SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the
Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Prophet 21, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
- --------------------------------------------------------------------------------
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
PROPHET 21, INC.
19 West College Avenue
Yardley, Pennsylvania 19067
To Our Stockholders:
You are most cordially invited to attend the 1997 Annual Meeting of
Stockholders of Prophet 21, Inc. at 1:00 P.M., local time, on Thursday, October
23, 1997, at the offices of the Company, 19 West College Avenue, Yardley,
Pennsylvania.
The Notice of Meeting and Proxy Statement on the following pages describe
the matters to be presented to the meeting.
It is important that your shares be represented at this meeting to assure
the presence of a quorum. Whether or not you plan to attend the meeting, we hope
that you will have your stock represented by signing, dating and returning your
proxy in the enclosed envelope, which requires no postage if mailed in the
United States, as soon as possible. Your stock will be voted in accordance with
the instructions you have given in your proxy.
Thank you for your continued support.
Sincerely,
/s/ John E. Meggitt, Ph.D.
John E. Meggitt, Ph.D.
Chairman of the Board
<PAGE>
PROPHET 21, INC.
19 West College Avenue
Yardley, Pennsylvania 19067
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held October 23, 1997
The Annual Meeting of Stockholders (the "Meeting") of PROPHET 21, INC., a
Delaware corporation (the "Company"), will be held at the offices of the
Company, 19 West College Avenue, Yardley, Pennsylvania, on Thursday, October 23,
1997, at 1:00 P.M., local time, for the following purposes:
(1) To elect five directors to serve until the next Annual Meeting of
Stockholders and until their respective successors shall have been duly
elected and qualified;
(2) To amend the Company's 1993 Stock Plan, as amended (the "1993 Plan") to
increase the maximum number of shares of Common Stock available for
issuance under the 1993 Plan from 600,000 to 1,000,000 shares and to
reserve an additional 400,000 shares of Common Stock of the Company for
issuance upon the exercise of stock options granted under the 1993
Plan;
(3) To approve a proposal to adopt the 1997 Employee Stock Purchase Plan;
(4) To ratify the appointment of Coopers & Lybrand L.L.P. as independent
auditors for the year ending June 30, 1998; and
(5) To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
Holders of Common Stock of record at the close of business on September
3, 1997 are entitled to notice of and to vote at the Meeting, or any adjournment
or adjournments thereof. A complete list of such stockholders will be open to
the examination of any stockholder at the Company's principal executive offices
at 19 West College Avenue, Yardley, Pennsylvania 19067 for a period of 10 days
prior to the Meeting. The Meeting may be adjourned from time to time without
notice other than by announcement at the Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE
NUMBER OF SHARES YOU MAY HOLD. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN
PERSON, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT
PROMPTLY IN THE ENCLOSED RETURN ENVELOPE. THE PROMPT RETURN OF PROXIES WILL
ENSURE A QUORUM AND SAVE THE COMPANY THE EXPENSE OF FURTHER SOLICITATION. EACH
PROXY GRANTED MAY BE REVOKED BY THE STOCKHOLDER APPOINTING SUCH PROXY AT ANY
TIME BEFORE IT IS VOTED. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOUR
SHARES ARE REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH SUCH PROXY CARD
SHOULD BE SIGNED AND RETURNED TO ASSURE THAT ALL OF YOUR SHARES WILL BE VOTED.
By Order of the Board of Directors
/s/ Dorothy M. Meggitt
Dorothy M. Meggitt
Secretary
Yardley, Pennsylvania
September 22, 1997
The Company's 1997 Annual Report accompanies the Proxy Statement.
<PAGE>
PROPHET 21, INC.
19 West College Avenue
Yardley, PA 19067
--------------------------------------------
PROXY STATEMENT
--------------------------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Prophet 21, Inc. (the "Company") of proxies to be
voted at the Annual Meeting of Stockholders of the Company to be held on October
23, 1997 (the "Meeting") at the offices of the Company, 19 West College Avenue,
Yardley, Pennsylvania at 1:00 P.M., local time, and at any adjournment or
adjournments thereof. Holders of record of Common Stock, $.01 par value ("Common
Stock"), as of the close of business on September 3, 1997, will be entitled to
notice of and to vote at the Meeting and any adjournment or adjournments
thereof. As of that date, there were 3,559,600 shares of Common Stock issued and
outstanding and entitled to vote. Each share of Common Stock is entitled to one
vote on any matter presented at the Meeting.
If proxies in the accompanying form are properly executed and returned,
the Common Stock represented thereby will be voted in the manner specified
therein. If not otherwise specified, the Common Stock represented by the proxies
will be voted (i) FOR the election of the five nominees named below as
Directors, (ii) FOR a proposal to amend the Company's 1993 Stock Plan, as
amended (the "1993 Plan"), to increase the maximum number of shares of Common
Stock available for issuance under the 1993 Plan from 600,000 to 1,000,000
shares and to reserve an additional 400,000 shares of Common Stock of the
Company for issuance upon the exercise of stock options granted under the 1993
Plan, (iii) FOR the approval of a proposal to adopt the 1997 Employee Stock
Purchase Plan (the "1997 Plan"), (iv) FOR the ratification of the appointment of
Coopers & Lybrand L.L.P. as independent auditors for the year ending June 30,
1998, and (v) in the discretion of the persons named in the enclosed form of
proxy, on any other proposals which may properly come before the Meeting or any
adjournment or adjournments thereof. Any Stockholder who has submitted a proxy
may revoke it at any time before it is voted, by written notice addressed to and
received by the Secretary of the Company, by submitting a duly executed proxy
bearing a later date or by electing to vote in person at the Meeting. The mere
presence at the Meeting of the person appointing a proxy does not, however,
revoke the appointment.
The presence, in person or by proxy, of holders of Common Stock having a
majority of the votes entitled to be cast at the Meeting shall constitute a
quorum. The affirmative vote of holders of a plurality of the shares of Common
Stock represented at the Meeting is required for the election of Directors,
provided a quorum is present in person or by proxy. All actions proposed herein
other than the election of Directors may be taken upon the affirmative vote of
Stockholders possessing a majority of the voting power represented at the
Meeting, provided a quorum is present in person or by proxy.
Abstentions are included in the shares present at the Meeting for purposes
of determining whether a quorum is present, and are counted as a vote against
for purposes of determining whether a proposal is approved. Broker non-votes
(when shares are represented at the Meeting by a proxy specifically conferring
only limited authority to vote on certain matters and no authority to vote on
other matters) are included in the determination of the number of shares
represented at the Meeting for purposes of determining whether a quorum is
present but are not counted for purposes of determining whether a proposal has
been approved and thus have no effect on the outcome.
This Proxy Statement, together with the related proxy card, is being
mailed to the Stockholders of the Company on or about September 22, 1997. The
Annual Report to Stockholders of the Company for the year ended June 30, 1997,
including financial statements (the "Annual Report"), is being mailed together
with this Proxy Statement to all Stockholders of record as of September 3, 1997.
In addition, the Company has provided brokers, dealers, banks, voting trustees
and their nominees, at the Company's expense, with additional copies of the
Annual Report so that such record holders could supply such material to
beneficial owners as of September 3, 1997.
-1-
<PAGE>
ELECTION OF DIRECTORS
---------------------
At the Meeting, five Directors are to be elected (which number shall
constitute the entire Board of Directors of the Company) to hold office until
the next Annual Meeting of Stockholders and until their successors shall have
been elected and qualified.
It is the intention of the persons named in the enclosed form of proxy to
vote the stock represented thereby, unless otherwise specified in the proxy, for
the election as Directors of the persons whose names and biographies appear
below. All of the persons whose names and biographies appear below are at
present Directors of the Company. In the event any of the nominees should become
unavailable or unable to serve as a Director, it is intended that votes will be
cast for a substitute nominee designated by the Board of Directors. The Board of
Directors has no reason to believe that the nominees named will be unable to
serve if elected. Each of the nominees has consented to being named in this
Proxy Statement and to serve if elected.
The current Board of Directors and nominees for election to the Board are
as follows:
Served as a Positions with
Name Age Director Since the Company
- ---- --- -------------- --------------
John E. Meggitt, Ph.D........ 66 1967 Chairman of the Board
and Director
Charles L. Boyle, III........ 44 1993 President, Chief
Executive Officer and
Director
Dorothy M. Meggitt........... 63 1967 Secretary and Director
Louis J. Cissone............. 62 1994 Director
Mark A. Timmerman............ 36 1994 Director
Other than Dr. John E. Meggitt and Dorothy M. Meggitt, who are husband and
wife, there are no family relationships among any of the Directors, executive
officers and key employees of the Company.
The principal occupations and business experience, for at least the past
five years, of each Director and nominee is as follows:
Dr. Meggitt founded the Company and has served as a Director of the
Company since its inception in 1967. From the Company's inception through August
13, 1996, he was also President and Chief Executive Officer of the Company. In
addition, Dr. Meggitt served as Treasurer of the Company from its inception
through December 1993. Prior to founding the Company, he directed system
programming operations for Electronic Associates, Inc. and, earlier, conducted
computer research for IBM.
Mr. Boyle joined the Company in 1984 and, effective August 13, 1996, was
elected to the offices of President and Chief Executive Officer. Prior to
serving in his current capacities, Mr. Boyle served as Executive Vice President
from September 1992 to August 1996, Chief Financial Officer from September 1992
to December 1995, Chief Operating Officer from December 1995 to August 1996 and
Treasurer from September 1992 to August 1996. He has been a Director since
December 1993. Prior to joining the Company, Mr. Boyle held various financial
and management positions with Colt Industries, Inc.
Mrs. Meggitt joined the Company upon its inception in 1967 and has served
as Secretary and a Director since that time. Mrs. Meggitt managed the Company's
human resources and facilities departments from 1967 through 1987.
Mr. Cissone has been on the Board of Directors since May 1994. From 1986
until his retirement in December 1995, Mr. Cissone served as Senior Vice
President and Chief Financial Officer of Sun Distributors L.P., a wholesale
distributor of industrial products. In addition, Mr. Cissone has served on the
Board of Directors of Robec, Inc., a national value-added distributor of
micro-computer systems, since 1991.
-2-
<PAGE>
Mr. Timmerman has been on the Board of Directors since May 1994. Since
1986, Mr. Timmerman has worked for and currently is a partner in the
Chicago-based investment banking firm of William Blair & Company which managed
the Company's initial public offering of Common Stock in March 1994. In
addition, Mr. Timmerman has served on the Board of Directors of DIY Home
Warehouse, a retailer of home products, since 1993.
The Board of Directors recommends that Stockholders vote FOR each of the
nominees for the Board of Directors.
Committees and Meetings of the Board
- ------------------------------------
The Board of Directors has a Compensation Committee, which approves
salaries and certain incentive compensation for top level employees of and
consultants to the Company; an Audit Committee, which reviews the results and
scope of the audit and other services provided by the Company's independent
auditors; and an Option Committee, which makes recommendations about stock
option awards to employees of and consultants to the Company. The Compensation
Committee currently consists of John E. Meggitt, Ph.D., Charles L. Boyle, III,
Mark A. Timmerman and Louis J. Cissone. The Audit Committee currently consists
of Messrs. Meggitt, Timmerman and Cissone. The Option Committee currently
consists of Messrs. Timmerman and Cissone. The Audit Committee had one meeting
during fiscal 1997 while the Compensation and Option Committee each had two
meetings in fiscal 1997. There were four Board of Directors Meetings in fiscal
1997. During fiscal 1997, each incumbent Director attended all meetings of the
Board of Directors and all meetings of Committees on which he or she served,
except for Dr. John E. Meggitt, Ph.D., who was unable to attend one Compensation
Committee meeting.
Compensation of Directors
- -------------------------
Non-employee Directors receive an annual fee of $5,000 for services on the
Board of Directors or any committee thereof plus $500 and reimbursement of their
expenses for each meeting attended. The Company may from time to time, and at
the discretion of the Board of Directors, grant stock options to Directors for
their service on the Board of Directors. To date, no such stock options have
been granted.
-3-
<PAGE>
EXECUTIVE OFFICERS
------------------
The following table identifies the current executive officers of the
Company:
Capacities in In Current
Name Age Which Served Position Since
- ---- --- ------------- --------------
John E. Meggitt, Ph.D.......... 66 Chairman of the 1967
Board and Director
Charles L. Boyle, III.......... 44 President, Chief 1996
Executive Officer
and Director
Thomas M. Giuliani, CPA (1) ... 40 Chief Financial 1996
Officer and
Treasurer
Dorothy M. Meggitt............. 63 Secretary and 1967
Director
Neil Jaffe(2) ................. 52 Vice President - 1992
Software Development
- ----------
(1) Mr. Giuliani joined the Company in 1989 and currently serves as its Chief
Financial Officer and Treasurer. Prior to joining the Company, Mr. Giuliani
held various accounting and financial positions for Deloitte & Touche
(previously Deloitte Haskins and Sells), Commodore International Ltd., Fox
Chase Cancer Center and Robinson Alarm Company.
(2) Mr. Jaffe joined the Company in 1969 and currently serves as its Vice
President - Software Development. Prior to joining the Company, Mr. Jaffe
was a programmer for Worthington Biochemical Corporation.
Other than Dr. John E. Meggitt and Dorothy M. Meggitt, who are husband and
wife, there are no family relationships among any of the Directors, executive
officers and key employees of the Company. Executive officers of the Company are
elected annually by the Board of Directors and serve until their successors are
duly elected and qualified.
-4-
<PAGE>
EXECUTIVE COMPENSATION
----------------------
Summary of Compensation in Fiscal 1997, 1996 and 1995
- -----------------------------------------------------
The following Summary Compensation Table sets forth information concerning
compensation for services in all capacities awarded to, earned by or paid to (i)
each person who served as the Company's Chief Executive Officer for fiscal 1997
and (ii) the two most highly compensated executive officers of the Company whose
aggregate cash compensation exceeded $100,000 and who were serving as executive
officers at the end of fiscal 1997 (collectively, the "Named Executives") during
the years ended June 30, 1995, 1996 and 1997.
<TABLE>
- -------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
------------------- ------------
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
(a) (b) ($)(c) ($)(d) (#)(g) ($)(i)(1)
- -------------------------------------------- ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
John E. Meggitt, Ph.D., Chairman of 1997 $ 75,000 $ -- -- $6,496
the Board (2) ............................. 1996 $ 75,000 $ -- -- $7,616
1995 $139,423 $ -- -- $9,586
Charles L. Boyle, III, President and Chief 1997 $180,000 $ -- 20,000 $7,877
Executive Officer(3) ..................... 1996 $180,000 $ -- 50,000 $2,451
1995 $189,230 $17,541 -- $4,003
Thomas M. Giuliani, Chief Financial 1997 $100,901 $ 636 10,000 $3,909
Officer and Treasurer .................. 1996 $ 86,762 $ 3,011 15,000 $ --
1995 $ 75,978 $ -- 6,000 $5,077
Neil Jaffe, Vice President - 1997 $150,000 $ -- -- $8,003
Software Development ...................... 1996 $150,000 $ -- -- $6,957
1995 $173,076 $17,541 -- $8,064
<FN>
- ----------
(1) Includes Company contributions to its 401(k) plan and supplemental life
insurance and long-term disability premiums paid by the Company on behalf
of its executive officers. The Company made no 401(k) contributions on
behalf of its executive officers during fiscal 1996.
(2) Dr. Meggitt served as President and Chief Executive Officer of the Company
until he resigned from such positions on August 13, 1996.
(3) Mr. Boyle served as Executive Vice President, Chief Operating Officer and
Treasurer of the Company until he was elected President and Chief Executive
Officer of the Company on August 13, 1996.
</FN>
</TABLE>
-5-
<PAGE>
Option Grants in Fiscal 1997
- ----------------------------
The following table sets forth information concerning individual grants of
stock options made pursuant to the Company's 1993 Stock Plan during fiscal 1997
to each of the Named Executives. The Company has never granted any stock
appreciation rights.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
OPTION GRANTS IN LAST FISCAL YEAR
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Term(2)
- ------------------------------------------------------------------------------------------ ---------------------------
Number of
Securities
Underlying % of Total
Options Options Granted Exercise or
Granted to Employees in Base Price Expiration
Name (#)(1) Fiscal Year ($/Sh) Date 5%($) 10%($)
(a) (b) (c) (d) (e) (f) (g)
- ------------------------- -------------- ----------------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
John E. Meggitt, Ph.D.... -- -- -- -- -- --
Charles L. Boyle, III.... 20,000 14.3% $5.25 11/11/06 $66,000 $167,400
Thomas M. Giuliani....... 10,000 7.1% $5.25 11/11/06 $33,000 $83,700
Neil Jaffe............... -- -- -- -- -- --
<FN>
- ----------
(1) The options disclosed herein were granted as non-qualified stock options
and become exercisable to the extent of one-third of the options on the
first anniversary from the date of grant (November 11, 1996) with an
additional one-third of the options granted becoming exercisable on each of
the second and third anniversary of the date of grant. The options
terminate on the expiration date, subject to earlier termination on the
optionee's death, disability or termination of employment with the Company.
Options are not assignable or otherwise transferable except by will or the
laws of descent and distribution.
(2) Based on a grant date fair market value of $5.25 for the grant to Messrs.
Boyle and Giuliani.
</FN>
</TABLE>
-6-
<PAGE>
Aggregated Option Exercises in Fiscal 1997 and Fiscal Year End Option Values
- ----------------------------------------------------------------------------
The following table sets forth information concerning each exercise of
options during fiscal 1997 by each of the Named Executives and the year end
value of unexercised in-the-money options.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at Fiscal at Fiscal
Year-End Year-End
(#) ($)(1)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized($) Unexercisable Unexercisable
(a) (#)(b) (c) (d) (e)
- ------------------------------------ -------------- --------------- -------------------------- -----------------------
<S> <C> <C> <C> <C>
John E. Meggitt, Ph.D............ -- -- -- --
Charles L. Boyle, III............ -- -- 126,667/53,333 $14,584/31,666
Thomas M. Giuliani............... -- -- 11,000/20,000 $9,516/7,031
Neil Jaffe....................... -- -- 80,000/0 $0/0
<FN>
- ----------
(1) Based on a closing price of $5.375 per share of Common Stock as listed on
the Nasdaq National Market at June 30, 1997.
</FN>
</TABLE>
-7-
<PAGE>
Employment Contracts and Termination of Employment
- --------------------------------------------------
Each of Dr. Meggitt and Messrs. Boyle and Jaffe entered into five-year
employment agreements with the Company commencing July 1, 1993 and expiring on
June 30, 1998. Under such agreements, Dr. Meggitt is entitled to an annual
salary of $75,000; Mr. Boyle is entitled to an annual salary of $180,000; and
Mr. Jaffe is entitled to an annual salary of $150,000. In addition, bonuses are
payable to the executive officers at the discretion of the Compensation
Committee of the Board of Directors of the Company. In fiscal 1997, Messrs.
Boyle, Giuliani and Jaffe earned bonuses of $90,000, $30,750 and $30,000,
respectively. Such bonuses were paid to such executive officers subsequent to
June 30, 1997.
In addition to the provision in the above-described employment agreements
requiring each of Dr. Meggitt and Messrs. Boyle and Jaffe to maintain the
confidentiality of Company information and assign inventions to the Company,
each of such executive officers has agreed that during the term of his
respective agreement and thereafter for the greater of two years or the period
of time for which such executive officer is being compensated under such
agreement, such person will not compete with the Company by engaging in any
capacity in any business which is competitive with the business of the Company.
The Company has executed indemnification agreements with each of its
executive officers and Directors pursuant to which the Company has agreed to
indemnify such parties to the full extent permitted by law, subject to certain
exceptions, if such party becomes subject to an action because such party is a
Director, officer, employee, agent or fiduciary of the Company.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The Compensation Committee is comprised of John E. Meggitt, Ph.D., Charles
L. Boyle, III, Mark A. Timmerman and Louis J. Cissone.
The Company's headquarters in Yardley, Pennsylvania are leased to the
Company by John E. Meggitt, Ph.D., the Chairman of the Board, and Dorothy M.
Meggitt, his wife and Secretary of the Company. Dr. and Mrs. Meggitt also are
Directors and majority stockholders of the Company. See "Security Ownership of
Certain Beneficial Owners and Management." On July 1, 1993, the Company and Dr.
and Mrs. Meggitt entered into a five-year lease for the Yardley facilities.
Under such lease arrangement, the Company made rental payments to Dr. and Mrs.
Meggitt totaling $403,200 during the year ended June 30, 1997. In addition, the
Company paid $49,162 during the year ended June 30, 1997 for property taxes due
on such property. The Company believes that the terms of the lease are at least
as favorable to the Company as the terms that may have been available from
unrelated third parties. In addition, the Company has determined that any future
transactions between the Company and its officers, Directors, principal
stockholders and their affiliates shall be on terms no less favorable to the
Company than could be obtained from unrelated third parties.
In fiscal 1997, the Company paid $140,000 of salary to Peter Meggitt, the
son of Dr. and Mrs. Meggitt. Mr. Meggitt serves as a systems programmer for the
Company.
-8-
<PAGE>
Performance Graph
- -----------------
The following graph compares the cumulative total shareholder return on
the Company's Common Stock with the cumulative total return on the Nasdaq
Composite Index and the S&P Computer Systems Index (capitalization weighted) for
the period beginning on the date on which the SEC declared effective the
Company's Form 8-A Registration Statement pursuant to Section 12 of the Exchange
Act and ending on the last day of the Company's last completed fiscal year.
COMPARISON OF CUMULATIVE TOTAL RETURN (1)(2)(3)
Among the Company, The Nasdaq Composite Index and the S&P Computer
Systems Index
------------------------------------------------------------------
03/11/94 06/30/94 06/30/95 06/30/96 06/30/97
-------- -------- -------- -------- --------
Prophet 21, Inc. ............ $ 100.00 $ 95.00 $ 45.00 $ 62.50 $ 53.75
Nasdaq Composite Index ...... $ 100.00 $ 89.45 $ 118.28 $ 150.15 $ 182.73
S&P Computer Systems Index... $ 100.00 $ 92.85 $ 152.62 $ 170.18 $ 257.98
- ----------
(1) Graph assumes $100.00 invested on March 11, 1994 in the Company's Common
Stock, The Nasdaq Composite Index and the S&P Computer Systems Index.
(2) Total return assumes reinvestment of dividends.
(3) Fiscal year ending June 30.
Compensation Committee Report on Executive Compensation
- -------------------------------------------------------
The Compensation Committee has furnished the following report:
The Company's executive compensation policy is designed to attract and
retain highly qualified individuals for its executive positions and to provide
incentives for such executives to achieve maximum Company performance by
aligning the executives' interest with that of shareholders by basing a portion
of compensation on corporate performance.
-9-
<PAGE>
The Compensation Committee generally determines base salary levels for
executive officers of the Company, who are not subject to an employment
agreement, at or about the start of the fiscal year and determines actual
bonuses after the end of the fiscal year based upon Company and individual
performance. Each of Dr. Meggitt and Messrs. Boyle and Jaffe executed five-year
employment agreements on July 1, 1993 which established the salaries and bonuses
to be paid to each of such Named Executives. Each of such Named Executives
voluntarily agreed in January 1995 to amend their agreements to reflect
significant reductions in their base salary.
The Company's executive officer compensation program is comprised of base
salary, conditional cash bonuses, stock options granted at the discretion of the
Option Committee and various other benefits, including stock purchase rights,
medical insurance and a 401(k) Plan which are generally available to all
employees of the Company.
Salaries, whether established pursuant to contract or otherwise, are
established in accordance with industry standards through review of publicly
available information concerning the compensation of officers of comparable
companies. Consideration is also given to relative responsibility, seniority,
individual experience and performance. Salaries for each of Dr. Meggitt and
Messrs. Boyle and Jaffe are fixed in accordance with the employment agreements.
Salary increases for other executives are generally made based on increases in
the industry for similar companies with similar performance profiles and/or
attainment of certain division or Company goals.
The stock option and stock purchase programs are designed to relate
executives' long-term interests to stockholders' long-term interests. Stock
options and stock purchase rights will be awarded on the basis of individual
performance and/or the achievement of internal strategic objectives.
Based on review of available information, the Committee believes that the
Chief Executive Officer's total annual compensation is reasonable and
appropriate given the size, complexity and historical performance of the
Company's business, the Company's position as compared to its peers in the
industry, and the specific challenges faced by the Company during the year, such
as changes in the market for computer products and manufacturers' product lines,
as well as variations in prices and distribution channels, and other industry
factors. No specific weight was assigned to any of the criteria relative to the
Chief Executive Officer's compensation.
Compensation Committee Members
John E. Meggitt, Ph.D.
Charles L. Boyle, III
Louis J. Cissone
Mark A. Timmerman
-10-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
There are, as of September 3, 1997, approximately 180 holders of record
and 632 beneficial holders of the Company's Common Stock. The following table
sets forth certain information, as of September 3, 1997, regarding the
beneficial ownership of the Company's Common Stock by (i) each person who is
known to the Company to own beneficially more than 5% of the total number of
shares of Common Stock outstanding as of such date, (ii) each of the Company's
current Directors (which includes all nominees) and Named Executives, and (iii)
all Directors and executive officers as a group.
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent
of Beneficial Owner(1) of Beneficial Ownership(1) of Class(2)
- ---------------------- -------------------------- -----------
(i) Certain Beneficial Owners:
<S> <C> <C>
Kalmar Investments, Inc............................... 217,800 6.1
1300 Market Street
Suite 500
Wilmington, DE 19801
Kennedy Capital Management, Inc. ..................... 207,600 5.8
10829 Olive Boulevard
St. Louis, MO 63141
(ii) Directors (which includes all nominees) and
Named Executives:
John E. Meggitt, Ph.D. and
Dorothy M. Meggitt
19 West College Avenue
Yardley, PA 19067..................................... 2,274,892(3) 63.9
Charles L. Boyle, III................................. 132,667(4) 3.6
Neil Jaffe............................................ 218,364(5) 6.0
Thomas M. Giuliani.................................... 11,300(6) *
Louis J. Cissone...................................... 500 *
Mark A. Timmerman..................................... 2,000 *
(iii) All current Directors and executive officers
as a group (7 persons).......................... 2,639,723(3)(4)(5)(6) 69.9
<FN>
- ----------
* Less than one percent.
(1) Except as set forth in the footnotes to this table and subject to
applicable community property law, the persons named in the table have
sole voting and investment power with respect to all shares.
(2) Applicable percentage of ownership is based on 3,559,600 shares of Common
Stock outstanding on September 3, 1997.
-11-
<PAGE>
(3) John E. Meggitt, Ph.D., Chairman of the Board, and Dorothy M. Meggitt,
Secretary, are husband and wife. Includes 1,835,628 shares of Common Stock
held by Dr. Meggitt and 439,264 shares of Common Stock held by Mrs.
Meggitt. Does not include an aggregate of 52,380 shares of Common Stock
owned of record by Dr. and Mrs. Meggitt's adult children and one
grandchild, as to which shares Dr. and Mrs. Meggitt disclaim beneficial
ownership.
(4) Includes 126,667 shares of Common Stock subject to options which were
exercisable as of September 3, 1997 or which will become exercisable
within 60 days after such date.
(5) Includes an aggregate of 2,000 shares of Common Stock owned of record by
Mr. Jaffe as custodian for his minor children and 80,000 shares of Common
Stock subject to options which were exercisable as of September 3, 1997 or
which will become exercisable within 60 days after such date.
(6) Includes 300 shares of Common Stock owned of record and 11,000 shares of
Common Stock subject to options which were exercisable as of September 3,
1997 or which will become exercisable within 60 days after such date.
</FN>
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Company has executed indemnification agreements with each of its
Directors and executive officers pursuant to which the Company has agreed to
indemnify such parties to the full extent permitted by law, subject to certain
exceptions, if such party becomes subject to an action because such party is a
Director, officer, employee, agent or fiduciary of the Company.
Transactions involving Dr. and Mrs. Meggitt are reported in "Executive
Compensation -- Compensation Committee Interlocks and Insider Participation. "
-12-
<PAGE>
PROPOSED AMENDMENT TO THE 1993 STOCK PLAN
-----------------------------------------
General
- -------
The Company's 1993 Stock Plan (the "1993 Plan") was adopted by the Board
of Directors and approved by the Stockholders of the Company on December 6, 1993
for employees, officers, Directors and consultants of the Company and its
subsidiaries. The 1993 Plan was amended on December 14, 1993. The 1993 Plan was
adopted to promote the growth and profitability of the Company by enabling it to
furnish maximum incentive to those employees deemed capable of improving
operations and increasing profits and encouraging such persons to accept or
continue employment with the Company and its subsidiaries and become owners of
shares of its Common Stock. Currently, there are 600,000 shares of Common Stock
reserved for issuance upon the exercise of options granted under the 1993 Plan.
The 1993 Plan is administered by the Option Committee (the "Committee") of
the Board of Directors, which determines, among other things, the nature of the
options to be granted, the persons who are to receive options (each a
"Grantee"), the number of shares to be subject to each option, the exercise
price of the options and the vesting schedule of the options. The 1993 Plan
provides for the granting of options intended to qualify as incentive stock
options ("ISOs"), as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), to employees of the Company as well as
non-qualified stock options ("NQSOs") to employees, Directors and consultants
who perform services for the Company or its subsidiaries. The exercise price of
all ISOs granted under the 1993 Plan may not be less than the fair market value
of the shares at the time the option is granted. In addition, no ISO may be
granted to an employee who owns more than 10% of the total combined voting power
of all classes of stock of the Company unless the exercise price as to that
employee is at least 110% of the fair market value of the stock at the time of
the grant. No employee may be granted ISOs for shares having an aggregate fair
market value greater than $100,000 in any calendar year. Options may be for a
period of not more than ten years from the date of grant, provided, however that
the term of an ISO granted to an employee who owns more than 10% of the total
combined voting power of all classes of stock of the Company may not exceed five
years. The exercise price of a NQSO may not be less than 75% of the fair market
value per share of the Common Stock on the date of grant. The Company intends
that for a period of one year from the consummation of its initial public
offering (March 18, 1994) it will not grant any options at an exercise price
less than the fair market value per share on the date of grant. An option is
exercisable as determined by the Committee. The 1993 Plan will terminate on
December 6, 2003. Subject to the terms as specified in any option agreement, if
a Grantee's employment or consulting relationship terminates on account of
disability, the Grantee may exercise any outstanding option for one year
following the termination. If a Grantee dies while in the employ of the Company
or during the period of the consulting arrangement, the Grantee's estate may
exercise any outstanding option for one year following the Grantee's death. If
termination is for any other reason, the Grantee may exercise any outstanding
option for ninety days following the termination. Outstanding options are
exercisable after any termination only to the extent such options are
exercisable at such termination. Options are not assignable or otherwise
transferable except by will or the laws of descent and distribution and shall be
exercisable during the Grantee's lifetime only by the Grantee.
The 1993 Plan provides that, in the event of a reorganization,
recapitalization, stock split, reverse stock split, stock dividend, combination
-13-
<PAGE>
or reclassification of the Common Stock, or any other change in the corporate
structure or shares of the Company, the Board of Directors shall make
adjustments with respect to the shares that may be issued under the 1993 Plan or
that are covered by outstanding options, or in the option price per share.
In the event of a dissolution or liquidation of the Company, the Board
shall notify the Grantee at least fifteen days prior to such proposed action. To
the extent not previously exercised, the outstanding options will terminate
immediately prior to the consummation of such proposed action. In the event of a
merger or consolidation of the Company with or into another corporation or the
sale of all or substantially all of the Company's assets (hereinafter, a
"merger"), then the outstanding options will be assumed or an equivalent option
will be substituted by such successor corporation or a parent or subsidiary of
such successor corporation. In the event that such successor corporation does
not agree to assume the outstanding options or to substitute equivalent options,
the Board of Directors will, in lieu of such assumption or substitution, provide
for the Grantee to have the right to exercise all of his outstanding options. If
the Board of Directors makes an option fully exercisable in lieu of assumption
or substitution in the event of a merger, the Board of Directors shall notify
the Grantee that the option will be fully exercisable for a period of fifteen
days from the date of such notice, and the option will terminate upon the
expiration of such period. The option will be considered assumed if, following
the merger, the option confers the right to purchase, for each share of Common
Stock subject to the option immediately prior to the merger, the consideration
(whether stock, cash, or other securities or property) received in the merger by
holders of Common Stock for each share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares). If
such consideration received in the merger was not solely common stock of the
successor corporation or its parent, the Board of Directors may, with the
consent of the successor corporation and the participant, provide for the
consideration to be received upon the exercise of an option, for each share of
stock subject to the option, to be solely common stock of the successor
corporation or its parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
The Board may at any time amend, alter, suspend or discontinue the 1993
Plan, but no amendment, alteration, suspension or discontinuation will be made
which would impair the rights of any Grantee under any grant theretofore made,
without such Grantee's consent. In addition, to the extent necessary and
desirable to comply with Rule 16b-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or with Section 422 of the Code (or any other
applicable law or regulation, including the requirements of the National
Association of Securities Dealers or an established stock exchange), the Company
shall obtain shareholder approval of any 1993 Plan amendment in such a manner
and to such a degree as required. Any such amendment or termination of the 1993
Plan is not permitted to affect options already granted and such options will
remain in full force and effect as if the 1993 Plan had not been amended or
terminated, unless mutually agreed otherwise between the Grantee and the Board
of Directors, which agreement must be in writing and signed by the Grantee and
the Company.
-14-
<PAGE>
Federal Income Tax Aspects
- --------------------------
(a) ISOs
----------
Some options to be issued under the 1993 Plan will be designated as ISOs
and are intended to qualify under Section 422 of the Code. Under the provisions
of that Section, the optionee will not be deemed to have received any income at
the time an ISO is granted or exercised. However, the excess, if any, of the
fair market value of the shares on the date of exercise over the exercise price
will generally be treated as an adjustment in computing alternative minimum
taxable income for a non-corporate optionee and may subject such optionee to the
alternative minimum tax in the year of exercise.
If the optionee disposes of ISO shares later than two years after the date
of grant and one year after the exercise of the ISO, and certain other
requirements are met, the gain or loss, if any (i.e., the difference between the
amount received for the shares and the exercise price), will be long-term
capital gain or loss.
If the optionee disposes of the shares acquired on exercise of an ISO
within two years after the date of grant or within one year after the exercise
of the ISO, the disposition will constitute a "disqualifying disposition," and
the optionee will have income in the year of the disqualifying disposition equal
to the excess of the amount received for the shares over the exercise price. Of
that income, the portion equal to the excess of the fair market value of the
shares at the time the ISO was exercised over the exercise price will be
compensation income, and the balance, if any, will be either short-term capital
gain, if the shares are disposed of within one year after the ISO is exercised,
or long-term capital gain, if the shares are disposed of more than one year
after the ISO is exercised.
If the optionee disposes of the shares in a disqualifying disposition at a
price that is below the fair market value of the shares at the time the ISO was
exercised and such disposition is a sale or exchange to an unrelated party, the
amount includible as compensation income to the optionee will be limited to the
excess of the amount received on the sale or exchange over the exercise price.
If an ISO is exercised through the payment of the exercise price by the
delivery of Common Stock, to the extent that the number of shares received
exceeds the number of shares surrendered, such excess shares will possibly be
considered as ISO stock with a zero basis.
The Company is not entitled to a deduction as a result of the grant or
exercise of an ISO. If the optionee has compensation income as a result of a
disqualifying disposition, the Company will generally have a corresponding
deductible compensation expense in an equivalent amount in the taxable year of
the Company in which the disqualifying disposition occurs.
-15-
<PAGE>
(b) NQSOs
-----------
Some options to be issued under the 1993 Plan will be designated as NQSOs
which receive no special tax treatment, but are taxed pursuant to Section 83 of
the Code. Under the provisions of that Section, if an option is granted to an
employee in connection with the performance of services and has a "readily
ascertainable fair market value" at the time of the grant, the employee will be
deemed to have received compensation income in the year of grant in an amount
equal to the excess of the fair market value of the option at the time of grant
over the amount, if any, paid by the optionee for the option. However, a NQSO
generally has "readily ascertainable fair market value" only when the option is
actively traded on an established market and when certain stringent Code
requirements are met.
If the option does not have a readily ascertainable fair market value at
the time of the grant, the option is not included as compensation income at that
time. Rather, the optionee realizes compensation income only when the option is
exercised, and the optionee has become substantially vested in the shares
transferred. The shares are considered to be substantially vested when they are
either transferable or not subject to a substantial risk of forfeiture. The
amount of income realized is equal to the excess of the fair market value of the
shares at the time the shares become substantially vested over the sum of the
exercise price plus the amount, if any, paid by the optionee for the option.
If a NQSO is exercised through payment of the exercise price by the
delivery of Common Stock, to the extent that the number of shares received by
the optionee exceeds the number of shares surrendered, ordinary income will be
realized by the optionee at that time only in the amount of the fair market
value of such excess shares, and the tax basis of such excess shares will be
such fair market value.
Once a NQSO is subject to tax as compensation income, it is treated as an
investment option or investment shares and becomes subject to the investment
property rules. No gain or loss arises from the exercise of an option that was
taxed at the time of grant. When the optionee disposes of the shares acquired
pursuant to a NQSO, whether taxed at the time of grant or exercise, or some
other terms, the optionee will recognize capital gain or loss equal to the
difference between the amount received for the shares and the optionee's basis
in the shares.
Generally, the optionee's basis in the shares will be the exercise price
plus the optionee's basis in the option. The optionee's basis in the option is
equal to the sum of the compensation income realized at the time of grant or
exercise, whichever is applicable, and the amount, if any, paid by the optionee
for the option. In the compensatory option context, optionees normally pay
nothing for the grant of the option so the basis in the option will usually be
the amount of compensation income realized at the time of grant or exercise.
Thus, the optionee's basis in the shares will generally be equal to the exercise
price of the option plus the amount of compensation income realized by the
optionee plus the amount, if any, paid by the optionee for the option. The
capital gain or loss will be short-term if the shares are disposed of within one
year after the option is exercised, and long-term if the shares are disposed of
more than one year after the option is exercised.
-16-
<PAGE>
If a NQSO is taxed at the time of grant and expires or lapses without
being exercised, it is treated in the same manner as the lapse of an investment
option. The lapse is deemed to be a sale or exchange of the option on the day
the option expires and the amount of income realized is zero. The optionee
recognizes a capital loss in the amount of the optionee's basis (compensation
income realized at the time of the grant plus the amount, if any, paid by the
optionee for the option) in the option at the time of the lapse. The loss is
short-term or long-term, depending on the optionee's holding period in the
option.
If a NQSO is not taxed at the time of grant and expires without being
exercised, the optionee will have no tax consequences unless the optionee paid
for the option. In such case, the optionee would recognize a loss in the amount
of the price paid by the optionee for the option.
The Company is generally entitled to a deductible compensation expense in
an amount equivalent to the amount included as compensation income to the
optionee. This deduction is allowed in the Company's taxable year in which the
income is included as compensation to the optionee. The Company is only entitled
to this deduction if the Company deducts and withholds upon the amount included
in an employee's compensation.
The preceding discussion is based upon federal tax laws and regulations in
effect on the date of this Proxy Statement, which are subject to change, and
upon an interpretation of the relevant sections of the Code, their legislative
histories and the income tax regulations which interpret similar provisions of
the Code. Furthermore, the foregoing is only a general discussion of the federal
income tax aspects of the 1993 Plan and does not purport to be a complete
description of all federal income tax aspects of the 1993 Plan. Optionees may
also be subject to state and local taxes in connection with the grant or
exercise of options granted under the 1993 Plan and the sale or other
disposition of shares acquired upon exercise of the options. Each employee
receiving a grant of options should consult with his or her personal tax advisor
regarding federal, state and local tax consequences of participating in the 1993
Plan.
Previously Granted Options Under the 1993 Plan
- ----------------------------------------------
As of September 3, 1997, the Company had granted options to purchase an
aggregate of 600,000 shares of Common Stock under the 1993 Plan at an average
exercise price of $5.95 per share. As of September 3, 1997, 400,000 options to
purchase shares were vested and 2,500 options to purchase shares had been
exercised under the 1993 Plan. The following table sets forth the options
granted under the 1993 Plan to (i) the Named Executives; (ii) all current
executive officers as a group; (iii) each nominee for election as a Director;
(iv) all current Directors who are not executive officers as a group; (v) each
associate of any of such Directors, executive officers or nominees; (vi) each
person who has received or is to receive 5% of such options or rights; and (vii)
all employees, including all current officers who are not executive officers, as
a group:
-17-
<PAGE>
<TABLE>
<CAPTION>
Options Granted Weighted Average
Name through September 3, 1997 Exercise Price
---- ------------------------- ----------------
<S> <C> <C>
John E. Meggitt, Ph.D..................................... -- $ --
Charles L. Boyle, III..................................... 180,000 6.32
Thomas M. Giuliani........................................ 31,000 4.84
Neil Jaffe................................................ 80,000 7.00
Dorothy M. Meggitt........................................ -- --
Louis J. Cissone.......................................... -- --
Mark A. Timmerman......................................... -- --
All current executive officers as a group (5 persons)..... 291,000 6.35
All current Directors who are not executive officers as a
group (2 persons)..................................... -- --
All employees, including all current officers who are not
executive officers as a group (57 persons)............ 309,000 5.58
</TABLE>
As of September 3, 1997, the market value of the Common Stock underlying
the 1993 Plan was $7.625 per share.
Proposed Amendment
- ------------------
Stockholders are being asked to consider and vote upon a proposed
amendment (the "Amendment") to the 1993 Plan to increase the maximum number of
shares of Common Stock available for issuance under the 1993 Plan from 600,000
to 1,000,000 shares and to reserve an additional 400,000 shares of Common Stock
of the Company for issuance upon the exercise of stock options granted under the
1993 Plan.
The Board of Directors believes that the Amendment provides an important
inducement to recruit and retain the best available personnel. The Board of
Directors believes that providing employees with an opportunity to invest in the
Company rewards them appropriately for their efforts on behalf of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT.
-18-
<PAGE>
PROPOSAL TO APPROVE 1997 EMPLOYEE STOCK PURCHASE PLAN
-----------------------------------------------------
The Board of Directors has adopted, and is submitting to stockholders for
approval, the 1997 Employee Stock Purchase Plan (the "1997 Plan"). The purpose
of the 1997 Plan is to provide a further incentive for employees to promote the
best interests of the Company and to encourage stock ownership by employees in
order to participate in the Company's economic progress. A total of 100,000
shares will be made available for purchase pursuant to the 1997 Plan.
In general, the 1997 Plan provides for eligible employees to designate in
advance of specified purchase periods (which will be annual, semi-annual or
quarterly) a percentage of compensation (up to 10%) to be withheld from their
pay and applied toward the purchase of such number of whole shares of Common
Stock as can be purchased at a price of 85% of the lesser of the stock's trading
price at the beginning or the end of each such period. No employee can purchase
more than $5,000 worth of stock annually, and no stock can be purchased by any
person which would result in the purchaser owning five percent or more of the
total combined voting power or value of all classes of stock of the Company.
The 1997 Plan is intended to satisfy the requirements of Section 423(b) of
the Code which requires that it be approved by stockholders within one year of
the earlier of its adoption by the Board of Directors or the 1997 Plan's
effective date. The 1997 Plan was adopted by the Board of Directors on September
4, 1997. In addition, the 1997 Plan is intended to comply with certain
requirements of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
The term of the 1997 Plan will extend through December 31, 2001, unless
terminated earlier by the Board of Directors. The Board of Directors generally
has the right to amend or terminate the 1997 Plan without the consent of
participants or stockholders, subject to certain exceptions.
Each person employed by the Company (except short-term, part-time, or
seasonal employees) is eligible to participate in the 1997 Plan (an "Eligible
Employee"), provided he or she is not, as of the day preceding the first day of
the Purchase Period (as defined below), deemed, for purposes of Section
423(b)(3) of the Code, to own stock possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company.
The purchase price per share of the Common Stock sold under the 1997 Plan
for any Purchase Period will be equal to the lesser of (a) 85% of the "fair
market value" of a share of Common Stock on the first day of such Purchase
Period, or (b) 85% of the "fair market value" of a share of Common Stock on the
last day of such Purchase Period (the "Exercise Date"). The fair market value
will be deemed to be the average of the last bid and asked prices of the Common
Stock reported by Nasdaq, or if the Common Stock is traded on the Nasdaq
National Market or a national securities exchange, the closing sale price of the
Common Stock thereon, in each case on the applicable date or, if there is no
such sale on that day, then on the last preceding date on which such a sale was
reported.
-19-
<PAGE>
Under the 1997 Plan, a separate option to purchase shares of Common Stock
will be granted to each Eligible Employee as of the first day of each "Purchase
Period". The option grant applies automatically to all Eligible Employees, but
to participate in the 1997 Plan, further action is required as explained below.
A Purchase Period will be a period of three, six or twelve months (as elected in
advance by the committee administering the 1997 Plan), during which time payroll
deductions will be made to fund the purchase of shares subject to option. The
first Purchase Period will commence on January 1, 1998 and end on March 31,
1998. The maximum number of shares an Eligible Employee is eligible to purchase
for any Purchase Period is $5,000 ($1,250 for a three-month Purchase Period and
$2,500 for a six-month Purchase Period) divided by 100% of the fair market value
of a share of Common Stock on the first day of each applicable Purchase Period.
If, as of the first day of each such Purchase Period, an Eligible Employee would
be deemed for purposes of Section 423(b)(3) of the Code to own stock of the
Company (including any number of shares which such person is entitled to
purchase under the 1997 Plan) possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company, the maximum number of
shares such person will be entitled to purchase pursuant to the 1997 Plan will
be reduced. Options granted to Eligible Employees who fail to authorize payroll
deductions will automatically lapse.
In order to purchase shares pursuant to an option, an Eligible Employee
must sign a Stock Purchase Agreement and properly return it as instructed in
advance of the first day of each Purchase Period. By doing so, the employee
becomes a Participant in the 1997 Plan. Under the Stock Purchase Agreement, each
Eligible Employee who elects to participate in the 1997 Plan must authorize
contributions to the 1997 Plan through regular payroll deductions, effective as
of the first day of the relevant Purchase Period. A Participant may authorize
payroll deductions from his or her cash W-2 compensation, as defined in the 1997
Plan ("Compensation"), for each payroll period, of a specified percentage of
such compensation, not less than 1% and not more than 10%, in multiples of 1/2%.
The amount of payroll deduction must be established at the beginning of a
Purchase Period and may not be altered, except for complete discontinuance. The
payroll deduction authorized by a Participant will be credited to an individual
account maintained for the Participant under the 1997 Plan (an "Account").
For any particular Purchase Period, the committee administering the 1997
Plan may elect, in advance, a "Trust Administration Option" whereby the amounts
of payroll deductions taken for Participants will be deposited regularly in a
trust established by the Company with an institutional trustee for the benefit
of Participants. Unless withdrawn earlier, the funds held for the respective
Participants (together with applicable earnings) will be applied by the trustee
on the Exercise Date to purchase shares of Common Stock for each such
Participant in accordance with the 1997 Plan. The Company will pay all the
expenses of trust establishment and administration, but will not have a lien
over, reversionary interest in, the trust assets. Withdrawals by Participants
during a Purchase Period while the Trust Administration Option is in effect will
entitle the withdrawing Participants to their respective shares of earnings by
the trust on their accumulated payroll deductions.
-20-
<PAGE>
Shares of Common Stock acquired pursuant to the exercise of options under
the 1997 Plan and funded pursuant to payroll deductions as provided in the Stock
Purchase Agreement are to be offered and sold to Eligible Employees solely
pursuant to an effective Registration Statement filed under the Securities Act
of 1933, as amended.
If there is credited to the Account of a Participant as of any Exercise
Date an amount at least equal to the purchase price determined under the 1997
Plan of one share of Common Stock for the current Purchase Period, the
Participant will purchase, and the Company will sell, at such price the largest
number of whole shares of Common Stock which can be purchased with the amount
credited to his or her Account. In no event will fractional shares be issued.
Any balance remaining in a Participant's Account at the end of a Purchase Period
(not in excess of the purchase price of one share of Common Stock) will be
carried forward into a Participant's Account for the following Purchase Period.
No Participant may, in any calendar year, purchase such number of shares
under the 1997 Plan which, when aggregated with all other shares of stock of the
Company which he or she may be entitled to purchase under any other employee
stock purchase plans of the Company which meets the requirements of Section
423(b) of the Code, exceeds $5,000 in fair market value. Since the exclusive
method for purchasing shares under the 1997 Plan is through payroll deductions
whose maximum limit is 10% of Compensation, the 10% limitation will be the
effective limit on purchases of stock under the 1997 Plan for substantially all
employees.
If, as of the Exercise Date in any Purchase Period, the aggregate funds
available for the purchase of shares of Common Stock would result in a purchase
of shares in excess of the maximum number of shares then available for purchase
under the 1997 Plan, the number of shares which would otherwise be purchased by
each Participant on the Exercise Date will be reduced by a factor relative to
the payroll deduction accumulation for each Participant.
Options issued under the 1997 Plan are intended to be options issued
pursuant to an "Employee Stock Purchase Plan" within the meaning of Section 423
of the Code. Accordingly, if a Participant exercises an option and holds the
shares for the applicable holding period, and remains an employee at all times
during the period beginning with the date the option is granted and ending three
months before the date it is exercised, he or she will be entitled for Federal
income tax purposes to special tax treatment. Under such circumstances, any gain
realized upon disposition of the shares will be treated as ordinary income to
the extent of the lesser of (i) 15% of the fair market value of the shares on
the date the option was granted, or (ii) the amount by which the fair market
value of the shares on the date of disposition exceeded the option price. Any
further gain will be treated as long-term capital gain. The applicable holding
period is the longer of (i) two years after the date the option is granted, or
(ii) one year after the shares are issued. The Company will not be entitled to
any tax deduction for Federal income tax purposes with respect to shares so
acquired and disposed of by a Participant.
-21-
<PAGE>
The 1997 Plan does not contain any provisions requiring a Participant to
hold the optioned stock for any period after exercise of the option, nor to
acquire such stock for investment purposes. However, unless a Participant holds
the stock for more than two years after the option is granted and one year after
the stock is issued, he or she will not be entitled to long-term capital gain
treatment for Federal income tax purposes on any increase in fair market value
of the stock between the date the option was granted and the date the option was
exercised. If the Participant disposes of the stock within such one-year period
or such two-year period, any excess of the fair market value on the date of
exercise over the option price is taxable as ordinary income to him or her and
is deductible by the Company for Federal income tax purposes.
The number of shares of Common Stock which can be purchased pursuant to
options under the 1997 Plan are subject to adjustment in the event of certain
recapitalizations of the Company. Participants' rights to purchase stock
pursuant to the 1997 Plan are not transferable. Generally, the Company's Board
of Directors, without the consent of Participants, can terminate or amend the
1997 Plan, except that no such action can adversely affect options previously
granted and, without stockholder approval, the Board may not: (i) increase the
total amount of Common Stock allocated to the 1997 Plan (except for permitted
capital adjustments); (ii) change the class of Eligible Employees; (iii)
decrease the minimum purchase price; (iv) extend a Purchase Period; or (v)
extend the term of the 1997 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 1997
EMPLOYEE STOCK PURCHASE PLAN.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
---------------------------------------------------
The Board of Directors of the Company has, subject to Stockholder
approval, retained Coopers & Lybrand L.L.P. as independent auditors of the
Company for the year ending June 30, 1998. Coopers & Lybrand L.L.P. also served
as independent auditors of the Company for fiscal 1997. Neither the firm nor any
of its members has any direct or indirect financial interest in or any
connection with the Company in any capacity other than as independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS THE INDEPENDENT AUDITORS OF THE
COMPANY FOR THE FISCAL YEAR ENDING JUNE 30, 1998.
One or more representatives of Coopers & Lybrand L.L.P. is expected to
attend the Meeting and have an opportunity to make a statement and/or respond to
appropriate questions from Stockholders.
STOCKHOLDERS' PROPOSALS
-----------------------
Stockholders who wish to submit proposals for inclusion in the Company's
proxy statement and form of proxy relating to the 1998 Annual Meeting of
Stockholders must advise the Secretary of the Company of such proposals in
writing by May 26, 1998.
-22-
<PAGE>
OTHER MATTERS
-------------
The Board of Directors is not aware of any matter to be presented for
action at the Meeting other than the matters referred to above and does not
intend to bring any other matters before the Meeting. However, if other matters
should come before the Meeting, it is intended that holders of the proxies will
vote thereon in their discretion.
GENERAL
-------
The accompanying proxy is solicited by and on behalf of the Board of
Directors of the Company, whose notice of meeting is attached to this Proxy
Statement, and the entire cost of such solicitation will be borne by the
Company.
In addition to the use of the mails, proxies may be solicited by personal
interview, telephone and telegram by Directors, executive officers and other
employees of the Company who will not be specially compensated for these
services. The Company will also request that brokers, nominees, custodians and
other fiduciaries forward soliciting materials to the beneficial owners of
shares held of record by such brokers, nominees, custodians and other
fiduciaries. The Company will reimburse such persons for their reasonable
expenses in connection therewith.
Certain information contained in this Proxy Statement relating to the
occupations and security holdings of Directors and executive officers of the
Company is based upon information received from the individual Directors and
officers.
PROPHET 21, INC. WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS REPORT ON
FORM 10-K FOR THE YEAR ENDED JUNE 30, 1997, INCLUDING FINANCIAL STATEMENTS AND
SCHEDULES THERETO BUT NOT INCLUDING EXHIBITS, TO EACH OF ITS STOCKHOLDERS OF
RECORD ON SEPTEMBER 3, 1997, AND TO EACH BENEFICIAL STOCKHOLDER ON THAT DATE
UPON WRITTEN REQUEST MADE TO THE SECRETARY OF THE COMPANY. A REASONABLE FEE WILL
BE CHARGED FOR COPIES OF REQUESTED EXHIBITS.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE
IN THE ENCLOSED RETURN ENVELOPE. A PROMPT RETURN OF YOUR PROXY CARD WILL BE
APPRECIATED AS IT WILL SAVE THE EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors
/s/ Dorothy M. Meggitt
Dorothy M. Meggitt
Secretary
Yardley, Pennsylvania
September 22, 1997
-23-
<PAGE>
PROPHET 21, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby constitutes and appoints John E. Meggitt, Ph.D. and
Charles L. Boyle, III, and each of them, his or her true and lawful agent and
proxy with full power of substitution in each, to represent and to vote on
behalf of the undersigned all of the shares of Prophet 21, Inc. (the "Company")
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
of the Company to be held at the Company's offices, 19 West College Avenue,
Yardley, Pennsylvania 19067 at 1:00 P.M., local time, on Thursday, October 23,
1997 and at any adjournment or adjournments thereof, upon the following
proposals more fully described in the Notice of Annual Meeting of Stockholders
and Proxy Statement for the Meeting (receipt of which is hereby acknowledged).
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR proposals 1, 2, 3 and 4.
1. ELECTION OF DIRECTORS.
Nominees: John E. Meggitt, Ph.D., Charles L. Boyle, III, Dorothy M.
Meggitt, Louis J. Cissone and Mark A. Timmerman.
(Mark one only)
VOTE FOR all the nominees listed above; except vote withheld from the following
nominees (if any). [ ]
- --------------------------------------------------------------------------------
VOTE WITHHELD from all nominees. [ ]
2. APPROVAL OF PROPOSAL TO AMEND THE COMPANY'S 1993 STOCK PLAN TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UPON THE EXERCISE OF
OPTIONS GRANTED UNDER SUCH PLAN FROM 600,000 TO 1,000,000 SHARES.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. APPROVAL OF PROPOSAL TO ADOPT THE 1997 EMPLOYEE STOCK PURCHASE PLAN.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. APPROVAL OF PROPOSAL TO RATIFY THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS
THE INDEPENDENT AUDITORS OF THE COMPANY FOR THE YEAR ENDING JUNE 30, 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(continued and to be signed on reverse side)
<PAGE>
5. In his discretion, the proxy is authorized to vote upon other matters as may
properly come before the Meeting.
Dated: This proxy must be signed
------------------------- exactly as the name appears
hereon. When shares are held
- ------------------------------- by joint tenants, both should
Signature of Stockholder sign. If the signer is a
corporation, please sign full
- -------------------------------- corporate name by duly authorized
Signature of Stockholder if held jointly officer, giving full title as
such. If a partnership, please
sign in partnership name by
authorized person.
I will [ ] will not [ ] attend the
Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
<PAGE>
PROPHET 21, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
I. DEFINITIONS
--------------
"Account" means the Employee Stock Purchase Plan Account established for a
Participant under Section IX hereunder.
"Board of Directors" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Stock Purchase Plan Committee appointed and
acting in accordance with the terms of the Plan.
"Common Stock" shall mean shares of the Company's Common Stock, par value
$.01 per share, and any security into which such stock shall be converted or
shall become by reason of changes in its nature such as by way of
recapitalization, reclassification, changes in par value, merger, consolidation
or similar transaction.
"Company" shall mean Prophet 21, Inc., a Delaware corporation. When used
in the Plan with reference to employment, Company shall include Subsidiaries.
"Compensation" shall mean the total cash compensation paid to an Eligible
Employee by the Company, as reportable on IRS Form W-2. Notwithstanding the
foregoing, Compensation shall not include bonuses, overtime pay or commissions
based on sales.
"Effective Date" shall mean October 23, 1997.
"Eligible Employees" shall mean only those persons who, as of the first
day of a Purchase Period, are Employees who have completed at least six months
of service and who are not, as of the day preceding the first day of the
Purchase Period, deemed for purposes of Section 423(b)(3) of the Code to own
stock possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company.
"Employees" shall mean all persons who are employed by the Company as
common-law employees, excluding persons (i) who have been employed less than six
months, (ii) whose
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<PAGE>
customary employment is 20 hours or less per week, or (iii) whose customary
employment is for not more than five months in a calendar year.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exercise Date" shall mean the last day of a Purchase Period.
"Fair Market Value" shall mean as of any date: (i) the average of the
closing bid and asked prices on such date of the Common Stock as quoted by
Nasdaq; or (ii), as the case may be, the last reported sales price of the Common
Stock on such date as reported by the Nasdaq National Market or the principal
national securities exchange on which such stock is listed and traded, or in
each such case where there is no trading on such date, on the first previous
date on which there is such trading.
"Participant" shall mean an Eligible Employee who elects to participate in
the Plan under Section VII hereunder.
"Plan" shall mean the Prophet 21, Inc. 1997 Employee Stock Purchase Plan,
as set forth herein and as amended from time to time.
"Purchase Period" shall mean (a) for 1997, the period commencing on the
Effective Date and ending on January 1, 1998; and (b) thereafter, purchase
periods shall be annual, semi-annual or quarterly, in each case as elected by
the Committee not less than 60 days in advance of the commencement of such
period. A Purchase Period shall begin on the first business day of, and end on
the last business day of, each such calendar period. In the absence of any such
election, Purchase Periods subsequent to the first period shall be for one
calendar year. The last Purchase Period under the Plan shall terminate on or
before the date of termination of the Plan provided in Section XXIII.
"Subsidiary" shall mean any corporation which is a subsidiary of the
Company within the meaning of Section 425(f) of the Code.
"Termination of Service" shall mean the earliest of the following events
with respect to a Participant: his retirement, death, quit, discharge or
permanent separation from service with the Company.
The masculine gender includes the feminine, the singular number includes
the plural and the plural number includes the singular unless the context
otherwise requires.
II. PURPOSE
-----------
It is the purpose of this Plan to provide a means whereby Eligible
Employees may purchase Common Stock through payroll deductions. It is intended
to provide a further incentive
2
<PAGE>
for Employees to promote the best interests of the Company and to encourage
stock ownership by Employees in order to participate in the Company's economic
progress.
It is the intention of the Company to have the Plan qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Code and
the provisions of the Plan shall be construed in a manner consistent with the
Code.
III. ADMINISTRATION
-------------------
The Plan shall be administered by a Committee selected by the Board of
Directors from among its members, which shall consist of not less than two
members. The Committee shall have authority to make rules and regulations for
the administration of the Plan, and its interpretation and decisions with regard
thereto shall be final and conclusive. The Committee shall have all necessary
authority to communicate, from time to time, with Eligible Employees and
Participants for purposes of administering the Plan, and shall notify Eligible
Employees promptly of its election of the term of each forthcoming Purchase
Period, if other than a calendar year, and of its election to utilize the Trust
Administration Option referred to in Section IX.
IV. SHARES
----------
There shall be 100,000 shares of Common Stock reserved for issuance to and
purchase by Participants under the Plan, subject to adjustment in accordance
with Section XXI hereof. The shares of Common Stock subject to the Plan shall be
either shares of authorized but unissued Common Stock or shares of Common Stock
reacquired by the Company. Shares of Common Stock involved in any unexercised
portion of any terminated option may again be subject to options to purchase
granted under the Plan.
V. PURCHASE PRICE
-----------------
The purchase price per share of the shares of Common Stock sold to
Participants under this Plan for any Purchase Period shall be the lesser of (a)
85% of the Fair Market Value of a share of Common Stock on the first day of such
Purchase Period, or (b) 85% of the Fair Market Value of a share of Common Stock
on the Exercise Date of such Purchase Period.
VI. GRANT OF OPTION TO PURCHASE SHARES
--------------------------------------
Each Eligible Employee shall be granted an option effective on the first
day of each Purchase Period to purchase a number of full shares of Common Stock
(subject to adjustment as
3
<PAGE>
provided in Section XXI). The maximum number of shares an Eligible Employee
shall be eligible to purchase for any Purchase Period is $5,000 ($2,500 for a
Purchase Period of six months or $1,250 for a Purchase Period of three months)
divided by 100% of the Fair Market Value of a share of Common Stock on the first
day of the Purchase Period.
Anything herein to the contrary notwithstanding, if, as of the first day
of a Purchase Period, any Eligible Employee entitled to purchase shares
hereunder would be deemed for the purposes of Section 423(b)(3) of the Code to
own stock (including any number of shares which such person would be entitled to
purchase hereunder) possessing 5% or more of the total combined voting power or
value of all classes of stock of the Company, the maximum number of shares which
such person shall be entitled to purchase pursuant to the Plan shall be reduced
to that number which when added to the number of shares of stock of the Company
which such person is so deemed to own (excluding any number of shares which such
person would be entitled to purchase hereunder), is one less than such 5%.
VII. ELECTION TO PARTICIPATE
----------------------------
An Eligible Employee may elect to become a Participant in this Plan by
completing a "Stock Purchase Agreement" form prior to the first day of the
Purchase Period. In the Stock Purchase Agreement, the Eligible Employee shall
authorize regular payroll deductions from his Compensation subject to the
limitations in Section VIII below. Options granted to Eligible Employees who
fail to authorize payroll deductions will automatically lapse. If a
Participant's payroll deductions allow him to purchase fewer than the maximum
number of shares of Common Stock to which his option entitles him, the option
with respect to the shares which he does not purchase will lapse as of the last
day of the Purchase Period.
The execution and delivery of the Stock Purchase Agreement as between the
Participant and the Company shall be conditioned upon the compliance by the
Company at such time with Federal (and any applicable state) securities laws.
VIII. PAYROLL DEDUCTIONS
------------------------
An Eligible Employee may authorize payroll deductions from his
Compensation for each payroll period of a specified percentage of such
Compensation, not less than 1% and not more than 10%, in multiples of 1/2%.
The amount of payroll deduction shall be established at the beginning of a
Purchase Period and may not be altered, except for complete discontinuance under
Section XI, XIII or XIV hereunder.
4
<PAGE>
IX. EMPLOYEE STOCK PURCHASE ACCOUNT
AND TRUST ADMINISTRATION OPTION
-----------------------------------
An Employee Stock Purchase Account will be established for each
Participant in the Plan. Payroll deductions made under Section VIII will be
credited to the individual Accounts. In the event the Committee determines with
respect to any Purchase Period, not to utilize the "Trust Administration Option"
set forth in the next paragraph, no interest or other earnings will be credited
to a Participant's Account.
With respect to any one or more Purchase Periods, the Committee may elect
to utilize, in addition to the separate accounting for payroll deductions
provided in the Plan, the option to administer the funding of the Accounts
through a trust established pursuant to a trust agreement between the Company
and an institution exercising fiduciary powers (the "Trust Administration
Option") as hereinafter set forth in this paragraph. The Company shall provide
for the funding of each Account on a regular basis during each Purchase Period
reflecting payroll deductions of Participants and shall cause such sums to be
deposited within 15 days following such deductions in a trust account at such
institution and upon such terms as are established by the Committee. The trust
account assets shall be invested in shares of a tax-exempt money-market
registered investment company designated in the trust agreement, which
designation shall not be changed during the Purchase Period. Assets deposited in
the aforesaid trust account shall be commingled, but a separate accounting shall
be kept for each Participant's interest therein. Each Participant shall be
credited with his allocable share of the earnings of the trust account, which
credits shall be reflected in each Participant's Account balance hereunder. At
all times, the funds in such trust account shall be considered the property of
the respective Participants, and no part of the trust account assets may at any
time revert to, or be subject to any lien or claim of, the Company; provided,
however, that such trust account assets may be used only for the purchase of
shares as provided in Section X hereof or for withdrawal by or return to
Participants (or their beneficiaries) as provided in Sections XI, XIII or XXIII
hereof.
X. PURCHASE OF SHARES
---------------------
If, as of any Exercise Date, there is credited to the Account of a
Participant an amount at least equal to the purchase price of one share of
Common Stock for the current Purchase Period, as determined in Section V, the
Participant shall buy and the Company shall sell at such price the largest
number of whole shares of Common Stock which can be purchased with the amount in
his Account.
Any balance remaining in a Participant's Account at the end of a Purchase
Period will be carried forward into the Participant's Account for the following
Purchase Period. In no event will the balance carried forward be equal to or
exceed the purchase price of one share of Common Stock as determined in Section
V above. Notwithstanding the foregoing provisions of this paragraph, if as of
any Exercise Date the provisions of Section XV are applicable to the Purchase
Period ending on such Exercise Date, and the Committee reduces the number of
shares which would otherwise be purchased by Participants on such Exercise Date,
the entire balance remaining credited to the Account of each Participant after
the purchase of the applicable number of shares of Common Stock on such Exercise
Date shall be refunded to each such Participant.
5
<PAGE>
Except with respect to a Purchase Period for which the Trust Administration
Option has been elected, no refund of an Account balance made pursuant to the
Plan shall include any amount in respect of interest or other imputed earnings.
Anything herein to the contrary notwithstanding, no Participant may, in
any calendar year, purchase a number of shares of Common Stock under this Plan
which, together with all other shares of stock of the Company and its
Subsidiaries which he may be entitled to purchase in such year under all other
employee stock purchase plans of the Company and its subsidiaries which meet the
requirements of Section 423(b) of the Code, have an aggregate Fair Market Value
(measured as of the first day of each applicable Purchase Period) in excess of
$5,000. The limitation described in the preceding sentence shall be applied in a
manner consistent with Section 423(b)(8) of the Code.
XI. WITHDRAWAL
--------------
A Participant may withdraw from the Plan at any time prior to the Exercise
Date of a Purchase Period by filing a notice of withdrawal. Upon a Participant's
withdrawal, the payroll deductions shall cease for the next payroll period and
the entire amount credited to his Account shall be refunded to him. Any
Participant who withdraws from the Plan may again become a Participant hereunder
at the start of the next Purchase Period in accordance with Section VII.
XII. ISSUANCE OF STOCK CERTIFICATES
-----------------------------------
The shares of Common Stock purchased by a Participant shall, for all
purposes, be deemed to have been issued and sold at the close of business on the
Exercise Date. Prior to that date, none of the rights or privileges of a
stockholder of the Company shall exist with respect to such shares. Stock
certificates shall be registered either in the Participant's name or jointly in
the names of the Participant and his spouse, as the Participant shall designate
in his Stock Purchase Agreement. Such designation may be changed at any time by
filing notice thereof. Certificates representing shares of purchased Common
Stock shall be delivered promptly to the Participant following issuance.
XIII. TERMINATION OF SERVICE
----------------------------
(a) Upon a Participant's Termination of Service for any reason other than
retirement or death, no payroll deduction may be made from any Compensation due
him as of the date of his Termination of Service and the entire balance credited
to his Account shall be automatically refunded to him.
(b) Upon a Participant's retirement from the Company after age 55, no
payroll deduction shall be made from any Compensation due him as of the date of
his retirement. Such a Participant may, prior to Retirement, elect:
6
<PAGE>
(1) to have the entire amount credited to his Account as of the date of
his retirement refunded to him, or
(2) to have the entire amount credited to his Account held therein and
utilized to purchase shares on the Exercise Date as provided in
Section X.
(c) Upon the death of a Participant, no payroll deduction shall be made
from any Compensation due him at time of death, and the entire balance in the
deceased Participant's Account shall be paid to the Participant's designated
beneficiary, or otherwise to his estate.
XIV. TEMPORARY LAYOFF, AUTHORIZED LEAVE
OF ABSENCE, DISABILITY
---------------------------------------
Payroll deductions shall cease during a period of absence without pay from
work due to a Participant's temporary layoff, authorized leave of absence,
disability or for any other reason. If such Participant shall return to active
service prior to the Exercise Date for the current Purchase Period, payroll
deductions shall be resumed in accordance with his prior authorization.
If the Participant shall not return to active service prior to the
Exercise Date for the current Purchase Period, the balance of his Stock Purchase
Account will be used to purchase shares on the Exercise Date as provided in
Section X, unless the Participant elects to withdraw from the Plan in accordance
with Section XI.
XV. PROCEDURE IF INSUFFICIENT SHARES AVAILABLE
----------------------------------------------
In the event that on any Exercise Date the aggregate funds available for
the purchase of shares of Common Stock pursuant to Section X hereof would result
in purchases of shares in excess of the number of shares of Common Stock then
available for purchase under the Plan, the Committee shall proportionately
reduce the number of shares which would otherwise be purchased by each
Participant on the Exercise Date in order to eliminate such excess, and the
provisions of the second paragraph of Section X shall apply.
XVI. RIGHTS NOT TRANSFERABLE
----------------------------
The right to purchase shares of Common Stock under this Plan is
exercisable only by the Participant during his lifetime and is not transferable
by him. If a Participant attempts to transfer his right to purchase shares under
the Plan, he shall be deemed to have requested withdrawal from the Plan and the
provisions of Section XI hereof shall apply with respect to such Participant.
7
<PAGE>
XVII. NO OBLIGATION TO EXERCISE OPTION
--------------------------------------
Granting of an option under this Plan shall impose no obligation on an
Eligible Employee to exercise such option.
XVIII. NO GUARANTEE OF CONTINUED EMPLOYMENT
-------------------------------------------
Granting of an option under this Plan shall imply no right of continued
employment with the Company for any Eligible Employee.
XIX. NOTICE
-----------
Any notice which an Eligible Employee or Participant files pursuant to
this Plan shall be in writing and shall be delivered personally or by mail
addressed to the Committee, c/o Chief Executive Officer at 19 West College
Avenue, Yardley, Pennsylvania 19067, or such other person or location as may be
specified by the Committee.
XX. REPURCHASE OF STOCK
-----------------------
The Company shall not be required to repurchase from any Participant
shares of Common Stock acquired under this Plan.
XXI. ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.
--------------------------------------------------
The aggregate number of shares of Common Stock which may be purchased
pursuant to options granted hereunder, the number of shares of Common Stock
covered by each outstanding option, and the purchase price thereof for each such
option shall be appropriately adjusted for any increase or decrease in the
number of outstanding shares of Common Stock resulting from a stock split or
other subdivision or consolidation of shares of Common Stock or for other
capital adjustments or payments of stock dividends or distributions or other
increases or decreases in the outstanding shares of Common Stock affected
without receipt of consideration of the Company.
Subject to any required action by the stockholders, if the Company shall
be the surviving corporation in any merger, reorganization or other business
combination, any option granted hereunder shall cover the securities or other
property to which a holder of the number of shares of Common Stock would have
been entitled pursuant to the terms of the merger. A dissolution or liquidation
of the Company or a merger or consolidation in which the Company is not the
surviving entity shall cause every option outstanding hereunder to terminate.
8
<PAGE>
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined by the Committee in its sole discretion. Any such
adjustment shall provide for the elimination of any fractional share which might
otherwise become subject to an option.
XXII. AMENDMENT OF THE PLAN
---------------------------
The Board of Directors may, without the consent of the Participants, amend
the Plan at any time, provided that no such action shall adversely affect
options theretofore granted hereunder, and provided that no such action by the
Board of Directors, without approval of the Company's stockholders, may:
(a) increase the total number of shares of Common Stock which may be
purchased by all Participants, except as contemplated in Section XXI;
(b) change the class of Employees eligible to receive options under the
Plan;
(c) decrease the minimum purchase price under Section V;
(d) extend a Purchase Period hereunder; or
(e) extend the term of the Plan.
XXIII. TERM OF THE PLAN
-----------------------
This Plan shall become effective as of the Effective Date upon its
adoption by the Board of Directors, provided that it is approved at a duly-held
meeting of stockholders of the Company, by an affirmative majority of the total
votes present and voting thereat, within 12 months after the earlier of the
Effective Date or the date of adoption by the Board of Directors. If the Plan is
not so approved, no Common Stock shall be purchased under the Plan and the
balance of each Participant's Account shall be promptly returned to the
Participant. The Plan shall continue in effect through the December 31st
following the fourth anniversary of the Effective Date, unless terminated prior
thereto pursuant to Section XV or XXI hereof, or pursuant to the next succeeding
sentence. The Board of Directors shall have the right to terminate the Plan at
any time, effective as of the next succeeding Exercise Date. In the event of the
expiration of the Plan or its termination, outstanding options shall not be
affected, except to the extent provided in Section XV and any remaining balance
credited to the Account of each Participant as of the applicable Exercise Date
shall be refunded to each such Participant.
9