<PAGE>
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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:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
MERCURY INTERACTIVE CORPORATION
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
MERCURY INTERACTIVE CORPORATION
------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 26, 1999
TO THE STOCKHOLDERS OF MERCURY INTERACTIVE CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of MERCURY
INTERACTIVE CORPORATION (the "Company"), a Delaware corporation, will be held at
10:00 a.m., local time, on May 26, 1999, at the Company's corporate offices at
1325 Borregas Avenue, Sunnyvale, California 94089, for the following purposes:
1. To elect five (5) directors to serve for the ensuing year and until
their successors are elected.
2. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of Common Stock of
the Company to 120,000,000.
3. To ratify and approve the amendment of the 1999 Stock Option Plan to
increase the number of shares reserved by an additional 1,850,000 shares of
Common Stock for issuance under the 1999 Stock Option Plan.
4. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for the year ending December 31, 1999.
5. To transact such other business as may properly come before the meeting
or any postponements or adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 31, 1999 are
entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in person;
however, to ensure your representation at the meeting you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage prepaid envelope enclosed for that purpose. YOU MAY REVOKE YOUR PROXY IN
THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AT ANY TIME BEFORE IT
HAS BEEN VOTED AT THE ANNUAL MEETING. ANY STOCKHOLDER ATTENDING THE ANNUAL
MEETING MAY VOTE IN PERSON EVEN IF HE OR SHE HAS RETURNED A PROXY.
By Order of the Board of Directors,
/s/ Sharlene Abrams
-----------------------
Sharlene Abrams
Secretary
Sunnyvale, California
April 20, 1999
<PAGE>
MERCURY INTERACTIVE CORPORATION
PROXY STATEMENT FOR THE
MERCURY INTERACTIVE CORPORATION
1999 ANNUAL MEETING OF STOCKHOLDERS
------------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of MERCURY INTERACTIVE CORPORATION
(the "Company") for use at the Annual Meeting of Stockholders to be held on May
26, 1999 at 10:00 a.m. local time, or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Stockholders. The Annual Meeting will be held at the Company's
corporate offices at 1325 Borregas Avenue, Sunnyvale, California 94089. The
telephone number at that location is (408) 822-5200. When proxies are properly
dated, executed and returned, the shares they represent will be voted at the
meeting in accordance with the instructions of the stockholder. If no specific
instructions are given, the shares will be voted for the election of the
nominees for directors set forth herein, for the ratification of the appointment
of PricewaterhouseCoopers LLP as independent auditors as set forth herein, and
at the discretion of the proxyholders, upon such other business as may properly
come before the meeting or any adjournment or postponement thereof.
These proxy solicitation materials and the Annual Report to Stockholders for
the year ended December 31, 1998, including financial statements, were first
mailed on or about April 21, 1999, to all stockholders entitled to vote at the
meeting.
Record Date and Voting Securities
Stockholders of record at the close of business on March 31, 1999 are entitled
to notice of and to vote at the meeting. At the record date, 37,081,930 shares
of the Company's Common Stock, $0.002 par value, were issued and outstanding. No
shares of the Company's Preferred Stock were outstanding.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company at or before the taking of the vote at the
Annual Meeting a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of the Company at or before the taking of the
vote at the Annual Meeting, or (iii) attending the Annual Meeting and voting in
person (although attendance at the Annual Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be delivered to MERCURY INTERACTIVE CORPORATION at 1325
Borregas Avenue, Sunnyvale, California 94089, Attention: Secretary, or hand-
delivered to the Secretary of the Company at or before the taking of the vote at
the Annual Meeting.
Voting and Solicitation
On all matters, each share has one vote.
The cost of soliciting proxies will be borne by the Company and is estimated
to be $8,500. The Company has retained Innisfree M&A, Incorporated to assist in
its solicitation of proxies from brokers, nominees, institutions and
individuals. Arrangements will also be made with custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of shares held of record by such custodians, nominees and fiduciaries. The
Company will reimburse such custodians, nominees and fiduciaries for reasonable
expenses incurred in
<PAGE>
connection therewith. In addition, proxies may be solicited by directors,
officers and employees of the Company in person or by telephone, telegram or
other means of communication. No additional compensation will be paid for such
services.
Quorum; Abstentions; Broker Non-Votes
The required quorum for the transaction of business at the Annual Meeting is a
majority of the votes eligible to be cast by holders of shares of Common Stock
issued and outstanding on the Record Date. Shares that are voted "FOR,"
"AGAINST," or "WITHHELD FROM" on a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as shares
entitled to vote at the Annual Meeting (the "Votes Cast") with respect to such
matter.
While there is no definitive statutory or case law authority in Delaware as to
the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal (other than the election of directors). In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
as a vote against the proposal.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme
Court held that, while broker non-votes should be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
broker non-votes should not be counted for purposes of determining the number of
Votes Cast with respect to the particular proposal on which the broker has
expressly not voted. Accordingly, the Company intends to treat broker non-votes
in this manner. Thus, a broker non-vote will not affect the outcome of the
voting on a proposal.
Stockholder Proposals for Next Annual Meeting
The Company currently intends to hold its 2000 Annual Meeting of Stockholders
in mid-May 2000 and to mail Proxy Statements relating to such meeting in mid-
April 2000. The date by which stockholder proposals must be received by the
Company for inclusion in the Proxy Statement and form of proxy for its 2000
Annual Meeting of Stockholders, is December 22, 1999. Such stockholder proposals
should be submitted to MERCURY INTERACTIVE CORPORATION at 1325 Borregas Avenue,
Sunnyvale, California 94089, Attention: Secretary. Stockholder proposals
related to the Company's 2000 Annual Meeting of Stockholders, but submitted
outside the processes of Rule 14a-8 under the Securities Exchange Act of 1934,
must be received by the Company prior to March 8, 2000 in order to withhold
authority of management proxies to use their discretionary voting authority with
respect to any such proposal.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees
The Company currently has five (5) directors. A board of five (5) directors is
to be elected at the Annual Meeting. Unless otherwise instructed, the
proxyholders will vote the proxies received by them for management's five (5)
nominees named below, all of whom are presently directors of the Company. In the
event that any management nominee is unable or declines to serve as a director
at the time of the Annual Meeting, the proxies will be voted for a nominee who
shall be designated by the present Board of Directors to fill the vacancy. In
the event that additional persons are nominated for election as directors, the
proxyholders intend to vote all proxies received by them in such a manner as
will assure the election of as many of the nominees listed below as possible,
and, in
<PAGE>
such event, the specific nominees to be voted for will be determined by the
proxyholders. The Company is not aware of any nominee who will be unable or will
decline to serve as a director. The term of office for each person elected as a
director will continue until the next annual meeting of the stockholders or
until such director's successor has been duly elected and qualified.
Vote Required
The five nominees receiving the highest number of affirmative votes of the
shares entitled to be voted shall be elected to the Board of Directors. An
abstention will have the same effect as a vote withheld for the election of
directors, and pursuant to Delaware law, a broker non-vote will not be treated
as voting in person or by proxy on the proposal.
The Board of Directors recommends that stockholders vote FOR the nominees
listed below.
The names of the nominees and certain information about them as of March 1,
1999 are set forth below:
<TABLE>
<CAPTION>
Director
Name of Nominee Age Position(s) with the Company Since
--------------- --- ---------------------------- --------
<S> <C> <C> <C>
Aryeh Finegold(1)............................ 52 Chairman of the Board of Directors 1989
Igal Kohavi(2)(3)............................ 59 Director 1994
Amnon Landan(1).............................. 40 President, Chief Executive Officer and Director 1996
Yair Shamir(2)(3)............................ 53 Director 1994
Giora Yaron(2)(3)............................ 50 Director 1996
</TABLE>
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(1) Member of the Stock Option Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Mr. Aryeh Finegold, a founder of the Company, has served as Chairman of the
Board of Directors since the Company's incorporation in July 1989, served as
Chief Executive Officer from July 1989 until January 1997 and served as
President from July 1989 until October 1995. Previously, Mr. Finegold was
President, Chief Executive Officer and Chairman of the Board of Directors of
Ready Systems, Inc. He also co-founded Daisy Systems, Inc., serving as its
President and Chief Executive Officer. Previously, Mr. Finegold was a product
line architect in the microprocessor division at Intel Corporation.
Dr. Igal Kohavi has been a director of the Company since January 1994. Dr.
Kohavi has served as the Chairman of the Board of Directors of DSP Group, Inc.,
a developer of digital signal processing technology, since September 1995. Dr.
Kohavi also serves as Chairman of Polaris, an Israeli-based venture capital fund
and has served in that capacity since 1996. From October 1994 to March 1996, Dr.
Kohavi served as the President and Chief Executive Officer of Dovrat-Schrem &
Co., Ltd., an Israeli investment bank. Prior to that, Dr. Kohavi served as
President of Clal Electronics Industries Ltd., from May 1993 until September
1994. From April 1986 to May 1993, Dr. Kohavi served as President of Clal
Computers and Technology Ltd., an electronics company and a subsidiary of Clal.
Mr. Amnon Landan has been a director of the Company since February 1996. Mr.
Landan has served as President and Chief Executive Officer of the Company since
February 1997. From October 1995 to January 1997, he served as President of the
Company and from March 1995 to September 1995, he served as President of North
American Operations. He served as Chief Operating Officer from August 1993 until
March 1995. From December 1992 to August 1993, he served as the Company's Vice
President of Operations and from June 1991 to December 1992, he served as Vice
President of Research and Development. From November 1989 to June 1991, he
served in several technical positions with the Company. Mr. Landan serves on
the board of directors of NetGravity, Inc.
Mr. Yair Shamir has been a director of the Company since August 1994. Mr.
Shamir is currently the President and Chief Executive Officer of VCON
Telecommunications, Ltd., a developer of videoconferencing hardware and
software, and has served in
<PAGE>
that capacity since March 1997. Mr. Shamir served as Executive Vice President of
the venture capital firm The Challenge Fund--Etgar L.P. from July 1995 to March
1997. From January 1994 until July 1995, he was Chief Executive Officer of Elite
Industries Ltd., a food products company. Prior to that, Mr. Shamir was
Executive Vice President and General Manager, Israel of Scitex Corporation, an
electronics company, from January 1988 through January 1994. Mr. Shamir serves
on the board of directors of DSP Group, Inc., and Orckit Communications Ltd.
Dr. Giora Yaron has been a director of the Company since February 1996. Dr.
Yaron is currently Chairman and Chief Executive Officer of Itamar Medical (CM)
and has served in these capacities since January 1997. In addition, Dr. Yaron is
the Chairman of Comsys Communications and Signal Processing Ltd. and has served
in that capacity since January 1996. Prior to that, Dr. Yaron served as the
President of Indigo NV, a vendor of digital color press products, from August
1992 to November 1995. From April 1979 to July 1992, Dr. Yaron was with National
Semiconductor Corporation where he served as General Manager of its Israeli
operations and Corporate Vice President of Office Products.
Board Meetings and Committees
The Board of Directors of the Company held a total of four (4) meetings during
1998. No directors attended fewer than 75% of the total number of meetings of
the Board of Directors or committees of the Board of Directors held in 1998
during the period in which such directors were members of the Board of
Directors. The Board of Directors has an Audit Committee, a Compensation
Committee and a Stock Option Committee. The Board does not have a nominating
committee or any committee performing similar functions.
In 1998, the Audit Committee consisted of Messrs. Kohavi, Shamir and Yaron and
met four (4) times. This committee is primarily responsible for approving the
services performed by the Company's independent auditors and for reviewing and
evaluating the Company's accounting principles and its system of internal
accounting controls. Messrs. Kohavi, Shamir and Yaron will continue serving as
the Audit Committee for 1999.
In 1998, the Compensation Committee consisted of Messrs. Kohavi, Shamir and
Yaron and met one (1) time. This committee reviews and approves the Company's
executive compensation policy and plan. Messrs. Kohavi, Shamir and Yaron will
continue serving as the Compensation Committee for 1999.
The Stock Option Committee, which consists of Messrs. Finegold and Landan,
held no meetings during the fiscal year. This committee is primarily
responsible for approving all stock option grants of 15,000 shares or fewer to
new and continuing employees (other than executive officers).
Board Compensation
Directors do not receive any cash compensation for their services as members
of the Board of Directors, although they are reimbursed for their expenses in
attending out-of-town meetings. Officers are appointed by and serve at the
discretion of the Board of Directors. There are no family relationships between
directors and executive officers of the Company. Currently, nonemployee
directors are automatically granted an initial option to purchase 50,000 shares
of the Company's Common Stock and thereafter annual grants to purchase 10,000
shares of the Company's Common Stock pursuant to the terms of the Company's 1994
Directors' Stock Option Plan (the "Directors' Plan"). Pursuant to the Directors'
Plan, Messrs. Kohavi, Shamir and Yaron were each granted (i) an option to
purchase 10,000 shares on the date of the 1998 Annual Meeting at an exercise
price of $17.3125 which vests in whole on the fifth anniversary of the date of
grant, provided that such director has continually served as a director of the
Company until the fifth anniversary of the date of grant of such option and (ii)
an option to purchase 50,000 shares on the date of the 1998 Special Meeting of
Stockholders at an exercise price of $19.8125 which vests one-fifth per year
beginning on the date of grant, provided that such director has continually
served as a director of the Company until the fourth anniversary of the date of
grant of such option.
<PAGE>
PROPOSAL NO. 2
AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
The Company's Restated Certificate of Incorporation (the "Certificate"), as
currently in effect, provides that the Company is authorized to issue 60,000,000
shares of Common Stock, par value $.002 per share, and 5,000,000 shares of
Preferred Stock, with a par value of $.002 per share. In March 1999, the Board
of Directors authorized an amendment to the Certificate to increase the
authorized number of shares of Common Stock to 120,000,000 shares.
Under the proposed amendment, the first paragraph of Article III of the
Certificate would be amended to read as follows:
This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is One
Hundred and Twenty Five Million (125,000,000) shares. One Hundred and
Twenty Million (120,000,000) shares shall be Common Stock and Five Million
(5,000,000) shares shall be Preferred Stock, each with a par value of
$.002.
As of March 1, 1999, 36,865,650 shares of Common Stock were issued and
outstanding. In addition, as of March 1, 1999, (i) 283,090 shares were reserved
for future grant under the Company's Amended and Restated 1989 Stock Option Plan
and the 1996 Supplemental Stock Option Plan and 7,059,264 shares were reserved
for future issuance upon exercise of outstanding options under such plans; (ii)
an aggregate of 513,832 shares were reserved for grant under the Company's 1998
Employee Stock Purchase Plan; (iii) 550,000 shares were reserved for future
grant under the Company's Amended 1994 Directors' Stock Option Plan and 290,000
shares were reserved for future issuance upon exercise of outstanding options
under such plan; and (iv) 450,000 shares were reserved for future grant under
the 1999 Stock Option Plan and no options were outstanding.
Purpose and Effect of Amendment
The principal purpose of the proposed amendment to the Certificate is to
authorize additional shares of Common Stock which will be available for issuance
under the Company's stock option and purchase plans and in the event that the
Board of Directors determines that it is necessary or appropriate to effect
future stock dividends or stock splits, to raise additional capital through the
sale of securities, to acquire another company or its business or assets through
the issuance of securities, or to establish a strategic relationship with a
corporate partner through the exchange of securities. In determining the
appropriate level of authorized shares of Common Stock, the Board of Directors
considered, among other factors, (i) that as of March 1, 1999, options to
purchase 9,146,186 shares of Common Stock were outstanding or reserved for
issuance pursuant to the Company's stock option and purchase plans, (ii) that
were the Company to effect a two-for-one stock split in the future, a minimum of
92,456,232 authorized shares would be required, and (iii) that in the Board's
opinion, at least 10% to 15% of the Company's equity securities should be
available for any of the aforementioned potential strategic transactions. If the
proposed amendment is adopted, 73,771,884 additional shares of Common Stock will
be available for issuance by the Board of Directors without any further
stockholder approval, although certain issuances of shares may require
stockholder approval in accordance with the requirements of the Nasdaq National
Market or the Delaware General Corporations Law. The holders of Common Stock
have no preemptive rights to purchase any stock of the Company. The additional
shares might be issued at such times and under such circumstances as to have a
dilutive effect on earnings per share and on the equity ownership of the present
common stockholders.
The flexibility of the Board of Directors to issue additional shares of stock
could enhance the Board's ability to negotiate on behalf of the stockholders in
a takeover situation. Although it is not the purpose of the proposed amendment,
the authorized but unissued shares of Common Stock (as well as the authorized
but unissued shares of Preferred Stock) also could be used by the Board of
Directors to discourage, delay or make more difficult a change in the control of
the Company. For example, such shares could be privately placed with purchasers
who might align themselves with the board in opposing a hostile takeover bid.
The issuance of additional shares might serve to dilute
<PAGE>
the stock ownership of persons seeking to obtain control and thereby increase
the cost of acquiring a given percentage of the outstanding stock. The Company
has previously adopted certain measures that may have the effect of helping to
resist an unsolicited takeover attempt, including a dividend distributed to the
holders of the Company's Common Stock consisting of rights to purchase the
Company's Series A Participating Preferred Stock upon the terms and conditions
set forth in the Rights Agreement approved by the Board of Directors, and
provisions of the Certificate authorizing the Board of Directors to issue up to
5,000,000 shares of Preferred Stock with terms, provisions and rights fixed by
the Board, and provisions in the Certificate providing for the Board of
Directors. The Board of Directors is not aware of any pending or proposed effort
to acquire control of the Company.
Vote Required
The approval of the amendment to the Certificate requires the affirmative vote
of a majority of the outstanding shares of Common Stock of the Company. An
abstention or nonvote is not an affirmative vote and, therefore, will have the
same effect as a vote against the proposal.
The Board of Directors recommends a vote FOR the amendment to the Company's
Restated Certificate of Incorporation to authorize an additional 60,000,000
shares of Common Stock, for an aggregate of 120,000,000 shares of Common Stock.
PROPOSAL NO. 3
APPROVAL OF AN AGGREGATE 1,850,000 SHARE INCREASE IN SHARES ISSUABLE UNDER THE
1999 STOCK OPTION PLAN
Increase of 1,850,000 Shares
At the Annual Meeting, the stockholders are being asked to approve the
amendment of the 1999 Stock Option Plan (the "1999 Option Plan") which was
adopted by the Board of Directors in June 1998 and the stockholders of the
Corporation in August 1998 to reserve an additional 1,850,000 shares of Common
Stock for issuance thereunder. The Board of Directors have also adopted
amendments to the 1999 Option Plan to provide that outstanding options granted
to the Company's executive officers may not be repriced without receipt of prior
stockholder approval. The 1999 Option Plan will be administered by the Board of
Directors, except with respect to grants to executive officers which are
administered by the Compensation Committee. The Board of Directors has
implemented the 1999 Option Plan to replace the Amended and Restated 1989 Stock
Option Plan, which pursuant to its terms expires in August 1999. The 1999 Option
Plan will become effective in August 1999 upon termination of the Amended and
Restated 1989 Stock Option Plan and terminates in August 2009. A summary of the
principal terms of the 1999 Option Plan is located in Appendix A to this Proxy
Statement. A total of 450,000 shares of Common Stock are currently reserved for
issuance under the 1999 Option Plan and no shares are outstanding.
The Board believes the requested increase in the shares reserved for
issuance under the 1999 Option Plan is in the best interests of the Company.
The Board believes that the increase will provide an adequate reserve of shares
available for issuance under the 1999 Option Plan, which is necessary to enable
the Company to compete successfully with other companies in attracting and
retaining valuable employees. The competition for employees has increased
significantly and the Company needs the increase in share reserve to be able to
provide options to its ever increasing number of employees in order to expand
its operations.
As of March 1, 1999, options to purchase 7,059,264 shares of Common Stock
were unexercised and outstanding under the Amended and Restated 1998 Stock
Option Plan and 1996 Supplemental Stock Option Plan. As of March 1, 1999,
283,090 shares remained available for future option grants under the Amended and
Restated 1998 Stock Option Plan, no shares remain available for future grant
under the 1996 Supplemental Stock Option Plan and 450,000 shares remain
available for future grant under the 1999 Option Plan. The aggregate market
value
<PAGE>
of the unexercised and outstanding options to purchase 7,059,264 shares
of Common Stock under the Amended and Restated 1998 Stock Option Plan and the
1996 Supplemental Stock Option Plan at March 1, 1999 was $253,695,829.63 based
on a closing price of $35.938 on the Nasdaq National Market on that date. See
"Amended and New Plan Benefits" below for certain information with respect to
the 1999 Option Plan.
Vote Required
The affirmative vote of a majority of the Votes Cast will be required to
approve the amendment to increase by 1,850,000 the shares issuable under the
1999 Stock Option Plan.
The Board of Directors recommends that the stockholders vote "FOR" the
increase in the shares issuable under the 1999 Stock Option Plan.
AMENDED AND NEW PLAN BENEFITS
The following table sets forth, as to the executive officers named under
"Executive Compensation--Summary Compensation Table" below all current executive
officers as a group, all current directors who are not executive officers as a
group and all other employees as a group the following information regarding
benefits received or allocated to the persons and groups set forth below for the
last completed fiscal year as if such plans had been in place for such fiscal
year with respect to the 1999 Stock Option Plan: (i) the market value of the
shares of Common Stock underlying such options as of March 1, 1999 based on a
closing price of $35.938 on the Nasdaq National Market on that date, minus the
exercise price of such shares; and (ii) the number of shares of the Company's
Common Stock subject to options granted during the fiscal year ended December
31, 1998 under the 1999 Stock Option Plan.
<TABLE>
<CAPTION>
1999 Stock
Option Plan(1)
-----------------------------
Number of
Name of Individual Shares Subject
or Identity of Dollar To Options
Group or Position Value($) Granted (#)
------------------- ------------ ---------------
<S> <C> <C>
Amnon Landan......................................................................... $ 3,761,319 161,340
Chief Executive Officer and President
Kenneth Klein........................................................................
President of North American Operations
Sharlene Abrams...................................................................... $ 954,294 40,934
Vice President of Finance and Administration, Chief
Financial Officer and Secretary
Moshe Egert.......................................................................... $ 954,248 40,932
Vice President of European Operations
Aryeh Finegold....................................................................... $ 1,868,863 80,164
Chairman of the Board
Igal Kohavi.......................................................................... -- --
Director
Yair Shamir.......................................................................... -- --
Director
Giora Yaron.......................................................................... -- --
Director
All current executive officers as a group............................................ $ 9,439,993 404,924
All current directors who are not executive officers as a group...................... -- --
All other employees as a group....................................................... $24,159,665 2,172,964
</TABLE>
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(1) The dollar value and number of units set forth for the 1999 Stock Option
Plan are based upon each participant's participation in the Amended and
Restated 1989 Stock Option Plan. The 1999 Stock Option Plan will become
effective in August 1999 upon termination of the Amended and Restated 1989
Stock Option Plan.
<PAGE>
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected PricewaterhouseCoopers LLP, independent
auditors, to audit the consolidated financial statements of the Company for the
fiscal year ending December 31, 1999, and recommends that stockholders vote for
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
PricewaterhouseCoopers LLP has audited the Company's financial statements
since inception of the Company. Its representatives are expected to be present
at the Annual Meeting with the opportunity to make a statement if they desire to
do so and are expected to be available to respond to appropriate questions.
The Board of Directors recommends that stockholders vote FOR ratification of
the appointment of
PricewaterhouseCoopers LLP as the Company's independent auditors.
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation earned in each of the three
years in the period ended December 31, 1998 by the Chief Executive Officer and
each of the other four most highly compensated executive officers of the
Company (the "Named Executive Officers"):
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------------------------------- ---------------
Other Annual Securities All Other
Compen- Underlying ------------
Name and Principal Position Year Salary($) Bonus($) sation($) Options(#) Compensation
--------------------------- ---- ----------- ---------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Amnon Landan...................................... 1998 $290,250 $300,000 -- 161,340 --
President and Chief Executive Officer 1997 215,000 130,000 $ 40,800(1) 320,000 --
1996 185,000 -- 45,200(1) 390,000(2) --
Kenneth Klein..................................... 1998 141,467 -- 278,625(3) 81,554
President of North American Operations 1997 127,500 -- 155,956(3) 60,000 --
1996 112,300 -- 208,923(3) 248,332(2) --
Sharlene Abrams................................... 1998 161,050 60,000 -- 40,934 --
Vice President of Finance and 1997 138,750 40,000 -- 50,000 --
Administration, Chief Financial 1996 115,000 -- -- 70,000(2) --
Officer and Secretary
Moshe Egert....................................... 1998 119,040 -- 160,634(3) 40,932 --
Vice President of European Operations 1997 117,121 -- 84,701(3) -- --
1996 91,235 -- 42,000(3) 144,000 --
Aryeh Finegold.................................... 1998 275,000(4) 100,000 -- 80,164 --
Chairman of the Board 1997 237,500(4) 130,000 -- 200,000 --
1996 200,000(4) 120,000 -- 60,000 --
</TABLE>
- ---------------
(1) Includes $36,000 and $33,000 in housing costs for 1997 and 1996,
respectively, as well as a school and car allowance.
(2) Includes replacement options granted in connection with an option repricing
in May 1996 of 40,000 shares for Ms. Abrams, 58,332 shares for Mr. Klein and
50,000 for Mr. Landan. Options to purchase the same number of shares
originally granted in March 1995 were cancelled.
(3) Reflects the amounts paid as sales commission and/or a car allowance.
(4) Includes $100,000 in compensation paid to Mr. Finegold by the Company's
wholly-owned subsidiary in Israel.
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options made during the
year ended December 31, 1998 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------ Potential Realizable Value
Number of Percent of Exercise at Assumed Annual Rates of
Securities Total Options or Base Stock Price Appreciation
Underlying Granted to Price for Option Term (4)
Options Employees in ($/SH) Expiration ---------------------------
Name Granted(#)(1) Fiscal Year (2) (3) Date 5% ($) 10% ($)
---- ---------- -------------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Amnon Landan(5)......................... 161,340 6.26% $12.63 1/9/08 $1,281,006 $5,283,239
Kenneth Klein(5)........................ 81,554 3.16% 12.63 1/9/08 647,522 2,670,567
Sharlene Abrams(5)...................... 40,934 1.59% 12.63 1/9/08 325,008 1,340,425
Moshe Egert(5).......................... 40,932 1.59% 12.63 1/9/08 324,992 1,340,359
Aryeh Finegold(5)....................... 80,164 3.11% 12.63 1/9/08 636,952 2,625,050
</TABLE>
- ---------------------
(1) Under the terms of the Company's 1989 Amended and Restated Stock Option
Plan, the Compensation Committee of the Board of Directors retains
discretion, subject to plan limits, to modify the terms of outstanding
options and to reprice the options.
(2) An aggregate of 2,577,888 options to purchase shares of Common Stock of the
Company were granted to employees during 1998.
(3) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of shares that are already owned or by offset of the
underlying shares, subject to certain conditions.
(4) This column shows the hypothetical gains or "option spreads" of the options
granted based on assumed annual compound stock appreciation rates of 5% and
10% over the full ten year term of the option. The 5% and 10% assumed rates
of appreciation are mandated by the rules of the Commission and do not
represent the Company's estimate or projection of future Common Stock
prices.
(5) Messrs. Landan, Klein, Egert, and Finegold and Ms. Abrams were granted
options on January 9, 1998. Each option vests at the rate of 1/4th of the
shares subject to the option at the end of twelve months and 1/36th of the
remaining shares subject to the option at the end of each monthly period
thereafter as long as such optionee's employment with the Company has not
terminated. Under the Company's Amended and Restated 1989 Stock Option Plan,
all options are immediately exercisable whether or not vested. Shares
purchased upon exercise of unvested options are subject to repurchase by the
Company, at its option, upon the optionee's termination of employment.
<PAGE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values.
The following table provides certain information concerning the exercises of
options by each of the Named Executive Officers during the year ended December
31, 1998, including the aggregate value of gains on the date of exercise:
<TABLE>
<CAPTION>
No. of Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired on Value Options at FY-End(#)(2): Options at FY-End($)(1):
-------------------------- --------------------------
Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------- ----------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Amnon Landan............................. 674,340 $5,456,455 427,000 -- $9,958,865 --
Kenneth Klein............................ 119,844 1,021,365 340,208 -- 7,237,387 --
Sharlene Abrams.......................... 116,934 1,862,326 144,000 -- 3,435,399 --
Moshe Egert.............................. 38,932 626,730 169,000 -- 3,357,186 --
Aryeh Finegold........................... 231,250 2,339,734 328,914 -- 8,010,304 --
</TABLE>
- -----------------
(1) Calculated by determining the difference between the closing price of the
Company's Common Stock on the Nasdaq National Market on the date of
exercise, or year-end ($31.625), as the case may be, and the exercise price
of the in-the-money options. Such numbers do not reflect amounts actually
realized upon sale of the shares by such officers.
(2) Under the Company's Amended and Restated 1989 Stock Option Plan, all options
are immediately exercisable whether or not vested. Shares purchased upon
exercise of unvested options are subject to repurchase by the Company, at
its option, upon the optionee's termination of employment.
REPORT OF THE COMPENSATION COMMITTEE
The following is the Report of the Compensation Committee of the Company,
describing the compensation policies and rationale applicable to the Company's
executive officers with respect to the compensation paid to such executive
officers for the year ended December 31, 1998. The information contained in the
report shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission nor shall such information be incorporated by
reference into any future filing under the Securities Act of 1933, as amended
(the "Securities Act") or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), except to the extent that the Company specifically incorporates
it by reference into such filing.
TO: Board of Directors
The Compensation Committee of the Board of Directors of Mercury Interactive
Corporation is charged with the responsibility of administering all aspects of
the Company's executive compensation programs. The members of the Committee
for the year ended December 31, 1998 were Messrs. Kohavi, Shamir and Yaron,
who were all nonemployee Directors of the Company.
Compensation Objectives
The objectives of the compensation program are: (1) to provide a means for
the Company to attract and retain high-quality executives; (2) to tie
executive compensation directly to the Company's business and performance
objectives; and (3) to reward outstanding individual performance that
contributes to the long-term success of the Company.
<PAGE>
Compensation Vehicles
The Company uses a simple total compensation program that consists of cash and
equity compensation. Having a compensation program that allows the Company to
successfully attract and retain key employees permits it to provide useful
products and services to customers, enhance stockholder value, stimulate
technological innovation, foster Company values and adequately reward employees.
The vehicles are:
Cash Compensation
Salary
The Committee considers specifically the following factors in determining
base compensation: (1) a comparison of the Company's growth and financial
performance relative to the performance of competitors; (2) salary levels for
comparable positions in companies in the software industry; and (3) each
executive's responsibility level and financial and strategic objectives for
the subsequent year.
Bonus
Annual and other bonuses for officers other than Mr. Landan are based on
the Company's financial performance, as well as individual executive officer
performance compared to goals. Other qualitative factors are also included in
determining the bonuses, including achievements within the organization for
which an executive is responsible and bonuses given by other similarly
situated companies.
Equity Participation
The Company has adopted a stock option plan to provide employees with
additional incentives to work to maximize stockholder value. The stock option
plan utilizes vesting periods to encourage key employees to continue in the
employ of the Company. Stock options have been awarded to the majority of the
Company's employees. The Company believes that options align the interests of
executive officers closely with the interests of other stockholders because of
the direct benefits executive officers receive through improved stock
performance.
Chief Executive Officer's Compensation
Compensation for the Chief Executive Officer is determined by a process
similar to that discussed above for executive officers. Mr. Landan's base
compensation for April 1998 to March 1999 was established by the Compensation
Committee in July 1998.
The Committee also established Mr. Landan's individual bonus plan for the
above period according to the bonus structure described above and based on
1998 Company performance objectives for Mr. Landan established in July 1998.
Mr. Landan received a 1997 compensation bonus of $300,000 which was not
paid until July 1998. In addition, Mr. Landan received a 1998 performance
bonus of $350,000 which was paid in February 1999.
The foregoing report has been furnished by the Compensation Committee of the
Board of Directors of Mercury Interactive Corporation.
Compensation Committee
Igal Kohavi
Yair Shamir
Giora Yaron
<PAGE>
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee has a relationship that would
constitute an interlocking relationship with executive officers or directors of
another entity.
COMPANY PERFORMANCE
The following line graph compares the cumulative total return to stockholders
on the Company's Common Stock since December 31, 1993. The graph compares
stockholder return on the Company's Common Stock with the same cumulative
total return on the Hambrecht & Quist Growth Index and the Nasdaq Stock Market-
U.S. Index. The information contained in the Performance Graph shall not be
deemed to be "soliciting material" or to be "filed" with the Securities and
Exchange Commission, nor shall such information be incorporated by reference
into any future filing under the Securities Act or the Exchange Act, except to
the extent that the Company specifically incorporates it by reference into
such filing.
The graph assumes that $100 was invested on December 31, 1993 in the Company's
Common Stock, the Hambrecht & Quist Growth Index and the Nasdaq Stock Market-
U.S. Index and that all dividends were reinvested. No dividends have been
declared or paid on the Company's Common Stock. Stockholder returns over the
period indicated should not be considered indicative of future stockholder
returns.
Mercury Interactive
H&Q Growth Index
Nasdaq Stock Market--U.S. Index
[PERFORMANCE GRAPH APPEARS HERE]
Mercury Nasdaq Stock
------- ------------
DATES Interactive H&Q Growth Market -U.S.
- ----- ----------- ---------- ------------
Dec-93 100.00 100.00 100.00
Jan-94 103.62 107.19 103.03
Feb-94 101.45 104.51 102.07
Mar-94 100.00 93.70 95.80
Apr-94 84.78 91.62 94.55
May-94 71.01 87.71 94.79
Jun-94 59.42 80.29 91.32
Jul-94 55.07 82.40 93.19
Aug-94 60.14 95.02 99.13
Sep-94 57.61 97.25 98.88
Oct-94 85.51 100.32 100.82
Nov-94 68.12 100.04 97.48
Dec-94 76.81 103.28 97.75
Jan-95 73.91 102.70 98.31
Feb-95 75.36 109.85 103.51
Mar-95 97.83 115.21 106.58
Apr-95 124.64 115.93 109.94
May-95 128.99 115.46 112.77
Jun-95 116.67 130.30 121.91
Jul-95 144.93 148.85 130.87
Aug-95 131.16 152.78 133.53
Sep-95 160.87 162.53 136.60
Oct-95 118.84 163.57 135.81
Nov-95 133.33 170.33 139.00
Dec-95 105.80 172.37 138.26
Jan-96 120.29 171.85 138.94
Feb-96 94.20 178.46 144.22
Mar-96 92.75 177.84 144.70
Apr-96 79.71 206.13 156.70
May-96 84.06 217.68 163.90
Jun-96 79.71 194.74 156.51
Jul-96 85.51 162.12 142.55
Aug-96 81.16 175.44 150.54
Sep-96 80.43 194.64 162.05
Oct-96 73.91 180.47 160.26
Nov-96 57.97 177.89 170.17
Dec-96 75.36 180.41 170.01
Jan-97 72.46 189.77 182.10
Feb-97 75.36 169.32 172.03
Mar-97 56.52 145.58 160.79
Apr-97 71.01 137.64 165.82
May-97 101.45 166.63 184.61
Jun-97 86.23 170.02 190.27
Jul-97 103.26 181.04 210.35
Aug-97 111.59 185.46 210.03
Sep-97 110.87 204.95 222.44
Oct-97 130.43 192.60 210.92
Nov-97 141.30 184.38 211.98
Dec-97 155.07 185.30 208.58
Jan-98 169.57 183.49 215.16
Feb-98 215.94 205.82 235.36
Mar-98 211.59 220.38 244.05
Apr-98 234.78 225.91 248.20
May-98 192.75 204.46 234.57
Jun-98 258.70 221.74 251.12
Jul-98 239.86 203.37 248.47
Aug-98 194.93 152.06 199.75
Sep-98 230.07 182.31 227.34
Oct-98 240.58 193.00 236.63
Nov-98 265.94 229.89 259.94
Dec-98 366.67 268.78 293.21
<PAGE>
CERTAIN TRANSACTIONS WITH MANAGEMENT
In October 1998, the Company made loans to certain executive officers. The
loans bear interest at the rate of 5.0% and are due in full on December 31, 2000
and were later secured by shares of Common Stock of the Company owned by such
officers. The Company made loans to the following executive officers in the
following amounts: Amnon Landan $2,500,000; Aryeh Finegold $596,719; Jayaram
Bhat $470,350; Kenneth Klein $954,327; Sharlene Abrams $380,387; Yuval Scarlat
$240,911; and Zohar Gilad $450,000.
The Company entered into letter agreements dated February 26, 1998 with
Messrs. Finegold and Landan and Ms. Abrams and July 22, 1998 with Mr. Klein
which provide that in the event that such employee's employment is terminated
for any reason other than cause within eighteen months of a change of control of
the Company, each shall be entitled to severance benefits of one year' base
salary and all of such employee's stock options shall immediately vest in full
upon such termination.
Mr. Howard Abrams, the husband of the Company's Vice President of Finance
and Administration and Chief Financial Officer, has been engaged as an
accounting systems consultant to the Company and was paid $84,469 for such
services in 1998.
The Company has entered into indemnification agreements with each of its
directors and executive officers. Such agreements require the Company to
indemnify such individuals to the fullest extent permitted by Delaware law.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 1, 1999 (except as noted in the
footnotes) certain information with respect to the beneficial ownership of the
Company's Common Stock by (i) each person known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
director of the Company, (iii) each of the Named Executive Officers, and (iv)
all directors and executive officers as a group. Except as indicated in the
footnotes to this table, the persons and entities named in the table have sole
voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned(1)
---------------------------
Percentage
Name of Beneficial Owner(2) Number Ownership
--------------------------- ------------- ------------
<S> <C> <C>
Pilgrim Baxter & Associates, Ltd. (3)................................................. 3,516,272 9.54%
825 Duportail Road
Wayne, PA 19087
Scudder Kemper Investments, Inc. (3).................................................. 2,082,800 5.65%
c/o Scudder, Stevens & Clark, Inc.
Two International Place
Boston, MA 02110
Nicholas Applegate Capital Mgmt.(3)................................................... 1,977,100 5.36%
600 West Broadway, Suite 2900
San Diego, CA 92101
Amnon Landan(4)(5).................................................................... 1,172,558 3.12%
Aryeh Finegold(4)(6).................................................................. 548,868 1.47%
Kenneth Klein(4)(7)................................................................... 541,762 1.45%
Igal Kohavi(8)........................................................................ 10,000 *
Yair Shamir(9)........................................................................ 10,000 *
Giora Yaron(10)....................................................................... 10,000 *
Sharlene Abrams(4)(11)................................................................ 263,626 *
Moshe Egert(4)(12).................................................................... 197,932 *
All directors and officers as a group
(8 persons)(4)(5)(6)(7)(8)(9)(10)(11)(12).......................................... 2,754,746 7.09%
</TABLE>
- --------------------
* Less than 1%.
(1) Percentage ownership is based on 36,865,650 shares of Common Stock
outstanding as of March 1, 1999.
(2) Except as otherwise indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock.
(3) Number of shares beneficially owned or of record is determined solely from
information reported on a Schedule 13G as of December 31, 1998.
(4) Includes shares subject to outstanding options that are currently
exercisable or exercisable within 60 days of March 1, 1999. Because all
options granted by the Company pursuant to the Amended and Restated 1989
Stock Option Plan (the "Option Plan") are immediately exercisable whether or
not vested, all options granted pursuant to the Option Plan, held by parties
named in the table have been treated as currently exercisable. However, the
Company has a right to repurchase, upon the optionee's termination of
employment, any shares acquired by the optionee through the exercise of any
unvested options. This repurchase right lapses over time.
(5) Includes 727,000 shares subject to stock options held by Mr. Landan that are
exercisable within 60 days of March 1, 1999.
(6) Includes 13,495 shares held by GMTY LLC and 10,857 shares held by AR
Holdings, LLC. Mr. Finegold is a member of the Board of Managers of each
entity. Also includes 388,914 shares subject to stock options held by Mr.
Finegold that are exercisable within 60 days of March 1, 1999.
<PAGE>
(7) Includes 460,208 shares subject to stock options held by Mr. Klein that are
exercisable within 60 days of March 1, 1999.
(8) Includes options held by Dr. Kohavi exercisable within 60 days of March 1,
1999 for 10,000 shares of Common Stock pursuant to the Company's 1994
Directors' Stock Option Plan.
(9) Includes 10,000 shares registered in the name of Goldfarb & Levy and held on
behalf of Mr. Shamir.
(10) Includes options held by Dr. Yaron exercisable within 60 days of March 1,
1999 for 10,000 shares of Common Stock pursuant to the Company's 1994
Directors' Stock Option Plan.
(11) Includes 184,000 shares subject to stock options held by Ms. Abrams that
are exercisable within 60 days of March 1, 1999.
(12) Includes 197,000 shares subject to stock options held by Mr. Egert that are
exercisable within 60 days of March 1, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act and regulations of the Securities and Exchange
Commission (the "SEC") thereunder require the Company's executive officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of initial ownership and changes in
ownership with the SEC. Based solely on its review of copies of such forms
received by the Company, or on written representations from certain reporting
persons that no other reports were required for such persons, the Company
believes that, during or with respect to the period from January 1, 1998 to
December 31, 1998, all of the Section 16(a) filing requirements applicable to
its executive officers, directors and 10% stockholders were complied with,
except as follows: Mr. Landan filed a Form 4 for the month of January 1998
reporting an option exercise one month late; Messrs. Landan, Klein and Finegold
each filed Forms 4 for the month of October 1998 reporting the exercise of
options four months late.
OTHER MATTERS
The Company knows of no other matters to be brought before the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the accompanying proxy to vote the shares represented as the
Board of Directors may recommend.
THE BOARD OF DIRECTORS
/s/ Sharlene Abrams
-----------------------
Sharlene Abrams
Secretary
Dated: April 20, 1999
<PAGE>
APPENDIX A
Description of the 1999 Stock Option Plan
Generally: The 1999 Stock Option Plan (the "1999 Option Plan") was approved by
the Board of Directors in June 1998 and by the stockholders in August 1998. The
1999 Option Plan will become effective on August 31, 1999 upon expiration of the
Amended and Restated 1989 Stock Option Plan. The total number of shares
currently reserved for issuance under the 1999 Option Plan is 450,000 shares.
In March 1999, the Board of Directors approved a further increase equal to 4.99%
of the shares outstanding as of March 31, 1999 (1,850,000) of shares issuable
under the 1999 Option Plan, which, if approved, by the stockholders would
increase the total shares reserved for issuance under the 1999 Option Plan since
its inception to 2,300,000 shares. The 1999 Option Plan terminates in August
2009.
Options granted under the Plan may be either "incentive stock options" (ISOs),
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") or nonstatutory options (NSOs).
The Plan is not qualified under Section 401(a) of the Code and is not subject to
the Employee Retirement Income Security Act of 1974 ("ERISA").
Purpose of the Plan: The purposes of the Plan are to attract and retain the
best available personnel for positions of substantial responsibility, to provide
additional incentive to employees and consultants of the Company and its
worldwide affiliates and to promote the success of the Company's business.
Administration of the Plan: The Plan may be administered by the Board of
Directors of the Company or by one or more Committees appointed by the Board
(the "Administrator"). The Administrator has full power to select the
individuals to whom Options will be granted from among the officers, directors,
consultants or other employees eligible for grants, to make any combination of
grants to any participant and to determine the specific terms of each grant,
subject to the provisions of the Plan; provided, however, that no outstanding
option granted to any of the Company's executive officers may be repriced
without the prior approval of the stockholders of such repricing. The
interpretation of any provision of the Plan by the Administrator shall be final
and conclusive. Members of the Board or its Committee receive no compensation
for their services as Administrator of the Plan.
Eligibility: The Plan provides that Options may be granted to employees and
consultants (including employees, consultants and directors of the Company and
its majority-owned subsidiaries). Outside directors are excluded from
participation in the Plan.
Stock Options: The Plan permits the granting of stock options that are
intended to qualify as either ISOs or NSOs. In the case of all Options, the
option exercise price for each share shall not be less than 100% of fair market
value of a share of common stock on the date of grant of such option. The fair
market value of the Common Stock shall be the closing price as of such date as
reported by the NASDAQ National Market System or other stock exchange.
The term of each option will be fixed by the Administrator but may not exceed
ten years from the date of grant. The Administrator will determine the time or
times that each option may be exercised. No Employee may be granted an Option
for more than 200,000 Shares in any fiscal year.
The exercise price of Options granted under the Plan must be paid in full by
cash, check, Shares of the Company (which, in the case of Shares acquired upon
exercise of an Option either have been owned by the Optionee for more than six
months on the date of surrender or were not acquired, directly or indirectly,
from the Company and which have a fair market value on the exercise date equal
to the aggregate exercise price of the Shares as to which said Option shall be
exercised) or promissory note. The Administrator may authorize as payment the
retention of Shares having a fair market value on the date of exercise equal to
the exercise price for the total number of Shares as to which the Option is
exercised or it may authorize delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds
<PAGE>
required to pay the exercise price. The Administrator may also authorize payment
by any combination of the foregoing methods, as well as tax withholding with
stock. For any ISO, the form of payment permitted will be stated on the notice
of grant of the Option.
In the event of termination of employment or of an Optionee's consultancy for
any reason, including retirement, an Option may thereafter be exercised (to the
extent it was exercisable), for a period of ninety days, subject to the stated
term of the Option. If an Optionee's employment or consultancy is terminated by
reason of the Optionee's death or disability, the Option will in general be
exercisable for six months following death, subject to the stated term of the
Option.
To qualify as ISOs, Options must meet additional federal income tax
requirements. Under current law these requirements include limits on the value
of ISOs that may become first exercisable annually with respect to any Optionee,
and a shorter exercise period and a higher minimum exercise price in the case of
certain large stockholders.
Adjustments for Stock Dividends, Mergers etc.: The Administrator is authorized
to make appropriate adjustments in connection with outstanding Options to
reflect stock dividends, stock splits and similar events. In the event of a
merger, liquidation or similar event, the Administrator in its discretion may
provide for substitution or adjustments in, or may accelerate or adjust such
Options.
Amendment and Termination: The Board may amend, alter, suspend or discontinue
the Plan at any time, but such amendment, alteration, suspension or
discontinuation shall not impair any Options then outstanding.
