<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
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
QRS Corporation
- --------------------------------------------------------------------------------
(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):
/ / No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO] [LETTERHEAD]
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
(the "Annual Meeting") of QRS Corporation (the "Company") to be held May 11,
2000, at 1:30 p.m. local time at the Company's headquarters, 1400 Marina Way
South, Richmond, California 94804.
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals: (1) to elect three directors of the Company to serve for
a three-year term ending in the year 2003 or until their respective successor
is duly elected and qualified, (2) to approve the amendment and restatement
of the Company's Certificate of Incorporation to increase the number of
shares authorized for issuance thereunder by an additional 40,000,000 to a
total of 60,000,000 shares of Common Stock, (3) to approve a series of
amendments to the Company's 1993 Stock Option/Stock Issuance Plan, and (4) to
ratify the appointment of Deloitte & Touche LLP as independent auditors of
the Company for the fiscal year ending December 31, 2000.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting. After careful consideration,
the Company's Board of Directors has unanimously approved each of the
proposals and recommends that you vote FOR each such proposal.
After reading the Proxy Statement, please mark, date, sign and return
the enclosed proxy card in the accompanying reply envelope. If you decide to
attend the Annual Meeting and would prefer to vote in person, please notify
the Secretary of the Company that you wish to vote in person and your proxy
will not be voted. YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE AND
RETURN THE ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of the Company's 1999 Annual Report has been mailed concurrently
herewith to all stockholders entitled to notice of and to vote at the Annual
Meeting.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
/s/ Shawn M. O'Connor
Shawn M. O'Connor
PRESIDENT AND CHIEF OPERATING OFFICER
Richmond, California
April 5, 2000
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IMPORTANT
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED POSTAGE-PREPAID RETURN ENVELOPE SO THAT IF YOU ARE
UNABLE TO ATTEND THE ANNUAL MEETING, YOUR SHARES MAY BE VOTED.
- --------------------------------------------------------------------------------
<PAGE>
QRS CORPORATION
1400 MARINA WAY SOUTH, RICHMOND, CALIFORNIA 94804
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 11, 2000
TO OUR STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of QRS Corporation, a Delaware corporation (the "Company"), to
be held on May 11, 2000, at 1:30 p.m., local time, at the Company's
headquarters, 1400 Marina Way South, Richmond, California 94804, for the
following purposes:
1. To elect three directors to serve for a three-year term ending in the year
2003 or until their respective successor is duly elected and qualified. The
nominees are David A. Cole, Garth Saloner and Garen K. Staglin;
2. To approve the amendment and restatement of the Company's Certificate of
Incorporation to increase the number of shares authorized for issuance
thereunder by an additional 40,000,000 to a total of 60,000,000 shares of
Common Stock;
3. To approve a series of amendments to the Company's 1993 Stock Option/Stock
Issuance Plan (the "1993 Plan"), including (i) an increase in the number of
shares of Common Stock authorized for issuance over the term of the 1993
Plan by an additional 800,000 shares to a total of 4,700,000 shares, (ii)
the implementation of an automatic share increase feature pursuant to which
the number of shares available for issuance under the 1993 Plan will
automatically increase on the first trading day of January each calendar
year, beginning with the calendar year 2001 and continuing through calendar
year 2005, by an amount equal to five percent (5%) of the total number of
shares outstanding on the last trading day of December in the immediately
preceding calendar year, subject to a limitation on the maximum number of
shares by which the share reserve will increase each year, (iii) a change
to the vesting schedule in effect for the option grants made to
non-employee members of the Board of Directors pursuant to the Automatic
Option Grant Program, and (iv) an extension of the term of the 1993 Plan
through December 31, 2005;
4. To ratify the appointment of Deloitte & Touche LLP as independent auditors
of the Company for the fiscal year ending December 31, 2000; and
5. To transact such other business as may properly come before the meeting or
any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement that accompanies this Notice. Only stockholders of record at the close
of business on March 16, 2000 are entitled to notice of and to vote at the
Annual Meeting and at any continuation or adjournment thereof. The stock
transfer books of the Company will remain open between the record date and the
date of the Annual Meeting. A list of stockholders entitled to vote at the
Annual Meeting will be available for inspection at the executive offices of the
Company.
All stockholders are cordially invited and encouraged to attend the Annual
Meeting in person. In any event, to assure your representation at the meeting,
please carefully read the accompanying Proxy Statement which describes the
matters to be voted on at the Annual Meeting and sign, date and return the
enclosed proxy card in the reply envelope provided. Should you receive more than
one proxy because your shares are registered in different names and addresses,
each proxy should be returned to assure that all your shares will be voted. If
you attend the Annual Meeting and vote by ballot, your proxy will be revoked
automatically and only your vote at the Annual Meeting will be counted. The
prompt return of your proxy card will assist us in preparing for the Annual
Meeting. We look forward to seeing you at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Shawn M. O'Connor
1
<PAGE>
Shawn M. O'Connor
PRESIDENT AND CHIEF OPERATING OFFICER
Richmond, California
April 5, 2000
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. IN ANY EVENT, TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU
ARE URGED TO VOTE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN
THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE.
2
<PAGE>
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
QRS CORPORATION
TO BE HELD MAY 11, 2000
GENERAL
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of QRS Corporation, a Delaware corporation (the
"Company" or "QRS"), of proxies to be voted at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on May 11, 2000, or at any
adjournment or postponement thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. Stockholders of record
on March 16, 2000 will be entitled to vote at the Annual Meeting. The Annual
Meeting will be held at 1:30 p.m., local time, at the Company's headquarters,
1400 Marina Way South, Richmond, California 94804.
It is anticipated that this Proxy Statement and the enclosed proxy card
will be first mailed to stockholders on or about April 5, 2000.
All share numbers in the Proxy Statement reflect the 3-for-2 split of
the Common Stock that occurred on July 12, 1999.
VOTING RIGHTS
The close of business on March 16, 2000, was the record date for
stockholders entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof. At the record date, the Company had 14,337,023 shares
of its Common Stock outstanding and entitled to vote at the Annual Meeting.
These shares were held by 155 stockholders of record and approximately 3,162
beneficial owners. Holders of Common Stock are entitled to one vote for each
share of Common Stock so held. Stockholders may not cumulate votes in the
election of directors. A majority of the outstanding shares of Common Stock
will constitute a quorum for the transaction of business at the Annual
Meeting.
If any stockholder is unable to attend the Annual Meeting, such
stockholder may vote by proxy. The enclosed proxy is solicited by the
Company's Board of Directors (the "Board of Directors" or the "Board") and,
when the proxy card is returned properly completed, it will be voted as
directed by the stockholder on the proxy card. Stockholders are urged to
specify their choices on the enclosed proxy card. If a proxy card is signed
and returned without choices specified, in the absence of contrary
instructions, the shares of Common Stock represented by such proxy will be
voted FOR Proposals 1, 2, 3 and 4 and will be voted in the proxy holders'
discretion as to other matters that may properly come before the Annual
Meeting. An automated system administered by the Company's transfer agent
tabulates stockholder votes.
Pursuant to Delaware law, directors are elected by plurality vote. With
regard to such election, votes may be cast in favor of, or withheld from,
each nominee. Withheld votes will be excluded from the vote and will have no
effect. Proposal 2 will require the approval of the affirmative vote of a
majority of the outstanding shares of Common Stock of the Company. Proposals
3 and 4 will each require the approval of the affirmative vote of a majority
of the shares present or represented and entitled to vote at the Annual
Meeting. Abstentions and broker non-votes (I.E., where the broker or nominee
submits a proxy specifically indicating the lack of discretionary authority
to vote on a matter) on these proposals will be counted for purposes of
determining the presence or absence of a quorum. Abstentions will be counted
in the tabulation of votes cast on these proposals and will have the same
effect as negative votes, whereas broker non-votes will not be counted for
purposes of determining whether a proposal has been approved.
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<PAGE>
REVOCABILITY OF PROXIES
Any person giving a proxy has the power to revoke it at any time before
its exercise. A proxy may be revoked by filing with the Secretary of the
Company at the Company's principal executive offices an instrument of
revocation or a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person.
SOLICITATION OF PROXIES
The Company will bear the cost of soliciting proxies, including the
preparation, assembly, printing and mailing of this Proxy Statement, the
Proxy and any additional solicitation materials furnished to the
stockholders. Copies of solicitation material will be furnished to brokerage
houses, fiduciaries and custodians holding shares in their names that are
beneficially owned by others to forward to such beneficial owners. The
Company may reimburse such persons for their costs of forwarding the
solicitation material to such beneficial owners. The original solicitation of
proxies by mail may be supplemented by solicitation by telephone, telegram or
other means by directors, officers, employees or agents of the Company. No
additional compensation will be paid to these individuals for any such
services. The Company has also retained the services of Georgeson Shareholder
Communications Inc. to solicit proxies by telephone, telegram or other means
for the Annual Meeting. The Company will pay Georgeson $11,500 for such
services.
THE ANNUAL REPORT OF THE COMPANY FOR THE FISCAL YEAR ENDED DECEMBER 31,
1999 HAS BEEN MAILED CONCURRENTLY WITH THE MAILING OF THE NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT TO ALL STOCKHOLDERS ENTITLED TO NOTICE OF AND TO
VOTE AT THE ANNUAL MEETING. THE ANNUAL REPORT IS NOT INCORPORATED INTO THIS
PROXY STATEMENT AND IS NOT CONSIDERED PROXY-SOLICITING MATERIAL.
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<PAGE>
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PROPOSAL NO. 1:
ELECTION OF DIRECTORS
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The Company's Certificate of Incorporation provides for a classified
Board of Directors consisting of three classes of directors with staggered
three-year terms, with each class consisting, as nearly as possible, of
one-third of the total number of directors. The Board currently consists of
nine persons, classified as follows: Class III, which will hold office until
the year 2001, consists of John P. Dougall, Philip Schlein and John S. Simon;
Class I, which will hold office until the year 2002, consists of Peter R.
Johnson, Tania Amochaev and Steven D. Brooks; and Class II, which will hold
office until 2003, if this Proposal No. 1 is approved, will consist of David
A. Cole, Garth Saloner and Garen K. Staglin.
At the Annual Meeting, the three directors (constituting all of the
members of Class II of the Board of Directors) are to be elected to serve
until the Company's 2003 annual meeting of stockholders, or until their
respective successor is elected and qualified, or until the death,
resignation or removal of such director. It is intended that the proxies will
be voted for the three nominees named below for election to the Company's
Board of Directors unless authority to vote for any such nominee is withheld.
The three nominees to the Board of Directors are David A. Cole, Garth Saloner
and Garen K. Staglin. Messrs. Cole, Saloner and Staglin are current members
of the Board of Directors. Each person nominated for election has agreed to
serve if elected, and the Board of Directors has no reason to believe that
any nominee will be unavailable or will decline to serve. In the event,
however, that any nominee is unable or declines to serve as a director at the
time of the Annual Meeting, the proxies will be voted for any nominee who
shall be designated by the current Board of Directors to fill the vacancy.
Unless otherwise instructed, the proxy holders will vote the proxies received
by them for the nominees named below. The three candidates receiving the
highest number of the affirmative votes of the shares entitled to vote at the
Annual Meeting will be elected directors of the Company. The proxies
solicited by this Proxy Statement may not be voted for more than three
nominees.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION
OF THE FOLLOWING NOMINEES FOR ELECTION AS DIRECTORS.
NOMINEES FOR TERM ENDING UPON THE
2003 ANNUAL MEETING OF STOCKHOLDERS
Set forth below is information regarding the nominees to the Board of
Directors that will serve until the year 2003, or until their respective
successors are duly elected and qualified.
<TABLE>
<CAPTION>
First Elected
Name Position(s) with the Company Age Director
- ---- ---------------------------- --- --------
<S> <C> <C> <C>
David A. Cole(1)(2) Director 57 2000
Garth Saloner, Ph.D.(2)(3) Director, Chairman of the Compensation Committee 45 1993
Garen K. Staglin(4) Director, Chairman of the Executive Committee 55 1991
</TABLE>
- ------------------------
(1) Member of the Nominations Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
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<PAGE>
(4) Member of the Executive Committee
MR. COLE was named a director of the Company in December 1999. Mr. Cole
has served as the Chairman of the Board of Kurt Salmon Associates, Inc.,
("KSA") a global management consulting firm that serves the retail, consumer
products, and health care industries. Mr. Cole joined KSA in 1977 as a
Managing Director and was Chairman and CEO from 1988 until 1999. Throughout
his tenure as CEO, Mr. Cole played a key leadership role in numerous
projects, including Strategy, Organization Development, Information
Technology Operations and Sourcing in the Retailing and Consumer Products
industries. Mr. Cole is also a keynote speaker at industry conferences in
North America, Europe and Asia.
DR. SALONER was named a director of the Company in December 1993. Dr.
Saloner has served as the Robert A. Magowan Professor of Strategic Management
and Economics at the Graduate School of Business at Stanford University (the
"Stanford GSB") since 1990. He also serves as a Co-Director of the Center for
Electronic Business and Commerce at the Stanford GSB. He served as Associate
Dean for Academic Affairs and Director of Research and Course Development at
Stanford from 1993 to 1996. From 1982 to 1990, Dr. Saloner was a professor in
the Economics Department of the Massachusetts Institute of Technology. Dr.
Saloner is a director of Charles River Associates, an economic consulting
firm, Brilliant Digital Entertainment, a 3D animation firm, and Next Stage
Entertainment, a firm engaged in building a network of live entertainment
theaters.
MR. STAGLIN was named a director of the Company in 1991. Since 1991, Mr.
Staglin has served as the Chief Executive Officer and Chairman of the Board
of Directors of Safelite Glass Corporation, a replacement auto glass
manufacturing and retailing company. From 1980 to 1991, Mr. Staglin was a
Vice President and General Manager of Automatic Data Processing, a computer
networking services company. Since 1985, Mr. Staglin has been the owner and
manager of Staglin Vineyards. Mr. Staglin currently serves as a director of
First Data Corporation, a supplier of computer services for credit card
processing and other financial services and CyberCash, Inc., a provider of
secure transaction services for the Internet. In 1994, Mr. Staglin was named
a member of the Advisory Council to the Stanford Graduate School of Business.
CONTINUING DIRECTORS FOR TERM ENDING UPON THE
2002 ANNUAL MEETING OF STOCKHOLDERS
Set forth below is information regarding the continuing directors that
will serve until the year 2002 or until their respective successors are duly
elected and qualified.
<TABLE>
<CAPTION>
First Elected
Name Position(s) with the Company Age Director
- ---- ---------------------------- --- --------
<S> <C> <C> <C>
Peter R. Johnson (1)(2)(3) Chairman of the Board of Directors 51 1985
Tania Amochaev (2) Director 50 1992
Steven D. Brooks (1)(2) Director, Chairman of the Audit Committee 48 1994
</TABLE>
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Executive Committee
(3) Member of the Nominations Committee
MR. JOHNSON founded the Company in 1985 and has been Chairman of the
Board since the Company's inception. Mr. Johnson served as Chairman and CEO
of the Company from October 1985 to March 1991 and again from January 1992 to
May 1993. Before founding the Company, Mr. Johnson was a Corporate General
Manager of Myer Emporium Limited, a large retailer in Australia. QRS sold PRJ
& Associates to Uniquest Incorporated in May 1993. Mr. Johnson served as the
Chief Executive Officer of Uniquest from December 1993 to December 1994. From
1995 to the present, Mr. Johnson has been a private investor in and a
consultant to a number of technology
6
<PAGE>
companies. Mr. Johnson served as Chairman of NSB Retail Systems PLC, a
publicly held company in the United Kingdom, from 1995 through October 1999
and remains its Senior Director. Mr. Johnson is currently Chairman and CEO of
Tradeweave (a QRS company). Mr. Johnson is also a Director of Style365.com
and several other privately held technology companies.
MS. AMOCHAEV was named a director in May 1992. Ms. Amochaev served
as the President of the Company from May 1992 until February 1997, and as
Chief Executive Officer from May 1993 until February 1997. Before joining the
Company, from 1988 to 1992, Ms. Amochaev was Chief Executive Officer of
Natural Language, Inc., a client server database tool software company. From
1984 to 1987, Ms. Amochaev was President and Chief Executive Officer of
Comserv Corporation, a manufacturing applications software company that was
sold in 1987 to Management Science America. Ms. Amochaev currently serves as
a director of Walker Interactive Systems, Inc., a financial software company,
Government Technology Services, Inc., a computer reseller to the government,
and of Symantec Corporation, a software company
MR. BROOKS was named a director of the Company in January 1994. Mr.
Brooks is a Managing Director at Broadview Capital Partners ("Broadview"), a
private equity firm focused upon investments in the technology sector. Mr.
Brooks joined Broadview in February 1999. From September 1997 to February
1999, Mr. Brooks served as a Managing Director of Donaldson Lufkin & Jenrette
Securities Corporation, an investment banking firm. From January 1997 to
August 1997, Mr. Brooks was a private investor and a consultant to technology
companies. From 1994 to December 1996, Mr. Brooks served as Managing Director
and Head of Global Technology Investment Banking at Union Bank of Switzerland
Securities, LLC. From 1988 to 1994, Mr. Brooks was a private investor and
consultant to high technology firms. From 1986 to 1988, Mr. Brooks served as
Managing Partner of investment banking at Robertson, Stephens & Co., an
investment bank. Mr. Brooks is a director of Paychex, Inc., a national
payroll processing and business services company, and VERITAS Software
Corporation, a storage management software company, as well as several
private companies.
CONTINUING DIRECTORS FOR TERM ENDING UPON THE
2001 ANNUAL MEETING OF STOCKHOLDERS
Set forth below is information regarding the continuing directors that will
serve until the year 2001, or until their respective successors are duly
elected and qualified.
<TABLE>
<CAPTION>
First Elected
Name Position(s) with the Company Age Director
- ---- ---------------------------- --- --------
<S> <C> <C> <C>
John P. Dougall(1) Director 56 1990
Philip Schlein (1)(2) Director 66 1996
John S. Simon (1) Chief Executive Officer and Director 43 1997
</TABLE>
- ------------------------
(1) Member of the Nominations Committee
(2) Member of the Compensation Committee
MR. DOUGALL has been a director of the company since July 1990. On
February 5, 1999, Mr. Dougall became Group Chief Executive Officer for Plessy
Asia Pacific. From December 1997 to February 1999, Mr. Dougall was a private
investor. From November 1996 to November 1997, Mr. Dougall served as Chairman
and Chief Executive Officer for Aristocrat Leisure Limited, an Australian
publicly listed company and a supplier to gambling and entertainment
companies. From January 1992 to September 1996, Mr. Dougall served as Chief
Executive Officer of AWA Limited, an electronics and telecommunications
company. Mr. Dougall held various executive positions with the Company from
July 1990 to January 1992, serving as President of the Company from February
1991 to June 1991 and as President and Chief Executive Officer from June 1991
to January 1992. From February 1988 to June 1990, Mr. Dougall was the
Executive Director of Paxus Corporation, a software services and outsourcing
firm.
7
<PAGE>
MR. SCHLEIN was named a director of the Company in February 1996. Mr.
Schlein has been a general partner of BMS Partners L.P., a venture partner of
U.S. Venture Partners, a venture capital firm, since April 1985. Mr. Schlein
held various executive positions with R.H. Macy & Company, Inc. from
September 1957 to December 1973 and was President and Chief Executive Officer
of its Macy's California division from January 1974 to January 1985. Mr.
Schlein currently serves as a director of Burnham Pacific Incorporated, a
commercial real estate development and leasing company, Ross Stores, Inc., a
clothing store chain, and Resound Corporation, a hearing device manufacturing
company, XOOM.com, Inc., an eCommerce company, and bebe stores, inc., a
producer of contemporary women's apparel and accessories. Additionally, Mr.
Schlein served as a director of Apple Computer, Inc. from 1979 to 1987.
MR. SIMON was named Chief Executive Officer in July 1998 and a
director of the Company in December 1997. Mr. Simon has held various
positions with the Company since 1988, including President from January 1998
until July 1998 and Executive Vice President from January 1994 to December
1997. From 1980 to 1988, Mr. Simon was employed by Carter Hawley Hale Stores,
Inc., a retail company, most recently as Senior Program Manager of its
Information Services Division, and prior to that held a number of
merchandising, store management and information services positions.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held nine meetings during fiscal year 1999.
Each of the nine directors constituting the Board of Directors for fiscal
year 1999 attended more than 75% of the aggregate of (i) the total number of
Board meetings held during that fiscal year, and (ii) the total number of
meetings held by all committees of the Board on which such director served,
except for Philip Schlein, who attended four out of nine Board meetings and
one out of two Compensation Committee meetings, and John P. Dougall, who
attended six out of nine Board meetings. The Board of Directors has an Audit
Committee, a Compensation Committee, an Executive Committee and a Nominations
Committee.
The Audit Committee of the Board of Directors held two meetings
during fiscal 1999. The Audit Committee, which is currently comprised of
Directors Brooks (Chairman), Johnson and Saloner, recommends engagement of
the Company's independent auditors, approves services performed by such
auditors and reviews and evaluates the Company's accounting system and its
system of internal controls.
The Compensation Committee of the Board of Directors held two
meetings during fiscal 1999. The Compensation Committee, which is currently
comprised of Directors Saloner (Chairman), Schlein and Cole (who joined the
committee in February 2000) has overall responsibility for the Company's
compensation policies and determines the compensation payable to the
Company's executive officers, including their participation in certain of the
Company's employee benefit and stock option plans.
The Executive Committee of the Board of Directors held five meetings
during fiscal 1999. The Executive Committee, which is currently comprised of
Directors Staglin (Chairman), Brooks, Johnson and Amochaev, has, in the
intervals between meetings of the Board of Directors, to the full extent
allowed by Delaware law, all the authority of the Board of Directors in the
management of the business and affairs of the Company, including, without
limitation, the power and authority to manage succession planning and
evaluation of strategic matters, including mergers and acquisitions. However,
the Executive Committee will not exercise its power and authority in a manner
inconsistent with any action, direction or instruction of the Board of
Directors.
A Nominations Committee of the Board of Directors was established in
December 1999. The Nominations Committee held no meetings during fiscal year
1999. The Nominations Committee, which is currently comprised of Directors
Johnson (Chairman), Dougall, Cole, Staglin and Simon. The Nominations
Committee was established to review and recommend candidates for membership
on the Board of the Company and the board of Tradeweave, Inc., a subsidiary
of the Company.
8
<PAGE>
DIRECTOR COMPENSATION
For fiscal year 1999, each non-employee director received a
quarterly fee of $2,500 for Board membership, as well as $1,000 per meeting
attended. The Executive Committee members received $2,000 per meeting
attended. Each non-employee director who is not appointed to the Board
pursuant to any contractual or other right or arrangement is eligible for
reimbursement, in accordance with Company policy, for expenses incurred in
connection with his attendance at meetings of the Board of Directors and the
committees thereof.
Under the Automatic Option Grant Program of the Company's 1993 Stock
Option/Stock Issuance Plan (the "1993 Plan"), as in effect for the 1999
fiscal year, each individual serving as a non-employee Board member on May
11, 1999, the date of the Annual Stockholders Meeting, received on that date
an option grant for 7,500 shares, provided such individual had served as a
non-employee Board member for at least six months. Accordingly, Ms. Amochaev
and Messrs., Brooks, Dougall, Johnson, Saloner, Schlein, Staglin and Hazlett
(a non-employee member of the Board on that date who has subsequently
resigned from the Board) each received an automatic option grant for 7,500
shares of Common Stock on May 11, 1999 in connection with their continued
service as non-employee Board members. Each such grant has an exercise price
of $43.167 per share, the fair market value per share of the Common Stock on
the grant date, and has a maximum term of 10 years, subject to earlier
termination following the optionee's cessation of Board service. Each of the
options is currently exercisable in a series of four successive equal annual
installments commencing six (6) months after the grant date, provided the
optionee continues to serve as a Board member. However, if Proposal No. 3 is
approved at the Annual Meeting, the vesting schedule in effect for each of
the options (other than the option granted to Mr. Hazlett which terminated
upon his resignation from the Board on November 30, 1999) will be revised so
that the option will become exercisable for 25% of the option shares upon the
optionee's completion of six (6) months of Board service measured from the
grant date and will become exercisable for the balance of the option shares
in a series of thirty-six (36) successive equal monthly installments upon the
optionee's completion of each of the next thirty-six (36) months of continued
Board service thereafter.
On December 9, 1999, Mr. Cole received an option grant for 15,000
shares in connection with his initial appointment to the Board as a
non-employee director. Such grant has an exercise price of $75.75 per share,
the fair market value per share of the Common Stock on the grant date, and
has a maximum term of 10 years, subject to earlier termination following Mr.
Cole's cessation of Board service. The option is currently exercisable in a
series of four successive equal annual installments commencing six (6) months
after the grant date, provided Mr. Cole continues to serve as a Board member.
However, if Proposal No. 3 is approved at the Annual Meeting, the vesting
schedule in effect for such option will be revised in the manner indicated
above for the other outstanding automatic option grants.
Each option under the Automatic Option Grant Program will become
immediately exercisable for all the option shares upon (i) certain changes in
ownership or control of the Company or (ii) the death or disability of the
optionee while serving as a Board member. Upon the successful completion of a
hostile tender offer for more than 50% of the Company's outstanding voting
stock, each such option may be surrendered to the Company for a cash
distribution per surrendered option share in an amount equal to the excess of
(a) the tender offer price paid per share of Common Stock over (b) the
exercise price payable for such option share.
On May 14, 1999, each non-employee Board member received a special
option grant under the Discretionary Option Grant Program of the 1993 Plan
for an additional 7,500 shares of Common Stock, and each individual who was
on that date serving as the Chairperson of any Board committee or of the
Board received an additional option grant under the Discretionary Option
Grant Program for another 15,000 shares of Common Stock. Accordingly, Ms.
Amochaev and Messrs., Brooks, Dougall, Johnson, Saloner, Schlein, Staglin and
Hazlett each received a discretionary option grant for 7,500 shares of Common
Stock on May 14, 1999 in connection with their continuation as non-employee
Board members, and Messrs. Brooks, Staglin, Saloner and Johnson each received
a second discretionary option grant for an additional 15,000 shares of Common
Stock on that date in connection with their continued service as the
respective Chairpersons of the Audit, Compensation and Executive
9
<PAGE>
Committees, and of the Board. Each such grant has an exercise price of
$43.167 per share, the fair market value per share of the Common Stock on the
grant date, and has a maximum term of 10 years, subject to earlier
termination following the optionee's cessation of Board service. Each of the
May 14, 1999 options is fully vested and immediately exercisable for all the
option shares.
The Company entered into a consulting agreement with Mr. Staglin on
May 3, 1999. Mr. Staglin will provide consulting services on merger and
acquisition activity to the Company when requested, up to 15 hours per month
until December 31, 2000. The Company will pay Mr. Staglin $3,000 per day plus
expenses for his consulting services. Additionally, Mr. Staglin received an
option grant for 15,000 shares in connection with his consulting agreement.
The grant has an exercise price of $36.667 per share, the fair market value
per share of the Common Stock on the grant date, and has a maximum term of 10
years, subject to earlier termination following Mr. Staglin's cessation of
consulting services. The option is fully vested and immediately exercisable
for all the option shares. For the fiscal year ended December 31, 1999, the
Company paid Mr. Staglin $3,030.35 in respect of his consulting agreement.
10
<PAGE>
MANAGEMENT
Set forth below is information regarding the executive officers of the
Company who are not directors:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Glenn DuBois 46 Vice President, Sales
Shawn M. O'Connor 40 President and Chief Operating Officer
Peter Papano 50 Chief Financial Officer and Secretary
Philip Woodworth 43 Vice President and General Manager
</TABLE>
MR. DUBOIS joined the Company in July 1997 as Vice President, Sales.
He is currently serving as acting Vice President, Sales for Tradeweave, Inc.,
a subsidiary of the Company. Prior to joining the Company, from July 1996 to
June 1997, he was Vice President of Sales for the LizWear Division of Liz
Claiborne, Inc., a manufacturer of apparel. From July 1991 to July 1996, Mr.
DuBois was with the Lee Division of VF Corporation, initially as Director of
Business Systems and Planning and, beginning in 1994, as Regional Vice
President of Sales. Prior to that, from 1983 to 1991, Mr. DuBois served in
various management roles in both retail relations and systems for Levi
Strauss.
MR. O'CONNOR joined the Company in February 1995 and became Vice
President, Chief Financial Officer and Secretary in March 1995. Mr. O'Connor
was named Chief Operating Officer in January 1998 and President in July 1998,
and currently serves in these two capacities. Before joining the Company,
from 1992 to 1994, Mr. O'Connor was Vice President and Chief Financial
Officer for Diasonics Ultrasound, Inc., a medical equipment manufacturer
("Diasonics Ultrasound"). From 1988 to 1992, Mr. O'Connor held various
management positions with Diasonics Ultrasound.
MR. PAPANO joined the Company in August 1998 as Vice President,
Finance, Chief Financial Officer and Secretary. Prior to joining the Company,
from 1991 to May 1998, Mr. Papano served in two principal capacities at
Knight-Ridder Information Inc. (now known as the Dialog Corporation), a
company in the information business that primarily provides online search and
current awareness information products, including Chief Financial Officer
from January 1994 to December 1997 and Senior Director of Finance from 1991
to December 1993. In addition, Mr. Papano served as Chief Financial Officer
for a subsidiary of Dialog Corporation from December 1997 until May 1998. He
began his career with GTE Corporation in local and long distance telephone
operations.
MR. WOODWORTH was named Vice President and General Manager in
October 1999. He formerly served as Vice President, Product Marketing from
October 1998 to October 1999. Mr. Woodworth is responsible for the Company's
products and product management and the development of Internet and Internet
technology services that complement the retail industry and demand chain
initiatives that the Company sponsors on behalf of its retailer customers,
vendors and carriers. Mr. Woodworth has worked for the Company for over nine
years and has held various positions, including Vice President of Sales and
Director of Projects. Prior to joining the Company, Mr. Woodworth was
employed in the data processing industry for 19 years.
11
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
the compensation earned for services rendered in all capacities to the
Company and its subsidiaries for the 1999, 1998 and 1997 fiscal years by (i)
the Company's Chief Executive Officer and (ii) each of the Company's four
other most highly compensated executive officers for the 1999 fiscal year.
All the individuals named in such table will be hereafter referred to as the
"Named Executive Officers." No other executive officer of the Company who
would have otherwise been included in the table on the basis of salary and
bonus earned for the 1999 fiscal year resigned or terminated employment
during such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------- Securities All Other
Name and Principal Position Year Salary (1) Bonus Underlying Options (#) Compensation (2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Glenn DuBois 1999 $174,583 $ 70,000 10,000 $3,842
Vice President, Sales (3) (4) 1998 $170,000 $139,127 30,000 $57,618
1997 $ 85,000 $ 40,531 60,000 $1,488
Shawn M. O'Connor 1999 $222,019 $134,200 50,000 $9,119
President and Chief Operating 1998 $210,925 $202,760 60,000 $9,119
Officer 1997 $169,166 $ 92,688 150,000 $4,750
Pete Papano 1999 $170,000 $ 57,800 15,000 $3,300
Vice President, Finance, Chief 1998 $ 60,590 -- 57,500 --
Financial Officer and Secretary (5) 1997 -- -- -- --
John S. Simon 1999 $238,333 $148,000 80,000 $9,955
Chief Executive Officer and 1998 $220,825 $213,811 60,000 $8,186
Director 1997 $179,166 $ 93,438 150,000 $6,346
Philip Woodworth 1999 $168,333 $ 63,500 15,000 $5,000
Vice President and General 1998 $130,000 $ 88,486 15,000 $5,000
Manager 1997 $110,250 $ 40,000 15,000 $4,750
</TABLE>
- ---------------
(1) Includes salary deferred under the Company's 401(k) Plan and Non Qualified
Deferred Compensation Plan.
(2) The indicated amount for each Named Executive Officer is comprised of (i)
Company contributions made to the Company's 401(k) and Non Qualified
Deferred Compensation ("NQDC") Plans which match the salary deferral
contributions made by such officer to such plans, (ii) long-term disability
insurance premiums paid by the Company on behalf of such officer, (iii)
life insurance premiums paid by the Company on behalf of such officer, (iv)
reimbursed moving expenses; (v) severance and (vi) consulting fees. See the
table below for the dollar amount of each such item.
(3) Mr. DuBois is currently serving as acting Vice President, Sales for
Tradeweave, Inc., a subsidiary of the Company.
(4) Mr. DuBois' annualized salary was $170,000 for the 1997 fiscal year.
(5) Mr. Papano's annualized salary was $170,000 for the 1998 fiscal year.
12
<PAGE>
ALL OTHER COMPENSATION
<TABLE>
<CAPTION>
Matching 401(k) Disability Life Reimbursed
And NQDC Plan Insurance Insurance Moving Consulting
Name Year Contribution Premium Premium Expenses Severance Fees
- ---- ---- ------------ ------- -------- -------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Glenn DuBois 1999 $3,842 -- -- -- -- --
Vice President, Sales 1998 $5,000 -- -- $52,618 -- --
1997 $1,488 -- -- -- -- --
Shawn O'Connor 1999 $5,000 $1,929 $2,190 -- -- --
President and Chief 1998 $5,000 $1,929 $2,190 -- -- --
Operating Officer 1997 $4,750 -- -- -- -- --
Pete Papano 1999 $3,300 -- -- -- -- --
Vice President, Finance, 1998 $2,267 -- -- -- -- --
Chief Financial Officer 1997 -- -- -- -- -- --
and Secretary
John Simon 1999 $5,000 $1,963 $2,992 -- -- --
Chief Executive 1998 $5,000 $1,963 $1,223 -- -- --
Officer and Director 1997 $4,750 $1,112 $484 -- -- --
Philip Woodworth 1999 $5,000 -- -- -- -- --
Vice President and 1998 $5,000 -- -- -- -- --
General Manager 1997 $4,750 -- -- -- -- --
</TABLE>
STOCK OPTIONS
The following table sets forth information concerning the stock
options granted during the 1999 fiscal year to the Named Executive Officers.
No stock appreciation rights were granted during the 1999 fiscal year to the
Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------
Number of Percent of Total
Securities Options Potential Realizable Value at
Underlying Granted to Assumed
Options Employees in Exercise or Base Expiration Annual Rates of Stock Price
Name Granted(#) Fiscal Year(1) Price Share(2) Date Appreciation for Option Term(3)
- ---- ---------- -------------- -------------- ---- -------------------------------
5% 10%
----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Glenn DuBois 10,000 (4) 1.85% $63.5625 10/14/09 $399,741 $1,013,023
Shawn M. O'Connor 50,000 (4) 9.26% $63.5625 10/14/09 $1,998,706 $5,065,113
Peter Papano 15,000 (4) 2.78% $63.5625 10/14/09 $599,612 $1,519,534
John S. Simon 80,000 (4)(5) 14.82% $63.5625 10/14/09 $3,197,929 $8,104,180
Philip Woodworth 15,000 (4) 2.78% $63.5625 10/14/09 $599,162 $1,519,534
</TABLE>
- ------------------
(1) The Company granted options to purchase 734,865 shares of Common Stock
during the 1999 fiscal year. Options for 600,400 shares were granted under the
1993 Plan, and options for 134,465 shares were granted under the 1997
Non-Officer Plan. All grants to the Named Executive Officers were made under the
1993 Plan. The Plan Administrator may grant two types of stock appreciation
rights in connection with option grants made under such plan: tandem stock
appreciation rights which provide the holders with the right to surrender their
options for an appreciation distribution from the Company, payable in cash or
Common Stock, equal in amount to the excess of (a) the fair market value of the
shares of Common Stock subject to the surrendered option over (b) the aggregate
exercise price payable for such shares, and limited stock appreciation rights
which allow the holders to surrender their options to the Company, upon the
successful completion of a hostile tender offer
13
<PAGE>
for more than 50% of the outstanding Common Stock, for a cash distribution in
an amount per surrendered option share equal to the excess of (a) the tender
offer price paid per share of Common Stock over (b) the exercise price
payable for such share. No stock appreciation rights were granted to the
Named Executive Officers during the 1999 fiscal year.
(2) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares and the
Federal and state income or employment withholding taxes to which the
optionee may become subject in connection with such exercise. The optionee
may be permitted, subject to the approval of the Plan Administrator, to apply
a portion of the shares purchased under the option (or to deliver existing
shares of Common Stock) in satisfaction of such withholding tax liability.
(3) There is no assurance that the actual stock price appreciation over the
10-year option term will be at the five percent and ten percent assumed
annual rates of compounded stock price appreciation or at any other level.
Unless the market price of the Company's Common Stock does, in fact,
appreciate over the option term, no value will be realized from the option
grants.
(4) Each option, except for 30,000 shares of the 80,000 share option grant
made to Mr. Simon, is currently structured so that the option will become
exercisable in a series of four successive equal annual installments upon the
optionee's completion of each year of service over the four-year period
measured from the grant date. The grant date for each option was October 15,
1999. The shares subject to such option will vest immediately in the event
the Company is acquired by a merger or asset sale, unless the option is
assumed by the acquiring entity. The Plan Administrator also has the
discretionary authority to provide for accelerated vesting of the option
shares upon (i) the occurrence of such acquisition, whether or not the option
is assumed, (ii) the termination of the optionee's employment within a
specified period following such acquisition, if the option does not otherwise
accelerate at the time of the acquisition, (iii) a change in ownership of
more that 50% of the Company's outstanding voting stock, (iv) a change in the
majority of the Board effected through one or more proxy contests, or (v) the
subsequent termination of the optionee's employment within a specified period
following such a change in ownership or majority of the Board. The option
grants made to Messrs. Simon and O'Connor for the 1999 fiscal year will
automatically accelerate upon an acquisition or other change in control of
the Company, except to the extent such acceleration would result in an excess
parachute payment under the federal tax laws. To the extent their options do
not accelerate at the time of the acquisition or other change in control,
acceleration will occur in the event their employment terminates within 24
months following such acquisition or change in control.
(5) Options for 30,000 shares subject to the 80,000-share option grant made
to Mr. Simon will vest on the attainment of certain performance goals as
follows: Options for 15,000 shares will vest at the end of fiscal year 2001
if the Company achieves (i) revenue growth of 35% between fiscal year 1999
and fiscal year 2000 and (ii) revenue growth of 35% between fiscal year 2000
and fiscal year 2001. Options for 15,000 shares will vest at the end of
fiscal year 2002 if the Company achieves (i) revenue growth of 35% between
fiscal year 2001 and fiscal year 2002 and (ii) revenue growth of 35% between
fiscal year 1999 and fiscal year 2000 or fiscal year 2000 and fiscal year
2001.
STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information with respect to
the Named Executive Officers concerning the exercise of options during the
1999 fiscal year and unexercised options held by the Named Executive Officers
at the end of the 1999 fiscal year. No Named Executive Officers exercised
SARs during the 1999 fiscal year, and there were no SARs held by such
individuals at the end of the 1999 fiscal year.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options at
Options at Fiscal Fiscal Year-End
Year-End (market price of shares less
(Number of Shares) exercise price)(1)(2)
Shares Acquired ------------------------- ----------------------------
Name on Exercise (#) Value Realized (3) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Glenn DuBois -- -- 37,499 62,500 $3,111,787 $4,840,000
Shawn M. O'Connor 58,175 $2,058,411 166,824 140,000 $14,245,585 $9,799,375
Peter Papano 3,000 $86,500 12,000 60,000 $1,033,281 $4,493,906
John S. Simon 45,000 $1,529,775 184,124 246,000 $9,512,537 $17,490,713
Philip Woodworth 6,150 $214,750 59,400 37,500 $5,520,913 $2,556,875
</TABLE>
- -----------------------------
14
<PAGE>
(1) "In-the-money" options are options whose exercise price was less than the
market price of the Company's Common Stock on December 31, 1999, the last
business day of the 1999 fiscal year.
(2) Based upon the market price of $105 per share, which was the closing price
per share of the Company's Common Stock as quoted on the Nasdaq National
Market on December 31, 1999.
(3) Equal to the excess of (i) the market price of the purchased share on the
date the option was exercised for those shares over (ii) the exercise price
paid for the shares.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL AGREEMENTS
On March 15, 1999, the Company entered into an employment agreement
with John S. Simon, the Chief Executive Officer of the Company and a member
of the Board of Directors. Under the terms of the agreement, the Company
agreed to pay Mr. Simon a base salary of $240,000 for the 1999 fiscal year
and additional incentive compensation of up to $160,000 for such fiscal year
based upon the achievement of specified individual and Company performance
targets. Should the Company terminate Mr. Simon's employment other than for
cause, he will be entitled to the continuation of his total targeted annual
compensation (base salary and bonus) and benefits for a period of 12 months.
If there occurs a change of control of the Company and Mr. Simon's employment
is subsequently terminated other than for cause or he resigns in connection
with a reduction in his salary or target bonus by 15% or more, a reduction in
his responsibilities or a relocation of his principal place of employment by
more than 50 miles, then he will be entitled to the continuation of his
targeted annual compensation and benefits for a period of 12 months following
such termination or resignation at the level in effect at the time of such
termination or resignation or (if greater) at the time of the change in
control. To the extent any stock options held by Mr. Simon at the time of the
change in control are not assumed or otherwise continued in effect by the
successor entity, those options will vest and accelerate in full at the time
of such change in control. However, any options granted to Mr. Simon after
December 23, 1997 will immediately vest upon a change in control of the
Company, whether or not assumed or continued in effect, except to the extent
such acceleration would result in an excess parachute payment under the
federal tax laws. To the extent any of Mr. Simon's options do not accelerate
at the time of the change in control because of such limitation, full and
immediate acceleration of those post-December 23, 1997 options will occur in
the event his employment terminates within 24 months following such change in
control.
On March 15, 1999, the Company entered into an employment agreement
with Shawn M. O'Connor, the President and Chief Operating Officer of the
Company. Under the agreement, the Company agreed to pay Mr. O'Connor a base
salary of $225,000 for the 1999 fiscal year, and additional incentive
compensation of up to $145,000 for such fiscal year based upon the
achievement of specified individual and Company performance targets. The
employment agreement is terminable by either party at any time. Should the
Company terminate Mr. O'Connor's employment other than for cause, he will be
entitled to the continuation of his total targeted annual compensation
(salary and bonus) and benefits for a period of 12 months. If there occurs a
change of control of the Company and Mr. O'Connor's employment is
subsequently terminated other than for cause or he resigns in connection with
a reduction in his salary or target bonus by 15% or more, a reduction in his
responsibilities or a relocation of his principal place of employment by more
than 50 miles, then he will be entitled to the continuation of his targeted
annual compensation and benefits for a period of 12 months following such
termination or resignation. To the extent any stock options held by Mr.
O'Connor at the time of the change in control are not assumed or otherwise
continued in effect by the successor entity, those options will vest and
accelerate in full at the time of such change in control. However, any
options granted to Mr. O'Connor after December 23, 1997 will immediately vest
upon a change in control of the Company, except to the extent such
acceleration would result in an excess parachute payment under the federal
tax laws. To the extent any of Mr. O'Connor's options do not accelerate at
the time of the change in control because of such limitation, full and
immediate acceleration of those post-December 23, 1997 options will occur in
the event his employment terminates within 24 months following such change in
control.
15
<PAGE>
The Company has also entered into agreements with each of Glenn
DuBois, Peter Papano and William Hammack, Vice President, Human Resources,
respectively, pursuant to which each of them will be entitled to the
continuation of their targeted annual compensation (base salary and bonus)
and benefits for a period of 12 months in the event the Company terminates
their employment other than for cause. If there occurs a change of control
and within the succeeding 24 months either the employment of such individual
is terminated without cause or he resigns by reason of a reduction in his
salary of 15% or more, a reduction in his duties or a change in his principal
place of employment by more than 50 miles, then such individual will be
entitled to the continuation of his targeted annual compensation and benefits
for a period of 12 months, and his initial option grants of 45,000 shares
(for Mr. DuBois), 52,500 shares (for Mr. Papano) and 37,500 shares (for Mr.
Hammack), respectively, will accelerate and vest in full. In addition, should
there occur a change of control prior to the full vesting of such officer's
initial option grant and that officer continues in the employ of the
successor company for a period of 12 months, then his initial option will
accelerate and vest upon the completion of that 12 month period of employment
following the change of control.
The Compensation Committee of the Board of Directors has the
authority as Plan Administrator of the 1993 Plan to provide for the
accelerated vesting of the shares of Common Stock subject to outstanding
options held by the Chief Executive Officer and the Company's other executive
officers, whether granted under that plan or any predecessor plan, in the
event their employment were to be terminated (whether involuntarily or
through a forced resignation) following (i) an acquisition of the Company by
merger or asset sale, (ii) a change in ownership of more than 50% of the
Company's outstanding Common Stock or (iii) a change in the majority of the
Board as a result of one or more contested elections for Board membership.
The Compensation Committee also has the authority under the 1993 Plan to
accelerate the vesting of outstanding options immediately upon such
acquisition or change in ownership or majority of the Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of
Directors are currently Garth Saloner, Philip Schlein and David A. Cole (who
joined the committee in February 2000).
No member of the Compensation Committee was at any time during the
1999 fiscal year, or at any other time, an officer or employee of the
Company. No executive officer of the Company serves as a member of the Board
of Directors or Compensation Committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
16
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the
"Committee") is currently comprised of three non-employee Board members,
Garth Saloner (Chairman), Philip Schlein and David A. Cole (who joined the
committee in February 2000).
The Committee administers the Company's compensation policies and
programs. The Committee has responsibility for executive compensation
matters, including setting the base salaries of the Company's executive
officers, approving individual bonuses and bonus programs for executive
officers, administering certain employee benefit programs, and administering
the Company's 1993 Stock Option Plan (the "1993 Plan") under which grants may
be made to executive officers and other key employees. The following is a
summary of policies of the Committee that affect the compensation paid to the
Company's executive officers, as reflected in the tables and text set forth
elsewhere in this proxy statement.
GENERAL COMPENSATION POLICY. The overall policy of the Committee is
to offer the Company's executive officers competitive compensation
opportunities based upon their personal performance, the financial
performance of the Company and their contribution to that performance. One of
the primary objectives is to have a substantial portion of each executive
officer's compensation contingent upon the Company's financial success as
well as upon such executive officer's own level of performance. Each
executive officer's compensation package is generally comprised of three
elements: (i) base salary, which is determined on the basis of the
individual's position and responsibilities with the Company, the level of his
or her performance and the financial performance of the Company, (ii)
incentive performance awards payable in cash and tied to the achievement of
specified performance goals and (iii) long-term stock-based incentive awards
designed to strengthen the mutuality of interests between the executive
officers and the Company's stockholders. Generally, as an executive officer's
level of responsibility increases, a greater portion of that individual's
total compensation will be dependent upon Company performance and stock price
appreciation rather than base salary.
FACTORS. The principal factors considered in establishing the
components of each executive officer's compensation package for the 1999
fiscal year are summarized below. The Committee may, in its discretion, apply
entirely different factors, such as different measures of financial
performance, for future fiscal years.
BASE SALARY. In setting the base salary for each executive
officer, the Committee considers executive compensation data compiled from
surveys of computer services companies. These surveys are performed and
compiled by various independent consulting firms and are conducted on local
as well as national bases. In selecting companies from the surveys for
comparative compensation purposes, the Committee considers a number of
factors, such as their size and organizational complexity, the nature of
their businesses, the regions in which they operate, the structure of their
compensation programs (including the extent to which they rely on bonuses and
other contingent forms of compensation) and the availability of compensation
information. Because of the nature of this selection process, there is no
substantial correlation between the companies chosen for comparative
compensation purposes and those companies included in the indices used to
compare stockholder return in the Stock Performance Chart which appears
elsewhere in this proxy statement.
Using the survey data for the selected companies as a starting
point, the Committee evaluates each executive's level of performance as
compared to the performance of other officers within the Company to determine
the executive's base salary. Adjustments to each officer's base salary are
considered annually and are determined based upon: (i) changes in the level
of base salaries of comparable positions in the market, as determined on the
basis of the survey data, (ii) personal performance in the past fiscal year
and (iii) the overall performance of the Company. For the 1999 fiscal year,
the base salaries of the Company's executive officers ranged from the 25th to
75th percentile of the salary levels in effect for comparable positions at
the surveyed companies.
INCENTIVE COMPENSATION. For the 1999 fiscal year, a bonus
program was established under which each executive officer could earn a bonus
on the basis of the Company's attainment of pre-established revenue, and net
operating profit targets and that person's success in achieving the
individual performance goals
17
<PAGE>
predetermined for him. The potential bonus amount was determined by each
individual's base salary and job level, and the actual bonus paid varied with
the degree to which the performance factors described above were attained.
The amounts paid to each executive officer under the program ranged from a
high of $148,000 to a low of $57,800 for the 1999 fiscal year.
LONG-TERM STOCK-BASED INCENTIVE COMPENSATION. From time to
time, the Committee approves stock option grants for the Company's executive
officers under the 1993 Plan. The grants are designed to align the interests
of each executive officer with those of the stockholders and provide each
individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the business. Each grant
generally allows the officer to acquire shares of the Company's Common Stock
at a fixed price per share (the market price on the grant date) over a
specified period of time (up to 10 years). The option generally becomes
exercisable in a series of annual installments over the officer's continued
employment with the Company. Accordingly, the option provides a return to the
executive officer only if the market price of the shares appreciates over the
option term and the officer continues in the Company's employ. The size of
the option grant to each executive officer is designed to create a meaningful
opportunity for stock ownership and is based upon the executive officer's
current position with the Company, internal comparability with option grants
made to other Company executives, the executive officer's current level of
performance and the executive officer's potential for future responsibility
and promotion over the option term. The Committee also takes into account the
number of vested and unvested options held by the executive officer in order
to maintain an appropriate level of equity incentive for that individual.
However, the Committee does not adhere to any specific guidelines as to the
relative option holdings of the Company's executive officers.
CEO COMPENSATION.
John S. Simon, the Company's Chief Executive Officer, has
an existing employment contract with the Company under which Mr. Simon was
paid a base salary of $240,000 for fiscal 1999, and his annualized target
bonus was set at $160,000. However, on the basis of the Compensation
Committee's evaluation of Mr. Simon's individual performance for the 1999
fiscal year and the Company's attainment of certain performance milestones
tied to revenue growth, operating profit and new product introduction, he was
awarded an incentive bonus for the 1999 fiscal year in the amount of
$148,000. In addition, on October 15, 1999, Mr. Simon was granted an option
to purchase an additional 80,000 shares of the Company's common stock at an
exercise price of $63.5625 per share, the fair market value per share on the
grant date. The option is currently structured as to 50,000 of the option
shares so that the option will become exercisable for those shares in a
series of four successive equal annual installments upon Mr. Simon's
completion of each year of service over the four-year period measured from
the grant date. However, if Proposal No.3 is approved at the Annual Meeting,
the Compensation Committee intends to restructure the option so that it will
become exercisable for those 50,000 shares in a series of installments over
Mr. Simon's period of service as follows: (i) the option will become
exercisable for 25% of the option shares upon his completion of one year of
service measured from the grant date, and (ii) the option will become
exercisable for the balance of the option shares in a series of 36 successive
equal monthly installments upon his completion of each of the next 36 months
of service thereafter. The remaining 30,000 shares subject to the October 15,
1999 option grant will become exercisable based on the achievement of certain
performance goals as follows: the option will become exercisable for one half
of those shares at the end of fiscal year 2001 if the Company achieves (i)
revenue growth of 35% between fiscal year 1999 and fiscal year 2000 and (ii)
revenue growth of 35% between fiscal year 2000 and fiscal year 2001. The
option will become exercisable for the other half of the shares at the end of
fiscal year 2002 if the Company achieves (i) revenue growth of 35% between
fiscal year 2001 and fiscal year 2002 and (ii) revenue growth of 35% between
fiscal year 1999 and fiscal year 2000 or fiscal year 2000 and fiscal year
2001.
TAX LIMITATION. As a result of Federal tax legislation enacted in
1993, a publicly held company such as the Company will not be allowed a
Federal income tax deduction for compensation paid to certain executive
officers, to the extent that compensation exceeds $1 million per officer in
any year. This limitation was in effect for the 1999 fiscal year, but the
compensation paid to the Company's executive officers for the 1999 fiscal
year did not exceed the $1 million limit per officer. In addition, the
Company's 1993 Plan has been structured so that any
18
<PAGE>
compensation deemed paid to an officer in connection with the exercise of his
or her option grants under the plan will qualify as performance-based
compensation which is not subject to the $1 million limitation. Because it is
very unlikely that the cash compensation payable to any of the Company's
executive officers in the foreseeable future will approach the $1 million
limit, the Compensation Committee has decided at this time not to take any
action to limit or restructure the elements of cash compensation payable to
the Company's executive officers. The Compensation Committee will reconsider
this decision should the individual cash compensation of any executive
officer ever approach the $1 million level.
Submitted by the Compensation Committee of the Company's Board of
Directors:
Garth Saloner, Chairman
Philip Schlein, Member
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return
on the Common Stock of the Company with that of the S&P 500 Stock Index, a
broad market index published by Standard & Poor's Corporation, and a selected
retail processing services company stock index compiled by BT Alex. Brown
Incorporated. The comparison for each of the periods assumes that $100 was
invested on August 5, 1993 (the date of the Company's initial public
offering) in the Company's Common Stock, the stocks included in the S&P 500
Stock Index and the stocks included in the retail processing services company
index. These indices, which reflect formulas for dividend reinvestment and
weighing of individual stocks, do not necessarily reflect returns that could
be achieved by individual investors.
COMPARISON OF YEARLY CUMULATIVE TOTAL RETURN
AMONG QRS, S&P 500 INDEX AND PROCESSING SERVICES COMPANY INDEX
(CHART)
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
COMPANY'S PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE EXCHANGE
ACT THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN
WHOLE OR IN PART, THE PRECEDING COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION AND THE PRECEDING PERFORMANCE GRAPH SHALL NOT BE INCORPORATED BY
REFERENCE INTO ANY SUCH FILINGS, NOR SHALL SUCH REPORT OR GRAPH BE
INCORPORATED BY REFERENCE INTO ANY FUTURE FILINGS.
19
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of December 31, 1999, by (i) all
persons known by the Company to be beneficial owners of five percent or more
of its outstanding Common Stock, (ii) each director of the Company, (iii) the
Named Executive Officers and (iv) all executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP (1)
---------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ------------------------------------ ---------------- ----------------
<S> <C> <C>
Peter R. Johnson (2) 1,456,249 10.62%
1400 Marina Way South
Richmond, CA 94804
Brown Investment Advisory & Trust Company ("BIATC") and Brown 1,222,820 8.96%
Advisory Incorporated ("BAI")
16 South Street
Baltimore, Maryland 21202 (3)
Pilgrim Baxter & Associates, Ltd 775,200 5.37%
825 Duportail Road
Wayne, PA 19087 (4)
Tania Amochaev (2) 115,750 *
Steven D. Brooks (2) 48,750 *
David A. Cole -- --
John P. Dougall (2) 17,500 *
Glenn DuBois (2) 37,499 *
Shawn M. O'Connor (2) 172,856 1.25%
Peter Papano (2) 12,000 --
Garth Saloner (2) 63,750 *
Philip Schlein (2) 16,875 *
John S. Simon (2) 190,086 1.37%
Garen K. Staglin (2) 98,750 *
Philip Woodworth (2) 60,523 *
All current executive officers and directors as a group (13 2,301,066 15.93%
persons) (5)
</TABLE>
- ---------------
* Less than one percent.
(1) Assumes 13,647,208 shares outstanding as of December 31, 1999. Beneficial
ownership is determined under the rules of the Securities and Exchange
Commission ("SEC") and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to options, warrants
and convertible notes currently exercisable or convertible, or exercisable
or convertible within 60 days after December 31, 1999, are deemed
outstanding for computing the percentage of the person holding such options
but are not deemed outstanding for computing the percentage of any other
person. Except as indicated by footnote, and subject to community property
laws where applicable, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
20
<PAGE>
(2) The amounts shown include the following shares issuable upon exercise of
options to purchase shares of Common Stock that are currently exercisable
or will become exercisable within 60 days after December 31, 1999: Mr.
Johnson, 56,250; Ms. Amochaev, 109,929; Mr. Brooks, 48,750; Mr. Dougall,
17,187; Mr. DuBois, 37,499; Mr. O'Connor, 166,824; Mr. Papano, 12,000; Mr.
Saloner, 63,750; Mr. Schlein, 16,875; Mr. Simon, 184,124; Mr. Staglin,
65,625; and Mr. Woodworth, 59,400.
(3) Pursuant to a Schedule 13G dated February 14, 2000, and filed with the SEC,
Brown Investment Advisory & Trust Company ("BIATC") and Brown Advisory
Incorporated ("BAI") have reported that as of December 31, 1998, it had
sole voting power over 1,189,595 of such shares, no shared voting power
over any such shares, and dispositive power over all of such shares. Brown
Advisory Inc. is a wholly-owned subsidiary of BIATC.
(4) Pursuant to a Schedule 13G dated January 7, 2000, and filed with the SEC,
Pilgrim Baxter & Associates, Ltd has sole voting power over 553,550 shares
and has sole dispositive power over 775,200 shares.
(5) The amount shown includes 747,689 shares issuable upon exercise of options
and warrants to purchase shares of Common Stock that are currently
exercisable or will become exercisable within 60 days after December 31,
1999.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10%
of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than 10%
stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely upon a review of copies of
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 1999, all the
Company's officers, directors and greater than 10% stockholders complied with
the applicable Section 16(a) filing requirements, except that each of the
following individuals filed a late Form 5 report: Shawn O'Connor, John Simon,
Philip Woodworth, Peter Johnson and Garen Staglin. Form 5 reports were filed
by Messrs. O'Connor (to report a stock exercise), Simon (to correct a Form 4
filing) and Woodworth (to correct a Form 4 filing) on February 29, 2000, and
by Messrs. Johnson and Staglin in March, 2000 to report charitable gifts.
21
<PAGE>
-----------------------------------------------------
PROPOSAL NO. 2:
APPROVAL OF AMENDMENT AND RESTATEMENT OF THE
CERTIFICATE OF INCORPORATION
-----------------------------------------------------
The present capital structure of the Company authorizes 20,000,000
shares of Common Stock and 10,000,000 shares of preferred stock each having a
par value of $.001 per share. The Board of Directors believes this capital
structure is inadequate for the present and future needs of the Company.
Therefore, the Board of Directors has unanimously approved the amendment and
restatement of the Company's Certificate of Incorporation (the "Certificate")
to increase the authorized number of shares of Common Stock from 20,000,000
shares to 60,000,000 shares. The Board believes this capital structure more
appropriately reflects the present and future needs of the Company and
recommends such amendment and restatement to the Company's stockholders for
adoption. The undesignated preferred stock may be issued from time to time in
one or more series with such rights, preferences and privileges as may be
determined by the Board of Directors. On March 16, 2000, 14,337,023 shares of
Common Stock were outstanding and no shares of preferred stock were
outstanding.
PURPOSE OF AUTHORIZING ADDITIONAL COMMON STOCK
Authorizing an additional 40,000,000 shares of Common Stock would give
the Board of Directors the express authority, without further action of the
stockholders, to issue such Common Stock from time to time as the Board of
Directors deems necessary. The Board of Directors believes it is necessary to
have the ability to issue such additional shares of Common Stock for general
corporate purposes. Potential uses of the additional authorized shares may
include stock dividends or distributions, acquisition transactions, equity
financings, issuance of options pursuant to the Company's 1993 Stock
Option/Stock Issuance Plan and issuances of Common Stock pursuant to the
Company's Employee Stock Purchase Plan without further action by the
stockholders, unless such action were specifically required by applicable law
or rules of any stock exchange on which the Company's securities may then be
listed.
The proposed increase in the authorized number of shares of Common
Stock could have a number of effects on the Company's stockholders depending
upon the exact nature and circumstances of any actual issuances of authorized
but un-issued shares. The increase could have an anti-takeover effect, in
that additional shares could be issued (within the limits imposed by
applicable law) in one or more transactions that could make a change in
control or takeover of the Company more difficult. For example, additional
shares could be issued by the Company so as to dilute the stock ownership or
voting rights of persons seeking to obtain control of the Company. Similarly,
the issuance of additional shares to certain persons allied with the
Company's management could have the effect of making it more difficult to
remove the Company's current management by diluting the stock ownership or
voting rights of persons seeking to cause such removal. In addition, an
issuance of additional shares by the Company could have an effect on the
potential realizable value of a stockholder's investment. In the absence of a
proportionate increase in the Company's earnings and book value, an increase
in the aggregate number of outstanding shares of the Company caused by the
issuance of the additional shares would dilute the earnings per share and
book value per share of all outstanding shares of the Company's Common Stock.
If such factors were reflected in the price per share of Common Stock, the
potential realizable value of a stockholder's investment could be adversely
affected. The Common Stock carries no preemptive rights to purchase
additional shares.
The proposed amendment and restatement of the Company's Certificate
of Incorporation was approved by the Board in February 2000.
22
<PAGE>
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the Company's outstanding
voting shares is required for approval of the amendment and restatement of
the Company's Certificate of Incorporation authorizing 40,000,000 additional
shares of Common Stock.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the amendment and
restatement of the Company's Certificate of Incorporation authorizing
40,000,000 additional shares of Common Stock.
23
<PAGE>
-----------------------------------------------------
PROPOSAL NO. 3:
APPROVAL OF AMENDMENTS TO THE
1993 STOCK OPTION/STOCK ISSUANCE PLAN
-----------------------------------------------------
General
The Company's stockholders are being asked to approve a series of
amendments to the Company's 1993 Stock Option/Stock Issuance Plan (the "1993
Plan") that will effect the following changes: (i) increase in the number of
shares of Common Stock authorized for issuance over the term of the 1993 Plan
by an additional 800,000 shares to a total of 4,700,000 shares, (ii)
implement an automatic share increase feature pursuant to which the number of
shares available for issuance under the 1993 Plan will automatically increase
on the first trading day of January each calendar year, beginning with the
calendar year 2001 and continuing through calendar year 2005, by an amount
equal to five percent (5%) of the total number of shares of Common Stock
outstanding on the last trading day of December in the immediately preceding
calendar year, but in no event will any such annual increase exceed 2,000,000
shares, subject to adjustment for subsequent stock splits, stock dividends
and similar transactions, (iii) change the vesting schedule in effect for the
option grants made to non-employee members of the Board of Directors pursuant
to the Automatic Option Grant Program so that each option currently
outstanding under such program or granted in the future under the program
will vest and become exercisable for twenty-five percent (25%) of the option
shares upon the optionee's completion of six months of Board service measured
from the date of the option grant and will become exercisable for the balance
of the option shares in a series of thirty-six (36) successive monthly
installments upon the optionee's completion of the next thirty-six months of
Board service thereafter, and (iv) extend the term of the 1993 Plan through
December 31, 2005. The Board has also amended the provisions of the Automatic
Option Grant Program to reduce the number of shares for which option grants
will be made on annual basis to continuing non-employee Board members and
Chairpersons of Board committees. See the description of the Automatic Option
Grant Problem below for further information.
The Board of Directors believes that the proposed increase to the
share reserve under the 1993 Plan and the implementation of the automatic
share increase feature are necessary to assure that there is a sufficient
number of shares available for issuance under the 1993 Plan in order to
attract and retain the services of individuals essential to the Company's
long-term success. Equity incentives play a significant role in the Company's
efforts to remain competitive in the market for talented individuals, and the
Company relies on such incentives as a means to attract and retain highly
qualified individuals in the positions vital to the Company's success. The
amendment to the Automatic Option Grant Program will make the equity
incentive package for the Company's non-employee Board members more
competitive and facilitate the Company's ability to attract and retain
experienced individuals to serve as non-employee Board members.
THE BOARD APPROVED THE AMENDMENTS TO THE 1993 PLAN IN FEBRUARY 2000,
SUBJECT TO STOCKHOLDER APPROVAL AT THE ANNUAL MEETING. THE AFFIRMATIVE VOTE
OF A MAJORITY OF THE SHARES OF COMMON STOCK PRESENT OR REPRESENTED AND
ENTITLED TO VOTE AT THE ANNUAL MEETING IS REQUIRED FOR APPROVAL OF THE
AMENDMENTS TO THE 1993 PLAN.
All share numbers in this Proposal reflect the 3-for-2 split of the
Common Stock that occurred on July 12, 1999.
24
<PAGE>
1993 PLAN BACKGROUND
The 1993 Plan was originally adopted by the Board in June 1993,
approved by the stockholders in July 1993 and reserved a total of 1,275,000
shares for issuance under the plan. The 1993 Plan became effective in
connection with the initial public offering of the Common Stock and serves as
the successor to the Company's 1990 Stock Option Plan (the "1990 Plan"). Each
option outstanding under the 1990 Plan was incorporated into the 1993 Plan,
and no further option grants have been made under the 1990 Plan since the
1993 Plan became effective. The 1993 Plan has been amended on several
occasions to increase the number of shares of Common Stock available for
issuance thereunder. Stockholders have approved additional increases of
Common Stock for the 1993 Plan as follows: 1995--750,000 shares,
1996--750,000 shares, 1998--525,000 shares and 1999--600,000 shares. The plan
was also amended in 1994 to establish a limit on the number of shares of
Common Stock for which any one individual may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the 1993 Plan.
The following is a summary of the principal features of the 1993
Plan as most recently amended. The summary, however, does not purport to be a
complete description of all the provisions of the 1993 Plan. Any stockholder
who wishes to obtain a copy of the actual plan document may do so by written
request to the attention of Investor Relations of the Company at the
Company's corporate offices in Richmond, California.
STRUCTURE OF THE 1993 PLAN
The 1993 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program, (ii) the Automatic Option Grant Program
and (iii) the Stock Issuance Program. Under the Discretionary Option Grant
Program, options may be issued to key employees (including officers and
directors), non-employee Board members and consultants and other independent
advisors in the service of the Company (or its parent or subsidiary
companies) who contribute to the management, growth and financial success of
the Company (or its parent or subsidiary companies). Under the Automatic
Option Grant Program, option grants are automatically made at periodic
intervals to non-employee members of the Board. Under the Stock Issuance
Program, key employees (including officers and directors), non-employee Board
members and consultants and other independent advisors in the service of the
Company (or its parent or subsidiary companies) who contribute to the
management, growth and financial success of the Company (or its parent or
subsidiary companies) may be issued shares of Common Stock directly either
through the purchase of such shares at fair market value or as a bonus tied
to their performance of services or the Company's attainment of financial
objectives.
As of February 29, 2000, 456 employees (including five executive
officers and eight non-employee Board members) were eligible to participate
in the Discretionary Option Grant and Stock Issuance Programs, and the seven
non-employee Board members were also eligible to receive grants under the
Automatic Option Grant Program.
SECURITIES SUBJECT TO 1993 PLAN
Assuming stockholder approval of this Proposal, 4,700,000 shares of
the Company's Common Stock will be authorized for issuance over the remaining
term of the 1993 Plan prior to any annual increase. As of February 29, 2000
options for 1,861,463 shares were outstanding, and 955,985 shares remained
available for future option grant assuming stockholder approval of this
Proposal. In addition, upon stockholder approval of this Proposal, the number
of shares reserved for issuance under the 1993 Plan will automatically
increase on the first trading day of January each calendar year, beginning
with calendar year 2001 and continuing through calendar year 2005, by an
amount equal to 5% of the total number of shares of Common Stock outstanding
on the last trading in December in the immediately preceding calendar year,
but in no event will any such annual increase exceed 2,000,000 shares,
subject to adjustment for subsequent stock splits, stock dividends or similar
transactions.
In December 1997, the Company implemented the Special Non-Officer
Stock Option Plan, pursuant to which 225,000 shares have been reserved for
issuance to employees of the Company who are not officers or Board
25
<PAGE>
members. The provisions of such supplemental plan are substantially the same
as those in effect under the Discretionary Option Grant Program of the 1993
Plan. On February 15, 1999 the Board approved an expansion of this plan by an
additional 225,000 shares to a total of 450,000 shares. As of February 29,
2000, options for 336,228 shares were outstanding under that plan, and 70,721
shares remained available of future option grants.
In no event may any one individual participating in the 1993 Plan be
granted stock options or separately-exercisable stock appreciation rights or
receive direct stock issuances for more than 750,000 shares of Common Stock
in the aggregate under the 1993 Plan after December 31, 1993. Stockholder
approval of this Proposal will also constitute reapproval of such limitation
for purposes of Internal Revenue Code Section 162(m).
In the event any change is made to the Common Stock issuable under
the 1993 Plan by reason of any stock split, stock dividend, combination of
shares, merger, reorganization, consolidation, recapitalization, exchange of
shares, or other change in capitalization of the Company affecting the
outstanding shares of Common Stock as a class without the Company's receipt
of consideration, appropriate adjustments will be made to (i) the maximum
number and/or class of securities issuable under the 1993 Plan, (ii) the
maximum number and/or class of securities for which any one individual may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the 1993 Plan after December 31, 1993, (iii) the
class and/or number of securities and option price per share in effect under
each outstanding option, (iv) the class and/or number of securities for which
automatic option grants are to be subsequently made to new and continuing
non-employee Board members under the Automatic Option Grant Program, and (v)
the maximum number and/or class of securities by which the share reserve
under the 1993 Plan is to increase automatically each year. The adjustments
to the outstanding options will prevent the dilution or enlargement of
benefits thereunder.
The grant of stock options or stock appreciation rights under the
1993 Plan will not affect the right of the Company to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate, sell, or transfer all or any part of its
business or assets.
ADMINISTRATION
The Compensation Committee of the Board will administer the 1993
Plan (other than the Automatic Option Grant Program). This committee (the
"Plan Administrator") will have complete discretion (subject to the
provisions of the 1993 Plan) to authorize option grants and direct stock
issuances under the 1993 Plan. However, all grants under the Automatic Option
Grant Program will be made in strict compliance with the provisions of that
program, and no administrative discretion will be exercised by the Plan
Administrator with respect to the grants made thereunder.
OPTIONS GRANTED
The table below shows, as to each of the Named Executive Officers
and the various indicated groups, the following information with respect to
stock option transactions effected during the period from January 1, 1999 to
March 13, 2000: (i) the number of shares of Common Stock subject to options
granted under the 1993 Plan during that period and (ii) the weighted average
exercise price payable per share under such options. No direct stock
issuances have been made to date under the 1993 Plan.
26
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE EXERCISE
NAME AND POSITION OPTION SHARES PRICE OF GRANTED OPTIONS
- ----------------- ------------- ------------------------
<S> <C> <C>
Glenn DuBois 10,000 $63.5625
Vice President, Sales
50,000 $63.5625
Shawn M. O'Connor
President and Chief Operating Officer
Peter Papano 15,000 $63.5625
Vice President, Finance, Chief Financial
Officer and Secretary
80,000 $63.5625
John S. Simon
Chief Executive Officer and Director
Philip Woodworth 15,000 $63.5625
Vice President and General Manager
All current executive officers as a group (13 210,000 $63.819
persons)
All non-employee Board members as a group (8 195,000 $45.173
persons)
All employees (other than current executive 369,865 $53.45
officers) as a group
</TABLE>
DISCRETIONARY OPTION GRANT PROGRAM AND STOCK ISSUANCE PROGRAM
Options granted under the Discretionary Option Grant Program may be
either incentive stock options under the federal tax laws or non-statutory
options which are not intended to meet such requirements. The principal
features of the grants made under the Discretionary Option Grant Program and
the direct issuances made under the Stock Issuance Program may be summarized
as follows:
EXERCISE PRICE AND EXERCISABILITY
The exercise price per share must not be less than 100% of the fair
market value per share of the Common Stock on the grant date. No option may
be outstanding for more than a 10-year term. The purchase price for any
shares sold under the Stock Issuance Program may not be less than 100% of the
fair market value of the shares on the date of issuance. Shares may also be
issued under the Stock Issuance Program for non-cash consideration, such as a
bonus for past services rendered to the Company or as an incentive tied to
the individual's performance of future service or the Company's attainment of
performance milestones.
The Plan Administrator may also assist any optionee (including an
officer) in the exercise of outstanding options under the Discretionary
Option Grant Program or in the purchase of shares under the Stock Issuance
Program by authorizing a loan from the Company or permitting such individual
to pay the exercise price or purchase price through a full-recourse,
interest-bearing promissory note payable in installments over a period of
years. The terms and conditions of any such loan or promissory note will be
established by the Plan Administrator
27
<PAGE>
in its sole discretion, but in no event may the maximum credit extended to
such individual exceed the aggregate price payable for the purchased shares,
plus any Federal and state income or employment withholding taxes to which
such individual may become subject in connection with the purchase. The Plan
Administrator may also provide for the forgiveness of any outstanding loan or
promissory note over the individual's period of continued service with the
Company.
STOCKHOLDER RIGHTS AND OPTION TRANSFERABILITY
No optionee will have any stockholder rights with respect to the option
shares until such optionee has exercised the option and paid the exercise
price for the purchased shares. Options are generally not assignable or
transferable other than by will or the laws of inheritance and, during the
optionee's lifetime, the option may be exercised only by such optionee.
However, the Plan Administrator may allow non-statutory options to be
transferred or assigned during the optionee's lifetime to one or more members
of the optionee's immediate family or to a trust established exclusively for
one or more such family members, to the extent such transfer or assignment is
in furtherance of the optionee's estate plan.
TERMINATION OF SERVICE
The Plan Administrator has complete discretion to establish the
period of time for which any option is to remain exercisable following the
optionee's cessation of service with the Company. Under no circumstances may
an option be exercised after the specified expiration date of the option
term. Each option under the Discretionary Option Grant Program will be
exercisable only to the extent of the number of shares for which such option
is exercisable at the time of the optionee's cessation of employment or
service. However, the Plan Administrator has the discretion, exercisable at
any time while the option remains outstanding, to accelerate the
exercisability of such option in whole or in part.
CORPORATE TRANSACTION
In the event of a Corporate Transaction (defined below), each
outstanding option under the Discretionary Option Grant Program which is not
to be assumed by the successor corporation or which is to be replaced with a
cash incentive program which preserves the existing option spread on the
unvested option shares will automatically accelerate in full, and all
unvested shares under the Stock Issuance Program will immediately vest,
except to the extent the Company's repurchase rights with respect to those
shares are to be assigned to the successor corporation. The Plan
Administrator will have the discretion to structure one or more option grants
under the Discretionary Option Grant Program or one or more unvested shares
issuances under the Stock Issuance Program so that those options or shares
will automatically vest in the event the individual's service is subsequently
terminated within a specified period following a Corporate Transaction in
which those options and shares do not otherwise vest on an accelerated basis.
The Plan Administrator may also structure one or more option grants under the
Discretionary Option Grant Program and one or more unvested share issuances
under the Stock Issuance Program so that those options and shares will
automatically vest in full upon a Corporate Transaction. Option grants made
to certain executive officers of the Company may vest on an accelerated basis
in connection with an acquisition or other change in control of the Company.
For further information concerning such acceleration provisions, please see
the "Executive Compensation--Employment Contracts, Termination of Employment
and Change-in-Control Agreements" section above.
A Corporate Transaction includes one or more of the following
stockholder-approved transactions: (i) a merger or acquisition in which the
Company is not the surviving entity (other than a transaction the principal
purpose of which is to change the state of the Company's incorporation), (ii)
the sale, transfer or other disposition of all or substantially all of the
Company's assets in complete liquidation or dissolution of the Company or
(iii) any reverse merger in which the Company is the surviving entity but in
which more than 50% of the Company's outstanding voting stock is transferred
to the acquiring entity or its wholly owned subsidiary.
28
<PAGE>
CHANGE IN CONTROL
The Plan Administrator will have the discretionary authority to
provide for automatic acceleration of outstanding options under the
Discretionary Option Grant Program and the automatic vesting of outstanding
shares under the Stock Issuance Program in connection with a Change in
Control, with such acceleration or vesting to occur either at the time of the
Change in Control or upon the subsequent termination of the participant's
service.
A Change in Control will be deemed to occur under the 1993 Plan
upon: (i) the acquisition of more than 50% of the Company's outstanding
voting stock pursuant to a tender or exchange offer made directly to the
Company's stockholders or (ii) a change in the composition of the Board of
Directors over a period of 36 months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (a) have been members
of the Board continuously since the beginning of such period or (b) have been
elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (a) who were still
in office at the time such election or nomination was approved by the Board.
The acceleration of vesting in the event of a change in the
ownership or control of the Company may be seen as an anti-takeover provision
and may have the effect of discouraging a merger proposal, a takeover attempt
or other efforts to gain control of the Company.
STOCK APPRECIATION RIGHTS
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
TANDEM STOCK APPRECIATION RIGHTS provide the holders with the
right to surrender their options for an appreciation distribution from
the Company equal in amount to the excess of (a) the fair market value
of the vested shares of Common Stock subject to the surrendered option
over (b) the aggregate exercise price payable for such shares. Such
appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash or in shares of Common Stock.
LIMITED STOCK APPRECIATION RIGHTS may be granted to officers
of the Company as part of their option grants. Any option with such a
limited stock appreciation right may be surrendered to the Company upon
the successful completion of a Hostile Take-Over of the Company. In
return for the surrendered option, the officer will be entitled to a
cash distribution from the Company in an amount per surrendered option
share equal to the excess of (a) the Take-Over Price per share over (b)
the exercise price payable for such share.
For purposes of such option cash-out provisions, the following
definitions are in effect under the 1993 Plan:
Hostile Take-Over: the direct or indirect acquisition by any
person or related group of persons (other than the Company or its
affiliates) of securities possessing more than 50% of the total
combined voting power of the Company's outstanding securities pursuant
to a tender or exchange offer made directly to the Company's
stockholders which the Board does not recommend that such stockholders
accept.
Take-Over Price: the greater of (A) the fair market value of
the shares of Common Stock subject to the surrendered option, measured
on the surrender date in accordance with the valuation provisions of
the 1993 Plan described below, or (B) the highest reported price per
share paid by the tender offeror in effecting the Hostile Take-Over.
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SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of
non-statutory options or unvested shares under the Discretionary Option Grant
Program or the Stock Issuance Program with the right to have the Company
withhold a portion of the shares of Common Stock otherwise issuable to such
individuals upon the exercise of those options or vesting of those shares in
order to satisfy the Federal and state income and employment withholding
taxes to which such individuals may become subject in connection with such
exercise or vesting. Alternatively, the Plan Administrator may allow such
individuals to deliver already existing shares of the Company's Common Stock
in payment of such withholding tax liability.
AUTOMATIC OPTION GRANT
Under the Automatic Option Grant Program, non-employee Board members
will receive option grants at specified intervals over their period of Board
service. All grants under such program will be made in strict compliance with
the express provisions of the program, and stockholder approval of this
Proposal will also constitute pre-approval of each option granted on or after
the date of the Annual Meeting pursuant to the provisions of the amended
provisions of the Automatic Option Grant Program summarized below and the
subsequent exercise of that option in accordance with such provisions.
Each individual who is first elected or appointed as a non-employee
Board member at any time on or after the 2000 Annual Meeting will
automatically be granted, at the time of such initial election or
appointment, a non-statutory option to purchase 15,000 shares of Common
Stock, provided such individual has not previously been in the employ of the
Company.
On the first trading day in January each year, beginning with
calendar year 2001, each individual who is at the time serving as a
non-employee Board member will automatically be granted an option to purchase
10,000 shares of Common Stock, and each individual who is also at the time
serving as a Chairperson of any Board committee will automatically be granted
a second option for an additional 10,000 shares, provided in each instance
that the individual has served as a non-employee Board member for at least
six months. For calendar year 2000, the option grants to the continuing
non-employee Board members and the Chairpersons of the Board committee were
for 15,000 shares each pursuant to an amendment to the Automatic Option Grant
Program approved by the stockholders at the 1999 Annual Meeting. However, the
Board decided on March 22, 2000 to reduce the size of the future option
grants under the Automatic Option Grant Program to 10,000 shares per
continuing non-employee Board member and to an additional 10,000 shares per
continuing Chairperson.
Each option grant under the Automatic Option Grant Program will have
an exercise price per share equal to 100% of the fair market value per share
of Common Stock on the grant date and a maximum term of 10 years measured
from such date, subject to earlier termination upon the optionee's cessation
of Board service. Prior to the February 2000 amendments, each option was to
become exercisable for the option shares in a series of four successive equal
annual installments commencing six months after the grant date, provided the
optionee continued to serve as a Board member. Upon approval of this Proposal
No. 3, each option currently outstanding under the Automatic Option Grant
Program and each option granted in the future under such program will vest
and become exercisable for the option shares as follows: (i) the option will
become exercisable for twenty-five percent (25%) of the option shares upon
the optionee's completion of six months of Board service measured from the
date of the option grant and (ii) the balance of the option shares will
become exercisable in a series of thirty-six (36) successive equal monthly
installments upon the optionee's completion of each additional month of Board
service.
The option will remain exercisable for a six-month period following
the optionee's cessation of Board service for any reason other than death or
permanent disability. Should the optionee die while in Board service or
within six months after his or her cessation of Board service, then the
option will remain exercisable for a twelve-month period following such
optionee's death and may be exercised by the personal representative of the
optionee's estate or the person to whom the grant is transferred by the
optionee's will or the laws of inheritance. Should the optionee cease Board
service by reason of permanent disability, then he or she will have a
twelve-month period in which to exercise
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the option. In no event, however, may any option be exercised after the
expiration date of the option term. During the applicable exercise period,
the option may not be exercised for more than the number of shares (if any)
for which the option is exercisable at the time of his or her cessation of
Board service.
The shares subject to each automatic option grant will immediately
vest should any of the following events occur during optionee's period of
Board service: (i) the optionee's death or permanent disability or (ii) a
Corporate Transaction or Change in Control. In addition, upon the successful
completion of a Hostile Take-Over, each automatic option grant may be
surrendered to the Company for a cash distribution per surrendered option
share in an amount equal to the excess of (a) the Take-Over Price per share
over (b) the exercise price payable for such share. Stockholder approval of
this Proposal will also constitute pre-approval of each option granted with
such a surrender right on or after the date of the Annual Meeting and the
subsequent exercise of that right in accordance with the foregoing provisions.
GENERAL PROVISIONS OF THE 1993 PLAN
VALUATION
The fair market value per share of Common Stock under the 1993 Plan
on any relevant date will be the closing selling price on the date in
question, as reported on the Nasdaq National Market. On March 15, 2000, the
fair market value per share of the Common Stock determined on such basis was
$104.375 per share.
AMENDMENT AND TERMINATION OF THE 1993 PLAN
The Board may amend or modify the 1993 Plan in any or all respects
whatsoever subject to any stockholder approval required under applicable law
or regulation. The Board may terminate the 1993 Plan at any time, but in any
event the 1993 Plan will terminate on December 31, 2005. Should the
stockholders not approve this Proposal, then the termination date of the 1993
Plan will remain December 31, 2003.
NEW PLAN BENEFITS
As of March 16, 2000, no options have been granted, and no direct
stock issuances have been made, on the basis of the 800,000-share increase
for calendar year 2000 that forms part of this Proposal No. 3. If such
proposal is approved by the stockholders at the Annual Meeting, then all
currently outstanding options under the Automatic Option Grant Program and
all future option grants under such program will vest and become exercisable
in accordance with the following new vesting schedule: (i) the option will
become exercisable for twenty-five percent (25%) of the option shares upon
the optionee's completion of six months of Board service measured from the
date of the option grant and (ii) the balance of the option shares will
become exercisable in a series of thirty-six (36) successive equal monthly
installments upon the optionee's completion of each additional month of Board
service. In addition, each of the following non-employee Board members will
receive an automatic option for 10,000 shares on January 2, 2001, provided
such individual continues in Board service through such date: Ms. Amochaev
and Messrs., Brooks, Cole, Dougall, Johnson, Saloner, Schlein, and Staglin,
and the following Chairpersons of the Board committees will each receive an
additional automatic option grant on January 2, 2001 for another 10,000
shares, provided each of them continues as such a Chairperson through that
date: Messrs. Brooks, Saloner, Staglin and Johnson. Each of these options
will have an exercise price per share equal to the closing selling price per
share of the Common Stock on the grant date.
FEDERAL TAX CONSEQUENCES
Options granted under the 1993 Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code or non-statutory options which are not intended to satisfy such
requirements. The Federal income tax treatment for the two types of options
differs as follows:
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INCENTIVE STOCK OPTIONS. The optionee recognizes no taxable income
at the time of the option grant, and no taxable income is generally
recognized at the time the option is exercised. The optionee will, however,
recognize taxable income in the year in which the purchased shares are sold
or otherwise made the subject of disposition.
For Federal income tax purposes, dispositions are divided into two
categories: (i) qualifying and (ii) disqualifying. The optionee will make a
qualifying disposition of the purchased shares if the sale or disposition is
made more than two years after the date the option for the shares involved in
such sale or other disposition is granted and more than one year after the
date the option is exercised for those shares. If the sale or disposition
occurs before these two requirements are satisfied, then a disqualifying
disposition of the purchased shares will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be
taxable as ordinary income to the optionee. Any additional gain or loss
recognized upon the disposition will be recognized as a capital gain or loss
by the optionee.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the excess of (i) the
fair market value of such shares on the date the option was exercised over
(ii) the exercise price paid for such shares. In no other instance will the
Company be allowed a deduction with respect to the optionee's disposition of
the purchased shares.
NON-STATUTORY OPTIONS. An optionee recognizes no taxable income upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income in the year in which the option is exercised equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price, and the optionee will be required to satisfy the tax
withholding requirements applicable to such income.
If the shares acquired upon exercise of a non-statutory option are
subject to a substantial risk of forfeiture (such as the Company's right to
repurchase unvested shares at the original exercise price paid per share,
upon the optionee's cessation of service prior to vesting in those shares),
then the optionee will not recognize any taxable income at the time the
option is exercised for such unvested shares but will have to report as
ordinary income, as and when the shares vest, an amount equal to the excess
of (a) the fair market value of the shares on the vesting date over (b) the
exercise price paid for the shares. The optionee may, however, elect under
Section 83(b) of the Internal Revenue Code to include as ordinary income in
the year of exercise an amount equal to the difference between the fair
market value of the purchased shares on the date of exercise (determined as
if the unvested shares were not subject to the Company's repurchase right)
and the exercise price paid for the shares. If the Section 83(b) election is
made, the optionee will not recognize any additional income as and when the
shares vest.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee in connection with the
exercise of the non-statutory option. The deduction will in general be
allowed for the taxable year of the Company in which such ordinary income is
recognized by the optionee.
STOCK APPRECIATION RIGHTS. If an option granted with a tandem stock
appreciation right is surrendered for an appreciation distribution, or if an
option granted with a limited stock appreciation right is cancelled for an
appreciation distribution, the recipient will generally realize ordinary
income on the surrender or cancellation date, equal in amount to the
appreciation distribution. The Company will be entitled to a deduction equal
to the amount of such ordinary income.
DIRECT STOCK ISSUANCE. The tax principles applicable to direct stock
issuances under the 1993 Plan will be substantially the same as those
summarized above for the exercise of non-statutory option grants.
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DEDUCTIBILITY OF EXECUTIVE COMPENSATION. The Company anticipates
that any compensation deemed paid by the Company upon one or more
disqualifying dispositions of incentive stock option shares or upon the
exercise of non-statutory options will not have to be taken into account for
purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company.
ACCOUNTING TREATMENT
Under the current accounting principles in effect for equity
incentive programs such as the 1993 Plan, the option grants under the 1993
Plan will not result in any charge to the Company's reported earnings, but
the Company must disclose, in pro-forma statements to the Company's financial
statements, the impact the option grants would have upon the Company's
reported earnings were the fair value of those options at the time of grant
treated as compensation expense. Whether or not granted at a discount, the
number of outstanding options may be a factor in determining the Company's
earnings per share on a fully diluted basis.
On March 31, 1999, the Financial Accounting Standards Board issued
an Exposure Draft of a proposed interpretation of APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the proposed
interpretation, as modified on August 11, 1999, option grants made to
non-employee consultants (but not non-employee board members) after December
15, 1998 will result in a direct charge to the Company's reported earnings
based upon the fair value of the option measured initially as of the grant
date and then subsequently on the vesting date of each installment of the
underlying option shares. Such charge will accordingly include the
appreciation in the value of the option shares over the period between the
grant date of the option (or, if later, the effective date of the final
interpretation) and the vesting date of each installment of the option shares.
Should one or more optionees be granted stock appreciation rights
under the 1993 Plan that have no conditions upon exercisability other than a
service or employment requirement, then such rights would result in a
compensation expense to be charged against the Company's reported earnings.
Accordingly, at the end of each fiscal quarter, the amount (if any) by which
the fair market value of the shares of common stock subject to such
outstanding stock appreciation rights has increased from the prior
quarter-end would be accrued as compensation expense, to the extent such fair
market value is in excess of the aggregate exercise price in effect for those
rights.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the shares represented and
voted at the Annual Meeting is required for approval of the amendments to the
1993 Plan. If stockholder approval of the amendments to the 1993 Plan is not
obtained, then any options granted on the basis of the 800,000-share increase
for calendar year 2000 will terminate without becoming exercisable for any of
the shares of Common Stock subject to those options, and no further options
will be granted on the basis of such share increase. In addition, the
automatic share increase feature will not be implemented, and no changes will
be made to the four-year vesting schedule currently in effect for the option
grants made to the non-employee Board members under the Automatic Grant
Program. However, the 1993 Plan will continue to remain in effect, and option
grants and direct stock issuances may continue to be made pursuant to the
provisions of the 1993 Plan, as in effect prior to the amendments summarized
in this Proposal No. 3 until the available reserve of Common Stock as last
approved by the stockholders has been issued pursuant to such option grants
and direct stock issuances made under the 1993 Plan or (if earlier) until the
December 31, 2003 termination date of the 1993 Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the amendments to the 1993 Plan
are necessary in order to continue to provide equity incentives to attract
and retain the services of key employees, consultants and non-employee Board
members.
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FOR THIS REASON, THE BOARD OF DIRECTORS RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE AMENDMENTS TO THE COMPANY'S
1993 STOCK OPTION/STOCK ISSUANCE PLAN.
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-----------------------------------------------------
PROPOSAL NO. 4:
RATIFICATION OF INDEPENDENT AUDITORS
-----------------------------------------------------
The Company is asking the stockholders to ratify the selection of
Deloitte & Touche LLP as the Company's independent auditors for the fiscal
year ending December 31, 2000. The affirmative vote of the holders of a
majority of the shares represented and voting at the Annual Meeting will be
required to ratify the selection of Deloitte & Touche LLP.
In the event the stockholders fail to ratify the appointment, the
Audit Committee of the Board of Directors will consider it as a direction to
select other auditors for the subsequent year. Even if the selection is
ratified, the Board in its discretion may direct the appointment of a
different independent accounting firm at any time during the year if the
Board determines that such a change would be in the best interest of the
Company and its stockholders.
Deloitte & Touche LLP has audited the Company's financial statements
annually since 1988. Its representatives are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they desire
to do so, and will be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PROPOSAL TO RATIFY THE SELECTION OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000.
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OTHER BUSINESS
The Board of Directors knows of no other business that will be
presented for consideration at the Annual Meeting. If other matters are
properly brought before the Annual Meeting, however, it is the intention of
the persons named in the accompanying proxy to vote the shares represented
thereby on such matters in accordance with their best judgment.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's Annual Meeting of Stockholders to be held in calendar year 2000
must be received by December 3, 2000, in order to be included in the proxy
statement and proxy relating to that meeting.
In addition, the proxy solicited by the Board of Directors for the
Annual Stockholders Meeting in calendar year 2000 will confer discretionary
authority to vote on any shareholder proposal presented at that meeting,
unless the Company is provided with notice of such proposal no later than
February 21, 2000.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Shawn M. O'Connor
SHAWN M. O'CONNOR
PRESIDENT AND CHIEF OPERATING OFFICER
April 5, 2000
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QRS CORPORATION
1993 STOCK OPTION/STOCK ISSUANCE PLAN
(AS AMENDED AND RESTATED THROUGH MARCH 22, 2000)
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1993 Stock Option/Stock Issuance Plan ("Plan") is intended
to promote the interests of QRS Corporation, a Delaware corporation (the
"Corporation"), by providing (i) key employees (including officers) of the
Corporation (or its parent or subsidiary corporations) who are responsible
for the management, growth and financial success of the Corporation (or its
parent or subsidiary corporations), (ii) the non-employee members of the
Corporation's Board of Directors and (iii) consultants and other independent
contractors who provide valuable services to the Corporation (or its parent
or subsidiary corporations) with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in the service of the
Corporation (or its parent or subsidiary corporations).
B. The Discretionary Option Grant and Stock Issuance Programs under
this Plan became effective on the date on which the shares of the
Corporation's Common Stock were first registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). Such date is
hereby designated as the Effective Date for those two programs. The Automatic
Option Grant Program under this Plan became effective immediately upon the
execution and final pricing of the Underwriting Agreement for the initial
public offering of the Corporation's Common Stock. The execution date of such
Underwriting Agreement is hereby designated as the Effective Date of the
Automatic Option Grant Program.
C. This Plan shall serve as the successor to the Corporation's
amended and restated 1990 Stock Option Plan (the "1990 Plan"), and no further
option grants or stock issuances shall be made under the 1990 Plan from and
after the Effective Date of this Plan. All options outstanding under the 1990
Plan on the Effective Date of the Discretionary Option Grant Program are
hereby incorporated into this Plan and shall accordingly be treated as
outstanding options under this Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the express terms and
conditions of the instrument evidencing such grant, and no provision of this
Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition
of shares of the Corporation's Common Stock thereunder.
D. All share numbers in this February 2000 restatement reflect the
3-for-2 split of the Common Stock which was effected on July 21, 1999.
<PAGE>
II. DEFINITIONS
A. For purposes of the Plan, the following definitions shall be in
effect:
BOARD: the Corporation's Board of Directors.
CODE: the Internal Revenue Code of 1986, as amended.
COMMITTEE: the committee of two (2) or more non-employee Board members
appointed by the Board to administer the Plan.
COMMON STOCK: shares of the Corporation's common stock.
CHANGE IN CONTROL: a change in ownership or control of the Corporation
effected through either of the following transactions:
a. any person or related group of persons (other than the Corporation
or a person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders; or
b. there is a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members (rounded up to the next whole number) ceases, by reason of
one or more proxy contests for the election of Board members, to be
comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in
office at the time such election or nomination was approved by the Board.
CORPORATE TRANSACTION: any of the following stockholder-approved
transactions to which the Corporation is a party:
a. a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which
is to change the State in which the Corporation is incorporated,
b. the sale, transfer or other disposition of all or substantially all
of the assets of the Corporation in complete liquidation or dissolution of
the Corporation, or
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c. any reverse merger in which the Corporation is the surviving entity
but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from those who held such
securities immediately prior to such merger.
EMPLOYEE: an individual who performs services while in the employ of
the Corporation or one or more parent or subsidiary corporations, subject to the
control and direction of the employer entity not only as to the work to be
performed but also as to the manner and method of performance.
FAIR MARKET VALUE: the fair market value per share of Common Stock
determined in accordance with the following provisions:
a. If the Common Stock is not at the time listed or admitted to
trading on any national stock exchange but is traded on the Nasdaq National
Market, the Fair Market Value shall be the closing selling price per share
on the date in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National Market and
published in THE WALL STREET JOURNAL. If there is no reported closing
selling price for the Common Stock on the date in question, then the
closing selling price on the last preceding date for which such quotation
exists shall be determinative of Fair Market Value.
b. If the Common Stock is at the time listed or admitted to trading on
any national stock exchange, then the Fair Market Value shall be the
closing selling price per share on the date in question on the exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange and published in THE WALL STREET JOURNAL. If
there is no reported sale of Common Stock on such exchange on the date in
question, then the Fair Market Value shall be the closing selling price on
the exchange on the last preceding date for which such quotation exists.
HOSTILE TAKE-OVER: a change in ownership of the Corporation effected
through the acquisition, directly or indirectly, by any person or related group
of persons (other than the Corporation or a person that directly or indirectly
controls, is controlled by, or is under common control with, the Corporation) of
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
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OPTIONEE: any person to whom an option is granted under either the
Discretionary Option Grant or Automatic Option Grant Program in effect under
the Plan.
PARTICIPANT: any person who receives a direct issuance of Common
Stock under the Stock Issuance Program in effect under the Plan.
PLAN ADMINISTRATOR: the Committee in its capacity as the
administrator of the Plan.
PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the
Optionee or the Participant to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
SERVICE: the performance of services on a periodic basis to the
Corporation (or any parent or subsidiary corporation) in the capacity of an
Employee, a non-employee member of the board of directors or an independent
consultant or advisor, except to the extent otherwise specifically provided
in the applicable stock option or stock issuance agreement.
TAKE-OVER PRICE: the GREATER of (a) the Fair Market Value per share
of Common Stock on the date the option is surrendered to the Corporation in
connection with a Hostile Take-Over or (b) the highest reported price per
share of Common Stock paid by the tender offeror in effecting such Hostile
Take-Over. However, if the surrendered option is an incentive stock option
under the Federal tax laws, the Take-Over Price shall not exceed the clause
(a) price per share.
The following provisions shall be applicable in determining the
parent and subsidiary corporations of the Corporation:
Any corporation (other than the Corporation) in an unbroken chain of
corporations ending with the Corporation shall be considered to be a PARENT
of the Corporation, provided each such corporation in the unbroken chain
(other than the Corporation) owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
Each corporation (other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation shall be considered to be a
SUBSIDIARY of the Corporation, provided each such corporation (other than
the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
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III. STRUCTURE OF THE PLAN
A. STOCK PROGRAMS. The Plan shall be divided into three separate
components: the Discretionary Option Grant Program specified in Article Two,
the Automatic Option Grant Program specified in Article Three and the Stock
Issuance Program specified in Article Four. Under the Discretionary Option
Grant Program, eligible individuals may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock in
accordance with the provisions of Article Two. Under the Automatic Option
Grant Program, non-employee members of the Corporation's Board of Directors
(the "Board") will receive at periodic intervals special option grants to
purchase shares of Common Stock in accordance with the provisions of Article
Three. Under the Stock Issuance Program, eligible individuals may be issued
shares of Common Stock directly, either through the immediate purchase of
such shares at a price not less than the Fair Market Value of the shares at
the time of issuance or as a bonus tied to the performance of services or the
Corporation's attainment of financial objectives, without any cash payment
required of the recipient.
B. GENERAL PROVISIONS. Unless the context clearly indicates
otherwise, the provisions of Articles One and Five shall apply to the
Discretionary Option Grant Program, the Automatic Option Grant Program and
the Stock Issuance Program and shall accordingly govern the interests of all
individuals under the Plan.
IV. ADMINISTRATION OF THE PLAN
A. Both the Discretionary Option Grant Program and the Stock
Issuance Program shall be administered by the Committee. Members of the
Committee shall serve for such period of time as the Board may determine and
shall be subject to removal by the Board at any time.
B. The Committee as Plan Administrator shall have full power and
authority (subject to the express provisions of the Plan) to establish rules
and regulations for the proper administration of the Discretionary Option
Grant and Stock Issuance Programs and to make such determinations under, and
issue such interpretations of, the provisions of such programs and any
outstanding option grants or stock issuances thereunder as it may deem
necessary or advisable. Decisions of the Plan Administrator shall be final
and binding on all parties who have an interest in the Discretionary Option
Grant or Stock Issuance Program or any outstanding option or share issuance
thereunder.
C. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Three, and the Committee as Plan Administrator shall exercise no
discretionary functions with respect to option grants made pursuant to that
program.
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V. OPTION GRANTS AND STOCK ISSUANCES
A. The persons eligible to participate in the Discretionary Option
Grant Program under Article Two or the Stock Issuance Program under Article
Four are as follows:
(i) officers and other key employees of the Corporation (or its parent
or subsidiary corporations) who render services which contribute to the
management, growth and financial success of the Corporation (or its parent
or subsidiary corporations);
(ii) non-employee Board members; and
(iii) those consultants or other independent contractors who provide
valuable services to the Corporation (or its parent or subsidiary
corporations).
B. Non-employee Board members shall also be eligible to receive
automatic option grants pursuant to the provisions of Article Three.
C. The Plan Administrator shall have full authority to determine,
(I) with respect to the option grants made under the Plan, which eligible
individuals are to receive option grants, the number of shares to be covered
by each such grant, the status of the granted option as either an incentive
stock option ("Incentive Option") which satisfies the requirements of Code
Section 422 or a non-statutory option not intended to meet such requirements,
the time or times at which each granted option is to become exercisable and
the maximum term for which the option may remain outstanding and (II), with
respect to stock issuances under the Stock Issuance Program, the number of
shares to be issued to each Participant, the vesting schedule (if any) to be
applicable to the issued shares, and the consideration to be paid by the
individual for such shares.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the
Plan and shall be drawn from either the Corporation's authorized but unissued
shares of Common Stock or from reacquired shares of Common Stock, including
shares repurchased by the Corporation on the open market. The maximum number
of shares of Common Stock which may be issued over the term of the Plan shall
not exceed 4,700,000 shares, subject to adjustment from time to time in
accordance with the provisions of this Section VI. Such authorized share
reserve is comprised of (i) the number of shares which remained available for
issuance, as of the Effective Date, under the 1990 Plan as last approved by
the Corporation's stockholders prior to such Effective Date, including the
shares subject to the outstanding options incorporated into this Plan and any
other shares which would have been available for future option grant under
the 1990 Plan as last approved by the stockholders (estimated to be 1,083,000
shares in the aggregate), (ii) an increase of 192,000 shares authorized by
the Board under this Plan as of the Effective Date, (iii) an additional
increase of 750,000 shares authorized by the
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Board on February 27, 1995 and approved by the stockholders at the 1995
Annual Meeting, (iv) a further increase of an additional 750,000 shares
authorized by the Board on February 16, 1996 and approved by the stockholders
at the 1996 Annual Meeting, (v) an additional increase of another 525,000
shares authorized by the Board on February 16, 1998 and approved by the
stockholders at the 1998 Annual Meeting, (vi) an additional increase of
600,000 shares authorized by the Board on February 15, 1999 and approved by
the stockholders at the 1999 Annual Meeting, and (vii) an additional increase
of 800,000 shares authorized by the Board on February 22, 2000, subject to
stockholder approval at the 2000 Annual Meeting.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of
January each calendar year, beginning with calendar year 2001 and continuing
through calendar year 2005, by an amount equal to five percent (5%) of the
total number of shares of Common Stock outstanding on the last trading day in
December of the immediately preceding calendar year, but in no event shall
any such annual increase exceed 2,000,000 shares.
C. To the extent one or more outstanding options under the 1990
Plan which have been incorporated into this Plan are subsequently exercised,
the number of shares issued with respect to each such option shall reduce, on
a share-for-share basis, the number of shares available for issuance under
this Plan.
D. Should one or more outstanding options under this Plan
(including outstanding options under the 1990 Plan incorporated into this
Plan) expire or terminate for any reason prior to exercise in full, then the
shares subject to the portion of each option not so exercised shall be
available for subsequent option grants under the Plan. Unvested shares issued
under the Plan and subsequently cancelled or repurchased by the Corporation,
at the original option exercise or direct issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
the shares subject to any option or portion thereof surrendered in accordance
with Section IV of Article Two or Section III of Article Three shall reduce
on a share-for-share basis the number of shares of Common Stock available for
subsequent option grants under the Plan. In addition, should the exercise
price of an option under the Plan (including any option incorporated from the
Predecessor Plan) be paid with shares of Common Stock or should shares of
Common Stock otherwise issuable under the Plan be withheld by the Corporation
in satisfaction of the withholding taxes incurred in connection with the
exercise of an option or the vesting of a stock issuance under the Plan, then
the number of shares of Common Stock available for issuance under the Plan
shall be reduced by the gross number of shares for which the option is
exercised or which vest under the stock issuance, and not by the net number
of shares of Common Stock issued to the holder of such option or stock
issuance.
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E. In no event may any one individual participating in the Plan be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances for more than 750,000 shares in the aggregate over the
term of the Plan. However, any stock options, stock appreciation rights or
direct stock issuances granted prior to January 1, 1994 shall not be taken
into account for purposes of such limitation.
F. Should any change be made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the maximum
number and/or class of securities for which any one individual participating
in the Plan may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances in the aggregate over the term
of the Plan, (iii) the number and/or class of securities for which automatic
option grants are to be subsequently made to each new or continuing
non-employee Board member under the Automatic Option Grant Program, (iv) the
number and/or class of securities and price per share in effect under each
option outstanding under either the Discretionary Option Grant or Automatic
Option Grant Program, (v) the number and/or class of securities and price per
share in effect under each outstanding option incorporated into this Plan
from the 1990 Plan and (vi) the maximum number and/or class of securities by
which the share reserve is to increase automatically each calendar year
pursuant to the provisions of Section VI.B of this Article One. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant Program
shall be authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Options or non-statutory
options. Individuals who are not Employees of the Corporation or its parent
or subsidiary corporations may only be granted non-statutory options. Each
granted option shall be evidenced by one or more instruments in the form
approved by the Plan Administrator; PROVIDED, however, that each such
instrument shall comply with the terms and conditions specified below. Each
instrument evidencing an Incentive Option shall, in addition, be subject to
the applicable provisions of Section II of this Article Two.
A. OPTION PRICE.
1. The option price per share shall be fixed by the Plan
Administrator but in no event shall be less than one hundred percent (100%)
of the Fair Market Value of such Common Stock on the grant date.
2. The option price shall become immediately due upon exercise of
the option and, subject to the provisions of Section I of Article Five and
the instrument evidencing the grant, shall be payable in one of the following
alternative forms specified below:
- full payment in cash or check drawn to the Corporation's order;
- full payment in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date (as such term is defined below);
- full payment in a combination of shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date and cash or check drawn to the
Corporation's order; or
- full payment through a broker-dealer sale and remittance procedure
pursuant to which the Optionee (I) shall provide irrevocable
instructions to a designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to
cover the aggregate option price payable for the purchased shares plus
all applicable Federal and State income and
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employment taxes required to be withheld by the Corporation in
connection with such purchase and (II) shall provide directives to
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale
transaction.
For purposes of this subparagraph (2), the Exercise Date shall be
the date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure is
utilized in connection with the exercise of the option, payment of the option
price for the purchased shares must accompany such notice.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under this
Discretionary Option Grant Program shall be exercisable at such time or times
and during such period as is determined by the Plan Administrator and set
forth in the instrument evidencing the grant. No such option, however, shall
have a maximum term in excess of ten (10) years from the grant date.
C. TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise period
applicable to any outstanding options held by the Optionee at the time of
cessation of Service or death.
- Should an Optionee cease Service for any reason (including death or
Permanent Disability) while holding one or more outstanding options
under this Article Two, then none of those options shall (except to
the extent otherwise provided pursuant to subparagraph C.(3) below)
remain exercisable for more than a thirty-six (36)-month period (or
such shorter period determined by the Plan Administrator and set forth
in the instrument evidencing the grant) measured from the date of such
cessation of Service.
- Any option held by the Optionee under this Article Two and exercisable
in whole or in part on the date of his or her death may be
subsequently exercised by the personal representative of the
Optionee's estate or by the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution. Such exercise, however, must occur
prior to the EARLIER of (i) the third anniversary of the date of the
Optionee's death (or such shorter period determined by the Plan
Administrator and set forth in the instrument evidencing the grant) or
(ii) the specified expiration date of the option term. Upon the
occurrence of the earlier event, the option shall terminate and cease
to be outstanding.
- During the applicable post-Service period, the option may not be
exercised in the aggregate for more than the number of shares (if any)
in which the Optionee is vested at the time of cessation of Service.
Upon the expiration of the limited post-Service exercise period or (if
earlier) upon the specified expiration date of the option term, each
such option shall terminate and cease to be outstanding with respect
to any vested shares for which it has not otherwise been exercised.
However, each outstanding option shall immediately terminate and
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cease to be outstanding, at the time of the Optionee's cessation of
Service, with respect to any shares for which it is not otherwise at
that time exercisable or in which Optionee is not otherwise vested.
- Under no circumstances, however, shall any such option be exercisable
after the specified expiration date of the option term.
- Should (i) the Optionee's Service be terminated for misconduct
(including, but not limited to, any act of dishonesty, willful
misconduct, fraud or embezzlement) or (ii) the Optionee make any
unauthorized use or disclosure of confidential information or trade
secrets of the Corporation or its parent or subsidiary corporations,
then in any such event all outstanding options held by the Optionee
under this Article Two shall terminate immediately and cease to be
outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to permit one or more options held by the
Optionee under this Article Two to be exercised, during the limited
post-Service exercise period applicable under subparagraph (1) above, not
only with respect to the number of vested shares of Common Stock for which
each such option is exercisable at the time of the Optionee's cessation of
Service but also with respect to one or more subsequent installments of
vested shares for which the option would otherwise have become exercisable
had such cessation of Service not occurred.
(3) The Plan Administrator shall also have full power and authority
to extend the period of time for which the option is to remain exercisable
following the Optionee's cessation of Service or death from the limited
period in effect under subparagraph (1) above to such greater period of time
as the Plan Administrator shall deem appropriate. In no event, however, shall
such option be exercisable after the specified expiration date of the option
term.
D. STOCKHOLDER RIGHTS. An Optionee shall have no stockholder rights
with respect to any shares covered by the option until such individual shall
have exercised the option and paid the option price for the purchased shares.
E. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. However, a
Non-Statutory Option may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may
only be exercised by the person or persons who acquire a proprietary interest
in the option pursuant to the assignment. The terms
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applicable to the assigned portion shall be the same as those in effect for
the option immediately prior to such assignment and shall be set forth in
such documents issued to the assignee as the Plan Administrator may deem
appropriate.
F. REPURCHASE RIGHTS. The shares of Common Stock acquired upon the
exercise of any Article Two option grant may be subject to repurchase by the
Corporation in accordance with the following provisions:
a. The Plan Administrator shall have the discretion to authorize the
issuance of unvested shares of Common Stock under this Article Two. Should
the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase any or all of those unvested
shares at the option price paid per share. The terms and conditions upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the
purchased shares) shall be established by the Plan Administrator and set
forth in the instrument evidencing such repurchase right.
b. All of the Corporation's outstanding repurchase rights under this
Article Two shall automatically terminate, and all shares subject to such
terminated rights shall immediately vest in full, upon the occurrence of a
Corporate Transaction, except to the extent: (i) any such repurchase right
is expressly assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction or (ii) such termination is
precluded by other limitations imposed by the Plan Administrator at the
time the repurchase right is issued.
c. The Plan Administrator shall have the discretionary authority,
exercisable either before or after the Optionee's cessation of Service, to
cancel the Corporation's outstanding repurchase rights with respect to one
or more shares purchased or purchasable by the Optionee under this
Discretionary Option Grant Program and thereby accelerate the vesting of
such shares in whole or in part at any time.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only
be granted to individuals who are Employees of the Corporation. Options which
are specifically designated as "non-statutory" options when issued under the
Plan shall NOT be subject to such terms and conditions.
A. DOLLAR LIMITATION. The aggregate Fair Market Value (determined
as of the respective date or dates of grant) of the Common Stock for which
one or more options granted to any Employee under this Plan (or any other
option plan of the Corporation or its parent or subsidiary corporations) may
for the first time become exercisable as incentive stock options under the
Federal tax laws during any one calendar year shall not exceed the sum of One
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Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2)
or more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such options
as incentive stock options under the Federal tax laws shall be applied on the
basis of the order in which such options are granted. Should the number of
shares of Common Stock for which any Incentive Option first becomes
exercisable in any calendar year exceed the applicable One Hundred Thousand
Dollar ($100,000) limitation, then that option may nevertheless be exercised
in that calendar year for the excess number of shares as a non-statutory
option under the Federal tax laws.
B. 10% STOCKHOLDER. If any individual to whom an Incentive Option
is granted is the owner of stock (as determined under Section 424(d) of the
Internal Revenue Code) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Corporation or any one
of its parent or subsidiary corporations, then the option price per share
shall not be less than one hundred and ten percent (110%) of the Fair Market
Value per share of Common Stock on the grant date, and the option term shall
not exceed five (5) years, measured from the grant date.
Except as modified by the preceding provisions of this Section II,
the provisions of Articles One, Two and Five of the Plan shall apply to all
Incentive Options granted hereunder.
III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL
A. In the event of any Corporate Transaction, each option which is
at the time outstanding under this Article Two shall automatically accelerate
so that each such option shall, immediately prior to the specified effective
date for the Corporate Transaction, become fully exercisable with respect to
the total number of shares of Common Stock at the time subject to such option
and may be exercised for all or any portion of such shares. However, an
outstanding option under this Article Two shall NOT so accelerate if and to
the extent: (i) such option is, in connection with the Corporate Transaction,
either to be assumed by the successor corporation or parent thereof or to be
replaced with a comparable option to purchase shares of the capital stock of
the successor corporation or parent thereof, (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the option spread existing at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting
schedule applicable to such option, or (iii) the acceleration of such option
is subject to other limitations imposed by the Plan Administrator at the time
of the option grant. The determination of option comparability under clause
(i) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
B. Upon the consummation of the Corporate Transaction, all
outstanding options under this Article Two shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company.
C. Each outstanding option under this Article Two which is assumed
in connection with the Corporate Transaction or is otherwise to continue in
effect shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities which
would have been issued to the option holder, in
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consummation of such Corporate Transaction, had such person exercised the
option immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the option price payable per share,
PROVIDED the aggregate option price payable for such securities shall remain
the same. In addition, the class and number of securities available for
issuance under the Plan following the consummation of the Corporate
Transaction shall be appropriately adjusted. To the extent the actual holders
of the Corporation's outstanding Common Stock receive cash consideration for
their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the
outstanding options under the Discretionary Option Grant Program, substitute
one or more shares of its own common stock with a fair market value
equivalent to the cash consideration paid per share of Common Stock in such
Corporate Transaction.
D. The Plan Administrator shall have the discretion, exercisable
either in advance of any actually-anticipated Corporate Transaction or at the
time of an actual Corporate Transaction, to provide (upon such terms as it
may deem appropriate) for the automatic acceleration of one or more
outstanding options under this Article Two which are assumed or replaced in
the Corporate Transaction and do not otherwise accelerate at that time, in
the event the Optionee's Service should subsequently terminate within a
designated period following the effective date of such Corporate Transaction.
The Plan Administrator may also structure one or more option grants under
this Article Two so that those options will automatically accelerate at the
time of a Corporate Transaction, whether or not those options are to be
assumed or replaced by successor corporation.
E. The grant of options under this Article Two shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
F. The Plan Administrator shall have the discretionary authority,
exercisable either in advance of any actually-anticipated Change in Control
or at the time of an actual Change in Control, to provide for the automatic
acceleration of one or more outstanding options under this Article Two (and
the termination of one or more of the Corporation's outstanding repurchase
rights under this Article Two) upon the occurrence of the Change in Control.
The Plan Administrator shall also have full power and authority to condition
any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent termination of the Optionee's Service
within a specified period following the Change in Control.
G. Any options accelerated in connection with the Change in Control
shall remain fully exercisable until the expiration or sooner termination of
the option term.
H. The exercisability as incentive stock options under the Federal
tax laws of any options accelerated under this Section III in connection with
a Corporate Transaction or Change in Control shall remain subject to the
dollar limitation of Section II of this Article Two.
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IV. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this
Section IV, one or more Optionees may be granted the right, exercisable upon
such terms and conditions as the Plan Administrator may establish, to
surrender all or part of an unexercised option under this Article Two in
exchange for a distribution from the Corporation in an amount equal to the
excess of (i) the Fair Market Value
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(on the option surrender date) of the number of shares in which the Optionee
is at the time vested under the surrendered option (or surrendered portion
thereof) over (ii) the aggregate option price payable for such vested shares.
B. No surrender of an option shall be effective hereunder unless it
is approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the Optionee shall accordingly become entitled
under this Section IV may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator deems appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
LATER of (i) five (5) business days after the receipt of the rejection notice
or (ii) the last day on which the option is otherwise exercisable in
accordance with the terms of the instrument evidencing such option, but in no
event may such rights be exercised more than ten (10) years after the date of
the option grant.
D. One or more officers of the Corporation subject to the
short-swing profit restrictions of the Federal securities laws may, in the
Plan Administrator's sole discretion, be granted limited stock appreciation
rights in tandem with their outstanding options under the Plan. Upon the
occurrence of a Hostile Take-Over, the officer will have a thirty (30)-day
period in which he or she may surrender any outstanding options with such a
limited stock appreciation right to the Corporation, to the extent such
options are at the time exercisable for fully-vested shares of Common Stock.
The officer shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of
the vested shares of Common Stock at the time subject to each surrendered
option over (ii) the aggregate exercise price payable for such vested shares.
The cash distribution payable upon such option surrender shall be made within
five (5) days following the consummation of the Hostile Take-Over. At the
time such limited stock appreciation right is granted, the Plan Administrator
shall pre-approve the subsequent exercise of that right in accordance with
the terms of this Paragraph D. Accordingly, no further approval of the Plan
Administrator or the Board shall be required at the time of the actual option
surrender and cash distribution. Any unsurrendered portion of the option
shall continue to remain outstanding and become exercisable in accordance
with the terms of the instrument evidencing such grant.
E. The shares of Common Stock subject to any option surrendered for
an appreciation distribution pursuant to this Section IV shall NOT be
available for subsequent option grant under the Plan.
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ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
The following provisions set forth the terms and conditions
of the Automatic Option Grant Program as amended by the Board on February 22,
2000, subject to stockholder approval at the 2000 Annual Meeting. Stockholder
approval of the February 2000 restatement shall also constitute pre-approval
of each option grant made under this amended Automatic Option Grant Program
on or after the date of the 2000 Annual Stockholders Meeting and the
subsequent exercise of that option in accordance with the terms of such
program as set forth below.
I. ELIGIBILITY
The individuals eligible to receive automatic option grants
pursuant to the provisions of this Article Three program shall be limited to
(i) those individuals who are first elected or appointed as non-employee
Board members on or after the date of the 2000 Annual Stockholders Meeting,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as
non-employee Board members after the date of the 2000 Annual Stockholders
Meeting. In no event, however, shall a clause (i) non-employee Board member
be eligible to participate in the Automatic Option Grant Program if such
individual has at any time been in the prior employ of the Corporation (or
any parent or subsidiary corporation). Any non-employee Board member eligible
to participate in the Automatic Option Grant Program pursuant to the
foregoing criteria shall be designated an Eligible Director for purposes of
this Plan.
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. GRANT DATES. Option grants shall be made under this amended and
restated Article Three on the dates specified below:
(i) Each Eligible Director who first becomes a non-employee Board
member on or after the date of the 2000 Annual Stockholders Meeting,
whether through election by the Corporation's stockholders or appointment
by the Board, shall automatically be granted, at the time of such initial
election or appointment, a non-statutory stock option to purchase 15,000
shares of Common Stock upon the terms and conditions of this Article Three.
(iii) On the first trading day in January each year, beginning with
calendar year 2000, each individual who is at the time serving as a
non-employee Board member will automatically be granted an option to
purchase 15,000 shares of Common Stock, and each individual who is also at
the time serving as a Chairperson of any Board committee will automatically
be granted a second option for an additional 15,000 shares, provided in
each instance that such
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individual has served as a non-employee Board member for at least six
(6) months. There shall be no limit on the number of such 15,000-share
option grants any one non-employee Board member or Chairperson may
receive over his or her period of Board service. Pursuant to a further
amendment to the Automatic Option Grant Program authorized by the Board
on March 22, 2000, the number of shares of Common Stock subject to each
such option grant made to the continuing non-employee Board members
and the continuing Chairpersons shall be reduced to 10,000 shares per
individual non-employee Board member and to an additional 10,000 shares per
continuing Chairperson, effective with the option grants to be made on
January 2, 2001.
The number of shares for which the automatic grants are to be made to
each newly-elected or continuing Eligible Director shall be subject to periodic
adjustment pursuant to the applicable provisions of Section V.C of Article One.
B. EXERCISE PRICE. The exercise price per share of Common Stock
subject to each automatic option grant made under this Article Three shall be
equal to one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the automatic grant date.
C. PAYMENT.
The exercise price shall be payable in one of the alternative forms
specified below:
(i) full payment in cash or check made payable to the Corporation's
order; or
(ii) full payment in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's reported earnings
and valued at Fair Market Value on the Exercise Date; or
(iii) full payment in a combination of shares of Common Stock held for
the requisite period necessary to avoid a charge to the Corporation's
reported earnings and valued at Fair Market Value on the Exercise Date and
cash or check payable to the Corporation's order; or
(iv) full payment through a sale and remittance procedure pursuant to
which the non-employee Board member (I) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares and shall (II) concurrently
provide written directives to the Corporation to deliver the certificates
for the purchased shares directly to such brokerage firm in order to
complete the sale transaction.
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The Exercise Date shall be the date on which written notice of the
option exercise is delivered to the Corporation. Except to the extent the
sale and remittance procedure is utilized for the exercise of the option,
payment of the option price for the purchased shares must accompany the
exercise notice.
D. OPTION TERM. Each automatic grant under this Article Three shall
have a maximum term of ten (10) years measured from the automatic grant date.
E. EXERCISABILITY. Each automatic grant shall become exercisable
over the Optionee's period of service on the Board as follows: (i) the option
will become exercisable for twenty-five percent (25%) of the option shares
upon the Optionee's completion of six (6) months of Board service measured
from after the automatic grant date, and (ii) the option will become
exercisable for the balance of the option shares in a series of thirty-six
(36) successive equal monthly installments upon the Optionee's completion of
each of the next thirty-six (36) months of Board service thereafter.(1) The
exercisability of each automatic grant shall be subject to acceleration in
accordance with the provisions of Section II.G and Section III of this
Article Three.
F. LIMITED-TRANSFERABILITY. During the lifetime of the Optionee,
each automatic option grant, together with the limited stock appreciation
right pertaining to such option, shall be exercisable only by the Optionee
and shall not be assignable or transferable by the Optionee other than (i) a
transfer of the option effected by will or by the laws of descent and
distribution following Optionee's death or (ii) an assignment of the option
in whole or in part during the Optionee's lifetime to one or more members of
the Optionee's immediate family or to a trust established exclusively for one
or more such family members, to the extent such assignment is effected for
estate planning purposes. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant
to the assignment. The terms applicable to the assigned portion shall be the
same as those in effect for the option immediately prior to such assignment
and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
G. TERMINATION OF BOARD SERVICE.
1. Should the Optionee cease service as a Board member cease for
any reason (other than death or Permanent Disability) while holding one or
more automatic option grants under this Article Three, then such individual
shall have a six (6)-month period following the date of such cessation of
Board service in which to exercise each such option for any or all of the
shares of Common Stock for which the option is exercisable at the time of
such cessation of Board service. However, each such option shall immediately
terminate and cease to be outstanding, at the time of such
- --------
(1) Prior to the February 2000 restatement, each automatic option grant
made under this Article Three was to become exercisable in a series of four (4)
successive equal annual installments over the Optionee's period of service on
the Board, with the first such installment to become exercisable six (6) months
after the automatic grant date. The new vesting schedule for the automatic
option grants is subject to stockholder approval at the 2000 Annual Meeting. If
such stockholder approval is obtained, then the new vesting schedule will be in
effect for all currently outstanding options under the Automatic Option Grant
Program and for all future option grants made under such program.
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cessation of Board service, with respect to any shares for which the option
is not otherwise at that time exercisable.
2. Should the Optionee die within six (6) months after cessation of
Board service, then each outstanding automatic option grant held by the
Optionee at the time of death may subsequently be exercised, for any or all
of the shares of Common Stock for which such option is exercisable at the
time of the Optionee's cessation of Board service (less any option shares
subsequently purchased by the Optionee prior to death), by the personal
representative of the Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution. Any such exercise must occur
within twelve (12) months after the date of the Optionee's death.
3. Should the Optionee die or become permanently disabled while
serving as a Board member, then each automatic option grant held by such
Optionee under this Article Three shall accelerate in full, and the Optionee
(or the representative of the Optionee's estate or the person or persons to
whom the option is transferred upon the Optionee's death) shall have a twelve
(12)-month period following the date of the Optionee's cessation of Board
service in which to exercise each such option for any or all of the shares of
Common Stock subject to that option at the time of such cessation of Board
service.
4. In no event shall any automatic grant under this Article Three
remain exercisable after the specified expiration date of the ten (10)-year
option term. Upon the expiration of the applicable post-service exercise
period under subparagraph 1, 2 or 3 above or (if earlier) upon the expiration
of the ten (10)-year option term, the automatic grant shall terminate and
cease to be outstanding for any unexercised shares for which the option was
otherwise exercisable at the time of the Optionee's cessation of Board
service.
H. STOCKHOLDER RIGHTS. The holder of an automatic option grant
under this Article Three shall have none of the rights of a stockholder with
respect to any shares subject to such option until such individual shall have
exercised the option and paid the exercise price for the purchased shares.
I. REMAINING TERMS. The remaining terms and conditions of each
automatic option grant shall be as set forth in the prototype Non-statutory
Stock Option Agreement attached as Exhibit A to the Plan.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, each automatic option
grant at the time outstanding under this Article Three shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time
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subject to such option and may be exercised for all or any portion of such
shares. Upon the consummation of the Corporate Transaction, all automatic
option grants under this Article Three shall terminate and cease to be
outstanding.
B. In the event of any Change in Control of the Corporation, each
automatic option grant at the time outstanding under this Article Three shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for the Change in Control, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of
such shares.
C. The Optionee shall have the right, exercisable at any time
during the thirty (30)-day period immediately following a Hostile Take-Over,
to surrender each option held by him or her under this Article Three to the
Corporation. The Optionee shall in return be entitled to a cash distribution
from the Corporation in an amount equal to the excess of (i) the Take-Over
Price of the shares of Common Stock at the time subject to the surrendered
option (whether or not the option is otherwise at the time exercisable for
such shares) over (ii) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
consummation of the Hostile Take-Over. Stockholder approval of this February
2000 Restatement at the 2000 Annual Meeting shall constitute pre-approval of
each such option surrender right granted under this Automatic Option Grant
Program on or after the date of such Annual Meeting and the subsequent
exercise of each such right in accordance with the terms and provisions of
this Section III.C. No additional approval or consent of the Plan
Administrator or the Board shall be required at the time of the actual option
surrender and cash distribution.
D. Each outstanding option under this Automatic Option Grant
Program which is assumed in connection with the Corporate Transaction or is
otherwise to continue in effect shall be appropriately adjusted, immediately
after such Corporate Transaction, to apply and pertain to the number and
class of securities which would have been issued to the option holder, in
consummation of such Corporate Transaction, had such person exercised the
option immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the option price payable per share,
PROVIDED the aggregate option price payable for such securities shall remain
the same. In addition, the class and number of securities available for
issuance under the Plan following the consummation of the Corporate
Transaction shall be appropriately adjusted. To the extent the actual holders
of the Corporation's outstanding Common Stock receive cash consideration for
their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the
outstanding options under the Automatic Option Grant Program, substitute one
or more shares of its own common stock with a fair market value equivalent to
the cash consideration paid per share of Common Stock in such Corporate
Transaction.
D. The shares of Common Stock subject to each option surrendered in
connection with the Hostile Take-Over shall NOT be available for subsequent
option grant under this Plan.
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E. The automatic option grants outstanding under this Article Three
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
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ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares may be issued under the Stock Issuance Program through
direct and immediate purchases without any intervening stock option grants.
The issued shares shall be evidenced by a Stock Issuance Agreement ("Issuance
Agreement") that complies with the terms and conditions of this Article Four.
A. CONSIDERATION.
1. Shares of Common Stock drawn from the Corporation's authorized
but unissued shares of Common Stock ("Newly Issued Shares") shall be issued
under the Stock Issuance Program for one or more of the following items of
consideration which the Plan Administrator may deem appropriate in each
individual instance:
(i) cash or check drawn to the Corporation's order;
(ii) a promissory note payable to the Corporation's order in one or
more installments, which may be subject to cancellation in whole or in part
upon terms and conditions established by the Plan Administrator; or
(iii) past services rendered to the Corporation or any parent or
subsidiary corporation.
2. All Newly Issued Shares shall be issued for consideration with a
value less not less than one-hundred percent (100%) of the Fair Market Value
of such shares at the time of issuance.
3. Shares of Common Stock reacquired by the Corporation and held as
treasury shares ("Treasury Shares") may be issued under the Stock Issuance
Program for such consideration (including one or more of the items of
consideration specified in subparagraph 1. above) as the Plan Administrator
may deem appropriate, provided such consideration is in an amount not less
than the Fair Market Value of the Treasury Shares at the time of issuance.
Treasury Shares may, in lieu of any cash consideration, be issued subject to
such vesting requirements tied to the Participant's period of future Service
or the Corporation's attainment of specified performance objectives as the
Plan Administrator may establish at the time of issuance. The Treasury Share
provisions shall be in effect only for such period or periods (if any) during
which the Corporation is incorporated under the laws of the State of Delaware.
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B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance Program may,
in the absolute discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service. The elements of the vesting schedule applicable
to any unvested shares of Common Stock issued under the Stock Issuance Program,
namely:
(i) the Service period to be completed by the Participant or the
performance objectives to be achieved by the Corporation,
(ii) the number of installments in which the shares are to vest,
(iii) the interval or intervals (if any) which are to lapse between
installments, and
(iv) the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the
Issuance Agreement executed by the Corporation and the Participant at the
time such unvested shares are issued.
2. The Participant shall have full stockholder rights with respect
to any shares of Common Stock issued to him or her under the Plan, whether or
not his or her interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive any
regular cash dividends paid on such shares. Any new, additional or different
shares of stock or other property (including money paid other than as a
regular cash dividend) which the Participant may have the right to receive
with respect to his or her unvested shares by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration or by reason of any Corporate
Transaction shall be issued, subject to (i) the same vesting requirements
applicable to his or her unvested shares and (ii) such escrow arrangements as
the Plan Administrator shall deem appropriate.
3. Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock under the Stock Issuance Program,
then those shares shall be immediately surrendered to the Corporation for
cancellation, and the Participant shall have no further stockholder rights
with respect to those shares. To the extent the surrendered shares were
previously issued to the Participant for consideration paid in cash or cash
equivalent (including the Participant's purchase-money promissory note), the
Corporation shall repay to the Participant the cash consideration paid for
the surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to such
surrendered shares. The surrendered shares may, at the Plan Administrator's
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<PAGE>
discretion, be retained by the Corporation as Treasury Shares or may be
retired to authorized but unissued share status. Treasury Shares will only be
an available election during the period or periods (if any) the Corporation
is incorporated under the laws of the State of Delaware.
4. The Plan Administrator may in its discretion elect to waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
II. CORPORATE TRANSACTIONS/CHANGE IN CONTROL
A. Upon the occurrence of any Corporate Transaction, all of the
Corporation's outstanding repurchase rights under this Article Three shall
automatically terminate, and all shares subject to such terminated rights
shall immediately vest in full, except to the extent: (i) any such repurchase
right is expressly assigned to the successor corporation (or parent thereof)
in connection with the Corporate Transaction or (ii) such termination is
precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.
B. The Plan Administrator shall have the discretionary authority,
exercisable either in advance of any actually-anticipated Change in Control
or at the time of an actual Change in Control, to provide for the immediate
and automatic vesting of one or more unvested shares outstanding under the
Stock Issuance Program at the time of such Change in Control. The Plan
Administrator shall also have full power and authority to condition any such
accelerated vesting upon the subsequent termination of the Participant's
Service within a specified period following the Change in Control.
III. SHARE ESCROW/TRANSFER RESTRICTIONS
A. Unvested shares may, in the Plan Administrator's discretion, be
held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing such unvested shares. To the extent an
escrow arrangement is utilized, the unvested shares and any securities or other
assets issued with respect to such shares (other than regular cash dividends)
shall be delivered in escrow to the Corporation to be held until the
Participant's interest in such shares (or other securities or assets) vests.
Alternatively, if the unvested shares are issued directly to the Participant,
the restrictive legend on the certificates for such shares shall read
substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE
ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND (II)
CANCELLATION OR REPURCHASE IN THE EVENT THE REGISTERED HOLDER (OR HIS/HER
PREDECESSOR IN INTEREST) CEASES TO REMAIN IN THE CORPORATION'S SERVICE.
SUCH TRANSFER
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RESTRICTIONS AND THE TERMS AND CONDITIONS OF SUCH CANCELLATION OR
REPURCHASE ARE SET FORTH IN A STOCK ISSUANCE AGREEMENT BETWEEN THE
CORPORATION AND THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN
INTEREST) DATED , _____, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THE CORPORATION."
B. The Participant shall have no right to transfer any unvested
shares of Common Stock issued to him or her under the Stock Issuance Program.
For purposes of this restriction, the term "transfer" shall include (without
limitation) any sale, pledge, assignment, encumbrance, gift, or other
disposition of such shares, whether voluntary or involuntary. Upon any such
attempted transfer, the unvested shares shall immediately be cancelled in
accordance with substantially the same procedure in effect under Section
I.B.3 of this Article Four, and neither the Participant nor the proposed
transferee shall have any rights with respect to such cancelled shares.
However, the Participant shall have the right to make a gift of unvested
shares acquired under the Stock Issuance Program to his or her spouse or
issue, including adopted children, or to a trust established for such spouse
or issue, provided the donee of such shares delivers to the Corporation a
written agreement to be bound by all the provisions of the Stock Issuance
Program and the Issuance Agreement applicable to the gifted shares.
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ARTICLE FIVE
MISCELLANEOUS
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant (including an Optionee or Participant who is an
officer of the Corporation) in the exercise of one or more options granted to
such Optionee under the Discretionary Option Grant Program or the purchase of
one or more shares issued to such Participant under the Stock Issuance
Program, including the satisfaction of any Federal and State income and
employment tax obligations arising therefrom, by (i) authorizing the
extension of a loan from the Corporation to such Optionee or Participant or
(ii) permitting the Optionee or Participant to pay the option price or
purchase price for the purchased Common Stock in installments over a period
of years. The terms of any loan or installment method of payment (including
the interest rate and terms of repayment) shall be upon such terms as the
Plan Administrator specifies in the applicable option or issuance agreement
or otherwise deems appropriate under the circumstances. Loans or installment
payments may be authorized with or without security or collateral. However,
the maximum credit available to the Optionee or Participant may not exceed
the option or purchase price of the acquired shares plus any Federal and
State income and employment tax liability incurred by the Optionee or
Participant in connection with the acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under this financial assistance
program shall be subject to forgiveness by the Corporation in whole or in
part upon such terms and conditions as the Plan Administrator may deem
appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority
to amend or modify the Plan (or any component thereof) in any or all respects
whatsoever. However, no such amendment or modification shall adversely affect
rights and obligations with respect to options at the time outstanding under
the Plan, nor adversely affect the rights of any Participant with respect to
Common Stock issued under the Stock Issuance Program prior to such action,
unless the Optionee or Participant consents to such amendment. In addition,
certain amendments may require stockholder approval pursuant to applicable
laws or regulations.
B. (i) Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant Program and (ii) shares of
Common Stock may be issued under the Stock Issuance Program, which are in
both instances in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under the
Discretionary Option Grant Program or the Stock Issuance Program are held in
escrow until stockholder approval is obtained for a sufficient increase in
the number of shares available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months
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after the date the first such excess option grants or excess share issuances
are made, then (I) any unexercised excess options shall terminate and cease
to be exercisable and (II) the Corporation shall promptly refund the purchase
price paid for any excess shares actually issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate)
for the period the shares were held in escrow.
III. TAX WITHHOLDING
The Corporation's obligation to deliver shares of Common
Stock upon the exercise of stock options for such shares or the vesting of
such shares under the Plan shall be subject to the satisfaction of all
applicable Federal, State and local income and employment tax withholding
requirements.
The Plan Administrator may, in its discretion and in
accordance with the provisions of this Section III of Article Five and such
supplemental rules as the Plan Administrator may from time to time adopt
(including the applicable safe-harbor provisions of SEC Rule 16b-3), provide
any or all holders of non-statutory options (other than the automatic grants
made pursuant to Article Three of the Plan) or unvested shares under the Plan
with the right to use shares of the Corporation's Common Stock in
satisfaction of all or part of the Federal, State and local income and
employment withholding taxes to which such holders may become subject in
connection with the exercise of their options or the vesting of their shares
(the "Withholding Taxes"). Such right may be provided to any such holder in
either or both of the following formats:
(a) STOCK WITHHOLDING: The holder of the non-statutory option
or unvested shares may be provided with the election to have
the Corporation withhold, from the shares of Common Stock
otherwise issuable upon the exercise of such non-statutory
option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the
percentage of the applicable Withholding Taxes (not to exceed
one hundred percent (100%)) designated by the holder.
(b) STOCK DELIVERY: The Plan Administrator may, in its
discretion, provide the holder of the non-statutory option or
the unvested shares with the election to deliver to the
Corporation, at the time the non-statutory option is exercised
or the shares vest, one or more shares of Common Stock
previously acquired by such individual (other than in
connection with the option exercise or share vesting
triggering the Withholding Taxes) with an aggregate Fair
Market Value equal to the percentage of the Withholding Taxes
incurred in connection with such option exercise or share
vesting (not to exceed one hundred percent (100%)) designated
by the holder.
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IV. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan as successor to the Corporation's 1990 Stock
Option Plan became effective as of the applicable Effective Date for each of
the equity incentive programs in effect hereunder, and no further option
grants or stock issuances shall be made under the 1990 Plan from and after
such Effective Date. Each option issued and outstanding under the 1990 Plan
immediately prior to the Effective Date of the Discretionary Option Grant
Program shall be incorporated into this Plan and treated as an outstanding
option under this Plan, but each such option shall continue to be governed
solely by the terms and conditions of the instrument evidencing such grant,
and nothing in this Plan shall be deemed to affect or otherwise modify the
rights or obligations of the holders of such options with respect to their
acquisition of shares of Common Stock thereunder.
B. The option/vesting acceleration provisions of Section
III of Article Two relating to Corporate Transactions and Changes in Control
may, in the Plan Administrator's discretion, be extended to one or more stock
options outstanding under the 1990 Plan on the Effective Date of the
Discretionary Option Grant Program, but which do not otherwise provide for
such acceleration.
C. The Plan was subsequently amended by the Board on
February 27, 1995 to increase the number of shares of Common Stock authorized
for issuance under the Plan by an additional 750,000 shares, and such
amendment was approved by the stockholders at the 1995 Annual Meeting on May
22, 1995. The Plan was further amended by the Board on February 16, 1996 to
increase the number of shares of Common Stock authorized for issuance under
the Plan by another 750,000 shares, and such amendment was approved by the
stockholders at the 1996 Annual Meeting.
D. In February 1998, the Board further amended and restated
the Plan (the "February 1998 Restatement") to effect the following revisions:
(i) increase the number of shares of Common Stock reserved for issuance over
the term of the Plan by an additional 525,000 shares 3,300,000 shares, (ii)
render the non-employee Board members (including those serving as the Plan
Administrator) eligible to receive option grants under the Discretionary
Option Grant and Stock Issuance Programs, (iii) allow unvested shares issued
under the Plan and subsequently repurchased by the Corporation at the option
exercise or direct issue price paid per share to be reissued under the Plan,
(iv) remove certain restrictions on the eligibility of non-employee Board
members to serve as Plan Administrator and (v) effect a series of additional
changes to the provisions of the Plan (including the stockholder approval
requirements and the option transferability restrictions) in order to take
advantage of the recent amendments to Rule 16b-3 of the Securities and
Exchange Commission which exempts certain officer and director transactions
under the Plan from the short-swing liability provisions of the federal
securities laws. The February 1998 Restatement was approved by the
stockholders at the 1998 Annual Meeting. All option grants and stock
issuances made prior to the February 1998 Restatement shall remain
outstanding in accordance with the terms and conditions of the respective
instruments evidencing those options or issuances, and nothing in the
February 1998 Restatement shall be deemed to modify or in any way affect
those outstanding options or issuances.
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E. In February 1999, the Board further amended and restated
the Plan (the "February 1999 Restatement") to effect the following revisions:
(i) increase the number of shares of Common Stock reserved for issuance over
the term of the Plan by an additional 600,000 shares to 3,900,000 shares,
(ii) increase the number of shares of Common Stock subject to both the
initial and annual option grants made to non-employee Board members under the
Automatic Option Grant Program from 7,500 shares to 15,000 shares, (iii)
implement new automatic option grant for an additional 15,000 shares to be
made each year to each non-employee Board member serving as the Chairperson
of any Board committee and (iv) change the date on which the annual automatic
option grants are to be made to the non-employee Board members and
Chairpersons from the date of the Annual Stockholders Meeting to the first
trading day in January each year, beginning with calendar year 2000. The
February 1999 Restatement was approved by the stockholders at the 1999 Annual
Meeting, and no option grants made on the basis of the February 1999
Restatement became exercisable in whole or in part, and no shares of Common
Stock were be issued on the basis of such restatement, until stockholder
approval of the restatement was obtained at the 1999 Annual Meeting. All
option grants and stock issuances made prior to the February 1999 Restatement
shall remain outstanding in accordance with the terms and conditions of the
respective instruments evidencing those options or issuances, and nothing in
the February 1999 Restatement shall be deemed to modify or in any way affect
those outstanding options or issuances.
F. The Plan was amended and restated on February 22, 2000
(the "February 2000 Restatement") to effect the following changes, subject to
stockholder approval at the 2000 Annual Meeting:
(i) increase the maximum number of shares of Common
Stock authorized for issuance under the Plan by an additional 800,000
shares so that the authorized share reserve is thereby increased from
3,900,000 shares to 4,700,000 shares of Common Stock;
(ii) implement an automatic share increase feature
pursuant to which the share reserve under the Plan will automatically
increase on the first trading day in January each calendar year,
beginning with calendar year 2001 and continuing through calendar year
2005, by an amount equal to 5% of the total number of outstanding
shares of Common Stock on the last trading day of December in the
immediately preceding calendar year, with each such annual increase to
be limited to 2,000,000 shares of Common Stock;
(iii) change the vesting schedule in effect for all
currently outstanding options under the Automatic Option Grant Program
for non-employee Board members and all future option grants made under
that program so that each of those options will become exercisable for
twenty-five percent (25%) of the option shares upon the Optionee's
completion of six (6) months of Board service
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measured from after the automatic grant date and will become
exercisable for the balance of the option shares in a series of
thirty-six (36) successive equal monthly installments upon the
Optionee's completion of each of the next thirty-six (36)-months of
Board service thereafter; and
(iv) extend the term of the Plan through December 31,
2005.
No option grants or direct stock issuances shall be made on
the basis of the share increases authorized by the February 2000 Restatement
unless and until that restatement is approved by the stockholders at the 2000
Annual Meeting.
F. The Plan shall terminate upon the EARLIER of (i)
December 31, 20052 or (ii) the date on which all shares available for
issuance under the Plan shall have been issued or cancelled pursuant to the
exercise, surrender or cash-out of the options granted under the Plan or the
issuance of shares (whether vested or unvested) under the Stock Issuance
Program. If the date of termination is determined under clause (i) above,
then all option grants and unvested stock issuances outstanding on such date
shall thereafter continue to have force and effect in accordance with the
provisions of the instruments evidencing such grants or issuances.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale
of shares pursuant to option grants or stock issuances under the Plan shall
be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any
stock option or stock appreciation right under the Plan, the issuance of any
shares under the Stock Issuance Program, and the issuance of Common Stock
upon the exercise of the stock options or stock appreciation rights granted
hereunder shall be subject to the Corporation's procurement of all approvals
and permits required by regulatory authorities having jurisdiction over the
Plan, the stock options and stock appreciation rights granted under it, and
the Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be
issued or delivered under this Plan unless and until there shall have been
compliance with all applicable requirements of Federal and State securities
laws, including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all
applicable listing requirements of any securities exchange on which stock of
the same class is then listed.
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(2) The December 31, 2005 termination date of the Plan is subject to
stockholder approval of the February 2000 restatement at the 2000 Annual
Meeting. In the absence of such stockholder approval, the termination date will
remain December 31, 2003.
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VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the
Plan, nor any action taken by the Plan Administrator hereunder, nor any
provision of the Plan shall be construed so as to grant any individual the right
to remain in the employ or service of the Corporation (or any parent or
subsidiary corporation) for any period of specific duration, and the Corporation
(or any parent or subsidiary corporation retaining the services of such
individual) may terminate such individual's employment or service at any time
and for any reason, with or without cause.
VIII. MISCELLANEOUS PROVISIONS
A. Except to the extent otherwise expressly provided in the
Plan, the right to acquire Common Stock or other assets under the Plan may
not be assigned, encumbered or otherwise transferred by any Optionee or
Participant.
B. The provisions of the Plan relating to the exercise of
options and the vesting of shares shall be governed by the laws of the State
of California without resort to that State conflict-of-laws rules.
C. The provisions of the Plan shall inure to the benefit
of, and be binding upon, the Corporation and its successors or assigns,
whether by Corporate Transaction or otherwise, and the Participants and
Optionees, the legal representatives of their respective estates, their
respective heirs or legatees and their permitted assignees.
32
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
QRS CORPORATION
Shawn M. O'Connor and Peter Papano or either of them, are hereby
appointed as the lawful agents and proxies of the undersigned (with all
powers the undersigned would possess if personally present, including full
power of substitution) to represent and to vote all shares of capital stock
of QRS Corporation (the "Company"') which the undersigned is entitled to vote
at the Company's Annual Meeting of Shareholders on May 11, 2000, and at any
adjournments or postponements thereof. The shares represented by this Proxy
shall be voted in the manner set forth below:
1. To elect David A. Cole, Garth Saloner, Ph. D. and Garen K. Staglin to
the Board of Directors for a term of three years ending in the year 2003 or
until his successor is duly elected and qualified.
FOR / / AUTHORIZATION WITHHELD / /
INSTRUCTION: To withhold authority to vote for any individual nominee, write
such name or names in the space provided below.
2. To amend and restate the Company's Certificate of Incorporation to
increase the number of shares authorized for issuance thereunder by an
additional 40,000,000 to a total of 60,000,000 shares of Common Stock.
FOR / / AGAINST / / ABSTAIN / /
3. To approve a series of amendments to the Company's 1993 Stock
Option/Stock Issuance Plan (the "1993 Plan"), including i) an increase in the
number of shares of Common Stock authorized for issuance over the term of the
1993 Plan by an additional 800,000 shares to 4,700,000 shares, (ii) the
implementation an automatic share increase feature pursuant to which the
number of shares available for issuance under the 1993 Plan will
automatically increase on the first trading day of January each calendar
year, beginning with the calendar year 2001 and continuing through calendar
year 2005, by an amount equal to five percent (5%) of the total number of
shares outstanding on the last trading day of December in the immediately
preceding calendar year, subject to a limitation on the maximum number of
shares by which the share reserve will increase each year, (iii) a change to
the vesting schedule in effect for the option grants made to non-employee
members of the Board of Directors pursuant to the Automatic Option Grant
Program, and (iv) an extension of the term of the 1993 Plan through December
31, 2005.
FOR / / AGAINST / / ABSTAIN / /
<PAGE>
4. To ratify the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending December 31, 2000.
FOR / / AGAINST / / ABSTAIN / /
5. To transact any other business which may properly come before the
meeting and any adjournment or postponement thereof.
The Board of Directors recommends a vote FOR each of the above
proposals. THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO DIRECTION IS
INDICATED, WILL BE VOTED FOR EACH OF THE ABOVE PROPOSALS AND, AT THE
DISCRETION OF THE PERSONS NAMED AS PROXIES, UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING. This proxy may be revoked at any time
before it is voted.
I/WE DO / / OR DO NOT / / EXPECT TO ATTEND THIS MEETING.
DATE: _______________________, 2000
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(Signature)
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(Signature if held jointly)
(Please sign exactly as shown on your stock certificate and on the
envelope in which this proxy was mailed. When signing as partner, corporate
officer, attorney, executor, administrator, trustee, guardian or in any other
representative capacity, give full title as such and sign your own name as
well. If stock is held jointly, each joint owner should sign.)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY, USING THE ENCLOSED ENVELOPE.
