<PAGE>
9420 KEY WEST AVENUE
ROCKVILLE, MD 20850
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 20, 1995
The Annual Meeting of Stockholders of INTERSOLV, Inc. (the "Company" or
"INTERSOLV") will be held at the Company's offices at 9420 Key West Avenue,
Rockville, MD 20850, on Wednesday, September 20, 1994, at 10:00 a.m., Eastern
Daylight Savings Time, to consider and act upon the following matters:
1. To elect three directors;
2. To approve the addition of 1,000,000 shares of common stock to the
Company's 1992 Stock Option Plan;
3. To ratify the selection of Coopers & Lybrand as the Company's
independent auditors for fiscal year 1996; and
4. To transact such other business as may properly come before the meeting
or any adjournments of the meeting.
The Board of Directors fixed the close of business on July 28, 1995 as the
record date for determination of stockholders entitled to notice of and to vote
at the meeting or any adjournment thereof.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of Directors,
KEVIN J. BURNS,
CHAIRMAN
August 20, 1995
REGARDLESS OF WHETHER YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE
IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF
MAILED IN THE UNITED STATES.
<PAGE>
INTERSOLV, INC.
9420 KEY WEST AVENUE
ROCKVILLE, MARYLAND 20850
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 20, 1995
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of INTERSOLV, Inc. (the "Company" or
"INTERSOLV") for the Annual Meeting of Stockholders (the "Annual Meeting") to be
held at the Company's offices at 9420 Key West Avenue, Rockville, MD 20850, on
Wednesday, September 20, 1995, at 10:00 a.m., Eastern Daylight Savings Time, and
at any adjournments of the Annual Meeting. All proxies will be voted in
accordance with the instructions contained therein, and if no choice is
specified, the proxies will be voted in favor of the proposals set forth in the
Notice of Annual Meeting. Any proxy may be revoked by a stockholder at any time
before it is exercised by giving written notice to that effect to the Secretary
of the Company, by delivering to the Company a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
The Board of Directors has fixed July 28, 1995 as the record date for
determining stockholders who are entitled to notice of and to vote at the Annual
Meeting. At the close of business on July 28, 1995, there were outstanding and
entitled to vote 16,507,611 shares of common stock of the Company, par value
$.01 per share ("Common Stock"). Each share is entitled to one vote.
All costs of this solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone,
telegraph and personal interviews. Brokers, custodians and fiduciaries will be
requested to forward proxy soliciting material to the owners of stock held in
their names. The Company will reimburse banks and brokers for their reasonable
out-of-pocket expenses incurred in connection with the distribution of proxy
material. The Company has retained Morrow & Company, 909 Third Avenue, New York,
New York 10022-4799, to assist in soliciting proxies, for which services they
will be paid a fee of $5,000, plus handling, postage and out-of-pocket expenses.
In addition, proxies may be solicited by employees of the Company personally, by
telephone, telegram or mail.
The Company's Annual Report for the fiscal year ended April 30, 1995 is
being mailed to stockholders with this Proxy Statement and the accompanying
proxy on or about August 20, 1995.
VOTES REQUIRED
The affirmative vote of the holders of a plurality of the shares of Common
Stock present or represented by proxy at the Annual Meeting is required for the
election of directors. The affirmative vote of a majority of the shares of
Common Stock present or represented by proxy at the Annual Meeting is required
for the approval of each of the other matters to be voted upon at the Annual
Meeting. A majority of the shares of Common Stock outstanding is required to be
present or represented by proxy at the Annual Meeting in order to have the
quorum necessary to take action at the Annual Meeting.
1
<PAGE>
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the judge of elections appointed for the Annual Meeting. The judge of elections
will treat abstentions as Common Stock that is present and entitled to vote for
purposes of determining the presence of a quorum but as not voted for purposes
of determining the approval of any matter submitted to stockholders for a vote.
If a broker indicates on a proxy that such broker does not have discretionary
authority as to certain Common Stock to vote on a particular matter, such shares
will not be considered as present and entitled to vote with respect to that
matter.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The first table sets forth each person known by the Company to own
beneficially more than 5% of the outstanding Common Stock. The second table sets
forth to the Company's knowledge the beneficial ownership by each director,
nominee and certain executive officers, individually, and all directors and
executive officers as a group, of Common Stock as of June 30, 1995.
PRINCIPAL STOCKHOLDERS
<TABLE>
<CAPTION>
PERCENTAGE
SHARES OF COMMON OF
NAME AND ADDRESS STOCK COMMON STOCK
OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING
- ------------------------------------------- ------------------ ------------
<S> <C> <C>
Crown-Glynn Associates (1) ................ 1,055,550 6.4%
67 East Park Place
8th Floor
Morristown, NJ 07960
Emerging Growth Management Co. (2) ........ 1,160,474 7.0%
1 Bush Street
13th Floor
San Francisco, CA 94104
</TABLE>
2
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE
COMMON STOCK OF
NAME OF BENEFICIALLY COMMON STOCK
BENEFICIAL OWNER OWNED (3)(4) OUTSTANDING
- ----------------------------------------------------- ------------ ------------
<S> <C> <C>
Kevin J. Burns....................................... 505,023(5) 3.0
Norman A. Bolz....................................... 18,333 0.1
Richard A. Carpenter................................. 272,718 1.6
Robert N. Goldman.................................... 20,333 0.1
Gary G. Greenfield................................... 150,010 0.9
Russell E. Planitzer................................. 28,333 0.2
Charles O. Rossotti.................................. 15,805 0.1
Kenneth A. Sexton.................................... 66,127 0.4
Frank A. Sola........................................ 5,333 -0-
All directors and executive officers as a group (9 1,082,015 6.4
persons)............................................
<FN>
- ------------------------
(1) Based upon an amended 13G dated February 15, 1995 and information provided
by Crown-Glynn Associates. Represents shares owned by a group of 13
entities and seven persons, none of which individually directly owns 5% of
the outstanding Common Stock. As of June 30, 1995, Crown Associates III,
L.P., Crown-Glynn Advisors Ltd. and The Crown Trust had shared voting and
dispositive power with respect to 951,458 shares. Certain partners of Crown
Associates, III, L.P. and Crown-Glynn Partners, L.P. have sole voting and
dispositive power with respect to an additional 104,092 shares.
(2) Based upon an amended 13G dated June 15, 1995 and information provided by
Emerging Growth Management Co. Represents shares owned by various entities
and persons, none of whom individually directly owns 5% of the outstanding
common stock. As of June 30, 1995, Emerging Growth Management Co. had
shared voting and dispositive power with respect to 1,130,374 shares.
Certain individuals associated with Emerging Growth Management Co. and
their family members have sole voting and dispositive power with respect to
an additional 30,100 shares.
(3) Except as otherwise specifically noted, the number of shares stated as
being owned beneficially includes shares believed to be held beneficially
by spouses, minor children and grandchildren. The inclusion of shares
deemed beneficially owned in this Proxy Statement, however, does not
constitute an admission that the named stockholders are direct or indirect
beneficial owners of such shares.
(4) Includes 286,020, 13,333, 5,333, 17,333, 149,770, 28,333, 7,333, 63,750, 0,
and 571,205 shares subject to option which are held by Messrs. Burns, Bolz,
Carpenter, Goldman, Greenfield, Planitzer, Rossotti, Sexton, Sola and all
directors and executive officers as a group, respectively, and are
exercisable within 60 days after June 30, 1995.
(5) Includes 66,484 shares held by Mr. Burns' wife, 31,484 of such shares are
held as custodian for his children, as to which shares Mr. Burns disclaims
beneficial ownership.
</TABLE>
3
<PAGE>
ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of three Class A
directors, two Class B directors and three Class C directors, who will serve
until the Annual Meetings of Stockholders to be held in 1996, 1997 and 1995,
respectively, and until their respective successors are elected and qualified.
At each Annual Meeting, directors are elected for a full term of three years to
succeed those directors whose terms expire at the Annual Meeting date.
The persons named in the proxy will vote, unless the proxy is marked
otherwise, to elect as Class C directors Messrs. Goldman, Greenfield and
Rossotti. The proxy may not be voted for more than three directors. If a nominee
is unable to serve, the person acting under the proxy may vote the proxy for the
election of a substitute. It is not presently contemplated that any nominee will
be unable to serve. The terms of Class C directors elected at the Annual Meeting
will expire in 1998.
The following information relates to the nominees listed above and to the
other directors of the Company whose terms of office will extend beyond the
Annual Meeting.
NOMINEES
CLASS C DIRECTORS WITH TERMS EXPIRING IN 1998:
ROBERT N. GOLDMAN DIRECTOR SINCE 1986
Mr. Goldman, 46, is the Chairman of the Board and a director of Trinzic,
Inc., a software company that develops and markets client/server middleware
software products. Trinzic was formed by the merger of AICorp and AION
Corporation in 1992. Mr. Goldman served as AICorp President and Chief Executive
Officer from 1986 to 1992. From 1983 to 1986, Mr. Goldman served as President
and Chief Operating Officer of Cullinet Software, Inc. Mr. Goldman is Chairman
of the Board of and a director of SystemSoft Corporation, a developer and
marketer of PCMCIA software and other system level software products, and a
director of Parametric Technology Corporation, a company that supplies the
mechanical CAD/CAM/CAE industry software tools used to automate the development
of a product from its conceptual design through its release into manufacturing.
GARY G. GREENFIELD DIRECTOR SINCE 1992
Mr. Greenfield, 40, was elected President and Chief Operating Officer in
1995. From 1992 to 1995 he was Executive Vice President and Chief Operating
Officer, and from 1989 to 1992 he was Executive Vice President, Product
Operations. He served as Vice President, Marketing from 1987 to 1988, served as
Senior Vice President, Product Services and Operations from 1988 to 1989 and
briefly served as Chief Financial Officer in 1991. Mr. Greenfield is also a
director of IMRS, Inc., a manufacturer of financial application software
products.
CHARLES O. ROSSOTTI DIRECTOR SINCE 1991
Mr. Rossotti, 54, is Chairman of American Management Systems, Inc., a
consulting and systems integration company. From 1981 to 1993 he was Chief
Executive Officer of American Management Systems, Inc. Mr. Rosotti is a director
of NationsBank, N.A., a financial institution, Caterair International
Corporation, an airline catering company and Georgetown University.
4
<PAGE>
OTHER DIRECTORS
CLASS A DIRECTORS WITH TERMS EXPIRING IN 1996:
KEVIN J. BURNS DIRECTOR SINCE 1986
Mr. Burns, 46, was elected Chief Executive Officer of the Company in 1986
and Chairman of the Board in September 1990. From 1986 to 1995, he also served
as President. From 1982 to 1984, he was Executive Vice President of the Software
Products Division, and from 1984 to 1986 was Executive Vice President and Chief
Operating Officer. He is also a Director of Computervision Corporation.
RICHARD A. CARPENTER DIRECTOR SINCE 1991
Mr. Carpenter, 52, served as Vice Chairman of the Board from March to
December 1991. In October 1991, he became President of Carpenter Associates, a
consulting firm. He served as Chief Executive Officer of Index Technology
Corporation from 1983 to 1991 and as its Chairman of the Board from 1990 to
1991.
FRANK A. SOLA DIRECTOR SINCE 1994
Mr. Sola, 51, is President and owner of The Syndetics Corporation, Inc., a
consulting firm specializing in services and integration strategies. Mr. Sola
started the firm in 1987. Mr. Sola was a Vice President of Cullinet Software,
Inc. in 1986. From 1976 to 1985, Mr. Sola served as President and Chief
Operating Officer of Computer Partners, Inc.
CLASS B DIRECTORS WITH TERMS TO EXPIRE IN 1997:
NORMAN A. BOLZ DIRECTOR SINCE 1990
Mr. Bolz, 75, previously served as Associate Commissioner, Policy and
Management of the Internal Revenue Service and as Vice Chairman, International
Operations of Coopers & Lybrand. Subsequently he was Director of Finance and
Administration of Special Olympics International, Inc. Mr. Bolz is also a
director of Computervision Corporation.
RUSSELL E. PLANITZER DIRECTOR SINCE 1982
Mr. Planitzer, 51, was elected Chief Executive Officer of Computervision
Corporation in 1993 and has been Chairman of its board since 1989. He was a
partner of J.H. Whitney & Co., a venture capital firm, from 1981 to 1991.
There is no family relationship between any of the directors or officers.
There are no arrangements between any director or officer and any other person
pursuant to which he was selected as a director or officer.
The Board of Directors has a standing Audit Committee, composed of Messrs.
Bolz and Rossotti, which held four meetings during the fiscal year ended April
30, 1995. The principal functions of the Audit Committee are to make
recommendations to the Board of Directors regarding the engagement of the
Company's independent auditors, review and approve any major accounting policy
changes affecting the Company's operating results, review the arrangements for
and scope of the independent audit and results of the audit and assure that the
auditors are in fact independent.
The Board of Directors has a standing Management Development and
Compensation Committee, composed of Messrs. Goldman, Planitzer and Rossotti,
which held four meetings during the fiscal year
5
<PAGE>
ended April 30, 1995. The principal function of the Management Development and
Compensation Committee is to make recommendations to the Board of Directors as
to compensation arrangements with executive management, including the granting
of stock options.
The Company does not have a nominating committee.
During the fiscal year ended April 30, 1995, the Board of Directors held six
meetings. All directors attended at least 75% of the meetings which occurred
while they served on the Board of Directors. All directors also attended at
least 75% of the meetings of committees on which they served.
DIRECTOR COMPENSATION
The Company pays each non-management Board member an annual retainer of
$15,000, plus $1,500 and out-of-pocket expenses for attendance at each Board
meeting. Non-management directors also receive $1,500 for attendance at each
Board committee meeting if such meeting is not held on the day of such Board
meeting. Further, should any non-management director be requested by the Company
to perform consulting services on the Company's behalf, then such director shall
be entitled to receive a fee equal to $1,500 per day for such services. The
Company's Stock Option Plan provides that each non-management director shall be
granted an option to purchase 3,333 shares of Common Stock at fair market value
as of the date of the first Board meeting following the election or appointment
of the director, and at each subsequent first meeting of Directors following
each Annual Meeting of Stockholders during such director's term. Each such
option shall vest immediately upon its being granted. Directors who are officers
or employees of the Company do not receive additional compensation for serving
as a director or committee member.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information with respect to the compensation
paid by the Company to each of its executive officers during the fiscal year
ended April 30, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION STOCK
NAME AND FISCAL ------------------ OPTIONS
PRINCIPAL POSITION YEAR SALARY BONUS AWARDED
- ---------------------------------------- ------ -------- -------- ------------
<S> <C> <C> <C> <C>
Kevin J. Burns ......................... 1995 $250,000 $300,000 105,000
Chairman of the Board and Chief 1994 $220,000 $112,615 87,040
Executive Officer 1993 $200,000 $ 51,820 --
Gary G. Greenfield ..................... 1995 $215,000 $258,000 105,000
President and Chief Operating Officer 1994 $200,000 $101,476 202,400
1993 $175,000 $ 5,348 55,000
Kenneth A. Sexton ...................... 1995 $160,000 $ 96,000 15,000
Vice President, Finance & 1994 $160,000 $ 32,667 15,000
Administration Chief Financial Officer 1993 $150,000 $ 12,954 --
and Secretary
</TABLE>
In September 1994, the Company made an interest free loan to Mr. Greenfield
of $115,000, the the balance of which remains outstanding.
6
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the stock options granted to the Company's
executive officers during the fiscal year ended April 30, 1995.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------
OPTIONS % OF TOTAL GRANT
GRANTED ON OPTIONS GRANTED EXERCISE DATE
COMMON TO EMPLOYEES IN PRICE PER EXPIRATION PRESENT
NAME STOCK (1) FISCAL 1995 SHARE (2) DATE VALUE (3)
- ----------------------------------- ---------- --------------- ---------- ---------- ---------
# (%) ($/SHARE) ($)
<S> <C> <C> <C> <C> <C>
Kevin J. Burns .................... 99,000 18 11.00 10/21/04 715,770
6,000 1 11.00 09/21/04 43,440
Gary G. Greenfield ................ 101,000 18 11.00 10/21/04 730,230
4,000 1 11.00 09/21/04 28,960
Kenneth A. Sexton ................. 15,000 3 11.00 10/21/04 108,600
<FN>
- ------------------------
(1) One fourth of the options become exercisable on the first anniversary of
the date of grant, and on each of the second through fourth anniversaries
thereafter.
(2) The exercise price is the market price on the date the options were
granted.
(3) Grant date present value is determined using a modified Black-Scholes
option pricing model. The estimated values under the model are based on
assumptions, including an expected volatility of 56.02%, a risk free rate
of return of 7.6%, no dividend yield, a time to exercise of seven years,
and may not be indicative of actual value. The actual value, if any, the
option holder may realize will depend on the excess of the actual market
price of the stock over the exercise price on the date the option is
exercised. There is no assurance that the value that may be realized by the
option holder will be at or near the value estimated by the modified
Black-Scholes model.
</TABLE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information regarding the exercise of
stock options during the last fiscal year by the Company's executive officers.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE- MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END (2)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ----------- ------------ ----------- ------------- ----------- -------------
(#) ($) (#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Kevin J. Burns..................... 115,000 1,131,404 214,260 220,280 1,226,029 1,012,030
Gary G. Greenfield................. 60,000 526,323 85,510 291,530 425,515 1,435,280
Kenneth A. Sexton.................. -0- -0- 60,000 45,000 181,875 174,375
<FN>
- ------------------------
(1) The amount "realized" reflects the appreciation on the date of exercise
(based on the excess of the fair market value of the shares on the date of
exercise over the exercise price). However, because the executive officers
may keep the shares they acquired upon the exercise of the options (or sell
them at a different price), these amounts do not necessarily reflect cash
realized upon the sale of those shares.
(2) "In-the-Money Options" are options outstanding at the end of the last
fiscal year for which the fair market value of the Common Stock at the end
of the last fiscal year ($13.75 per share) exceeded the exercise price of
the options.
</TABLE>
7
<PAGE>
REPORT OF THE MANAGEMENT DEVELOPMENT AND
COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Management Development and Compensation Committee of the Board of
Directors (the "Committee"), consisting entirely of non-management directors,
approves all policies under which compensation is paid or awarded to the
Company's executive officers. The Committee is composed of Messrs. Robert N.
Goldman, Russell E. Planitzer and Charles O. Rossotti.
COMPENSATION PHILOSOPHY
The Company's executive compensation program is based on the belief that the
interest of executives should be closely aligned with those of INTERSOLV's
stockholders. INTERSOLV's executive management compensation program is also
designed to attract and retain superior executive talent. Based on this
philosophy, a significant portion of each executive's total compensation is
placed at-risk and linked to the accomplishment of specific financial and
strategic results and to appreciation in the value of the Common Stock. The
portion of compensation at-risk for the Company's executives is intended to be
greater than the portion at-risk for executive officers at comparable companies
in the industry.
COMPENSATION PLAN
Each year the Committee conducts a review of the Company's executive
compensation program. This review includes an independent compensation
consultants' assessment of the competitiveness of the Company's executive
compensation, and a comparison of the Company's executive compensation to a peer
group of the Company's most direct publicly held competitors for executive
talent. The Committee reviews the selection of peer companies used for
compensation analysis. The compensation review permits an ongoing evaluation of
the link between the Company's performance and its executive compensation in the
context of the compensation programs of other public companies.
The Committee approves the compensation of the executive officers, including
the Chief Executive Officer and other individuals whose compensation is detailed
in this proxy statement, and sets policies with respect to the executive
compensation program.
The key elements of the Company's executive compensation program are:
1. fixed compensation in the form of a base salary,
2. variable compensation paid as bonuses, and
3. equity participation through stock options.
The Committee's policies with respect to each of these elements, including
the basis for the compensation paid to Mr. Burns, are discussed below.
BASE SALARIES
Base salaries for executive officers are initially determined by evaluating
the responsibilities of the position, the experience and knowledge of the
individual, and the competitive marketplace for executive talent, including a
comparison to base salaries for comparable positions at peer public companies.
Annual salary adjustments are determined by evaluating the performance of
each executive officer taking into account new responsibilities. Individual
performance ratings take into account such factors as achievement of the
Company's strategic plan and attainment of specific individual objectives.
8
<PAGE>
With respect to the base salary paid to Mr. Burns in fiscal 1995, the
Committee took into account a comparison of base salaries of chief executive
officers of peer public companies, the Company's performance in fiscal 1994, and
the assessment by the Committee of Mr. Burns individual contribution to the
Company. Based upon this evaluation, the Committee increased Mr. Burns' base
salary by 14% from $220,000 to $250,000 per year.
INCENTIVE COMPENSATION
The Company maintains an Incentive Compensation Plan (the "IC Plan"), which
provides for the payment of bonuses to most employees of the Company not earning
sales commissions. Executive officers participate in the IC Plan, which is a
pay-for-performance plan designed to compensate participants for achieving
certain levels of performance against key goals established in the Company's
annual financial plan. Incentive compensation for executive officers ranges from
approximately 50% to 100% of base salary, depending upon the executive officer's
position.
Annually, the Committee approves targeted IC Plan goals and minimum
thresholds for key objectives affecting the executive officers' incentive
compensation. No incentive compensation is paid if results are below the
threshold level. As actual results approach targeted levels, the incentive
compensation payout increases at an accelerated rate. For executive officers,
the incentive compensation objectives are based primarily on revenue and
earnings of the Company. Incentive compensation payouts are paid quarterly based
on results compared with the defined quarterly, six month and annual goals.
Mr. Burns' incentive compensation is based on the Company's overall revenue
and earnings performance. Mr. Burns received incentive compensation of $300,000
in fiscal 1995, as compared with $112,615 in fiscal 1994. The IC Plan formulas
for fiscal 1995 and 1994 were materially the same.
STOCK OPTIONS
The third component of executive officers' compensation is the Company's
1992 Stock Option Plan pursuant to which the Company grants executive officers
and other key employees options to purchase shares of Common Stock.
Stock options are designed to align the interests of executives with those
of the stockholders. Stock options are granted at an exercise price equal to the
market price of the Common Stock on the date of grant, vest in equal
installments over four years and are exercisable within ten years from the date
of grant. This plan is designed to provide incentives for the creation of value
for the Company's stockholders over the long term because the full benefit of
the stock options cannot be realized unless stock price appreciation occurs over
a number of years.
During fiscal 1994, the Committee adopted a formal framework to govern the
granting of stock options. The framework adopted was based on the result of a
comprehensive evaluation of the Company's stock option program compared with
other public companies in the industry. An independent compensation consultant
assisted the Committee in this evaluation process.
Under the framework adopted, targeted ownership levels were specified for
approximately 75 employees in the Company, including executive officers, who are
expected to have an impact on long-term stockholder value. The framework
provides for key employees to achieve targeted ownership percentages over a ten
year period, through a series of option grants. The framework calls for option
grants for 33% of the target in the first year and the remainder in five equal
annual grants thereafter.
9
<PAGE>
Under the framework, executive officers and key employees could acquire up to
approximately 20% of the Common Stock over a ten year period. Fiscal 1995 grants
under the program took into consideration options granted under the previous
program for the prior four years.
Under the framework, Mr. Burns' targeted ownership is 4% of the Common
Stock. In accordance with the framework, Mr. Burns was granted options for
105,000 shares in the fiscal year ended April 30, 1995.
CONCLUSION
Through these programs, a significant portion of the Company's executive
compensation is linked directly to Company financial performance and stock price
appreciation. The Committee intends to continue the policy of linking executive
compensation to Company performance and stockholder return.
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
Russell E. Planitzer, CHAIRMAN OF
COMMITTEE
Robert N. Goldman
Charles O. Rossotti
10
<PAGE>
STOCK PRICE PERFORMANCE
The following graph assumes $100 invested on April 30, 1990 (the end of the
fiscal year) in the Common Stock, in the S&P 500 Index and the S&P Computer
Software & Services Index. The last period represented is for the INTERSOLV
fiscal quarter ended July 30, 1995
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INTERSOLV S&P 500 INDEX S&P COMPUTER INDEX
<S> <C> <C> <C>
30-Apr-90 100.00 100.00 100.00
30-Apr-91 84.21 117.62 102.62
30-Apr-92 131.58 134.12 123.90
30-Apr-93 81.05 146.51 156.71
30-Apr-94 90.53 154.30 184.28
30-Apr-95 115.79 181.26 273.40
30-Jul-95 209.47 199.27 309.00
</TABLE>
PROPOSAL TO AUTHORIZE AN INCREASE IN THE
COMMON STOCK SUBJECT TO THE COMPANY'S
1992 STOCK OPTION PLAN
The 1992 Employee Stock Option Plan (the "Option Plan") currently authorizes
the grant of options to purchase a maximum of 2,000,000 shares of Common Stock,
subject to adjustment for stock splits and similar capital changes. Assuming
that all of such options were granted and exercised, the shares issued would
constitute approximately 12% of the then outstanding Common Stock.
PROPOSED AMENDMENT
The Company believes that equity participation is a key element in its
overall compensation program and has developed a formal framework to govern the
granting of stock options to key employees. As of April 30, 1995 of the
2,000,000 shares available under the 1992 Option Plan, options for approximately
1,143,860 shares are outstanding and options for 742,736 shares are outstanding
under the Company's 1982 Stock Option Plan. The 1982 Stock Option Plan has
expired and no further options may be granted under that plan. In order to
implement the framework, an additional 1,000,000 shares must be made available
for grant under the Option Plan. Accordingly, the Board proposes that the Option
Plan be amended to increase the shares of Common Stock available for grant under
the Option Plan from 2,000,000 shares to 3,000,000 shares.
11
<PAGE>
The Board of Directors believes that the Company's long-standing policy of
encouraging stock ownership by its officers, directors and key employees,
through the granting of stock options, is a key element in the Company's growth
and success by enhancing its ability to attract and retain high quality
personnel. The level of competition for highly qualified employees is unusually
intense in the software industry. The Board of Directors therefore continues to
believe that a competitive stock option program is an important factor in
recruiting, retaining and motivating officers and key employees.
OPTION PLAN DESCRIPTION
The Option Plan is administered by the Management Development and
Compensation Committee of the Board of Directors.
Both incentive stock options intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") and non-statutory options
may be granted under the Option Plan. All officers and employees of the Company
are eligible to receive incentive stock options and non-statutory stock options.
The Option Plan also provides for the mandatory grant to each non-management
director of non-statutory options to purchase 3,333 shares of Common Stock at
fair market value as of the date of the first meeting of directors following
each election or appointment of the director and at each subsequent first
meeting of directors following each annual meeting of stockholders during such
director's term. As of June 30, 1995, approximately 182 employees were
participating in the Option Plan. In addition, six non-management directors were
also participating in the Option Plan as of June 30, 1995. On August 10, 1995,
the closing price of the Common Stock on the NASDAQ National Market was $24.125.
The Committee selects the optionees and determines (i) the number of shares
subject to each option, (ii) when the option becomes exercisable, (iii) the
exercise price, which cannot be less than 100% of the fair market value and (iv)
the duration of the options, which cannot exceed ten years for incentive options
and ten years and thirty days for non-statutory options. No option recipient may
be granted incentive stock options first exercisable in any one year to the
extent that the aggregate fair market value of the shares would exceed $100,000,
though such a recipient may receive additional non-statutory options. Payment of
the option exercise price, at the Committee's discretion, may be made in cash,
notes, shares of Common Stock or any combination thereof. Options are not
transferable other than by will or the laws of descent and distribution and are
exercisable during the lifetime of the optionee only while he or she is in the
employ of the Company or within three months after termination of employment. If
termination is due to death, the option is exercisable for a one year period
after death.
The Board of Directors may at any time amend the terms of the Option Plan,
except that no such amendment to the Option Plan may be made without the
approval of stockholders if such amendment would (i) materially increase the
benefits accruing to participants under the Option Plan, (ii) materially
increase the number of shares which may be issued under the Option Plan or (iii)
materially modify the requirements as to eligibility for participation under the
Option Plan.
A participant in the Option Plan who holds an option that qualifies as an
incentive stock option and exercises such option in accordance with its terms
and the terms of the Option Plan will recognize no income for Federal income tax
purposes upon either the grant or the exercise of such option. However, the
amount by which the fair market value of the shares received on exercise of an
incentive stock option exceeds the exercise price will be an item of tax
preference for purpose of calculating the alterative minimum tax in the
participant's tax year in which such option is exercised. The gain will
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<PAGE>
be taxable to the participant upon the sale of shares acquired upon exercise of
an incentive stock option as long-term capital gain provided that the shares are
held by the participant for at least one year from the date of exercise of such
options.
If a participant sells any shares acquired pursuant to the exercise of an
incentive stock option before the date that is at least one year from the date
of exercise of such option, the participant will be required to recognize
ordinary income equal to the lesser of (i) the fair market value of the Common
Stock on the date of exercise, less the exercise price of the option, or (ii)
the amount realized on the disposition of the Common Stock, less the exercise
price of the option, and the Company will have a deduction in that amount. The
amount by which the proceeds of the sale exceed the fair market value of the
Common Stock on the date of exercise will be treated as capital gain (long-term
or short-term depending on the length of the holding period since the date of
exercise) of the participant.
A participant in the Option Plan who holds a non-statutory stock option and
exercises such option will recognize ordinary income equal to the excess of the
fair market value of the shares received over the exercise price, and the
Company will have a deduction in that amount on the date of exercise. Any gain
recognized by a participant upon a sale of such shares in excess of the amount
treated as ordinary income will be treated as capital gain (long-term or
short-term depending on the length of the holding period since the date of
exercise) of the participant.
The Option Plan was drafted to obtain the benefits of the exemption from
Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act")
provided by rule 16b-3. Section 16(b) of the Exchange Act provides, among other
things, that an officer who purchases and sells the stock of the corporation
which employs him within a six month period is liable to the corporation for the
difference between the purchase price and sale price. Rule 16b-3 promulgated
under the Exchange Act provides that the acquisition of a stock option and the
exercise of such option by an officer of a corporation pursuant to a stock
option plan which meets certain requirements (one of which is stockholder
approval of the Plan) does not constitute a "transaction" subject to Section
16(b) of the Exchange Act.
The following table summarizes the option grants proposed to be made
pursuant to the framework to the following persons under the Option Plan in the
fiscal year ending April 30, 1996.
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF OPTIONS
- ------------------------------------------------------------------------------------ ------------------
<S> <C>
Kevin J. Burns ..................................................................... 130,000
Chairman of the Board
and Chief Executive Officer
Gary G. Greenfield ................................................................. 130,000
President and
Chief Operating Officer
Kenneth Sexton ..................................................................... 20,000
Vice President, Finance and Administration
Chief Financial Officer and Secretary
All current executive officers as a group........................................... 280,000
All current directors who are not executive officers as a group..................... 19,998
</TABLE>
Approval of the proposed amendment to the Option Plan requires the vote of
holders of a majority of the outstanding Common Stock present and voting at the
Annual Meeting.
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<PAGE>
The Board of Directors recommends that stockholders vote FOR the approval of
the proposed amendment to the Option Plan.
PROPOSAL TO RATIFY SELECTION OF
THE COMPANY'S AUDITORS
The Board of Directors, upon the recommendation of its Audit Committee, has
determined that the selection of Coopers & Lybrand L.L.P. as the Company's
independent auditors for the fiscal year ending April 30, 1996 is in the best
interest of the Company and recommends that stockholders ratify the selection at
the Annual Meeting. If such selection is not so ratified, it will be
reconsidered by the Audit Committee and the Board of Directors. Coopers &
Lybrand L.L.P. acted as the Company's auditors for the fiscal year ended April
30, 1995.
A representative of Coopers & Lybrand L.L.P. is expected to be present at
the Annual Meeting and will have the opportunity to make a statement and is
expected to be available to respond to questions from stockholders.
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the Annual Meeting; however, if any other matters are properly presented
to the Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote, or otherwise act, in accordance with their judgment
on such matters.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1996 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Rockville, Maryland, not later than May 23, 1996 for inclusion in the proxy
statement for that meeting.
By order of the Board of Directors
KEVIN J. BURNS,
CHAIRMAN
August 20, 1995
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE ANNUAL
MEETING. REGARDLESS OF WHETHER YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. A PROMPT
RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING AND YOUR
COOPERATION WILL BE APPRECIATED. STOCKHOLDERS WHO ATTEND THE ANNUAL MEETING MAY
VOTE THEIR STOCK PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
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