GROUP 1 SOFTWARE, INC.
4200 Parliament Place
Suite 600
Lanham, Maryland 20706-1844
__________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held September 12, 1995
To the Stockholders of Group 1 Software, Inc.:
You are cordially invited to attend the annual meeting of stockholders
of Group 1 Software, Inc. (the "Company") to be held on September 12, 1995,
at 10:15 a.m. at Prudential Securities, One Liberty Plaza, New York, New
York 10292 (the "Meeting"), for the following purposes:
(1) To elect three (3) directors to hold office until the third
annual meeting of stockholders of the Company following their election and
until the election and qualification of their successors;
(2) To approve the adoption of the Company's 1995 Incentive Stock
Option, Non-Qualified Stock Option and Stock Appreciation Unit Plan;
(3) To approve the adoption of the Company's 1995 Non-Employee
Directors' Stock Option Plan; and
(4) To transact such other business as may properly come before the
Meeting and any adjournment thereof.
Only stockholders of record at the close of business on July 11, 1995
(the "Record Date") are entitled to receive notice of, and to vote at, the
Meeting.
We hope that you will be able to attend the Meeting in person.
________________________________________________________________________________
IN ORDER TO ASSURE A QUORUM AND TO AVOID THE EXPENSE AND DELAY OF SENDING
FOLLOW-UP LETTERS, PLEASE FILL-IN, SIGN, DATE AND RETURN YOUR PROXY IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED WITHIN THE UNITED
STATES. IF YOU ARE PRESENT AT THE MEETING, YOU MAY, IF YOU WISH, WITHDRAW
YOUR PROXY AND VOTE YOUR SHARES PERSONALLY.
________________________________________________________________________________
By Order of the Board of Directors
Edward Weiss
Secretary
Lanham, Maryland
July 25, 1995
GROUP 1 SOFTWARE, INC.
4200 Parliament Place
Suite 600
Lanham, Maryland 20706-1844
301/731-2300
__________________
PROXY STATEMENT
__________________
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 12, 1995
This Proxy Statement and the enclosed form of proxy are furnished to the
stockholders of Group 1 Software, Inc., a Delaware corporation (the
"Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company (the "Board") from holders of outstanding shares of
its common stock, $.01 par value (the "Voting Securities"), for use at the
Annual Meeting of Stockholders (the "Meeting") to be held on September 12,
1995 and at any adjournment thereof. Other than the Company's $.01 par value
common stock, there are no other voting securities of the Company outstanding.
The approximate date on which this Proxy Statement and the related form of
proxy are first being sent to stockholders is July 25, 1995.
If the enclosed proxy is properly signed and returned, and if the
stockholder specifies a choice on the proxy, the shares of the Voting
Securities represented by the proxy will be voted (or withheld from voting) in
accordance with the stockholder's choice. If the proxy is signed and returned
but no specification is made, the proxy will be voted FOR the election of the
Board's nominees for directors listed below, and, in turn, FOR the other
proposals contained in this Proxy Statement.
The Board of Directors of the Company knows of no business that will be
presented for consideration at the Meeting other than the matters described in
this Proxy Statement. If any other matters are presented at the Meeting, the
proxy holders will vote the proxies in accordance with their judgment.
Any proxy may be revoked by the stockholder giving such proxy, at any
time prior to its being voted, by filing with the Secretary of the Company, at
its address set forth above, a notice of revocation or a duly executed proxy
bearing a later date. Any proxy may also be revoked by the stockholder's
attendance at the Meeting and voting in person. A notice of revocation need
not be on any specific form.
The Company has fixed the close of business on July 11, 1995 as the
record date (the "Record Date") for the determination of the stockholders of
the Company entitled to notice of, and to vote at, the Meeting. On that date,
there were outstanding 4,293,072 shares of the Voting Securities, the holders
of which will be entitled to one vote per share on each matter submitted to
the Meeting. No other voting securities of the Company are outstanding.
The presence at the Meeting, in person or by proxy, of the holders of a
majority of the shares of the Voting Securities entitled to vote constitutes a
quorum for the transaction of business at the Meeting. If a quorum should not
be present, the Meeting may be adjourned from time to time until a quorum is
obtained.
There are no rights of appraisal or similar rights of dissenters
applicable to the matter to be voted upon at the Meeting.
FINANCIAL INFORMATION
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended March 31, 1995 accompanies this Proxy Statement. The Annual Report is
not part of the proxy solicitation materials.
BENEFICIAL OWNERSHIP
The following table sets forth certain information as of the Record Date
as to all persons who, to the knowledge of the Company, were beneficial owners
of five percent or more of the common stock of the Company and all directors
and officers of the Company as a group.
<TABLE>
<CAPTION>
Number of
Name and Address of Title of Shares of Percent of
Beneficial Owner Class Class Class
<S> <C> <C> <C>
COMNET Corporation <F1>
4200 Parliament Place Common 3,484,588 81.2%
Suite 600 Lanham, MD Stock
20706-1844
All directors and
officers as a group Common 100,037 2.3%
(9 persons) Stock
<F2> <F3>
____________
<FN>
<F1> As of July 11, 1995, Medco Containment Services, Inc. ("Medco"), owned
20.9% of the issued and outstanding shares of the voting securities of,
and had designated a majority of the members of the board of directors
of, COMNET Corporation ("COMNET"). Pursuant to an Agreement and Plan of
Merger, dated as of July 27, 1993, as amended, by and among Merck & Co.,
Inc., a New Jersey corporation ("Merck"), M Acquisition Corp. ("Merger
Sub") and Medco, Medco was merged with and into Merger Sub and Medco
became a wholly owned subsidiary of Merck. Merck is a worldwide
organization engaged primarily in the business of discovering,
developing, producing and marketing products, and services for the
treatment of disease and the maintenance or restoration of health. The
principal executive offices of Merck are located at One Merck Drive,
Whitehouse Station, New Jersey. As of July 11, 1995, Merck may be deemed
to be the indirect beneficial owner, through its ownership of Medco, of
543,345 shares of COMNET's common stock, representing approximately 18.2%
of the outstanding shares of COMNET's common stock and Merck may also be
deemed to be the indirect beneficial owner, through its ownership of
Medco, of 100,000 shares of COMNET's 6% Preferred Stock. Merck
effectively has the sole power to vote and direct the vote of such shares
of common stock and 6% Preferred Stock, and to dispose and direct the
disposal of such shares.
<F2> Includes common stock purchase options for 84,000 shares of the Company's
common stock which are currently exercisable or will become exercisable
within 60 days of July 11, 1995.
<F3> All directors and officers of the Company, as a group (9 persons), were
beneficial holders of 121,414 shares of COMNET common stock, and common
stock purchase options for 431,929 shares of COMNET common stock which
are currently exercisable or will become exercisable within 60 days of
July 11, 1995.
</TABLE>
Based solely on a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company, all directors, officers and beneficial owners of
more than ten percent of any class of stock have filed on a timely basis Forms
3, Forms 4 and Forms 5 as required in the fiscal year ended March 31, 1995.
PROPOSAL ONE
Election of Directors
Stockholders are being asked to elect three members to the Company's
Board of Directors. The three members who are so elected and the remaining
four directors whose terms continue after the Meeting will constitute the
Board of Directors of the Company.
Pursuant to the terms of the Company's Certificate of Incorporation, the
directors of the Company are divided into three classes, and one class is
elected at each annual meeting of stockholders and serves for a term ending on
the third annual meeting of stockholders following their election and after
their successor has been elected and qualified. Under the Company's Bylaws,
the election of directors is determined by a vote of a majority of the shares
present in person or represented by proxy and voting on the matter. And,
under applicable Delaware law and the Company's Articles of Incorporation and
Bylaws, abstentions and broker non-votes on proposals to elect directors will
effectively be treated as shares that are not present and voting for that
matter.
The Board has nominated Messrs. Crew, Mele and Sullivan (whose current
terms will expire after directors are elected and qualify at the Meeting) to
serve until the third annual meeting of stockholders following their election,
and after their successors are elected and qualify. Unless otherwise
directed, the persons named as proxies in the proxy enclosed herewith will
vote the shares of the Voting Securities represented by such proxy for the
election of such nominees as directors.
AS OF JULY 11, 1995, COMNET CORPORATION ("COMNET") OWNED 81.2% OF THE
COMPANY'S VOTING SECURITIES. ACCORDINGLY, THE AFFIRMATIVE VOTE OF NO OTHER
STOCKHOLDERS WOULD BE REQUIRED IN ORDER TO ELECT MESSRS. CREW, MELE AND
SULLIVAN, WHO ARE NOMINEES FOR ELECTION AT THE MEETING, OR TO APPROVE ANY
OTHER PROPOSALS SET OUT IN THIS PROXY STATEMENT.
If for any reason any nominee for director should become unavailable for
election, the proxies may be voted for the election of a substitute designated
by management, unless a contrary instruction is given on the proxy.
Management has no reason to believe that any of the nominees will be unable or
unwilling to serve if elected, and each has expressed an intention to serve
the entire term for which election is sought.
The following table sets forth certain information at the Record Date
concerning the directors and their ownership of the Voting Securities and
common stock of COMNET as of July 11, 1995.
<PAGE>
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
<TABLE>
<CAPTION>
Number of Shares of Voting
Name of Director of Director Principal Occupation,Business Securities and Percent of
the Company (Age) Since Experience and Directorships class (at Record Date)
Group 1 COMNET
Common stock
Class I Directors (whose terms will expire at the third
annual meeting of stockholders after
the Meeting, and the election and
qualification of their successors)
<S> <C> <C> <C> <C>
Joseph R. Sullivan 1986 Vice President, Marketing and 22,750<F1> 2,700
(50) Business Development of the * *
Display Division of Zenith
Electronics Corporation since
December, 1990; Business
Consultant from October, 1988
to December, 1990; Chief
Financial Officer of the
Company from September, 1986
to October, 1988; President
and Chief Financial Officer
of COMNET Corporation
("COMNET") from September,
1985 to October, 1988.
Charles A. Crew 1990 Chief Financial Officer and 0 42,660<F2>
(52) Treasurer of the Company * 1.47%
since October 1990; also
Executive Vice President and
Chief Financial Officer of
COMNET since September, 1991,
and as such has generally
devoted 80% of his time to
the business affairs of
COMNET; Vice President,
Finance and Assistant
Secretary of the Company from
July, 1989 to October, 1990.
Also serves as a director of
COMNET.
Charles A. Mele 1992 Since May, 1989, Executive 3,000<F3> 7,000<F4>
(39) Vice President - General * *
Counsel and a director of
Synetic, Inc. ("Synetic").
Executive Vice President -
General Counsel or Co-General
Counsel and an executive
officer of Medco Containment
Services, Inc. ("Medco") for
more than five years prior to
July, 1994. Also serves as a
director of COMNET.
<PAGE>
</TABLE>
<TABLE>
DIRECTORS CONTINUING IN OFFICE
<CAPTION>
Number of Shares of Voting
Name of Director of Director Principal Occupation,Business Securities and Percent of
the Company (Age) Since Experience and Directorships class (at Record Date)
Group 1 COMNET
Common stock
Class II Directors (whose terms will expire at the next
annual meeting of stockholders after the
Meeting, and the election and qualification
of their successors)
<S> <C> <C> <C> <C>
Ronald F. Friedman 1986 President and Chief Operating 16,287<F5> 145,000<F6>
(51) Officer of the Company and * 3.8%
its predecessor for more than
five years. Also serves as a
director of COMNET.
Thomas S. Buchsbaum 1989 Senior Vice President, 20,000<F7> 0
(45) Federal Systems for Zenith * *
Data Systems, Inc. for
more than five years. Also
serves as a director of Dick
Blick Company.
</TABLE>
<TABLE>
<CAPTION>
Class III Directors (whose terms will expire at the second
annual meeting of stockholders after
the Meeting, and the election and
qualification of their successors)
<S> <C> <C> <C> <C>
Robert S. Bowen 1986 Chairman and Chief Executive 30,750<F8> 328,533<F9>
(57) Officer of the Company and * 11.5%
President and Chief Executive
Officer of COMNET for more
than five years. Also serves
as a director of COMNET.
Carl I. Kanter 1993 Senior Vice President and Co- 3,000<F10> 6,000<F11>
(63) General Counsel of Medco * *
since May, 1992; for more
than five years prior to
joining Medco, a senior
partner in the law firm of
Stroock & Stroock & Lavan.
Also a director of COMNET and
SunResorts Ltd., N.V. (owner
and operator of a Caribbean
resort complex).
______________
* Less than 1%
<FN>
<F1> Includes options to purchase 20,000 shares of the Company's common stock
exercisable within 60 days of the Record Date.
<F2> Includes options to purchase 42,660 shares of COMNET common stock
exercisable within 60 days of the Record Date.
<F3> Includes options to purchase 3,000 shares of the Company's common stock
exercisable within 60 days of the Record Date.
<F4> Includes options to purchase 7,000 shares of COMNET common stock
exercisable within 60 days of the Record Date.
<F5> Includes options to purchase 15,000 shares of the Company's common stock
exercisable within 60 days of the Record Date.
<F6> Includes options to purchase 145,000 shares of COMNET common stock
exercisable within sixty (60) days of the Record Date.
<F7> Includes options to purchase 20,000 shares of the Company's common stock
exercisable within 60 days of the Record Date.
<F8> Includes options to purchase 18,750 shares of the Company's common stock
exercisable within 60 days of the Record Date.
<F9> Includes options to purchase 209,869 shares of COMNET common stock
exercisable within 60 days of the Record Date.
<F10> Includes options to purchase 3,000 shares of the Company's common stock
exercisable within 60 days of the Record Date.
<F11> Includes options to purchase 6,000 shares of COMNET common stock
exercisable within 60 days of the Record Date.
</TABLE>
Mr. Buchsbaum's business address is 2455 Horse Penn Road, Herndon,
Virginia 22071. Mr. Sullivan's business address is 1000 Milwaukee Avenue,
Glenview, Illinois 60025. The business address of Mr. Kanter is 100 Summit
Avenue, Montvale, New Jersey 07645. The business address of Mr. Mele is River
Drive Center 2, 669 River Drive, Elmwood, New Jersey 07407. The business
address of each of Messrs. Bowen, Friedman and Crew is 4200 Parliament Place,
Suite 600, Lanham, Maryland 20706.
Family Relationships
There are no family relationships among any director or executive officer
of the Company.
Committees and Meetings
The Board currently has the following standing committees: Executive,
Audit and Compensation Committees. The Executive Committee has and may
exercise all of the powers of the Board within the limits set out by General
Corporation Law of Delaware. The Executive Committee is comprised of Messrs.
Bowen and Friedman.
The Audit Committee's functions include recommending to the Board the
selection of the Company's independent public accountants and reviewing with
such accountants the plan, scope and results of their audit of the financial
statements and the adequacy of the Company's system of internal accounting
controls. The Audit Committee is comprised of Messrs. Mele and Sullivan.
The Compensation Committee's functions include reviewing management
proposals pertaining to executive compensation, profit sharing and stock
options. The Compensation Committee recommends management bonuses to the
Board for the Company's officers and employees. It has granted options and
rights to employees under and in accordance with the Company's Incentive Stock
Option, Non-Qualified Stock Option and Stock Appreciation Unit Plan (the "1986
ISO Plan") and shall grant, upon shareholder approval at the Meeting, options
and rights to employees under and in accordance with the Company's 1995
Incentive Stock Option, Non-Qualified Stock Option and Stock Appreciation Unit
Plan (the "1995 ISO Plan"). The Compensation Committee is comprised of
Messrs. Buchsbaum and Kanter. None of the members of the Compensation
Committee has ever been an employee of the Company.
During the fiscal year ended March 31, 1995, the Board held 4 meetings,
the Executive Committee held 2 meetings, the Compensation Committee held 3
meetings and the Audit Committee held 2 meetings. No director attended less
than 75% of all meetings of the Board and the committees on which such director
served during that fiscal year.
Compensation of Directors
No cash payments have ever been made to directors for attendance at
meetings of or otherwise serving on the Board or any committee thereof. In
November, 1986, the stockholders approved the Group 1 Software, Inc. Stock
Option Plan for Non-Employee Directors (the "1986 Directors' Plan"), which
provides for the annual, automatic grant of options to non-employee directors.
During the year ended March 31, 1995, Messrs. Kanter, Buchsbaum, Sullivan and
Mele were each granted options under this plan to purchase 5,000 shares of the
Company's common stock.
In Proposal 3 of this Proxy Statement, the stockholders are asked to
approve the 1995 Non-Employee Directors Stock Option Plan (the "1995
Directors' Plan"), which will also provide for the annual, automatic grant of
options to non-employee directors, in order to continue tax treatment for
options issued to the Company's non-employee directors. With the adoption of
the 1995 Directors' Plan, non-employee directors of the Company will continue
to receive compensation for their service on the Company's Board of Directors
on similar terms and conditions after March 31, 1995, as previously granted to
them under the 1986 Directors' Plan which will expire.
EXECUTIVE OFFICERS AND COMPENSATION
The Executive Officers of the Company are Robert S. Bowen, Ronald F.
Friedman, Alan P. Slater, Charles A. Crew and Edward Weiss.
The business experience during at least the past five years for Messrs.
Bowen, Friedman and Crew is set forth under "-- Nominees for Election to the
Board of Directors" and "-- Directors Continuing in Office". From March, 1982
to the present, Mr. Slater, 39, has been employed by the Company. From April,
1992 to the present, Mr. Slater has served as Executive Vice President, and
for the five years prior to that, he served as Vice President, Sales. Mr.
Weiss, 44, has been General Counsel of the Company since January, 1990, and
has been its Secretary since November, 1990. Prior to January, 1990, Mr.
Weiss was engaged in private law practice with the law firm of Foley, Hoag &
Eliot, of Washington, D.C. and Boston, Massachusetts.
EXECUTIVE COMPENSATION
Report of the Compensation Committee on Executive Compensation
The Company has established an executive compensation program based on
the following on-going principles and objectives: (i) provide compensation
opportunities that will help attract, motivate and retain highly qualified
managers and executives, (ii) link executive's total compensation to Company
performance and the individual performance of the executive and (iii) provide
an appropriate balance between incentives focused on achievement of annual
business plans and longer term incentives linked to increases in shareholder
value. To effectuate these principles and objectives, compensation for each
of the executives of the Company consists of base salary compensation, annual
incentive compensation (based in most cases on profit performance measured
against internal profit targets) and stock option grants.
For Fiscal Year 1995, the Compensation Committee did not review the base
salary or incentive compensation program for Mr. Bowen, nor the base salary
for Mr. Friedman since in regard to both executives these matters are fixed by
employment agreements between the Company and the respective executives.
Grants of options to Messrs. Bowen and Friedman, increases to Mr. Friedman's
base salary and his incentive compensation program, and the entire
compensation program for the remaining executives, are reviewed annually by
the Compensation Committee, including the review conducted for the most recent
fiscal year.
<PAGE>
Compensation Committee
Thomas S. Buchsbaum
Carl I. Kanter
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
Name and Principal Stock All other
Position Year Salary Bonus Options<F2> Compensation<F3>
<S> <C> <C> <C> <C> <C>
Robert S. Bowen 1995 $178,135 $484,262<F1> --- $2,709
Chairman of the 1994 $170,545 $ 67,112 --- $5,748
Board and Chief 1993 $136,572 $400,721 --- $3,065
Executive Officer
Ronald F. Friedman 1995 $173,088 $307,237 --- $3,993
President - Group 1 1994 $166,892 --- 10,000 $4,448
Software; Director 1993 $158,572 $ 65,781 --- $4,312
Alan P. Slater 1995 $133,673 $198,629 --- $3,283
Executive Vice 1994 $129,780 --- 4,000 $3,420
President 1994 $107,241 $ 44,499 --- $3,453
Charles A. Crew 1995 $ 89,123 $104,265 --- $ 822
Chief Financial 1994 $ 69,210 --- --- $1,381
Officer; Director 1993 $ 57,573 --- --- $ 691
B. Scott Miller 1995 $ 99,383 $ 92,183<F1> --- $1,891
Vice President 1994 $ 95,365 --- --- $2,008
1993 $ 91,659 $ 14,927 --- $1,833
Sally Campbell 1995 $ 78,595 $ 55,210 --- $1,540
Vice President 1994 $ 75,197 --- --- $1,578
1993 $ 68,954 $ 2,863 --- $1,379
<FN>
<F1> Mr. Bowen and Mr. Miller elected to defer $161,421 and $46,092 of bonus
compensation, respectively, in accordance with the Company's deferred
compensation plan.
<F2> All options were granted by COMNET to purchase its common stock. Options
vest ratably over five years and expire in ten years.
<F3> Includes Company contributions to the Defined Contribution Savings
(401(k)) Plan.
</TABLE>
Stock Option Grants in Fiscal Year 1995
Group 1
No stock options were granted during fiscal year 1995.
COMNET
No stock options were granted during fiscal year 1995.
<PAGE>
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<CAPTION>
Number of Unexercised Value of Unexercised
Options/SARs at FY-End Options/SARS at FY-End<F1>
Shares
Acquired
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Group 1
<S> <C> <C> <C> <C> <C> <C>
Robert S. Bowen None None 18,750 --- $ 70,313 ---
Ronald F. Friedman None None 15,000 --- $ 56,250 ---
Alan P. Slater None None 4,250 --- $ 15,938 ---
Charles A. Crew None None --- --- --- ---
B. Scott Miller None None --- --- --- ---
Sally P. Campbell None None --- --- --- ---
COMNET
Robert S. Bowen <F2>
Ronald F. Friedman None None 91,000 6,000 $223,004 $ 20,997
Alan Slater None None 12,000 1,000 $ 28,500 $ 3,500
Charles A. Crew None None 22,000 3,000 $ 59,250 $ 10,125
B. Scott Miller None None 11,000 1,000 $ 27,825 $ 3,500
Sally P. Campbell None None 3,600 600 $ 8,925 $ 2,100
<FN>
<F1> These values are based upon the difference between the grant prices of
all options awarded and the average price of $10.125 per share for COMNET
common stock and $9.75 per share for Group 1 common stock at March 31, 1995.
<F2> COMNET granted to Mr. Bowen options to purchase COMNET common stock in
his capacity as an officer of COMNET, and are therefore not included herein.
</TABLE>
THE GRAPH PRESENTED IN THE DEFINATIVE PROXY IS A COMPARISON OF THE 5 YEAR
CUMULATIVE TOTAL RETURN OF THE COMPANY VERSUS A PEER GROUP AND THE BROAD
MARKET.
The chart displayed directly above is presented in accordance with SEC
requirements. The industry peer group included Hogan Systems, Inc.,
Hathaway CP, Altai, Inc., and Timberline Software, Inc. Stockholders are
cautioned against drawing any conclusions from the data contained therein,
as past results are not necessarily indicative of future performance. This
graph in no way reflects the Company's forecast of future financial
performance.
The graph and the related disclosure contained in this section of the
Proxy Statement should not be incorporated by reference into any prior filings
by the Company under the Securities Exchange Act of 1934 that incorporated
future filings or portions thereof (including this Proxy Statement or the
Executive Compensation section of this Proxy Statement).
Employment Agreements
Robert S. Bowen.
Group 1 Agreement. The Company entered into an amended and restated
employment agreement dated as of January 28, 1992, with Mr. Bowen (the "Group
1 Agreement"). The Group 1 Agreement expires on July 1, 1998 and provides
for a salary of not less than $187,216 per annum subject to adjustments
(effective each July 1) depending upon the amount of professional time
dedicated to Group 1 vis-a-vis COMNET and adjusted annually by the greater of
changes in the area cost of living index or the average salary percentage
increase for employees approved by the Board as part of its annual budget.
The Group 1 Agreement includes an annual incentive bonus equal to 7-1/2%
of the first $1,000,000 of consolidated net income of Group 1 before taxes
with certain adjustments as defined, and 10% of such income in excess of
$1,000,000, such bonus to be no greater than that determined under a similar
bonus program related to the consolidated earnings of COMNET as long as the
program relating to COMNET is effective. Consolidated net income as defined
in the Group 1 Agreement includes all earnings of Group 1 and its subsidiaries
from any source, subject to certain specified deletions but including gain or
loss on the sale of stock or assets of Group 1 and/or a subsidiary. Specified
deletions from net income include, among other items, any provision for taxes,
any bonus payable under the Group 1 Agreement, any excess of interest income
from bank and other cash deposits over interest expense, and any charge to
income associated with the exercise of stock options. Salary and incentive
compensation paid under the Group 1 Agreement are not to be duplicated by
payments under the COMNET Agreement (described below), so long as the COMNET
Agreement is effective.
If Mr. Bowen's employment with Group 1 during the term of the Group 1
Agreement is terminated because of his disability or death, his base salary
and bonus will be prorated through the date of termination. If Mr. Bowen
terminates his employment with Group 1 for any reason other than death or
disability or he is discharged by Group 1 for cause, Mr. Bowen is entitled to
his base salary, equitably prorated, and any bonuses earned for any fiscal
year prior to the fiscal year in which his termination of employment occurred.
If Group 1 terminates Mr. Bowen's employment without cause, Mr. Bowen is
entitled to receive his salary, fringe benefits and bonuses throughout the
remaining term of the Group 1 Agreement. Upon any termination of Bowen's
employment under the Group 1 Agreement, all options held by him to purchase
Group 1's common stock will be treated as provided in the instruments or
agreements governing such options.
The Group 1 Agreement also provides that as long as COMNET owns 25% or
more of Group 1's common stock, Mr. Bowen will receive no additional
compensation under the Group 1 Agreement, but Mr. Bowen's aggregate
compensation payable under his employment agreement with COMNET will be
allocated between COMNET and Group 1 based on the proportion of his time
spent working for each of such companies. If COMNET ceases to own 25% or more
of Group 1's common stock, (i) Mr. Bowen's annual salary under the Group 1
Agreement is increased to the greater of $240,000 or 160% of the then current
base salary of Group 1's chief operating officer, adjusted upward or downward
to the extent that the proportion of Mr. Bowen's time spent working for Group 1
is greater or lesser than 50% and adjusted for changes in the cost of living,
(ii) Mr. Bowen's annual salary under his employment agreement with COMNET is
reduced to reflect only the proportion of his time spent working for COMNET
business other than Group 1 and (iii) Mr. Bowen becomes entitled to receive
incentive bonus compensation from Group 1 as follows: (A) if COMNET disposes
of its interest in Group 1 in a registered public offering, then for each
fiscal year, if Group 1's earnings equal budget targets established by the
Board in its reasonable business judgment, then Mr. Bowen's bonus shall be
the greater of $200,000 or 160% of the bonus payable to Group 1's chief
operating officer, and if Group 1's earnings are greater or lesser than
such targets, then Mr. Bowen's bonus will vary from the amount payable to him
at the target earnings level to the same proportional extent as the variation
in the bonus payable to Group 1's chief operating officer; and (B) if COMNET
disposes of its interest in Group 1 other than in a registered public offering,
then Mr. Bowen's bonus shall be as determined by the Board, without the
participation of any directors affiliated with COMNET.
COMNET Agreement. COMNET has also entered into an amended and restated
employment agreement with Mr. Bowen, dated as of January 28, 1992, as its
President and Chief Executive Officer (the "COMNET Agreement"). The COMNET
Agreement expires on June 30, 1998, and provides for a current total base
salary of $312,026 per annum adjusted annually (effective each July 1) by the
greater of any changes in the area cost of living index or the average salary
percentage increase for COMNET employees presented to the Board as part of the
annual budget. The COMNET Agreement provides for a bonus payable to Mr. Bowen
equal to 7-1/2% of the first $1,000,000 of consolidated net income before
taxes, with certain adjustments as defined, and 10% of all such consolidated
net income in excess of $1,000,000. Consolidated net income includes all
earnings attributable to Group 1 and COM-MED Systems, Inc., a former
subsidiary of COMNET ("COM-MED"), and any of COMNET's business operations or
subsidiaries directly related to the particular lines of business engaged in
by Group 1 or COM-MED, as of July 1, 1991, from any source, subject to certain
specified deletions but including gain or loss on the sale of stock or assets
of COMNET and its subsidiaries. Specified deletions from earnings include,
among other items, any provision for taxes, any bonus payable under the COMNET
Agreement, any interest income from COMNET's or its affiliates' investments
net of investment expenses, any charges to income associated with the exercise
of stock options and any interest or dividend income from, or gain from the
sale of, securities held for investment at the time Mr. Bowen joined COMNET.
The 7-1/2% and 10% calculations in the COMNET Agreement apply to gain
realized upon a sale of Group 1 and included in consolidated net income only
to the extent that such gain does not exceed an amount (the "Cap Amount")
equal to the gain that COMNET would realize on a disposition, if any, of its
interest in Group 1 at a price per share of $21.125. The COMNET Agreement
provides that with respect to any pretax gain (net of expenses) realized upon
a disposition of Group 1 in excess of the Cap Amount, Mr. Bowen will be
entitled to the following percentages of such gain: $0 to $3.3 million - 1%;
above $3.3 to $6.6 million - 2%; above $6.6 to $9.9 million - 3%; above $9.9
to $13.2 million - 4%; and above $13.2 million - 5%. Further, any bonus under
the COMNET Agreement will be offset by 40% of all fees theretofore received by
Mr. Bowen under the Bowen Fee Agreement (described below).
If Mr. Bowen terminates his employment with COMNET during the term of the
COMNET Agreement because of his disability he will be entitled to receive his
base salary and his bonuses, prorated through the date of termination, and any
options previously granted to him will, to the extent exercisable on Mr.
Bowen's date of employment, continue to be exercisable for 12 months following
such termination date. If Mr. Bowen's employment with COMNET is terminated
during the term of the COMNET Agreement because of his death, his estate will
be entitled to receive his base salary and his bonuses, prorated through the
date of termination, and any options previously granted to Mr. Bowen will, to
the extent exercisable on Mr. Bowen's date of termination of employment,
continue to be exercisable for six months following Mr. Bowen's death.
If Mr. Bowen terminates his employment with COMNET for any reason other
than death or disability or is discharged by COMNET for cause, he will be
entitled to receive his base salary, prorated through his date of termination,
and his bonus earned for any fiscal year prior to the fiscal year in which his
employment termination occurred, and all of his options will be treated as
provided in the instruments or agreements governing such options. If COMNET
terminates Mr. Bowen's employment without cause, he will be entitled to
receive his salary, as adjusted, fringe benefits and bonuses throughout the
remaining term of the COMNET Agreement, as if it had not been terminated, and
all of his options, including those that had not yet vested, will continue to
vest or be exercisable as if his employment had not been terminated but had
continued for the outstanding balance of the term of the COMNET Agreement, and
he will be afforded the maximum length of time permissible to exercise such
options; provided, however, that if such vesting of options after termination
is prohibited, COMNET shall, at such time as the options would have vested
(the "Vesting Date"), pay him in cash the difference between the average
reported price for COMNET's common stock over the 20 days immediately
preceding the Vesting Date and the exercise price of the stock options on the
Vesting Date.
Ronald F. Friedman.
The Company has entered into an employment agreement dated October 31,
1990, with Ronald F. Friedman. The agreement, as amended, expires on March
31, 1998, and provides for annual base compensation of $183,400 per annum
(adjusted on April 1, 1995), which may be further adjusted annually for merit
increases upon approval of the Compensation Committee. Under his employment
agreement, Mr. Friedman is entitled to receive an annual bonus for the fiscal
year ending March 31, 1996, based on a percentage of the Company's net income
before income taxes, interest expense, management fees and bonus amounts paid
to or for the benefit of Mr. Friedman, the Company's Chief Executive Officer
and Chief Financial Officer ("Adjusted Net Income"), which bonus varies from
7.4% of Adjusted Net Income over $5.6 million, up to a maximum of 9% of
Adjusted Net Income over $9 million. The bonus is based upon both achievement
of a certain level of Adjusted Net Income and satisfactory growth over actual
prior year results in the opinion of the Compensation Committee and the Board.
If Mr. Friedman retires or becomes totally and permanently disabled, Mr.
Friedman shall be entitled to receive all earned but unpaid bonuses and any
subsequent bonus installments. In the case of death, all earned but unpaid
bonuses and subsequent bonus installments shall be paid promptly in one sum.
If Mr. Friedman is terminated for cause or resigns under circum-stances which
would justify termination for cause, all unpaid bonuses will be forfeited and
no longer be payable. If a change in control of the Company occurs, Mr.
Friedman, at his option, has the right to resign his position with the Company,
and it will continue to pay his compensation and provide him with employee
benefits for one year or until the expiration date of his employment
agreement, whichever is the shorter period, and will pay Mr. Friedman, as a
lump sum, all earned but unpaid bonuses. In addition, bonuses will be paid
on a pro-rata basis for the period through the nearest full fiscal quarter
prior to resignation.
Bonus Programs to Other Executive Officers
Mr. Slater is entitled to an annual incentive bonus for the fiscal year
ended March 31, 1996 calculated on the basis of the Company's profit
performance as compared to internal profit targets. Mr. Crew is entitled to
an annual incentive bonus for the fiscal year ended March 31, 1996 to be
calculated on the basis of the Group 1 and COMNET's profit performance as
compared to internal profit targets. Mr. Weiss is entitled to an annual bonus
for fiscal year ended March 31, 1996 calculated on the basis of COMNET's profit
performance as compared to internal profit targets and the achievement of
certain other objectives. The Company has agreed to reimburse COMNET for the
respective portions, if any, of the bonuses paid to Messrs. Crew and Weiss
that are attributable to the Company's earnings.
Deferred Compensation Arrangements
The Company has adopted a Deferred Compensation Plan by which certain
members of senior management have the option of deferring the receipt of
amounts of their annual bonus compen-sation, if any, and/or their base
compensation (the "Deferred Compensation Plan"). The Deferred Compensation
Plan is intended by the Company to qualify as an unfunded plan for federal
income tax purposes and the Employee Retirement Income Security Act (ERISA).
The Deferred Compensation Plan is administered by the Company. The expenses
associated with the establishment and administration of the Deferred
Compensation Plan are borne by the Company. Any expenses of implementing any
investment option selected by a participant are charged against that
participant's account.
The compensation that is deferred is paid into a trust designated solely
to administer the Deferred Compensation Program. Currently Mr. B. Scott
Miller, Vice President, Product Development, is the only participant in the
Deferred Compensation Plan.
Fee Agreements
In January, 1992, COMNET and Mr. Bowen entered into a fee agreement (the
"Bowen Fee Agreement"). Under the Bowen Fee Agreement, Mr. Bowen will be
entitled to a fee paid by COMNET of 1/2% of the total consideration payable on
acquisitions and 1/2% of the pre-tax gain (net of expenses) on dispositions of
COMNET's or its subsidiaries' businesses. However, this fee will not be paid
with respect to a disposition, if any, of the Company or COM-MED or any of
COMNET's business operations or subsidiaries directly related to the particular
lines of business engaged in by such companies as of July 1, 1991. Mr. Bowen's
right to any fees associated with such dispositions will remain subject to the
incentive compensation arrangements in the COMNET Agreement. The term of the
Bowen Fee Agreement extends until January 27, 2002, unless Mr. Bowen is no
longer a director, officer or employee of COMNET, provided that if Mr. Bowen's
employment is terminated without cause (as defined in the COMNET Agreement),
COMNET must either continue this agreement until January 27, 2002, or pay Mr.
Bowen the incentive bonus upon a disposition, if any, of COMNET's interests in
the Company to which Mr. Bowen would have been entitled under his employment
agreement with COMNET as in effect prior to its amendment and restatement in
January, 1992. Mr. Bowen has earned $4,930 according to this fee agreement
during fiscal year 1995.
In January, 1992, COMNET entered into a fee agreement with Mr. Friedman,
pursuant to which he will be entitled to receive on disposition, if any, of
COMNET's interests in the Company, a fee in an amount equal to the following
percentages of COMNET's pre-tax gain (net of expenses) to the extent such gain
exceeds $21.125 per share of the Company: $0 to $3.3 million - 1/2%; above
$3.3 to $6.6 million - 1%; above $6.6 to $9.9 million - 1-1/2%; above $9.9 to
$13.2 million - 2%; and above $13.2 million - 2-1/2%. Such fee shall only be
payable, however, if the Company's net operating income increases at an
average annualized rate of 20% or more from 1991 until such disposition. If
the Company's net operating income increases at an average annualized rate of
15% or more, but less than 20%, Mr. Friedman will be entitled to one-half the
fee set forth above. The term of this agreement extends until January 27,
2002, unless Mr. Friedman is no longer a director, officer or employee of
COMNET.
In January, 1992, COMNET entered into a fee agreement to pay Mr. James V.
Manning, Chairman of the Board of Directors of COMNET, fees of 1/2% of the
total consideration paid on acquisitions, 1/2% of the pre-tax gain (net of
expenses) on dispositions of COMNET's or its subsidiaries' businesses.
However, Mr. Manning will be entitled to such fees with respect to a
disposition, if any, by COMNET of its holdings in the Company only if, and to
the extent that, the consideration COMNET receives exceeds $50,000,000. The
term of this agreement extends until January 27, 2002, unless earlier
terminated because he is no longer a director, officer or employee of COMNET.
Mr. Manning has earned $4,930 according to this fee agreement during fiscal
year 1995.
Executive Supplementary Benefits
The Company provides certain of its executive officers with group health
insurance and disability insurance policies that are not available to all
salaried employees. These supplementary benefits to such executive officers
are limited to the cost of the premiums for the coverage. The aggregate cost
is less than $25,000 per year for all covered executive officers.
Indemnification Agreements; Directors and Officers Liability Insurance
Indemnification Agreements. Messrs. Bowen, Friedman, Crew, Kanter and
Mele, as members of the COMNET board of directors, are signatories to
indemnification agreements with COMNET (the "Indemnification Agreements").
Each Indemnification Agreement provides that COMNET shall indemnify a director
or officer of it or of any subsidiary of it who is a party to the agreement
(an "Indemnitee") if he was or is a party to or threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (except a
derivative proceeding) by reason of the fact that he is or was a director or
officer of COMNET or any subsidiary of it, or is or was serving at its request
in certain capacities for another entity, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement (if such
settlement is approved in advance by COMNET) in connection with the defense or
settlement of such actions, suits or proceedings. The indemnification is
limited to instances where the Indemnitee acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of
COMNET, and with respect to any criminal action, had no reasonable cause to
believe his conduct was unlawful. With respect to derivative proceedings, the
Indemnification Agreement provides indemnification similar to that provided in
the Indemnification Agreement for non-derivative proceedings, except that
indemnification is allowed only to the extent determined to be fair and
reasonable by the court.
The Indemnification Agreement provides that if a director or officer is
entitled to indemnification for some or a portion of the expenses, judgments,
fines or penalties actually or reasonably incurred by him in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit or proceeding, COMNET shall nevertheless indemnify him to the extent to
which he is entitled. By the terms of the Indemnification Agreements, the
benefits are not available for expenses or liabilities paid directly to the
Indemnitee under an applicable policy of directors and officers insurance or
in several other instances such as if a court determines that each material
assertion made by the Indemnitee in that proceeding was not made in good faith
or was frivolous, or if the claim arises from the purchase and sale by the
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, or similar successor statutes.
Messrs. Buchsbaum and Sullivan, who are directors of the Company but not
directors of COMNET, are not signatories to an Indemnification Agreement.
They receive indemnification protections, however, under the directors and
officers liability insurance policy described below, as well as the
indemnification provisions contained in the Company's Certificate of
Incorporation and Bylaws.
Directors and Officers Liability Insurance. The Company currently
maintains coverage of directors and officers liability under a policy obtained
by COMNET covering COMNET and its subsidiaries. This coverage is subject to
an aggregate limit of liability of $5,000,000. Deductibles under this policy
range from $5,000 per officer or director for each claim to $50,000 in the
aggregate for certain covered claims. This policy does not cover, among other
matters dishonest, fraudulent, or criminal behavior.
401(k) Plan
In January, 1994, COMNET adopted the COMNET Corporation and Subsidiaries
401(k) Retirement Savings Plan and Trust (the "401(k) Plan"). The Company, as
a subsidiary of COMNET, participates in the 401(k) Plan. The 401(k) Plan
provides for a contribution to be made by the Company and its subsidiaries out
of current operating earnings based upon the contributions made by
participating employees.
All employees of the Company or its subsidiaries who have been employed
for at least three months are eligible to participate in the 401(k) Plan.
Participants in the 401(k) Plan may contribute from 1% to 15% of their
compensation from the Company or its subsidiary (up to a limit of $9,240) in a
calendar year. The Company or a subsidiary will make contributions to an
employee's 401(k) Plan account equal to the sum of the following: (i) $.75
for each $1.00 a participant contributes up to 2% of the participant's
compensation and (ii) $.50 for each $1.00 the participant contributes for the
next 1% of the participant's compensation. Participants are 100% vested in
the contributions, and earnings thereon, they make to the 401(k) Plan out of
their compensation. Participants vest in employer contributions, and earnings
thereon, at a rate of 20% per year of employment with the Company or a
subsidiary, up to 100%. However, if a participant's employment with the
Company or a subsidiary terminates because of retirement, death or disability
(as defined in the 401(k) Plan), 100% of the employer contributions, and
earnings thereon, become 100% vested.
CERTAIN TRANSACTIONS
COMNET-Group 1 Management Services Agreement
Effective April 1, 1994, the Company renewed its Management and Services
Agreement with COMNET (the "Management Services Agreement") under which COMNET
provides to the Company certain management and other services through March
31, 1997. The Company believes that these arrangements are fair and
reasonable. By having entered into the Management Services Agreement, the
Company believes the possibility of conflicts of interest with COMNET
regarding providing these services will be minimized because the terms under
which benefits and services are to be exchanged will be generally governed by
the Management Services Agreement and need not be separately negotiated in
each instance. However, no assurance can be given that conflicts of interest
will not occur.
Under the Management Services Agreement, COMNET provides on an actual or
estimated cost or usage basis, not intended to provide a profit to COMNET, all
accounting and finance support, legal and administrative support, human
resources support, office space and certain liability and property insurance
relating to this office space and its usage. The Company has retained the
right, upon 120 days notice, except for the providing of office space, to
acquire the services and benefits from a third party or to provide such
services or benefits itself.
The Company has agreed to reimburse COMNET for 60% of its salary and
fringe benefit expenses for Robert S. Bowen or his successor(s) as Chief
Executive Officer of the Company in return for Mr. Bowen's or his successor's
services in such capacity. The 60% represents the estimated portion of Mr.
Bowen's professional time presently spent on Company affairs. The Company has
also agreed to reimburse COMNET for that portion of Mr. Bowen's or his
successor's incentive bonus award, if any, that is attributable to the
Company's earnings.
The Company has agreed to reimburse COMNET for a portion of its salary
and fringe benefit expenses for Charles A. Crew or his successor(s) as Chief
Financial Officer of the Company ("CFO") in return for Mr. Crew's or his
successor's services in such capacity. The portion of the CFO's salary and
fringe benefit expenses to be reimbursed will be determined as a percent of
the estimated portion of Mr. Crew's professional time spent on Company
affairs. For the year ended March 31, 1995, 80% of the CFO's salary and
fringe benefit expense was reimbursed under this formula. The Company has
agreed to reimburse COMNET for that portion of Mr. Crew's or his successor's
incentive bonus award, if any, that is attributable to the Company's earnings.
The Company has agreed to reimburse COMNET for all costs that COMNET
incurred for the benefit of the Company to deliver the services to the Company
of COMNET's Finance Department, Legal Department, Corporate Administrative
Department and Human Resources Department.
The Company has agreed to pay COMNET a management fee in recognition of
the provision by COMNET of services and benefits, including certain senior
management services, at cost. This management fee shall be based on the
Company's annual pre-tax earnings (before the cost of any management fee) as a
percentage of the Company's total annual revenues (the "Pre-Tax Margin"),
ranging from 1% of the total Company revenues if the Pre-Tax Margin is 20.99%
or under, and increasing by equal increments to 2.0% of the Company's total
revenues if the Pre-Tax Margin is 30% or more. Total amount charged by COMNET
to the Company for management and other services under the Management Services
Agreement totaled $2,256,535 for the year ended March 31, 1995, including the
management fee paid for the fiscal year ended March 31, 1995, of $379,314.
Tax Sharing Agreement
On April 1, 1991, the Company and COMNET renewed their tax sharing
agreement ("Tax Sharing Agreement"). Under current law and so long as COMNET
owns at least 80% of the total value of the stock of the Company and owns
stock possessing at least 80% of the voting power of the Company, the Company
will, at the election of COMNET, continue to be included in COMNET's
consolidated Federal income tax returns. The Company will pay to COMNET the
amount of the separate income tax liability that the Company would have been
obligated to pay had it filed a separate return. The Company's separate
income tax liability will be computed by reference to the Company's items of
income, deduction and credit in the current and prior years. For the purposes
of the Tax Sharing Agreement, carryforwards and carrybacks of losses and
deductions will be computed as if the Company had not filed consolidated
income tax returns with COMNET. In the event that, upon audit of any
consolidated income tax returns or upon the filing of any amended return or
claims for refund, there are adjustments that would have affected the
Company's separate income tax liability, the Company will make to or receive
from COMNET additional payments at the time and in the amount, including
interest thereon, as would have been paid to or received from the Internal
Revenue Service had the Company filed a separate return.
PROPOSAL TWO
Approval of the Adoption of the Company's 1995 Incentive
Stock Option, Non-Qualified Stock Option and Stock Appreciation Rights Plan
The Board is recommending to the stockholders that they approve the 1995
Incentive Stock Option, Non-Qualified Stock Option and Stock Appreciation
Rights Plan, a copy of which is attached hereto as Exhibit A. The 1995
Incentive Plan is substantially equivalent to the Company's 1986 Plan, except
for the effective and termination dates and the pyramiding and automatic
acceleration upon change of control, described below. Upon approval of the
1995 Incentive Plan, no further grants will be made under the 1986 Incentive
Plan.
The 1995 Incentive Stock Option Plan
The purpose of the 1995 Incentive Plan is to advance the growth and
development of the Company by affording an opportunity to the officers and
other employees (whether full-time or otherwise) of the Company or a
subsidiary to invest in shares of the Company's stock and/or to receive cash
or stock distribution representing increases in the value of the Company's
stock. The acquisition of such stock by such employees and/or the payment of
cash distributions to such employees, who contribute to the Company's success,
provide the continuing incentive for them to promote the best interest of the
Company and induces them to continue their employment with the Company or a
subsidiary. Finally, the 1995 Incentive Plan will enhance the ability of the
Company or a subsidiary to attract competent personnel to enter its employ.
The foregoing and following are brief descriptions of the principal
provisions of the 1995 Incentive Plan and are qualified in its entirety by the
1995 Incentive Plan included herewith as Exhibit A.
The 1995 Incentive Plan authorizes the grant of incentive stock options
("ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), non-qualified stock options ("Non-Qualified Stock Options"), and
stock appreciation rights units ("Stock Units") redeemable at the discretion
of the Company for cash or stock or a combination thereof. Only employees of
the Company or employees of the Company's subsidiaries are eligible for
options under the Plan. The Plan reserves 300,000 shares for issuance upon
the exercise of options granted under it and upon redemption of Stock Units
granted under it.
Administration and Eligibility. The 1995 Incentive Plan is administered
by the Company's Compensation Committee appointed by the Company's Board of
Directors. The 1995 Incentive Plan authorizes the grant of ISOs with an
exercise price equal to 100%, and 85% as to Non-Qualified Stock Options, of
the fair market value of the shares of Common Stock on the date the options
are granted. Only those officers and employees of the Company designated by
the Compensation Committee are eligible to participate in the 1995 Incentive
Plan.
The 1995 Incentive Plan, however, precludes the issuance of ISOs to
individuals owning stock possessing more than ten percent of the total
combined voting power of all classes of stock in the Company, its
subsidiaries, and parent. Options to purchase Common Stock are not included
in determining whether a person is a ten percent or more stockholder. To the
knowledge of the Company, no person otherwise eligible to receive ISOs holds
or owns ten percent or more of the total combined voting power of all classes
of stock.
Terms and Conditions of Grants. The Options are to contain such terms as
the Compen-sation Committee shall determine including the term and
installments, if any, during which the options may be exercised. The 1995
Incentive Plan provides that options may be exercised not later than three
months after the date of termination of employment except in the event of the
termination of employment by the Company for cause, in which event the options
will be revoked upon termination. In the event of termination of employment
as a result of death of the optionee, the options will be exercisable to the
extent they were exercisable at the time of termination within the respective
periods of six months following such termination. In the event of the
termination of employment as a result of the disability of the optionee, the
options will be exercisable for a period of one year following such
termination. The options may not be transferred other than by will or the
laws of descent and distribution.
The 1995 Incentive Plan permits optionees to pyramid and to surrender to
the Company already-owned shares of the Common Stock valued at the fair market
value on the date of exercise, in full or partial payment of the exercise
price.
The 1995 Incentive Plan provides for the acceleration of the vesting and
redemption of stock units and stock options upon the occurrence of any of the
following events and approval of acceleration by the Compensation Committee:
(i) the commencement of a bona fide "tender offer", other than by the Company
or COMNET or its successor or assign, acceptable to the Board for the shares
of the Company as provided under Rule 14d-2 promulgated under the Securities
Exchange Act of 1934, as amended, or any subsequent comparable federal rule or
regulation governing tender offers; (ii) a successful tender offer not
previously approved by the Board resulting in a change of control of the
Board; (iii) the Company's execution of an agreement concerning the sale of
substantially all assets (other than to a subsidiary in a mere corporate
restructuring); (iv) the Company's adoption of a plan of dissolution or
liquidation; or (v) the Company's execution of an agreement concerning a
merger or consolida-tion (with a corporation other than COMNET, or its
successor or assign) involving the Company in which the Company is not
the surviving corporation or if, immediately following such merger or
consolidation, less than fifty percent (50%) of the surviving corporation's
outstanding voting stock is held by persons who were stockholders of the
Company immediately prior to such merger or consolidation. The options shall
be fully exercisable regardless of whether the tender offer is successful,
regardless of whether the dissolution or liquidation is consummated, and
regardless of whether the other corporation which is the surviving corporation
in a merger or consolidation shall adopt and maintain any plan under which
options are granted to holders of outstanding options. If the agreement
concerning the sale of substantially all of the Company's assets or the
agreement concerning a merger or consolidation is not consummated by the
parties, then the options not exercised prior to a formal determination by the
Company's Board of Directors that the contemplated transaction will not be
consummated shall, on and after the date of such determination, be subject to
the exercise restrictions set forth in the respective option agreements.
Certain Tax Matters. The following is a summary, and does not purport to
be a complete description, of certain federal income tax aspects of the 1995
Incentive Plan and transactions thereunder. Furthermore, no information is
given with respect to any state, local, or foreign taxes which may be
applicable.
Under the 1995 Incentive Plan, an optionee will not recognize any taxable
income at the time of the grant of an ISO. Furthermore, in general, the
optionee will not recognize income on the exercise of an ISO. However, if the
option is exercised by an individual who has terminated his or her employment
more than three months prior to the exercise of the ISO, the individual will
be taxed on the difference between the fair market value of the stock and the
amount paid for the stock. While the exercise of an ISO will not generally
result in current taxable income, the same does not hold true for purposes of
the Alternative Minimum Tax ("AMT"). Upon the exercise of an ISO, the
optionee must recognize for AMT purposes the difference between the exercise
price of the option and the fair market value of the stock received.
An employee who disposes of stock, acquired through the exercise of an
ISO, will recognize long-term capital gain equal to the excess of the sale
price over the price paid for the stock if such sale does not occur within (A)
two years after the option is granted, and (B) one year after the stock is
acquired. In this case, the Company will not receive a deduction for
compensation expense. If, however, the employee disposes the stock prior to
the aforementioned holding periods, then the employee will have ordinary
income equal to the lesser of (i) the difference between the option exercise
price and the fair market value of the stock on the date the option was
exercised or (ii) the difference between the option exercise price and the
fair market value of the stock on the date of sale or exchange. Any
additional gain attributed to the sale will be considered capital gain. The
amount so recognized as ordinary income to the employee will be deductible to
the Company as compensation expense.
If the exercise of an ISO is made by delivery of shares of Common Stock
(acquired pursuant to the 1995 Incentive Plan) in payment of the option price,
the shares delivered are deemed to be exchanged in a tax-free transaction
provided that such shares were not delivered prior to (A) two years after the
option had been granted, and (B) one year after the stock had been acquired.
If stock is used to exercise an option, but is delivered prior to the
expiration of the aforementioned holding periods, the employee will have
ordinary income equal to the difference between the fair market value of the
stock on the date acquired, and the price paid to exercise the option. In
addition, the employee will recognize capital gain income equal to the
difference between the fair market value of the stock when acquired, and the
fair market value of the newly issued stock received. The Company will be
able to take a compensation expense deduction for the amount recognized by the
employee as ordinary income.
With respect to Non-Qualified Stock Options, the optionees will not
recognize taxable income, and the Company will not be entitled to a deduction,
upon the grant of such options. Upon exercise of such options, the optionees
will recognize ordinary income in an amount equal to the amount by which the
fair market value of each share of Common Stock on the date of exercise
exceeds the option price. The amount so recognized as income will be
deductible by the Company. Upon any subsequent sale of shares by an optionee,
the optionee's basis on the shares purchased for determining gain or loss
will be the fair market value on the date of exercise, if such shares were
acquired for cash. If the exercise of the option is made by delivery of
shares of Common Stock in payment of the option price, the shares delivered
are deemed to be exchanged in a tax-free transaction for the equivalent
number of new shares of Common Stock. Such equivalent number of new shares
has the same basis and holding period as the shares exchanged.
The number of shares received in excess of the number of shares delivered
is included in the optionee's income at the fair market value thereof at the
time of exercise. Any gain or loss recognized upon the sale or other
disposition of these shares will be capital gain or loss, either long-term or
short-term depending upon the holding period of the shares (which begins on
the date the optionee recognizes income with respect to such shares, except
for the shares deemed to be received in a tax-free transaction as described
above).
Any payment received for the redemption of Stock Units is compensation
income to the employee and a compensation deduction to the employer.
The foregoing is not to be considered as tax advice to any persons who
may be optionees, and any such persons are advised to consult their own tax
counsel.
Recommendation of the Board of Directors Concerning the Adoption of the 1995
Incentive Stock Option Plan.
An affirmative vote of a majority of the outstanding shares of Voting
Securities present and voting at the Meeting is required for approval. The
Board of Directors of the Company recommends that the stockholders vote FOR
the adoption of the 1995 Incentive Plan.
PROPOSAL THREE
Approval of the Adoption of the Company's
1995 Non-Employee Directors' Stock Option Plan
The Board is recommending to the stockholders that they approve the 1995
Directors' Plan, a copy of which is attached hereto as Exhibit B. The 1995
Directors' Plan is substantially equivalent to the 1992 Non-Employee
Directors' Stock Option Plan, except for the effective and termination dates
and acceleration of vesting upon change of control. Because adoption of the
1995 Directors' Plan may benefit the current non-employee directors of the
Company, they may be deemed to have an interest in this proposal.
The 1995 Non-Employee Directors' Stock Option Plan.
The purpose of the 1995 Directors' Plan is to provide incentives that
will attract and retain highly competent persons as non-employee directors by
providing them with opportunities to acquire a propriety interest in the
Company. Additionally, by providing non-employee directors with stock option
grants determined on a non-discretionary basis according to a fixed formula,
the 1995 Directors' Plan will permit non-employee directors to be
"disinterested" as defined in the regulations of the Securities and Exchange
Commission under Section 16 of the Exchange Act, thus allowing these directors
to administer the Company's stock option plans in compliance with exemptions
from the short-swing liability provisions contained in Section 16.
The foregoing and the following are brief descriptions of the principal
provisions of the 1995 Directors' Plan and are qualified in its entirety by
the 1995 Directors' Plan included herewith as Exhibit B.
Under the 1995 Non-Employee Director Plan, the aggregate number of shares
of Common Stock of the Company which may be issued pursuant to options is
100,000 shares, subject to adjustment in certain circumstances, including
merger, consolidation, reorganization, recapitalization, stock dividends,
stock splits, combination of shares, exchange of shares, change of corporate
structure or otherwise.
The terms and conditions under which options shall be granted under the
1995 Directors' Plan are set forth in the 1995 Non-Employee Directors' Plan
and described below. The Compensation Committee or any executive officer of
the Company designated by the Compensation Committee shall have authority to
interpret the provisions of the 1995 Directors' Plan, to establish such rules
and procedures as may be necessary or advisable to administer the 1995
Directors' Plan and to make all determinations necessary or advisable for the
administration of the 1995 Directors' Plan, provided that no such
interpretation or determination shall change or affect the selection of
participants eligible to receive grants under the 1995 Directors' Plan, the
number of shares of Common Stock covered by or the timing of any grant of
options under the 1995 Directors' Plan or the terms and conditions thereof.
Eligibility. All non-employee directors of the Company are eligible to
receive options under the 1995 Directors' Plan. The Company currently has
four non-employee directors eligible to participate in the 1995 Directors'
Plan, of which two such directors are standing for re-election to the Board of
Directors. See Proposal One, "Election of Directors."
Term of Plan; Grant of Options to Non-Employee Directors. The 1995
Directors' Plan shall be effective as of September 12, 1995, after approval by
the stockholders at the Meeting. Each non-employee director whose initial
term commences after the effective date of the 1995 Directors' Plan shall
receive an option to purchase 5,000 shares of Common Stock at the time such
director is first elected to the Company's Board of Directors. On the
anniversary date of each non-employee director's election to the Company's
Board of Directors during the term of the 1995 Directors' Plan, each non-
employee director then in office will be automatically granted an option to
purchase 5,000 shares of Common Stock. No options will be granted under the
1995 Directors' Plan after September 10, 2005. Options shall be evidenced by
a stock option agreement in such form as the Compensation Committee or any
executive officer of the Company designated by the Compensation Committee
shall from time to time determine consistent with the 1995 Directors' Plan.
Terms and Conditions of Options. Options granted to non-employee
directors become exercisable at a rate of 20% each successive year from the
date of grant. The purchase price of the Common Stock under each option will
be the fair market value of the Common Stock on the date of grant. For
purposes of the 1995 Directors' Plan, fair market value shall mean (i) the
last sales price of a share of Common Stock traded on the over-the-counter
market, as reported on the NASDAQ National Market System, but if no shares of
Common Stock were traded on such date, than on the last previous date on which
a share of Common Stock was so traded, (ii) the closing price for a share of
Common Stock on the stock exchange, if any, on which the shares of Common
Stock are primarily traded, but if no shares of Common Stock were traded on
such date, then on the last previous date on which a share of Common Stock was
so traded or (iii) if none of the above is applicable, the value of a share of
Common Stock for such date as established by the Compensation Committee, using
any reasonable method of valuation.
All options expire on the earlier of the tenth anniversary of the date of
grant or the date of termination of the optionee's status as a director of the
Company. Subject to such ten year maximum duration, if an optionee ceases to
be a director of the Company due to any reason other than his death, he shall
have thirty days following his termination to exercise his options to the
extent exercisable as of such termination, and if an optionee dies while a
director of the Company, such optionee's personal representatives or heirs
shall have six months following such optionee's death to exercise his or her
options, to the extent such options were exercisable as of the date of the
optionee's death.
The 1995 Directors' Plan permits optionees to pyramid and to surrender to
the Company already-owned shares of the Common Stock valued at the fair market
value on the date of exercise, in full or partial payment of the exercise
price.
The 1995 Directors' Plan provides that options granted become exercisable
in full, whether or not then exercisable, upon a change of control (as defined
in the 1995 Directors' Plan).
The 1995 Directors' Plan may be terminated and may be modified or amended
by the Company's Board of Directors at any time, provided, however, that (i)
no modification or amendment increasing the aggregate number of shares which
may be issued under options, materially increasing benefits accruing to
participants under the 1995 Directors' Plan, or materially modifying the
requirements as to eligibility to receive options shall be effective without
stockholder approval within one (1) year of the adoption of such amendments,
(ii) no such termination, modification or amendment of the 1995 Directors'
Plan shall alter or affect the terms of any then-outstanding options
previously granted, without the consent of the holder thereof and (iii) the
provisions of the 1995 Directors' Plan with respect to the number of shares of
Common Stock for which options shall be granted, the timing of such grants and
the exercise price for such options shall not be amended more than once every
six months, other than to comport with changes in the Internal Revenue Code of
1986, as amended, or the Employee Retirement Income Security Act of 1974, as
amended, or the respective rules thereunder.
Certain Tax Matters. The following is a summary, and does not purport to
be a complete description, of certain federal income tax aspects of the Plan
and transactions thereunder. Furthermore, no information is given with
respect to any state, local, or foreign taxes which may be applicable.
Under the 1995 Directors' Plan, an optionee will not recognize taxable
income, and the Company will not be entitled to a deduction, upon the grant of
an option. Upon exercise of such option, the optionee will recognize ordinary
income in an amount equal to the amount by which the fair market value of each
share of Common Stock on the date of exercise exceeds the option price. The
amount so recognized as income will be deductible by the Company. Upon any
subsequent sale of shares by an optionee, the optionee's basis in the shares
purchased for determining gain or loss will be their fair market value on the
date of exercise, if such shares were acquired for cash. If the exercise of
the option is made by delivery of shares of Common Stock in payment of the
option price, the shares delivered are deemed to be exchanged in a tax-free
transaction for the equivalent number of new shares of Common Stock. Such
equivalent number of new shares has the same basis and holding period as the
shares exchanged.
The number of shares received in excess of the number of shares delivered
is included in the optionee's income at the fair market value thereof at the
time of exercise. Any gain or loss recognized upon the sale or other
disposition of these shares will be capital gain or loss, either long-term or
short-term depending upon the holding period of the shares (which begins on
the date the optionee recognizes income with respect to such shares, except
for the shares deemed to be received in a tax-free transaction as described
above).
The foregoing is not to be considered as tax advice to the optionee, and
any such person should consult their tax counsel.
Recommendation of the Board of Directors Concerning the Adoption of the 1995
Non-Employee Directors' Plan.
An affirmative vote of a majority of the outstanding shares of Voting
Securities present and voting at the Meeting is required for approval. The
Board of Directors of the Company recommends that the stockholders vote FOR
the adoption of the 1995 Directors' Plan.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Coopers & Lybrand, L.L.P. has audited the Company's financial statements
for the fiscal years ended March 31, 1995, 1994 and 1993. A representative of
Coopers & Lybrand is expected to be present at the Meeting. The
representative will be afforded an opportunity to make a statement and will be
available to respond to appropriate questions by stockholders.
STOCKHOLDERS' PROPOSALS
Stockholders are entitled to submit proposals on matters appropriate for
stockholder action consistent with regulations of the Securities and Exchange
Commission. Should a stockholder intend to present a proposal at the
Company's next annual meeting, it must be received by the Secretary of the
Company, 4200 Parliament Place, Suite 600, Lanham, Maryland 20706-1844, no
later than February 10, 1996, in order to be included in the Company's proxy
statement and form of proxy relating to that meeting.
SOLICITATION PROCEDURES
Officers and regular employees of the Company, without extra
compensation, may solicit the return of proxies by mail, telephone, telegram
and personal interview. Certain holders of record such as brokers, custodians
and nominees, are being requested to distribute proxy materials to beneficial
owners and to obtain such beneficial owner's instructions concerning the
voting of proxies. The cost of solicitation of proxies (including the cost of
reimbursing banks, brokerage houses, and other custodians, nominees and
fiduciaries for their reasonable expenses in regard to proxy soliciting
material) will be paid by the Company.
MISCELLANEOUS
Management does not intend to present any other matters at the Meeting.
If other matters are properly presented at the Meeting, the persons named as
proxies will vote them in accordance with their best judgment.
Where information contained in this Proxy Statement rests particularly
within the knowledge of a person other than the Company, the Company has
relied upon information furnished by such person or contained in filings made
by such person with the Securities and Exchange Commission.
By Order of the Board of Directors
Edward Weiss
Secretary
Dated: July 25, 1995
<PAGE>
GROUP 1 SOFTWARE, INC.
4200 Parliament Place, Suite 600
Lanham, Maryland 20706-1844
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 12, 1995
The undersigned hereby appoints Edward Weiss as a true and lawful
attorney and proxy of the undersigned, with full power of substitution, for
and in the name of the undersigned to vote and otherwise act at the annual
meeting of Stockholders of Group 1 Software, Inc. (the "Company") to be
held on Tuesday, September 12, 1995, at 10:15 a.m. at Prudential
Securities, One Liberty Plaza, New York, New York 10292 and at any
adjournment thereof (the "Meeting"), with respect to all shares of Common
Stock of the Company which the undersigned would possess if personally
present, on the following matters.
1. Election of Directors
____FOR all nominees listed below
(Except as marked to the contrary below)
____WITHHOLD AUTHORITY to vote for all nominees listed below
(Instruction: To withhold authority to vote for any individual
nominee, strike a line through the nominee's name in the list below.)
Mr. Charles A. Crew
Mr. Charles A. Mele
Mr. Joseph R. Sullivan
There is no assurance that any of the Company's nominees will serve as
directors if any other nominee is elected to the Board.
2. To approve the adoption of the Company's 1995 Incentive Stock
Option, Non-Qualified Stock Option and Stock Appreciation Unit Plan; and
_____ FOR _____ AGAINST _____ ABSTAIN
3. To approve the adoption of the Company's 1995 Non-Employee
Directors' Stock Option Plan.
_____ FOR _____ AGAINST _____ ABSTAIN
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED TO ELECT THE INDIVIDUALS NAMED IN PROPOSAL ONE.
In their discretion, the aforesaid proxies shall vote upon any other
matters which the persons making the solicitation do not know, a reasonable
time before the solicitation and that properly come before the Meeting or
any adjournment or postponement thereof, including the election of any
person to any office for which a nominee is named in the proxy statement and
such nominee is unable to serve for good cause.
The undersigned hereby ratifies and confirms that the
aforesaid attorneys and proxies may do hereunder.
_______________________________
(Signature of Stockholder)
_______________________________ Dated:_____________, 1995
(Signature of Stockholder)
(Please sign exactly as your name appears hereon.
When signing as attorney, executor, administrator,
trustee, guardian or corporate official, please
give your full official title. If shares are
held jointly, each holder should sign.)
TO INSURE A QUORUM AND TO AVOID THE EXPENSE AND DELAY OF SENDING
FOLLOW-UP LETTERS, PLEASE FILL IN, SIGN, DATE AND MAIL THIS PROXY
IN THE ENCLOSED POSTAGE PAID ENVELOPE.
<PAGE>
EXHIBIT A
1995 GROUP 1 SOFTWARE, INC.
INCENTIVE STOCK OPTION, NON-QUALIFIED
STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN
Section 1: Purpose.
1.1 This Plan (the "Plan") is intended to provide a means for the
granting of awards (each such award is hereinafter referred to as the
"Award") of stock options and/or stock appreciation rights to selected
full- and part-time employees (including officers who are also employees)
of Group 1 Software, Inc. (the "Company") and such of its domestic or
foreign, present or future, affiliated companies as shall be designated
from time to time by the Company's Board of Directors (the "Board") (each
such person, upon receipt of an Award is hereinafter referred to as a
"Participant").
1.2 This Plan is designed to (a) provide incentives and rewards to
those persons who are in a position to contribute to the long-term growth
and profitability of the Company; (b) assist the Company and such
affiliated companies (the "Affiliates") to attract, retain and motivate
personnel with experience and ability; and (c) make the Company's compen-
sation program more competitive with those of other companies. The Company
expects that by providing such Awards it will benefit from the added
interest which such personnel will have in the success of the Company
and/or the Affiliates as a result of their proprietary interest.
1.3 For purposes of this Plan, an Affiliate shall mean any corporation
defined as a subsidiary corporation under Section 425(f) of the Internal
Revenue Code, as amended (the "Code").
Section 2: Administration.
2.1 This Plan shall be administered by the Compensation Committee of
the Board (the "Committee"). Members of the Committee shall be
disinterested within the meaning of SEC Rule 16b-3. No individual may
participate as a member of the Committee in the administra-tion of this
Plan if he shall have been eligible to receive Awards or any other stock
options or stock appreciation rights of the Company or any of its
Affiliates under this Plan or any other discretionary plan of the Company
or its Affiliates at any time within one year prior to serving on the
Committee. Subject to the express provisions of this Plan and to such
orders or resolutions not inconsistent with the provisions of this Plan as
may be issued or adopted from time to time by the Board, the Committee
shall have full power and authority, in its discretion, to grant Awards;
to determine to whom and the time when Awards will be granted; to designate
Awards as incentive stock options or nonqualified stock options; to
determine the purchase price of the common stock covered by each option,
the term of each option, and the exercisability of each option; to determine
the terms and provisions of the option agreements (which need not be
identical) entered into in connection with Awards under this Plan; to
interpret this Plan; to supervise the administration of this Plan; to
prescribe, amend and rescind rules and regulations relating to this Plan;
and to make all other determinations and take any other action deemed
necessary or desirable to the proper operation or administration of this Plan.
The Committee may authorize such of the Company's officers and other
persons to perform such functions in the execution and administration
of this Plan (other than the interpretation of this Plan and the adoption
of rules governing its execution and administration) as the Committee shall
determine from time to time.
2.2 All decisions made by the Committee pursuant to the powers vested
in it by this Plan document and related orders or resolutions of the Board
shall be final and binding on all persons (including Participants, the
Company and any stockholder and/or employee of the Company or any
Affiliate). No member of the Committee shall be liable for any action or
determination made in good faith with respect to this Plan or any Award
granted under it.
Section 3: Scope and Duration.
3.1 Awards under this Plan may be granted in the form of incentive
stock options (the "ISO's") as provided in Section 422 of the Code or in
the form of nonqualified stock options (the "NQSO's") and/or stock
appreciation rights (the "SAR's") as provided in Section 7. Unless
otherwise indicated, references in this Plan to "Options" include ISO's and
NQSO's. As used in the preceding sentence, the term "stock appreciation
rights" means rights to receive the payment provided for in Section 7, upon
the surrender of an unexercised related Option.
3.2 The total number of shares of common stock of the Company (the
"Stock") as to which Options or SAR's may be granted under this Plan shall
be 300,000 shares subject to adjustments as provided in this Plan.
Issuance of Stock upon exercise of an option or reduction of the number of
shares of Stock subject to an option upon exercise of an SAR shall reduce
the total number of shares of Stock available under this Plan. There shall
not be counted against this total any shares of Stock covered by an Option
that has lapsed unexercised or has been forfeited as hereinafter provided.
3.3 Subject to adjustments provided for in Section 12 hereof, shares
of Stock as to which Options and SAR's under this Plan may be granted may
be made available by the Company from authorized but unissued shares of
Stock or from shares reacquired by the Company (including shares purchased
in the open market).
Section 4: Eligible Persons. The persons who shall be eligible to receive
Awards under this Plan shall be all full- and part-time employees
(including officers who are also employees) of the Company or an Affiliate,
without limitation as to length of service ("Eligible Persons").
Section 5: Granting Awards.
5.1 Subject to the limitations of this Plan, the Committee, at any
time and from time to time, and after such consultation with and
consideration of such recommendations of management as the Committee deems
desirable, shall select from Eligible Persons those persons to be granted
Awards and determine the time when each Award shall be granted, the number
of shares of Stock to be subject to an option and/or SAR and the terms and
conditions, consistent with this Plan, upon which Options and/or SAR's are
to be awarded. The Committee shall make Awards to the Eligible Persons so
selected for the number of options and/or SAR's and upon the terms and
conditions to determined. No Options or SAR's or underlying shares of
Stock shall be issued or distributed under this Plan unless and until all
legal requirements applicable to the issuance or transfer of such Options,
SAR's and/or Stock have been complied with to the satisfaction of the
Committee and the Company.
5.2 No ISO shall be granted hereunder to any person who, at the time
such Option is to be granted, owns stock of the Company or of any of its
Affiliates possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of any such Affiliate unless such
grant complies with Section 422 of the Code. For purposes of the preceding
sentence, the attribution rules of stock ownership set forth in Section
425(d) of the Code shall apply.
5.3 No Awards shall be granted under this Plan after its termination
on September 12, 2005, but Awards granted prior to such termination date
may extend beyond that date, and the terms of this Plan shall continue to
apply to such awards.
Section 6: Terms and Conditions of Options.
6.1 General. Each Option granted pursuant to this Plan shall be
subject to all of the terms and conditions hereinafter provided in this
Section 6, all other terms and conditions set forth in any other Section of
this Plan, and such other terms and conditions ("Discretionary Conditions")
as may be specified by the Committee with respect to the option and the
Stock covered thereby at the time of the making of the Award or as may
be specified thereafter by the Committee in the exercise of its powers
under this Plan. Without limiting the foregoing, it is understood that
the Committee may, at any time and from time to time after the granting
of an Award under this Plan, specify such additional terms and conditions
with respect to such Award as may be deemed necessary or appropriate to
ensure compliance with all applicable laws, including, but not limited
to, terms and conditions for compliance with Federal and state securities
laws and methods of withholding or providing for the payment of required
taxes. The terms and conditions with respect to any Participant need not be
identical with the terms and conditions with respect to any other Award, or
with respect to any Award to any other Participant.
6.2 Option Agreement. Receipt of an Option shall be subject to
execution of a written agreement (the "Option Agreement") between the
Company and the Participant, in a form approved by the Committee, which
shall set forth the number of shares covered by the Option, the
exercisability provisions of the Option, the applicable Option Period (as
defined herein), the conditions provided in this Plan as may be deemed
appropriate by the Committee, including, but not limited to, any such
Discretionary Conditions. A fully executed original counterpart of the
Option Agreement shall be provided to the Company and the Participant.
6.3 Option Price. The purchase price of the Stock covered by each
option shall be determined by the Committee, but in no event shall the
option Price be less than 100% of the Fair Market Value of such Stock on
the date the Option is granted for ISO's nor less than 85% of the Fair
Market Value of such Stock on the date the Option is granted for NQSO's.
If the Stock is listed on an established stock exchange, such Fair Market
value shall be deemed to be the closing price of the Stock on such stock
exchange on the day the Option is granted or if no sale of the Stock shall
have been made on any stock exchange on that day, the next preceding day on
which there was a sale of the Stock. If the Stock is not listed on an
established stock exchange but is traded in the over-the-counter market,
the Fair Market Value of the Stock shall be the closing price as quoted in
the National Association of Securities Dealers' Automated Quotation System
("NASDAQ") on the day the option is granted or if no sale of Stock is
reflected in NASDAQ on that day, on the preceding day on which there was a
sale of Stock reflected in NASDAQ. If no quotations are available, the
Fair Market Value shall be as determined by the Committee in good faith.
The Committee shall have full authority in fixing the option price, and be
fully protected in doing so.
6.4 Term of Option. The duration of each Option granted under this
Plan shall not be more than 10 years from the date of grant, as the
Committee shall determine, subject to earlier termination as provided in
Sections 9, 10 and 11.
6.5 Exercise and Vesting of Options; Time of Payment.
6.5.1 No ISO or NQSO shall be exercisable during the year ending
on the first anniversary of the Option's grant. Each ISO and NQSO shall be
exercisable thereafter as determined by the Committee (subject to the terms
of this Plan) and set forth in the
Option Agreement.
6.5.2 A Participant wishing to exercise an option shall give
written notice to the Company in the form and manner prescribed by the
Committee, indicating the date of award and type of Option being exercised,
the number of shares to be exercised, and such other information as shall
be required by the Committee. Full payment for the shares exercised
pursuant to the Option must accompany the written notice. Except as
provided in Sections 9 and 10, no Option may be exercised at any time
unless the Participant is then a full- or a part-time employee of the Company
or an Affiliate.
6.5.3 Issuance of Stock Certificates. As soon as practicable
after the receipt of written notice and payment, the Company shall, without
stock issuance or transfer taxes to the Participant or to any other person
entitled to exercise an option pursuant to the Plan, deliver to the
Participant or such other person a certificate or certificates for the
requisite number of shares of Stock.
6.5.4 Rights as a Stockholder. A Participant or any other person
entitled to exercise an Option under this Plan shall have no rights as a
stockholder with respect to any Stock covered by the Option until the date
of issuance of a Stock certificate for such Stock.
6.5.5 Partial Exercise. An Option granted under this Plan may be
exercised as to any lesser number of shares than the full amount for which
it could be exercised. Such a partial exercise of an Option shall not
affect the right to exercise the Option from time to time in accordance
with this Plan as to the remaining shares subject to the Option.
6.5.6 The Option Price for the shares as to which an Option is
exercised shall be paid to the Company in full on the date of exercise. At
the election of the Participant, such payment may be (i) in cash, (ii) in
shares of Stock owned by the Participant prior to exercising the Option and
having a Fair Market Value on the date of payment equal to the Option Price
for the shares of Stock being purchased, and satisfying such other
requirements as may be imposed by the Committee or (iii) partly in cash and
partly in such shares of Stock. The Participant shall also be entitled to
make payment by pyramiding the shares received upon exercise of Options by
simultaneously delivering such shares of stock in payment of the purchase
price of shares subject to additional Options; any share delivered in
payment of the exercise price must have been held of record by the Optionee
for a least six months or such other period as may be required to avoid any
adverse effect on the financial position of the Company or a Subsidiary as
a result of incurring compensation expense or otherwise.
Such shares, which shall be fully paid and non-assessable upon the
issuance thereof, shall be represented by a certificate or certificates
registered in the name of the Participant and stamped with any appropriate
legend. In addition, prior to delivery of the shares of Stock, any amount
necessary to satisfy applicable Federal, state or local tax requirements
shall be paid promptly upon notification of the amount due. Stock acquired
by the Participant which is identified as having been obtained through an
ISO under this Plan and still subject to ISO holding requirements as
defined in the Code, may not be tendered in payment of the Option Price.
6.6 Limitations on ISO's.
6.6.1 The aggregate Fair Market Value (determined as of the time
of grant) of all Stock for which an employee may be granted ISO's in any
calendar year (under this Plan and any other plan of the Company, any
Affiliate or any predecessor of any such corporation) shall not exceed the
limitations imposed by Section 422 of the Code.
6.6.2 ISO's shall also comply with any other restrictions and
limitations imposed by Section 422 of the Code not otherwise provided in
the Plan.
Section 7: Terms and Conditions of SAR's.
7.1 Grants. The Committee may grant SAR's to Eligible Persons in
connection with Options granted under this Plan. Each SAR shall entitle
the Participant upon prior consent of the Committee (which consent the
Committee may withhold as to any individual SAR in its absolute
discretion), to surrender to the Company an unexercised related Option (or
any portion thereof which the employee from time to time determines to
surrender for this purpose) and to receive from the Company in exchange
therefor, subject to the provisions of this Plan and such rules and
regulations as from time to time may be established by the Committee, a
quantity of shares of Stock equal to the excess of the Fair Market Value on
the exercise date of one share of Stock over the Option Price per share
times the number of shares covered by the Option, or portion thereof, which
is surrendered. The date a notice of exercise is received by the Company
shall be the exercise date.
7.2 General. Each SAR shall be subject to the same terms and
conditions as the Option to which it relates, shall be exercisable only to
the extent the related option is exercisable and the Committee consents to
its exercise, and shall be subject to such other terms and conditions as
the Committee may determine.
7.3 Exercise of SAR's.
7.3.1 SAR's may be exercised from time to time as follows:
7.3.1.1 The Committee must receive written notice of exercise
stating the number of shares of Stock subject to an exercisable Option with
respect to which the SAR is being exercised.
7.3.1.2 The Committee shall advise the Participant within five
business days after receipt of such written notice whether or not it will
consent to such exercise.
7.3.1.3 If the Committee consents to the exercise, the SAR will
be deemed to have been exercised on the date of the Company's receipt of
the written notice.
7.3.1.4 If the Committee does not notify the Participant of its
decision within such five business day period, the Committee shall be
conclusively presumed to have given its consent.
7.3.1.5 If the Committee denies its consent, the Participant
shall not have the right to submit another written notice of exercise until
six months after the date of submission of the previous written notice of
exercise.
7.3.2 All shares shall be valued at their Fair Market Value as of
the date of exercise of the SAR; provided, however, that with respect to
exercises of SAR's by a Participant who is subject to the provisions of
Section 16(b) of the Securities Exchange Act of 1934, during any period
commencing on the third business day following the date of release for
publication of any annual or quarterly summary statements of the Company's
sales and earnings and ending on the twelfth business day following such
date (a "window period"), the Committee shall prescribe whether payment
shall be made in cash or otherwise, and may prescribe, by rule of general
application, such other measure of fair market value per share as the
Committee may, in its discretion, determine, but not in excess of the
highest Fair Market Value (as defined in Section 6.3) during such window
period and, in the case of SAR's that relate to an ISO, not in excess of
the maximum amount that would be permissible under Section 422A of the Code
without disqualifying such option as an ISO under such Section 422A.
7.3.3 The number of shares of Stock received by a Participant upon
exercise of a SAR may not exceed the number of shares covered by the Option
or portion thereof surrendered. No cash will be paid in lieu of any
fractional share of Stock.
7.3.4 Any amount necessary to satisfy applicable Federal, state or
local tax requirements shall be withheld or paid promptly upon notification
of the amount due and prior to or concurrently with delivery of a certificate
representing shares of Stock.
7.3.5 Upon exercise of a SAR, the number of shares of Stock
subject to exercise under the related Option shall automatically be reduced
by the number of shares of Stock represented by the Option or portion
thereof surrendered. Shares of Stock subject to options or portions
thereof surrendered upon the exercise of SAR's shall not be available for
subsequent awards under this Plan.
Section 8. Nontransferability of Options and SAR's.
Options and SAR's granted under this Plan shall not be transferable by
the Participant other than by will or by the laws of descent and
distribution. During the lifetime of a Participant, Options and SAR's may
be exercised only by the Participant or its representative. Options and
SAR's exercisable after the death of a Participant may be exercised by the
legatees, personal representatives or distributees of the Participant.
Section 9. Termination of Employment.
9.1 If, prior to the expiration of the Option Period, a Participant's
employment by the Company or an Affiliate terminates (other than by reason
of death or disability), each Option then outstanding as to that
Participant shall remain exercisable for a period of three (3) months from
the date of termination of employment (but not later than the end of the
Option Period) to the extent it was exercisable on the date of termination
of employment, and thereafter all such Options shall terminate.
9.2 Notwithstanding any other provisions of this Section 9, if a
participant's employment is terminated for cause, all rights of the
Participant under any Options shall cease immediately.
Section 10. Death or Disability of Participant.
10.1. If, prior to the end of the Option Period, a Participant's
employment by the Company or an Affiliate terminates by reason of death,
each option shall remain exercisable for a period of six months from the
date of death (but no later than the end of the Option Period) to the
extent that it was exercisable on the date of death.
10.2. If, prior to the end of the Option Period, a Participant's
employment by the Company or an Affiliate terminates by reason of
disability, each option shall remain exercisable for a period of one year
from the date of such termination (but no later than the end of the Option
Period) to the extent that it was exercisable at the date of termination as
used in this Section 10 and elsewhere in this Plan, the term "disability"
means a physical or mental impairment which comes within the definition of
disability as set forth in Section 22(e)(3) of the Code.
Section 11: Forfeiture Upon Occurrence of Certain Acts.
Notwithstanding any other provisions of this Plan, no payment under
any SAR or issuance of any Stock pursuant to any Award shall be made and
all rights of the Participant who received such Award (or his designated
beneficiary or legal representatives) under this Plan shall be forfeited
if, prior to the time of such payment or issuance, the Participant (i)
shall be employed without the Company's or Affiliate's consent by a
competitor of, or shall be engaged in any activity in competition with, the
Company or an Affiliate; (ii) divulges without the consent of the Company
any secret or confidential information belonging to the Company or an
Affiliate; (iii) has been dishonest or fraudulent in any matter affecting
the Company or (iv) has committed any act which, in the sole judgment of
the Committee, has been substantially detrimental to the interests of the
Company. The Company shall give a Participant written notice of the
occurrence of any such event prior to making any such forfeiture. The
determination of the Committee as to the occurrence of any of the events
specified in the foregoing clauses (i) and (iv) of this Section 11 shall be
conclusive and binding upon all persons for all purposes. Any Award shall
be subject to forfeiture for the reasons provided in this Section in such
manner as shall be provided by the Committee.
Section 12: Stock Adjustments.
12.1 In the event that the shares of Stock shall be changed into or
exchanged for a different number or kind of shares of stock of the Company
or of another corporation (whether by reason of merger, consolidation,
recapitalization, reclassification, stock split, combination of shares
or otherwise), or if the number of such shares of Stock shall be increased
through the payment of a stock dividend, then there shall be substituted
for or added to each share of Stock subject to, or which may become
subject to, an Option under this Plan, the number and kind of shares into
which each outstanding share of Stock shall be so changed or for which each
such share shall be exchanged, or to which each such share shall be so
entitled, as the case may be. Outstanding options shall also be
appropriately amended as to Option Price and other terms as may be necessary
to reflect the foregoing events. In the event there shall be any other
change in the number or kind or outstanding shares of the Stock, or of
any shares into which such shares shall have been changed, or for which
they shall have been exchanged, and if the Committee shall, in its sole
discretion, determine that such change equitably requires an adjustment in
any Option theretofore granted or which may be granted under this Plan,
such adjustments shall be made in accordance with such determination.
12.2 Fractional shares resulting from any adjustment in Options
pursuant to this Section 12 may be settled in cash or otherwise as the
Committee shall determine. Notice of any adjustment shall be given by the
Company to each holder of an option which shall have been so adjusted and
such adjustment (whether or not such notice is given) shall be effective
and binding for all purposes of this Plan.
12.3 Treatment of Options and SARs.
A. In the event of an occurrence of any of the following events:
(i) the commencement of a bona fide "tender offer", (other than by
the Company or COMNET Corporation, a Delaware corporation("COMNET") or
COMNET's successor or assign), which tender offer is acceptable to the
Company's Board for the shares of the Company as provided under Rule
14d-2 promulgated under the Federal Securities Exchange Act of 1934, as
amended, or any subsequent comparable Federal rule or regulation governing
tender offers;
(ii) a successful tender offer not previously approved by the
Company's Board of Directors resulting in a change of control of the Board;
(iii) the Company's execution of an agreement concerning the sale of
substantially all of its assets (other than to a subsidiary in a mere
corporate restructuring);
(iv) the Company's adoption of a plan of dissolution or liquidation;
or
(v) the Company's execution of an agreement concerning a merger or
consolidation (with a corporation other than COMNET) involving the Company
in which the Company is not the surviving corporation or if, immediately
following such merger or consolidation, less than fifty percent (50%) of
the surviving corporation's outstanding voting stock is held by persons who
were shareholders of the Company immediately prior to such merger or
consolidation; upon approval of the Compensation Committee each Participant
shall have the right, immediately following such occurrence, to exercise
his or her Options in full to the extent not theretofore exercised
regardless of any provision herein or any provision in the Options contract
providing for the deferment of the vesting or exercise thereof.
The Participant shall then be entitled to exercise the Options
regardless of whether the tender offer (described in 12.3A(i)) is
successful, regardless of whether the dissolution or liquidation is
consummated, and regardless of whether the other corporation which is the
surviving corporation in a merger or consolidation shall adopt and maintain
any plan under which options are granted to the Participant. In the event
the agreement concerning the sale of substantially all of its assets or the
agreement concerning a merger or consolidation is not consummated by the
parties, then the options not exercised prior to the formal determination
by the Board that the contemplated transaction will not be consummated
shall on and after the date of such determination again be subject to the
exercise restrictions set forth in the Option agreement. In the case of a
merger, consolidation, reorganization, reclassification, sale of assets or
similar event, all outstanding Options shall pertain to the securities or
other property to which a holder of the number of shares of Stock covered
by the Option would have been entitled to receive in connection with such
event, and in the case of any other event specified herein, each
outstanding Option shall remain outstanding and exercisable in accordance
with its terms.
B. In the event of any of the occurrences referenced in Section
12.3A, above, and upon approval of the Compensation Committee, the
Redemption Date with respect to all SARs theretofore granted hereunder and
outstanding at that time shall be the date of such event, regardless of any
provision herein or any provision in the Stock Unit contract providing for
the deferment of the vesting or redemption of any provision herein or any
provision in the SAR contract providing for the deferment of the vesting or
redemption thereof. The Participant shall be entitled to redeem the SAR
regardless of whether the tender offer is successful, regardless of whether
the dissolution or liquidation is consummated, and regardless of whether
the other corporation which is the surviving corporation in a merger or
consolidation shall adopt and maintain any plan under which SARs are
granted to the Participant. In the event the agreement concerning the sale
of substantially all of its assets or the agreement concerning a merger or
consolidation is not consummated by the parties, then the SARs not
exercised prior to the formal determination by the Board that the
contemplated transaction will not be consummated shall on and after the
date of such determination again be subject to the vesting restrictions set
forth in the Option agreement.
In the case of a merger, consolidation, reorganization,
reclassification, sale of assets or similar event, the SARs Value of any
SAR upon the redemption of such SAR shall be determined on the basis of the
difference, if any, between (i) the value of a single share of the
Company's Stock as of the date of grant of such SAR, and (ii) the current
value, as of the Redemption Date of such SAR, of the shares of stock or
other securities into which a single share of the Company's Stock would
have been converted on the date of such reclassification, consolidation,
merger, reorganization, sale of assets or other similar event.
12.4 In making the adjustments provided for, by this Section 12,
consideration shall be given to applicable tax laws in order to avoid a
premature lapse or disqualifying disposition of an option due solely to
such adjustment.
Section 13: Effective Date, Termination and Amendment of the Plan.
13.1 This Plan shall become effective September 12, 1995, after
approval by the Company's stockholders. Once effective, this Plan shall
terminate on September 10, 2005.
13.2 The Board may, insofar as permitted by law, from time to time
and at any time, with respect to any shares at the time not subject to
Options, terminate, suspend, alter, amend or discontinue this Plan, in
whole or in part, except that no such modification, alteration, amendment
or discontinuation shall, without the Participant's consent, impair the
rights of any Participant under any Option granted to such Participant,
except in accordance with the provisions of this Plan and/or the Option
Agreement applicable, to any such Award, and except, further, that no
modification, alteration of amendment shall, without the approval by the
holders of a majority of the then-outstanding voting stock of the Company
represented and entitled to vote at a stockholders' meeting:
(i) Increase the total number of shares reserved for the purposes of
this Plan, except as provided in Section 12 for this Plan;
(ii) Decrease the Option Price of ISO's to less than 100% of Fair
Market Value on the date of grant of an Option or the option Price of
NQSO's to less than 85% of Fair Market Value on the date of grant of an
option.
(iii) Change the persons (or class of persons) eligible to receive
options and SAR's under this Plan;
(iv) Materially increase the benefits accruing to Participants under
this Plan.
Section 14: Miscellaneous.
14.1. This Plan does not, directly or indirectly, create any right
for the benefit of any employee or class of employees to receive any Awards
under this Plan, or create in any employee or class of employees any right
with respect to continuation of employment by the Company or an Affiliate,
and it shall not be deemed to interfere in any way with the Company's or an
Affiliate's right to terminate or otherwise modify an employee's employment
at any time.
14.2 Notwithstanding any other provision of this Plan, no delivery of
Stock with respect to any Award shall be made, and all rights of the
Participant who receives such Award (or his designated beneficiary or legal
representative) to such delivery of Stock under this Plan shall be
forfeited, at the discretion of the Committee, if, prior to the time of
such delivery, the Participant breaches a restriction or any of the terms,
restrictions and/or conditions of this Plan and/or the Stock Option
Agreement.
14.3 The provisions of this Plan and the terms and conditions of any
Award shall, in accordance with their terms, be binding upon, and inure to
the benefit of, all successors of each Participant, including, without
limitation, such Participant's estate and the executors, administrators or
trustees thereof, heirs and legatees and any receiver, trustee in
bankruptcy or representative of creditors of such Participant.
14.4 No member of the Committee shall be personally liable by reason
of any contract or other instrument executed by him or on his behalf in
his capacity as a member of the Committee, nor for any mistake of judgment
made in good faith, and the Company shall indemnify and hold harmless each
member of the Committee and each other officer, employee or director of the
Company to whom any duty or power relating to the administration or
interpretation of this Plan may be allocated or delegated, against any cost
or expense (including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of the Board) arising out of any
act or omission to act in connection with this Plan, unless arising out of
such person's own fraud or bad faith.
14.5 Nothing contained in the Plan shall be construed to preclude the
granting of an Option or Options pursuant to Section 5.1 to an Optionee in
addition to an Option or options for the purchase of Shares already held by
that Optionee or the granting of more than one option pursuant to Section 5.1
to an Optionee at the same time.
14.6. Any and all grants of Options shall be subject to all applicable
rules and regulations of any exchange on which the Company's Common Stock may
then be listed.
14.7 Notwithstanding any provision of the Plan or any Option Agreement
to the contrary, no Option may be granted or exercised at any time when such
Option or the granting or exercise thereof or payment therefor may result in
the violation of any law or governmental order or regulation.
14.8 Each member of the Board, Compensation Committee and each officer
and employee of the Company in performing duties under the Plan shall be
entitled to rely upon infor-mation and reports furnished in connection with
the administration of this Plan by any duly authorized officer or agent of
the Company.
14.9 No a member of the Board, Compensation Committee and no officer or
employee of the Company shall be liable for any action or determination made
in good faith with respect to the Plan or any Option granted under the Plan.
14.10 Any Option Agreement may include provisions that if the Company or
a Subsidiary shall be required to withhold any amounts by reason of any
federal, state or local tax rules or regulations in respect of the issuance of
Shares pursuant to the exercise of an Option, the Company or the Subsidiary
shall be entitled to deduct and to withhold such amount from any cash payments
to be made to the Optionee. The Administrator may establish such rules and
procedures, including, without limitation, any rules or procedures necessary
to comply with Rule 16b-3, as it may deem necessary or advisable in connection
with the withholding taxes relating to the exercise of any option.
14.11 If at any time an Optionee is indebted to or otherwise obligated
to make any payment to the Company or any Subsidiary, the Company may (a)
withhold from the Optionee (i) following the exercise by the Optionee of an
Option, Shares issuable to the Optionee having a Fair Market Value on the
date of exercise up to the amount of Indebtedness to the Company or (ii)
following the sale by an Optionee of Shares received pursuant to the exercise
of an Option amounts due to an Optionee in connection with the sale of such
Shares up to the amount of the indebtedness to the Company, or (b) take any
substantially similar action. The Company may establish such rules and
procedures as it may deem necessary or advisable in connection with the taking
of any action contemplated by this Section 14.11.
14.12 The section headings contained herein have no substantive meaning
or content and are not part of this Plan.
////////////
<PAGE>
EXHIBIT B
1995 GROUP 1 SOFTWARE, INC.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
1. Purpose of the Plan
This Stock Option Plan (the "Plan") is intended to promote the
interests of Group 1 SOFTWARE, Inc. (the "Company") by providing non-
employee directors of the Company with incentives to work for the best
interests of the Company and its stockholders through continuing personal
interest in the value of the common stock.
2. Administration of the Plan
(a) The Plan shall be administered by the Compensation Committee of the
Board of Directors of the Company. Such administration shall consist of
authority to interpret the provisions of the Plan, to establish such rules
and procedures as may be necessary or advisable to administer the Plan and
to make all determinations necessary or advisable for the administration of
the Plan; provided, however, that no such interpretation or determination
shall change or affect the selection of participants eligible to receive
grants under the Plan, the number of shares covered by or the timing of any
grant of Options under the Plan or the terms and conditions thereof. The
interpretation and construction by the Committee of any provision of the Plan
or of any Option Agreement shall be final and conclusive.
(b) The Plan is intended to comply with the terms and provisions of Rule
16b-3 promulgated under the Exchange Act. Any provision of the Plan or any
option Agreement inconsistent with the terms of such Rule in effect on such
date shall be inoperative and shall not affect the validity of the Plan, such
Option Agreement or any other provision thereof.
3. Stock Subject to the Plan
Under this Plan, options may be granted for shares of the Company's
common stock, $.01 par value ("Shares"). Shares issued upon exercise of
options may be either newly issued Shares or treasury Shares, at the
discretion of the Company. The aggregate number of Shares under the Plan
is 100,000. If any outstanding option under the Plan expires or is
terminated for any reason, the Shares allocable to the unexercised portion
of such option may again be subject to an option under the Plan.
4. Eligibility; Grant of Options
(a) Each person who becomes a Non-Employee Director at any time after
the effective date of the Plan shall be automatically granted an option to
purchase 5,000 Shares on the date when he becomes a director.
(b) Each Non-Employee Director who is granted an option pursuant to
Subparagraph 4(a) above shall be automatically granted an additional option
to purchase 5,000 Shares on each anniversary of the date of his first grant
under the Plan if, on such anniversary, he is then a Non-Employee Director.
5. Terms and Conditions of Options
Stock options granted pursuant to the Plan shall be evidenced by
agreements in such form as the Compensation Committee shall, from time to
time, approve, which agreements shall comply with and be subject to the
following terms and conditions:
(a) Option Price
The option price of any option granted under the Plan shall be the
fair market value of the Company common stock on the date of the grant of
such option. If the Shares are listed on an established stock exchange,
such fair market value shall be deemed to be the closing price of Company
common stock on such stock exchange on the day the option is granted or, if
no sale of Company common stock shall have been made on any stock exchange
on that day, the next preceding day on which there was a sale of such
stock. If Company common stock is not listed on an established stock
exchange but is traded in the over-the-counter market, the fair market
value of the Shares shall be the closing price as quoted in the National
Association of Securities Dealers' Automated Quotation System ("NASDAQ") on
the day the option is granted or, if no sale of Company common stock is
reflected in NASDAQ on that day, on the preceding day on which there was a
sale of such stock reflected in NASDAQ. If no quotations are available,
the fair market value shall be as determined by a majority of the Board of
Directors in good faith. The Compensation Committee shall have full
authority and discretion in fixing the option price in accordance with any
reasonable method of valuation, and be fully protected in doing so.
(b) Terms and Exercise of Options
(1) Each option granted under the Plan shall be exercisable as
to 20% of the total number of Shares covered thereby during each
consecutive twelve month period commencing on a date twelve months after
the granting of the option.
(2) To the extent not exercised, installments shall accumulate
and be exercisable, in whole or in part, in any subsequent period but not
more than ten years from the date the option is granted.
(3) Any option granted under the Plan may be exercised by
notifying the Company of such exercise prior to the termination of such
option. The option price for the number of Shares for which the option is
exercised shall become immediately due and payable; provided, however, that
in lieu of cash an optionee may exercise his option by tendering to the
Company, shares of Company common stock owned by him (which includes
pyramiding the shares received upon exercise of options by simultaneously
delivering such shares of stock in payment of the purchase price of shares
subject to additional options having a fair market value equal to the cash
exercise price of the Shares being purchased), provided that any Share
delivered in payment of the exercise price must have been held of record by
the Optionee for a least six months or such other period as may be required
to avoid any adverse effect on the financial position of the Company or a
subsidiary as a result of incurring compensation expense or otherwise.
Such shares, which shall be fully paid and non-assessable upon the issuance
thereof, shall be represented by a certificate or certificates registered
in the name of the Participant and stamped with any appropriate legend.
(4) During the lifetime of the optionee, the options shall be
exercisable only by him or his representative and shall not be assignable
or transferable by him otherwise than by will or the laws of descent and
distribution.
(c) Effect of Termination of Directorship
(1) In the event that an optionee shall cease to be a Non-
Employee Director of the Company for any reason other than his death, such
optionee shall have the right to exercise his options at any time within
thirty days after he has ceased to be a Non-Employee Director to the extent
of the full number of Shares he was entitled to purchase under the options
on the date of termination, subject to the condition that no option shall
be exercisable after the expiration of the term of the option.
(2) If the optionee shall die while he is a Non-Employee
Director of the Company or within one month after termination of such
status for any reason, and he shall not have fully exercised all his
options, such options may be exercised at any time within six months after
his death by the executors or administrators of the optionee or by any
person or persons to whom the options are transferred by will or the
applicable laws of descent and distribution, to the extent of the full
number of Shares he was entitled to purchase under the options on the date
of death, and subject to the condition that no option shall be exercisable
after the expiration of the term of the option.
(d) Adjustment Upon Changes in Stock
If any change is made in the common stock subject to the Plan, or
subject to any option granted under the Plan (through merger,
consolidation, reorganization, recapitalization, stock dividends, stock
splits, combination of shares, exchange of shares, change in corporate
structure, or otherwise) appropriate adjustments shall be made as to the
maximum number of Shares subject to outstanding options.
(e) Rights As A Stockholder
No person shall have any rights as a stockholder with respect to any
Shares covered by an option granted pursuant to the Plan until the date of
the issuance of a stock certificate to him for such Shares.
(f) In the event of an occurrence of any of the following events:
(1) the commencement of a bona fide "tender offer" (other than
by the Company or COMNET Corporation, a Delaware corporation ("COMNET") or
COMNET's successor or assign) which tender offer is acceptable to the
Company's Board for the shares of the Company as provided under Rule 14d-2
promulgated under the Federal Securities Exchange Act of 1934, as amended,
or any subsequent comparable Federal rule or regulation governing tender
offers;
(2) a successful tender offer not previously approved by the
Company's Board of Directors resulting in a change of control of the Board;
(3) the Company's execution of an agreement concerning the sale
of substantially all of its assets (other than to a subsidiary in a mere
corporate restructuring);
(4) the Company's adoption of a plan of dissolution or
liquidation; or
(5) the Company's execution of an agreement concerning a merger
or consolidation (with a corporation other than COMNET) involving the
Company in which the Company is not the surviving corporation or if,
immediately following such merger or consolidation, less than fifty percent
(50%) of the surviving corporation's outstanding voting stock is held by
persons who were shareholders of the Company immediately prior to such
merger or consolidation; upon approval of the Compensation Committee each
Participant shall have the right, immediately following such occurrence, to
exercise his or her Option in full to the extent not theretofore exercised
regardless of any provision herein or any provision in the Option contract
providing for the deferment of the vesting or exercise thereof.
The Participant shall then be entitled to exercise the options
regardless of whether the tender offer described in 5(f)(1) is successful,
regardless of whether the dissolution or liquidation is consummated, and
regardless of whether the other corporation which is the surviving
corporation in a merger or consolidation shall adopt and maintain any plan
under which options are granted to the Participant. In the event the
agreement concerning the sale of substantially all of its assets or the
agreement concerning a merger or consolidation is not consummated by the
parties, then the Options not exercised prior to the formal determination
by the Board that the contemplated transaction will not be consummated
shall on and after the date of such determination again be subject to the
exercise restrictions set forth in the Option agreement. In the case of a
merger, consolidation, reorganization, reclassification, sale of assets or
similar event, all outstanding Options shall pertain to the securities or
other property to which a holder of the number of shares of Stock covered
by the Option would have been entitled to receive in connection with such
event, and in the case of any other event specified herein, each
outstanding Option shall remain outstanding and exercisable in accordance
with its terms.
(g) Treatment of SARs.
In the event of any of the occurrences referenced in Section 5(f),
above, the Redemption Date with respect to all SARs theretofore granted
hereunder and outstanding at that time shall be the date of such event,
regardless of any provision herein or any provision in the Stock Unit
contract providing for the deferment of the vesting or redemption of any
provision herein or any provision in the SAR contract providing for the
deferment of the vesting or redemption thereof. The Participant shall be
entitled to redeem the SAR regardless of whether the tender offer is
successful, regardless of whether the dissolution or liquidation is
consummated, and regardless of whether the other corporation which is the
surviving corporation in a merger or consolidation shall adopt and maintain
any plan under which SARs are granted to the Participant. In the event the
agreement concerning the sale of substantially of all of its assets or the
agreement concerning a merger or consolidation is not consummated by the
parties, then the SARs not exercised prior to the formal determination by
the Board that the contemplated transaction will not be consummated shall
on and after the date of such determination again be subject to the vesting
restrictions set forth in the Option agreement.
In the case of a merger, consolidation, reorganization,
reclassification, sale of assets or similar event, the SARs Value of any
SAR upon the redemption of such SAR shall be determined on the basis of the
difference, if any, between (i) the value of a single share of the
Company's Stock as of the date of grant of such SAR, and (ii) the current
value, as of the Redemption Date of such SAR, of the shares of stock or
other securities into which a single share of the Company's Stock would
have been converted on the date of such reclassification, consolidation,
merger, reorganization, sale of assets or other similar event.
(h) In making the adjustments provided for, by this Section 5,
consideration shall be given to applicable tax laws in order to avoid a
premature lapse or disqualifying disposition of an option due solely to
such adjustment.
6. Securities Matters
The exercise of any option granted hereunder shall only be effective
at such time as counsel to the Company shall have determined that the
issuance and delivery of Shares pursuant to such exercise will not violate
any state or federal securities laws or other laws. The Non-Employee
Director desiring to exercise an option may be required by the Company, as
a condition of the effectiveness of any exercise of an option granted
hereunder, to agree in writing that all Shares to be acquired pursuant to
such exercise shall be held for his own account without a view to any
further distribution thereof, that the certificates for such Shares shall
bear an appropriate legend to that effect, and that such Shares shall not
be transferred or disposed of except in compliance with applicable federal
and state laws. The Company may, in its sole discretion, defer the
effectiveness of any exercise of any option granted hereunder in order to
allow the issuance of Shares to be made pursuant to registration or an
exemption from registration or other methods for compliance available under
federal or state securities laws. The Company shall be under no obligation
to effect the registration pursuant to the Securities Act of 1933 of any
Shares to be issued hereunder or to effect similar compliance under any
state laws. The Company shall inform the optionee in writing of its decision
to defer the effec-tiveness of the exercise of an option granted hereunder.
During the period that the effectiveness of the exercise of an option has
been deferred, the optionee may, by written notice, withdraw such exercise
and obtain the refund of any amount paid with respect thereto.
7. Amendment or Termination of the Plan.
The Plan may be terminated and may be modified or amended by the Board at
any time and from time to time; provided, however, that (i) no modification or
amendment increasing the aggregate number of Shares which may be issued under
options, materially increasing benefits accruing to optionees, or materially
modifying the requirements as to eligibility to receive options hereunder or
otherwise instituting a material modification or amendment to the Plan shall
be effective without stockholder approval, (ii) no such termination,
modification, or amendment of the Plan shall alter or affect the terms of any
then outstanding options previously granted hereunder without the consent of
the holder thereof and (iii) the provisions of Section 5 with respect to the
number of Shares for which Options shall be granted, the timing of such grants
and the Option Price for such Options shall not be amended more than once
every six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
8. Miscellaneous
(a) Nothing contained in the Plan shall be construed to preclude the
granting of an option or options to an optionee in addition to an option or
options for the purchase of Shares already held by that optionee or the
granting of more than one option to an optionee at the same time.
(b) Any and all grants of options shall be subject to all applicable
rules and regulations of any exchange on which the Company's Common Stock may
then be listed.
(c) The Plan shall be effective on September 12, 1995, after approval by
the Company's stockholders at the 1995 annual meeting of stockholders. No Option
shall be granted after September 10, 2005.
(d) Nothing in the Plan nor in any option granted under the Plan shall
confer (or be deemed to confer) any right on any optionee to continue as a
director of the Company or any subsidiary or shall interfere in any way with
the right of the Board or the stockholders of the Company, or the board of
directors or stockholders (including the Company) of any subsidiary, to
terminate such status at any time, with or without cause and with or without
notice except as otherwise provided by the certificate of incorporation or by
laws of the Company or such Subsidiary or applicable law.
(e) Notwithstanding any provision of the Plan or any option agreement to
the contrary, no option may be granted or exercised at any time when such
option or the granting or exercise thereof or payment therefore may result in
the violation of any law or governmental order or regulation.
(f) Each member of the Board and each officer and employee of the
Company in performing duties under the Plan shall be entitled to rely upon
information and reports furnished in connection with the administration of
this Plan by any duly authorized officer or agent of the Company.
(g) No member of the Board and no officer or employee of the Company
shall be liable for any action or determination made in good faith with respect
to the Plan or any option granted under the Plan.
(h) Any option agreement may include provisions that if the Company or a
subsidiary shall be required to withhold any amounts by reason of any federal,
state or local tax rules or regulations in respect of the issuance of Shares
pursuant to the exercise of an option, the Company or the Subsidiary shall be
entitled to deduct and to withhold such amount from any cash payments to be
made to the optionee. The Administrator may establish such rules and
procedures, including, without limitation, any rules or procedures necessary
to comply with Rule 16b-3, as it may deem necessary or advisable in connection
with the withholding taxes relating to the exercise of any option.
(i) The section headings contained herein have no substantive meaning or
content and are not part of this Plan.
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