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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
SOFTWARE ARTISTRY, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1731589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
9449 PRIORITY WAY WEST DRIVE
INDIANAPOLIS, INDIANA 46240
(Address of principal executive offices)
SOFTWARE ARTISTRY, INC. AMENDED & RESTATED
INCENTIVE STOCK OPTION PLAN
(Full title of the Plan)
THOMAS E. VANNEMAN, Chief Financial Officer
Software Artistry, Inc.
9449 Priority Way West Drive
Indianapolis, IN 46240
(317) 843-1663
(Name, address and telephone number, including area code, of agent for service)
with a copy to:
O. WAYNE DAVIS, Esq.
Henderson, Daily, Withrow & DeVoe
2600 One Indiana Plaza
Indianapolis, IN 46204
(317) 639-4121
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of Securities Amount Offering Aggregate Amount of
to be Registered to be Price Per Offering Registration
Registered Unit (1) Price (1) Fee
Common Stock,
no par value (2) 200,000 $13 11/16 $2,737,500 $830.00
shares
(1) Pursuant to Rule 457(c) and (h)(1), the Registration Fee has been
calculated based on the average of the high and low prices per share of Common
Stock of Software Artistry, Inc. as reported by NASDAQ National Market System on
August 11, 1997.
(2) The amount being registered represents the maximum number of shares of
Common Stock that may be issued by the Registrant upon the exercise of
additional options which may be granted under the Amended and Restated Incentive
Stock Option Plan (the "Plan") pursuant to the amendment to the Plan which
increased the number of shares available for issuance upon the exercise of stock
options under the Plan by 200,000 shares. Pursuant to Rule 416, there are also
being registered additional shares of Common Stock as may become issuable
pursuant to the anti-dilution provisions of such plan.
EXPLANATORY NOTE
This Registration Statement relates to the amendment of the Plan to
increase the number of shares available for issuance upon the exercise of
stock options under the Plan from 1,875,000 to 2,075,000 (an increase of
200,000 shares). The content of the Registration Statement on Form S-8,
Registration No. 33-90802 filed with the Securities and Exchange Commission
on March 30, 1995 registering 1,875,000 shares is hereby incorporated by
reference.
PART I--INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
Item 1. Plan Information*
Item 2. Information and Plan Annual Information.*
* Information required by Part I to be contained in the Section 10(a)
prospectus is omitted from this Registration Statement in accordance with Rule
428 under the Securities Act of 1933 and the Note to Part I of Form S-8.
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PART II--INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents are hereby incorporated by reference in this
Registration Statement and are deemed to be a part hereof from the date of
filing such documents by Software Artistry, Inc. (the "Corporation"):
(a) The Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996;
(b) The Corporation's Quarterly Report on Form 10-Q for the quarter
June 30, 1997.
All documents subsequently filed by the registrant pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as
amended, prior to the filing of a post-effective amendment which indicates
that all securities offered have been sold or which deregisters all
securities then remaining unsold, shall be deemed to be incorporated by
reference in this Registration Statement and to be a part hereof from the
date of filing of such documents. Any statement contained herein or in a
document, all or a portion of which is incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Registration
Statement to the extent that a statement contained in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Registration Statement.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable.
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ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 23-1-37-1--23-1-37-15 of the Indiana Business Corporation Law
permits a corporation to indemnify directors and officers against liability
incurred in certain proceedings if the individual's conduct was in good faith
and the individual reasonably believed, in the case of conduct in the
individual's official capacity, that such conduct was in the best interests
of the corporation and, in all other cases, believed such conduct was at
least not opposed to the best interests of the corporation. If the
proceeding is criminal, the individual must have had either (a) no reasonable
cause to believe that such conduct was unlawful or (b) reasonable cause to
believe the conduct was lawful. The statute requires a corporation to
indemnify an individual who is wholly successful in the defense of any such
proceeding against reasonable expenses incurred by such individual, unless
the Articles of Incorporation provide otherwise. The corporation may pay for
or reimburse the reasonable expenses incurred by a director or officer who is
a party to a proceeding in advance of final disposition of the proceeding if
certain conditions are satisfied. Unless otherwise provided in Articles of
Incorporation, a director or officer may apply for court ordered
indemnification which will include reasonable expenses incurred to obtain the
indemnification which will include reasonable expenses incurred to obtain the
indemnification order if the court determines that the director is entitled
to mandatory indemnification or that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances.
Except in the case of mandatory indemnification, a corporation may indemnify
a director or officer only after it is determined that the individual meets
the standard of conduct described above. In addition, a corporation may also
indemnify and advance expenses to an officer, whether or not a director, to
the extent, consistent with public policy, that may be provided by its
articles of incorporation, by-laws, general or specific action of its Board
of Directors or Contract. Section 23-1-37-14 of the Indiana Business
Corporation Law empowers an Indiana corporation to purchase and maintain
insurance on behalf of any director or officer against any liability asserted
against, or incurred by, such individual in any such capacity or arising out
of his or her status as such, whether or not the corporation would have had
the power to indemnify against such liability.
The Restated By-Laws of the Registrant require the Registrant to
indemnify any person who is or was a director, officer or employee of the
Registrant or agent of any other corporation, partnership, joint venture,
trust or other enterprise (collectively, "Agent") against any and all
liabilities and reasonable expense incurred by such person in connection with
or resulting from any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact that such person is or was a director, officer or other employee of the
Registrant or Agent, or is or was serving at the request of the Registrant as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, provided that it is determined:
(i) that such person's conduct was in good faith; (ii) such person reasonably
believed his conduct was in or not opposed to the best interests of the
Registrant' and (iii) in the case of criminal proceedings, such person
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had no reasonable cause to believe his conduct was unlawful. The Restated
By-Laws of the Registrant also set forth that the directors of the Company
shall be entitled to the fullest indemnification by the Company permitted
under applicable law.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not Applicable.
ITEM 8. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------
5 Opinion of Counsel
10.1 Amended & Restated Incentive Stock Option Plan
23.1 Consent of Ernst & Young LLP
23.3 Legal Counsel Consent (Contained in Exhibit 5)
ITEM 9. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes (1) to file, during
any period in which offers or sales are being made, a post-effective
amendment to this registration statement (i) to include any prospectus
required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement; (iii) to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement; provided, however, that
paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required
to be included in a post-effective amendment by those clauses is contained in
periodic reports filed by the Registrant pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement; (2) that, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and (3) to
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
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(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions
set forth in Item 6, the Plan or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Indianapolis, State of Indiana on
the 12th day of August 1997.
SOFTWARE ARTISTRY, INC.
By: /s/ Thomas E. Vanneman
-----------------------------------
(Thomas E. Vanneman)
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under "SIGNATURES" constitutes and appoints W. Scott Webber, and Thomas
Vanneman, his true and lawful attorneys-in-fact and agents, each acting
alone, with full powers of substitution and resubstitution, for him and in
his name, place and
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stead, in any and all capacities, to sign any or all amendments to this
registration statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ W. Scott Webber President, Chief Executive August 14, 1997
- - ---------------------------- Officer and Director
W. Scott Webber (PRINCIPAL EXECUTIVE OFFICER)
/s/ Thomas E. Vanneman Chief Financial Officer and August 14, 1997
- - ---------------------------- Secretary
Thomas E. Vanneman (CHIEF FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER)
/s/ Joseph A. Piscopo Chairman of the Board August 14, 1997
- - ---------------------------- of Directors
Joseph A. Piscopo
/s/ Jerry Baker Director August 14, 1997
- - ----------------------------
Jerry Baker
/s/ Lawrence W. Olson Director August 14, 1997
- - ----------------------------
Lawrence W. Olson
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EXHIBIT 5 - OPINION OF COUNSEL
August 12, 1997
Software Artistry, Inc.
9449 Priority Way West Drive
Indianapolis, Indiana 46240
Ladies and Gentlemen:
In connection with Post Effective Amendment No. 1 ("Amendment No. 1") to
the Registration Statement on Form S-8, Registration No. 33-90802, by
Software Artistry, Inc. (the "Company") for the purpose of registering under
the Securities Act of 1933 up to an additional 200,000 shares of common stock
of the Company under its Amended and Restated Incentive Stock Option Plan
(the "Plan"), we have examined the Company's Third Amended and Restated
Articles of Incorporation and its Restated Code of By-laws, applicable
resolutions adopted by the Board of Directors of the Company and such other
documents and records as we have deemed necessary for the giving of this
opinion, including the Registration Statement and the Plan. Based on our
examination, we are of the opinion that, as of the date hereof:
(1) The Company has been duly formed and is validly existing as a
corporation under the laws of the State of Indiana.
(2) The shares of common stock covered by the Plan and Amendment No. 1
have been duly authorized by all requisite corporate action.
(3) With respect to the shares of common stock covered by the Plan and
Amendment No. 1, such shares, when issued in accordance with the terms and
provisions for their issuance, will be fully paid and non-assessable.
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We hereby consent to the filing of this opinion as an exhibit to Amendment
No. 1.
Very truly yours,
/s/ Henderson, Daily, Withrow & DeVoe
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EXHIBIT 10.1 - AMENDED & RESTATED INCENTIVE STOCK OPTION PLAN
SOFTWARE ARTISTRY, INC.
AMENDED AND RESTATED
INCENTIVE STOCK OPTION PLAN
(Amended and Restated December 9, 1994)
1. PURPOSES OF THE PLAN. The purposes of this Incentive Stock
Option Plan are to attract and retain the best available personnel,
to provide additional incentive to the Employees of Software
Artistry, Inc. (the "Company") and to promote the success of the
Company's business.
2. DEFINITIONS. As used herein, the following definitions
shall apply:
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean Software Artistry, Inc., an Indiana
corporation.
(e) "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence
of any interruption or termination of service as an Employee.
Continuous Status as an Employee shall not be considered interrupted
in the case of sick leave, military leave, or any other leave of
absence approved by Company management; provided that such leave is
for a period of not more than 90 days or reemployment upon the
expiration of such leave is guaranteed by contract or statute.
(f) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of
the Company. The payment of a director's fee by the Company shall
not be sufficient to constitute "employment" by the Company.
(g) "INCENTIVE STOCK OPTION" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section
422A of the Code.
(h) "OPTION" shall mean a stock option granted pursuant to the
Plan.
(i) "OPTIONED STOCK" or "Option Shares" shall mean the Common
Stock subject to an Option.
(j) "OPTIONEE" shall mean an Employee who receives an Option.
(k) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 425(e) of the Code.
(l) "PLAN" shall mean this Incentive Stock Option Plan.
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(m) "SHARE" shall mean a share of the Common Stock, as
adjusted in accordance with Section 10 of the Plan.
(n) "SUBSIDIARY" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 425(f) of
the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 10 of the Plan, the maximum aggregate number of shares under
the Plan is 1,500,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock. If any Option
should expire or become unexercisable for any reason without having
been exercised in full, then the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated,
become available for future grant or sale under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board of
Directors of the Company.
(b) POWERS OF THE BOARD. Subject to the provisions of the
Plan, the Board shall have the authority, in its discretion: (i) to
grant Incentive Stock Options (ii) to determine, upon review of
relevant information and in accordance with Section 7 of the Plan,
the fair market value of the Common Stock; (iii) to determine the
exercise price per share of Options to be granted, which exercise
price shall be determined in accordance with Section 7 of the Plan;
(iv) to determine the Employees to whom, and the time or times at
which, Options shall be granted and the number of shares to be
represented by each Option; (v) to interpret the Plan; (vi) to
prescribe, amend and rescind rules and regulations relating to the
Plan; (vii) to determine the terms and provisions of each Option
granted (which need not be identical) and, with the consent of the
holder thereof, modify or amend each Option; (viii) to accelerate or
defer (with the consent of the Optionee) the exercise date of any
Option, consistent with the provisions of Section 5 of the Plan;
(ix) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously
granted by the Board; and (x) to make all other determinations
deemed necessary or advisable for the administration of the Plan.
(c) VESTING OF OPTIONS. Unless otherwise determined by the
Board and set forth in the option agreement, Options shall become
exercisable for (i) 20% of the Option Shares on the first
anniversary of the date of grant, (ii) 20% of the Option Shares on
the second anniversary of the date of grant, (iii) 20% of the Option
Shares on the third anniversary of the date of grant, (iv) 20% of
the Option Shares on the fourth anniversary of the date of grant,
and (v) 20% of the Option Shares on the fifth anniversary of the
date of grant.
The Options granted herein shall become exercisable for the
entire Option Shares (to the extent not previously vested or
exercised) immediately prior to the consummation of any of the
following events: (i) the sale or transfer by the Company of all or
substantially all of its assets; (ii) the sale or exchange in one
transaction of outstanding shares of the Company having at least
two-thirds (2/3) of the total number of votes that may be cast for
the election of the Board of Directors of the Company; (iii) any
cash tender offer or exchange offer, contested election, or any
combination of the foregoing transactions, as a result of which the
persons who are Directors of the Company before the transaction
shall cease to constitute a majority of the Board of Directors of
the Company or any successor to the Company; or (iv) any
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merger or other business combination or similar action of the Company in
which the Shareholders of the Company receive less than fifty percent (50%)
voting interest in the new continuing entity. In the event and to the extent
an Optionee does not exercise an Option upon occurrence of one of the events
described in subparagraphs (i), (ii), (iii) and (iv) above, then such Option
shalllapse upon consummation of such event.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations
and interpretations of the Board shall be final and binding on all
Optionees and any other holders of any Options granted under the
Plan.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
An Employee who has been granted an Option may, if such Employee is
otherwise eligible, be granted additional Option(s).
(b) No Incentive Stock Option may be granted to an Employee
which, when aggregated with all other incentive stock options
granted to such Employee by the Company or any Parent or Subsidiary,
would result in Shares having an aggregate fair market value
(determined for each Share as of the date of grant of the Option
covering such Share) in excess of $100,000 becoming first available
to purchase upon exercise of one or more incentive stock options
during any calendar year.
(c) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment by the Company, nor shall it
interfere in any way with his or her right or the Company's right to
terminate his or her employment or services at any time, with or
without cause.
6. TERM OF PLAN. The Plan shall become effective upon the
earlier to occur of its adoption by the Board of Directors or its
approval by the shareholders of the Company. It shall continue in
effect for a term of ten (10) years unless sooner terminated under
Section 12 of the Plan.
7. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is
determined by the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock
of the Company or any Parent or Subsidiary, the per Share exercise
price shall be no less than 110% of the fair market value per Share
on the date of grant.
(B) granted to any Employee, the per Share exercise
price shall be no less than 100% of the fair market value per Share
on the date of grant.
(b) The fair market value shall be determined by the Board in
its discretion; provided, however, that where there is a public
market for the Common
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Stock, the fair market value per Share shall be the mean of the bid and asked
prices (or the closing price per share if the Common Stock is listed on the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System) of the Common Stock for the date of grant, as
reported in the Wall Street Journal (or, if not so reported, as otherwise
reported by the NASDAQ System) or, in the event the Common Stock is listed on
a stock exchange, the fair market value per Share shall be the closing price
on such exchange on the date of grant of the Option, as reported in the Wall
Street Journal.
(c) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall
be determined by the Board and may consist entirely of cash, check,
promissory note, other Shares of Common Stock having a fair market
value on the date of surrender equal to the aggregate exercise price
of the Shares as to which said Option shall be exercised, or any
combination of such methods of payment, or such other consideration
and method of payment for the issuance of Shares to the extent
permitted under the Indiana Business Corporation Law.
8. OPTIONS.
(a) TERM OF OPTION. The term of each Incentive Stock Option
shall be ten (10) years from the date of grant thereof or such
shorter term as may be provided in the Incentive Stock Option
Agreement. However, in the case of an Option granted to an Employee
who, at the time the Option is granted, owns stock representing more
than ten percent (l0%) of the voting power of all classes of stock
of the Company or any Parent or Subsidiary, the term of the Option
shall be five (5) years from the date of grant thereof or such
shorter time as may be provided in the Stock Option Agreement.
(b) EXERCISE OF OPTION.
(i) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any
Option granted hereunder shall be exercisable at such times and
under such conditions as determined by the Board, including
performance criteria with respect to the Company and/or the
Optionee, and as shall be permissible under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the
Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company. Full payment
may, as authorized by the Board, consist of any consideration and
method of payment allowable under Section 7 of the Plan. Until the
issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of
the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan.
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Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised.
(ii) TERMINATION OF STATUS AS AN EMPLOYEE. In the event
of termination of an Optionee's Continuous Status as an Employee,
the Employee may, but only within thirty (30) days after the date of
such termination (but in no event later than January 28, 2001),
exercise the Options to the extent that the Employee was entitled to
exercise the Options at the date of such termination. To the extent
that the Employee was not entitled to exercise the Options at the
date of such termination, or if the Employee does not exercise such
Options (which the Employee was entitled to exercise) within the
time specified herein, the Options shall terminate.
(iii) DISABILITY OF OPTIONEE. Notwithstanding the
provisions of Section 8(b)(ii) above, in the event of termination of
an Optionee's Continuous Status as an Employee as a result of such
Employee's total and permanent disability (as defined in Section
22(e)(3) of the Code), such Employee may, but only within six (6)
months (or such other period of time not exceeding twelve (12)
months as is determined by the Board, with such determination being
made at the time of grant of the Option) from the date of such
termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement),
exercise the Option to the extent such Employee was entitled to
exercise it at the date of such termination. To the extent such
Employee was not entitled to exercise the Option at the date of
termination, or if such Employee does not exercise such Option
(which such Employee was entitled to exercise) within the time
specified herein, the Option shall terminate.
(iv) DEATH OF OPTIONEE. In the event of the death of an
Optionee during the term of the Option who is at the time of his or
her death an Employee of the Company and who shall have been in
Continuous Status as an Employee since the date of grant of the
option, the Option may be exercised, at any time within six (6)
months (or such other period of time as is determined by the Board
at the time of grant of the Option) following the date of death (but
in no event later than the date of expiration of the term of such
Option as set forth in the Option Agreement), by the Optionee's
estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued living
and remained in Continuous Status as an Employee six (6) months (or
such other period of time as is determined by the Board at the time
of grant of the Option) after the date of death, subject to the
limitation set forth in Section 5(b).
9. NON-TRANSFERABILITY OF OPTIONS. The Options may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of
in any manner other than by will or by the laws of descent or
distribution and may be exercised during the lifetime of the
Optionee only by the Optionee.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
Subject to any required action by the shareholders of the Company,
the number of shares of Common Stock covered by each outstanding
Option and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options
have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per
share of
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Common Stock covered by each such outstanding Option, shall
be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock of the Company or the payment
of a stock dividend with respect to the Common Stock or any other
increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities
of the Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by the
Board, whose determination in that respect shall be final, binding
and conclusive. 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 of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Option will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by
the Board. The Board may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a date
fixed by the Board and give each Optionee the right to exercise his
or her Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable.
In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into
another corporation, the Board shall provide for the Optionee to
have the right to exercise the Option as to all of the Optioned
Stock, including Shares as to which the Option would not otherwise
be exercisable. The Board shall notify the Optionee that the Option
shall be fully exercisable and the Option will terminate upon the
consummation of such sale or merger.
11. TIME OF GRANT. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination
granting such Option. Notice of the determination shall be given to
each Employee to whom an Option is so granted within a reasonable
time after the date of such grant.
12. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend
or terminate the Plan from time to time in such respects as the
Board may deem advisable; provided that the following revisions or
amendments shall require approval of the shareholders of the Company
in the manner described in Section 16 of the Plan:
(i) any increase in the number of Shares
subject to the Plan, other than in connection with an adjustment
under Section 10 of the Plan;
(ii) any change in the designation of the class
of persons eligible to be granted Options; or
(iii) if the Company has a class of equity
securities registered under Section 12 of the Securities Exchange
Act of 1934 (the "Exchange Act") at the time of such revision or
amendment, any material increase in the benefits accruing to
participants under the Plan.
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(b) SHAREHOLDER APPROVAL. If any amendment
requiring shareholder approval under Section 12(a) of the Plan is
made subsequent to the first registration of any class of equity
securities by the Company under Section 12 of the Exchange Act, such
shareholder approval shall be solicited as described in Section 16
of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such
amendment or termination of the Plan shall not affect Options
already granted and such Options shall remain in full force and
effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which
agreement must be in writing and signed by the Optionee and the
Company.
13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of
such Option and the issuance and delivery of such Shares pursuant
thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant
at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the
Company, such a representation is required by any of the
aforementioned relevant provisions of law.
14. RESERVATION OF SHARES. The Company, during the terms of
this Plan, will at all times reserve and keep available such number
of Shares as shall be sufficient to satisfy the requirements of the
Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by
the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as
to which such requisite authority shall not have been obtained.
15. OPTION AGREEMENTS. Options shall be evidenced by written
option agreements in such form as the Board shall approve.
16. SHAREHOLDER APPROVAL.
(a) Continuance of the Plan shall be subject to approval
by the shareholders of the Company within twelve (12) months before
or after the date the Plan is adopted.
(b) If and in the event that the Company registers any
class of equity securities pursuant to Section 12 of the Exchange
Act, any required approval of the shareholders of the Company
obtained after such registration shall be solicited substantially in
accordance with Section 14(a) of the Exchange Act and the rules and
regulations promulgated thereunder.
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17. INFORMATION TO OPTIONEES. The Company shall provide to
each Optionee, immediately prior to the exercise of an Option, a
copy of the most recent annual financial statement of the Company,
and copies of all other information provided to shareholders of the
Company at the last most recent annual meeting held prior to
exercise. The Company shall not be required to provide such
information to key employees whose duties in connection with the
Company assure their access to equivalent information.
AMENDMENT TO THE INCENTIVE STOCK OPTION PLAN
The Incentive Plan currently provides that options to acquire
an aggregate of 1,875,000 shares of Common Stock may be granted
thereunder. The Incentive Plan was amended and restated on
December 9, 1994, and approved by the shareholders of the
Corporation December 9, 1994.
SUMMARY OF AMENDMENT
The Board of Directors has amended the Incentive Plan to
provide for the issuance of options to acquire an additional
200,000 shares of Common Stock (for an aggregate of 2,075,000
shares of Common Stock) and directed that this amendment be
submitted to the shareholders of the Corporation for their
approval. As of December 31, 1996, options to purchase 1,795,067
shares of Common Stock have been granted under the Incentive Plan.
The approval of the increase in the number of shares of Common
Stock available for grant under the Incentive Plan will require the
affirmative vote of a majority of the shares of Common Stock and
entitled to vote at the Annual Meeting. If not approved by
shareholders at the Annual Meeting, certain grants made under the
Incentive Plan during and after the last fiscal year may be null
and void. Under the Incentive Plan, stock options may be granted
only to full-time employees of the Company and its subsidiaries,
including officers.
SUMMARY OF MATERIAL PROVISIONS OF THE INCENTIVE PLAN
GENERAL. The Incentive Plan is intended to provide continuing
long-term incentives to selected eligible key employees, including
officers, to provide a means of rewarding outstanding performance
by such individuals, and to enable the Company to attract and
retain key personnel. See also "Executive Compensation."
ADMINISTRATION. The Incentive Plan is administered by the
Board of Directors or a committee appointed thereby, a majority of
the members of which must be members of the Board and none of whom
are eligible to participate in the Incentive Plan. The Board or
committee may interpret the Incentive Plan and, subject to its
provisions, may prescribe, amend and rescind rules and make all
other determinations necessary or desirable for the administration
of the Incentive Plan. Subject to certain limits set forth in the
Incentive Plan, the Board or committee has complete discretion to
select participants, establish the manner in which options are
granted and exercised, and otherwise prescribe all of the terms and
provisions of options granted under the Incentive Plan.
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ELIGIBILITY. Only full-time employees, including officers,
of the Company and its subsidiaries are eligible to participate in
the Incentive Plan. As of December 31, 1996, the Company and its
subsidiaries had approximately 237 full-time employees.
STOCK SUBJECT TO INCENTIVE PLAN. The Incentive Plan covers an
aggregate of 1,875,000 shares of Common Stock (as adjusted for a 5
for 4 stock split in January 1995). As of December 31, 1996,
options for 1,795,067 shares of Common Stock had been granted under
the Incentive Plan. The Board of Directors shall make appropriate
adjustments in the number of shares subject to the Incentive Plan
and outstanding options in the event of a recapitalization,
reclassification, stock split, combination of shares (reverse stock
split) or dividend or other distribution payable in Common Stock
after the Incentive Plan becomes effective.
VESTING AND TERM. Before December 10, 1996, options granted
under the Incentive Plan generally vest and become exercisable at
the rate of 20% of the option shares on the first, second, third,
fourth and fifth anniversary date of the grant conditioned upon
continued employment with the Company. Options granted after
December 10, 1996 are exercisable over a two year period, 25% every
six months. Vesting is accelerated and options become exercisable
in the event of a "change of control" of the Company as defined in
the Incentive Plan. The options generally have a term of ten years
(five years for employees owning more than 10% of the Company's
Common Stock) from the date of grant.
AMENDMENT. The Incentive Plan may be amended by the Board of
Directors except that, without shareholder approval, no amendment
shall increase the number of shares available under the Incentive
Plan except for certain specified adjustments, change the
designation of the class of persons eligible to be granted options
under the Incentive Plan, or materially increase the benefits
accruing to participants under the Incentive Plan.
FEDERAL TAX CONSEQUENCES. Options under the Incentive Plan
are intended to qualify as "incentive stock options" within the
meaning of section 422 of the Internal Revenue Code. In accordance
with section 422 of the Code, the term of any option granted under
the Incentive Plan may not exceed ten (10) years. With respect to
any employee who owns stock possessing more than ten percent (10%)
of the voting power of the outstanding stock of the Company, the
term of any option may be no longer than five (5) years. The
aggregate fair market value of the Common Stock (determined at the
date of the option grant) with respect to which incentive stock
options are exercisable for the first time by any individual during
any calendar year may not exceed $100,000. The exercise price of
all options granted under the Incentive Plan must not be less than
the fair market value per share on the date of grant (unless the
Optionee owns ten percent (10%) or more of the voting power of the
outstanding stock
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of the Company in which case the exercise price must not be less than one
hundred ten percent (110%) of the fair market value per share on the date of
grant).
The grant and exercise of an option under the Incentive Plan does
not result in taxable income to the Optionee provided that the
Optionee observes the following holding periods and restrictions.
In order for the option to be a qualified incentive option, the
Optionee must hold the stock acquired pursuant to the option for a
period of two (2) years from the date of the option grant and one
(1) year from the date of the option exercise. Any failure to
satisfy the holding periods and restrictions results in the loss of
the qualified status of the option and such option would be treated
as a nonqualified option. Provided that the Optionee observes the
aforementioned holding periods, the sale of the option stock by the
Optionee results in taxable long-term capital gain income to the
Optionee in an amount equal to the difference between the option
sales and the option exercise price.
The Incentive Plan is not a stock bonus, pension or profit-sharing plan
and is not subject to or qualified under section 401(a) of the Internal
Revenue Code or any or the provisions of the Employment Retirement Income
Security Act of 1974 ("ERISA").
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EXHIBIT 23.1 - CONSENT OF ERNST & YOUNG LLP
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration
Statement on Form S-8 pertaining to the Software Artistry, Inc. Amended &
Restated Incentive Stock Option Plan of our report dated January 27, 1997,
with respect to the consolidated financial statements and schedule of
Software Artistry, Inc. included in its Annual Report (Form 10-K) for the
year ended December 31, 1996, filed with Securities and Exchange Commission.
ERNST & YOUNG LLP
Indianapolis, Indiana
August 13, 1997
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