<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
NETEGRITY, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
NETEGRITY, INC.
245 Winter Street
Waltham, MA 02154
- --------------------------------------------------------------------------------
NOTICE OF SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
to be held
May 22, 1997
- --------------------------------------------------------------------------------
To Our Stockholders:
A Special Meeting in Lieu of an Annual Meeting of Stockholders of NeTegrity,
Inc., a Delaware corporation (the "Company" or "NeTegrity"), will be held on
Thursday, May 22, 1997, at 2:30 p.m., local time, at the offices of Hutchins,
Wheeler & Dittmar at 101 Federal Street, Boston, Massachusetts 02110 for the
following purposes:
1. To elect a Board of Directors as described herein.
2. To amend the Company's By-Laws to eliminate the ability of the Company's
Stockholders to act by consent without a meeting.
3. To amend the Company's By-Laws to provide that stockholders of the Company
may call a special meeting of stockholders only by written application by
one or more stockholders who hold 30% in interest of the capital stock of
the Company entitled to vote thereat.
4. To amend the Company's By-Laws to revise provisions regarding director and
officer indemnification.
5. To adopt and approve a 1997 Stock Option Plan (the "1997 Plan") pursuant to
which 500,000 shares of the Company's Common Stock shall be reserved for
issuance subject to the 1997 Plan.
6. To amend the Company's 1994 Stock Plan (the "1994 Plan") to increase the
number of shares of Common Stock reserved for issuance subject to said Plan
to 1,813,300.
7. To transact such other business as may properly come before the Meeting and
any adjournments thereof.
Only stockholders of record on the books of the Company at the close of
business on April 8, 1997 will be entitled to notice of, and to vote at, the
Meeting.
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE AT
YOUR EARLIEST CONVENIENCE. IF YOU RETURN YOUR PROXY, YOU MAY NEVERTHELESS ATTEND
THE MEETING AND VOTE YOUR SHARES IN PERSON.
All stockholders are cordially invited to attend the Meeting.
By Order of the Board of Directors,
Barry N. Bycoff,
President and Chief Executive Officer
April 15, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES. THE PROXY MAY BE REVOKED BY THE PERSON
EXECUTING THE PROXY BY FILING WITH THE SECRETARY OF THE COMPANY AN INSTRUMENT OF
REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER DATE, OR BY ELECTING TO VOTE
IN PERSON AT THE MEETING. NO POSTAGE NEED BE AFFIXED IF THE PROXY IS MAILED IN
THE UNITED STATES.
<PAGE>
NETEGRITY, INC.
PROXY STATEMENT
1997 SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
MAY 22, 1997
Proxies in the form enclosed with this proxy statement are solicited by the
Board of Directors of NeTegrity, Inc., a Delaware corporation (the "Company"),
for use at the Special Meeting in Lieu of Annual Meeting of Stockholders to be
held on May 22, 1997, at 2:30 p.m., local time, at the offices of Hutchins,
Wheeler & Dittmar, 101 Federal Street, 31st Floor, Boston, Massachusetts 02110,
and any adjournments thereof (the "Meeting").
Only stockholders of record as of April 8, 1997 will be entitled to notice
of and to vote at the Meeting and any adjournments thereof.
Any stockholder may revoke a proxy at any time prior to its exercise by
filing a later dated proxy or a written notice of revocation with the Secretary
of the Company, or by voting in person at the Meeting. If a stockholder is not
attending the Meeting, any proxy or notice should be returned in time for
receipt no later than the close of business on the last business day preceding
the Meeting.
The persons named as attorneys in the proxies are directors and officers of
the Company. All properly executed proxies returned in time to be cast at the
Meeting will be voted and, with respect to the election of the Board of
Directors, will be voted as stated under "Election of Directors" below. With
respect to the election of directors, any stockholder submitting a proxy has the
right to withhold authority to vote for any individual nominee or group of
nominees to the Board of Directors by writing the name of such individual or
group in the space provided on the proxy.
Where a choice has been specified on the proxy with respect to the foregoing
matters, the shares represented by the proxy will be voted in accordance with
the specification indicated and will be voted "FOR" if no specification is
indicated. The Board of Directors of the Company knows of no other matter to be
presented at the Meeting. If any other matter should be presented at the Meeting
upon which a vote may properly be taken, the shares of capital stock represented
by all proxies received by the Board of Directors will be voted with respect
thereto in accordance with the judgment of the persons named as attorneys in the
proxies.
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock is necessary to establish a quorum for the
transaction of business. Votes withheld from any nominee, abstentions and broker
non-votes are counted as present or represented for purposes of determining the
presence or absence of a quorum. A "non-vote" occurs when a broker holding
shares for a beneficial owner votes on one proposal, but does not vote on
another proposal because the broker does not have discretionary voting power and
has not received instructions from the beneficial owner. Directors are elected
by a plurality of the votes cast by stockholders entitled to vote at the
Meeting. All other matters being submitted to stockholders require the
affirmative vote of the majority of shares present in person or represented by
proxy at the Meeting (following the determination of a quorum). An automated
system administered by the Company's transfer agent tabulates the votes. The
vote on each matter submitted to stockholders is tabulated separately.
Abstentions are included in the number of shares present or represented and
voting on each matter. Broker "non-votes" are not so included. Abstentions have
the effect of votes against proposals presented to stockholders, and non-votes
have no effect.
An Annual Report to Stockholders, containing financial statements for the
fiscal year ended December 31, 1996, is being mailed with this Proxy Statement
to all stockholders entitled to vote. This proxy statement and the form of proxy
were first mailed to the Company's stockholders on or about April 15, 1997.
<PAGE>
Only stockholders of record at the close of business on April 8, 1997 are
entitled to notice of and to vote at the meeting. On that date, the Corporation
had outstanding 9,264,446 shares of Common Stock, par value $.01 per share. Each
outstanding share of the Corporation's Common Stock entitles the record holder
to one vote.
MANAGEMENT AND PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth as of January 31, 1997, the beneficial
ownership of shares of capital stock of (i) each person known by the Company to
own beneficially more than 5% of the issued and outstanding shares of Common
Stock outstanding on that date, (ii) each director or nominee, and (iii) each
executive officer identified in the Summary Compensation Table, and (iv) the
directors, nominees and executive officers as a group, both with respect to the
number of shares owned by each person and the percentage of the outstanding
shares represented thereby.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP
BENEFICIAL OWNER (1) PERCENT OF CLASS
- ------------------------------------------------------------------------ ---------------------- -----------------
<S> <C> <C>
Edison Venture Fund, L.P. (2)........................................... 1,315,116 14.2%
Edison Venture Fund II, L.P.
Edison Venture Fund II-PA, L.P.
c/o Edison Venture
Funds 997 Lenox Drive, #3
Lawrenceville, NJ 08648
Euclid Partners III, L.P. (3)........................................... 650,803 7.0%
Euclid Partners Corporation 50
Rockefeller Plaza, Suite 1022
New York, NY 10020
Stephen L. Watson (4)................................................... 358,000 3.9%
Aaron Kleiner (5)....................................................... 33,250 *
Milton J. Pappas (6).................................................... 684,053 7.4%
c/o Euclid Partners Corporation
50 Rockefeller Plaza, Suite 1022
New York, NY 10020
Ralph B. Wagner (7)..................................................... 87,962 *
Michael L. Mark (8)..................................................... 84,553 *
Eric R. Giler (9)....................................................... -- --
Barry N. Bycoff (10).................................................... 545,000 5.9%
Richard Kosinski (11)................................................... 498,914 5.4%
James O'Connor, Jr. (12)................................................ 90,000 1.0%
All executive officers and directors as a group (9 persons) (13)........ 2,381,732 25.7%
</TABLE>
- ------------------------
* less than 1%
(1) Except as otherwise noted below, the Company believes each beneficial owner
has the sole voting and investment power with respect to all shares of
Common Stock (or options, warrants or other securities convertible into or
exchangeable for Common Stock) shown as beneficially owned by him. All
numbers and percentages, except as otherwise noted, do not assume the
exercise of outstanding
2
<PAGE>
options or warrants. Pursuant to the rules of the Securities and Exchange
Commission, shares of Common Stock which an individual or group has a right
to acquire within 60 days of January 31, 1997 pursuant to the exercise of
presently exercisable or outstanding options, warrants or conversion
privileges are deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person or group shown in the table.
(2) The Edison Venture Funds collectively have sole voting and investment power
with respect to the 1,315,116 shares of Common Stock. Mr. Koven, a former
director of the Company, is also a general partner of each of the general
partners of the Edison Venture Funds and may be deemed to share beneficial
ownership of the securities held by such entities. Mr. Koven disclaims such
beneficial ownership.
(3) Included in this amount are 83,086 shares of Common Stock issuable upon
exercise of a warrant held by Euclid. Mr. Pappas, a director of the Company,
is the president of the sole corporate general partner of Euclid and may be
deemed the beneficial owner of the 650,803 shares beneficially owned by
Euclid. Mr. Pappas disclaims beneficial ownership of such shares.
(4) Includes stock options to purchase up to 267,500 shares of Common Stock.
(5) Includes non-qualified stock options to purchase up to 33,250 shares of
Common Stock.
(6) Includes 83,086 shares subject to a warrant to purchase common stock. Also
includes 650,803 shares of Common Stock owned by Euclid of which Mr. Pappas
may be deemed a beneficial owner. Mr. Pappas disclaims beneficial ownership
of such shares. See footnote 3.
(7) Includes non-qualified stock options to purchase up to 62,000 shares of
Common Stock.
(8) Includes non-qualified stock options to purchase up to 35,000 shares of
Common Stock.
(9) Mr. Giler was granted 17,500 options when he joined the Board in 1996.
Currently all remain unvested.
(10) Includes the presently exercisable portion (335,000 shares) of stock
options to purchase up to 735,000 shares of Common Stock and 10,000 shares
of Common Stock owned by Mr. Bycoff's children.
(11) Includes the presently exercisable portion (i.e., 75,000 shares) of stock
options to purchase up to 75,000 shares of Common Stock and also includes
70,000 shares of Common Stock owned by Mr. Kosinski's immediate family for
which he has voting power.
(12) Includes the presently exercisable portion (i.e. 85,000 shares) of stock
options to purchase up to 285,000 shares of common stock.
(13) Includes 975,836 shares which all officers and current directors as a group
have the right to acquire within 60 days after January 31, 1997 upon
exercise of the presently exercisable portion of outstanding stock options
held by current directors and officers.
3
<PAGE>
ELECTION OF DIRECTORS
At the meeting, six directors are to be elected, constituting the entire
Board of Directors. The directors of the Company shall hold office for the terms
set forth below and until their successors have been elected and qualified.
No proxy may be voted for more people than the number of nominees listed
below. Shares represented by all proxies received by the Board of Directors and
not so marked as to withhold authority to vote for any individual director (by
writing that individual director's name where indicated on the proxy) or for all
directors will be voted FOR the election of all the nominees named below (unless
one or more nominees are unable or unwilling to serve).
The Board of Directors knows of no reason why any such nominee would be
unable or unwilling to serve, but if such should be the case, proxies may be
voted for the election of some other person.
The Board of Directors held six meetings during the year ended December 31,
1996. Messrs. Bycoff, Watson, Wagner, Pappas, Kleiner, and Mark attended more
than 75% of all meetings of the Board of Directors held during the 1996 year
during their respective tenures as directors. In addition, Mr. Giler attended
the December 1996 meeting of the Board of Directors at which he was elected a
Director.
The Compensation and Stock Option Committee of the Board of Directors (the
"Compensation Committee"), of which Messrs. Pappas, Wagner and Giler are
currently members, determines who should receive stock options under the
Company's various stock plans and also reviews and recommends officer
compensation, including salary and bonus plans. The Compensation Committee held
five meetings during the year ended December 31, 1996.
The Audit Committee of the Board of Directors at year end was composed of
Messrs. Watson and Pappas. The principal functions of the Audit Committee
include overseeing the performance and reviewing the scope of the audit function
of the Company's independent auditors. The Audit Committee also reviews, among
other things, audit plans and procedures, various accounting and financial
reporting issues, and changes in accounting policies. The Audit Committee held
three meetings during the calendar year ended December 31, 1996.
Messrs. Watson, Pappas and Wagner attended more than 75% of all committee
meetings held during the 1996 fiscal year of which each was a member.
Mr. Watson has served on the Board of Directors since March 1986; Mr.
Pappas, since July 1990; Mr. Wagner, since September 1992; Mr. Bycoff, since
April 1993; Mr. Mark, since October 1994; Mr. Giler, since December 1996 and Mr.
Kosinki since December 1996.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED
NAME OF NOMINEE AGE A DIRECTOR
- ---------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Stephen L. Watson........................................................... 55 1986
Milton J. Pappas............................................................ 68 1990
Barry Bycoff................................................................ 48 1993
Michael L. Mark............................................................. 50 1994
Richard J. Kosinski......................................................... 41 1996
Eric R. Giler............................................................... 42 1996
</TABLE>
4
<PAGE>
OCCUPATIONS AND BIOGRAPHIES OF DIRECTORS AND NOMINEES
BARRY N. BYCOFF was appointed President and Chief Executive Officer and
Director of the Company in April 1993. From December 1991 to December 1992,
during his tenure at MapInfo Corporation, a provider of desktop mapping
software, he held positions as Chief Operating Officer, Senior Vice President of
Sales and Marketing, and Director. From January 1984 to October 1991, he
successfully ran a number of business units for Prime Computer Inc., a
manufacturer of mainframe and minicomputer systems, holding such positions as
Vice President-Marketing in the Computer Systems Business Unit, Vice President-
General Purpose Product Line, Vice President-Prime Information Business Group,
Director-Finance and Administration/Worldwide Sales and Director-Corporate
Planning and Analysis. Prior to that, Mr. Bycoff held various management
positions at Gillette Company from November 1973 to December 1983. Mr. Bycoff is
also a director of Encotone, Ltd.
STEPHEN L. WATSON is currently Chairman of the Board and has served as
Director of the Company since March 1986. He is also currently Chairman and
co-founder of ScanCenters of America, a document imaging and conversion services
company. Mr. Watson previously served as President and Chief Operating Officer
of the Company from March 1991 to April 1993 and served as Chief Executive
Officer from May 1991 until April 1993. From June 1989 to March 1991 he was a
private investor. From July 1988 to June 1989, he was President of California
Micro Solutions, Inc., a franchisee of Computerland Corporation, a retailer of
personal computer systems. From April 1987 to July 1988, he was Senior Vice
President of Computerland Corporation, a retailer of personal computer software
and hardware systems. From July 1984 to April 1987, he was a private investor.
From 1979 to July 1984, he was President of Computer Centers of New England, a
retailer of personal computer systems. From 1970 to 1979, Mr. Watson was
employed in various management positions at Digital Equipment Corporation, a
manufacturer of mainframe and minicomputer systems. Mr. Watson is a director of
several privately-held companies.
MILTON J. PAPPAS has been a Director of the Company since July 1990. Mr.
Pappas is currently Chairman of Euclid Partners Corporation (since 1983), a
management company providing services to Euclid Partners, a venture capital
investment fund. From 1983 to the present, he has been a General Partner of
Euclid Partners Associates II, L.P.; Euclid Partners Associates III, L.P.; and
Euclid Partners Associates IV, L.P., general partners to Euclid Partners II,
L.P.; Euclid Partners III, L.P.; and Euclid Partners IV, L.P., private venture
capital investment funds. From 1970 to 1986, he was a General Partner of Euclid
Partners, a private venture capital firm. Mr. Pappas is also Chairman of the
Board of Multex, is a director of Xeyex Corporation and Sys-Tech Solutions, Inc.
and is admitted to the Ohio Bar.
RALPH B. WAGNER became a Director of the Company in September 1992. He is a
Director and co-founder of Keyfile Corporation, a manufacturer and marketer of
document image software products for use on personal computers. Mr. Wagner is a
principal of Wagner Resources, a consulting and investment firm. Since 1983, Mr.
Wagner has served as a director of several private companies including Alpha
Software, a developer, manufacturer and marketer of software programs, and
PureSpeech, a software developer specializing in speech recognition.
MICHAEL L. MARK became a director of the Company in October 1994. He is
President of Refined Reports, Inc., an electronic publishing software
development company he founded in 1990. Prior to that, he served as Vice
President, System Integration at Interleaf, Inc., an electronic publishing
software developer, and was Vice President and co-founder of Cadmus Computer
Corporation, a workstation manufacturer. Mr. Mark also serves as a director of
Progress Software Corporation, a manufacturer of software development tools, and
two other private companies.
5
<PAGE>
ERIC R. GILER was nominated as a Director of the Company in December 1996.
Mr. Giler is founder and since 1984 has been President and Director of
Brooktrout Technology, Inc., a leading supplier of advanced software and
hardware products in the electronic messaging market. Prior to founding
Brooktrout, he worked primarily in the are of technical marketing and sales as a
product manager with Teradyne, Inc. and an applications engineer manager for
Intec Corporation. Mr. Giler serves on the boards of the MIT Enterprise Forum,
the Massachusetts Telecommunications Council and the New England-Israel Chamber
of Commerce. Mr. Giler is also a member of both the American Electronics
Association and the Massachusetts Computer Software Council.
RICHARD J. KOSINSKI is President of Encotone, Inc., the Company's 50
percent-owned subsidiary and has been with the Corporation since November 1996.
Prior to that, since 1994, Mr. Kosinski was co-founder and President of Internet
Security Corporation, a former subsidiary of the Company. From 1989 to 1994 he
was employed by Bolt Beranek and Newman (BBN), where he served as Regional Sales
Manager for BBN's NearNet division and BBN's Communications division. From 1988
to 1989 Mr. Kosinski was Regional Sales Manager at Harris Corporation, a data
communications equipment manufacturer. Prior to that, from 1984 to 1988 he was
Regional Sales Manager at Digital Products, a data communications equipment
manufacturer. From 1977 to 1984 he was with by Hewlet-Packard Company, a
hardware and software manufacturer, having held various positions such as Major
Account Manager, Senior Sales Representative and Data Communications Systems
Engineer.
OCCUPATION AND BIOGRAPHY OF EXECUTIVE OFFICER
JAMES O'CONNOR, JR. was named Vice President, Chief Financial Officer and
Treasurer of the Company in September 1995. From 1992 to 1995, Mr. O'Connor was
a Senior Associate of Alvarez & Marsal, Inc. a nationally known crisis
management firm. While with Alvarez & Marsal, he acted as Chief Financial
Officer and Director of MIS of Almac's, Inc., a supermarket chain; and was an
interim management consultant to Phar-Mor, Inc., a discount drug store chain;
and Florida Steel Corporation, a mini-mill operation. Prior to that, from 1988
to 1992, he was an Independent Financial Management Consultant for turnaround
companies such as Heraeus, Inc. where he acted as Interim Chief Financial
Officer and Chief Operating Officer. From 1984 to 1988 Mr. O'Connor worked for
Peat Marwick Main & Company, an international public accounting firm.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 19, 1993 the Company completed a private placement of Series C
Preferred Stock and a recapitalization transaction. Investors, which included
certain stockholders, directors and officers listed on page 5 hereof, purchased
905,968 shares of Series C Preferred stock at a price of $1.00 per share,
resulting in net proceeds of approximately $781,000. The Series C Preferred
Stock was converted into Common Stock on a one-for-one basis (for an aggregate
of 905,968 shares) as of September 30, 1996.
In May, 1996, Barry N. Bycoff, the Company's President and CEO, exercised an
option to purchase 200,000 shares of the Company's common stock at a price of
$1.00 per share. The Company's Board of Directors approved a loan to Mr. Bycoff
as payment for this transaction. Mr. Bycoff issued the Company a full recourse
note that is secured by the 200,000 shares of common stock. This note has an
interest rate of 7% per annum and is due and payable on demand by the Company in
the discretion of the Board of Directors.
6
<PAGE>
The Board of Directors has adopted a policy that all transactions between
the Company and its officers, directors and principal stockholders or any
affiliates thereof will be on terms no less favorable to the Company than could
be obtained from unaffiliated third parties. Such transactions will also be
approved by a majority of the disinterested, outside directors. All loans to
Company officers will also be approved by a majority of the disinterested,
outside directors.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
services in all capacities to the Company for the Company's most recent three
years ended December 31, 1996, of those persons who (i) served as the Chief
Executive Officer of the Company during any part of the year ended December 31,
1996, and (ii) the other most highly compensated executive officers of the
Company at December 31, 1996 whose annual compensation and bonus exceeded
$100,000 (the "Named Officers"):
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS (2)
ANNUAL COMPENSATION (1) --------------------------------
CALENDAR ----------------------- OPTIONS/ RESTRICTED
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SARS(#) STOCK AWARDS($)
- ------------------------------------------ ----------- ---------- ----------- --------- ---------------------
<S> <C> <C> <C> <C> <C>
Barry N. Bycoff 1996 $ 156,824 40,000 400,000 0
Chief Executive Officer, 1995 156,770 0 35,000 0
President & Director 1994 154,500 10,000 350,000 0
Richard J. Kosinski 1996 $ 120,000 0 0 0
President, Encotone, Inc. 1995 15,000 0 75,000 0
(Subsidiary) 1994 0 0 0 0
James O'Connor
Vice President, Chief 1996 112,000 20,000 200,000
Financial Officer and 1995 32,830 0 85,000 0
Treasurer 1994 0 0 0 0
</TABLE>
- ------------------------
(1) Excludes perquisites and other personal benefits, the aggregate annual
amount of which for each officer as less than the lesser of $50,000 or 10%
of the total salary and bonus reported.
(2) The Company did not grant any restricted stock awards or stock appreciation
rights ("SARs") or make any long-term incentive plan payouts during the
three years ended December 31, 1996.
7
<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth grants of stock options pursuant to the
Company's 1994 Stock Plan during the fiscal year ended December 31, 1996 to
directors and named officers which are reflected in the Summary Compensation
Table above.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF STOCK
-------------------------------------------------------------------- PRICE APPRECIATION FOR
OPTIONS PERCENT OF TOTAL EXERCISE OR OPTION TERM (1)
SAR OPTIONS/SARS GRANTED TO BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#) EMPLOYEES IN FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ---------------------------------- ----------- ------------------------- ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Barry N. Bycoff................... 400,000 31.8% $ 2.63 2006 1,408,000 1,864,000
James O'Connor.................... 200,000 15.9% 2.63 2006 704,000 932,000
</TABLE>
- ------------------------
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%) on
the Company's Common Stock over the term of the options. These numbers are
calculated based on rules promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
growth. Actual gains, if any, on stock option exercises and Common Stock
holdings are dependent on the timing of such exercise and the. future
performance of the Company's Common Stock. There can be no assurance that
the rates of appreciation assumed in this table can be achieved or that the
amounts reflected will be received by the individuals.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to options to
purchase the Company's Common Stock granted under the 1994 Plan including (i)
the number of shares purchased upon exercise of options in the most recent
fiscal year, (ii) the net value realized upon such exercise, (iii) the number of
unexercised options outstanding at December 31, 1996, and (iv) the value of such
unexercised options at December 31, 1996:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
DECEMBER 31, 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY
DECEMBER 31, 1996 OPTIONS AT
(#) DECEMBER 31, 1996($)(1)
SHARES VALUE -------------------------- ------------------------------
NAME ACQUIRED ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- -------------------- ----------- ----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Barry N. Bycoff................. 200,000 200,000 335,000 400,000 301,950 --
Richard J. Kosinski............. -0- -0- 75,000 0 16,500 --
James O'Connor.................. -0- -0- 85,000 200,000 18,700 --
</TABLE>
- ------------------------
(1) Value is based on the difference between option exercise price and the fair
market value at 1996 fiscal year-end ($1.94 per share, the average of the
closing bid and ask prices on the Nasdaq SmallCap Market on December 31,
1996) multiplied by the number of shares underlying the option.
8
<PAGE>
COMPENSATION OF DIRECTORS
As compensation for serving on the Board of Directors, each non-employee
director is paid his expenses by the Company for each meeting attended. In
addition, the Company's policy to compensate each non-employee director at a
rate of $1,500 for each meeting of the Board.
Each non-employee director of the Company also participates in the Company's
1988 Non-Employee Director Stock Option Plan, 1991 Non-Employee Director Stock
Option Plan, 1993 Non-Employee Director Stock Option Plan, and 1994 Non-Employee
Director Plan (the "Director Plans"). The Director Plans authorize grants of
stock options to each member of the Company's Board of Directors who is neither
an employee or officer of the Company. In fiscal 1996, Mr. Giler was granted an
option to purchase 17,500 shares of Common Stock at a price of $2.09 per share.
Thirty percent of this option, which expires on December 10, 2006, vests on
December 10, 1997, twenty percent of this option vests on December 10 in each of
1998, 1999 and 2000, and the remainder vests on December 10, 2001.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation and Stock Option Committee of the Board of Directors, currently
consisting of Milton Pappas, as Chairman, Ralph Wagner and Eric Giler (the
"Compensation Committee"). All members of the Compensation Committee are
non-employee directors. Pursuant to the authority delegated by the Board of
Directors, the Compensation Committee establishes each year the compensation of
senior management, including approval of annual salaries and bonuses, the review
and approval of bonus plans for executive officers, as well as the grant of
stock options to officers, employees and consultants.
One of the Company's primary business objectives is to maximize long-term
stockholder returns. To achieve this objective, the Company believes it is
necessary to attract, retain and motivate qualified executives in a competitive
industry. The Compensation Committee and the Board of Directors therefore apply
the philosophy that compensation of executive officers, specifically including
that of the Chief Executive Officer and President, should be linked to revenue
growth, profitability, earnings per share performance, and long-term increase in
stock price and quality of earnings.
Establishing compensation programs generally and determining the
compensation of individual executive officers are complex matters involving
numerous issues and a variety of data. The approach of the Compensation
Committee is primarily subjective in nature. The Compensation Committee
identifies relevant factors to be considered, such as the need to be competitive
in the market for executive talent, retain and motivate existing officers with
competitive salary and option programs, and to provide incentives and rewards
for individual and corporate performance. However, the Compensation Committee
maintains a flexible approach that is based on the exercise of judgment and
discretion and reflects the Company's entrepreneurial operating environment and
long-term performance orientation. Precise formulas, targets or goals are not
utilized and specific weights are not assigned to the various factors. The
Compensation Committee focuses on the Company's goal of long-term enhancement of
stockholder value by stressing long-term goals and by using stock-based
incentive programs with extended vesting schedules (typically six years from the
initial grant of options). The Compensation Committee believes the use of such
incentives to retain and motivate individuals who have developed the skills and
expertise required to lead the Company is key to the Company's success.
Under the supervision of the Compensation Committee, the Company has
developed and implemented certain compensation policies. The Compensation
Committee's executive compensation policies
9
<PAGE>
are designed to (i) enhance profitability of the Company and shareholder value,
(ii) integrate compensation with the Company's annual and long-term performance
goals, (iii) reward corporate performance, (iv) recognize individual initiative,
achievement and hard work, (v) assist the Company in attracting and retaining
qualified executive officers, and (vi) retain and motivate existing officers to
perform. Compensation is comprised of cash compensation in the form of annual
base salary and performance-based bonuses, and long-term incentive compensation
in the form of stock options.
In setting cash compensation levels for executive officers (including the
Chief Executive Officer), the Compensation Committee prepares a salary review
annually. The base salaries are fixed at levels comparable to the amounts paid
to senior executives with comparable qualifications, experience and
responsibilities at other technology companies located in the northeastern
United States with approximately the same number of employees as the Company and
engaged in similar businesses to that of the Company such as Checkpoint and
Security Dynamics. Nonetheless, since the Company believes that those
organizations that are constituents of the Nasdaq Computer Software Index used
in the performance graph on page 12 include companies which may not be similar
to the Company, the Company believes it is appropriate to attempt to establish
salaries consistent with those of fewer and more comparable companies, which the
Company nonetheless believes are represented in the performance graph. Although
the Compensation Committee reviews such information for general guidance, it
does not specifically target compensation of the executive officers to
compensation levels at other companies.
The compensation for the Chief Executive Officer and President of the
Company is designed to reward performance that enhances shareholder value.
Financial goals are based on the achievement of significant increases in net
income as specified in the Company's annual operating plan. The plan establishes
milestones for revenue growth and operating expenses. The cash compensation
package is comprised of base pay, which is not related to the performance of the
Company, and with an opportunity for a bonus based on the achievement of certain
profitability milestones. Both components are affected by the Company's revenue
growth, market share growth, profitability, quality of earnings, and growth in
earnings per share. Although milestones for revenue growth and operating
expenses, revenue growth, earnings per share, stock price and quality of
earnings were not achieved, a bonus was paid to the Chief Executive Officer,
including a grant of an option to purchase 400,000 shares of the Company's
Common Stock, based on the Compensation Committee's qualitative assessment of
his performance throughout the divestiture of the Company's catalog business
which occurred in June, 1996. The Compensation Committee would have awarded
higher bonuses to management, including the Chief Executive Officer, if
quantitative objectives had been met.
The compensation program for the remaining members of the executive group is
based upon the attainment of objectives for profitability similar to the Chief
Executive Officer. Bonus amounts are predicated upon improvement in Company
operating performance as well as attainment of planned objectives. In the past,
the Chief Executive Officer and President has made recommendations to the
Compensation Committee regarding the planned objectives and executive
compensation levels. Although the objectives were not achieved, bonuses were
paid to executive officers based on the Compensation Committee's position
qualitative assessment of performance of management throughout the divestiture
of the Company's catalog business which occurred in June, 1996. The Compensation
Committee would have awarded higher bonuses to management if quantitative
objectives had been met. The overall plans and operating performance levels upon
which management compensation is based are approved by the Compensation
Committee on an annual basis.
10
<PAGE>
The Compensation Committee relies on incentive compensation in the form of
performance-based bonuses and stock options to retain and motivate executive
officers. Incentive compensation in the form of performance-based bonuses for
the Chief Executive Officer and the Company's other executive officers is based
upon management's success in meeting the Company's financial and strategic
goals. The plan establishes milestones for revenue growth and operating
expenses. Strategic goals focus on increasing market share and Company growth
and improving the Company's strategic position in the market and the quality of
earnings.
Incentive compensation in the form of stock options is designed to provide
long-term incentives to executive officers and other employees, to encourage the
executive officers and other employees to remain with the Company and to enable
optionees to develop and maintain a significant, long-term stock ownership
position in the Company's Common Stock, which in turn motivates the recipient to
focus on long-term enhancement in stockholder value. The Company's 1994 Plan
and, if approved, the 1997 Plan administered by the Compensation Committee, are
the vehicles for the granting of stock options.
The stock option plans permit the Compensation Committee to grant stock
options to eligible employees, including executive officers. During 1996, the
Compensation Committee granted stock options to various employees. Options
become exercisable based upon a vesting schedule tied to years of future service
to the Company. The value realizable from exercisable options is dependent upon
the extent to which the Company's performance is reflected in the market price
of the Company's Common Stock at any particular point in time. Generally,
options granted to officers and employees vest over six years and expire after a
ten year period. In addition, the Compensation Committee has a policy of
awarding stock options at not less than the fair market value at the date of
grant. As a result of this policy, executives and other employees are rewarded
economically only to the extent that the stockholders also benefit through
appreciation in the market price of the Company's stock.
Factors reviewed by the Compensation Committee in determining whether to
grant options are similar to those considered in determining salaries and
bonuses described above. Several other factors, however, such as an employee's
individual initiative, achievement and performance are also considered by the
Compensation Committee. In making specific grants to executives, the
Compensation Committee evaluates each officer's total equity compensation
package. The Compensation Committee generally reviews the option holdings of
each of the executive officers including vesting and exercise price and the then
current value of such unvested options. The Compensation Committee considers
equity compensation to be an integral part of a competitive executive
compensation package, a way to reinforce the individual's commitment to the
Company and an important mechanism to align the interests of management with
those of the Company's stockholders.
The Compensation Committee is satisfied that the executive officers of the
Company are dedicated to achieving significant improvements in the long-term
financial performance of the Company and that the compensation policies and
programs implemented and administered have contributed and will continue to
contribute towards achieving this goal.
This report has been submitted by the members of the Compensation and Stock
Option Committee: Milton J. Pappas, Chairman, Ralph B. Wagner and Eric Giler.
11
<PAGE>
PERFORMANCE GRAPH
The following graph illustrates a five year comparison of cumulative total
stockholder return among the Company, the University of Chicago's Center for
Research in Security Prices ("CRSP") Index for the Nasdaq Stock Market and the
CRSP Index for the Nasdaq Computer Software Industry Index. The comparison
assumes $100 was invested on December 31, 1991 (the date of the Company's
initial public offering) in the Company's Common Stock and in each of the
foregoing indices and assumes reinvestment of dividends, if any.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEGEND
<S> <C>
Symbol CRSP Total Returns Index for:
NeTegrity
12/31/1991 100
12/31/1992 64.2
12/31/1993 28.2
12/31/1994 22.9
12/31/1995 49.3
12/31/1996 54.6
Notes:
The lines represent monthly index levels derived from compounded daily returns that include all
A: dividends.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding
C. trading day is used.
D. The index level for all series was set to $100.0 on 12/31/91.
<CAPTION>
LEGEND
<S> <C> <C>
Symbol
Nasdaq Stock Market (US Companies) NASDAQ Stocks (SIC 7300-7399 US Companies) Business services
12/31/1991 100 100
12/31/1992 116.4 107.3
12/31/1993 133.6 114.1
12/31/1994 130.6 138.1
12/31/1995 184.7 209.3
12/31/1996 227.2 261.8
Notes:
A:
B.
C.
D.
</TABLE>
12
<PAGE>
AMENDMENT TO 1994 STOCK PLAN
There will be presented at the meeting a proposal to approve an amendment of
the Company's 1994 Stock Plan (the "1994 Plan") which amendment was approved by
the Board of Directors on December 10, 1996, whereby the number of shares
reserved for issuance under the 1994 Plan was increased from 1,500,000 shares of
Common Stock to 1,813,300 shares of Common Stock. At February 11, 1997, options
for the purchase of 1,813,300 shares of Common Stock were outstanding under the
1994 Plan. Upon approval by the Stockholders of the Company's 1997 Stock Option
Plan, no further options will be granted under the 1994 Plan.
The table below sets forth the exercise price and expiration date for
options granted on December 10, 1996 to purchase an aggregate of 313,300 shares
of Common Stock, including an option to purchase 17,500 shares granted to Eric
Giler, a Director of the Company, which have been granted under the 1994 Plan
and with respect to which the Board of Directors recommends the stockholders
increase the number of shares subject to the 1994 Plan to 1,813,300.
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO EXERCISE EXPIRATION
OPTIONEES OPTIONS PRICE DATE
- ---------------------------------- ----------------- ----------- -----------
<S> <C> <C> <C>
Eric Giler, Director.............. 17,500 $ 2.09 12/10/06
12 Non-executive employees........ 295,800 $ 2.09 12/10/06
</TABLE>
Set forth below is a summary of the principal provisions of the 1994 Plan, a
copy of which may be obtained from the Secretary of the Company. The Board of
Directors recommends that the stockholders approve the amendment of the 1994
Plan. The affirmative vote of the holders of at least a majority of the Common
Stock voting in person or by proxy at the meeting will be required for the
approval of the amendment of the 1994 Plan.
PURPOSE. The 1994 Plan is intended to provide incentives to the officers,
directors, employers and consultants of the Company by providing them with
opportunities to purchase stock in the Company. The 1994 Plan provides for the
granting of incentive stock options intended to meet the requirements of Section
422 of the Code as well as for the granting of options that do not meet those
requirements. Shares issued under the 1994 Plan may be either authorized but
unissued shares or treasury shares. If any unexercised option granted under the
1994 Plan lapses or terminates for any reason, the shares covered thereby may
again be optioned thereunder.
ADMINISTRATION. The 1994 Plan is administered by the Stock Option and
Compensation Committee of the Board of Directors (the "Compensation Committee")
consisting of two or more Directors of the Company appointed by the Board of
Directors. The Committee determines the employees to whom options shall be
granted, the number of shares to be covered by such options, the terms of such
options and the vesting schedule for such options. Present members of the
Committee are Milton Pappas, Ralph Wagner and Eric Giler. The Board of Directors
may at any time terminate, modify or adopt amendments to the 1994 Plan provided
that such termination, modification or amendments shall not affect existing
rights of any participant under an option previously granted to the participant
without such participant's consent. Furthermore, without the approval of the
stockholders, no amendment may be made by the Board to the 1994 Plan which
increases the maximum number of shares as to which options may be granted under
the 1994 Plan or increases the number of shares for which an option may be
granted to any optionee. Unless sooner terminated by the Board, the 1994 Plan
terminates on March 23, 2004, the tenth anniversary of the date on which it was
adopted.
13
<PAGE>
NUMBER OF SHARES. The total number of shares of Common Stock subject to the
1994 Plan was increased (subject to stockholder approval) by amendments adopted
on December 10, 1997, from 1,500,000 shares to 1,813,300 shares, subject to
adjustment in the event of stock dividends, stock splits, mergers,
consolidations or other recapitalizations or reorganizations of the Company.
ELIGIBILITY TO PARTICIPATE. Options may be granted under the 1994 Plan to
directors, officers, employees or consultants of the Company or any related
corporation. Directors who are not otherwise employees of the Company or any of
its subsidiaries shall be eligible to be granted an option pursuant to the 1994
Plan. In determining the eligibility of an individual to be granted an option,
and the number of shares to be subject to purchase under such option, the
Compensation Committee takes into account a potential grantee's individual
circumstances. Incentive stock options may be granted only to an employee who
owns stock possessing not more than 10% of the total combined voting power of
all classes of stock of the Company, unless the purchase price for the stock
under such option is at least 110% of its fair market value at the time such
option is granted.
The maximum number of shares with respect to which an option or options may
be granted to any employee in any one taxable year of the Company shall not
exceed, shares with fair market value greater than $100,000, taking into account
all shares granted during such taxable period.
TERMS OF OPTIONS. The exercise price of each option granted under the 1994
Plan is determined by the Compensation Committee at the time of granting of the
option but, in the case of an incentive stock option, shall in no event be less
than the fair market value of the Common Stock covered by the option at the time
the option is granted. Options granted under the 1994 Plan shall become
exercisable in such installments as of the Compensation Committee shall specify
at the time of grant. The Compensation Committee in its sole discretion may
accelerate the exercisability of any option granted under the 1994 Plan,
provided that an incentive stock option shall not be accelerated if such
acceleration would violate the annual vesting limitation contained in Section
422A(b)(7) of the Code.
Options granted under the 1994 Plan expire not more than ten years from the
date of grant. Options may be exercised by giving written notice to the Company,
signed by the person exercising the option, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full,
which payment may be in cash or in the discretion of the Compensation Committee
in shares of the Company's stock already owned by the person exercising the
option.
Options granted under the 1994 Plan terminate ninety days after termination
of employment for any reason other than death, disability, cause or breach of an
employment agreement. Such options terminate one hundred eighty days (but not
beyond the original term) following termination of employment on account of
disability or death.
ADOPTION OF 1997 STOCK OPTION PLAN
There will be presented at the meeting a proposal to approve the Company's
1997 Stock Option Plan (the "1997 Plan"), which was adopted by the Company's
Board of Directors on February 12, 1997. The Board of Directors recommends that
the stockholders approve the 1997 Plan. Currently, there are no specific plans
or proposals to award options under the 1997 Plan. Rather, the Compensation
Committee, in its judgment, will consider granting options under the 1997 Plan
in establishing appropriate incentives for employees of the Company. The
affirmative vote of the holders of at least a majority of the Company's Common
Stock voting in person or by proxy at the meeting will be required for such
approval. Set forth
14
<PAGE>
below is a summary of the principal provisions of the 1997 Plan. A copy of the
entire 1997 Plan is available from the Secretary of the Company upon request.
Set forth below is a summary of the principal provisions of the 1997 Plan, a
copy of which may be obtained from the Secretary of the Company. The Board of
Directors recommends that the stockholders approve and adopt the 1997 Plan. The
affirmative vote of at least a majority of the Common Stock votes in person or
by proxy at the meeting will be will be required for the approval of the 1997
Plan.
PURPOSE. The 1997 Plan is intended to encourage ownership of the Common
Stock by employees of the Company to induce qualified personnel to enter and
remain in the employ of the Company. The 1997 Plan provides for the granting of
incentive stock options intended to meet the requirements of Section 422 of the
Code as well as for the granting of options that do not meet those requirements.
Shares issued under the 1997 Plan may be either authorized but unissued shares
or treasury shares. If any unexercised option granted under the 1997 Plan lapses
or terminates for any reason, the shares covered thereby may again be optioned
thereunder.
ADMINISTRATION. The 1997 Plan will be administered by the Compensation
Committee of the Board of Directors consisting of two or more Directors of the
Company appointed by the Board of Directors. The Committee determines the
employees to whom options shall be granted, the number of shares to be covered
by such options, the terms of such options and the vesting schedule for such
options. Present members of the Committee are Milton Pappas, Ralph Wagner and
Eric Giler. The Board of Directors may at any time terminate, modify or adopt
amendments to the 1997 Plan provided that such termination, modification or
amendments shall not affect existing rights of any participant under an option
previously granted to the participant without such participant's consent.
Furthermore, without the approval of the stockholders, no amendment may be made
by the Board to the 1997 Plan which increases the maximum number of shares as to
which options may be granted under the 1997 Plan or increases the number of
shares for which an option may be granted to any optionee. Unless sooner
terminated by the Board, the 1997 Plan terminates on April 9, 2007, the tenth
anniversary of the date on which it was adopted by the Company's stockholders.
NUMBER OF SHARES. The total number of shares of Common Stock subject to the
1997 Plan is 500,000 shares, subject to adjustment in the event of stock
dividends, stock splits, mergers, consolidations or other recapitalizations or
reorganizations of the Company.
ELIGIBILITY TO PARTICIPATE. Options may be granted under the 1997 Plan to
officers, employees, directors or consultants of the Company or any of its
subsidiaries in key positions. Directors who are not otherwise employees of the
Company or any of its subsidiaries shall be eligible to be granted an option
pursuant to the 1997 Plan. In determining the eligibility of an individual to be
granted an option, and the number of shares to be subject to purchase under such
option, the Compensation Committee takes into account the position and
responsibilities of the individual being considered, his or her present and
potential contributions to the success of the Company or its subsidiaries and
such other factors as the Compensation Committee deems relevant. Incentive stock
options may be granted only to an employee who owns stock possessing not more
than 10% of the total combined voting power of all classes of stock of the
Company, unless the purchase price for the stock under such option is at least
110% of its fair market value at the time such option is granted and the option,
by its terms, is not exercisable more than five years from the date on which it
is granted.
15
<PAGE>
The maximum number of shares with respect to which an option or options may
be granted to any employee in any one taxable year of the Company shall not
exceed shares with a fair market value in excess of $100,000 taking into account
shares granted during such taxable period under options that have terminated.
TERMS OF OPTIONS. The exercise price of each option granted under the 1997
Plan is determined by the Compensation Committee at the time of granting of the
option but, in the case of an incentive stock option, shall in no event be less
than the fair market value of the Common Stock covered by the option at the time
the option is granted. The Compensation Committee in its sole discretion may
accelerate the exercisability of any option granted under the 1997 Plan.
Notwithstanding the foregoing two sentences, an option granted to any Director
or officer of the Company shall not be exercisable prior to six months and one
day after the date of the grant. The exercise price of each option under the
1997 Plan is determined by the Compensation Committee at the time of grant but,
in the case of an incentive stock option, shall in no event be less than the
fair market value of the Common Stock subject to the option at the time of
grant. Upon approval by the Stockholders of the Company's 1997 Stock Option
Plan, no further options will be granted under the 1994 Plan.
TAX EFFECTS OF PLAN PARTICIPATION
Options granted under the 1994 Plan and the 1997 Plan are intended to be
either incentive stock options, as defined in Section 422 of the Code, or
non-qualified stock options.
INCENTIVE STOCK OPTIONS. Except as provided below with respect to the
alternative minimum tax, the optionee will not recognize taxable income upon the
grant or exercise of an incentive stock option. In addition, if the optionee
holds the shares received pursuant to the exercise of the option for at least
one year after the date of exercise and for at least two years after the option
is granted, the optionee will recognize long-term capital gain or loss upon the
disposition of the stock measured by the difference between the option exercise
price and the amount received for such shares upon disposition.
In the event that the optionee disposes of the stock prior to the expiration
of the required holding periods (a "disqualifying disposition"), the optionee
generally will realize ordinary income to the extent of the lesser of (i) the
fair market value of the stock at the time of exercise over the exercise price,
or (ii) the amount received for the stock upon disposition over the exercise
price. The basis in the stock acquired upon exercise of the option will equal
the amount of income recognized by the optionee plus the option exercise price.
Upon eventual disposition of the stock, the optionee will recognize long-term or
short-term capital gain or loss, depending on the holding period of the stock
and the difference between the amount realized by the optionee upon disposition
of the stock and his basis in the stock.
For alternative minimum tax purposes, the excess of the fair market value of
stock on the date of the exercise of the incentive stock option over the
exercise price of the option is included in alternative minimum taxable income
for alternative minimum tax purposes. If the alternative minimum tax does apply
to the optionee, an alternative minimum tax credit may reduce the regular tax
upon eventual disposition of the stock.
The Company will not be allowed an income tax deduction upon the grant or
exercise of an incentive stock option. Upon a disqualifying disposition by the
optionee of shares acquired upon exercise of the incentive stock option, the
Company will be allowed a deduction in an amount equal to the ordinary income
recognized by the optionee.
16
<PAGE>
Under proposed regulations issued by the Internal Revenue Service, the
exercise of an option with previously acquired stock of the Company will be
treated as, in effect, two separate transactions. Pursuant to Section 1036 of
the Code, the first transaction will be a tax-free exchange of the previously
acquired shares for the same number of new shares. The new shares will retain
the basis and, except, as provided below, the holding periods of the previously
acquired shares. The second transaction will be the issuance of additional new
shares having a value equal to the difference between the aggregate fair market
value of all of the new shares being acquired and the aggregate option exercise
price for those shares. Because the exercise of an incentive stock option does
not result in the recognition by the optionee of income, this issuance will also
be tax-free (unless the alternative minimum tax applies, as described above).
The optionee's basis in these additional shares will be zero and the optionee's
holding period for these shares will commence on the date on which the shares
are transferred. For purposes of the one and two-year holding period
requirements which must be met for favorable incentive stock option tax
treatment to apply, the holding periods of previously acquired shares are
disregarded.
NON-QUALIFIED STOCK OPTIONS. As in the case of incentive stock options, no
income is recognized by the optionee on the grant of a non-qualified stock
option. On the exercise by an optionee of a non-qualified option, generally the
excess of the fair market value of the stock when the option is exercised over
its cost to the optionee will be (a) taxable to the optionee as ordinary income
and (b) generally deductible for income tax purposes by the Company.
The Internal Revenue Service will treat the exercise of a non-qualified
stock option with already owned stock of the Company as two transactions. First,
there will be a tax-free exchange of the old shares for a like amount of new
shares under Section 1036 of the Code, with the new shares retaining the basis
and holding periods of the old shares. Second, the issuance of additional new
shares (representing the spread between the fair market value of all the new
shares and the option price) is taxable to the employee as ordinary income under
Section 83 of the Code, as is the case with any non-qualified option. The new
shares will have a basis equal to the spread between the fair market value of
the new shares and the option price.
The optionee's tax basis in his stock will equal his cost for the stock plus
the amount of ordinary income he had to recognize with respect to the
non-qualified stock option. Accordingly, upon a subsequent disposition of stock
acquired upon the exercise of a non-qualified option, the optionee will
recognize short-term or long-term capital gain or loss, depending upon the
holding period of the stock equal to the difference between the amount realized
upon disposition of the stock by the optionee and his basis in the stock.
AMENDMENT TO BYLAWS
There will be presented at the meeting a proposal to approve amendments to
the Company's Amended Bylaws ("ByLaws") in order: (i) to eliminate the ability
of the Company's stockholders to act by consent in lieu of meeting; (ii) to
increase to 30% the percentage in interest of voting stock of the Company
required to call a special meeting of stockholders; and (iii) to revise the
provisions regarding director and other indemnification by substituting those
provisions set forth in Exhibit A hereto for those currently in effect. Copies
of the Bylaws, current and as proposed to be amended, are available from the
Secretary of the Company upon request.
REQUIREMENT OF STOCKHOLDER MEETING. The Directors propose an amendment to
the Bylaws which would eliminate the ability of the stockholders to act by
consent in the name and on behalf of the
17
<PAGE>
Company. In order to assure that all stockholders have an opportunity to
participate in actions which under state law and the Company's charter and
bylaws require stockholder approval, the proposed amendment to the Bylaws would
require that a meeting of stockholders be held in connection with the taking of
any such action. The Board of Directors believe that such a requirement will
enhance corporate democracy and will allow greater stockholder participation in
the governance of the Company. This proposed amendment to the Bylaws may make it
more difficult for a stockholder hostile to management to acquire control of the
Company. See "Certain Anti-takeover Aspects of the Proposed Amendments to the
Bylaws."
INCREASE IN PERCENTAGE OF VOTING CAPITAL STOCK REQUIRED TO CALL MEETING OF
STOCKHOLDERS. The Company's current bylaws provide that 10% in interest of the
outstanding voting capital stock of the Company may call a meeting of the
stockholders of the Company. The Board of Directors proposes and recommends that
the stockholders of the Company approve an amendment to the Bylaws which would
require at least 30% in interest of the stockholders to call a special meeting.
The Board of Directors believes that this amendment to the Bylaws will ensure
that the Company does not incur the substantial cost of holding a stockholders
meeting where less than a significant minority requests one and where a proposal
submitted at such a meeting does not have a reasonable chance of approval by all
stockholders. This proposed amendment to the Bylaws may make it more difficult
for a stockholder hostile to management to acquire control of the Company. See
"Certain Anti-takeover Aspects of the Proposed Amendments to the Bylaws."
INDEMNIFICATION OF DIRECTORS AND OFFICERS. In order to attract and retain
qualified directors and executives, the Company believes it necessary (i) to
insulate them from liability arising out of the exercise of their duties, unless
they have acted in bad faith, and (ii) to have the authority to provide
insurance and to advance expenses relating to indemnifiable events. Accordingly,
the Directors recommend the approval of the Amendment to the Bylaws (more fully
described in the attached Exhibit A) (i) to provide indemnification for officers
and directors against liability arising from the execution of duties on behalf
of the Company unless it shall have been adjudicated in a judicial proceeding
that they have acted in bad faith against the best interests of the Company and
(ii) to allow for the advance of all expenses and provisions of insurance
relating to the Company's indemnification obligations. The Board of Directors
believes that amending the Bylaws to require a judicial determination of bad
faith of an officer or director prior to the denial of indemnification by the
Company of an officer or director defending a suit arising from the performance
of one's duties as such will place the subjective decision of whether to
indemnify officers and directors in the judicial arena, and the Company will be
better able to assure its directors and officers that any indemnification
protection they enjoy will be waived only after appropriate deliberation, and
that they, in certain circumstances, will not incur large expenses relating to
the defense of indemnifiable claims. The Company's current Bylaws allow for
indemnification of officers and directors against liability arising from the
exercise of the directors on behalf of the Company only upon a showing of good
faith. In addition the current Bylaws allow the reimbursement, not advance, of
all expenses relating to the Company's indemnification obligations. By requiring
a judicial determination of bad faith prior to the denial of indemnification and
by advancing expenses relating to the defense of indemnifiable claims, this
proposed amendment to the Bylaws will allow the defense by officers and
directors of the Company of suits arising out of the exercise of their duties,
including suits initiated by the stockholders of the Company in the absence of a
judicial determination of bad faith. Approval of this proposed amendment to the
Bylaws will eliminate the rights of the Company to monetary relief from an
individual eligible for indemnification unless bad faith can be demonstrated.
This proposed Bylaw amendment does not limit or expand indemnification rights
provided by the Delaware General Corporation Law. There are no pending or
threatened proceedings
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with respect to which the indemnification rights would be available, if the
proposed amendment to the Bylaws is adopted. See "Certain Anti-takeover Aspects
of the Proposed Amendments to the Bylaws."
CERTAIN ANTI-TAKEOVER ASPECTS OF THE PROPSED AMENDMENTS TO THE BYLAWS
The proposed amendments to the Bylaws are not a response to or as a result
of any specific effort to obtain control of the issuer by means of a merger,
tender offer, solicitation in opposition to management or otherwise.
Nonetheless, the proposed amendments the Bylaws may discourage potential
acquirors from making bids, thereby frustrating the ability of acquirors,
hostile or otherwise, to consummate an acquisition of the Company at substantial
premiums to the Company's market price. In addition, however, the Board of
Directors believes the proposed amendments to the Bylaws might result in
additional negotiations between the Company and potential acquirors, which may
in turn result in a transaction more favorable to the stockholders of the
Company.
The Company's Certificate of Incorporation and employment and other
agreements do not contain provisions with material anti-takeover effects.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Coopers & Lybrand as independent
auditors to examine the consolidated financial statements of the Corporation and
its subsidiaries for the fiscal year ended December 31, 1997.
A representative of Coopers & Lybrand is expected to be present at the
meeting. We will have the opportunity to make a statement if he or she so
desires and to respond to appropriate questions. The engagement of Coopers &
Lybrand was approved by the Board of Directors at the recommendation of the
Audit Committee of the Board of Directors.
SECTION 16 REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers, and persons who own more than 10%
of a registered class of the Company's equity securities (collectively,
"Reporting Persons"), to file initial reports of ownership and reports of
changes in ownership of Common Stock of the Company with the Securities and
Exchange Commission (the "SEC"). Such persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it with
respect to fiscal 1996, or written representations from certain reporting
persons, the Company believes that all Reporting Persons complied with all
Section 16(a) filing requirements in 1996 with the exception that Eric Giler, by
inadvertence, did not timely file a Form 3 relating to his election as a
director on December 10, 1996.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy statement to
be furnished to all stockholders entitled to vote at the next annual meeting of
the Company must be received at the Company's principal executive offices not
later than November 21, 1997. In order to curtail controversy as
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to the date on which a proposal was received by the Company, it is suggested
that proponents submit their proposals by Certified Mail, Return Receipt
Requested.
OTHER BUSINESS
The Board of Directors knows of no business that will be presented for
consideration at the Meeting other than those items stated above. If any other
business should before the Meeting, votes may be cast pursuant to proxies in
respect to any such business in the best judgment of the person or persons
acting under the proxies.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Company, and in
addition to soliciting stockholders by mail through its regular employees, the
Company may request banks, brokers and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Company registered
in the names of a nominee and, if so, will reimburse such banks, brokers and
other custodians, nominees and fiduciaries for their reasonable out-of-pocket
costs. Solicitation by officers and employees of the Company may also be made of
some stockholders in person or by mail, telephone or telegraph following the
original solicitation.
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EXHIBIT A
ARTICLE V
INDEMNIFICATION
SECTION 5.1 THIRD PARTY ACTIONS. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (each an "Indemnitee"),
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding.
SECTION 5.2 DERIVATIVE ACTIONS. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or was a
Director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit.
SECTION 5.3 EXPENSES. To the extent that a Director, officer, employee or
agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 5.1 and 5.2,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
SECTION 5.4 AUTHORIZATION AND REQUEST FOR INDEMNIFICATION.
(a) Any indemnification requested by the Indemnitee under Section 5.1 hereof
shall be made no later than ten (10) days after receipt of the written request
of the Indemnitee, unless it shall have been adjudicated by a court of final
determination that the Indemnitee did not act in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
(b) Any indemnification requested by the Indemnitee under SECTION 5.2 hereof
shall be made no later than ten (10) days after receipt of the written request
of the Indemnitee, unless it shall have been adjudicated by a court of final
determination that the Indemnitee did not act in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, the Indemnitee shall have been finally adjudged to be liable to the
Company by a court of competent jurisdiction due to willful misconduct of a
culpable nature in the performance of the Indemnitee's duty to the Corporation
unless and only to the extent that any court in which such proceeding was
brought shall determine upon application that despite the adjudication of
liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as such court
shall deem proper.
SECTION 5.5 ADVANCE PAYMENT OF EXPENSES. Subject to Section 5.4 above, the
Corporation shall advance all expenses incurred by the Indemnitee in connection
with the investigation, defense, settlement or appeal of any proceeding to which
the Indemnitee is a party or is threatened to be made a party by reason of the
fact that the Indemnitee is or was an agent of the Corporation. The Indemnitee
hereby undertakes to repay such amounts advanced only if, and to the extent
that, it shall ultimately be determined that the Indemnitee is not entitled to
be indemnified by the Corporation. The advances to be
<PAGE>
made hereunder shall be paid by the Corporation to or on behalf of the
Indemnitee within 30 days following delivery of a written request therefor by
the Indemnitee to the Corporation.
SECTION 5.6 NON-EXCLUSIVENESS. The indemnification provided by this Article
10 shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a Director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 5.7 INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article V.
SECTION 5.8 CONSTITUENT CORPORATIONS. The Corporation shall have power to
indemnify any person who is or was a director, officer, employee or agent of a
constituent corporation absorbed in a consolidation or merger with this
Corporation or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, in the same manner as hereinabove
provided for any person who is or was a Director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
SECTION 5.9 ADDITIONAL INDEMNIFICATION. In addition to the foregoing
provisions of this Article V, the Corporation shall have the power, to the full
extent provided by law, to indemnify any person for any act or omission of such
person against all loss, cost, damage and expense (including attorney's fees) if
such person is determined (in the manner prescribed in Section 5.4 hereof) to
have acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interest of the Corporation.
<PAGE>
NETEGRITY, INC.
1997 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
This stock option plan (the "Plan") is intended to provide incentives: (a)
to the officers and other employees of NeTegrity, Inc. (the "Company") and any
present or future subsidiaries of the Company by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); and
(b) to officers, employees, consultants and directors of the Company and any
present or future subsidiaries by providing them with opportunities to purchase
stock in the Company pursuant to options granted hereunder which do not qualify
as ISOs ("Non-Qualified Option" or "Non-Qualified Options"). As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code and the Treasury Regulations promulgated thereunder (the "Regulations").
2. STOCK SUBJECT TO THE PLAN.
(a) The initial maximum number of shares of common stock, par value $.01 per
share, of the Company ("Common Stock") available for stock options granted under
the Plan through the end of the Company's fiscal year ending December 31, 1997
shall be 500,000 shares of Common Stock. The maximum number of shares of Common
Stock available for grants shall be subject to adjustment in accordance with
Section 11 thereof. Shares issued under the Plan may be authorized but unissued
shares of Common Stock or shares of Common Stock held in treasury.
(b) To the extent that any stock option shall lapse, terminate, expire or
otherwise be cancelled without the issuance of shares of Common Stock, the
shares of Common Stock covered by such option(s) shall again be available for
the granting of stock options.
(c) Common Stock issuable under the Plan may be subject to such restrictions
on transfer, repurchase rights or other restrictions as shall be determined by
the Committee (as defined in Section 3 below).
3. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by a committee (the "Committee")
consisting of two or more members of the Company's Board of Directors. The Board
of Directors may from time to time appoint a member or members of the Committee
in substitution for or in addition to the member or members then in office and
may fill vacancies on the Committee however caused. The Committee shall choose
one of its members as Chairman and shall hold meetings at such times and places
as it shall deem advisable. A majority of the members of the Committee shall
constitute a quorum and any action may be taken by a majority of those present
and voting at any meeting. Any action may also be taken without the necessity of
a meeting by a written instrument signed by a majority of the Committee. The
decision of the Committee as to all questions of interpretation and application
of the Plan shall be final, binding and conclusive on all persons. The Committee
shall have the authority to adopt, amend and rescind such rules and regulations
as, in its opinion, may be advisable in the administration of the Plan. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement granted hereunder in the
manner and to the extent it shall deem expedient to carry the Plan into effect
and shall be the sole and final judge of such expediency. No Committee member
shall be liable for any action or determination made in good faith. Prior to the
date of the registration of an equity security of the Company under Section 12
of the Exchange Act, the Plan may be administered by the Board of Directors
<PAGE>
and in such event all references in this Plan to the Committee shall be deemed
to mean the Board of Directors.
(b) Subject to the terms of the Plan, the Committee shall have the authority
to (i) determine the employees of the Company and its subsidiaries (from among
the class of employees eligible under Section 4 to receive ISOs) to whom ISOs
may be granted, and to determine (from the class of individuals eligible under
Section 4 to receive Non-Qualified Options) to whom Non-Qualified Options may be
granted; (ii) determine the time or times at which options may be granted; (iii)
determine the option price of shares subject to each option which price shall
not be less than the minimum price specified in Section 6; (iv) determine
whether each option granted shall be an ISO or a Non-Qualified Option; (v)
determine (subject to Section 9) the time or times when each option shall become
exercisable and the duration of the exercise period; (vi) determine whether
restrictions such as repurchase options are to be imposed on shares subject to
options and the nature of such restrictions; and (vii) determine the size of any
Options under the Plan, taking into account the position or office of the
optionee with the Company, the job performance of the optionee and such other
factors as the Committee may deem relevant in the good faith exercise of its
independent business judgment.
4. ELIGIBILITY.
Options designated as ISOs may be granted only to officers and other
employees of the Company or any subsidiary. Non-Qualified Options may be granted
to any officer, employee, consultant or director of the Company or of any of its
subsidiaries.
In determining the eligibility of an individual to be granted an option, as
well as in determining the number of shares to be optioned to any individual,
the Committee shall take into account the position and responsibilities of the
individual being considered, the nature and value to the Company or its
subsidiaries of his or her service and accomplishments, his or her present and
potential contribution to the success of the Company or its subsidiaries, and
such other factors as the Committee may deem relevant.
No option designated as an ISO shall be granted to any employee of the
Company or any subsidiary if such employee owns, immediately prior to the grant
of an option, stock representing more than 10% of the voting power or more than
10% of the value of all classes of stock of the Company or a parent or a
subsidiary, unless the purchase price for the stock under such option shall be
at least 110% of its fair market value at the time such option is granted and
the option, by its terms, shall not be exercisable more than five years from the
date it is granted. In determining the stock ownership under this paragraph, the
provisions of Section 424(d) of the Code shall be controlling. In determining
the fair market value under this paragraph, the provisions of Section 6 hereof
shall apply.
5. OPTION AGREEMENT.
Each option shall be evidenced by an option agreement (the "Agreement") duly
executed on behalf of the Company and by the optionee to whom such option is
granted, which Agreement shall comply with and be subject to the terms and
conditions of the Plan. The Agreement may contain such other terms, provisions
and conditions which are not inconsistent with the Plan as may be determined by
the Committee, provided that options designated as ISOs shall meet all of the
conditions for ISOs as defined in Section 422 of the Code. The date of grant of
an option shall be as determined by the Committee. More than one option may be
granted to an individual.
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6. OPTION PRICE.
The option price or prices of shares of the Company's Common Stock for
options designated as Non-Qualified Options shall be as determined by the
Committee, but in no event shall the option price be less than the minimum legal
consideration required therefor under the laws of the State of Delaware or the
laws of any jurisdiction in which the Company or its successors in interest may
be organized. The option price or prices of shares of the Company's Common Stock
for ISOs shall be the fair market value of such Common Stock at the time the
option is granted as determined by the Committee in accordance with the
Regulations promulgated under Section 422 of the Code. If such shares are then
listed on any national securities exchange, the fair market value shall be the
mean between the high and low sales prices, if any, on such exchange on the
business day immediately preceding the date of the grant of the option or, if
none, shall be determined by taking a weighted average of the means between the
highest and lowest sales prices on the nearest date before and the nearest date
after the date of grant in accordance with Treasury Regulations Section
25.2512-2. If the shares are not then listed on any such exchange, the fair
market value of such shares shall be the mean between the high and low sales
prices, if any, as reported in the National Association of Securities Dealers
Automated Quotation System National Market System ("NASDAQ/ NMS") for the
business day immediately preceding the date of the grant of the option, or, if
none, shall be determined by taking a weighted average of the means between the
highest and lowest sales on the nearest date before and the nearest date after
the date of grant in accordance with Treasury Regulations Section 25.2512-2. If
the shares are not then either listed on any such exchange or quoted in
NASDAQ/NMS, the fair market value shall be the mean between the average of the
"Bid" and the average of the "Ask" prices, if any, as reported in the National
Daily Quotation Service for the business day immediately preceding the date of
the grant of the option, or, if none, shall be determined by taking a weighted
average of the means between the highest and lowest sales prices on the nearest
date before and the nearest date after the date of grant in accordance with
Treasury Regulations Section 25.2512-2. If the fair market value cannot be
determined under the preceding three sentences, it shall be determined in good
faith by the Committee.
7. MANNER OF PAYMENT; MANNER OF EXERCISE.
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such options, (ii) shares of
Common Stock of the Company owned by the optionee having a fair market value
equal in amount to the exercise price of the options being exercised, or (iii)
any combination of (i) and (ii), provided, however, that payment of the exercise
price by delivery of shares of Common Stock of the Company owned by such
optionee may be made only under such circumstances and on such terms as may from
time to time be established by the Committee. The fair market value of any
shares of the Company's Common Stock which may be delivered upon exercise of an
option shall be determined by the Committee in accordance with Section 6 hereof.
With the consent of the Committee, payment may also be made by delivery of a
properly executed exercise notice to the Company, together with a copy of
irrevocable instruments to a broker to deliver promptly to the Company the
amount of sale or loan proceeds to pay the exercise price. To facilitate the
foregoing, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
(b) To the extent that the right to purchase shares under an option has
accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares as provided in
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subparagraph (a) above. Upon such exercise, delivery of a certificate for
paid-up non-assessable shares shall be made at the principal office of the
Company to the person or persons exercising the option at such time, during
ordinary business hours, after ten business days from the date of receipt of the
notice by the Company, as shall be designated in such notice, or at such time,
place and manner as may be agreed upon by the Company and the person or persons
exercising the option.
8. EXERCISE OF OPTIONS.
Subject to the provisions of paragraphs 9 through 11, each option granted
under the Plan shall be exercisable as follows:
(a) VESTING. The Option shall not be exercisable until the anniversary of
the date of grant, after which the option shall be exercisable in accordance
with the option agreement evidencing the grant thereof.
(b) FULL VESTING OF INSTALLMENTS. Once an installment becomes exercisable
it shall remain exercisable until expiration or termination of the option,
unless otherwise specified by the Committee.
(c) PARTIAL EXERCISE. Each option or installment may be exercised at any
time or from time to time, in whole or in part, for up to the total number of
shares with respect to which it is then exercisable.
(d) ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date of exercise of any installment or any option; provided that
the Committee shall not, without the consent of an optionee, accelerate the
exercise date of any installment of any option granted to any employee as an ISO
if such acceleration would violate the annual vesting limitation contained in
Section 422(d) of the Code.
9. TERM OF OPTIONS; EXERCISABILITY.
(a) TERM. Each option shall expire not more than ten (10) years from the
date of the granting thereof, but shall be subject to earlier termination as may
be provided in the Agreement.
(b) EXERCISABILITY. Except as otherwise provided in the Agreement, an
option granted to an employee optionee who ceases to be an employee of the
Company or one of its subsidiaries shall be exercisable only to the extent that
the right to purchase shares under such option has accrued and is in effect on
the date such optionee ceases to be an employee of the Company or one of its
subsidiaries.
10. OPTIONS NOT TRANSFERABLE.
The right of any optionee to exercise any option granted to him or her shall
not be assignable or transferable by such optionee otherwise than by will or the
laws of descent and distribution, or (solely with respect to Non-Qualified
Options) pursuant to a qualified domestic relations order, as defined by the
Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder, and any such option shall be exercisable during the lifetime of such
optionee only by him. Any option granted under the Plan shall be null and void
and without effect upon the bankruptcy of the optionee to whom the option is
granted, or upon any attempted assignment or transfer, except as herein
provided, including without limitation any purported assignment, whether
voluntary or by operation of law, pledge, hypothecation or other disposition,
attachment, divorce, except as provided above with respect to Non-Qualified
Options, trustee process or similar process, whether legal or equitable, upon
such option.
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11. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to options granted to him or her hereunder shall
be adjusted as hereinafter provided, unless otherwise specifically provided in
the written agreement between the optionee and the Company relating to such
option:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
(b) CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated with
or acquired by another entity in a merger, sale of all or substantially all of
the Company's assets or otherwise (an "Acquisition"), the Committee or the board
of directors of any entity assuming the obligations of the Company hereunder
(the "Successor Board"), shall, as to outstanding options, either (i) make
appropriate provision for the continuation of such options by substituting on an
equitable basis for the shares then subject to such options the consideration
payable with respect to the outstanding shares of Common Stock in connection
with the Acquisition; or (ii) upon written notice to the optionees, provide that
all options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at the end of which period
the options shall terminate; or (iii) terminate all options in exchange for a
cash payment equal to the excess of the fair market value of the shares subject
to such options (to the extent then exercisable) over the exercise price
thereof.
(c) RECAPITALIZATION OR REORGANIZATION. In the event of a recapitalization
or reorganization of the Company (other than a transaction described in
subparagraph (b) above) pursuant to which securities of the Company or of
another corporation are issued with respect to the outstanding shares of Common
Stock, an optionee upon exercising an option shall be entitled to receive for
the purchase price paid upon such exercise the securities he would have received
if he had exercised his option prior to such recapitalization or reorganization.
(d) MODIFICATION OF ISOS. Notwithstanding the foregoing, any adjustments
made pursuant to subparagraphs (a), (b) or (c) with respect to ISOs shall be
made only after the Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments.
(e) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, each option will terminate immediately prior to
the consummation of such proposed action or at such other time and subject to
such other conditions as shall be determined by the Committee.
(f) ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
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(g) FRACTIONAL SHARES. No fractional shares shall be issued under the Plan
and the optionee shall receive from the Company cash in lieu of such fractional
shares.
(h) ADJUSTMENTS. Upon the happening of any of the events described in
subparagraphs (a), (b) or (c) above, the class and aggregate number of shares
set forth in Section 2 hereof that are subject to options which previously have
been or subsequently may be granted under the Plan shall also be appropriately
adjusted to reflect the events described in such subparagraphs. The Committee or
the Successor Board shall determine the specific adjustments to be made under
this paragraph 11 and, subject to Section 3, its determination shall be
conclusive.
If any person or entity owning restricted Common Stock obtained by exercise
of an option made hereunder receives shares or securities or cash in connection
with a corporate transaction described in subparagraphs (a), (b) or (c) above as
a result of owning such restricted Common Stock, such shares or securities or
cash shall be subject to all of the conditions and restrictions applicable to
the restricted Common Stock with respect to which such shares or securities or
cash were issued, unless otherwise determined by the Committee or the Successor
Board.
12. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any option granted under the Plan shall
confer upon any option holder any right with respect to the continuation of his
employment by the Company (or any subsidiary) or interfere in any way with the
right of the Company (or any subsidiary), subject to the terms of any separate
employment agreement to the contrary, at any time to terminate such employment
or to increase or decrease the compensation of the option holder from the rate
in existence at the time of the grant of an option. Whether an authorized leave
of absence, or absence in military or government service, shall constitute
termination of employment shall be determined by the Committee at the time.
13. WITHHOLDING.
The Company's obligation to deliver shares upon the exercise of any option
granted under the Plan shall be subject to the option holder's satisfaction of
all applicable Federal, state and local income, excise and employment tax
withholding requirements. The Company and employee may agree to withhold shares
of Common Stock purchased upon exercise of an option to satisfy the
above-mentioned withholding requirements. With the approval of the Committee,
which it shall have sole discretion to grant, and on such terms and conditions
as the Committee may impose, the option holder may satisfy the foregoing
condition by electing to have the Company withhold from delivery shares having a
value equal to the amount of tax to be withheld. The Committee shall also have
the right to require that shares be withheld from delivery to satisfy such
condition.
14. RESTRICTIONS ON ISSUE OF SHARES.
(a) Notwithstanding the provisions of Section 7, the Company may delay the
issuance of shares covered by the exercise of an option and the delivery of a
certificate for such shares until one of the following conditions shall be
satisfied:
(i) The shares with respect to which such option has been exercised are
at the time of the issue of such shares effectively registered or qualified
under applicable Federal and state securities acts now in force or as
hereafter amended; or
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(ii) Counsel for the Company shall have given an opinion, which opinion
shall not be unreasonably conditioned or withheld, that such shares are
exempt from registration and qualification under applicable Federal and
state securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options shall be effective, and the
Company shall use its best efforts to bring about compliance with the above
conditions within a reasonable time, except that the Company shall be under no
obligation to qualify shares or to cause a registration statement or a post-
effective amendment to any registration statement to be prepared for the purpose
of covering the issue of shares in respect of which any option may be exercised,
except as otherwise agreed to by the Company in writing.
15. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT REGISTRATION.
Unless the shares to be issued upon exercise of an option granted under the
Plan have been effectively registered under the Securities Act of 1933, as now
in force or hereafter amended, the Company shall be under no obligation to issue
any shares covered by any option unless the person who exercises such option, in
whole or in part, shall give a written representation and undertaking to the
Company which is satisfactory in form and scope to counsel for the Company and
upon which, in the opinion of such counsel, the Company may reasonably rely,
that he or she is acquiring the shares issued pursuant to such exercise of the
option for his or her own account as an investment and not with a view to, or
for sale in connection with, the distribution of any such shares, and that he or
she will make no transfer of the same except in compliance with any rules and
regulations in force at the time of such transfer under the Securities Act of
1933, or any other applicable law, and that if shares are issued without such
registration, a legend to this effect may be endorsed upon the securities so
issued. In the event that the Company shall, nevertheless, deem it necessary or
desirable to register under the Securities Act of 1933 or other applicable
statutes any shares with respect to which an option shall have been exercised,
or to qualify any such shares for exemption from the Securities Act of 1933 or
other applicable statutes, then the Company may take such action and may require
from each optionee such information in writing for use in any registration
statement, supplementary registration statement, prospectus, preliminary
prospectus or offering circular as is reasonably necessary for such purpose and
may require reasonable indemnity to the Company and its officers and directors
and controlling persons from such holder against all losses, claims, damages and
liabilities arising from such use of the information so furnished and caused by
any untrue statement of any material fact therein or caused by the omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made.
16. LOANS.
The Company may make loans to optionees to permit them to exercise options.
If loans are made, the requirements of all applicable Federal and state laws and
regulations regarding such loans must be met.
17. MODIFICATION OF OUTSTANDING OPTIONS.
The Committee may authorize the amendment of any outstanding option with the
consent of the optionee when and subject to such conditions as are deemed to be
in the best interests of the Company and in accordance with the purposes of this
Plan.
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18. APPROVAL OF SHAREHOLDERS.
The Plan shall be subject to approval by the vote of shareholders holding at
least a majority of the voting stock of the Company voting in person or by proxy
at a duly held shareholders' meeting, or by written consent of shareholders
holding at least a majority of the voting stock of the Company, within twelve
(12) months after the adoption of the Plan by the Board of Directors and shall
take effect as of the date of adoption by the Board of Directors upon such
approval. The Committee may grant options under the Plan prior to such approval,
but any such option shall become effective as of the date of grant only upon
such approval and, accordingly, no such option may be exercisable prior to such
approval.
19. TERMINATION AND AMENDMENT.
Unless sooner terminated as herein provided, the Plan shall terminate ten
(10) years from the date upon which the Plan was duly adopted by the Board of
Directors of the Company. The Board of Directors may at any time terminate the
Plan or make such modification or amendment thereof as it deems advisable;
provided, however, that except as provided in this Section 19, the Board of
Directors may not, without the approval of the shareholders of the Company
obtained in the manner stated in Section 18, increase the maximum number of
shares for which options may be granted or change the designation of the class
of persons eligible to receive options under the Plan, or make any other change
in the Plan which requires shareholder approval under applicable law or
regulations, including any approval requirement which is a prerequisite for
exemptive relief under Section 16 of the Exchange Act. The Committee may grant
options to persons subject to Section 16(b) of the Exchange Act after an
amendment to the Plan by the Board of Directors requiring shareholder approval
under Section 19, but any such option shall become effective as of the date of
grant only upon such approval and, accordingly, no such option may be
exercisable prior to such approval. The Committee may terminate, amend or modify
any outstanding option without the consent of the option holder, provided,
however, that, except as provided in Section 11, without the consent of the
optionee, the Committee shall not change the number of shares subject to an
option, nor the exercise price thereof, nor extend the term of such option.
20. COMPLIANCE WITH RULE 16b-3.
It is intended that the provisions of the Plan and any option granted
hereunder to a person subject to the reporting requirements of Section 16(a) of
the Exchange Act shall comply in all respects with the terms and conditions of
Rule 16b-3 under the Exchange Act, or any successor provisions, to the extent
the Company has any equity security registered pursuant to Section 12 of the
Exchange Act. Any agreement granting options shall contain such provisions as
are necessary or appropriate to assure such compliance. To the extent that any
provision hereof is found not to be in compliance with such Rule, such provision
shall be deemed to be modified so as to be in compliance with such Rule, or if
such modification is not possible, shall be deemed to be null and void, as it
relates to a recipient subject to Section 16(a) of the Exchange Act.
21. RESERVATION OF STOCK.
The Company shall at all times during the term of the Plan reserve and keep
available such number of shares of stock as will be sufficient to satisfy the
requirements of the Plan and shall pay all fees and expenses necessarily
incurred by the Company in connection therewith.
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22. LIMITATION OF RIGHTS IN THE OPTION SHARES.
An optionee shall not be deemed for any purpose to be a shareholder of the
Company with respect to any of the options except to the extent that the option
shall have been exercised with respect thereto and, in addition, a certificate
shall have been issued theretofore and delivered to the optionee.
23. NOTICES.
Any communication or notice required or permitted to be given under the Plan
shall be in writing, and mailed by registered or certified mail or delivered by
hand, if to the Company, to its principal place of business, attention:
President, and, if to an optionee, to the address as appearing on the records of
the Company.
Approved by the Directors: February 12, 1997
Approved by the Stockholders:______________
9
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NETEGRITY, INC.
(FORMERLY KNOWN AS THE SOFTWARE DEVELOPER'S COMPANY, INC.)
The 1994 Stock Plan of NeTegrity, Inc., (the "Company" formerly known as The
Software Developer's Company, Inc.) is hereby amended as follows:
1. The number of shares of the Company's Common Stock per value $.01 per
share which may be issued to the 1994 Stock Plan is hereby increased from
1,500,000 to 2,000,000, and Section 4 of the 1994 Stock Plan is hereby
amended by replacing the number "1,500,000" therein with the number
"1,813,300."
2. Except as provided above, the Company's 1994 Stock Plan is hereby
restated and confirmed in all respects.
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NETEGRITY, INC.
/s/ BARRY N. BYCOFF
-----------------------------
Name: Barry N. Bycoff
Title: President
</TABLE>
Adopted by the Directors: February 12, 1997
Adopted by the Stockholders:________________________
<PAGE>
NETEGRITY, INC.
(FORMERLY KNOWN AS THE SOFTWARE DEVELOPER'S COMPANY, INC.)
AMENDMENT TO BY-LAWS
The Amended By-laws of NeTregrity, Inc. (the "Corporation;" formerly known
as The Software Developer's Company, Inc.) as amended and restated on October
15, 1987 and amended June 25, 1991 (the "Bylaws") are hereby amended as follows:
1. Section 10 of Article I is hereby deleted in its entirety. In addition,
the fourth sentence of Section 4 of Article VI is hereby deleted in its
entirety.
The Board of Directors believes that by requiring a meeting of
stockholders prior to stockholder action, corporate democracy and the
opportunity of all stockholders to participate in the governance of the
Company shall be enhanced.
2. Section 3 of Article I is hereby amended by replacing the first sentence
thereof with the sentence below:
"Special meetings of the stockholders, for any purpose or purposes, may,
unless otherwise prescribed by the statute or by the Certificate of
Incorporation, be called by the Board of Directors or the Chief Executive
Officer and shall be called by the Chief Executive Officer or Secretary at
the request in writing of a majority of the Board of Directors, at the
request in writing of stockholders owning at least thirty percent (30%)
amount of the entire capital stock of the corporation issued and outstanding
and entitled to vote."
The Board of Directors believe that the above amendment to the Bylaws
will ensure that the Company will incur the large expense of a stockholders
meeting only where a significant minority of stockholders so requests and
where any proposal submitted by stockholders requesting the meeting has a
reasonable chance of approval by all stockholders.
3. Article V of the Bylaws is hereby deleted in its entirety and a new
Article V in the form below is hereby inserted in its place:
ARTICLE V
INDEMNIFICATION
SECTION 5.1 THIRD PARTY ACTIONS. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (each an "Indemnitee"),
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding.
SECTION 5.2 DERIVATIVE ACTIONS. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or was a
Director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
<PAGE>
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit.
SECTION 5.3 EXPENSES. To the extent that a Director, officer, employee or
agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 5.1 and 5.2,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
SECTION 5.4 AUTHORIZATION AND REQUEST FOR INDEMNIFICATION.
(a) Any indemnification requested by the Indemnitee under Section 5.1
hereof shall be made no later than ten (10) days after receipt of the
written request of the Indemnitee, unless it shall have been adjudicated by
a court of final determination that the Indemnitee did not act in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
(b) Any indemnification requested by the Indemnitee under Section 5.2
hereof shall be made no later than ten (10) days after receipt of the
written request of the Indemnitee, unless it shall have been adjudicated by
a court of final determination that the Indemnitee did not act in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, the Indemnitee shall have been finally
adjudged to be liable to the Company by a court of competent jurisdiction
due to willful misconduct of a culpable nature in the performance of the
Indemnitee's duty to the Corporation unless and only to the extent that any
court in which such proceeding was brought shall determine upon application
that despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as such court shall deem proper.
SECTION 5.5 ADVANCE PAYMENT OF EXPENSES. Subject to Section 5.4 above, the
Corporation shall advance all expenses incurred by the Indemnitee in connection
with the investigation, defense, settlement or appeal of any proceeding to which
the Indemnitee is a party is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Corporation. The Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that the Indemnitee is not entitled to be
indemnified by the Corporation. The advances to be made hereunder shall be paid
by the Corporation to or on behalf of the Indemnitee within 30 days following
delivery of a written request therefor by the Indemnitee to the Corporation.
SECTION 5.6 NON-EXCLUSIVENESS. The indemnification provided by this Article
10 shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a Director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 5.7 INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a Director, officer,
employee or agent o the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred
2
<PAGE>
by him in any such capacity, or arising out of his status as such, whether or
not the Corporation would have the power to indemnify him against such liability
under the provisions of this Article V.
SECTION 5.8 CONSTITUENT CORPORATIONS. The Corporation shall have power to
indemnify any person who is or was a director, officer, employee or agent of a
constituent corporation absorbed in a consolidation or merger with this
Corporation or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, in the same manner as hereinabove
provided for any person who is or was a Director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
SECTION 5.9 ADDITIONAL INDEMNIFICATION. In addition to the foregoing
provisions of this Article V, the Corporation shall have the power, to the full
extent provided by law, to indemnify any person for any act or omission of such
person against all loss, cost, damage and expense (including attorney's fees) if
such person is determined (in the manner prescribed in Section 5.4 hereof) to
have acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interest of the Corporation.
The Board of Directors believe that it can better attract and retain
better directors and officers by offering indemnification protection which
(i) places the subjective decision of whether a director or officer merits
indemnification in the hands of the judicial system thereby ensuring that
the indemnification protection is waived only after appropriate deliberation
and (ii) allows the Company to provide insurance and to advance expenses
relation to the defense of indemnifiable actions.
Except as otherwise provided herein, the Bylaws are ratified and confirmed
in all respects.
Adopted by the Board of Directors: February 12, 1997
Adopted by the Stockholders:______________
3
<PAGE>
/ / PLEASE MARK VOTES AS IN THIS EXAMPLE
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1. Election of Directors: / / For / / Withhold / / For all Except
Nominees: Stephen L. Watson, Milton, J. Pappas, Barry N. Bycoff, Ralph B. Wagner, Michael L. Mark, Richard J.
Kosinski, and Eric R. Giler.
2. To amend the Company's By-Laws to eliminate the ability of the Company's Stockholders to act by consent without a
meeting.
/ / For / / Withhold / / Abstain
3. To amend the Company's By-Laws to provide that stockholders of the Company may call a special meeting of
stockholders only by written application by one or more stockholders who hold 30% in interest of the capital stock
of the Company entitled to vote thereat.
/ / For / / Withhold / / Abstain
4. To amend the Company's By-Laws to revise provisions regarding director and officer indemnification.
/ / For / / Withhold / / Abstain
5. To adopt and approve a 1997 Stock Option Plan (the "1997 Plan") pursuant to which 500,000 shares of the Company's
Common Stock shall be reserved for issuance subject to the 1997 Plan.
/ / For / / Withhold / / Abstain
6. To amend the Company's 1994 Stock Plan (the "1994 Plan") to increase the number of shares of Common Stock reserved
for issuance subject to said Plan to 2,00,000.
/ / For / / Withhold / / Abstain
7. In their discretion, the proxies are authorized to vote upon such business as may properly come before the meeting.
/ / For / / Withhold / / Abstain
</TABLE>
RECORD DATE SHARES: I plan to attend in person / / I do not plan to attend in
person / /
Please be sure to sign and date this Proxy. Date: ________________________
Mark box at right if comments or address change have been noted on the reverse
side of this card / /
Shareholder sign here ________________________ Co-owner sign
here ________________________
<PAGE>
DETACH CARD
NETEGRITY, INC.
DEAR STOCKHOLDER:
PLEASE TAKE NOTE OF THE IMPORTANT INFORMATION ENCLOSED with this Proxy ballot.
There are some issues related to the management and operation of your Company
that require your attention and approval. These are discussed in detail in the
enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on the proxy card to indicate how your shares shall be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the 1997 Annual Meeting of Stockholders,
April 9, 1997.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
NeTegrity, Inc.
<PAGE>
PROXY NETEGRITY, INC. PROXY
1996 ANNUAL MEETING OF STOCKHOLDERS
APRIL 9, 1997
The undersigned hereby appoints Barry N. Bycoff and James O'Connor, Jr., and
each of them, with full power and substitution, proxies to represent the
undersigned at the 1996 Annual Meeting of Stockholders of NeTegrity, Inc. to be
held on April 9, 1997at 9:00 a.m., at the offices of Hutchins, Wheeler &
Dittmar, 101 Federal Street, Boston, Massachusetts, and at any adjournment or
adjournments thereof, to vote in the name and place of the undersigned, with all
powers which the undersigned would possess if personally present, all the shares
of NETEGRITY, INC. standing in the name of the undersigned upon such business as
may properly come before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF DIRECTORS. THE BOARD RECOMMENDS AN
AFFIRMATIVE VOTE ON ALL PROPOSALS SPECIFIED. SHARES WILL BE VOTED AS SPECIFIED.
IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED WILL BE VOTED FOR THE
ELECTION OF THE DIRECTORS AS SET FORTH IN THE PROXY STATEMENT.
PLEASE VOTE, DATE, AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED
ENVELOPE
Please sign exactly as your name(s) appear(s) on the Proxy. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person
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HAS YOUR ADDRESS CHANGED? DO YOU HAVE COMMENTS?
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