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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
QRS CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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</TABLE>
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[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,
Shawn M. O'Connor
PRESIDENT AND CHIEF OPERATING OFFICER
Richmond, California
April 10, 2000
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) 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 (iii) 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
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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
SHAWN M. O'CONNOR
PRESIDENT AND CHIEF OPERATING OFFICER
Richmond, California
April 10, 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.
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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 10, 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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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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PROPOSAL NO. 1:
ELECTION OF DIRECTORS
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>
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(1) Member of the Nominations Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
(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
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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>
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(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 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
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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.
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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>
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(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.
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.
8
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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.
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
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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 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-Rider
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
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
-------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS 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 Manager 1998 $130,000 $ 88,486 15,000 $ 5,000
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 and 1997 -- -- -- -- -- --
Secretary
John Simon .................. 1999 $5,000 $1,963 $2,992 -- -- --
Chief Executive Officer and 1998 $5,000 $1,963 $1,223 -- -- --
Director 1997 $4,750 $1,112 $ 484 -- -- --
Philip Woodworth ............ 1999 $5,000 -- -- -- -- --
Vice President and General 1998 $5,000 -- -- -- -- --
Manager 1997 $4,750 -- -- -- -- --
</TABLE>
- ------------------------
13
<PAGE>
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 POTENTIAL REALIZABLE
SECURITIES OPTIONS VALUE AT ASSUMED
UNDERLYING GRANTED TO ANNUAL RATES OF STOCK PRICE
OPTIONS EMPLOYEES IN EXERCISE OR BASE EXPIRATION APPRECIATION FOR OPTION
NAME GRANTED(#) FISCAL YEAR(1) PRICE SHARE(2) DATE 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 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
14
<PAGE>
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>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT FISCAL YEAR-END
OPTIONS AT FISCAL 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>
- ------------------------
(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.
15
<PAGE>
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.
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
16
<PAGE>
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.
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
17
<PAGE>
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
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
18
<PAGE>
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 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
19
<PAGE>
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
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DATE SP50 QRSI SYSPROC
<S> <C> <C> <C>
6/30/1993 100.00 #N/A 100.00
9/30/1993 101.86 173.64 107.37
12/31/1993 103.53 136.43 115.24
3/31/1994 98.94 133.33 107.84
6/30/1994 98.61 62.02 109.55
9/30/1994 102.70 96.12 117.56
12/30/1994 101.94 78.29 123.80
3/31/1995 111.14 119.38 136.20
6/30/1995 120.91 145.74 142.13
9/29/1995 129.72 161.24 155.76
12/29/1995 136.71 113.95 172.75
3/29/1996 143.28 159.69 183.69
6/28/1996 148.85 178.29 190.23
9/30/1996 152.56 231.01 215.29
12/31/1996 164.42 176.74 209.83
3/31/1997 168.05 163.57 189.90
6/30/1997 196.47 224.81 225.98
9/30/1997 210.26 212.40 234.27
12/31/1997 215.40 229.46 287.12
3/31/1998 244.55 331.78 327.58
6/30/1998 251.67 233.33 352.42
9/30/1998 225.74 197.67 376.63
12/31/1998 272.84 297.67 414.06
3/31/1999 285.52 387.98 394.38
6/30/1999 304.69 483.72 433.53
9/30/1999 284.71 596.51 427.28
12/31/1999 326.12 976.74 514.84
</TABLE>
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.
20
<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>
Warburg Pincus Asset Management, Inc. (2)................... 1,497,300 10.97%
466 Lexington Avenue
New York, NY 10017
Peter R. Johnson(3) ........................................ 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(4)
Pilgrim Baxter & Associates, Ltd............................ 775,200 5.37%
825 Duportail Road
Wayne, PA 19087(5)
Tania Amochaev(3)........................................... 115,750 *
Steven D. Brooks(3)......................................... 48,750 *
David A. Cole............................................... -- --
John P. Dougall(3).......................................... 17,500 *
Glenn DuBois(3)............................................. 37,499 *
Shawn M. O'Connor(3)........................................ 172,856 1.25%
Peter Papano(3)............................................. 12,000 --
Garth Saloner(3)............................................ 63,750 *
Philip Schlein(3)........................................... 16,875 *
John S. Simon(3)............................................ 190,086 1.37%
Garen K. Staglin(3)......................................... 98,750 *
Philip Woodworth(3)......................................... 60,523 *
All current executive officers and directors as a group
(13 persons)(6)........................................... 2,301,066 15.93%
</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
21
<PAGE>
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.
(2) Pursuant to a Schedule 13G dated January 13, 1999, and filed with the SEC,
Warburg, Pincus Asset Management, Inc. has reported that as of December 31,
1998, it had sole voting power over 1,171,000 of such shares, shared voting
power over 317,100 of such shares, and dispositive power over all of such
shares.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
22
<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.
23
<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.
24
<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) 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 (iii) 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 is 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.
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,
25
<PAGE>
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 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 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).
26
<PAGE>
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.
27
<PAGE>
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.
<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
Shawn M. O'Connor ........................................ 50,000 $63.5625
President and Chief Operating Officer
Peter Papano ............................................. 15,000 $63.5625
Vice President, Finance, Chief Financial Officer and
Secretary
John S. Simon ............................................ 80,000 $63.5625
Chief Executive Officer and Director
Philip Woodworth ......................................... 15,000 $63.5625
Vice President and General Manager
All current executive officers as a group (13 persons).... 210,000 $ 63.819
All non-employee Board members as a group (8 persons)..... 195,000 $ 45.173
All employees (other than current executive officers) as a 369,865 $ 53.45
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 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
28
<PAGE>
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.
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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.
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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
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
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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:
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
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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.
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.
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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, 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.
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.
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.
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.
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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
SHAWN M. O'CONNOR
PRESIDENT AND CHIEF OPERATING OFFICER
April 10, 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.
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
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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
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
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directly to the Corporation's stockholders which the Board does not recommend
such stockholders to accept.
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.
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.
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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.
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
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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 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. 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.
C. 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.
D. 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.
E. 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
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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 and
(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. 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 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.
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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 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
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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 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 Hundred Thousand Dollars
($100,000). To the extent
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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 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.
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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.
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
(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.
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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.
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
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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 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.
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.
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(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
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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 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.
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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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 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
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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.
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.
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.
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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 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
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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 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 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.
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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.
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
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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.
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) 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 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
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(iii) 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,
2005(2) 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.
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.
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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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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.
24
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF
QRS CORPORATION
Shawn M. O'Connor and John S. Simon 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) 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 (iii) an extension of the term of the 1993 Plan through
December 31, 2005.
FOR / / AGAINST / / ABSTAIN / /
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.
<PAGE>
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
___________________________
(Signature)
___________________________
(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.
