<PAGE> 1
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
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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
</TABLE>
PROJECT SOFTWARE & DEVELOPMENT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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> 2
PROJECT SOFTWARE & DEVELOPMENT, INC.
------------------------
NOTICE OF SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
MARCH 24, 1999
------------------------
Notice is hereby given that a Special Meeting in Lieu of Annual Meeting of
Stockholders of Project Software & Development, Inc. (the "Company") will be
held at the offices of the Company, 100 Crosby Drive, Bedford, Massachusetts on
Wednesday, March 24, 1999, beginning at 10:00 A.M., local time, for the
following purposes:
1. To elect two Class III Directors for a three-year term;
2. To approve the Company's 1999 Equity Incentive Plan;
3. To approve certain amendments with respect to the Company's 1994
Incentive and Nonqualified Stock Option Plan;
4. To ratify the appointment by the Board of Directors of
PricewaterhouseCoopers L.L.P. as the Company's independent public
accountants for the current fiscal year; and
5. To transact such further business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on Wednesday,
February 10, 1999, as the record date for the determination of the stockholders
of the Company entitled to notice of, and to vote at, said Meeting and any
adjournment thereof. Only stockholders of record on such date are entitled to
notice of, and to vote at, said Meeting or any adjournment thereof.
By Order of the Board of Directors,
/s/ Paul D. Birch
----------------------------
PAUL D. BIRCH
Clerk
Bedford, Massachusetts
March 5, 1999
-------------------------------------------------------------
YOUR VOTE IS IMPORTANT
PLEASE SIGN AND RETURN THE ENCLOSED PROXY, WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING.
-------------------------------------------------------------
<PAGE> 3
PROJECT SOFTWARE & DEVELOPMENT, INC.
100 CROSBY DRIVE
BEDFORD, MASSACHUSETTS 01730
(781) 280-2000
------------------------
PROXY STATEMENT
------------------------
SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
MARCH 24, 1999
This Proxy Statement and the enclosed form of proxy are being mailed to
stockholders on or about March 5, 1999 in connection with the solicitation by
the Board of Directors of Project Software & Development, Inc. (the "Company")
of proxies to be used at a Special Meeting in Lieu of Annual Meeting of
Stockholders of the Company, to be held on Wednesday, March 24, 1999, and at any
and all adjournments thereof (the "Annual Meeting"). When proxies are returned
properly executed, the shares represented will be voted in accordance with the
stockholders' directions. Stockholders are encouraged to vote on the matters to
be considered. If no choice has been specified by a stockholder with respect to
a proposal as to which the Board of Directors has made a recommendation,
however, the shares covered by any executed proxy will be voted as indicated in
this proxy statement. Any stockholder may revoke his proxy at any time before it
has been exercised.
The Board of Directors of the Company has fixed the close of business on
Wednesday, February 10, 1999, as the record date for the determination of the
stockholders of the Company entitled to notice of, and to vote at, the Annual
Meeting. Only stockholders of record on such date are entitled to notice of, and
to vote at, the Annual Meeting. At the close of business on the record date,
there were issued and outstanding 10,027,173 shares of the Company's Common
Stock, $.01 par value (the "Common Stock"). Each share of Common Stock
outstanding on the record date will be entitled to cast one vote.
QUORUM AND TABULATION OF VOTES
The By-Laws of the Company provide that the holders of a majority of shares
of Common Stock issued and outstanding and entitled to vote thereat will
constitute a quorum at the Annual Meeting. Shares of Common Stock represented by
a properly signed and returned proxy will be treated as present at the Annual
Meeting for purposes of determining a quorum. In general, votes withheld from
any nominee for election as director, abstentions (if applicable) and broker
"non-votes" (if applicable) are counted as present or represented for purposes
of determining the presence or absence of a quorum for the Annual Meeting. A
"non-vote" occurs when a broker or nominee holding shares for a beneficial owner
votes on one proposal, but does not vote on another proposal because, in respect
of such other proposal, the broker or nominee does not have discretionary voting
power and has not received instructions from the beneficial owner.
The affirmative vote of a plurality of the shares of Common Stock properly
cast at the Annual Meeting will be necessary to elect the Class III Directors
(Proposal One). The affirmative vote of a majority of the shares of Common Stock
properly cast at the Annual Meeting will be necessary to approve the Company's
1999 Equity Incentive Plan, to approve the amendments with respect to the
Company's 1994 Incentive and Nonqualified Stock Option Plan and to approve the
Company's independent accountants (Proposals Two, Three and Four). Abstentions,
votes "withheld" from director-nominees, and broker "non-votes" will not be
included in calculating the number of votes cast on such Proposals.
Votes will be tabulated by the Company's transfer agent, Boston EquiServe.
The vote on each matter submitted to stockholders will be tabulated separately.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company, as a Massachusetts corporation with a class of voting stock
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which elected in 1996 to be subject to relevant
<PAGE> 4
provisions of Massachusetts law, has a Board of Directors consisting of six
directors, divided into three classes, as nearly equal in size as practicable,
referred to as Class I, Class II and Class III.
The term of Norman E. Drapeau, Jr., the Company's current Class III
Director, will expire at the Annual Meeting to be held on March 24, 1999. Mr.
Drapeau was elected by the Board of Directors as a Class III Director in January
1998, to fill a vacancy created by the resignation of Michael D. Marvin as a
Class III Director of the Company. The Company's other Class III directorship
has been vacant since the resignation of William G. Nelson on January 4, 1999.
The terms of the Company's Class I Directors, Robert L. Daniels and Paul D.
Birch, expire at the annual meeting to be held with respect to the Company's
1999 fiscal year. The terms of the Company's Class II Directors, Alan L.
Stanzler and Stephen B. Sayre, expire at the annual meeting to be held with
respect to the Company's 2000 fiscal year. Mr. Stanzler consented to be named as
a nominee of Robert L. Daniels and Susan H. Daniels for election as director of
the Company at its Special Meeting in Lieu of Annual Meeting held on May 28,
1998 and was elected as a director at that meeting. Mr. Birch and Mr. Sayre were
each elected to the Board of Directors by the members of the then existing Board
to fill vacancies on the Board. The Directors in each Class serve for a term of
three years and until their successors are duly elected and qualified. As the
term of one Class expires, a successor director or directors for that Class are
elected at the annual meeting of stockholders for that year.
The Board of Directors has recommended that Mr. Drapeau be nominated to an
additional three year term and that Richard P. Fishman be elected as a Class III
Director. Mr. Drapeau and Mr. Fishman have each agreed to serve if elected, and
the Company has no reason to believe that either of them will be unable to
serve. In the event that Mr. Drapeau or Mr. Fishman is unable or declines to
serve as a director at the time of the Annual Meeting, proxies will be voted for
such other nominee as is then designated by the Board.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF MR.
DRAPEAU AND MR. FISHMAN AS CLASS III DIRECTORS.
DIRECTORS AND EXECUTIVE OFFICERS
The directors, expected nominees for director and executive officers of the
Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Norman E. Drapeau, Jr. ................... 38 President and Chief Executive Officer and
Director -- Class III
Robert L. Daniels......................... 56 Executive Chairman of the Board -- Class I
Paul D. Birch............................. 40 Executive Vice President -- Finance and
Administration, Chief Financial Officer
and Treasurer and Director -- Class I
William J. Sawyer......................... 52 Executive Vice President -- Operations
John W. Young............................. 46 Executive Vice President -- Research and
Development
Ted D. Williams........................... 50 Executive Vice President -- Worldwide
Sales
Stephen B. Sayre(1)(2).................... 46 Director -- Class II
Alan L. Stanzler(1)(2).................... 55 Director -- Class II
Richard P. Fishman........................ 52 Nominee as Class III Director
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
NORMAN E. DRAPEAU, JR. joined the Company in 1982 as an applications
analyst. Since that time, he has held various positions with the Company,
including, from 1984 to 1987, that of Manager of Customer Support and from 1989
through 1991, that of Director, Product Marketing. In 1991, Mr. Drapeau was
appointed Vice President, Corporate Marketing, in 1992 was appointed Vice
President -- Americas and in July 1996 was appointed Executive Vice
President -- Worldwide Sales and Marketing, serving in that capacity until
January 1998. In January 1998, Mr. Drapeau was appointed Executive Vice
President and Chief Operating Officer and was also elected a director of the
Company. In May 1998, Mr. Drapeau was elected President and Chief Executive
Officer.
ROBERT L. DANIELS founded the Company in 1968 and has been a director since
that time. Mr. Daniels served as Chairman of the Board and Chief Executive
Officer from 1968 to 1996 and as President from 1968
2
<PAGE> 5
to 1995. Mr. Daniels resigned as Chairman of the Board in August 1996 and as an
employee of the Company in December 1996. Mr. Daniels acted as an executive
consultant to the Company from this time until August 1997. In May 1998, Mr.
Daniels rejoined the Company and was elected Executive Chairman of the Board.
PAUL D. BIRCH joined the Company in 1991 as Vice President, Finance, was
appointed Vice President, Finance and Administration in 1992 and Executive Vice
President -- Finance and Administration in 1996. Since 1992 he has been the
Chief Financial Officer of the Company, and since 1993 has held the additional
office of Treasurer. In May 1998, Mr. Birch was elected a director of the
Company.
WILLIAM J. SAWYER joined the Company in 1978 as an applications consultant
and served in various sales and services positions from 1978 to 1984. Mr. Sawyer
was a Vice President of the Company from 1984 to 1990 and Executive Vice
President from 1990 until November 1997. In November 1997, Mr. Sawyer left the
Company and joined Peritus Software Services, Inc. as Vice President,
Operations. Mr. Sawyer rejoined the Company in October 1998 as Executive Vice
President of Operations.
JOHN W. YOUNG originally joined the Company in 1985 and served until 1988
as MAXIMO Product Manager. From 1988 to 1992, Mr. Young was Vice President of
Sales of Comac Systems Corporation, a software application company. In 1992 he
rejoined the Company as Director of MAXIMO Product Design, was appointed Vice
President -- Research and Development of the Company in 1995 and was appointed
Executive Vice President -- Research and Development of the Company in 1998.
TED D. WILLIAMS originally joined the Company in 1984 and served as
Director, MAXIMO until 1988. From 1988 to 1993, Mr. Williams was President and
Chief Operating Officer of Comac Systems Corporation, a software application
company. In 1993, Mr. Williams rejoined the Company as Director, Eastern
Regional Sales. He was appointed Vice President -- North American Sales in 1996
and Vice President -- Worldwide Sales in January 1998. In October, 1998, Mr.
Williams was appointed Executive Vice President -- Worldwide Sales.
STEPHEN B. SAYRE was elected as a director in September 1998. Mr. Sayre is
currently the Senior Vice President of Marketing at Lotus Development
Corporation, a subsidiary of IBM Corporation. Prior to joining Lotus in 1994,
Mr. Sayre was President of Boston Treasury Systems and has held other senior
executive level positions with Cullinet Software and Easel Corporation.
ALAN L. STANZLER was elected as a director in May 1998. Mr. Stanzler served
as a director of the Company from 1992 to 1994, and as Clerk of the Company from
1990 to 1996. Mr. Stanzler is a member of the law firm of Maselan Jones &
Stanzler, P.C. From 1995 to 1998, Mr. Stanzler was a member of the law firm of
Davis, Malm & D'Agostine, P.C. and from 1978 to 1995 he was a partner in the law
firm of Finnegan & Stanzler, P.C.
RICHARD P. FISHMAN has been nominated for election as a Class III Director.
Mr. Fishman has served as Managing Director of GeoPartners Research, Inc., a
management consulting firm, since 1995. Mr. Fishman was also Of Counsel at the
law firm of Akin, Gump, Strauss, Hauer & Feld L.L.P. from 1995 until 1997. Mr.
Fishman served as President and Chief Executive Officer of Thinking Machines
Corporation from 1993 to 1994 and was a partner at the law firm of Milbank,
Tweed, Hadley & McCloy from 1987 until 1993. Mr. Fishman was President and Chief
Executive Officer of Thinking Machines Corporation on August 17, 1994, the date
on which Thinking Machines Corporation filed for protection under Chapter 11 of
the Bankruptcy Code.
All directors hold office until the expiration of their respective terms as
described above and until their respective successors are duly elected and
qualified. Executive officers of the Company are appointed by and serve at the
discretion of the Board of Directors.
COMMITTEES AND MEETINGS OF THE BOARD
During the fiscal year ended September 30, 1998 ("fiscal 1998"), the Board
met seventeen times. No incumbent director attended fewer than 75% of the total
number of meetings held by the Board and Committees of the Board on which he
served.
3
<PAGE> 6
The Board of Directors has an Audit Committee and a Compensation Committee,
but does not have a nominating committee or other committee performing similar
function. The Audit Committee (currently composed of Messrs. Sayre and Stanzler)
reviews the internal accounting procedures of the Company and consults with and
reviews the services provided by the Company's independent auditors. The Audit
Committee met nine times during fiscal 1998. The Compensation Committee
(currently composed of Messrs. Sayre and Stanzler) has general responsibility
for the Company's executive compensation policies and practices, including
making specific recommendations to the Board concerning compensation for the
Company's executive officers and administering the Company's 1994 Incentive and
Nonqualified Stock Option Plan (the "1994 Stock Option Plan") and 1994 Employee
Stock Purchase Plan (the "Stock Purchase Plan"). The Compensation Committee met
two times during fiscal 1998.
REMUNERATION OF EXECUTIVE OFFICERS AND DIRECTORS
DIRECTORS' COMPENSATION
Members of the Board of Directors who are not employees of the Company or
one of the Company's subsidiaries ("Outside Directors") receive fees of $1,000
for each meeting of the Board of Directors and $750 for each meeting of a
committee of the Board which they attend in person, provided that no fee is paid
with respect to a committee meeting if the committee meeting is held on the same
date as a Board meeting. Outside Directors receive $500 for participating in a
telephonic Board or committee meeting. Outside Directors are reimbursed for
out-of-pocket expenses incurred in the performance of their duties as directors
of the Company. Directors who are employees of the Company are not paid any
separate fees for serving as directors.
Pursuant to the Company's 1994 Stock Option Plan (the "1994 Option Plan"),
each Outside Director, upon first joining the Board, is automatically granted an
option to purchase 12,000 shares of Common Stock at an exercise price equal to
the fair market value of the Common Stock (determined in accordance with the
terms of the 1994 Option Plan) on the date of grant, vesting in three equal
annual installments beginning on the first anniversary of the date of grant. In
addition, each Outside Director who continues to serve as a director following
any annual meeting of stockholders of the Company or special meeting in lieu
thereof is automatically granted, immediately following such meeting of
stockholders, an option to purchase 4,000 shares of Common Stock at an exercise
price equal to the fair market value of the Common Stock (determined in
accordance with the terms of the 1994 Option Plan) on the date of grant, vesting
in full on the last day of December in the year in which the option is granted.
If the stockholders approve the Company's 1999 Equity Incentive Plan,
Outside Directors will no longer receive options under the 1994 Option Plan.
Instead, each Outside Director, upon first joining the Board, will automatically
be granted an option to purchase 9,000 shares of Common Stock at an exercise
price equal to the fair market value of the Common Stock (determined in
accordance with the terms of the 1999 Plan) on the date of grant. In addition,
each Outside Director who continues to serve as a director following any annual
meeting of stockholders of the Company or special meeting in lieu thereof,
including the special meeting to which this Proxy Statement relates, will
automatically be granted, immediately following such meeting of stockholders, an
option to purchase 9,000 shares of Common Stock at an exercise price equal to
the fair market value of the Common Stock (determined in accordance with the
terms of the 1999 Plan) on the date of grant. Such options shall be vested in
full at all times and will be exercisable for five years from the date of grant.
Notwithstanding the preceding sentence, in the event an Outside Director joins
the Board after the second Tuesday in February in a given year such Outside
Director will receive an option for a number of shares equal to 9,000 multiplied
by N/12 where "N" is the number of months remaining between the date of election
of such Outside Director and the next second Tuesday in February.
4
<PAGE> 7
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information concerning the compensation earned by the Company's Chief Executive
Officer and the four other most highly paid executive officers of the Company
(collectively, the "named executive officers") for services rendered in all
capacities to the Company during fiscal 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------- SECURITIES ALL OTHER
FISCAL OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION OPTIONS(#)(1) ($)(2)
- --------------------------- ------ --------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Norman E. Drapeau, Jr......... 1998 $224,375 -- $ 30,241(3) 30,000 $ 2,375
President and Chief 1997 152,500 -- 95,885(3) 24,999 2,250
Executive Officer 1996 120,833 -- 184,517(3) 50,000(4) 2,250
David M. Sample(9)............ 1998 $277,059 -- $118,900(5) -- $ 2,375
Former Chairman of 1997 167,146 $ 96,250(6) 101,778(7) 350,000(8) --
the Board, Chief 1996 -- -- -- -- --
Executive Officer, and
President
Robert L. Daniels(12)......... 1998 $110,625 -- -- -- --
Executive Chairman of 1997 64,773 -- -- -- $29,167(13)
the Board and Former 1996 293,750 $459,443(10) -- -- 1,188
Chief Executive Officer and
President
Paul D. Birch................. 1998 $188,250 -- -- 20,000 $ 2,375
Executive Vice-President 1997 166,500 $ 13,655(11) -- 20,000 2,250
Chief Financial 1996 146,500 140,802(10) -- 40,000(4) 2,250
Officer, and Treasurer
John W. Young................. 1998 $160,000 -- -- 20,000 $ 2,375
Executive Vice-President 1997 135,000 $ 7,686(11) -- 9,999 2,250
Research and Development 1996 115,000 40,000(10) -- 20,000(4) 2,250
</TABLE>
- ---------------
(1) Represents shares of Common Stock issuable upon exercise of stock options
granted under the Company's 1994 Stock Option Plan.
(2) Except with respect to Mr. Daniels in 1997 (see footnote 13), the amounts
reported represent contributions made by the Company pursuant to the
Company's 401(k) Plan and Trust for fiscal 1998 and for the fiscal years
ended September 30, 1997 and 1996 ("fiscal 1997" and "fiscal 1996,"
respectively).
(3) Represents commissions paid under Mr. Drapeau's individual incentive
compensation plan as Executive Vice President Worldwide Sales designed to
reward him for achievement of quarterly and annual revenue and contribution
targets.
(4) These options were canceled in exchange for options issued in 1997.
(5) Includes $112,500 representing partial forgiveness by the Company of an
interest-free loan to Mr. Sample. Also includes $6,400 representing a car
allowance.
(6) Bonus paid pursuant to Mr. Sample's offer letter from the Company dated
January 30, 1997.
(7) Includes $75,000 representing partial forgiveness by the Company of an
interest-free loan to Mr. Sample. Also includes $22,778 representing
reimbursement of moving costs and $4,000 representing a car allowance.
(8) Includes a grant of a nonqualified option to purchase 200,000 shares of
Common Stock which was canceled at Mr. Sample's election on July 31, 1997.
5
<PAGE> 8
(9) Mr. Sample resigned from his employment by the Company in May 1998.
(10) Represents bonuses paid under the Company's 1996 Executive Bonus Plan.
(11) Represents bonuses paid under the Company's 1997 Executive Bonus Plan.
(12) Mr. Daniels resigned from his employment by the Company in December 1996.
Mr. Daniels rejoined the Company as Executive Chairman of the Board in May
1998.
(13) Represents fees related to an executive consulting agreement.
Option Grants in Last Fiscal Year. The following table sets forth certain
information regarding stock options granted during fiscal 1998 by the Company to
the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS AT ASSUMED ANNUAL RATE OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES IN EXERCISE FOR OPTION TERM(4)
GRANTED FISCAL YEAR PRICE EXPIRATION ---------------------------
NAME (#)(1) (%)(2) ($/SH)(3) DATE 5%($) 10%($)
- ---- ---------- ------------ --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Norman E. Drapeau, Jr. ........... 30,000(5) 8.6% $25.875 10/08/07 $488,100 $1,237,200
David M. Sample(6)................ -- -- -- -- -- --
Robert L. Daniels................. -- -- -- -- -- --
Paul D. Birch..................... 20,000(5) 5.7% 25.875 10/08/07 325,400 824,800
John W. Young..................... 20,000(5) 5.7% 25.875 10/08/07 325,400 824,800
</TABLE>
- ---------------
(1) Represents shares of Common Stock issuable upon exercise of incentive stock
options granted under the Company's 1994 Stock Option Plan.
(2) The Company granted to employees options for the purchase of an aggregate of
350,200 shares of Common Stock in fiscal 1998 pursuant to the 1994 Stock
Option Plan.
(3) All options were granted at exercise prices not less than the fair market
value of the Common Stock on the date of grant.
(4) Potential realizable value means the value of the shares of Common Stock
underlying the option, at the specified assumed annual rates of stock price
appreciation, compounded over the option term (10 years). Actual gains, if
any, realized on stock option exercises are dependent on the future
performance of the Common Stock and overall stock market conditions. There
can be no assurance that the values reflected in this table will be
realized.
(5) All such options expire ten years after the date of grant, and first become
exercisable as to 25% of the shares covered on the first anniversary of the
date of grant and as to a further 25% annually thereafter.
(6) Mr. Sample resigned from his employment by the Company in May, 1998.
Option Exercises and Fiscal Year-End Values. The following table sets
forth certain information concerning stock options exercised during fiscal 1998
and stock options held as of September 30, 1998 by each of the named executive
officers.
6
<PAGE> 9
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES VALUE AT FISCAL YEAR-END AT FISCAL YEAR END($)(2)
ACQUIRED ON REALIZED --------------------------------- ---------------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
- ---- ----------- -------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Norman E. Drapeau, Jr............ -- -- 33,874 45,875 $ 501,944 $269,453
David M. Sample(3)............... -- -- -- -- -- --
Robert L. Daniels................ -- -- -- -- -- --
Paul D. Birch.................... -- -- 60,000 37,500 $1,082,082 $256,563
John W. Young.................... -- -- 14,749 27,250 $ 196,522 $150,469
</TABLE>
- ---------------
(1) Value is based on the last sale price of the Common Stock on the exercise
date, as reported by the Nasdaq Stock Market, or the price at which shares
acquired upon exercise of the option were actually sold (in the event of a
concurrent exercise and sale), less the applicable option exercise price.
(2) Value is based on the last sale price of the Common Stock on September 30,
1998, as reported by the Nasdaq Stock Market ($29.875 per share), less the
applicable option exercise price. These values have not been and may never
be realized. Actual gains, if any, on exercise will depend on the value of
the Common Stock on the date of the sale of the shares.
(3) Mr. Sample resigned from his employment by the Company in May 1998.
Stock Option Repricings. The following table sets forth all stock option
repricings during fiscal 1998 and during the Company's last ten (10) fiscal
years relating to the executive officers listed in the Summary Compensation
Table.
TEN YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF MARKET LENGTH OF
SECURITIES SECURITIES EXERCISE PRICE ORIGINAL
UNDERLYING UNDERLYING PRICE AT AT TIME NEW OPTION TERM
OPTIONS OPTIONS TIME OF OF EXERCISE REMAINING
PRIOR TO AFTER REPRICING REPRICING PRICE AT DATE OF
NAME DATE REPRICING REPRICING ($) ($) ($) REPRICING
- ---- ------- ---------- ---------- --------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Norman E. Drapeau, Jr. ................. 7/31/97 7,923 3,961 31.00 21.125 21.125 8/14/06
President and Chief 7/31/97 42,077 21,038 31.00 21.125 21.125 8/14/06
Executive Officer
David M. Sample......................... 7/31/97 200,000 100,000 42.50 21.125 21.125 2/5/07
Former Chairman of the Board, Chief
Executive Officer and President
Paul D. Birch........................... 7/31/97 6,450 3,225 31.00 21.125 21.125 8/14/06
Executive Vice-President, Chief 7/31/97 33,550 16,775 31.00 21.125 21.125
Financial Officer and Treasurer
William J. Sawyer....................... -- -- -- -- -- -- --
Executive Vice-President, Operations
John W. Young........................... 7/31/97 9,723 4,861 31.00 21.125 21.125 8/14/06
Executive Vice-President, 7/31/97 10,277 5,138 31.00 21.125 21.125 8/14/06
Research and Development
Robert L. Daniels....................... -- -- -- -- -- -- --
Executive Chairman of the
Board and Former Chief
Executive Officer and
President
Ted D. Williams......................... 7/31/97 10,000 5,000 31.00 21.125 21.125 8/14/06
Executive Vice
President --
Worldwide Sales
</TABLE>
7
<PAGE> 10
CERTAIN TRANSACTIONS
Real Estate Interest. Mr. Daniels is a 1.69% limited partner in the
Charles Square Limited Partnership, a real estate partnership which operates the
hotel, retail and office complex in Cambridge, Massachusetts in which the
Company occupied its corporate headquarters pursuant to a 13 year lease which
expired on December 31, 1997. The Company incurred base rent, real estate taxes,
operating expenses and parking of approximately $300,000 to the partnership in
fiscal 1998. Although the total expenses paid under this lease during fiscal
1998 were in excess of market rates, the Company believes that the total
expenses payable under this lease represented a market rate at the time the
lease was entered into.
Employment Contracts. In connection with the employment of Mr. Sample as
President and Chief Executive Officer of the Company, the Company entered into
an offer letter with Mr. Sample dated January 30, 1997 (the "Offer Letter"). The
Offer Letter provided, among other things, that Mr. Sample would be paid a base
salary of $22,917 per month, subject to annual review after September 30, 1997,
and would generally be entitled to receive up to one hundred percent (100%) of
his base salary as a bonus under the Company's Executive Bonus Plan depending
upon the Company's performance. For fiscal 1997 any such bonus was to be
pro-rated, but was guaranteed to be at least sixty percent (60%) of the maximum
payable after such pro-ration. Mr. Sample's actual bonus for fiscal 1997 was
$96,250. Pursuant to the terms of the Offer Letter, the Company granted to Mr.
Sample a non-qualified stock option to acquire 200,000 shares of Common Stock,
which would have vested in four equal annual installments. However, that option
was canceled at Mr. Sample's election, and a new option to acquire 100,000
shares was granted to Mr. Sample in its place, pursuant to an offer extended to
all employees of the Company who received option grants between August 1, 1996
and July 31, 1997. The replacement option also vested in four equal annual
installments. The Offer Letter also provided that the Company would pay one
year's salary continuation in the event of the termination of Mr. Sample's
employment under certain circumstances and that the Company would reimburse
certain moving costs and extend to Mr. Sample an interest-free loan of up to
$300,000 for use solely to acquire a new residence, which loan was to be
forgiven with respect to one eighth of the amount thereof at the close of
business on the last business day of each calendar quarter if Mr. Sample was
still employed by the Company. The Company forgave $75,000 of such loan during
fiscal 1997 and $112,500 during fiscal 1998. Mr. Sample resigned from his
employment with the Company in May 1998, and, for purposes of the Offer Letter,
his resignation was treated as a termination that entitled him to salary
continuation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Michael D. Marvin William G. Nelson, Stephen B. Sayre and Alan L. Stanzler
served on the Compensation Committee during fiscal 1998. Mr. Sayre joined the
Compensation Committee on September 18, 1998 and Mr. Stanzler joined the
Compensation Committee on May 28, 1998. Neither such Compensation Committee
members nor any executive officer of the Company has any relationship requiring
disclosure by the Company pursuant to item 402(j) of Regulation S-K promulgated
by the SEC. Mr. Marvin resigned as a director of the Company on January 8, 1998.
Mr. Nelson resigned as a director of the Company on January 4, 1999.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee established by the Board of Directors is
composed of two non-employee directors of the Company, currently Mr. Sayre and
Mr. Stanzler. The Compensation Committee has general responsibility for the
Company's executive compensation policies and practices, including making
specific recommendations to the Board concerning compensation for the Company's
executive officers. The following report is made by Messrs. Sayre and Stanzler,
as the members of the Compensation Committee during fiscal 1998, and summarizes
the Company's executive officer compensation policies for fiscal 1998.
Compensation Objectives
The Company's executive compensation programs are generally designed to
relate a substantial part of executive compensation to improvements in the
Company's financial performance and corresponding
8
<PAGE> 11
increases in stockholder value. Decisions concerning executive compensation are
guided by the following underlying principles:
- to establish incentives that will link executive officer compensation to
the Company's financial performance and will motivate executives to
attain the Company's quarterly and annual financial targets; and
- to provide a total compensation package which is competitive within the
software industry and will assist the Company in attracting and retaining
executives who will contribute to the long term financial success of the
Company.
In connection with establishing base salaries for executive officers and
the Company's other cash compensation programs the Compensation Committee
reviewed a professionally-prepared analysis which included surveys of comparable
software companies.
The Securities and Exchange Commission requires that this Report comment
upon the Compensation Committee's policy with respect to Section 162(m) of the
Internal Revenue Code of 1986, as amended, which limits the Company's tax
deduction with regard to compensation in excess of $1 million paid to the chief
executive officer and the four most highly compensated officers (other than the
chief executive officer) at the end of any fiscal year unless the compensation
qualifies as "performance-based compensation." The Compensation Committee's
policy with respect to Section 162(m) is to make every reasonable effort to
cause compensation to be deductible by the Company while simultaneously
providing executive officers of the Company with appropriate rewards for their
performance.
Executive Compensation Programs
The Company's compensation package consists of three principal components:
(1) salary; (2) bonuses tied to quarterly and annual earnings performance; and
(3) where appropriate to provide longer-term incentive to executive officers,
stock options. The Company's executive officers are also eligible to participate
in other employee benefit plans, including health and life insurance plans, a
401(k) retirement plan and a stock purchase plan, on substantially the same
terms as other employees who meet applicable eligibility criteria, subject to
any legal limitations on the amounts that may be contributed or the benefits
that may be payable under these Company plans.
The Company's executive officer compensation policy emphasizes bonuses and
stock options which align the interests of management with the stockholders'
interest in the financial performance of the Company for fiscal quarters, the
fiscal year and the longer term. Consistent with this approach, in fiscal 1998,
a substantial part of potential cash compensation for all executives was tied to
the Company's performance. In setting salaries, primary consideration was given
to the executive officers' salaries for the previous fiscal year, with
adjustments for certain officers in light of promotions within the Company
industry conditions, individual contributions and the improved financial
performance of the Company.
In fiscal 1998, the Company maintained an Executive Bonus Plan (the "1998
Bonus Plan) intended by the Compensation Committee to align the interests of its
participants with those of the stockholders and provide additional incentive to
executives to enhance Company performance. The participants in the 1998 Bonus
Plan were Messrs. Sample, Birch and Young and, for part of the year, Mr. Drapeau
and Mr. Daniels. Under the 1998 Bonus Plan, participants received bonuses if the
Company's income before income taxes and extraordinary items ("Plan Income")
exceeded targets for any of the quarters of fiscal 1998 and its Plan Income for
the fiscal year exceeded $28,000,000. Cumulative year-to-date targets were
established based on the growth objectives of the Company's operating plan for
the year and were set for the periods ending March 31, 1998, June 30, 1998 and
September 30, 1998 at $12,750,000, $19,000,000 and $28,000,000, respectively.
The target bonus ranged from 100% of base salary in the case of Mr. Sample, Mr.
Drapeau and Mr. Daniels to 50% of salary in the case of Mr. Young. In addition,
Plan participants were entitled to incremental bonuses of up to an aggregate of
2% of the excess in any quarter of the Company's Plan Income over such
cumulative quarterly targets and 3% of the excess of the Company's Plan Income
over such annual target. For fiscal 1998, Plan participants earned no bonuses
under the 1998 Bonus Plan. Mr. Drapeau, as a sales executive prior to becoming
Chief Operating Officer, was rewarded for achievement of revenue and
contribution targets for his geographical territories under his personal plan
and did not then participate in the 1998 Bonus Plan. He became a participant in
the 1998 Bonus Plan after his promotion to Chief Operating Officer.
9
<PAGE> 12
In fiscal 1998, stock options were a component of the Company's approach to
compensation for its executive officers. Options under the Company's 1994 Stock
Option Plan were granted to Messrs. Drapeau, Birch and Young in order to provide
them additional long term incentives to act on behalf of the Company. See
"Option Grants in Last Fiscal Year". In determining the size of stock option
grants to executive officers, the Compensation Committee emphasized the
seniority, responsibilities and performance of the executive and the number of
options previously granted to the executive officers. The Compensation Committee
believes that stock options with future vesting dates provide a significant
incentive to executive officers to continue their employment with the Company
and create long term value for its stockholders.
Chief Executive Officer Compensation
Consistent with the overall executive officer compensation policy, the
Company's approach to the Chief Executive Officer's compensation package in
fiscal 1998 was to be competitive with other high growth companies in the
software industry and to tie a large percentage of the Chief Executive Officer's
total compensation package to Company performance. The Compensation Committee
believes that this approach provides additional incentive to the Chief Executive
Officer to achieve the Company's performance goals and enhance stockholder
value.
Salary for the Company's Chief Executive Officer was designed to give him
assurance of a base level of compensation commensurate with his position and
duration of employment with the Company and competitive with salaries for
officers holding comparable positions in the software industry. Mr. Drapeau was
Chief Executive Officer of the Company from May 1998 through the end of the
fiscal year. His salary and target bonus were increased in connection with his
promotion to Chief Operating Officer during the year, and his salary was again
increased in connection with his promotion to Chief Executive Officer. Mr.
Sample served as Chief Executive Officer of the Company until May 1998. His
salary and compensation followed the terms of his Offer Letter. See "Certain
Transactions -- Employment Contracts."
The Compensation Committee
Stephen B. Sayre
Alan L. Stanzler
10
<PAGE> 13
PERFORMANCE GRAPH
The following Performance Graph compares the performance of the Company's
cumulative stockholder return with that of a broad market index, the Nasdaq
Stock Market Index for U.S. Companies and a published industry index, the Nasdaq
Computer & Data Processing Index. The cumulative stockholder returns for shares
of the Company's Common Stock and for the market and industry indexes are
calculated assuming $100 was invested on April 21, 1994, the date on which the
Company's Common Stock commenced trading on the Nasdaq National Market. The
Company paid no cash dividends during the periods shown. The performance of the
market and industry indexes is shown on a total return (dividends reinvested)
basis.
COMPARISON OF 53 MONTH CUMULATIVE TOTAL RETURN*
AMONG PROJECT SOFTWARE & DEVELOPMENT, INC. THE NASDAQ STOCK MARKET
(U.S.) INDEX AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
PROJECT SOFTWARE & NASDAQ STOCK MARKET NASDAQ COMPUTER & DATA
DEVELOPMENT, INC. (U.S.) PROCESSING
------------------ ------------------- ----------------------
<S> <C> <C> <C>
4/21/94 100.00 100.00 100.00
9/94 154.29 106.14 112.62
9/95 445.71 146.62 180.39
9/96 724.29 173.94 223.72
9/97 392.14 238.77 302.80
9/98 225.00 244.00 395.08
</TABLE>
* $100 INVESTED ON 4/21/94 IN STOCK OR INDEX
INCLUDING REINVESTMENTS OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
11
<PAGE> 14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of February 10, 1999 by
(i) each person known by the Company to own beneficially more than five percent
of the Common Stock as of such date, (ii) each director of the Company, (iii)
each named executive officer, (iv) each expected nominee as a director of the
Company and (v) all executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
--------------------
NAME NUMBER PERCENT
- ---- --------- -------
<S> <C> <C>
Robert L. Daniels(2)(3)..................................... 2,851,960 28.4%
100 Crosby Drive
Bedford, MA 01730
Susan H. Daniels(2)(3)...................................... 849,129 8.5%
Kopp Investment Advisors, Inc.(4)........................... 856,129 8.5%
6600 France Avenue
South Edina, MN 55435
Paul D. Birch(5)............................................ 74,233 *
Norman E. Drapeau, Jr.(6)................................... 44,749 *
David M. Sample............................................. 0 *
John W. Young(7)............................................ 21,999 *
Stephen B. Sayre............................................ 0 *
Alan L. Stanzler(8)......................................... 146,800 1.5%
William J. Sawyer........................................... 0 *
Ted D. Williams(9).......................................... 7,250 *
Richard P. Fishman.......................................... 2,500 *
All directors and executive officers as a group............. 3,146,991 31.4%
(8 persons)(2)(3)(5)(6)(7)(8)(9)
</TABLE>
- ---------------
* Less than one percent.
(1) The persons named in this table have sole voting and investment power with
respect to the shares listed, except as otherwise indicated. The inclusion
herein of shares listed as beneficially owned does not constitute an
admission of beneficial ownership.
(2) Excludes 121,800 shares held in three trusts for the benefit of three of Mr.
Daniels' children, Kenneth, Gregory and Mark. Each of Robert L. Daniels and
Susan H. Daniels disclaims beneficial ownership of these shares.
(3) Includes shares held by Robert L. Daniels as Trustee of the 1996 Daniels
Voting Trust (the "Voting Trust"). Of the 1,636,758 shares subject to the
Voting Trust, 822,629 are owned beneficially by Mr. Daniels and 814,129 are
owned beneficially by Susan H. Daniels. Mr. Daniels, as Trustee, has sole
voting power with respect to the shares subject to the Voting Trust. Mr.
Daniels also owns 1,214,602 shares free of the Voting Trust, and Susan
Daniels also owns 35,000 shares free of the Voting Trust. Each of Mr.
Daniels and Susan Daniels disclaims beneficial ownership of the shares
beneficially owned by the other. Robert and Susan Daniels are divorced.
(4) This information is as of December 31, 1998, and is based upon a report on
Schedule 13G filed by Kopp Investment Advisors, Inc. with the SEC.
(5) Includes 72,500 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(6) Represents shares issuable pursuant to outstanding stock options exercisable
within 60 days of the date of this table.
12
<PAGE> 15
(7) Represents shares issuable pursuant to outstanding stock options exercisable
within 60 days of the date of this table.
(8) Includes 121,800 shares held in three trusts for the benefit of Mr. Daniels'
children. Mr. Stanzler has sole voting power with respect to the shares held
by these trusts. Also includes 6,000 shares issuable pursuant to outstanding
stock options exercisable within 60 days of the date of this table. Also
includes 14,000 shares underlying Stock Appreciation Rights granted to Mr.
Stanzler by Mr. Daniels, exercisable for five years from December 8, 1997.
(9) Includes 7,250 shares issuable pursuant to outstanding stock within 60 days
of the date of this table.
PROPOSAL TWO
APPROVAL OF THE 1999 EQUITY INCENTIVE PLAN
The Board of Directors of the Company adopted the 1999 Equity Incentive
Plan (the "1999 Plan") on March 4, 1999, subject to approval by the
stockholders. Under the Internal Revenue Code (the "Code"), stockholder approval
is necessary for stock options relating to the shares issuable under the 1999
Plan to qualify as incentive stock options under Section 422 of the Code. In
addition, Section 162(m) of the Code prohibits the Company from claiming a
deduction on its federal income tax return for compensation in excess of $1
million paid in a given fiscal year to the chief executive officer and the four
most highly compensated officers (other than the chief executive officer) at the
end of that fiscal year. The $1 million compensation deduction limitation does
not apply to "performance-based compensation." The Board of Directors is seeking
stockholder approval of the 1999 Plan, in part, in order to qualify compensation
received under the 1999 Plan as "performance-based" for purposes of Section
162(m). In addition, NASDAQ rules require stockholder approval of the 1999 Plan.
The affirmative vote of a majority of the shares of Common Stock properly cast
at the Annual Meeting will be necessary to approve the 1999 Plan.
REASONS FOR THE PROPOSAL
The Company's current pool of shares available for grant under the 1994
Option Plan is almost exhausted. In order to continue to attract and retain
talented employees the Company believes it must continue to offer such employees
equity based incentives. Also, the 1994 Option Plan provides only for the
issuance of stock options. The Board of Directors believes that it is in the
best interest of the Company to adopt a more expansive plan, such as the 1999
Plan, which permits the issuance not only of options but also of other types of
equity-based incentives such as stock appreciation rights and stock bonuses.
SUMMARY OF THE PLAN
The full text of the 1999 Plan as adopted by the Board of Directors is
printed as Appendix A. The following is a summary of some of its provisions.
General Information; Number of Shares Issuable. The 1999 Plan authorizes
the grant of (i) options to purchase Common Stock intended to qualify as
incentive stock options ("Incentive Options"), as defined in Section 422 of the
Code, (ii) options that do not so qualify ("Nonstatutory Stock Options", and
together with Incentive Options, "Options"), (iii) stock bonuses, the terms and
conditions of which shall be determined by the Committee (as defined below),
(iv) rights to purchase restricted stock, the terms and conditions of which
shall be determined by the Committee (v) rights to receive cash payments based
on or measured by appreciation in the market price of the Common Stock ("Stock
Appreciation Rights") and (vi) other awards based upon the Company's Common
Stock on such terms and conditions as the Committee may determine (together with
Incentive Options, Nonstatutory Stock Options, stock bonuses, restricted stock
and Stock Appreciation Rights, "Stock Awards"). Up to 925,000 shares of Common
Stock (subject to adjustment upon certain changes in the capitalization of the
Company) may be issued pursuant to Stock Awards granted under the 1999 Plan.
13
<PAGE> 16
The last sales price of the Common Stock on March 1, 1999, as reported by
the NASDAQ Stock Market, was $23.375. Accordingly, the market value of the
925,000 shares available for issuance under the 1999 Plan as of March 1, 1999 is
$21,621,875.
Purpose of the 1999 Plan. The purpose of the 1999 Plan is to provide a
means by which selected employees and directors of, and consultants to, the
Company and its affiliates may be given an opportunity to benefit from increases
in value of the stock of the Company through the granting of Stock Awards. By
means of the 1999 Plan, the Company seeks to retain the services of persons who
are now employees or directors of, or consultants to, the Company and its
affiliates, to secure and retain the services of new employees, directors and
consultants, and to provide incentives for such persons to exert maximum efforts
for the success of the Company.
Administration of the 1999 Plan. The 1999 Plan will be administered by a
committee (the "Committee") of the Board of Directors consisting of at least two
(2) members who qualify as "Non-Employee Directors" within the meaning of
Section 16b-3 under the Exchange Act and as "Outside Directors" under Section
162(m) of the Code. It is anticipated that the Company's Compensation Committee
will act as the Committee. The Committee will select the individuals to whom
Stock Awards are granted and will determine the terms of each Stock Award,
subject to the provisions of the 1999 Plan. Stock Awards may be granted under
the 1999 Plan to officers, directors, employees and consultants. As of March 1,
1999, two Directors (excluding Messrs. Drapeau, Daniels and Birch, who are also
employees of the Company) and approximately six officers and 644 non-officer
employees were eligible to participate in the 1999 Plan.
Incentive Options and Nonstatutory Stock Options. Awards of Options under
the 1999 Plan may be made until March 4, 2009. No Incentive Options may extend
for more than ten years from the date of grant (five years in the case of an
optionee who owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any parent or subsidiary
("greater-than-ten-percent-stockholders")). The exercise price of Incentive
Options granted under the 1999 Plan must be at least equal to the fair market
value of the Common Stock on the date of grant (110% of fair market value in the
case of a greater-than-ten-percent-stockholder). The aggregate fair market value
(determined at the time of grant) of shares issuable pursuant to Incentive
Options which first become exercisable by an employee or officer in any calendar
year may not exceed one hundred thousand dollars ($100,000). Incentive Options
are non-transferable except by will or by the laws of descent or distribution
and are exercisable, during the optionee's lifetime, only by the optionee.
The exercise price for Nonstatutory Stock Options will be set by the
Committee at the time of grant. A Nonstatutory Stock Option will be transferable
to the extent permitted under the option agreement governing such Nonstatutory
Stock Option. No Nonstatutory Stock Options may extend for more than ten years
from the date of grant.
Options held by employees generally expire (i) three months after
termination of the optionee's employment with the Company for any reason other
than death or disability or (ii) one year following the optionee's termination
of employment with the Company by reason of death or disability. In all other
cases, the Committee has the discretion to establish the expiration date.
Payment of the exercise price of the shares subject to the Option may be made
(i) in cash at the time the Option is exercised or (ii) at the discretion of the
Committee, either at the time of grant or exercise of the Option (a) by delivery
to the Company of shares of Common Stock of the Company, (b) according to a
deferred payment or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other Common Stock of the Company) with
the person to whom the Option is granted or to whom the Option is transferred or
(c) in any other form of legal consideration that may be acceptable to the
Committee on terms determined by the Committee.
At the discretion of the Committee, Options may include a so-called
"reload" feature pursuant to which an optionee exercising an Option by the
delivery of a number of shares of Common Stock would automatically be granted an
additional Option (with an exercise price equal to the fair market value of the
Common Stock on the date the additional Option is granted, with the same
expiration date as the original option being exercised, and with such other
terms as the Committee may provide) to purchase that number of shares of Common
Stock equal to the number delivered to exercise the original Option.
14
<PAGE> 17
Options for Non-Employee Directors. Each Non-Employee Director, upon first
joining the Board of Directors, will automatically be granted a Nonstatutory
Stock Option to purchase 9,000 shares of Common Stock with an exercise price
equal to the fair market value of the Common Stock on the date of grant.
Notwithstanding the preceding sentence, in the event a Non-Employee Director
joins the Board after the second Tuesday in February in a given year such
Non-Employee Director will receive a Nonstatutory Stock Option for a number of
shares equal to 9,000 multiplied by N/12 where "N" is the number of months
remaining between the date of election of such Non-Employee Director and the
next second Tuesday in February. In addition, each Non-Employee Director who
continues to serve as a director following any annual meeting of stockholders of
the Company or special meeting in lieu thereof at which Directors are elected
will automatically be granted, immediately following such meeting of
stockholders, a Nonstatutory Stock Option to purchase 9,000 shares of Common
Stock at an exercise price equal to the Fair Market Value of the Common Stock on
the date of grant. All Options granted to Non-Employee Directors will be vested
in full at the time of grant and will expire on the date which is five years
from the date of grant.
Stock Bonuses. Each Stock Bonus will be in such form and will contain such
terms and conditions as the Committee shall deem appropriate. A Stock Bonus may,
in the discretion of the Committee, be granted in consideration for past
services actually rendered to the Company for its benefit. Except as otherwise
provided elsewhere in the 1999 Plan, no rights under a Stock Bonus agreement
shall be assignable by any participant under the 1999 Plan, either voluntarily
or by operation of law, except by will or by the laws of descent and
distribution, and shall be exercisable during the lifetime of the person to whom
the rights are granted only by such person.
Restricted Stock. Employees and consultants may be granted the right to
purchase restricted stock from the Company under the 1999 Plan. Any restricted
stock purchase agreement shall be in such form and shall contain such terms and
conditions as the Committee shall deem appropriate. The purchase price under
each restricted stock purchase agreement shall be such amount as the Committee
shall determine and designate in such agreement. Except as otherwise provided in
the 1999 Plan, no rights under a restricted stock purchase agreement shall be
assignable by any participant under the 1999 Plan, either voluntarily or by
operation of law, except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the rights are
granted only by such person. The purchase price of stock acquired pursuant to a
restricted stock purchase agreement shall be paid either: (i) in cash at the
time of purchase; (ii) at the discretion of the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Committee in its discretion on terms determined by the Committee. Shares of
Common Stock sold or awarded under the 1999 Plan may, but need not, be subject
to a repurchase option in favor of the Company in accordance with a vesting
schedule to be determined by the Committee.
Stock Appreciation Rights. Each Stock Appreciation Right shall entitle the
holder to a distribution based on the appreciation in the fair market value per
share of a designated amount of the Company's Common Stock. Three types of Stock
Appreciation Rights are authorized for issuance under the Plan:
Tandem Stock Appreciation Rights. Tandem Rights may be granted
appurtenant to an Option and will require the holder to elect between the
exercise of the underlying Option for shares of Common Stock and the
surrender, in whole or in part, of such Option for an appreciation
distribution equal to the excess of (A) the fair market value (on the date
of Option surrender) of vested shares of Common Stock purchasable under the
surrendered Option over (B) the aggregate exercise price payable for such
shares. Tandem Rights may be tied to either Incentive Stock Options or
Nonstatutory Stock Options. Each such right shall generally be subject to
the same terms and conditions applicable to the particular Option to which
it pertains. If Tandem Rights are granted appurtenant to an Incentive
Option, they must satisfy any applicable Treasury Regulations so as not to
disqualify such Option as an Incentive Stock Option under the Code.
Concurrent Stock Appreciation Rights. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of Common Stock subject to the underlying Option and will be
exercised automatically at the same time the Option is exercised for those
shares. The appreciation distribution to which the holder of such
concurrent right shall be entitled upon exercise of
15
<PAGE> 18
the underlying Option shall be in an amount equal to such portion as shall
be determined by the Board or the Committee at the time of grant of the
excess of (A) the aggregate fair market value (at date of exercise) of the
vested shares purchased under the underlying Option with such concurrent
rights over (B) the aggregate exercise price paid for those shares.
Concurrent Rights may be tied to any or all of the shares of Common Stock
subject to any Incentive Stock Option or Nonstatutory Stock Option grant
made under the 1999 Plan. A Concurrent Right shall, except as specifically
set forth below, be subject to the same terms and conditions applicable to
the particular option grant to which it pertains.
Independent Stock Appreciation Rights. Independent Rights may be
granted independently of any Option and will entitle the holder upon
exercise to an appreciation distribution equal in amount to the excess of
(A) the aggregate fair market value (at date of exercise) of a number of
shares of Common Stock equal to the number of vested share equivalents
exercised at such time over (B) the aggregate fair market value of such
number of shares of Common Stock at the date of grant. Independent Rights
will generally be subject to the same terms and conditions applicable to
Nonstatutory Stock Options. They will be denominated in share equivalents.
Change In Control. The 1999 Plan provides for accelerated vesting in the
event the Company undergoes a Change in Control (as defined below). Upon and
following the occurrence of a Change of Control, the time for exercise of each
unvested installment of any then outstanding Option or Stock Appreciation Right
will be accelerated, so that:
(i) immediately upon such Change of Control, if the holder is then an
employee or consultant of the Company twenty-five percent (25%) of any such
unvested installment shall be exercisable;
(ii) on the date that is nine months after such Change in Control, if
the holder is then an employee or consultant of the Company one third (33%)
of any installment of such Option or Stock Appreciation Right that has not
yet vested in accordance with its original terms or by virtue of the 1999
Plan's change in control provisions shall become exercisable;
(iii) on the date that is eighteen months after such Change in
Control, if the holder is then an employee or consultant of the Company
fifty percent (50%) of any installment of such Option or Stock Appreciation
Right that has not yet vested in accordance with its original terms or the
1999 Plan's change in control provisions shall become exercisable; and
(iv) on the second anniversary of such Change in Control, if the
holder is then an employee or consultant of the Company any remaining
installment of such Option or Stock Appreciation Right that has not yet
vested in accordance with its original terms or the 1999 Plan's change in
control provisions shall become exercisable.
The foregoing clauses (i) through (iv) provide for vesting that is in
addition to, and not in lieu of, the vesting schedule originally provided in any
Option or Stock Appreciation Right outstanding at the time of a Change in
Control, and, except to the extent accelerated by such clauses, each such Option
or Stock Appreciation Right shall continue to vest in accordance with its
original terms.
Upon the occurrence of a Change of Control, the restrictions and conditions
contained in any Stock Bonus or restricted stock purchase agreement under the
1999 Plan shall automatically be appropriately modified so that under its terms
additional shares of Common Stock vest in a manner essentially equivalent to the
additional vesting described above for Options and Stock Appreciation Rights.
The determination of the Committee as to such modifications will be final,
binding and conclusive.
If the Company is merged with or into or consolidated with another
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation or
if the
16
<PAGE> 19
Company is liquidated, or sells or otherwise disposes of substantially all of
its assets to another corporation while unexercised Options remain outstanding
under the 1999 Plan, then either in such event:
(i) subject to the provisions of clause (iii) below, after the
effective date of such merger, consolidation, liquidation, sale or
disposition, as the case may be, each holder of an outstanding Option will
be entitled, upon exercise of such Option, to receive, in lieu of the
shares of Common Stock as to which such Option was exercisable immediately
prior to such event, the number and class of shares of stock or other
securities, cash or property (including, without limitation, shares of
stock or other securities of another corporation or common stock) to which
such holder would have been entitled pursuant to the terms of the merger,
consolidation, liquidation, sale or disposition if, immediately prior to
such event, such holder had been the holder of a number of shares of Common
Stock equal to the number of shares as to which such Option shall be so
exercised;
(ii) the Committee may accelerate the time for exercise of some or all
unexercised and unexpired Options or Stock Appreciation Rights so that from
and after a date prior to the effective date of such merger, consolidation,
liquidation, sale or disposition, as the case may be, specified by the
Committee such accelerated Options or Stock Appreciation Rights shall be
exercisable in full; or
(iii) all outstanding Options and Stock Appreciation Rights,
respectively, may be canceled by the Committee as of the effective date of
any such merger, consolidation, liquidation, sale or disposition provided
that (x) notice of such cancellation shall be given to each holder of an
Option or Stock Appreciation Right and (y) each holder of an Option or
Stock Appreciation Right will have the right to exercise such Option or
Stock Appreciation Right to the extent that the same is then exercisable
or, if the Committee shall have accelerated the time for exercise of all
unexercised and unexpired Options or Stock Appreciation Rights,
respectively, in full during the 10-day period preceding the effective date
of such merger, consolidation, liquidation, sale or disposition.
If, within two years following a Change in Control, the employment of any
optionee who immediately prior to such Change in Control was employed by the
Company as an officer within the meaning of Section 16 of the Exchange Act (each
such optionee being hereafter referred to as a "Designated Executive") is
terminated by the Company other than for cause, or is terminated by the
Designated Executive for Good Reason (as defined below), then in such event all
unvested Options, Stock Appreciation Rights, Stock Bonuses and other Stock
Awards held by such Designated Executive at the date of such termination shall
thereupon immediately become exercisable in full. "Good Reason" for termination
by a Designated Executive of his employment will be deemed to have existed only
if (i) within two years after a Change in Control, the Company, or any successor
entity then employing the Designated Executive, materially diminishes the
responsibilities and authority of the Designated Executive or materially reduces
the rate of compensation of the Designated Executive (including by way of a
change in the method of determining the eligibility of such Designated Executive
to earn bonus or incentive compensation), in either case as compared with his
responsibilities and authority or rate of compensation, as the case may be, in
effect immediately prior to such Change in Control, and (ii) within thirty (30)
days following such diminution or reduction the Designated Executive resigns
from his employment by the Company or such successor entity.
If, within two years following a Change in Control, a Non-Employee Director
is terminated or resigns from the Board of Directors for Good Reason, then in
such event all unvested Options held by such Non-Employee Director at the date
of such resignation shall thereupon immediately become exercisable in full. For
purposes of this paragraph, "Good Reason" for resignation by a Non-Employee
Director will be deemed to have existed only if (i) within two years after a
Change in Control, the Company, or any successor entity, materially diminishes
the responsibilities and authority of the Non-Employee Director or materially
reduces the rate of compensation of the Non-Employee Director, in either case as
compared with his responsibilities and authority or rate of compensation, as the
case may be, in effect immediately prior to such Change in Control, and (ii)
within thirty (30) days following such diminution or reduction the Non-Employee
Director resigns from his position as a Director.
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<PAGE> 20
Under the 1999 Plan, "Change in Control" means the occurrence of any one of
the following events:
(a) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) becomes a "beneficial owner" (as such term is defined
in Rule 13d-3 promulgated under the Exchange Act) (other than the Company,
any trustee or other fiduciary holding securities under an employee benefit
plan of the Company, or any corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities; or
(b) persons who constitute the Company's Board immediately prior to
any tender offer, proxy contest, consent solicitation, business
combination, merger or similar transaction cease to constitute at least a
majority of the Board as a result of such tender offer, proxy contest,
merger or similar transaction; or
(c) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation or other entity, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent (50%) of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
Amendments to the 1999 Plan. The Board may amend the 1999 Plan at any time,
provided that no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the 1999 Plan to satisfy the requirements of Section 422 of the Code, Section
16b-3 of the Securities Act of 1933, as amended, and the listing or eligibility
for quotation requirements of the NASDAQ Stock Market or any similar
organization or of any national securities exchange upon which shares of the
Company's Common Stock are listed or eligible for trading. The Board of
Directors may terminate or suspend the 1999 Plan at any time. Unless sooner
terminated, the 1999 Plan shall terminate on March 4, 2009.
NEW PLAN BENEFITS
Except as set forth below, the Company is unable to determine the dollar
value and number of options which will be received by or allocated to (i) any of
the executive officers, (ii) the current executive officers, as a group, (iii)
the current directors who are not executive officers, as a group, (iv) each
nominee for election as a director and (v) the employees who are not executive
officers, as a group, as a result of the adoption of the 1999 Plan because,
except for the non-discretionary formula grants to Non-Employee Directors
described above, options are granted by the Committee on a discretionary basis.
The following table sets forth information concerning the benefits that in
fiscal 1999 will be received by or allocated to the persons specified, assuming
that Proposal Two, the proposal to approve the 1999 Plan, is approved:
<TABLE>
<CAPTION>
NUMBER OF
DOLLAR SECURITIES UNDERLYING
NAME AND POSITION VALUE($) OPTIONS GRANTED
- ----------------- -------- ---------------------
<S> <C> <C>
Stephen B. Sayre............................................ (1) 9,000
Director
Alan L. Stanzler............................................ (1) 9,000
Director
Directors who are not executive officers (as a group)....... (1) 18,000
</TABLE>
- ---------------
(1) The dollar value of the options to be granted is not determinable at this
time. Each such option will be granted at an exercise price equal to the
fair market value of the Common Stock on the date of option grant.
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<PAGE> 21
Federal Income Tax Information with Respect to the 1999 Plan. The grantee
of a Nonstatutory Stock Option recognizes no income for federal income tax
purposes on the grant thereof. On the exercise of a Nonstatutory Stock Option,
the difference between the fair market value of the underlying shares of Common
Stock on the exercise date and the option exercise price is treated as
compensation to the holder of the option taxable as ordinary income in the year
of exercise, and such fair market value becomes the basis for the underlying
shares which will be used in computing any capital gain or loss upon disposition
of such shares. Subject to certain limitations, the Corporation may deduct for
the year of exercise an amount equal to the amount recognized by the option
holder as ordinary income upon exercise of a Nonstatutory Stock Option. The
grantee of an Incentive Stock Option recognizes no income for federal income tax
purposes on the grant thereof. Except as described below with respect to the
alternative minimum tax, there is no tax upon exercise of an Incentive Option.
If no disposition of shares acquired upon exercise of the Incentive Stock Option
is made by the option holder within two years from the date of the grant of the
Incentive Stock Option or within one year after exercise of the Incentive
Option, any gain realized by the option holder on the subsequent sale of such
shares is treated as a long-term capital gain for federal income tax purposes.
If the shares are sold prior to the expiration of such periods, the difference
between the lesser of the value of the shares at the date of exercise or at the
date of sale and the exercise price of the Incentive Stock Option is treated as
compensation to the employee taxable as ordinary income and the excess gain, if
any, is treated as capital gain (which will be long-term capital gain if the
shares are held for more than one year). The excess of the fair market value of
the underlying shares over the option price at the time of exercise of an
Incentive Stock Option will constitute an item of tax preference for purposes of
the alternative minimum tax. Taxpayers who incur the alternative minimum tax are
allowed a credit which may be carried forward indefinitely to be used as a
credit against the regular tax liability in a later year; however, the minimum
tax credit can not reduce the regular tax below the alternative minimum tax for
that carryover year. In connection with the sale of the shares covered by
Incentive Options, the Corporation is allowed a deduction for tax purposes only
to the extent, and at the time, the option holder receives ordinary income (for
example, by reason of the sale of shares by the holder of an Incentive Stock
Option within two years to the date of the granting of the Incentive Stock
Option or one year after the exercise of the Incentive Option), subject to
certain limitations on the deductibility of compensation paid to executives.
The Company intends to file, as soon as practicable after stockholder
approval of the 1999 Plan, a Registration Statement under the Securities Act of
1933 covering the additional shares of Common Stock issuable under the 1999
Plan.
Unless authority to do so has been limited in a proxy, it is the intention
of the persons named as proxies to vote the shares represented by the proxy FOR
the approval of the 1999 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL
TO APPROVE THE COMPANY'S 1999 EQUITY INCENTIVE PLAN.
SUMMARY OF THE 1994 OPTION PLAN
The Board of Directors adopted certain amendments to the 1994 Option Plan
on March 4, 1999, subject to approval by the stockholders. NASDAQ rules require
stockholder approval of certain of the amendments to the 1994 Option Plan. The
affirmative vote of a majority of the shares of Common Stock properly cast at
the Annual Meeting will be necessary to approve the amendments to the 1994
Option Plan. Set forth below is a summary description of the 1994 Option Plan as
currently in effect, which is followed by a summary of the proposed amendments.
The Board has elected to terminate the 1994 Option Plan upon the adoption of the
1999 Equity Incentive Plan regardless of whether the proposed amendments are
adopted.
General Information; Number of Shares Issuable. In March 1994, the Board
of Directors adopted and the Company's stockholders approved the 1994 Option
Plan. The 1994 Option Plan authorizes (i) the grant of Incentive Options and
(ii) the grant of Nonstatutory Stock Options. The 1994 Option Plan currently
provides that an aggregate of 1,800,000 shares of Common Stock (subject to
adjustment upon certain changes in the capitalization of the Company) may be
issued pursuant to options granted thereunder. The last sales price of the
Common Stock on March 1, 1999, as reported by the NASDAQ Stock Market, was
$23.375. Accordingly,
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<PAGE> 22
the market value of the 1,800,000 shares available for issuance under the 1994
Plan as of March 1, 1999 is $42,075,000.
Administration of the 1994 Option Plan. The 1994 Option Plan is
administered by the Compensation Committee of the Board (the "Compensation
Committee"). Except for certain non-discretionary option grants to Outside
Directors described below, the Compensation Committee selects the individuals to
whom options are granted and determines the option exercise price and other
terms of each award, subject to the provisions of the 1994 Option Plan.
Incentive Options may be granted under the 1994 Option Plan to employees,
including officers and directors who are also employees. As of March 1, 1999,
two Directors (excluding Messrs. Drapeau, Daniels and Birch, who are also
employees of the Company) and approximately six officers and 644 non-officer
employees were eligible to participate in the 1994 Option Plan. Nonqualified
Options may be granted under the 1994 Option Plan to employees, officers,
individuals providing services to the Company and directors, whether or not they
are employees of the Company.
Incentive Options and Nonstatutory Stock Options. No options may extend
for more than ten years from the date of grant (five years in the case of an
optionee who owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any parent or subsidiary
("greater-than-ten-percent-stockholders")). The exercise price of Incentive
Options granted under the 1994 Option Plan must be at least equal to the fair
market value of the Common Stock on the date of grant (110% of fair market value
in the case of a greater-than-ten-percent-stockholder). The exercise price of
Nonqualified Options granted under the 1994 Option Plan must not be less than
85% of the fair market value of the Common Stock on the date of grant. The
aggregate fair market value (determined at the time of grant) of shares issuable
pursuant to Incentive Options which first become exercisable by an employee or
officer in any calendar year may not exceed $100,000.
Under the 1994 Option Plan as currently in effect, Options are
non-transferable except by will or by the laws of descent or distribution and
are exercisable, during the optionee's lifetime, only by the optionee. The Board
of Directors has adopted an amendment to the 1994 Option Plan, contingent upon
stockholder approval of the amendment, whereby the Compensation Committee in its
discretion may establish such rules and procedures as it may deem appropriate to
permit the transferability of Nonstatutory Stock Options. Options generally may
not be exercised after (i) termination of the optionee's employment by the
Company for cause, (ii) thirty days after termination of the optionee's
employment by the Company without cause or by the optionee voluntarily, (iii)
ninety days following the optionee's retirement from the Company in good
standing by reason of age or disability under the then established rules of the
Company, and (iv) one year following an optionee's death if the optionee's death
occurs prior to termination of the optionee's employment with the Company.
Payment of the exercise price for the shares subject to the option may be
made by (i) cash or check for an amount equal to the option price of such
shares, (ii) with the consent of the Compensation Committee, shares of Common
Stock having a fair market value equal to the option price of such shares, (iii)
with the consent of the Compensation Committee, delivery of such documentation
as the Compensation Committee and the broker, if applicable, will require to
effect an exercise of the option and delivery of the Company of the sale or loan
proceeds required to pay the option price, (iv) with the consent of the
Compensation Committee, such other consideration which is acceptable to the
Compensation Committee and has a fair market value equal to the option price of
such shares, or (v) with the consent of the Compensation Committee, a
combination of the foregoing.
Options for Outside Directors. The 1994 Option Plan, as currently in
effect, provides that each Outside Director (as defined in the 1994 Option Plan)
is automatically granted upon his initial election to the Board a Nonstatutory
Stock Option to purchase 12,000 shares of Common Stock at an exercise price
equal to the fair market value of the Common Stock at the date of option grant.
Each option will vest in three equal annual installments cumulatively beginning
on the first anniversary of the date of option grant. In addition, each Outside
Director who is re-elected by the stockholders of the Company to the Board at or
subsequent to an Annual Meeting will automatically be granted, immediately
following the meeting of stockholders at which such Outside Director is
re-elected, an option to purchase 4,000 shares of Common Stock at an exercise
price equal to the fair market value of the Common Stock (determined in
accordance with the terms of the 1994
20
<PAGE> 23
Option Plan) on the date of option grant, vesting in full on the last day of
December in the year in which the option is granted. In addition, each Outside
Director whose term of office does not expire at any annual meeting of
stockholders or special meeting in lieu thereof and who remains an Outside
Director after such meeting will automatically be granted, immediately following
such meeting, a Nonstatutory Stock Option to purchase 4,000 shares of Common
Stock, vesting in full on the last day of December in the year in which the
option is granted. The Board of Directors has adopted an amendment to the 1994
Option Plan, subject to shareholder approval, altering the vesting of the
initial option granted to an Outside Director joining the Board after May 1,
1998, including the options granted to Stephen Sayre and Alan Stanzler upon
their initial election.
Change In Control. Upon the occurrence of a Change of Control (as defined
below) the time for exercise of each unvested installment of any then
outstanding option under the 1994 Option Plan shall be accelerated, such that:
(i) immediately upon such Change of Control, twenty-five percent (25%)
of any such unvested installment shall be exercisable;
(ii) on the date that is nine months after such Change in Control, one
third (33 1/3%) of any installment of such option that has not yet vested
in accordance with its original terms or by virtue of the 1994 Option
Plan's Change in Control provisions shall become exercisable;
(iii) on the date that is eighteen months after such Change in
Control, fifty percent (50%) of any installment of such option that has not
yet vested in accordance with its original terms or by virtue of the 1994
Option Plan's Change in Control provisions shall become exercisable; and
(iv) on the second anniversary of such Change in Control, any
remaining installment of such option that has not yet vested in accordance
with its original terms or by virtue of the 1994 Option Plan's Change in
Control provisions shall become exercisable.
The foregoing clauses (i) through (iv) are intended to provide for vesting
that is in addition to, and not in lieu of, the vesting schedule originally
provided in any option outstanding at the time of a Change in Control, and,
except to the extent accelerated by such clauses, each such option shall
continue to vest in accordance with its original terms.
If the Company is merged with or into or consolidated with another
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation; or
if the Company is liquidated, or sells or otherwise disposes of substantially
all of its assets to another corporation while unexercised options remain
outstanding under the 1994 Option Plan, then either in such event:
(i) subject to the provisions of clause (iii) below, after the
effective date of such merger, consolidation, liquidation, sale or
disposition, as the case may be, each holder of an outstanding option will
be entitled, upon exercise of such option, to receive, in lieu of the
shares of Common Stock as to which such option was exercisable immediately
prior to such event, the number and class of shares of stock or other
securities, cash or property (including, without limitation, shares of
stock or other securities of another corporation or common stock) to which
such holder would have been entitled pursuant to the terms of the merger,
consolidation, liquidation, sale or disposition if, immediately prior to
such event, such holder had been the holder of a number of shares of Common
Stock equal to the number of shares as to which such option shall be so
exercised;
(ii) the Compensation Committee may accelerate the time for exercise
of some or all unexercised and unexpired options so that from and after a
date prior to the effective date of such merger, consolidation,
liquidation, sale or disposition, as the case may be, specified by the
Committee such accelerated options shall be exercisable in full; or
(iii) all outstanding options may be cancelled by the Compensation
Committee as of the effective date of any such merger, consolidation,
liquidation, sale or disposition provided that (x) notice of such
21
<PAGE> 24
cancellation will be given to each holder of an option and (y) each holder
of an option shall have the right to exercise such option to the extent
that the same is then exercisable or, if the Compensation Committee shall
have accelerated the time for exercise of all unexercised and unexpired
options, in full during the 10-day period preceding the effective date of
such merger, consolidation, liquidation, sale or disposition.
If, within two years following a Change in Control, the employment of any
optionee who immediately prior to such Change in Control was employed by the
Company in a capacity designated by the Board of Directors of the Company as
that of an "executive officer" within the meaning of Rule 16a-1(f) promulgated
under the 1934 Act (each such optionee being hereafter referred to as a
"Designated Executive") is terminated by the Company other than for cause, or is
terminated by the Designated Executive for good reason, then in such event all
unvested, unexercised and unexpired options held by such Designated Executive at
the date of such termination will thereupon immediately become exercisable in
full. For purposes of this paragraph, "good reason" for termination by a
Designated Executive of his employment will be deemed to have existed only if
(i) within two years after a Change in Control, the Company, or any successor
entity then employing the Designated Executive, materially diminishes the
responsibilities and authority of the Designated Executive or materially reduces
the rate of compensation of the Designated Executive (including by way of a
change in the method of determining the eligibility of such Designated Executive
to earn bonus or incentive compensation), in either case as compared with his
responsibilities and authority or rate of compensation, as the case may be, in
effect immediately prior to such Change in Control, and (ii) within thirty (30)
days following such diminution or reduction the Designated Executive resigns
from his employment by the Company or such successor entity.
As used in the 1994 Option Plan, "Change of Control" means the occurrence
of any one of the following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the 1934 Act) becomes a "beneficial owner" (as such term is defined in
Rule 13d-3 promulgated under the 1934 Act) (other than the Company, any
trustee or other fiduciary holding securities under an employee benefit
plan of the Company, or any corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities; or
(ii) persons who, as of March 1, 1997, constituted the Company's Board
(the "Incumbent Board") cease for any reason, including, without
limitation, as a result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of the Board, provided that
any person becoming a director of the Company subsequent to March 1, 1997
whose election was approved by, or who was nominated with the approval of,
at least a majority of the directors then comprising the Incumbent Board
shall, for purposes of the 1994 Option Plan, be considered a member of the
Incumbent Board; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or other entity,
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
Amendments to the 1994 Option Plan. The Board may modify or revise the
1994 Option Plan at any time, subject to certain limitations described therein.
The Board of Directors may terminate or suspend the 1994 Option Plan at any time
and has elected to terminate the 1994 Option Plan upon the adoption of the 1999
Plan.
Norman E. Drapeau, Jr., the Company's President and Chief Executive
Officer, has received options exercisable for 190,999 shares under the 1994
Option Plan. David M. Sample, the Company's former Chairman of the Board, Chief
Executive Officer and President, received options exercisable for 150,000 shares
22
<PAGE> 25
under the 1994 Option Plan. Robert L. Daniels, the Executive Chairman of the
Board and former Chief Executive Officer and President, has not received any
options under the 1994 Option Plan. Paul D. Birch, the Company's Executive
Vice-President, Chief Financial Officer and Treasurer, has received options
exercisable for 150,000 shares under the 1994 Option Plan. John W. Young, the
Company's Executive Vice-President Research and Development has received options
exercisable for 95,999 shares under the 1994 Option Plan. All current executive
officers of the Company as a group have received options exercisable for 593,998
shares under the 1994 Option Plan. The current Directors who are not also
executive officers have received options exercisable for 42,000 shares under the
1994 Option Plan. Richard P. Fishman has not received any options under the 1994
Option Plan. Employees of the Company who are not executive officers have
received options exercisable for 1,345,205 shares under the 1994 Option Plan. At
March 1, 1999, 1,155,266 shares were subject to outstanding options granted
under the 1994 Option Plan, 502,214 shares had been purchased upon exercises of
options granted thereunder and 140,520 shares remained available for future
grants. As of March 1, 1999, option prices and expiration dates for outstanding
options granted under the 1994 Stock Option Plan ranged from $5.6667 to $42.625
per share and from April 20, 1999 to February 14, 2009, respectively.
Federal Income Tax Information with Respect to the 1994 Plan. See
discussion of Federal Taxes under the 1999 Plan.
Full Text of 1994 Option Plan. The full text of the 1994 Option Plan as
proposed to be amended is printed as Appendix B, beginning on page B-1.
PROPOSAL THREE
APPROVAL OF AMENDMENTS TO THE 1994 OPTION PLAN
The Company is proposing to amend the 1994 Option Plan to (i) permit the
Compensation Committee in its discretion to establish such rules and procedures
as it may deem appropriate to permit the transferability of Nonstatutory Stock
Options, (ii) provide that upon the occurrence of a Change of Control (as
defined above) each then outstanding option held by an Outside Director will
become immediately vested and exercisable in full and (iii) provide that the
options which are initially granted to an Outside Director joining the Board
after May 1, 1998, including the options which were granted to Stephen Sayre and
Alan Stanzler upon their election to the Board, shall vest one third on the
first anniversary of the date of grant, one third on the second anniversary of
the date of grant and one third immediately prior to the meeting of stockholders
at which such Outside Director's initial term of office as a Director will
expire in accordance with the Company's By-Laws.
As currently in effect, the 1994 Option Plan provides for certain
acceleration upon a Change of Control for all optionholders other than Outside
Directors. The Board of Directors believes that this distinction is not
appropriate given the likely effect of a Change of Control on the Outside
Directors' service. The Board of Directors is also proposing to permit the
transfer of Nonstatutory Stock Options to allow the holders of such options to
utilize certain estate and tax planning mechanisms which may be available. The
Board of Directors is also proposing to alter the vesting of the options which
are initially granted to an Outside Director joining the Board after May 1,
1998, as the Board of Directors believes that it is appropriate that such
options should vest in full immediately prior to the annual meeting at which the
relevant Outside Director's initial term expires so that Outside Directors are
not at a disadvantage because they joined the Board in the middle of a year.
Unless authority to do so has been limited in a proxy, it is the intention
of the persons named as proxies to vote the shares represented by the proxy FOR
the approval of the amendments to the 1994 Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL
TO APPROVE THE AMENDMENTS TO THE COMPANY'S 1994 INCENTIVE AND NONQUALIFIED STOCK
OPTION PLAN.
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<PAGE> 26
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
Although Massachusetts law does not require that the selection by the Board
of Directors of the Company's accountants be approved each year by the
stockholders, the Board believes it is appropriate to submit its selection to
the stockholders for their approval and to abide by the result of the
stockholders' vote. The Board of Directors recommends that the stockholders
ratify the appointment of PricewaterhouseCoopers L.L.P. ("Price") as independent
accountants to audit the financial statements of the Company for the fiscal year
ending September 30, 1999.
Representatives of Price will be present at the Annual Meeting, will have
an opportunity to make a statement if they wish, and will be available to
respond to appropriate questions from stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL
TO RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS L.L.P. AS INDEPENDENT
ACCOUNTANTS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Officers,
directors and greater-than-10% stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely upon review of Forms 3 and 4 and amendments thereto furnished
to the Company during fiscal 1998 and Forms 5 and amendments thereto furnished
to the Company with respect to fiscal 1998, or written representations that Form
5 was not required, the Company believes that all Section 16(a) filing
requirements applicable to its officers, directors and greater-than-10%
stockholders were fulfilled in a timely manner, with the exception of one late
Form 5 by Mr. Daniels in his individual capacity (relating to a withdrawal from
the 1996 Daniels Voting Trust) and one late Form 4 (relating to one transaction
involving the sale of shares) and one late Form 5 (relating to a gift of shares
and a withdrawal from the 1996 Daniels Voting Trust) by Susan Daniels. After
investigating these matters, the Company has concluded that any omissions were
inadvertent, and that none of the transactions gave rise to liability under
Section 16(b) of the Exchange Act for recapture of short-swing profits.
SOLICITATION
No compensation will be paid by any person in connection with the
solicitation of proxies. Brokers, banks and other nominees will be reimbursed
for their out-of-pocket expenses and other reasonable clerical expenses incurred
in obtaining instructions from beneficial owners of the Common Stock. In
addition to the solicitation by mail, special solicitation of proxies may, in
certain instances, be made personally or by telephone by directors, officers and
certain employees of the Company. It is expected that the expense of such
special solicitation will be nominal. All expenses incurred in connection with
this solicitation will be borne by the Company.
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the proxy materials related to the
2000 Annual Meeting of Stockholders or Special Meeting in lieu thereof must be
received by the Company at its Executive Offices no later than November 5, 1999
or, if the date of such meeting is more than 30 calendar days before or after
March 24, 2000, a reasonable time before the solicitation of proxies by the
Company with respect to such meeting is made.
In addition, the Company's By-Laws provide that a stockholder must give
written notice to the Company of any business to be conducted at any meeting of
stockholders in accordance with the procedural requirements fully set forth in
Article III of the Company's By-Laws. In the case of a regularly scheduled
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annual meeting, such notice must be given not less than sixty days prior to the
scheduled annual meeting describing any proposal to be brought before such
meeting, even if such item is not to be included in the Company's proxy
statement relating to such meeting. To bring an item of business before the 2000
Annual Meeting, a stockholder must deliver the requisite notice of such item to
the Company no later than December 10, 1999.
MISCELLANEOUS
The Board does not intend to present to the Annual Meeting any business
other than the proposals listed herein, and the Board was not aware, a
reasonable time before mailing this Proxy Statement to stockholders, of any
other business which properly may be presented for action at the Annual Meeting.
If any other business should come before the Annual Meeting, the persons present
will have discretionary authority to vote the shares they own or represent by
proxy in accordance with their judgment.
AVAILABLE INFORMATION
Stockholders of record on February 10, 1999 will receive a Proxy Statement
and the Company's Annual Report to Stockholders, which contains detailed
financial information concerning the Company. The Annual Report is not
incorporated herein and is not deemed a part hereof.
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APPENDIX A
PROJECT SOFTWARE & DEVELOPMENT, INC.
1999 EQUITY INCENTIVE PLAN
1. INTRODUCTION: PURPOSES
(a) This 1999 Equity Incentive Plan (the "1999 Plan" or "the Plan")
supersedes the 1994 Incentive and Nonqualified Stock Option Plan (the "1994
Plan") of Project Software & Development, Inc. (the "Company"). Options granted
under the 1994 Plan prior to the approval of the 1999 Plan shall continue to be
governed by the terms of the 1994 Plan as in effect immediately prior to the
date of such approval.
(b) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) Stock Bonuses, (iv) rights to purchase
Restricted Stock, (v) Stock Appreciation Rights, and (vi) other awards based
upon the Company's Common Stock on such terms and conditions as the Board of
Directors of the Company (the "Board") may determine.
(c) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company and
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company.
(d) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c)
hereof, be either (i) Options granted pursuant to Sections 6 and 7 hereof,
including Incentive Stock Options and Nonstatutory Stock Options, (ii) Stock
Bonuses or rights to purchase restricted stock granted pursuant to Section 8
hereof, (iii) Stock Appreciation Rights granted pursuant to Section 9 hereof or
(iv) other stock based awards granted pursuant to Section 10 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and shall be in such form as required pursuant to
Sections 6 and 7 hereof, and a separate certificate will be issued for shares
purchased upon exercise of each type of Option.
2. DEFINITIONS AND RULES OF INTERPRETATION
(a) Definitions.
For the purposes of the Plan, in addition to the definitions set forth
above, the following terms shall have the respective meanings set forth below:
(i) "Affiliate" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined
in Sections 424(e) and (f) respectively, of the Code.
(ii) "Board" means the Board of Directors of the Company.
(iii) "Change in Control" means the occurrence of any one of the
following events:
(a) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) becomes a "beneficial owner" (as such term
is defined in Rule 13d-3 promulgated under the Exchange Act) (other than
the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company), directly
or indirectly, of securities of the Company representing fifty percent
(50%) or more of the combined voting power of the Company's then
outstanding securities; or
(b) persons who constitute the Company's Board immediately prior to
any tender offer, proxy contest, consent solicitation, business
combination, merger or similar transaction cease to constitute
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at least a majority of the Board as a result of such tender offer, proxy
contest, merger or similar transaction; or
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or other entity,
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than
fifty percent (50%) of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
(iv) "Change in Stock" means any change in the Company Common Stock
subject to the Plan, or subject to any Stock Award, without receipt of
consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, stock
split, spin-off, split-up, spin-out, dividend in property other than cash,
liquidating dividend, combination of shares, exchange of shares, change in
corporate structure or other transaction not involving the receipt of
consideration by the Company); provided however, that the conversion of any
convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company."
(v) "Code" means the Internal Revenue Code of 1986, as amended.
(vi) "Committee" means the Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(vii) "Company" means Project Software & Development, Inc. a
corporation organized under the laws of Massachusetts.
(viii) "Company Common Stock" means the common stock of the Company,
par value $.01 per share
(ix) "Concurrent Stock Appreciation Right" or "Concurrent Right" means
a right granted pursuant to subsection 9(b)(ii) hereof.
(x) "Consultant" means any person, including an advisor, engaged by
the Company, or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant" shall
not include a Director acting solely in his capacity as such.
(xi) "Continuous Status as an Employee or Consultant" means the
employment or relationship as Consultant is not interrupted or terminated
by the Company or any Affiliate. The Committee, in its sole discretion, may
determine whether Continuous Status as an Employee, or Consultant shall be
considered interrupted in the case of any leave of absence approved by the
Board, including sick leave, military leave, or any other personal leave;
provided, however, that for purposes of Incentive Stock Options and Stock
Appreciation Rights appurtenant thereto, any such leave may not exceed
ninety (90) days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(xii) "Director" means a member of the Board.
(xiii) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(xiv) "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as
a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(xv) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(xvi) "Fair Market Value" means, the closing sales price as of the
date of grant for Company Common Stock (or the closing bid, if no sales
were reported) as quoted on the Nasdaq National Market
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or any similar organization or if Company Common Stock is listed on any
national securities exchange, as quoted on such national securities
exchange, as applicable, as reported in the Wall Street Journal or other
source as the Board deems reliable, and if Company Common Stock is not
traded on the Nasdaq National Market or any similar organization or on any
national securities exchange, the value as determined in good faith by the
Committee, based on the information available to it.
(xvii) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(xviii) "Independent Stock Appreciation Right" or "Independent Right"
means a right granted under subsection 9(b)(iii) hereof.
(xix) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary,
does not receive compensation (directly or indirectly) from the Company or
its parent or subsidiary for services rendered as a Consultant or in any
capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K (or
any successor regulation of similar import) promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any
other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K (or any successor regulation of similar import),
and is not engaged in a business relationship as to which disclosure would
be required under Item 404(b) of Regulation S-K (or any successor
regulation of similar import); or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3 of the Exchange Act.
(xx) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(xxi) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(xxii) "Option" means a stock option granted pursuant to the Plan.
(xxiii) "Option Agreement" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an
individual Option grant. Each Option Agreement shall be subject to the
terms and conditions of the Plan.
(xxiv) "Optionee" means an Employee, Director or Consultant who holds
an outstanding Option.
(xxv) "Outside Director" means for any given date of grant a Director
who either (i) is not then a current employee of the Company or an
"affiliated corporation" (within the meaning of Treasury regulations
promulgated under Section 162(m) of the Code), is not a former employee of
the Company or an "affiliated corporation" receiving compensation from the
Company or such affiliated corporation for prior services (other than
benefits under a tax qualified pension plan) during the then current
taxable year, was not an officer of the Company or an "affiliated
corporation" at any time (other than as its Clerk or Assistant Clerk), and
is not then currently receiving direct or indirect remuneration from the
Company or an "affiliated corporation" for services in any capacity other
than as a Director, and (ii) is otherwise considered an "outside director"
for purposes of Section 162(m) of the Code.
(xxvi) "Plan" or "1999 Plan" mean this 1999 Equity Incentive Plan.
(xxvii) "Plan Year" means the calendar year.
(xxiii) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3.
(xxix) "Securities Act" means the Securities Act of 1933, as amended.
(xxx) "Stock Appreciation Right" means any of the various types of
rights which may be granted under Section 9 hereof.
(xxxi) "Stock Award" means any right granted under the Plan, including
any Option, any stock bonus, any right to purchase restricted stock, and
any Stock Appreciation Right.
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(xxxii) "Stock Award Agreement" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions
of an individual Stock Award grant. Each Stock Award Agreement shall be
subject to the terms and conditions of the Plan.
(xxxiii) "Stock Bonus" means any stock bonus of the type which may be
granted under Section 8 hereof.
(xxxiv) "Tandem Stock Appreciation Right" or "Tandem Right" means a
right granted under subsection 9(b)(i) hereof.
The foregoing terms are not the exclusive definitions as used in the Plan
and reference is made to other capitalized terms defined in the context of their
first use herein.
(b) Rules of Interpretation.
(i) The headings and subheadings used herein or in any Option or other
instrument evidencing a Stock Award are solely for convenience of reference and
shall not constitute a part of the Plan or such document or affect the meaning,
construction or effect of any provision thereof.
(ii) All definitions set forth herein shall apply to the singular as well
as the plural form of such defined term, and all references to the masculine
gender shall include reference to the feminine or neuter gender and visa versa,
as the context may require.
(iii) References to "including" means including without limiting the
generality of any description preceding such term.
(iv) Unless otherwise expressly stipulated, any reference in the Plan to
any statute, act, regulation or specific provision thereof shall also extend to
any amendment, restatement or other modification to such statute, act,
regulation or specific provision thereof or any successor statute, act,
regulation or provision of similar import.
(v) Unless otherwise expressly provided, any reference in the Plan to any
specific provision of any statute or act shall include any regulations
promulgated thereunder from time to time and interpretations thereof as may be
applicable to the Plan.
3. ADMINISTRATION
(a) Administration of the Plan shall be delegated to a committee composed
of not fewer than two (2) members (the "Committee"), all of the members of which
Committee shall be Non-Employee Directors and Outside Directors. The Committee
shall have, in connection with the administration of the Plan, the powers set
forth in the Plan, subject, however, to such resolutions, not inconsistent with
the provisions of the Plan, as may be adopted from time to time by the Board.
The Board may abolish the Committee at any time and revisit in the Board the
administration of the Plan. The Board shall have the authority to correct any
defect, omission or inconsistency in the Plan and to amend the Plan as provided
in Section 16. The Board shall have the authority to appoint the Committee and
to fill any vacancy created on the Committee by reason of the death, resignation
or removal of any member thereof by appointing an eligible successor.
Notwithstanding anything in this Section 3 to the contrary, at any time the
Board or the Committee may delegate to a committee of one or more members of the
Board the authority to grant Stock Awards to eligible persons who are not then
subject to Section 16 of the Exchange Act and to eligible persons with respect
to whom the Company does not wish to comply with Section 162(m) of the Code.
(b) The Committee shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how Stock Awards shall be
granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a Stock Bonus, a right to purchase restricted
stock, a Stock Appreciation Right, another stock-based award or a
combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person
shall be permitted to receive stock pursuant to a Stock Award; whether a
person shall be permitted to
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receive stock upon exercise of an Independent Stock Appreciation Right; and
the number of shares with respect to which Stock Awards shall be granted to
each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Committee, in the exercise of this power, may correct
any defect, omission or inconsistency in any Stock Award Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the
Stock Award Agreement fully effective.
(iii) To amend any Stock Award.
(iv) Generally, to exercise such powers and to perform such acts as
the Committee deems necessary or expedient to promote the best interests of
the Company and which are not in conflict with the provisions of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 15 hereof relating to adjustments
upon Changes in Stock, the number of shares of stock that may be issued pursuant
to Stock Awards under the Plan shall be equal to 925,000 shares of Company
Common Stock. If any Stock Award shall for any reason expire or otherwise
terminate without having been exercised in full, the Company Common Stock not
purchased shall again become available for issuance under the Plan.
Notwithstanding the foregoing, shares of Company Common Stock subject to Stock
Appreciation Rights exercised in accordance with Section 8 hereof shall not be
available for subsequent issuance under the Plan.
(b) The Company Common Stock subject to the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares. Subject to Section
4(a) hereof, no more than one hundred thousand (100,000) shares of Company
Common Stock may be subject to Stock Bonus or restricted stock purchase.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Other Stock Awards may be granted to
Employees, Directors or Consultants, provided, however, that Stock Awards may be
granted to Non-Employee Directors only as provided in Section 7(a).
(b) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) Company Common Stock possessing more than ten
percent (10%) of the total combined voting power of all classes of capital stock
of the Company or of any of its Affiliates unless the exercise price of such
Incentive Stock Option is at least one hundred ten percent (110%) of the Fair
Market Value of such Company Common Stock at the date of grant and the Incentive
Stock Option is not exercisable after the expiration of five (5) years from the
date of grant.
(c) No person shall be eligible to be granted Stock Awards covering more
than one hundred thousand (100,000) shares of Company Common Stock in any Plan
Year.
6. OPTION PROVISIONS.
Each Option Agreement shall be in such form and shall contain such terms
and conditions as the Committee shall deem appropriate. The provisions of
separate Option Agreements need not be identical, but each Option Agreement
shall include (through incorporation of provisions hereof by reference in the
Option Agreement or otherwise) the substance of each of the following provisions
except as otherwise specifically provided elsewhere in the Plan:
(a) Term. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) Price. Subject to subsection 5(b) hereof, the exercise price of
each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Company Common Stock subject to the
Option on the date the Option is granted. The exercise price of each
Nonstatutory Stock Option shall be set by the Committee at the time each
Option is granted.
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(c) Consideration. The purchase price of stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either: (i) in cash at the time the Option is exercised, or
(ii) at the discretion of the Committee, either at the time of the grant or
exercise of the Option, (A) by delivery to the Company of other Common
Stock of the Company, (B) according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock of the Company) with the person to
whom the Option is granted or to whom the Option is transferred pursuant to
subsection 6(d) hereof, or (C) in any other form of legal consideration
that may be acceptable to the Committee on terms determined by the
Committee.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
(d) Transferability. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the
Incentive Stock Option is granted only by such person. A Nonstatutory Stock
Option may be transferable to the extent specified in the Option Agreement,
in which case the Option may be transferred upon such terms and conditions
as are set forth in the Option Agreement, as the Committee shall determine
in its sole discretion, including (without limitation) pursuant to a
"domestic relations order" within the meaning of such rules, regulations or
interpretation of the Securities and Exchange Commission as are applicable
for purposes of Section 16 of the Exchange Act, or to family members, or to
trusts or other entities maintained for the benefit of family members.
Notwithstanding the foregoing, the person to whom an Option is granted may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionee, shall thereafter be entitled to exercise the Option.
(e) Vesting. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to
time during each of such installment periods, the Option may become
exercisable ("vest") with respect to some or all of the shares allotted to
that period, and may be exercised with respect to some or all of the shares
allotted to such period and/or any prior period as to which the Option
became vested but was not fully exercised. The Option may be subject to
such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the
Committee may deem appropriate. During the remainder of the term of the
Option (if its term extends beyond the end of the installment periods), the
Option may be exercised from time to time with respect to any shares then
remaining subject to the Option. The provisions of this subsection 6(e) are
subject to any Option provisions governing the minimum number of shares as
to which an Option may be exercised.
(f) Termination of Employment or Relationship as a Consultant. In the
event an Optionee's Continuous Status as an Employee or Consultant
terminates (other than upon the Optionee's death or Disability), the
Optionee may exercise his or her Option, but only within such period of
time ending on the earlier of (i) the date three (3) months after
termination of the Optionee's Continuous Status as an Employee or
Consultant (or such longer (but only in the case of a Nonstatutory Stock
Option) or shorter period of time specified in the Option Agreement), or
(ii) the expiration of the Option's term, and only to the extent that the
Optionee was entitled to exercise it at the date of termination (but in no
event later than the expiration of the term of such Option as set forth in
the Option Agreement). If, at the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become
available for issuance under the Plan. If, after termination, the Optionee
does not exercise his or her Option within the time specified in the Option
Agreement, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the
Plan.
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(g) Disability of Optionee. In the event an Optionee's Continuous
Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option, but
only within such period of time ending on the earlier of (i) the date
twelve (12) months following such termination (or such longer or shorter
period of time as specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement).
If, at the date of termination, the Optionee is not entitled to exercise
his or her entire Option, the shares covered by the unexercisable portion
of the Option shall revert to the Plan. If, after termination, the Optionee
does not exercise his or her Option within the time specified herein, the
Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
(h) Death of Optionee. In the event of the death of an Optionee
during, or within a period specified in the Option Agreement after the
termination of, the Optionee's Continuous Status as an Employee or
Consultant, the Option may be exercised by the Optionee's estate, by a
person who acquired the right to exercise the Option by bequest or
inheritance, or by a person designated to exercise the Option upon the
Optionee's death pursuant to subsection 6(d) hereof, but only within the
period ending on the earlier of (i) the date twelve (12) months following
the date of death (or such longer or shorter period specified in the Option
Agreement) or (ii) the expiration of the term of such Option as set forth
in the Option Agreement. If, at the time of death, the Optionee was not
entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become
available under the Plan. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available
for issuance under the Plan.
(i) Early Exercise. The Option Agreement may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee,
Director or Consultant to exercise the Option as to any part or all of the
shares subject to the Option prior to the full vesting of the Option. If
such a provision is included in an Option Agreement, the Option Agreement
shall also contain provisions establishing a vesting schedule for the
purchased shares and a right of the Company to repurchase any unvested
shares or, as a condition to the exercise of the relevant Option, requiring
the Optionee to enter into an agreement with the Company establishing such
vesting and such rights.
(j) Withholding. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax
withholding obligation relating to the exercise of such Option by any of
the following means or by a combination of such means: (1) tendering a cash
payment; (2) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the participant as a result of the
exercise of the Option; or (3) delivering to the Company owned and
unencumbered shares of the Common Stock of the Company.
(k) Re-Load Options. Without in any way limiting the authority of the
Committee to make or not to make grants of Options hereunder, the Committee
shall have the authority (but not an obligation) to include as part of any
Option Agreement a provision entitling the Optionee to a further Option (a
"Re-Load Option") in the event the Optionee exercises the Option evidenced
by the Option Agreement, in whole or in part, by surrendering other shares
of Company Common Stock in accordance with the Plan and the terms and
conditions of the Option Agreement. Any such Re-Load Option (i) shall be
for a number of shares equal to the number of shares surrendered as part or
all of the exercise price of such Option, (ii) shall have an expiration
date which is the same as the expiration date of the Option the exercise of
which gave rise to such Re-Load Option; and (iii) shall have an exercise
price which is equal to one hundred percent (100%) of the Fair Market Value
of the Company Common Stock subject to the Re-Load Option on the date of
exercise of the original Option or, in the case of a Re-Load Option which
is an Incentive Stock Option and which is granted to a 10% stockholder (as
described in subsection 5(c) hereof), shall have an exercise price which is
equal to one hundred ten percent (110%) of the Fair Market Value of the
Company Common Stock subject to the Re-Load Option on the date of exercise
of the original Option and shall have a term which is no longer than five
(5) years.
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Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Committee may designate at the time of the grant of the
original Option, provided, however, that the designation of any Re-Load Option
as an Incentive Stock Option shall be subject to the one hundred thousand dollar
($100,000) annual limitation on exercisability of Incentive Stock Options
described in subsection 13(d) hereof and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under subsection 4(a) hereof
and shall be subject to such other terms and conditions as the Committee may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of the Options.
7. OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.
(a) Each Non-Employee Director, including Non-Employee Directors elected to
the Board at the meeting of the Company's stockholders at which this Plan is
approved (the "Approval Meeting"), upon first joining the Board, will
automatically be granted a Nonstatutory Stock Option to purchase 9,000 shares of
Company Common Stock with an exercise price equal to the Fair Market Value of
the Common Stock on the date of grant. Notwithstanding the preceding sentence,
in the event a Non-Employee Director joins the Board after the second Tuesday in
February in a given year such Non-Employee Director will receive a Nonstatutory
Stock Option for a number of shares equal to 9,000 multiplied by N/12 where "N"
is the number of months remaining between the date of election of such
Non-Employee Director and the next second Tuesday in February. In addition, each
Non-Employee Director who continues to serve as a director following any annual
meeting of stockholders of the Company or special meeting in lieu thereof at
which Directors are elected, including the Approval Meeting, will automatically
be granted, immediately following such meeting of stockholders, a Nonstatutory
Stock Option to purchase 9,000 shares of Company Common Stock at an exercise
price equal to the Fair Market Value of the Company Common Stock on the date of
grant. All Options granted under this Section 7(a) shall vest in full on the
date of grant and will expire on the date which is five years from the date of
grant.
(b) The Committee shall adopt such provisions, in its sole discretion, as
to the time, any limitations or restrictions and the manner of the exercise or
vesting of Nonstatutory Stock Options granted under this Section 7 in respect of
the matters set forth under the provisions of Subsections 6(d), (j) and (k)
hereof.
8. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each Stock Bonus or restricted stock purchase agreement related to a Stock
Award shall be in such form and shall contain such terms and conditions as the
Committee shall deem appropriate. The terms and conditions of Stock Bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each Stock
Bonus or restricted stock purchase agreement shall include (through
incorporation of provisions herein by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
(a) Purchase Price. The purchase price under each restricted stock
purchase agreement shall be such amount as the Committee shall determine
and designate in such agreement. Notwithstanding the foregoing, the
Committee may determine that eligible participants in the Plan may be
granted a Stock Award pursuant to a Stock Bonus agreement in consideration
for past services actually rendered to the Company for its benefit.
(b) Transferability. Except as otherwise provided elsewhere in the
Plan, no rights under a Stock Bonus or restricted stock purchase agreement
shall be assignable by any participant under the Plan, either voluntarily
or by operation of law, except by will or by the laws of descent and
distribution, and shall be exercisable during the lifetime of the person to
whom the rights are granted only by such person. The person to whom the
Stock Award is granted, may, by delivering written notice to the Company,
in a form satisfactory to the Company, designate a third party who, in the
event of the death of such person, shall thereafter be entitled to exercise
the rights held by such person under the Stock Bonus or restricted stock
purchase agreement.
(c) Consideration. The purchase price of stock acquired pursuant to a
Stock Award in the form of a stock purchase agreement shall be paid either:
(i) in cash at the time of purchase; (ii) at the discretion
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of the Committee, according to a deferred payment or other arrangement with
the person to whom the stock is sold; or (iii) in any other form of legal
consideration that may be acceptable to the Committee in its discretion;
including delivery of a promissory note of the Optionee to the Company on
terms determined by the Committee. Notwithstanding the foregoing, the
Committee may grant a Stock Award pursuant to a Stock Bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
(d) Vesting. Shares of Company Common Stock sold or awarded under the
Plan may, but need not, be subject to a repurchase option in favor of the
Company in accordance with a vesting schedule to be determined by the
Committee.
(e) Termination of Employment or Relationship as a Consultant. In the
event a Participant's Continuous Status as an Employee or Consultant
terminates, the Company may repurchase or otherwise reacquire any or all of
the shares of Company Common Stock held by that person which have not
vested as of the date of termination under the terms of the Stock Bonus or
restricted stock purchase agreement between the Company and such person.
9. STOCK APPRECIATION RIGHTS.
(a) The Committee shall have full power and authority, exercisable in its
sole discretion, to grant Stock Appreciation Rights to Employees or Consultants
to the Company or its Affiliates under the Plan. Each such right shall entitle
the holder to a distribution based on the appreciation in the Fair Market Value
per share of a designated amount of Company Common Stock.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(i) Tandem Stock Appreciation Rights. Tandem Rights will be granted
appurtenant to an Option and will require the holder to elect between the
exercise of the underlying Option for shares of Company Common Stock and
the surrender, in whole or in part, of such Option for an appreciation
distribution equal to the excess of (A) the Fair Market Value (on the date
of Option surrender) of vested shares of Company Common Stock purchasable
under the surrendered Option over (B) the aggregate exercise price payable
for such shares.
(ii) Concurrent Stock Appreciation Rights. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of Company Common Stock subject to the underlying Option and will be
exercised automatically at the same time the Option is exercised for those
shares. The appreciation distribution to which the holder of such
concurrent right shall be entitled upon exercise of the underlying Option
shall be in an amount equal to such portion as shall be determined by the
Board or the Committee at the time of grant of the excess of (A) the
aggregate Fair Market Value (at date of exercise) of the vested shares
purchased under the underlying Option with such concurrent rights over (B)
the aggregate exercise price paid for those shares.
(iii) Independent Stock Appreciation Rights. Independent Rights may
be granted independently of any Option and will entitle the holder upon
exercise to an appreciation distribution equal in amount to the excess of
(A) the aggregate Fair Market Value (at date of exercise) of a number of
shares of Company Common Stock equal to the number of vested share
equivalents exercised at such time (as described in subsection 8(c)(iii))
hereof over (B) the aggregate Fair Market Value of such number of shares of
Company Common Stock at the date of grant.
(c) The terms and conditions applicable to each Tandem Right, Concurrent
Right and Independent Right shall be as follows:
(i) TANDEM RIGHTS:
A. Tandem Rights may be tied to either Incentive Stock Options or
Nonstatutory Stock Options. Each such right shall, except as
specifically set forth below, be subject to the same terms and
conditions applicable to the particular Option to which it pertains. If
Tandem Rights are granted appurtenant to an Incentive Stock Option, they
shall satisfy any applicable Treasury Regulations so as not to
disqualify such Option as an Incentive Stock Option under the Code.
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B. The appreciation distribution payable on the exercised Tandem
Right shall be in cash in an amount equal to the excess of (i) the Fair
Market Value (on the date of the Option surrender) of the number of
shares of Company Common Stock covered by that portion of the
surrendered Option in which the Optionee is vested over (ii) the
aggregate exercise price payable for such vested shares.
(ii) CONCURRENT RIGHTS:
A. Concurrent Rights may be tied to any or all of the shares of
Company Common Stock subject to any Incentive Stock Option or
Nonstatutory Stock Option grant made under the Plan. A Concurrent Right
shall, except as specifically set forth below, be subject to the same
terms and conditions applicable to the particular option grant to which
it pertains.
B. A Concurrent Right shall be automatically exercised at the same
time as the underlying Option is exercised with respect to the
particular shares of Company Common Stock to which the Concurrent Right
pertains.
C. The appreciation distribution payable on an exercised
Concurrent Right shall be in cash in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of grant
of the excess of (i) the aggregate Fair Market Value (on the date the
Option is exercised) of the vested shares of Company Common Stock
purchased under the underlying Option which have Concurrent Rights
appurtenant to them over (ii) the aggregate exercise price paid for such
shares.
(iii) INDEPENDENT RIGHTS:
A. Independent Rights shall, except as specifically set forth
below, be subject to the same terms and conditions applicable to
Nonstatutory Stock Options as set forth in Section 6 hereof. They shall
be denominated in share equivalents.
B. The appreciation distribution payable on the exercised
Independent Right shall be in cash in an amount equal to the excess of
(I) the aggregate Fair Market Value (on the date of the exercise of the
Independent Right) of a number of shares of Company Common Stock equal
to the number of share equivalents in which the holder is vested under
such Independent Right, and with respect to which the holder is
exercising the Independent Right on such date, over (II) the aggregate
Fair Market Value (on the date of the grant of the Independent Right) of
such number of shares of Company Common Stock.
(iv) TERMS APPLICABLE TO TANDEM RIGHTS, CONCURRENT RIGHTS AND
INDEPENDENT RIGHTS:
A. To exercise any outstanding Tandem, Concurrent or Independent
Right, the holder must provide written notice of exercise to the Company
in compliance with the provisions of the instrument evidencing such
right.
B. If a Tandem, Concurrent, or Independent Right is granted to an
individual who is at the time subject to Section 16(b) of the Exchange
Act (a "Section 16(b) Insider"), then the instrument of grant shall
incorporate all the terms and conditions at the time necessary to assure
that the subsequent exercise of such right shall qualify for the
safe-harbor exemption from short-swing profit liability provided by Rule
16b-3.
C. Except as otherwise provided in this Section 9, no limitation
shall exist on the aggregate amount of cash payments the Company may
make under the Plan in connection with the exercise of Tandem,
Concurrent or Independent Rights.
10. OTHER STOCK-BASED AWARDS.
The Committee shall have the right to grant other Awards based upon Company
Common Stock having such terms and conditions as the Committee may determine,
including the grant of shares based upon certain conditions and grant of
securities convertible into Company Common Stock.
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11. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at any
time and from time to time, with the consent of the affected holders of Options
and/or Stock Appreciation Rights, (i) the repricing of any outstanding Options
and/or any Stock Appreciation Rights under the Plan and the grant in
substitution therefor of new Options and/or Stock Appreciation Rights under the
Plan covering the same or different numbers of shares of Company Common Stock,
but having an exercise price per share not less than eighty five percent (85%)
of the Fair Market Value (one hundred percent (100%)) of the Fair Market Value
in the case of an Incentive Stock Option or, in the case of an Incentive Stock
Option granted to a 10% stockholder (as described in subsection 5(c) hereof, not
less than one hundred ten percent (110%) of the Fair Market Value) per share of
Company Common Stock on the new grant date.
(b) Shares of Company Common Stock subject to an Option or Stock
Appreciation Right canceled under this Section 11 shall continue to be counted
against the maximum award of Options and Stock Appreciation Rights permitted to
be granted to a person pursuant to subsection 5(c) hereof. The repricing of an
Option and/or Stock Appreciation Right under this Section 11, resulting in a
reduction of the exercise price, shall be deemed to be a cancellation of the
original Option and/or Stock Appreciation Right and the grant of a substitute
Option and/or Stock Appreciation Right; in the event of such repricing, both the
original and the substituted Options and Stock Appreciation Rights shall be
counted against the maximum awards of Options and Stock Appreciation Rights
permitted to be granted to a person pursuant to subsection 5(c) hereof. The
provisions of this subsection 11(b) shall be applicable only to the extent
required by Section 162(m) of the Code.
12. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of Company Common Stock required to satisfy
such Stock Awards up to the number of shares of Company Common Stock authorized
under the Plan.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of Company Common Stock under the Stock Awards; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act or any securities law of any state either the Plan, any Stock
Award or any stock issued or issuable pursuant to any such Stock Award. The
Company shall not be required to sell or issue any shares under any Stock Award
if the issuance of such shares shall constitute a violation by the holder of the
Stock Award or by the Company of any provision of any law or regulation of any
governmental authority. In the event the shares of Company Common Stock issuable
on exercise of Stock Award are not registered under the Securities Act, the
Company may imprint upon any certificate representing shares so issued any
legend which counsel for the Company considers necessary or advisable to comply
with the Securities Act and with applicable state securities laws. The Company
may, but shall in no event be obligated to, register any securities covered
hereby pursuant to the Securities Act; and in the event any shares are so
registered the Company may remove any legend on certificates representing such
shares.
13. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Company Common Stock pursuant to Stock Awards
shall constitute general funds of the Company.
14. MISCELLANEOUS.
(a) The Committee shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) hereof shall be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares of
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Company Common Stock subject to such Option unless and until such person has
satisfied all requirements for exercise of the Option pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant, Optionee,
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as a Director or Consultant) or
shall affect the right of the Company or any Affiliate to terminate the
employment or relationship as a Director or Consultant of any Employee,
Director, Consultant or Optionee, with or without cause.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of Company Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year under all plans of the Company and its Affiliates exceeds one hundred
thousand dollars ($100,000), the Options or portions thereof which exceed such
limit (according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
15. ADJUSTMENTS UPON CHANGE IN STOCK.
In the event of any Change in Stock, the Plan will be appropriately
adjusted in the class(es) and maximum number of shares subject to the Plan
pursuant to subsection 4(a) hereof and the maximum number of shares subject to
Options and Stock Awards pursuant to subsection 5(c) hereof, and the outstanding
Stock Awards will be appropriately adjusted in the class(es) and number of
shares and price per share of stock subject to such outstanding Stock Awards.
Such adjustments shall be made by the Committee, the determination of which
shall be final, binding and conclusive.
16. VESTING AND PAYMENT UPON CHANGE IN CONTROL.
(a) After a merger of one or more corporations with or into the Company or
after a consolidation of the Company and one or more corporations in which the
stockholders of the Company immediately prior to such merger or consolidation
own after such merger or consolidation shares representing at least fifty
percent (50%) of the voting power of the Company or the surviving or resulting
corporation, as the case may be, each holder of an outstanding Option shall, at
no additional cost, be entitled upon exercise of such Option to receive in lieu
of the shares of Company Common Stock as to which such Option was exercisable
immediately prior to such event, the number and class of shares of stock or
other securities, cash or property (including, without limitation, shares of
stock or other securities of another corporation or Company Common Stock) to
which such holder would have been entitled pursuant to the terms of the
agreement of merger or consolidation if, immediately prior to such merger or
consolidation, such holder had been the holder of record of a number of shares
of Company Common Stock equal to the number of shares for which such Option
shall be so exercised.
(b) Upon and following the occurrence of a Change of Control, the time for
exercise of each unvested installment of any then outstanding Option or Stock
Appreciation Right shall be accelerated, so that:
(i) immediately upon such Change of Control, if the Optionee or the
holder is then an employee or consultant of the Company twenty-five percent
(25%) of any such unvested installment shall be exercisable;
(ii) on the date that is nine months after such Change in Control, if
the Optionee or the holder is then an employee or consultant of the Company
one third (33'%) of any installment of such Option or Stock Appreciation
Right that has not yet vested in accordance with its original terms or by
virtue of this Section 16 shall become exercisable;
(iii) on the date that is eighteen months after such Change in
Control, if the Optionee or the holder is then an employee or consultant of
the Company fifty percent (50%) of any installment of such Option or Stock
Appreciation Right that has not yet vested in accordance with its original
terms or by virtue of this Section 16 shall become exercisable; and
(iv) on the second anniversary of such Change in Control, if the
Optionee or the holder is then an employee or consultant of the Company any
remaining installment of such Option or Stock Appreciation
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Right that has not yet vested in accordance with its original terms or by
virtue of this Section 16 shall become exercisable.
The foregoing clauses (i) through (iv) are intended to provide for vesting
that is in addition to, and not in lieu of, the vesting schedule originally
provided in any Option or Stock Appreciation Right outstanding at the time of a
Change in Control, and, except to the extent accelerated by such clauses, each
such Option or Stock Appreciation Right shall continue to vest in accordance
with its original terms.
(c) Upon the occurrence of a Change of Control, the restrictions and
conditions contained in any Stock Bonus granted to a then current Employee or
Consultant or restricted stock purchase agreement related to a Stock Award to
which a then current Employee or Consultant is a party shall automatically be
appropriately modified so that under the terms thereof additional shares of
Company Common Stock vest in a manner essentially equivalent to the additional
vesting provided for in Section 16(b) for Options and Stock Appreciation Rights.
The determination of the Committee as to such modifications shall be final,
binding and conclusive.
The foregoing subparagraph (c) is intended to provide for vesting that is
in addition to, and not in lieu of, the vesting schedule originally provided in
any Stock Bonus or restricted stock purchase agreement related to a Stock Award
outstanding at the time of a Change in Control, and, except to the extent
accelerated by such clauses, each such Stock Bonus or restricted stock purchase
agreement related to a Stock Award shall continue to vest in accordance with its
original terms.
(d) If the Company is merged with or into or consolidated with another
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation; or
if the Company is liquidated, or sells or otherwise disposes of substantially
all of its assets to another corporation while unexercised Options remain
outstanding under the Plan, then either in such event:
(i) subject to the provisions of clause (iii) below, after the
effective date of such merger, consolidation, liquidation, sale or
disposition, as the case may be, each holder of an outstanding Option shall
be entitled, upon exercise of such Option, to receive, in lieu of the
shares of Company Common Stock as to which such Option was exercisable
immediately prior to such event, the number and class of shares of stock or
other securities, cash or property (including, without limitation, shares
of stock or other securities of another corporation or common stock) to
which such holder would have been entitled pursuant to the terms of the
merger, consolidation, liquidation, sale or disposition if, immediately
prior to such event, such holder had been the holder of a number of shares
of Company Common Stock equal to the number of shares as to which such
Option shall be so exercised;
(ii) the Committee may accelerate the time for exercise of some or all
unexercised and unexpired Options or Stock Appreciation Rights so that from
and after a date prior to the effective date of such merger, consolidation,
liquidation, sale or disposition, as the case may be, specified by the
Committee such accelerated Options or Stock Appreciation Rights shall be
exercisable in full; or
(iii) all outstanding Options and Stock Appreciation Rights,
respectively, may be cancelled by the Committee as of the effective date of
any such merger, consolidation, liquidation, sale or disposition provided
that (x) notice of such cancellation shall be given to each holder of an
Option or Stock Appreciation Right, respectively, and (y) each holder of an
Option or Stock Appreciation Right shall have the right to exercise such
Option or Stock Appreciation Right to the extent that the same is then
exercisable or, if the Committee shall have accelerated the time for
exercise of all unexercised and unexpired Options or Stock Appreciation
Rights, respectively, in full during the 10-day period preceding the
effective date of such merger, consolidation, liquidation, sale or
disposition.
(e) If, within two years following a Change in Control, the employment of
any Optionee who immediately prior to such Change in Control was employed by the
Company as an Officer (each such Optionee being hereafter referred to as a
"Designated Executive") shall be terminated by the Company other than for cause,
or shall be terminated by the Designated Executive for Good Reason, then in such
event all
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unvested Options, Stock Appreciation Rights, Stock Bonuses and other Stock
Awards held by such Designated Executive at the date of such termination shall
thereupon immediately become exercisable in full. For purposes of this
paragraph, "Good Reason" for termination by a Designated Executive of his
employment shall be deemed to have existed only if (i) within two years after a
Change in Control, the Company, or any successor entity then employing the
Designated Executive, shall materially diminish the responsibilities and
authority of the Designated Executive or, shall materially reduce the rate of
compensation of the Designated Executive (including by way of a change in the
method of determining the eligibility of such Designated Executive to earn bonus
or incentive compensation), in either case as compared with his responsibilities
and authority or rate of compensation, as the case may be, in effect immediately
prior to such Change in Control, and (ii) within thirty (30) days following such
diminution or reduction the Designated Executive shall resign from his
employment by the Company or such successor entity.
(f) If, within two years following a Change in Control, a Non-Employee
Director is terminated or resigns from the Board of Directors for Good Reason,
then in such event all unvested Options held by such Non-Employee Director at
the date of such resignation shall thereupon immediately become exercisable in
full. For purposes of this paragraph, "Good Reason" for resignation by a
Non-Employee Director shall be deemed to have existed only if (i) within two
years after a Change in Control, the Company, or any successor entity, shall
materially diminish the responsibilities and authority of the Non-Employee
Director or shall materially reduce the rate of compensation of the Non-Employee
Director, in either case as compared with his responsibilities and authority or
rate of compensation, as the case may be, in effect immediately prior to such
Change in Control, and (ii) within thirty (30) days following such diminution or
reduction the Non-Employee Director shall resign from his position as a
Director.
17. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 14 hereof relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3, or
the listing or eligibility for quotation requirements of the Nasdaq National
Market or any similar organization or of any national securities exchange upon
which shares of Company Common Stock are listed or eligible for trading.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Committee at any time, and from time to time, may amend the terms
of any one or more Stock Awards; provided, however, that the rights and
obligations under any Stock Award shall not be altered or impaired by any such
amendment unless (i) the Company requests the consent of the person to whom the
Stock Award was granted and (ii) such person consents in writing.
18. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on March 4, 2009. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
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(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with consent of the person to whom the Stock Award was granted.
19. LOCK-UP AGREEMENT.
The Committee may in its discretion specify upon granting an Option that
upon request of the Company or the underwriters managing any underwritten
offering of the Company's securities, the Optionee shall agree in writing that
for a period of time (not to exceed 180 days) from the effective date of any
registration of securities of the Company, the Optionee will not sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any shares issued pursuant to the exercise of such Option, without the prior
written consent of the Company or such underwriters, as the case may be.
20. GOVERNING LAW.
The provisions of the Plan and all Stock Awards made hereunder shall be
governed by and interpreted in accordance with the internal laws of the
Commonwealth of Massachusetts without regard to any applicable conflicts of law
principles thereof.
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APPENDIX B
PROJECT SOFTWARE & DEVELOPMENT, INC.
1994 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
SECTION 1. PURPOSE
This Amended and Restated 1994 Incentive and Nonqualified Stock Option Plan
(the "Plan") of Project Software & Development, Inc. (the "Company"), is
designed to provide additional incentive to executives and other key employees
of the Company, and any parent or subsidiary of the Company, and to certain
other individuals providing services to or acting as directors of the Company or
any such parent or subsidiary. The Company intends that this purpose will be
effected by the granting of incentive stock options ("Incentive Stock Options")
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and nonqualified stock options ("Nonqualified Options") under the Plan
which afford such executives, key employees or other individuals an opportunity
to acquire or increase their proprietary interest in the Company through the
acquisition of shares of its Common Stock. The Company intends that Incentive
Stock Options issued under the Plan will qualify as "incentive stock options" as
defined in Section 422 of the Code and the terms of the Plan shall be
interpreted in accordance with this intention. As used in the Plan the terms
"parent" and "subsidiary" shall have the respective meanings set forth in
Section 424 of the Code.
SECTION 2. ADMINISTRATION
2.1 The Committee. The Plan shall be administered by a Committee (the
"Committee") consisting of at least two "Outside Directors." As used herein, the
term "Outside Director" means any director of the Company who (i) is not an
employee of the Company or of an "affiliated group," as such term is defined in
Section 1504(a) of the Code, which includes the Company (an "Affiliate"), (ii)
is not a former employee of the Company or any Affiliate who is receiving
compensation for prior services (other than benefits under a tax-qualified
retirement plan) during the Company's or any Affiliate's taxable year, (iii) has
not been an officer of the Company or any Affiliate (other than as its Clerk or
Assistant Clerk) and (iv) does not receive remuneration from the Company or any
Affiliate, either directly or indirectly, in any capacity other than as a
director. None of the members of the Committee shall be an officer or other
employee of the Company. It is the intention of the Company that the Plan shall
be administered by "Non-Employee Directors" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934 as amended (the "1934 Act"), but the
authority and validity of any act taken or not taken by the Committee shall not
be affected if any person administering the Plan is not a disinterested person.
Except as specifically reserved to the Board of Directors of the Company (the
"Board") under the terms of the Plan, the Committee shall have full and final
authority to operate, manage and administer the Plan on behalf of the Company.
Action by the Committee shall require the affirmative vote of a majority of
all members thereof.
2.2 Powers of the Committee. Subject to the terms and conditions of the
Plan, the Committee shall have the power:
(a) To determine from time to time the persons eligible to receive
options and the options to be granted to such persons under the Plan and to
prescribe the terms, conditions, restrictions, if any, and provisions
(which need not be identical) of each option granted under the Plan to such
persons;
(b) To construe and interpret the Plan and options granted thereunder
and to establish, amend, and revoke rules and regulations for
administration of the Plan. In this connection, the Committee may correct
any defect or supply any omission, or reconcile any inconsistency in the
Plan, or in any option agreement, in the manner and to the extent it shall
deem necessary or expedient to make the Plan fully effective. All decisions
and determinations by the Committee in the exercise of this power shall be
final and binding upon the Company and optionees;
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(c) To make, in its sole discretion, changes to any outstanding option
granted under the Plan, including:
(i) to reduce the exercise price, (ii) to accelerate the vesting schedule
or (iii) to extend the expiration date; and
(d) Generally, to exercise such powers and to perform such acts as are
deemed necessary or expedient to promote the best interests of the Company
with respect to the Plan.
SECTION 3. STOCK
3.1 Stock to be Issued. The stock subject to the options granted under
the Plan shall be shares of the Company's authorized but unissued common stock,
$.01 par value (the "Common Stock"), or shares of the Company's Common Stock
held in treasury. The total number of shares that may be issued pursuant to
options granted under the Plan shall not exceed an aggregate of 1,800,000 shares
of Common Stock; provided, however, that the class and aggregate number of
shares which may be subject to options granted under the Plan shall be subject
to adjustment as provided in Section 8 hereof.
3.2 Expiration, Cancellation or Termination of Option. Whenever any
outstanding option under the Plan expires, is cancelled or is otherwise
terminated (other than by exercise), the shares of Common Stock allocable to the
unexercised portion of such option may again be the subject of options under the
Plan, and shares of Common Stock issuable under options that expire, are
cancelled or are otherwise terminated shall not count against the limitation on
grants set forth in Section 3.3 hereof.
3.3 Limitation on Grants. In no event may any Plan participant be granted
options with respect to more than 150,000 shares of Common Stock in any calendar
year.
SECTION 4. ELIGIBILITY
4.1 Persons Eligible. Incentive Stock Options under the Plan may be
granted only to officers and other employees of the Company or any parent or
subsidiary of the Company. Nonqualified Options may be granted to officers or
other employees of the Company or any parent or subsidiary of the Company, and
to members of the Board and consultants or other persons who render services to
the Company or any such parent or subsidiary (regardless of whether they are
also employees), provided, however, that options may be granted to members of
the Board who are not employees of the Company or any such parent or subsidiary
("Outside Directors") only as provided in Section 4.4.
4.2 Greater-Than-Ten-Percent Stockholders. Except as may otherwise be
permitted by the Code or other applicable law or regulation, no Incentive Stock
Option shall be granted to an individual who, at the time the option is granted,
owns (including ownership attributed pursuant to Section 425 of the Code) more
than ten percent of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary (a "greater-than-ten-percent
stockholder"), unless such Incentive Stock Option provides that (i) the purchase
price per share shall not be less than one hundred ten percent of the fair
market value of the Common Stock at the time such option is granted, and (ii)
that such option shall not be exercisable to any extent after the expiration of
five years from the date it is granted.
4.3 Maximum Aggregate Fair Market Value. The aggregate fair market value
(determined at the time the option is granted) of the Common Stock with respect
to which Incentive Stock Options are exercisable for the first time by any
optionee during any calendar year (under the Plan and any other plans of the
Company or any parent or subsidiary for the issuance of incentive stock options)
shall not exceed $100,000 (or such greater amount as may from time to time be
permitted with respect to incentive stock options by the Code or any other
applicable law or regulation).
4.4 Option Grants to Outside Directors.
(a) Grant of Options Upon Election to Board. Each Outside Director
joining the Board at or subsequent to the meeting of the Company's
stockholders at which this Section 4.4(a) in this form is approved (the
"Approval Meeting") shall automatically be granted, upon such Outside
Director so joining the Board, an initial Nonqualified Option to purchase
12,000 shares of Common Stock. Such
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Nonqualified Option shall vest and become exercisable in three equal annual
installments cumulatively beginning on the first anniversary of the date
the option was granted. Notwithstanding the preceding sentence, the initial
Nonqualified Option granted to any Outside Director joining the Board after
May 1, 1998, including the initial Nonqualified Option granted to each of
Alan Stanzler and Stephen Sayre, shall vest in three equal installments,
one-third on the first anniversary of the date of grant, one-third on the
second anniversary of the date of grant and one-third immediately prior to
the meeting of stockholders at which such Outside Director's initial term
of office as a Director will expire in accordance with the Company's
By-Laws.
(b) Grant of Options Upon Re-Election to Board or Continuation on the
Board. Each Outside Director who is re-elected by the stockholders of the
Company to the Board at or subsequent to the Approval Meeting shall
automatically be granted, immediately following the meeting of stockholders
at which such Outside Director is re-elected, a Nonqualified Option to
purchase 4,000 shares of Common Stock. In addition, each Outside Director
whose term of office does not expire at any annual meeting of stockholders
or special meeting in lieu thereof subsequent to the Approval Meeting and
who shall remain an Outside Director after such meeting shall automatically
be granted, immediately following such meeting, a Nonqualified Option to
purchase 4,000 shares of Common Stock. Each Nonqualified Option described
in this Section 4.4(b) shall vest and become exercisable in full on the
last day of December in the year in which the Nonqualified Option was
granted.
(c) Purchase Price. The purchase price per share of Common Stock
under each Nonqualified Option granted pursuant to this Section 4.4 shall
be equal to the fair market value of the Common Stock on the date the
Nonqualified Option is granted, such fair market value to be determined in
accordance with the provisions of Section 6.3(b).
(d) Expiration. Each Nonqualified Option granted to an Outside
Director under this Section 4.4 shall expire on the fifth anniversary of
the date of grant.
SECTION 5. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE
5.1 Termination of Employment. Except as may be otherwise expressly
provided herein, options shall terminate on the earlier of:
(a) the date of expiration thereof;
(b) immediately upon the termination of the optionee's employment with
or performance of services for the Company (or any parent or subsidiary of
the Company) by the Company (or any such parent or subsidiary) for cause
(as determined by the Company or such parent or subsidiary); or
(c) thirty days after the date of termination of the optionee's
employment with or performance of services for the Company (or any parent
or subsidiary of the Company) by the Company (or any such parent or
subsidiary) without cause or voluntarily by the optionee; provided,
however, that Nonqualified Options granted to persons who are not employees
of the Company (or any parent or subsidiary of the Company) need not,
unless the Committee determines otherwise, be subject to the provisions set
forth in clauses (b) and (c) above.
An employment relationship between the Company (or any parent or subsidiary
of the Company) and the optionee shall be deemed to exist during any period in
which the optionee is employed by the Company (or any such parent or
subsidiary). Whether authorized leave of absence, or absence on military or
government service, shall constitute termination of the employment relationship
between the Company (or any parent or subsidiary of the Company) and the
optionee shall be determined by the Committee at the time thereof.
As used herein, "cause" shall mean (x) any material breach by the optionee
of any agreement to which the optionee and the Company (or any parent or
subsidiary of the Company) are both parties, (y) any act or omission to act by
the optionee which may have a material and adverse effect on the business of the
Company (or any such parent or subsidiary) or on the optionee's ability to
perform services for the Company (or any such parent or subsidiary), including,
without limitation, the commission of any crime (other than ordinary
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traffic violations), or (z) any material misconduct or material neglect of
duties by the optionee in connection with the business or affairs of the Company
(or any such parent or subsidiary) or any affiliate of the Company (or any such
parent or subsidiary).
5.2 Death or Retirement of Optionee. In the event of the death of the
holder of an option that is subject to clause (b) or (c) of Section 5.1 above
prior to termination of the optionee's employment with or performance of
services for the Company (or any parent or subsidiary of the Company) and before
the date of expiration of such option, such option shall terminate on the
earlier of such date of expiration or one year following the date of such death.
After the death of the optionee, his executors, administrators or any person or
persons to whom his option may be transferred by will or by the laws of descent
and distribution, shall have the right, at any time prior to such termination,
to exercise the option to the extent the optionee was entitled to exercise such
option at the time of his death.
If, before the date of the expiration of an option that is subject to
clause (b) or (c) of Section 5.1 above, the optionee shall be retired in good
standing from the Company for reasons of age or disability under the then
established rules of the Company, the option shall terminate on the earlier of
such date of expiration or ninety (90) days after the date of such retirement.
In the event of such retirement, the optionee shall have the right prior to the
termination of such option to exercise the option to the extent to which he was
entitled to exercise such option immediately prior to such retirement.
SECTION 6. TERMS OF THE OPTION AGREEMENTS
Each option agreement shall be in writing and shall contain such terms,
conditions, restrictions, if any, and provisions as the Committee shall from
time to time deem appropriate. Such provisions or conditions may include,
without limitation, restrictions on transfer, repurchase rights, or such other
provisions as shall be determined by the Committee; provided, however, that such
additional provisions shall not be inconsistent with any other term or condition
of the Plan and such additional provisions shall not cause any Incentive Stock
Option granted under the Plan to fail to qualify as an incentive option within
the meaning of Section 422 of the Code. The shares of stock issuable upon
exercise of an option by any executive officer, director or beneficial owner of
more than ten percent of the Common Stock of the Company may not be sold or
transferred (except that such shares may be issued upon exercise of such option)
by such officer, director or beneficial owner for a period of six months
following the grant of such option.
Option agreements need not be identical, but each option agreement by
appropriate language shall include the substance of all of the following
provisions:
6.1 Expiration of Option. Notwithstanding any other provision of the Plan
or of any option agreement, each option shall expire on the date specified in
the option agreement, which date shall not, in the case of an Incentive Stock
Option, be later than the tenth anniversary (fifth anniversary in the case of a
greater-than-ten-percent stockholder) of the date on which the option was
granted or as specified in Section 5 of this Plan.
6.2 Exercise. Each option may be exercised, so long as it is valid and
outstanding, from time to time in part or as a whole, subject to any limitations
with respect to the number of shares for which the option may be exercised at a
particular time and to such other conditions as the Committee in its discretion
may specify upon granting the option.
6.3 Purchase Price. The purchase price per share under each option shall
be determined by the Committee at the time the option is granted; provided,
however, that the option price of any Incentive Stock Option shall not, unless
otherwise permitted by the Code or other applicable law or regulation, be less
than the fair market value of the Common Stock on the date the option is granted
(110% of the fair market value in the case of a greater-than-ten-percent
stockholder) and the option price of any Nonqualified Option shall not be less
than 85% of the fair market value of the Common Stock on the date the option is
granted. For the purpose of the Plan the fair market value of the Common Stock
shall be (i) in the case of the Nonqualified Options granted to Outside
Directors in connection with the Company's initial public offering, the initial
public offering price and (ii) in all other cases, the closing price per share
on the date of grant of the option as reported by a nationally recognized stock
exchange, or, if the Common Stock is not listed on such an exchange, as reported
by the National Association of Securities Dealers Automated Quotation System
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("Nasdaq") National Market System or, if the Common Stock is not listed on the
Nasdaq National Market System, the mean of the bid and asked prices per share on
the date of grant of the option or, if the Common Stock is not traded
over-the-counter, the fair market value as determined by the Committee.
6.4 Transferability of Options. Options shall not be transferable by the
optionee otherwise than by will or under the laws of descent and distribution,
and shall be exercisable, during his lifetime, only by the optionee; provided,
however, the Committee in its discretion may establish such rules and procedures
as it may deem appropriate to permit the transferability of Nonqualified
Options.
6.5 Rights of Optionees. No optionee shall be deemed for any purpose to
be the owner of any shares of Common Stock subject to any option unless and
until the option shall have been exercised pursuant to the terms thereof, and
the Company shall have issued and delivered certificates representing such
shares to the optionee.
6.6 Certain Rights of the Company. The Committee may in its discretion
provide upon the grant of any option hereunder that the Company shall have an
option to repurchase upon such terms and conditions as determined by the
Committee all or any number of shares purchased upon exercise of such option or
a right of first refusal in connection with subsequent transfer of any or all of
such shares. The repurchase price per share payable by the Company shall be such
amount or be determined by such formula as is fixed by the Committee at the time
the option for the shares subject to repurchase is granted. In the event the
Committee shall grant options subject to the Company's repurchase option or
right of first refusal, the certificates representing the shares purchased
pursuant to such option shall carry a legend satisfactory to counsel for the
Company referring to the Company's repurchase option or right of first refusal.
6.7 "Lockup" Agreement. The Committee may in its discretion specify upon
granting an option that upon request of the Company or the underwriters managing
any underwritten offering of the Company's securities, the optionee shall agree
in writing that for a period of time (not to exceed 180 days) from the effective
date of any registration of securities of the Company, the optionee will not
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any shares issued pursuant to the exercise of such option,
without the prior written consent of the Company or such underwriters, as the
case may be.
SECTION 7. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
7.1 Method of Exercise. Any option granted under the Plan may be
exercised by the optionee by delivering to the Company on any business day a
written notice specifying the number of shares of Common Stock the optionee then
desires to purchase and specifying the address to which the certificates for
such shares are to be mailed (the "Notice"), accompanied by payment for such
shares.
7.2 Payment of Purchase Price. Payment for the shares of Common Stock
purchased pursuant to the exercise of an option shall be made either by (i) cash
or check equal to the option price for the number of shares specified in the
Notice, or (ii) with the consent of the Committee, other shares of Common Stock
which (a) either have been owned by the optionee for more than six (6) months on
the date of surrender or were not acquired, directly or indirectly, from the
Company, and (b) have a fair market value on the date of surrender not greater
than the aggregate option price of the shares as to which such option shall be
exercised, (iii) with the consent of the Committee, delivery of such
documentation as the Committee and the broker, if applicable, shall require to
effect an exercise of the option and delivery to the Company of the sale or loan
proceeds required to pay the option price, (iv) with the consent of the
Committee, such other consideration which is acceptable to the Committee and
which has a fair market value equal to the option price of such shares, or (v)
with the consent of the Committee, a combination of (i), (ii), (iii), (iv)
and/or (v). For the purpose of the preceding sentence, the fair market value per
share of Common Stock so delivered to the Company shall be determined in the
manner specified in Section 6.3. As promptly as practicable after receipt of the
Notice and accompanying payment, the Company shall deliver to the optionee
certificates for the number of shares with respect to which such option has been
so exercised, issued in the optionee's name; provided, however, that such
delivery shall be deemed effected for all purposes when the Company or a stock
transfer agent of the Company shall have deposited such certificates in the
United States mail, addressed to the optionee, at the address specified in the
Notice.
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SECTION 8. CHANGES IN COMPANY'S CAPITAL STRUCTURE
8.1 Rights of Company. The existence of outstanding options shall not
affect in any way the right or power of the Company or its stockholders to make
or authorize, without limitation, any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of Common
Stock, or any issue of bonds, debentures, preferred or prior preference stock or
other capital stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
8.2 Recapitalizations, Stock Splits and Dividends. If the Company shall
effect a subdivision or consolidation of shares or other capital readjustment,
the payment of a stock dividend, or other increase or reduction of the number of
shares of the Common Stock outstanding, in any such case without receiving
compensation therefor in money, services or property, then (i) the number,
class, and price per share of shares of stock subject to outstanding options
hereunder shall be appropriately adjusted in such a manner as to entitle an
optionee to receive upon exercise of an option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received as a result of the event requiring the adjustment had he exercised his
option in full immediately prior to such event; (ii) the number and class of
shares with respect to which options may be granted under the Plan; and (iii)
the number and class of shares set forth in Sections 3.3 and 4.4 shall be
adjusted by substituting for the total number of shares of Common Stock then
reserved for issuance under the Plan that number and class of shares of stock
that the owner of an equal number of outstanding shares of Common Stock
immediately prior to the event requiring adjustment would own as the result of
such event.
8.3 Merger without Change of Control. After a merger of one or more
corporations with or into the Company or after a consolidation of the Company
and one or more corporations in which the stockholders of the Company
immediately prior to such merger or consolidation own after such merger or
consolidation shares representing at least fifty percent (50%) of the voting
power of the Company or the surviving or resulting corporation, as the case may
be, each holder of an outstanding option shall, at no additional cost, be
entitled upon exercise of such option to receive in lieu of the shares of Common
Stock as to which such option was exercisable immediately prior to such event,
the number and class of shares of stock or other securities, cash or property
(including, without limitation, shares of stock or other securities of another
corporation or Common Stock) to which such holder would have been entitled
pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, such holder had been the
holder of record of a number of shares of Common Stock equal to the number of
shares for which such option shall be so exercised.
8.4 Change of Control.
(a) Upon the occurrence of a Change of Control (as defined below) the time
for exercise of each unvested installment of any then outstanding option shall
be accelerated, such that:
(i) immediately upon such Change of Control, twenty-five percent (25%)
of any such unvested installment shall be exercisable;
(ii) on the date that is nine months after such Change in Control, one
third (33'%) of any installment of such option that has not yet vested in
accordance with its original terms or by virtue of this Section 8.4 shall
become exercisable;
(iii) on the date that is eighteen months after such Change in
Control, fifty percent (50%) of any installment of such option that has not
yet vested in accordance with its original terms or by virtue of this
Section 8.4 shall become exercisable; and
(iv) on the second anniversary of such Change in Control, any
remaining installment of such option that has not yet vested in accordance
with its original terms or by virtue of this Section 8.4 shall become
exercisable.
The foregoing clauses (i) through (iv) are intended to provide for vesting
that is additive to, and not in lieu of, the vesting schedule originally
provided in any option outstanding at the time of a Change in Control,
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and, except to the extent accelerated by such clauses, each such option shall
continue to vest in accordance with its original terms.
(b) If the Company is merged with or into or consolidated with another
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation; or
if the Company is liquidated, or sells or otherwise disposes of substantially
all of its assets to another corporation while unexercised options remain
outstanding under the Plan, then either in such event:
(i) subject to the provisions of clause (iii) below, after the
effective date of such merger, consolidation, liquidation, sale or
disposition, as the case may be, each holder of an outstanding option shall
be entitled, upon exercise of such option, to receive, in lieu of the
shares of Common Stock as to which such option was exercisable immediately
prior to such event, the number and class of shares of stock or other
securities, cash or property (including, without limitation, shares of
stock or other securities of another corporation or common stock) to which
such holder would have been entitled pursuant to the terms of the merger,
consolidation, liquidation, sale or disposition if, immediately prior to
such event, such holder had been the holder of a number of shares of Common
Stock equal to the number of shares as to which such option shall be so
exercised;
(ii) the Committee may accelerate the time for exercise of some or all
unexercised and unexpired options so that from and after a date prior to
the effective date of such merger, consolidation, liquidation, sale or
disposition, as the case may be, specified by the Committee such
accelerated options shall be exercisable in full; or
(iii) all outstanding options may be cancelled by the Committee as of
the effective date of any such merger, consolidation, liquidation, sale or
disposition provided that (x) notice of such cancellation shall be given to
each holder of an option and (y) each holder of an option shall have the
right to exercise such option to the extent that the same is then
exercisable or, if the Committee shall have accelerated the time for
exercise of all unexercised and unexpired options, in full during the
10-day period preceding the effective date of such merger, consolidation,
liquidation, sale or disposition.
(c) If, within two years following a Change in Control, the employment of
any optionee who immediately prior to such Change in Control was employed by the
Company in a capacity designated by the Board of Directors of the Company as
that of an "executive officer" within the meaning of Rule 16a-1(f) promulgated
under the 1934 Act (each such optionee being hereafter referred to as a
"Designated Executive") shall be terminated by the Company other than for cause,
or shall be terminated by the Designated Executive for good reason, then in such
event all unvested, unexercised and unexpired options held by such Designated
Executive at the date of such termination shall thereupon immediately become
exercisable in full. For purposes of this paragraph, "good reason" for
termination by a Designated Executive of his employment shall be deemed to have
existed only if (i) within two years after a Change in Control, the Company, or
any successor entity then employing the Designated Executive, shall materially
diminish the responsibilities and authority of the Designated Executive or,
shall materially reduce the rate of compensation of the Designated Executive
(including by way of a change in the method of determining the eligibility of
such Designated Executive to earn bonus or incentive compensation), in either
case as compared with his responsibilities and authority or rate of
compensation, as the case may be, in effect immediately prior to such Change in
Control, and (ii) within thirty (30) days following such diminution or reduction
the Designated Executive shall resign from his employment by the Company or such
successor entity.
(d) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the 1934 Act) becomes a "beneficial owner" (as such term is defined in
Rule 13d-3 promulgated under the 1934 Act) (other than the Company, any
trustee or other fiduciary holding securities under an employee benefit
plan of the Company, or any corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), directly or indirectly, of
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securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities; or
(ii) persons who, as of March 1, 1997, constituted the Company's Board
(the "Incumbent Board") cease for any reason, including, without
limitation, as a result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of the Board, provided that
any person becoming a director of the Company subsequent to March 1, 1997
whose election was approved by, or who was nominated with the approval of,
at least a majority of the directors then comprising the Incumbent Board
shall, for purposes of this Plan, be considered a member of the Incumbent
Board; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or other entity,
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
(e) Notwithstanding anything in the Plan to the contrary, upon the
occurrence of a Change of Control (as defined), each then outstanding option
held by an Outside Director of the Company shall become immediately vested and
exercisable.
8.5 Adjustments to Common Stock Subject to Options. Except as
hereinbefore expressly provided, the issue by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, for cash
or property, or for labor or services, either upon direct sale or upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock then subject to
outstanding options.
8.6 Miscellaneous. Adjustments under this Section 8 shall be determined
by the Committee, and such determinations shall be conclusive. No fractional
shares of Common Stock shall be issued under the Plan on account of any
adjustment specified above.
SECTION 9. GENERAL RESTRICTIONS
9.1 Investment Representations. The Company may require any person to
whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option for
his own account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws.
9.2 Compliance with Securities Laws. The Company shall not be required to
sell or issue any shares under any option if the issuance of such shares shall
constitute a violation by the optionee or by the Company of any provision of any
law or regulation of any governmental authority. In addition, in connection with
the Securities Act of 1933, as now in effect or hereafter amended (the "Act"),
upon exercise of any option, the Company shall not be required to issue such
shares unless the Committee has received evidence satisfactory to it to the
effect that the holder of such option will not transfer such shares except
pursuant to a registration statement in effect under such Act or unless an
opinion of counsel satisfactory to the Company has been received by the Company
to the effect that such registration is not required. Any determination in this
connection by the Committee shall be final, binding and conclusive. In the event
the shares issuable on exercise of an option are not registered under the Act,
the Company may imprint upon any certificate
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representing shares so issued the following legend or any other legend which
counsel for the Company considers necessary or advisable to comply with the Act
and with applicable state securities laws:
The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws of
any State and may not be pledged, hypothecated, sold or otherwise
transferred except upon such registration or upon receipt by the
Corporation of an opinion of counsel satisfactory to the Corporation, in
form and substance satisfactory to the Corporation, that registration is
not required for such sale or transfer.
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Act; and in the event any shares are
so registered the Company may remove any legend on certificates representing
such shares. The Company shall not be obligated to take any other affirmative
action in order to cause the exercise of an option or the issuance of shares
pursuant thereto to comply with any law or regulation of any governmental
authority.
9.3 Employment Obligation. The granting of any option shall not impose
upon the Company (or any parent or subsidiary of the Company) any obligation to
employ or continue to employ any optionee; and the right of the Company (or any
such parent or subsidiary) to terminate the employment of any officer or other
employee shall not be diminished or affected by reason of the fact that an
option has been granted to him/her.
9.4 Withholding Tax. Whenever under the Plan shares of Common Stock are
to be delivered upon exercise of an option, the Company shall be entitled to
require as a condition of delivery that the optionee remit an amount sufficient
to satisfy all federal, state and other governmental withholding tax
requirements related thereto.
SECTION 10. AMENDMENT OR TERMINATION OF THE PLAN
The Board of Directors may modify, revise or terminate this Plan at any
time and from time to time, except that (i) the class of persons eligible to
receive options and the aggregate number of shares issuable pursuant to this
Plan shall not be changed or increased, other than by operation of Section 8
hereof, without the consent of the stockholders of the Company and (ii) the
provisions of Section 4.4 shall not be amended more than once every six (6)
months, other than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974, or the rules thereunder.
SECTION 11. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options otherwise than under the Plan,
and such arrangements may be either applicable generally or only in specific
cases.
SECTION 12. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective upon its adoption by the Board of
Directors. No option may be granted under the Plan after the tenth anniversary
of the effective date. The Plan shall terminate (i) when the total amount of
Common Stock with respect to which options may be granted shall have been issued
upon the exercise of options or (ii) by action of the Board of Directors
pursuant to Section 10 hereof, whichever shall first occur.
SECTION 13. TERMINATION OF THE PLAN
The Plan shall terminate upon the approval by the Company's shareholders of
the Company's 1999 Equity Incentive Plan (the "1999 Plan"). Upon such
termination date:
(a) No further options shall be granted under the Plan.
(b) All options under the Plan outstanding on the date of termination
shall continue to be governed by the terms and conditions of the Plan,
including provisions added by amendments to the Plan approved by the
Company's stockholders at the Company's 1999 Annual Meeting of Stockholders
or special meeting in lieu thereof.
B-9
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1286-PS-99
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF PROJECT SOFTWARE & DEVELOPMENT, INC. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR PROPOSAL 1 (ELECTION OF CLASS III DIRECTORS).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2 (APPROVAL OF
1999 EQUITY INCENTIVE PLAN). THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
PROPOSAL 3 (APPROVAL OF AMENDMENTS TO 1994 INCENTIVE AND NONQUALIFIED STOCK
OPTION PLAN). THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 4
(RATIFICATION OF AUDITORS).
PROJECT SOFTWARE & DEVELOPMENT, INC.
PROXY FOR SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 24, 1999
The undersigned stockholder of Project Software & Development, Inc. (the
"Company"), revoking all prior proxies, hereby appoints Norman E. Drapeau, Jr.
and Paul D. Birch, and each of them acting singly, proxies, with full power of
substitution, to vote all shares of capital stock of the Company which the
undersigned is entitled to vote at the Special Meeting in Lieu of Annual
Meeting of Stockholders to be held at the offices of the Company, 100 Crosby
Drive, Bedford, Massachusetts, on Wednesday, March 24, 1999, beginning at 10:00
A.M., local time, and at any adjournments thereof, upon matters set forth in
the Notice of Annual Meeting dated March 5, 1998 and the related Proxy
Statement, copies of which have been received by the undersigned, and in their
discretion upon any business that may properly come before the meeting or any
adjournments thereof. Attendance of the undersigned at the meeting or any
adjourned session thereof will not be deemed to revoke this proxy unless the
undersigned shall affirmatively indicate the intention of the undersigned to
vote the shares represented hereby in person prior to the exercise of this
proxy.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
<PAGE> 54
<TABLE>
<S> <C>
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
The shares represented by this proxy will be voted as directed. If no direction is given with respect to Proposal 1 below (Election
of Class III Directors), the shares represented by this proxy will be voted for Mr. Drapeau and Mr. Fishman. If Mr. Drapeau or Mr.
Fishman is unable or declines to serve as a Director at the time of the Annual Meeting, the shares represented by this proxy will be
voted FOR such other nominees as is then designated by the Board of Directors. If no direction is given with respect to Proposal 2
below (Approval of 1999 Equity Incentive Plan), the shares represented by this proxy will be voted FOR the Proposal. If no direction
is given with respect to Proposal 3 below (Approval of Amendments to 1994 Incentive and Nonqualified Stock Option Plan), the shares
represented by this proxy will be voted FOR the Proposal. If no direction is given with respect to Proposal 4 below (Ratification of
Auditors), the shares represented by this proxy will be voted FOR the Proposal.
FOR AGAINST ABSTAIN
1. To elect Norman E. Drapeau, Jr. and Richard P. Fishman as 2. To approve the Company's 1999 [ ] [ ] [ ]
Class III Directors of the Company for a term of three years. Equity Incentive Plan.
FOR WITHHELD 3. To approve the amendments to the [ ] [ ] [ ]
[ ] [ ] Company's 1994 Incentive and Non-
qualified Stock Option Plan.
4. To approve the proposal to ratify the [ ] [ ] [ ]
[ ] _______________________________________ selection of PricewaterhouseCoopers
For all nominees except as note above LLP as the Company's independent
accountants.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
Please promptly date and sign this proxy and mail it in the
enclosed envelope to assure representation of your shares. No
postage need be affixed if mailed in the United States.
Please sign exactly as names(s) appear(s) on stock
certificate. If stockholder is a corporation, please sign
full corporate name by president or other authorized officer
and, if a partnership, please sign full partnership name by
an authorized partner or other person.
Signature: ___________________________ Date: ____________________ Signature: ___________________________ Date: ____________________
</TABLE>
