
exercise price of $2.00 per share pursuant to the Company's 1995
Employee Stock Options Plan.
PROPOSAL NO. 1 - ELECTION OF DIRECTOR
There are five members of the Board of Directors of the
Company classified into three classes, with the three-year term
of office of each class expiring at the Annual Meeting of
Stockholders in successive years, upon the election and
qualification of successor classes. The term of office of one
director will expire at the Meeting. The Director in the class
subject to election will be elected to serve for a term of three
years and until his successor shall have been elected and
qualified.
The nominee for the class to be elected at the Meeting is
Brian Magowan. Mr. Magowan was named a director of the Company
in March 1997.
The Company's By-Laws provide for seven members of the Board
of Directors. There were two vacancies as of the Record Date.
In connection with the issuance of the Company's 12 1/2%
Convertible Debentures ("the Debentures") in March 1997 to Tandem
Capital, Inc. ("Tandem"), an affiliate of Sirrom Capital
Corporation, Tandem has the right, which it had not exercised as
of the Record Date, to require that its nominee be elected to the
Board of Directors as a member of the class whose term expires in
1998. As of the Record Date, the Board of Directors had not
filled the second vacancy. Proxies may not be voted for a
greater number of persons than the one nominee named.
Unless otherwise indicated, all proxies received will be
voted in favor of the election to the Board of Directors of the
nominee named above. Should such nominee not remain a candidate
for election at the date of the Meeting (which contingency is not
now contemplated or foreseen by the Board of Directors), proxies
solicited hereby will be voted in favor of the nominee who does
remain a candidate and may be voted for a substitute nominee
selected by the Board of Directors. The nominee for director
receiving a plurality of the votes cast at the Meeting shall be
elected. Shares represented by proxy as to which authority to
vote for the named nominee is properly "withheld" will not be
counted either "for" or "against" in determining a plurality for
such nominee.
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The following table lists the names of the directors and the
nominee for Director, their ages, their current positions with
the Company and the expiration date of their term as director of
the Company.
Term as
Director
Name Age Position Expires
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Brian Magowan . . . . . . . 55 Chairman of the 1997*
Board of
Directors and
Chief Executive
Officer
Earl Gallegos . . . . . . . . 39 Director 1999
James R. Stallard . . . . . . 44 Director 1998
Mark D. Johnston . . . . . . 39 Director and 1999
Chief
Financial
Officer
Ian Meredith . . . . . . . . 48 Director 1998
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* Term of class expires at the Meeting. Director indicated is a
nominee for re-election.
Brian Magowan has served as Chairman and Chief Executive
Officer of the Company since March 1997. From 1971 until August
1993 Mr. Magowan worked for the Unisys Corporation in various
capacities. In his last position with Unisys he was Vice
President and General Manager of the Software Products Group.
Between September 1993 and March 1997, Mr. Magowan has served as
Managing Partner of Turnbury Associates. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
Earl Gallegos was named a director of the Company in March
1997. Mr. Gallegos is a former Executive Vice President of
Operations for Pacific Rim Assurance Company. Mr. Gallegos spent
seven years working within all aspects of the workers'
compensation insurance company. Within the last three years, Mr.
Gallegos founded his own consulting firm in which he performs
management consulting within the insurance and software
industries. Some of his larger projects include implementation
and management of a software system to support a statewide
managed care program and the founding of a twenty-four hour
managed care company in the state of California. See
"COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS - EMPLOYMENT
AGREEMENTS WITH EXECUTIVE OFFICERS."
James R. Stallard was elected a director of the Company in
1996. Mr. Stallard joined CIGNA in August 1994 and was named a
Senior Vice President of CIGNA's Property and Casualty Management
Facility in March 1996. Mr. Stallard has held a variety of
management positions in underwriting, administration and systems
in the property and casualty insurance industry for nearly 23
years, and for 21 years was employed by Transamerica Insurance
Company (now known as TIG). Mr. Stallard was elected to the
Board of Directors of the Company pursuant to a Restructuring
Agreement dated as of March 1, 1996 among the Company and several
customers and parties to two lawsuits. Under the Restructuring
Agreement, the Company agreed to elect to its Board of Directors
one designee selected by a majority in amount of the settlement
shares issued pursuant to the Restructuring Agreement. Mr.
Stallard, as designee, was elected as a director in the Class of
1998 and will be subject to reelection at the Company's 1998
Annual Meeting of Stockholders. Beginning with the 1998 Annual
Meeting, the Company will include Mr. Stallard, or any successor
designee selected by a majority in amount of the settlement
shares issued pursuant to the Restructuring Agreement, as a
nominee in management's slate of directors for such annual
meeting, and the Company shall recommend to its stockholders the
election of such designee or successor as a director. In the
event that such designee is not elected as a director at the 1998
Annual Meeting, the Company shall, following said meeting, elect
the designee to its Board of Directors to serve for a period
equal to the remainder of the three-year period and amend its By-
Laws to create any vacancy, if required. The Company further
agreed that if the designee dies or resigns, his successor will
be designated a director. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
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Mark D. Johnston was elected a director of the Company in
1996 and named Chief Financial Officer in 1997 on an interim
basis until September 30, 1997 or until a permanent replacement
is appointed, whichever is earlier. Mr. Johnston is an executive
director of Software Investments Limited ("SIL") and Care
Corporation Limited ("Care"), both of which are British Virgin
Islands companies. For the past 5 years his responsibilities
have been centered on treasury operations, including currency
management and management of investments in international bonds,
equities and derivatives. Mr. Johnston has also been involved in
the development of educational software for use on multimedia
personal computers for the past five years and has gained
considerable experience in the rapid changes occurring in the
computer industry. Mr. Johnston is also a director of
International Insurance Technologies, Inc., a software consulting
company in Tampa, Florida. Mr. Johnston was elected to the Board
of Directors pursuant to the terms of a Stock Purchase Agreement
dated as of March 31, 1996 among the Company, SIL and Care.
Under the Stock Purchase Agreement, the Company agreed to elect
Mr. Johnston as a director in the Class of 1996 as the designee
of SIL and Care. The Company further agreed that a designee,
which may be Mr. Johnston or a successor designated by SIL and
Care, shall be included as one of the management nominees for
director of the Company at each meeting of stockholders,
beginning with the 1996 Annual Meeting, and that if the designee
is not elected at the 1996 Annual Meeting or any subsequent
annual meeting called for the purpose of reelecting or electing
such class of directors, the Company shall, following such
meeting, elect the designee to its Board of Directors to serve
for a period equal to the remainder of the term of such class of
directors and amend its By-Laws to create any vacancy, if
required. The Stock Purchase Agreement further stipulates that
if, at any time, any designee shall decline or be unable to serve
as a director of the Company, another designee shall be elected
as a director to fill the vacancy thus created. Each designee
shall have all voting and other rights provided to directors of
the Company generally. The Company shall be required to comply
with the Stock Purchase Agreement for as long as SIL and Care
collectively hold an aggregate of 20% or more of the issued and
outstanding shares of the Company's Common Stock. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
Ian J. Meredith was named a director of the Company in March
1997. Mr. Meredith is the Chief Executive Officer of
International Insurance Technologies Inc., a software consulting
company headquartered in Tampa, Florida. His primary
responsibility is to promote marketing and sales of insurance
software internationally. Mr. Meredith is a director of
Care Systems Corporation, a Delaware corporation and an affiliate
of Care ("CSC"), specializing in software and services to the
workers' compensation industry in the United States. In 1992,
Mr. Meredith, as CEO and Chairman, founded CSC to develop
proprietary software for the insurance and employer markets.
In addition to Mr. Magowan who is the Chief Executive
Officer and Mr. Johnston who is the Chief Financial Officer of
the Company on an interim basis, both of whom are directors of
the Company listed above, Peter C. Lynch is the President and
Chief Operating Officer of the Company and President and Chief
Operations Officer of COVER-ALL, Raul F. Calvo is the Vice
President and Chief Accounting Officer of the Company and Ann F.
Massey is the Secretary of the Company.
Peter C. Lynch (age 36) has served as the President and
Chief Operating Officer of the Company since June, 1996. Mr.
Lynch joined the Company as Vice President of Sales and Marketing
of COVER-ALL in July 1994. He was appointed President and Chief
Operations Officer COVER-ALL in 1995. Prior to joining the
Company, Mr. Lynch held various sales and operations positions
within AT&T as part of their executive development program.
Raul F. Calvo (age 67) has served as the Company's Vice
President since March 1996. From 1989 until February 1996, Mr.
Calvo served as the Director of Operations and Vice President for
the JUA/MTF program, the automobile insurance assigned risk pool
of the State of New Jersey. In 1994, Mr. Calvo was appointed
Chief Financial Officer and Treasurer of COVER-ALL, and in August
1995 he was appointed Chief Accounting Officer for the Company.
Mr. Calvo maintains both positions presently.
Ann F. Massey (age 39) has served as the Company's Corporate
Secretary since April 1997. From 1994 until February 1996, Ms.
Massey served as Assistant Controller for the insurance services
6
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division of the Company. Prior to 1994, Ms. Massey served as the
Company's Accounting Manager. In March 1996, Ms. Massey was
appointed Assistant Treasurer of the Company and in March 1997
she was appointed Controller of the Company.
BOARD OF DIRECTORS AND COMMITTEES
There were 13 meetings of the Board of Directors of the
Company held during the last fiscal year. All current directors
attended at least 75% of the total number of meetings of the
Board and all committee meetings of the Board on which the
director served. In addition, the Board acted by unanimous
written consent on 3 occasions.
The Board of Directors has standing Compensation and Audit
Committees. The full Board of Directors administers each of the
1991 Key Employee Stock Option Plan (the "KESO Plan") and 1995
Employee Stock Option Plan (as previously defined, the "Plan").
The Company does not have a standing nominating committee.
The present members of the Compensation Committee are
Messrs. Magowan and Johnston. The principal functions of the
Compensation Committee are to review current and proposed
employment arrangements with existing and prospective senior
employees. During the fiscal year ended December 31, 1996, the
Compensation Committee met on one occasion.
The present members of the Audit Committee are Messrs.
Stallard and Gallegos. The Audit Committee's principal functions
are to consider matters relating to the administration and audit
of the Company's accounts and its financial affairs; to supervise
the Company's relationship with its independent auditors; to
recommend the appointment of independent auditors; and to meet
with Company personnel as it deems appropriate to carry out its
functions. During the fiscal year ended December 31, 1996, the
Audit Committee met on one occasion.
In administering the KESO Plan and/or the Plan, the Board
Directors' principal function is to administer the respective
plans, including selecting the employees to whom options will be
granted, determining the number of options to be granted to any
such employee, when options are to be granted, the terms of the
options and any conditions to be attached to the options and
establishing rules and regulations for the administration of the
respective plans.
PROPOSAL NO. 2 - PROPOSED AMENDMENT TO
THE 1995 EMPLOYEE STOCK OPTION PLAN
GENERAL
The Board of Directors proposes the approval of an
amendment, adopted by the Board of Directors on April 29, 1997,
to the Company's 1995 Employee Stock Option Plan (the "Plan") to
increase the aggregate number of shares of Common Stock that may
be granted under the Plan by 1,400,000, from 600,000 to 2,000,000
shares, and expand the eligibility requirements to receive grants
under the Plan to include non-employee directors and consultants
of the Company. The amendment to the Plan was adopted by the
Board of Directors with the proviso that if it is approved by
stockholders, the Company will cease granting options under the
KESO Plan, under which 279,938 shares of the Common Stock were
available for grant on the Record Date.
As of the Record Date, there were 190,175 shares of Common
Stock available for grant under the Plan. However, the Company
has granted five year options to purchase an aggregate of 632,500
shares of Common Stock to Messrs. Magowan, Johnston and Gallegos
and has contractual obligations to grant additional five year
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options to purchase 212,500 shares of Common Stock to Mr.
Gallegos, all of which are contingent upon, in the case of Mr.
Magowan, the Company's Common Stock trading at certain levels for
specified periods of time and, in the case of Messrs. Johnston
and Gallegos, their continued service to the Company as Chief
Financial Officer and Consultant, respectively. Additionally,
Mr. Gallegos shall be entitled to receive as a bonus, five year
options to purchase 250,000 shares of Common Stock if the Company
achieves certain projected sales goals for fiscal 1997. All
grants to Messrs. Magowan, Johnston and Gallegos are subject to
stockholder approval of Proposal No. 2. See "COMPENSATION OF
EXECUTIVE OFFICERS AND DIRECTORS - EMPLOYMENT AGREEMENTS OF
EXECUTIVE OFFICERS."
The closing sales price of the Company's Common Stock, as
reported by the Nasdaq SmallCap Market, was $1 9/16 per share on
the Record Date.
The Board of Directors believes that, as a result of the
Corporation's anticipated growth, it will be necessary to hire
additional personnel. In view of these personnel needs, together
with the Corporation's long-term goal of utilizing options as a
component of the remuneration paid to management, the Board of
Directors is of the opinion that it is appropriate that stock
options be available to attract and retain well qualified
executive and other personnel and to furnish an additional
incentive to those persons. Further, the Board of Directors
believes that including non-employee directors and consultants as
eligible participants under the Plan will consolidate the
administration of its stock option plans by having a single
discretionary plan available to all of the Company's employees,
non-employee directors and consultants. Accordingly, the Board
of Directors proposes to increase the number of shares of Common
Stock available for issuance under the Plan by an additional
1,400,000 shares, from 600,000 shares to 2,000,000 shares and to
include non-employee directors and consultants as persons
eligible to receive grants under the Plan.
A detailed summary description of the Plan is set forth in
Annex A to this Proxy Statement.
NEW PLAN BENEFITS
The following table summarizes the benefits that will be
received by each person identified in the table under the
proposed amendment to the Plan.
Name and Position Dollar Value($) Number of Units
----------------- --------------- ---------------
Brian Magowan 500,000 400,000
Chairman of the
Board and Chief
Executive Officer
Earl Gallegos 625,000 500,000
Director and a
Consultant to the
Company
Mark D. Johnston 390,000 195,000
Director and
Chief Financial
Officer
Peter C. Lynch 150,000 100,000
President and Chief
Operating Officer
of the Company and
President and Chief
Operations Officer
of COVER-ALL
Executive Group 1,040,000 695,000
Non-Executive
Director Group 625,000 500,000
8
<PAGE>
VOTE REQUIRED
In accordance with applicable Delaware law and the Company's
Plan, approval of Proposal No. 2 to amend the Plan requires the
affirmative vote of the holders of a majority of the shares of
Common Stock voting at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
APPROVE THE AMENDMENT TO THE COMPANY'S 1995 EMPLOYEE STOCK OPTION
PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR GRANT AND
EXPAND THE ELIGIBILITY REQUIREMENTS TO RECEIVE GRANTS AND
ACCORDINGLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL NO. 2.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1996, the Company entered into a series of
agreements which provided for the transfer and discontinuance of
its Insurance Services Division ("ISD") operations and the
issuance of the Company's Common Stock and warrants to purchase
Common Stock (the "Restructuring Warrants") to (i) certain
customers of the ISD business in exchange for the release of the
Company from its obligations to provide insurance services to ISD
customers and (ii) The Robert Plan Corporation in exchange for
the settlement and dismissal of lawsuits with The Robert Plan
Corporation.
As part of the restructuring transactions (the
"Restructuring"), the Company transferred certain assets,
employees, contracts and leased premises relating to its ISD
business to a subsidiary of The Robert Plan Corporation, which
has replaced the Company as the provider of insurance services to
the ISD customers. In exchange for settling the lawsuits,
releasing the Company's obligations to provide insurance services
under its contracts and executing the mutual releases, the
Company issued to certain of the ISD customers and certain
parties to the litigation: (a) a total of 3,256,201 shares of
the Company's Common Stock, (b) five-year Restructuring Warrants
to purchase up to an additional aggregate of 1,553,125 shares of
the Company's Common Stock at $2.00 per share, and (c) cash of
$2.5 million. The Company had the option, exercisable for a
period of six months (from March 1, 1996), to (i) purchase 50% of
the aforementioned 3,256,201 shares at a cash price equal to the
greater of $3.00 or 50% of the then market price of a share of
the Company's Common Stock, and (ii) acquire 50% of the 1,553,125
Restructuring Warrants at a cash price equal to $1.00 per
Warrant. As discussed below, on March 31, 1996, the Company
assigned this purchase option to SIL, which SIL subsequently
exercised. As a result of the SIL and Care transactions of March
31, 1996 described below, the antidilution provisions of the
Restructuring Warrants required an adjustment of shares to
1,725,694 from 1,553,125 and a price adjustment to $1.80 from
$2.00 per share. Further, as a result of the issuance of the
Debentures to Tandem on March 31, 1997, the remaining
Restructuring Warrants required an adjustment of shares to
902,979 and a price adjustment to $1.72 per share.
As part of the restructuring, Atlantic Employers Insurance
Company ("AEIC"), a CIGNA Property and Casualty company and ISD
customer, initially acquired 2,476,547 shares of the Company's
Common Stock, Restructuring Warrants to purchase 1,181,250 shares
and $675,000 in cash as part of the Restructuring, and on the
Record Date held 1,238,273 of the shares and 656,250 of the such
warrants. James R. Stallard, Vice President of CIGNA Property
and Casualty, was designated as a director of the Company
pursuant to the terms of the Restructuring Agreement.
On March 31, 1996, the Company entered into a series of
transactions with SIL and Care whereby the Company: (A) sold to
SIL for total proceeds of $3,022,391: (i) 1,412,758 shares of the
Company's Common Stock for $2.00 per share, and (ii) five-year
warrants (the "SIL Warrants") to purchase an aggregate of 196,875
shares of the Company's Common Stock, exercisable at $2.00 per
share, for $1.00 per SIL Warrant ($196,875), and (B) assigned to
SIL the rights it retained in the Restructuring to repurchase
within six months 1,628,100 shares of the Company's Common Stock
for the greater of $3.00 per share or 50 percent of the then
9
<PAGE>
market price of the Company's Common Stock and its rights to
purchase from the warrantholders for $1.00 per warrant,
Restructuring Warrants to acquire 776,562 shares of the Company's
Common Stock at $2.00 per share which was subsequently exercised
by SIL. As a result of the SIL investment, the antidilution
provisions of the Restructuring Warrants purchased by SIL
required an adjustment from 776,562 shares at $2.00 share to
862,847 shares at $1.80 per share. As a result of the issuance
of the Debentures to Tandem on March 31, 1997, the SIL Warrants
required an adjustment of shares to 206,152 and a price
adjustment to $1.91 per share.
SIL is controlled by The Software Trust, a Jersey, Channel
Islands Discretionary Settlement, which owns all of the issued
capital of SIL as its sole asset. The Care Trust, a Jersey,
Channel Islands Discretionary Settlement, owns a majority
interest in the issued capital of Care as its sole asset. The
beneficiaries of both The Software Trust and The Care Trust are
the family interests of Mark D. Johnston. Mr. Johnston is an
executive director of each of SIL and Care, but does not have a
direct interest in either The Software Trust or The Care Trust.
In March 1997, Mark D. Johnston was appointed Chief Financial
Officer of the Company on an interim basis until September 30,
1997 or until a permanent replacement is appointed, whichever is
earlier. See "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
- EMPLOYMENT AGREEMENTS OF EXECUTIVE OFFICERS."
In March 1997, the Company engaged Brian Magowan as Chief
Executive Officer of the Company with compensation to paid by the
Company to Turnbury Associates, a consulting firm of which Mr.
Magowan is a managing partner. See "COMPENSATION OF EXECUTIVE
OFFICERS AND DIRECTORS - EMPLOYMENT AGREEMENTS OF EXECUTIVE
OFFICERS."
In March 1997, the Company engaged Earl Gallegos, a director
of the Company, as a consultant. See "COMPENSATION OF EXECUTIVE
OFFICERS AND DIRECTORS - EMPLOYMENT AGREEMENTS OF EXECUTIVE
OFFICERS."
A former director of the Company is a partner in a law firm
with which the Company incurred legal expenses of approximately
$600,000 in fiscal 1996.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF
1934
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file
initial reports of ownership and reports of changes in ownership
with the Securities and Exchange Commission. The Company
believes that, during the fiscal year ended December 31, 1996,
its executive officers, directors and holders of more than 10% of
the Company's Common Stock complied with all Section 16(a) filing
requirements. In making these statements, the Company has relied
upon a review of reports on Forms 3, 4 and 5 furnished to the
Company during, or with respect to, its last fiscal year.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes all compensation earned or
paid to (i) the Company's current and former Chief Executive
Officers, (ii) each of the Company's other executive officers
whose total annual salary and bonus exceeded $100,000 and (iii)
two additional executive officers who were no longer serving at
December 31, 1996, in each case for services rendered in all
capacities to the Company during the fiscal years ended December
31, 1996, 1995 and 1994.
10
<PAGE>
ANNUAL COMPENSATION
-------------------
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
------------------ ---- ------ ----- ------------
Brian Magowan 1996 $______ $ - $139,500(1)
Chairman of the
Board and 1995 - - 119,400(1)
Chief Executive 1994 - - -
Officer
Alfred J. Moccia 1996 120,000 - -
Former Chairman 1995 45,385 - -
of the Board and 1994 - - -
Chief Executive
Officer
3,000 Board
Mark D. Johnston 1996 Fees
Interim Chief
Financial
Officer 1995 - - -
and Director 1994 - - -
Theodore I. Botter 1996 119,231 - -
Former Secretary 1995 162,032 - -
and General Counsel 1994 189,038 - -
Peter C. Lynch 1996 157,762 - 53,510
President of the
Company and 1995 154,578 - -
Chief Operating
Officer of
COVER-ALL 1994 64,154 - -
Raul F. Calvo 1996 136,800 - -
Vice President 1995 114,423 - -
1994 107,907 - -
87,500
Harvey Krieger 1996 144,896 - consulting
1995 350,987 - -
1994 385,400 - -
LONG TERM COMPENSATION(1)
---------------------------------------------
AWARDS PAYOUTS
---------------------------------
ALL
RESTRICTED SECURITIES OTHER
NAME AND STOCK UNDERLYING LTIP COMPEN-
PRINCIPAL POSITION AWARD(S) OPTIONS PAYOUTS SATION(2)
------------------ ---------- ---------- ------- ---------
Brian Magowan - - - $ -
Chairman of the
Board and - - - -
Chief Executive - 20,000 - -
Officer
Alfred J. Moccia - -
Former Chairman of - - -
the Board and - 10,000 -
Chief Executive
Officer
Mark D. Johnston - 10,000 - -
Interim Chief
Financial Officer - - - -
and Director - - - -
Theodore I. Botter - - - -
Former Secretary and - 50,000 - 468
General Counsel - 12,000 - 5,685
Peter C. Lynch - 54,800 - -
President of the
Company and - 55,000 - -
Chief Operating
Officer of COVER-ALL - - - -
Raul F. Calvo - 34,700 - -
Vice President - 35,000 - -
- - - -
Harvey Krieger - -
- - - 9,725
- - - 7,413
--------------
(1) Represents amounts paid to Turnbury Associates ("Turnbury"), a
consulting firm of which Mr. Magowan is a manager partner, pursuant to
consulting arrangements between the Company and Turnbury which were
terminated as of March 14, 1997, the date on which Mr. Magowan was
engaged as Chief Executive Officer of the Company.
(2) All amounts represent insurance premiums paid by the Company during
the fiscal years specified with respect to group term life insurance
for the benefit of the named executive officers.
11
<PAGE>
GRANTS AND EXERCISES OF STOCK OPTIONS
The following table sets forth certain information with
respect to stock options granted during the 1996 fiscal year to
the executive officers of the Company listed in the Summary
Compensation Table. The table also discloses the gain or
"spread" that would be realized if the options granted were
exercised on the expiration date assuming the Company's stock
price had appreciated by the percentage levels indicated annually
from the market price on the date of grant.
INDIVIDUAL GRANTS
------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE DATE
---- ------- ----------- -------- ----------
Brian Magowan - - - -
Alfred J. Moccia - - - -
Mark D. Johnston 10,000 3.0% $4.50 4/15/01
Theodore I. Botter - - - -
Peter C. Lynch 30,000 8.9 5.00 4/16/01
24,800 7.4 2.00 9/29/98
Raul F. Calvo 15,000 4.4 5.00 4/16/01
19,700 5.8 2.00 9/29/98
Harvey Krieger - - - -
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION TERM
-------------------------------------
NAME 5% 10%
---- ---- ----
Brian Magowan - -
Alfred J. Moccia - -
Mark D. Johnston $12,500 $27,500
Theodore I. Botter - -
Peter C. Lynch 41,500 91,500
5,000 10,500
Raul F. Calvo 21,000 46,000
4,000 8,000
Harvey Krieger - -
Harvey Krieger exercised options to purchase 60,125 shares of
the Company's Common Stock at an exercise price of $3.53
resulting in a realized gain of $99,372. The following table
sets forth outstanding stock options held by the executive
officers of the Company listed in the Summary Compensation
Table at December 31, 1996.
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR- FISCAL YEAR-
END END(1)
(#) ($)
NUMBER OF - - - - - - - - - - - - - -
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------- -------------
Brian Magowan - - - -
Alfred J. Moccia - - 10,000/0 -
Mark D. Johnston - - 10,000/0 -
Peter C. Lynch - - 27,500/69,800 -
Raul F. Calvo - - 17,500/44,700 -
Harvey Krieger 60,125 99,372 - -
---------------
(1) Based upon the fair market value, $1.50, of the Company's
Common Stock on December 31, 1996 on The Nasdaq SmallCap
Market, no options were "in the money."
12
<PAGE>
EMPLOYMENT AGREEMENTS OF EXECUTIVE OFFICERS
The Company has a consulting agreement with Harvey Krieger
pursuant to which the Company pays Mr. Krieger annual
compensation of $150,000. The agreement terminates on May 31,
1997 and will not be renewed. The Company also has a one-year
service agreement with Mr. Botter pursuant to which the Company
pays Mr. Botter an annual compensation of $50,000. The agreement
terminates on July 31, 1997 and will not be renewed.
On March 1, 1996, the Company and COVER-ALL entered into an
employment agreement with Peter C. Lynch, President and Chief
Operating Officer of the Company and President and Chief Operations
Officer of COVER-ALL. The employment agreement has a two-year
term expiring on February 28, 1998 and provides for compensation
at the annual rate of $165,000 for the first year and $189,750 for
the second year of employment as well as for each successive year
of employment thereafter, if the renewal option is exercised. The
employment agreement may be renewed for successive one year terms
jointly by the Company and Mr. Lynch by providing written notice
of renewal to each other at least 90 days prior to the expiration
of the then current term. The agreement provides that if Mr. Lynch's
employment is terminated during the employment term for any
reason, other than for cause, death or disability, the Company
will pay Mr. Lynch an amount equal to the remaining salary to
which he would have been entitled if his employment had not been
terminated before the end of the employment term plus six month's
salary. If Mr. Lynch's employment is terminated by the Company
after the employment term for any reason, including expiration of
the employment term without renewal thereof by the Company, and
other than for cause, death or disability, the Company will pay
Mr. Lynch six month's salary.
On April 1, 1996, the Company and COVER-ALL entered into an
employment agreement with Raul F. Calvo, Vice-President and Chief
Accounting Officer of the Company. The employment agreement
expires on December 31, 1998 and provides for compensation at the
annual rate of $131,250. The employment agreement may be renewed
for successive one year terms jointly by the Company and Mr.
Calvo by providing written notice of renewal to each other at
least 90 days prior to the expiration of the then current term.
The agreement provides that if Mr. Calvo's employment is
terminated during the employment term for any reason, other than
for cause, death or disability, the Company will pay Mr. Calvo
his salary to the end of the employment term, but not less than
six (6) month's salary, unless the termination is by reason of
death or disability, in which case the Company shall pay to Mr.
Calvo, or his estate in the case of death, an amount equal to six
month's salary. If Mr. Calvo's employment is terminated by the
Company after the employment term for any reason, including
expiration of the employment term without renewal thereof by the
Company, and other than for cause, death or disability, the
Company will pay Mr. Calvo six month's salary.
In March 1997, the Company engaged Brian Magowan as Chief
Executive Officer of the Company. Pursuant to a compensation
package amended by the Board of Directors on April 29, 1997, the
Company will pay Turnbury Associates ("Turnbury"), a consulting
firm of which Mr. Magowan is a managing partner, $12,500 per month,
plus expenses, for services rendered by Mr. Magowan. Additionally,
the Company granted Mr. Magowan five year options to purchase
400,000 shares of Common Stock, exercisable at $1.25 per share,
100,000 of which the Board of Directors deemed vested on April 29,
1997 and the remainder of which will vest in three blocks of 100,000
shares each when the price of the Company's Common Stock closes for
five consecutive days at $4.00, $6.00 and $8.00, respectively, for
each such block. In conjunction with the vesting of the first
100,000 of the 400,000 shares, the Master Distribution Agreement
between the Company and Turnbury, which appointed Turnbury as the
Company's exclusive worldwide marketing representative for the
solicitation and management of indirect resellers of the Company's
products, terminated. Mr. Magowan will also be entitled to receive
a bonus payment of $100,000 if the Company achieves certain projected
sales goals for fiscal 1997. Additionally, the Company will reimburse
Mr. Magowan for certain business expenses. Mr. Magowan's engagement
as Chief Executive Officer is terminable by either Mr. Magowan or the
Company on 30 days' notice.
In March 1997, the Company engaged Mark D. Johnston as Chief
Financial Officer of the Company on an interim basis until
September 30, 1997 or until a permanent replacement is appointed,
whichever is earlier. Pursuant to a compensation package amended by
the Board of Directors on April 29, 1997, as compensation for Mr.
13
<PAGE>
Johnston's services, the Company granted Mr. Johnston five year
options to purchase 195,000 shares of Common Stock, exercisable at
$2.00 per share, representing 30,000 shares for each month during
which Mr. Johnston has been engaged to act as Chief Financial Officer.
Mr. Johnston will forfeit 30,000 shares for each month that he
does not serve as Chief Financial Officer prior to the end of his
engagement term on September 30, 1997. Additionally, the Company
will reimburse Mr. Johnston for certain business expenses. Mr.
Johnston's engagement as Chief Financial Officer is terminable by
either Mr. Johnston or the Company on 30 days' notice.
In March 1997, the Company engaged Earl Gallegos, a director
of the Company, as a consultant with an engagement period through
January 15, 1998. The engagement provides for Mr. Gallegos to
devote his full business time to performing consulting services
for the Company no less than eight days per month. Pursuant to a
compensation package amended by the Board of Directors on April 29,
1997, as compensation for Mr. Gallegos' services, the Company will
grant Mr. Gallegos five year options to purchase 25,000 shares of
Common Stock, exercisable at $1.25 per share, with respect to each
month during which Mr. Gallegos performs such duties, all of which
vest when granted. As of April 29, 1997, such options to purchase
37,500 shares of Common Stock has been granted. Mr. Gallegos will
also be entitled to receive as a bonus, five year options to purchase
an additional 250,000 shares of Common Stock,exercisable at $1.25 per
share, if the Company achieves certain projected sales goals for
fiscal 1997. Additionally, the Company will reimburse Mr. Gallegos
for certain business expenses. Mr. Gallegos' engagement is terminable
by either Mr. Gallegos or the Company on 30 days' notice.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1996, the Compensation Committee
consisted of Alfred J. Moccia, Leonard Gubar and Peter R. Lasusa,
all of whom resigned as directors of the Company in March 1997.
Mr. Moccia also served as Chairman of the Board and Chief
Executive Officer of the Company until March 1997. Mr. Gubar is
a partner of Reid & Priest LLP, which performed legal services
for the Company during the fiscal year ended December 31, 1996
and the Company expects that such law firm will render legal
services to the Company in the future. The present compensation
Committee consists of Messrs. Magowan and Johnston. Mr. Magowan
serves as the Chairman of the Board and Chief Executive Officer
of the Company. Mr. Johnston serves as a director and as the
Chief Financial Officer of the Company on an interim basis until
September 30, 1997 or until a permanent replacement is appointed,
whichever is earlier. Mr. Johnston is also an executive director
of each of SIL and Care. Other than as disclosed, no executive
officer of the Company had any relationship reportable under the
Compensation Committee Interlock regulations during 1996.
COMPENSATION OF DIRECTORS
In 1996, the Company's outside directors were to each
receive $12,000 annually for their services as a director of the
Company, payable in equal quarterly installments, plus $300 for
each Board meeting and committee meeting attended. Such fees
were suspended in September 1996. In 1997, the Company's outside
directors shall not receive any compensation for their services
as directors of the Company.
14
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation program developed by the Compensation
Committee has required management to set goals at the beginning
of each fiscal year for increasing income before taxes from the
previous year in order to evaluate management's performance.
Salary increases for each fiscal year have been based upon the
Company attaining the earnings performance targets for the
preceding fiscal year, unusual achievements, and cost of living.
Bonuses, if any, are divided among the executive group after
evaluation of each individual's performance, in consultation with
senior management. Option grants are similarly based. The
Chairman of the Board and Chief Executive Officer of the Company
is separately evaluated by the Committee which takes into
consideration overall Company performance in attaining
established targets for income before taxes and developing and
achieving short term and long term goals for the Company's
business. For fiscal 1996, no bonuses were paid with respect to
1995 performance due to the Company's continuing financial
difficulties. In 1996, the Company entered into (i) a one-year
consulting agreement with Harvey Krieger which terminates on May
31, 1997, will not be renewed and pursuant to which the Company
pays Mr. Krieger annual compensation of $150,000, (ii) a one-year
service agreement with Theodore I. Botter which terminates on
July 31, 1997, will not be renewed and pursuant to which the
Company pays Mr. Botter annual compensation of $50,000, (iii) a
two-year employment agreement with Peter C. Lynch, President and
Chief Operating Officer of the Company and President and Chief
Operations Officer of COVER-ALL, on March 1, 1996, pursuant to
which the Company pays Mr. Lynch $165,000 during the first year
of employment under the contract and $189,750 during the second
year, and (iv) a one and one-half year employment agreement with
Mr. Raul F. Calvo pursuant to which the Company pays Mr. Calvo
annual compensation of $131,250.
This report was furnished by Messrs. Magowan and Johnston,
members of the Compensation Committee.
15
<PAGE>
COMPARISON OF 62 MONTH CUMULATIVE TOTAL RETURN*
AMONG COVER-ALL TECNOLOGIES INC., THE RUSSELL 2000 INDEX,
A NEW PEER GROUP AND AN OLD PEER GROUP
10/31 10/31 10/31 12/31 12/31 12/31 12/31
1991 1992 1993 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ----
COVER-ALL
TECHNOLOGIES
INC. 100 137 91 81 39 25 25
NEW PEER
GROUP 100 126 78 89 115 226 272
OLD PEER
GROUP 100 125 166 162 150 201 206
RUSSELL
2000 100 110 145 145 143 183 214
* $100 INVESTED ON 10/31/91 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
GRAPH PRODUCED BY RESEARCH
16
<PAGE>
AUDITORS
The Company's independent public auditors are Ernst & Young
LLP, Hackensack, New Jersey. A representative of Ernst & Young
LLP will be present at the Meeting and available to respond to
appropriate questions and, in addition, such representative will
be given an opportunity to make a statement at the Meeting if the
representative desires.
ANNUAL REPORT
All stockholders of record as of April 28, 1997 have or are
currently being sent a copy of the Company's Annual Report for
the fiscal year ended December 31, 1996 (the "Annual Report")
which contains audited financial statements of the Company and
complies with all of the disclosure requirements of the Company's
1996 Annual Report on Form 10-K as filed with the Securities and
Exchange Commission ("SEC"). The Annual Report is deemed to be
part of the material for the solicitation of proxies.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH BENEFICIAL
HOLDER OF ITS COMMON STOCK ON APRIL 28, 1997 WHO DID NOT RECEIVE
A COPY OF THE COMPANY'S ANNUAL REPORT, ON THE WRITTEN REQUEST OF
ANY SUCH PERSON, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 AS FILED WITH
THE SEC. ANY SUCH REQUEST SHOULD BE MADE IN WRITING TO THE
SECRETARY, COVER-ALL TECHNOLOGIES INC., 18-01 POLLITT DRIVE, FAIR
LAWN, NEW JERSEY 07410.
STOCKHOLDER PROPOSALS
Stockholder proposals must be received by January 1, 1998 in
order to be considered for inclusion in proxy materials
distributed in connection with the next annual meeting of
stockholders. All such proposals should be in compliance with
applicable SEC regulations.
MISCELLANEOUS
All of the costs and expenses in connection with the
solicitation of proxies with respect to the matters described
herein will be borne by the Company. In addition to solicitation
of proxies by use of the mails, directors, officers and employees
(who will receive no compensation therefor in addition to their
regular remuneration) of the Company may solicit the return of
proxies by telephone, telegram or personal interview.
It is important that proxies be returned promptly.
Stockholders are, therefore, urged to fill in, date, sign and
return the Proxy immediately. No postage need be affixed if
mailed in the enclosed envelope in the United States.
By Order of the Board of Directors
ANN F. MASSEY
Secretary
Date: April 30, 1997
17
<PAGE>
ANNEX A
1995 EMPLOYEE STOCK OPTION PLAN
----------------
DESCRIPTION OF THE PLAN
Administration
The Plan is administered by the Board of Directors of the
Company (when sitting to administer the Plan, the Board of
Directors is hereinafter referred to as the "Plan Committee").
The Plan Committee determines who shall be granted options under
the Plan, the dates at which such options shall be granted, the
number of options to be granted, the exercise price applicable to
each option, the times when options shall become exercisable, the
duration of the exercise periods, and generally interprets the
Plan and prescribes, amends and rescinds rules and regulations
relating to the Plan.
Eligible Recipients
Options may be granted to present and future common law
employees, non-employee directors and consultants of the Company
or of any of its subsidiaries.
Exercise Price of Options
The exercise price of non-qualified stock options is within
the discretion of the Plan Committee at the time the non-
qualified stock option is granted; provided, however, that such
exercise price may not be less than the par value of the Common
Stock. The exercise price of incentive stock options is
determined by the Plan Committee at the time the incentive stock
option is granted, but in no event shall such exercise price be
less than 100% of the fair market value of the Company's Common
Stock on the date of grant. Notwithstanding the foregoing, the
exercise price of incentive stock options granted to an employee,
officer, director or consultant owning more than 10% of the total
combined voting power of all classes of stock of the Company
before the grant (a "10% Holder") may not be less than 110% of
such fair market value.
Limitation on Incentive Options
To the extent that the aggregate fair market value of the
Common Stock (determined on the date of grant) underlying
incentive stock options under the Plan which are first
exercisable by any optionholder during any calendar year exceeds
$100,000, the portion of such incentive stock options with
respect to such excess (determined by accounting for incentive
stock options in the order in which they were granted, and by
accounting for incentive stock options granted on the same date
pro rata) shall be treated as if such options were non-qualified
stock options.
Exercise and Expiration of Options
Options granted pursuant to the Plan are non-transferable by
the optionholder other than by will or the laws of descent and
distribution, and may be exercised only by the optionholder while
employed or engaged by the Company or a subsidiary of the
Company, subject to certain rights of exercise after termination.
Options granted under the Plan shall be for not more than ten
years from the date of grant (five years in the case of options
granted to an employee officer, director or consultant who is a
10% Holder), subject to earlier termination as provided at the
time the option is granted. In the event of termination of
employment or engagement other than for death or disability, and
A-1
<PAGE>
in some cases cause, any unexercised options outstanding at that
time will immediately terminate. In the event of an
optionholder's death, the beneficiaries of the employee may
exercise the option (to the extent the option was exercisable at
the time of the employee's death) for a period of up to one (1)
year after the optionholder's death, but not later than the date
the option otherwise would expire. In the case of an
optionholder's disability, the option may be exercised (to the
extent the option was exercisable on the date of termination) at
any time within one (1) year after the date of termination, but
no later than the date the option would otherwise expire.
Options are exercisable at such time or times or in such
installments on a cumulative basis, and upon such conditions, as
the Plan Committee determines at the time of grant. The exercise
price of options must be paid in full at the time of exercise.
Termination of the Plan
Options may be granted under the Plan at any time or from
time to time as long as the total number of shares of Common
Stock underlying options granted at any time under the Plan does
not exceed 2,000,000 subject to adjustment. The Plan may be
abandoned or terminated at any time by the Board of Directors of
the Company; however, any such termination shall not affect any
options then outstanding under the Plan. No option shall be
granted under the Plan after March 22, 2005, which is 10 years
from the effective date of the Plan.
Amendment
The Board of Directors of the Company may from time to time
make such changes in and additions to the Plan as it may deem
proper; provided, however, that without stockholder approval, no
change to the Plan will be effective that (i) increases (other
than for adjustments in certain events involving dilution) the
total number of shares covered by the Plan, (ii) changes the
persons who may receive options under the Plan or (iii) extends
the period during which options may be granted. No amendment,
suspension or termination of the Plan will alter or impair
options previously granted under the Plan without the consent of
the holder thereof.
Adjustment
Upon the occurrence of certain events, including stock
dividends, reorganization, recapitalization or similar changes or
transactions of or by the Company, the aggregate number and class
of shares available for issuance under the Plan or pursuant to an
individual stock option agreement will be appropriately adjusted
and all of the provisions of the Plan with respect to the number
and class of shares so available will likewise be adjusted.
FEDERAL INCOME TAX CONSEQUENCES
The Company has been advised by its counsel that under
currently applicable provisions of the Code, the following
federal income tax consequences may be expected by an
optionholder and by the Company in respect of the grant and
exercise of incentive stock options and non-qualified stock
options under the Plan.
Consequences to the Optionholder
Grant. There are no federal income tax consequences to the
optionholder by reason of the grant of incentive stock options
and non-qualified stock options under the Plan.
Exercise. The exercise of incentive stock options is not a
taxable event for regular federal income tax purposes. However,
such exercise may give rise to an alternative minimum tax
liability (see "Alternative Minimum Tax" below).
Upon the exercise of a non-qualified stock option, the
optionholder generally will recognize ordinary income in an
amount equal to the excess of the fair market value of the shares
of Common Stock at the time of exercise over the amount paid as
A-2
<PAGE>
the exercise price. The ordinary income recognized in connection
with the exercise by an optionholder of a non-qualified stock
option will be subject to both wage and employment tax
withholding.
The optionholder's tax basis in the shares acquired pursuant
to the exercise of a stock option will be the amount paid upon
exercise plus, in the case of a non-qualified stock option, the
amount of ordinary income recognized by the optionholder upon
exercise.
Qualifying Disposition. If an optionholder disposes of
shares of the Company's Common Stock acquired upon exercise of an
incentive stock option in a taxable transaction, and such
disposition occurs more than two years from the date on which the
option is granted and more than one year after the date on which
the shares are transferred to the optionholder, the optionholder
will recognize long-term capital gain or loss equal to the
difference between the amount realized upon such disposition and
the optionholder's adjusted basis in such shares (generally the
option exercise price).
Disqualifying Disposition. If the optionholder disposes of
shares of the Company's Common Stock acquired upon exercise of an
incentive stock option (other than in certain tax-free
transactions) within two years from the date on which the
incentive stock option is granted or within one year after the
transfer of the shares to the optionholder, then at the time of
disposition the optionholder generally will recognize ordinary
income equal to the lesser of (a) the excess of such shares' fair
market value on the date of exercise over the exercise price paid
by the optionholder or (b) the optionholder's actual gain (i.e.,
the excess, if any, of the amount realized on the disposition
over the optionholder's adjusted basis in such shares). If the
amount realized on a taxable disposition exceeds the fair market
value on the date of exercise, then the optionholder will
recognize a capital gain in the amount of such excess. If the
optionholder incurs a loss on the disposition (i.e, if the amount
realized is less than the exercise price paid by the
optionholder), then the loss will be a capital loss.
Other Disposition. If an optionholder disposes of shares of
the Company's Common Stock acquired upon exercise of a non-
qualified stock option in a taxable transaction, the optionholder
will recognize capital gain or loss in an amount equal to the
difference between his basis (as discussed above) in the shares
sold and the amount realized upon disposition. Any such capital
gain or loss will be long-term or short-term depending on whether
the shares of the Company's Common Stock were held for more than
one year from the date such shares were transferred to the
optionholder.
Alternative Minimum Tax. Alternative minimum tax ("AMT") is
imposed in addition to, but only to the extent it exceeds, the
optionholder's regular tax for the taxable year. AMT is computed
at the rate of 26% on the excess of a taxpayer's alternative
minimum taxable income ("AMTI") over the exemption amount as does
not exceed $175,000 ($87,500 in the case of married individuals
filing separate returns) plus 28% of the taxpayer's AMTI over the
exemption amount in excess of $175,000 ($87,500). The exemption
amount is $45,000 for joint returns or returns of a surviving
spouse ($33,750 for single taxpayers and $22,500 for married
individuals filing separate returns), reduced by 25% of the
excess of AMTI over $150,000 for joint returns or returns of a
surviving spouse ($112,000 for single taxpayers and $75,000 for
married individuals filing separate returns). A taxpayer's AMTI
is essentially the taxpayer's taxable income adjusted pursuant to
the AMT provisions and increased by items of tax preference.
The exercise of incentive stock options (but not non-
qualified stock options) will generally result in an upward
adjustment to the optionholder's AMTI in the year of exercise by
an amount equal to the excess, if any, of the fair market value
of the stock on the date of exercise over the exercise price.
The basis of the stock acquired, for AMT purposes, will equal the
exercise price increased by the prior upward adjustment of the
taxpayer's AMTI due to the exercise of the option.
Upon the disposition of the stock, the increased basis will
result in a smaller capital gain for AMTI than for ordinary
income tax purposes.
A-3
<PAGE>
Consequences to the Company
There are no federal income tax consequences to the Company
by reason of the grant of incentive stock options or non-
qualified stock options or the exercise of incentive stock
options (other than disqualifying dispositions).
At the time the optionholder recognizes ordinary income from
the exercise of a non-qualified stock option, the Company will be
entitled to a federal income tax deduction in the amount of the
ordinary income so recognized (as described above), provided that
the Company timely satisfies its reporting and disclosure
obligations described below. To the extent the optionholder
recognizes ordinary income by reason of a disqualifying
disposition of the stock acquired upon exercise of incentive
stock options, the Company will be entitled to a corresponding
deduction in the year in which the disposition occurs.
The Company will be required to report to the Internal
Revenue Service any ordinary income recognized by any
optionholder by reason of the exercise of a non-qualified stock
option or the disqualifying disposition of Company Common Stock
acquired pursuant to an incentive stock option.
Other Tax Consequences
The foregoing discussion is not a complete description of
the federal income tax aspects of incentive stock options and
non-qualified stock options issued pursuant to the Plan. In
addition, administrative and judicial interpretations of the
application of the federal income tax laws are subject to change.
Furthermore, the foregoing discussion does not address state or
local tax consequences.
GRANT OF OPTIONS PURSUANT TO THE EMPLOYEE PLAN
Three year options to purchase an aggregate of 117,225
shares of Common Stock have been granted under the Plan at an
exercise price per share of $1.75 to 53 key and general
employees. Two year options to purchase an aggregate of 199,750
shares of Common Stock have been granted under the Plan at an
exercise price of $2.00 per share to 62 key and general
employees. Options to purchase an aggregate of 137,500 shares of
Common Stock have been granted under the Plan at exercise prices
ranging from $4.00 to $5.25 to 8 key employees. Due to
termination of employment, 44,650 of the options granted have
terminated and become available for grant. Additionally, five
year options to purchase an aggregate of 632,500 shares of
Common Stock have been granted to Messrs. Magowan, Johnston and
Gallegos and the Company has contractual obligations to grant
additional five year options to purchase 212,500 shares of Common
Stock to Mr. Gallegos, all of which are contingent upon, in the
case of Mr. Magowan, the Company's Common Stock trading at
certain levels for specified periods of time and, in the case of
Messrs. Johnston and Gallegos, their continued service to the
Company as Chief Financial Officer and Consultant, respectively.
Additionally, Mr. Gallegos shall be entitled to receive as a
bonus, five year options to purchase 250,000 shares of Common
Stock if the Company achieves certain projected sales goals for
fiscal 1997. All grants to Messrs. Magowan, Johnston and
Gallegos are subject to stockholder approval of the proposed
amendment to the Plan.
A-4
<PAGE>
APPENDICES TO PROXY STATEMENT
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
COVER-ALL TECHNOLOGIES INC.
The undersigned, a stockholder of COVER-ALL TECHNOLOGIES
INC., a Delaware corporation (the "Company"), does hereby appoint
Brian Magowan and Mark Johnston and each of them as Proxies with
full power of substitution in each of them, in the name, place
and stead of the undersigned, to vote at the Annual Meeting of
Stockholders of the Company to be held at the Stony Hill Inn, 231
Polifly Road, Hackensack, New Jersey 07601, on June 19, 1997 at
9:30 a.m., local time, and at any adjournment or adjournments
thereof, all of the shares of the Company's Common Stock that the
undersigned would be entitled to vote if personally present.
The undersigned hereby instructs said proxies or their
substitutes:
1. TO ELECT A CLASS OF DIRECTORS CONSISTING OF ONE DIRECTOR TO
SERVE FOR A TERM OF THREE YEARS AND UNTIL HIS SUCCESSORS
SHALL HAVE BEEN DULY ELECTED AND QUALIFIED:
[ ] Vote FOR the nominee [ ] WITHHOLD AUTHORITY to
listed below vote for the nominee
listed below
NOMINEE: Brian Magowan
2. TO APPROVE AN AMENDMENT TO THE COMPANY'S 1995 EMPLOYEE STOCK
OPTION PLAN TO INCREASE THE AGGREGATE NUMBER OF SHARES OF
COMMON STOCK RESERVED FOR GRANT UNDER THE PLAN FROM 600,000
TO 2,000,000 AND TO EXPAND THE ELIGIBILITY REQUIREMENTS TO
RECEIVE GRANTS UNDER THE PLAN TO INCLUDE NON-EMPLOYEE
DIRECTORS AND CONSULTANTS OF THE COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. DISCRETIONARY AUTHORITY: TO VOTE WITH DISCRETIONARY
AUTHORITY WITH RESPECT TO ALL OTHER MATTERS WHICH MAY
PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT
THEREOF.
(continued, and to be signed on reverse side)
<PAGE>
(continued from other side)
THIS PROXY WILL BE VOTED AS SPECIFIED EXCEPT THAT IF NO
INSTRUCTIONS ARE INDICATED, IT WILL BE VOTED FOR PROPOSALS 1
AND 2.
Please sign exactly as your name
appears hereon. If stock is held
jointly, signature should include
both names. Administrators,
Trustees, Guardians and others
signing in a representative
capacity, please give your full
titles.
Dated: , 1997
-----------------------
-----------------------------(L.S.)
-----------------------------(L.S.)
Signature(s)
Sign, Date and Return the Proxy Card Promptly Using the Enclosed
Envelope.
<PAGE>
COVER-ALL TECHNOLOGIES INC.
1995 EMPLOYEE STOCK OPTION PLAN,
AS AMENDED
---------------
EFFECTIVE AS OF MARCH 22, 1995
<PAGE>
COVER-ALL TECHNOLOGIES INC.
1995 EMPLOYEE STOCK OPTION PLAN,
AS AMENDED
INTRODUCTION
Cover-All Technologies Inc., a Delaware corporation
(hereinafter referred to as the "Corporation"), hereby
establishes an incentive compensation plan to be known as the
"Cover-All Technologies Inc. 1995 Employee Stock Option Plan"
(hereinafter referred to as the "Plan"), as set forth in this
document. The Plan permits the grant of Non-Qualified Stock
Options and Incentive Stock Options.
The Plan shall become effective on March 22, 1995.
However, it shall be rendered null and void and have no effect,
and all Options granted hereunder shall be canceled, if the Plan
is not approved by a majority vote of the Corporation's
stockholders within twelve (12) months of such date.
The purpose of the Plan is to promote the success and
enhance the value of the Corporation by linking the personal
interests of Participants to those of the Corporation's
stockholders, customers and employees, by providing Participants
with an incentive for outstanding performance. The Plan is
further intended to provide flexibility to the Corporation in its
ability to motivate, and retain the services of, participants
upon whose judgment, interest and special effort the successful
conduct of its operations is largely dependent.
<PAGE>
DEFINITIONS
For purposes of this Plan, the following terms shall be
defined as follows unless the context clearly indicates
otherwise:
(a) "Code" shall mean the Internal Revenue Code of
----
1986, as amended, and the rules and regulations thereunder.
(b) "Committee" shall mean the full Board of Directors
---------
of the Corporation.
(c) "Common Stock" shall mean the common stock, par
------------
value $0.01 per share, of the Corporation.
(d) "Corporation" shall mean Cover-All Technologies
-----------
Inc., a Delaware corporation.
(e) "Disability" shall have the same meaning as the
----------
term permanent and total disability under Section 22(e)(3) of the
Code.
(f) "Exchange Act" shall mean the Securities Exchange
------------
Act of 1934, as amended, and the rules and regulations
thereunder.
(g) "Fair Market Value" of the Corporation's Common
-----------------
Stock on a Trading Day shall mean the last reported sale price
for Common Stock or, in case no such reported sale takes place on
such Trading Day, the average of the closing bid and asked prices
for the Common Stock for such Trading Day, in either case on the
principal national securities exchange on which the Common Stock
is listed or admitted to trading, or if the Common Stock is not
listed or admitted to trading on any national securities
exchange, but is traded in the over-the-counter market, the
closing sale price of the Common Stock or, if no sale is publicly
reported, the average of the closing bid and asked quotations for
the Common Stock, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or any
comparable system or, if the Common Stock is not listed on NASDAQ
or a comparable system, the closing sale price of the Common
Stock or, if no sale is publicly reported, the average of the
closing bid and asked prices, as furnished by two members of the
National Association of Securities Dealers, Inc. who make a
market in the Common Stock selected from time to time by the
Corporation for that purpose. In addition, for purposes of this
definition, a "Trading Day" shall mean, if the Common Stock is
listed on any national securities exchange, a business day during
which such exchange was open for trading and at least one trade
of Common Stock was effected on such exchange on such business
day, or, if the Common Stock is not listed on any national
securities exchange but is traded in the over-the-counter market,
a business day during which the over-the-counter market was open
for trading and at least one "eligible dealer" quoted both a bid
-2-
<PAGE>
and asked price for the Common Stock. An "eligible dealer" for
any day shall include any broker-dealer who quoted both a bid and
asked price for such day, but shall not include any broker-dealer
who quoted only a bid or only an asked price for such day. In
the event the Corporation's Common Stock is not publicly traded,
the Fair Market Value of such Common Stock shall be determined by
the Committee in good faith.
(h) "Good Cause" shall mean (i) a Participant's
----------
willful or gross misconduct or willful or gross negligence in the
performance of his duties for the Corporation or for any Parent
or Subsidiary after prior written notice of such misconduct or
negligence and the continuance thereof for a period of 30 days
after receipt by such Participant of such notice, (ii) a
Participant's intentional or habitual neglect of his duties for
the Corporation or for any Parent or Subsidiary after prior
written notice of such neglect, or (iii) a Participant's theft or
misappropriation of funds of the Corporation or of any Parent or
Subsidiary or commission of a felony.
(i) "Incentive Stock Option" shall mean a stock option
----------------------
satisfying the requirements for tax-favored treatment under
Section 422 of the Code.
(j) "Non-Qualified Option" shall mean a stock option
--------------------
which does not satisfy the requirements for tax-favored treatment
under Section 422 of the Code.
(k) "Option" shall mean an Incentive Stock Option or a
------
Non-Qualified Stock Option granted pursuant to the provisions of
Section V hereof.
(l) "Optionee" shall mean a Participant who is
--------
granted an Option under the terms of this Plan.
(m) "Parent" shall mean a parent corporation of the
------
Corporation within the meaning of Section 424(e) of the Code.
(n) "Participant" shall mean any employee or other
-----------
individual (including a Director Participant) participating under
the Plan.
(o) "Plan Award" shall mean an Option granted pursuant
----------
to the terms of this Plan.
(p) "Section 16" shall mean Section 16 of the Exchange
----------
Act and the rules and regulations promulgated thereunder.
(q) "Securities Act" shall mean the Securities Act of
--------------
1933, as amended, and the rules and regulations thereunder.
(r) "Subsidiary" shall mean a subsidiary corporation
----------
of the Corporation within the meaning of Section 424(f) of the
Code.
-3-
<PAGE>
SECTION I
ADMINISTRATION
The Plan shall be administered by the Committee, which
shall be composed of at least two directors who meet the
requirements of disinterested administrators under Section 16.
Subject to the provisions of the Plan, the Committee may
establish from time to time such regulations, provisions,
proceedings and conditions of awards which, in its opinion, may
be advisable in the administration of the Plan. A majority of
the Committee shall constitute a quorum, and, subject to the
provisions of Section IV of the Plan, the acts of a majority of
the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee, shall
be the acts of the Committee. This Plan is intended to be a
bifurcated plan. The references to Section 16 contained herein
are intended to apply only to the extent necessary for the Plan
to comply with Rule 16b-3 under Section 16 and only as to those
insiders of the Corporation who are deemed to be Section 16
insiders.
SECTION II
SHARES AVAILABLE
Subject to the adjustments provided in Section X of the
Plan, the aggregate number of shares of the Common Stock which
may be granted for all purposes under the Plan shall be two
million (2,000,000) shares. Shares of Common Stock underlying
awards of Options shall be counted against the limitation set
forth in the immediately preceding sentence and may be reused
(e.g., in the event that an Option to any individual expires,
----
is terminated unexercised, or is forfeited as to any shares
covered thereby). However, with respect to Plan Awards made to
Section 16 insiders, shares of Common Stock may be reused only
to the extent permitted under Section 16. Incentive and Non-
Qualified Stock Options under the Plan may be fulfilled in
accordance with the terms of the Plan with either authorized and
unissued shares of the Common Stock, issued shares of such Common
Stock held in the Corporation's treasury or shares of Common Stock
acquired on the open market.
SECTION III
ELIGIBILITY
Eligible participates in the Plan shall include present
and future (i) common law employees who are regularly employed on
a salaried basis, (ii) non-employee directors, and (iii)
consultants of the Corporation, or of any Parent or Subsidiary.
SECTION IV
AUTHORITY OF COMMITTEE
The Plan shall be administered by, or under the
direction of, the Committee, which shall administer the Plan so
as to comply at all times with the Exchange Act, to the extent
such compliance is required, and, subject to the Code, shall
otherwise have plenary authority to interpret the Plan and to
-4-
<PAGE>
make all determinations specified in or permitted by the Plan or
deemed necessary or desirable for its administration or for the
conduct of the Committee's business. Subject to the provisions
of Section X hereof, all interpretations and determinations of
the Committee may be made on an individual or group basis and
shall be final, conclusive, and binding on all interested
parties. Subject to the express provisions of the Plan, the
Committee shall have authority, in its discretion, to determine
the persons to whom Plan Awards shall be granted, the times when
such Plan Awards shall be granted, the number of Plan Awards, the
purchase price or exercise price of each Plan Award, the
period(s) during which such Plan Award shall be exercisable
(whether in whole or in part), the restrictions to be applicable
to Plan Awards and the other terms and provisions thereof (which
need not be identical). In addition, the authority of the
Committee (which may be exercised in its sole discretion) shall
include without limitation the following:
(a) Financing. The arrangement of temporary financing
---------
for an Optionee by registered broker-dealers, under the rules and
regulations of the Federal Reserve Board, for the purpose of
assisting the Optionee in the exercise of an Option, such
authority to include the payment by the Corporation of the
commissions of the broker-dealer;
(b) Procedures for Exercise of Option. The
---------------------------------
establishment of procedures for an Optionee (i) to exercise an
Option by payment of cash or any other property acceptable to the
Committee, (ii) to have withheld from the total number of shares
of Common Stock to be acquired upon the exercise of an Option
that number of shares having a Fair Market Value, which, together
with such cash as shall be paid in respect of fractional shares,
shall equal the option exercise price of the total number of
shares to be acquired, (iii) to exercise all or a portion of an
Option by delivering that number of shares of Common Stock
already owned by him having a Fair Market Value which shall equal
the Option exercise price for the portion exercised and, in cases
where a Option is not exercised in its entirety, to permit the
Optionee to deliver the shares of Common Stock thus acquired by
him in payment of shares of Common Stock to be received pursuant
to the exercise of additional portions of such Option, the effect
of which shall be that an Optionee can in sequence utilize such
newly acquired shares of Common Stock in payment of the exercise
price of the entire option, together with such cash as shall be
paid in respect of fractional shares and (iv) to engage in any
form of "cashless" exercise.
(c) Withholding. The establishment of a procedure
-----------
whereby a number of shares of Common Stock or other securities
may be withheld from the total number of shares of Common Stock
or other securities to be issued upon exercise of an Option or
for the tender of shares of Common Stock owned by the Participant
to meet the obligation of withholding for taxes incurred by the
Optionee upon such exercise.
(d) Types of Plan Awards. The Committee may grant
--------------------
awards in the form of one or more of Incentive Stock Options and
Non-Qualified Stock Options.
-5-
<PAGE>
SECTION V
STOCK OPTIONS
The Committee shall have the authority, in its
discretion, to grant Incentive Stock Options or to grant
Non-Qualified Stock Options or to grant both types of Options.
No Option shall be granted for a term of more than ten (10)
years. Notwithstanding anything contained herein to the
contrary, an Incentive Stock Option may be granted only to common
law employees of the Corporation or of any Parent or Subsidiary
now existing or hereafter formed or acquired, and not to any
director or officer who is not also such a common law employee.
The terms and conditions of the Options shall be determined from
time to time by the Committee; provided, however, that the
-------- -------
Options granted under the Plan shall be subject to the following:
(a) Exercise Price. The Committee shall establish the
--------------
exercise price at the time any Option is granted at such amount
as the Committee shall determine; provided, however, that the
-------- -------
exercise price for each share of Common Stock purchasable under
any Incentive Stock Option granted hereunder shall be such amount
as the Committee shall, in its best judgment, determine to be not
less than one hundred percent (100%) of the Fair Market Value per
share of Common Stock at the date the Option is granted; and
provided, further, that in the case of an Incentive Stock Option
granted to a person who, at the time such Incentive Stock Option
is granted, owns shares of stock of the Corporation or of any
Parent or Subsidiary which possess more than ten percent (10%) of
the total combined voting power of all classes of shares of stock
of the Corporation or of any Parent or Subsidiary, the exercise
price for each share of Common Stock shall be such amount as the
Committee, in its best judgment, shall determine to be not less
than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock at the date the Option is granted. The
exercise price will be subject to adjustment in accordance with
the provisions of Section VI of the Plan.
(b) Payment of Exercise Price. The price per share of
-------------------------
Common Stock with respect to each Option shall be payable at the
time the Option is exercised. Such price shall be payable in
cash or, upon the discretion of the Committee, pursuant to any of
the methods set forth in Sections IV(a) or (b) hereof. Shares of
Common Stock delivered to the Corporation in payment of the
exercise price shall be valued at the Fair Market Value of the
Common Stock on the date preceding the date of the exercise of
the Option.
(c) Exercisability of Options. Each Option shall be
-------------------------
exercisable in whole or in installments, and at such time(s), and
subject to the fulfillment of any conditions on exercisability as
may be determined by the Committee at the time of the grant of
such Options. The right to purchase shares of Common Stock shall
be cumulative so that when the right to purchase any shares of
Common Stock has accrued such shares of Common Stock or any part
thereof may be purchased at any time thereafter until the
expiration or termination of the Option.
-6-
<PAGE>
(d) Expiration of Options. No Option by its terms
---------------------
shall be exercisable after the expiration of ten (10) years from
the date of grant of the Option; provided, however, in the case
-------- -------
of an Incentive Stock Option granted to a person who, at the time
such Option is granted, owns shares of stock of the Corporation
or of any Parent or Subsidiary possessing more than ten percent
(10%) of the total combined voting power of all classes of shares
of stock of the Corporation or of any Parent or Subsidiary, such
Option shall not be exercisable after the expiration of five (5)
years from the date such Option is granted.
(e) Exercise Upon Death of Optionee. Subject to the
-------------------------------
provisions of Section V(h) hereof, in the event of the death of
the Optionee prior to his termination of employment with the
Corporation or with any Parent or Subsidiary, or within three (3)
months of the date of such termination (other than for Good
Cause), his estate (or other beneficiary, if so designated in
writing by the Participant) shall have the right, within one (1)
year after the date of death (but in no case after the expiration
date of the Option(s)), to exercise his Option(s) with respect to
all or any part of the shares of Common Stock as to which the
deceased Optionee had not exercised his Option at the time of his
death, but only to the extent such Option or Options were
exercisable on the date of his death (or, if provided in an
Option Agreement with respect to a particular Optionee, at the
date of exercise determined as if the Optionee died on such
date).
(f) Exercise Upon Disability of Optionee. Subject to
------------------------------------
the provisions of Section and V(h) hereof, if the employment by
the Corporation or by any Parent or Subsidiary of an Optionee is
terminated because of Disability, he shall have the right, within
one (1) year after the date of such termination (but in no case
after the expiration of the Option), to exercise his Option(s)
with respect to all or any part of the shares of Common Stock as
to which he had not exercised his Option at the time of such
termination, but only to the extent such Option or Options were
exercisable on the date of his termination of employment.
(g) Exercise Upon Optionee's Termination of
---------------------------------------
Employment. Except as provided in the following sentence, if the
----------
employment of an Optionee by the Corporation or by any Parent or
Subsidiary is terminated for any reason (including, but not
limited to, Good Cause) other than those specified in Sections
V(e) and (f) above, then the Optionee shall, at the time of such
termination of employment, forfeit his rights to exercise all of
such Option(s).
(h) Maximum Amount of Incentive Stock Options. Each
-----------------------------------------
Plan Award under which Incentive Stock Options are granted shall
provide that to the extent the aggregate of the (i) Fair Market
Value of the shares of Common Stock (determined as of the time of
the grant of the Option) subject to such Incentive Stock Option
and (ii) the fair market values (determined as of the date(s) of
grant of the options) of all other shares of Common Stock subject
to incentive stock options granted to an Optionee by the
Corporation or any Parent or Subsidiary, which are exercisable
for the first time by any individual during any calendar year,
exceed(s) one hundred thousand dollars ($100,000), such excess
shares of Common Stock shall not be deemed to be purchased
pursuant to Incentive Stock Options. The terms of the
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immediately preceding sentence shall be applied by taking options
into account in the order in which they are granted.
SECTION VI
ADJUSTMENT OF SHARES
In the event there is any change in the Common Stock of
the Corporation by reason of any reorganization,
recapitalization, stock split, stock dividend or otherwise, there
shall be substituted for or added to each share of Common Stock
theretofore appropriated or thereafter subject, or which may
become subject, to any Option the number and kind of shares of
stock or other securities into which each outstanding share of
Common Stock shall be so changed or for which each such share
shall be exchanged, or to which each such share be entitled, as
the case may be, and the per share price thereof also shall be
appropriately adjusted. Notwithstanding the foregoing, (i) each
such adjustment with respect to an Incentive Stock Option shall
comply with the rules of Section 424(a) of the Code and (ii) in
no event shall any adjustment be made which would render any
Incentive Stock Option granted hereunder to be other than an
incentive stock option for purposes of Section 422 of the Code.
SECTION VII
MISCELLANEOUS PROVISIONS
(a) Administrative Procedures. The Committee may
-------------------------
establish any procedures determined by it to be appropriate in
discharging its responsibilities under the Plan. Subject to the
provisions of Section X hereof, all actions and decisions of the
Committee shall be final.
(b) Assignment or Transfer. No grant or award of any
----------------------
Incentive Stock Option or any other "derivative security" (as
defined by Rule 16a-l(c) promulgated under the Exchange Act) made
under the Plan or any rights or interests therein shall be
assignable or transferable by a Participant except by will or the
laws of descent and distribution or pursuant to a qualified
domestic relations order. During the lifetime of a Participant
Options granted hereunder shall be exercisable only by the
Participant.
(c) Investment Representation. In the case of Plan
-------------------------
Awards paid in shares of Common Stock or other securities, the
Committee may require, as a condition of receiving such
securities, that the Participant furnish to the Corporation such
written representations and information as the Committee deems
appropriate to permit the Corporation, in light of the existence
or nonexistence of an effective registration statement under the
Securities Act to deliver such securities in compliance with the
provisions of the Securities Act.
(d) Withholding Taxes. The Corporation shall have the
-----------------
right to deduct from all cash payments hereunder any federal,
state, local or foreign taxes required by law to be withheld with
respect to such payments. In the case of the issuance or
distribution of Common Stock or other securities hereunder, the
Corporation, as a condition of such issuance or distribution, may
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require the payment (through withholding from the Participant's
salary, reduction of the number of shares of Common Stock or
other securities to be issued, or otherwise) of any such taxes.
Subject to the Rules promulgated under Section 16 of the Exchange
Act (to the extent applicable), and to the consent of the
Committee, the Participant, may satisfy the withholding
obligations by paying to the Corporation a cash amount equal to
the amount required to be withheld or by tendering to the
Corporation a number of shares of Common Stock having a value
equivalent to such cash amount, or by use of any available
procedure as described under Section IV(c) hereof.
(e) Costs and Expenses. The costs and expenses of
------------------
administering the Plan shall be borne by the Corporation and
shall not be charged against any award nor to any employee
receiving a Plan Award.
(f) Funding of Plan. The Plan shall be unfunded. The
---------------
Corporation shall not be required to segregate any of its assets
to assure the payment of any Plan Award under the Plan. Neither
the Participants nor any other persons shall have any interest in
any fund or in any specific asset or assets of the Corporation or
any other entity by reason of any Plan Award, except to the
extent expressly provided hereunder. The interests of each
Participant and former Participant hereunder is unsecured and
shall be subject to the general creditors of the Corporation.
(g) Other Incentive Plans. The adoption of the Plan
---------------------
does not preclude the adoption by appropriate means of any other
incentive plan for employees.
(h) Plurals and Gender. Where appearing in the Plan,
------------------
masculine gender shall include the feminine and neuter genders,
and the singular shall include the plural, and vice versa, unless
the context clearly indicates a different meaning.
(i) Headings. The headings and sub-headings in this
--------
Plan are inserted for the convenience of reference only and are
to be ignored in any construction of the provisions hereof.
(j) Severability. In case any provision of this Plan
------------
shall be held illegal or void, such illegality or invalidity
shall not affect the remaining provisions of this Plan, but shall
be fully severable, and the Plan shall be construed and enforced
as if said illegal or invalid provisions had never been inserted
herein.
(k) Payments Due Missing Persons. The Corporation
----------------------------
shall make a reasonable effort to locate all persons entitled to
benefits under the Plan; however, notwithstanding any provisions
of this Plan to the contrary, if, after a period of one (1) year
from the date such benefit shall be due, any such persons
entitled to benefits have not been located, their rights under
the Plan shall stand suspended. Before this provision becomes
operative, the Corporation shall send a certified letter to all
such persons at their last known address advising them that their
rights under the Plan shall be suspended. Subject to all
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applicable state laws, any such suspended amounts shall be held
by the Corporation for a period of one (1) additional year and
thereafter such amounts shall be forfeited and thereafter remain
the property of the Corporation.
(l) Liability and Indemnification. (i) Neither the
-----------------------------
Corporation nor any Parent or Subsidiary shall be responsible in
any way for any action or omission of the Committee, or any other
fiduciaries in the performance of their duties and obligations as
set forth in this Plan. Furthermore, neither the Corporation nor
any Parent or Subsidiary shall be responsible for any act or
omission of any of their agents, or with respect to reliance upon
advice of their counsel provided that the Corporation and/or the
appropriate Parent or Subsidiary relied in good faith upon the
action of such agent or the advice of such counsel.
(ii) Except for their own gross negligence or
willful misconduct regarding the performance of the dates
specifically assigned to them under or their willful breach
of the terms of, this Plan, the Corporation, each Parent and
Subsidiary and the Committee shall be held harmless by the
Participants, former Participants, beneficiaries and their
representatives against liability or losses occurring by
reason of any act or omission. Neither the Corporation, any
Parent or Subsidiary, the Committee, nor any agents,
employees, officers, directors or shareholders of any of
them, nor any other person shall have any liability or
responsibility with respect to this Plan, except as
expressly provided herein.
(m) Incapacity. If the Committee shall receive
----------
evidence satisfactory to it that a person entitled to receive
payment of any Plan Award is, at the time when such benefit
becomes payable, a minor, or is physically or mentally
incompetent to receive such Plan Award and to give a valid
release thereof, and that another person or an institution is
then maintaining or has custody of such person and that no
guardian, committee or other representative of the estate of such
person shall have been duly appointed, the Committee may make
payment of such Plan Award otherwise payable to such person to
such other person or institution, including a custodian under a
Uniform Gifts to Minors Act, or corresponding legislation (who
shall be an adult, a guardian of the minor or a trust company),
and the release of such other person or institution shall be a
valid and complete discharge for the payment of such Plan Award.
(n) Cooperation of Parties. All parties to this Plan
----------------------
and any person claiming any interest hereunder agree to perform
any and all acts and execute any and all documents and papers
which are necessary or desirable for carrying out this Plan or
any of its provisions.
(o) Governing Law. All questions pertaining to the
-------------
validity, construction and administration of the Plan shall be
determined in accordance with the laws of the State of New York.
(p) Nonguarantee of Employment. Nothing contained in
--------------------------
this Plan shall be construed as a contract of employment between
the Corporation (or any Parent or Subsidiary), and any employee
or Participant, as a right of any employee or Participant to be
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continued in the employment of the Corporation (or any Parent or
Subsidiary), or as a limitation on the right of the Corporation
or any Parent or Subsidiary to discharge any of its employees,
with or without cause.
(q) Notices. Each notice relating to this Plan shall
-------
be in writing and delivered in person or by certified mail to the
proper address. All notices to the Corporation or the Committee
shall be addressed to it at 18-01 Pollitt Drive, Fair Lawn, New
Jersey 07410, Attn: Secretary. All notices to Participants,
former Participants, beneficiaries or other persons acting for or
on behalf of such persons shall be addressed to such person at
the last address for such person maintained in the Committee's
records.
(r) Written Agreements. Each Plan Award shall be
------------------
evidenced by a signed written agreement between the Corporation
and the Participant containing the terms and conditions of the
award.
SECTION VIII
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Corporation shall have
the right to amend, suspend or terminate the Plan at any time,
provided that no amendment shall be made which shall increase
the total number of shares of the Common Stock of the Corporation
which may be issued and sold pursuant to Options reduce the
minimum exercise price in the case of an Incentive Stock Option,
or modify the provisions of the Plan relating to eligibility with
respect to Incentive Stock Options unless such amendment is made
by or with the approval of the stockholders (such approval being
granted within 12 months of the effective date of such
amendment). The Board of Directors of the Corporation shall be
authorized to amend the Plan and the Options granted thereunder
(i) to maintain qualification as "incentive stock options" within
the meaning of Section 422 of the Code, if applicable or (ii) to
comply with Rule 16b-3 (or any successor rule) promulgated under
the Exchange Act. Except as otherwise provided herein, no
amendment, suspension or termination of the Plan shall alter or
impair any Plan Awards previously granted under the Plan, without
the consent of the holder thereof.
SECTION IX
TERM OF PLAN
The Plan shall remain in effect until March 21, 2005,
unless sooner terminated by such Board of Directors. No Plan
Awards may be granted under the Plan subsequent to the
termination of the Plan.
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SECTION X
CLAIMS PROCEDURES
(a) Denial. If any Participant, former Participant or
------
beneficiary is denied any vested benefit to which he is, or
reasonably believes he is, entitled under this Plan, either in
total or in an amount less than the full vested benefit to which
he would normally be entitled, the Committee shall advise such
person in writing the specific reasons for the denial. The
Committee shall also furnish such person at the time with a
written notice containing (i) a specific reference to pertinent
Plan provisions, (ii) a description of any additional material or
information necessary for such person to perfect his claim, if
possible, and an explanation of why such material or information
is needed and (iii) an explanation of the Plan's claim review
procedure.
(b) Written Request for Review. Within 60 days of
--------------------------
receipt of the information stated in subsection (a) above, such
person shall, if he desires further review, file a written
request for reconsideration with the Committee.
(c) Review of Document. So long as such person's
------------------
request for review is pending (including the 60 day period in
subsection (b) above), such person or his duly authorized
representative may review pertinent Plan documents and may submit
issues and comments in writing to the Committee.
(d) Committee's Final and Binding Decision. A final
--------------------------------------
and binding decision shall be made by the Committee within 60
days of the filing by such person of this request for
reconsideration; provided, however, that if the Committee, in its
-------- -------
discretion, feels that a hearing with such person or his repre-
sentative is necessary or desirable, this period shall be
extended for an additional 60 days.
(e) Transmittal of Decision. The Committee's decision
-----------------------
shall be conveyed to such person in writing and shall include
specific reasons for the decision, written in a manner calculated
to be understood by such person, the specific references to the
pertinent Plan provisions on which the decision is based.
(f) Limitation on Claims. Notwithstanding any
--------------------
provisions of this Plan to the contrary, no Participant (nor the
estate or other beneficiary of a Participant) shall be entitled
to assert a claim against the Corporation (or against any Parent
or Subsidiary) more than three years after the date the
Participant (or his estate or other beneficiary) initially is
entitled to receive benefits hereunder.
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