<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
LOGIC WORKS, INC.
University Square at Princeton
111 Campus Drive
Princeton, NJ 08540
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 1997
The Annual Meeting of Stockholders (the "Annual Meeting") of Logic Works,
Inc. (the "Company") will be held at The Princeton Marriott Forrestal Village,
201 Village Boulevard, Princeton, NJ 08540 on May 7, 1997 at 9:00 A.M. (eastern
daylight time) for the following purposes:
(1) To elect two Class II Directors to serve until the third Annual
Meeting of Stockholders following their election or until their respective
successors shall have been duly elected and qualified;
(2) To ratify the selection of Ernst & Young LLP, independent public
accountants, as auditors of the Company for the year ending December 31,
1997; and
(3) To approve an amendment to the 1995 Stock Option/Stock Issuance Plan
to effect an increase to the number of shares of Common Stock of the Company
available for issuance by one million shares, and to make such other changes
as described within.; and
(4) To transact such other business as may properly come before the
Annual Meeting.
Only stockholders of record at the close of business on March 21, 1997 will
be entitled to notice of, and to vote at, the Annual Meeting. A list of
stockholders eligible to vote at the meeting will be available for inspection at
the meeting and for a period of ten days prior to the meeting during regular
business hours at the corporate headquarters at the address above.
Whether or not you expect to attend the Annual Meeting, your proxy vote is
important. To assure your representation at the meeting, please sign and date
the enclosed proxy card and return it promptly in the enclosed envelope, which
requires no additional postage if mailed in the United States or Canada.
By Order of the Board of Directors
Benjamin C. Cohen
Chief Executive Officer and President
April 10, 1997
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD
BE COMPLETED AND RETURNED PROMPTLY
<PAGE>
LOGIC WORKS, INC.
PROXY STATEMENT
APRIL 10, 1997
This Proxy Statement is furnished to stockholders of record of Logic Works,
Inc. (the "Company") as of March 21, 1997 in connection with the solicitation of
proxies by the Board of Directors of the Company (the "Board of Directors" or
"Board") for use at the Annual Meeting of Stockholders to be held on May 7, 1997
(the "Annual Meeting").
Shares cannot be voted at the meeting unless the owner is present in person
or by proxy. All properly executed and unrevoked proxies in the accompanying
form that are received in time for the meeting will be voted at the meeting or
any adjournment thereof in accordance with instructions thereon, or if no
instructions are given, will be voted, (i) "FOR" the election of the named
nominees as Directors of the Company, (ii) "FOR" the ratification of Ernst &
Young LLP, independent public accountants, as auditors of the Company, and,
(iii) "FOR" the approval of the amendment to the 1995 Stock Option/Stock
Issuance Plan (the "1995 Plan") and will be voted in accordance with the best
judgment of the persons appointed as proxies with respect to other matters which
properly come before the Annual Meeting. Any person giving a proxy may revoke it
by written notice to the Company at any time prior to exercise of the proxy. In
addition, although mere attendance at the Annual Meeting will not revoke the
proxy, a stockholder who attends the meeting may withdraw his or her proxy and
vote in person. Abstentions and broker non-votes will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business
at the Annual Meeting. Abstentions will be counted in tabulations of the votes
cast on each of the proposals presented at the Annual Meeting, whereas broker
non-votes will not be counted for purposes of determining whether a proposal has
been approved.
The Annual Report of the Company (which does not form a part of the proxy
solicitation materials), with the financial statements of the Company for the
fiscal year ended December 31, 1996, is being distributed concurrently herewith
to stockholders.
The mailing address of the principal executive offices of the Company is
University Square at Princeton, 111 Campus Drive, Princeton, NJ 08540. This
Proxy Statement and the accompanying form of proxy are being mailed to the
stockholders of the Company on or about April 10, 1997.
VOTING SECURITIES
The Company has two classes of voting securities, its Common Stock, $0.01
par value, and its Preferred Stock, $0.01 par value. Each holder of Common Stock
is entitled to one vote for each share held. The Company is authorized to issue
2,000,000 shares of Preferred Stock with such voting rights as may be determined
by the Board of Directors providing for such series. To date, the Company has
not issued nor does it have current plans to issue any shares of Preferred
Stock. At the Annual Meeting, each stockholder of record at the close of
business on March 21, 1997 will be entitled to one vote for each share of Common
Stock owned on that date as to each matter presented at the Annual Meeting. At
March 21, 1997, there were 11,940,536 shares of Common Stock outstanding and
held by 3,274 stockholders of record. A list of stockholders eligible to vote at
the Annual Meeting will be available for inspection at the Annual Meeting and
for a period of ten days prior to the Annual Meeting during regular business
hours at the principal executive offices of the Company at the address specified
above.
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PROPOSAL 1
ELECTION OF DIRECTORS
Unless otherwise directed, the persons appointed in the accompanying form of
proxy intend to vote at the Annual Meeting for the election of the two nominees
named below as Class II Directors of the Company to serve until the third Annual
Meeting following their election or until their successors are duly elected and
qualified. If any nominee is unable to be a candidate when the election takes
place, the shares represented by valid proxies will be voted in favor of the
remaining nominee. The Board of Directors does not currently anticipate that any
nominee will be unable to be a candidate for election.
In accordance with the terms of the Company's Certificate of Incorporation,
the Board of Directors has been divided into three classes, denominated Class I,
Class II and Class III, with members of each Class holding office for staggered
three-year terms. At each annual stockholder meeting commencing with the 1996
Annual Meeting, the successors to the Directors whose terms expire are elected
to serve from the time of their election and qualification until the third
Annual Meeting of stockholders following their election and until a successor
has been duly elected and qualified. The affirmative vote of a plurality of the
shares present in person or represented by proxy and voting at the Annual
Meeting is required to elect the Directors.
The Board of Directors currently has five members, two of whose terms expire
at the 1997 Annual Meeting and are nominees for re-election. Messrs. Charles
Federman and Paul E. Blondin are Class II Directors whose terms expire at the
1997 Annual Meeting. Dr. Benjamin C. Cohen and Mr. Robert E. Davoli are Class I
Directors whose terms expire at the 1999 Annual Meeting, and Mr. Richard A.
Hosley II is a Class III Director whose term expires at the 1998 Annual Meeting
(in all cases subject to the election and qualification of their successors or
to their earlier death, resignation or removal). Mr. Steven C. Walske, a Class
II Director, resigned as a Director effective April 8, 1996. Paul E. Blondin was
elected a Class II Director by the remaining members of the Board of Directors
as Mr. Walske's successor on September 16, 1996.
INFORMATION REGARDING THE NOMINEES FOR ELECTION AT 1997 ANNUAL MEETING (CLASS II
DIRECTORS)
The following information with respect to the principal occupation or
employment, other affiliations and business experience during the last five
years of the nominees have been furnished to the Company by such nominees.
Except as indicated, the nominees have had the same principal occupation for the
last five years.
MR. CHARLES FEDERMAN, 41, has been a Director of the Company since May 1995.
Mr. Federman has held a number of positions with Broadview Associates, L.P.
("Broadview"), an investment bank providing merger and acquisition advice in the
information technology industry, since October 1983, including, most recently,
Chairman of the Executive Committee. Broadview is an affiliate of Geocapital II,
L.P. and Geocapital III, L.P., which are stockholders of the Company. Prior to
joining Broadview, Mr. Federman co-founded Bird & Company, an information
technology mergers and acquisitions firm. Mr. Federman serves as a Director of
Phoenix Technologies, Ltd., a systems and applications software company, and
MATHSOFT, Inc., an applications software company.
MR. PAUL E. BLONDIN, 46, has been a Director of the Company since September
1996. Since March 1993, Mr. Blondin, has been Vice President, Finance and
Administration, Treasurer and Chief Financial Officer at Cascade Communications,
a company at the forefront of broadband data communications with its family of
scaleable, carrier-class ATM, Frame Relay, and Remote Access switching products.
From January 1991 to March 1993, Mr. Blondin served as Vice President and
Controller at Proteon, Inc., a leading worldwide manufacturer of internetworking
and LAN products.
THE BOARD RECOMMENDS THE ELECTION OF CHARLES FEDERMAN AND PAUL E. BLONDIN.
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INFORMATION REGARDING DIRECTORS WHO ARE NOT NOMINEES FOR ELECTION AT 1997 ANNUAL
MEETING
The following information with respect to the principal occupation or
employment, other affiliations and business experience during the last five
years of each Director who is not a nominee for election at the 1997 Annual
Meeting has been furnished to the Company by such Director. Except as indicated
each of these Directors has had the same principal occupation for the last five
years.
CLASS I DIRECTORS (TERM EXPIRES AT 1999 ANNUAL MEETING)
DR. BENJAMIN C. COHEN, 45, has been President, Chief Executive Officer and
Chairman of the Board of Directors of Logic Works since he founded the Company
in 1985. Dr. Cohen is responsible for the Company's overall management along
with its sales, marketing and product development strategies. Prior to founding
Logic Works, Dr. Cohen worked at Xerox PARC programming in Smalltalk and
researching object-oriented knowledge representation schemes and conducted
research on natural language and advanced databases at The David Sarnoff
Research Center. Dr. Cohen received his Ph.D. from Stanford University.
MR. ROBERT E. DAVOLI, 48, has been a Director of the Company since October
1994. Mr. Davoli has been a general partner of Sigma Partners ("Sigma"), a
venture capital firm, since January 1996 and, from November 1994 until January
1996, acted as an advisor to Sigma. Mr. Davoli was President and Chief Executive
Officer of Epoch Systems, Inc., a client/server storage management provider,
from February 1993 to September 1994. From May 1986 through June 1992, Mr.
Davoli was the President and Chief Executive Officer of SQL Solutions, a
relational database management systems consulting and tools company that he
founded and sold to Sybase, Inc. in January 1990. Mr. Davoli serves as a
Director of Dazel Corporation, Internet Securities Systems, Cerulean Technology,
Vignette Corporation and Context Integration.
CLASS III DIRECTOR (TERM EXPIRES AT 1998 ANNUAL MEETING)
MR. RICHARD A. HOSLEY II, 52, has been a director of the Company since
August 1995. Mr. Hosley has been a private investor since October 1990. From
June 1980 to October 1990, Mr. Hosley served in various executive positions,
including President and Chief Executive Officer and Vice Chairman of BMC
Software, Inc., a mainframe systems software company. Mr. Hosley serves as a
Director of Peregrine Systems, Inc. a helpdesk software company, Axent
Technologies, a network security software company, and Silvon Software, Inc., a
systems software company for AS/400 and UNIX based computers.
COMMITTEES OF THE BOARD
The Audit Committee of the Board of Directors (the "Audit Committee"),
established in June 1995, consists of Messrs. Robert E. Davoli and Charles
Federman, reviews, acts on and reports to the Board of Directors with respect to
various auditing and accounting matters, including the selection of the
Company's auditors, the scope of the annual audits, fees to be paid to the
auditors, the performance of the Company's independent auditors and the
accounting practices of the Company.
The Compensation Committee of the Board of Directors (the "Compensation
Committee"), established in June 1995, consists of Messrs. Robert E. Davoli and
Charles Federman and determines the salaries and incentive compensation of the
officers of the Company and provides recommendations for the salaries and
incentive compensation of the other employees and the consultants of the
Company. The Compensation Committee also administers various incentive
compensation, stock option and benefit plans.
3
<PAGE>
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During 1996, the Board of Directors held five meetings and each Director
attended all meetings of the Board of Directors. The Compensation Committee and
the Audit Committee each held two meetings during 1996 and each member attended
all meetings of such Committees.
COMPLIANCE WITH REPORTING REQUIREMENTS
Under the securities laws of the United States, the Company's Directors,
executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their ownership of the Company's
Common Stock and any changes in that ownership to the Securities and Exchange
Commission and the Nasdaq National Market Surveillance Department. Specific due
dates for these reports have been established and the Company is required to
report in this Proxy Statement any failure to file by these dates during 1996.
Based solely on its review of such forms received by it from such persons for
their fiscal year 1996 transactions, the Company believes that all filing
requirements applicable to such officers, Directors and greater than ten percent
beneficial owners were complied with except that Messrs. Gregory A. Peters and
John P. Bantleman did not timely file their Form 3 Initial Statement of
Beneficial Ownership of Securities and Messrs. Robert E. Davoli, Charles
Federman and Seamus Hatch each did not timely file one Form 4 Statement of
Changes of Beneficial Ownership of Securities.
COMPENSATION OF DIRECTORS
CASH COMPENSATION. Directors do not receive a fee for attending Board of
Directors or committee meetings, but are reimbursed for expenses incurred in
connection with performing their respective duties.
STOCK OPTION GRANT. Under the Automatic Option Grant Program of the 1995
Plan, each non-employee director first elected or appointed to the Board of
Directors after the initial public offering (the "Initial Public Offering") of
the Company's Common Stock will automatically be granted an option for 25,000
shares of Common Stock on the date of his or her election or appointment to the
Board of Directors, provided such individual has not been in the prior employ of
the Company. In addition, at each Annual Meeting of stockholders, each
individual with at least six months of Board service who is to continue to serve
as a non-employee director following the meeting will automatically be granted
an option for 2,500 shares of Common Stock, even if such individual has been in
the prior employ of the Company or joined the Board of Directors prior to the
Initial Public Offering.
Each automatic grant will have a term of 10 years, subject to earlier
termination following the optionee's cessation of service on the Board of
Directors. Each automatic option will be immediately exercisable; however, any
shares purchased upon exercise of the option will be subject to repurchase
should the optionee's service as a non-employee director cease prior to vesting
of the shares. The initial 25,000 share grant will vest in successive equal
annual installments over the optionee's initial four-year period of Board
service. Each additional 2,500 share grant will vest upon the optionee's
completion of one year of service on the Board of Directors, as measured from
the grant date. However, each outstanding option will immediately vest upon (i)
certain changes in the ownership or control of the Company or (ii) the death or
permanent disability of the optionee while serving on the Board of Directors. In
accordance with the 1995 plan, each of Messrs. Blondin, Davoli, Federman, and
Hosley, if continuing to serve as non-employee director following the Annual
Meeting, will receive options to purchase 2,500 shares of Common Stock with an
exercise price equal to the fair market value of the Company's Common Stock on
May 7, 1997.
In May 1996, the Company granted to each of Messrs. Davoli, Federman and
Hosley an option to purchase 2,500 shares of Common Stock at $13.50 per share in
accordance with the Automatic Option Grant Program of the Company's 1995 Stock
Option/Stock Issuance Plan.
4
<PAGE>
In October 1996, the Company granted to Mr. Blondin an option to purchase
45,000 shares of Common Stock at $6.00 per share. The option vests in four equal
annual installments commencing on the first anniversary of the date of grant and
expires ten years from the date of grant.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS
The executive officers as of January 1, 1997 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Benjamin C. Cohen.................................... 45 Chief Executive Officer, President and Chairman of
the Board of Directors
John P. Bantleman.................................... 37 Executive Vice President, Marketing
Gregory A. Peters.................................... 37 Executive Vice President and Chief Financial Officer
Daniel Shiffman...................................... 42 Executive Vice President, Product Development
Frank T. Watts....................................... 51 Executive Vice President, Worldwide Sales
</TABLE>
INFORMATION CONCERNING EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
JOHN P. BANTLEMAN has been Executive Vice President, Marketing since
November 1996. Mr. Bantleman joins Logic Works after 12 years with Learmonth and
Burchett Management Systems, Inc. ("LBMS"). He was President and Chief Executive
Officer, from November 1994 to July 1996. Prior to becoming President and CEO,
he was Chief Operating Officer, from July 1994 to November 1994. From April 1988
to July 1994 he was President of LBMS Inc. (US) and earlier held other
management positions at the company. Previously, Bantleman worked at ICL in
London, England as an analyst/methodologist in a technical capacity on
development projects. Mr. Bantleman holds a computer science degree from City
University, London, England.
GREGORY A. PETERS has been Chief Financial Officer and Executive Vice
President, Finance and Operations since August 1996. From April 1994 to August
1996, he was Chief Financial Officer, Treasurer and Senior Vice President at
Micrografx, Inc. Prior to becoming Chief Financial Officer, he was Controller
and Treasurer, from June 1992 to March 1994. From 1990 to 1992, he held various
financial positions at DSC Communications Corporation. Mr. Peters is a CPA and
achieved a B.A. degree from Rhodes College.
DANIEL SHIFFMAN has been Executive Vice President, Product Development since
May 1995. Prior to joining Logic Works, Mr. Shiffman served as Director of
Engineering at Sybase, Inc., from August 1993 to April 1995, where he ran both
the engineering group in the business information tools business unit and, more
recently, the West Coast engineering group for the former Powersoft
Corporation's new technology group. From 1989 to August 1993, Mr. Shiffman was
the co-founder and Engineering Manager at Cooperative Solutions, Inc., where he
developed an application development environment for mission critical
client/server applications.
FRANK T. WATTS has been Executive Vice President, Worldwide Sales since
October 1996. Prior to joining Logic Works, Mr. Watts ran a consulting business
from 1985 to October 1996, playing a key role in increasing sales and
profitability in a number of high-tech companies including Sun Microsystems,
Inc., Printronix, Inc., Honeywell, Inc., Digital Equipment Corporation and
Microage, Inc. Mr. Watts has also held previous senior management positions at
MAI Basic Four, SHL Systemhouse and Wang Laboratories, Inc.
5
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation paid by
the Company during fiscal years 1995 and 1996 to the Company's Chief Executive
Officer and all of the other executive officers who received compensation in
excess of $100,000 during 1996 (together, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (1) -------------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ----------------------------------- --------- ---------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Benjamin C. Cohen.................. 1996 $ 229,000 -- -- -- --
Chief Executive Officer and 1995 170,000 $ 180,638 -- -- $ 3,435(2)
President
Frank C. Cicio, Jr................. 1996 83,333(3) 156,037 -- -- --
Executive Vice President, Sales 1995 100,000 238,616 $ 8,550(4) 10,000 --
and Marketing
Daniel Shiffman.................... 1996 125,000 42,500 -- -- --
Executive Vice President, 1995 83,333(5) 25,000 -- 125,000 --
Research and Development
</TABLE>
- ------------------------
(1) Other compensation in the form of perquisites and other personal benefits
have been omitted as the aggregate amount of such perquisites and other
personal benefits constituted the lesser of $50,000 or 10% of the total
annual salary and bonus of the Named Executive Officer (NEO) for such year.
For information regarding option grants and exercises see "Option Grants in
Last Fiscal Year" and "Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values."
(2) Represents premiums paid for a whole life insurance policy.
(3) Represents Frank Cicio's salary through his last date of employment,
November 15, 1996.
(4) Other Annual Compensation includes $8,550 as a housing allowance.
(5) Represents Daniel Shiffman's salary from his first date of employment, May
1, 1995 to December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
There were no stock options or stock appreciation rights granted during 1996
to any Named Executive Officers.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information with respect to the Named
Executive Officers regarding stock option holdings as of December 31, 1996. No
stock appreciation rights were exercised by any Named Executive Officer during
fiscal year 1996 and no stock appreciation rights were outstanding as of
December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF NET VALUES OF UNEXERCISED
SHARES ACQUIRED VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS(1)
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ --------------- ---------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Benjamin C. Cohen................... -- -- -- -- -- --
Frank C. Cicio, Jr.................. 50,000 $ 493,436 337,736 -- $ 1,958,869 --
Daniel Shiffman..................... 5,000 36,375 50,500 62,500 121,200 150,000
</TABLE>
- ------------------------
(1) Amounts calculated by subtracting the exercise price of the options from the
market value of the underlying Common Stock using the closing selling price
on the Nasdaq National Market of $6.00 per share of Common Stock on March
21, 1997.
EMPLOYMENT ARRANGEMENTS
In April 1997, the Company entered into an amended and restated employment
agreement, effective January 1997, for an initial two year period, which may be
extended for additional two-year periods, with Benjamin C. Cohen (the "Cohen
Agreement") whereby he is employed as President and Chief Executive Officer.
Pursuant to the Cohen Agreement, Dr. Cohen will receive base compensation of
$235,000 and a bonus at plan of $115,000 for the 1997 calendar year. Dr. Cohen's
eligibility for such bonus shall be determined in accordance with the criteria
established by the Compensation Committee which measure both the performance of
the Company and Dr. Cohen's individual performance. Seventy five percent of Dr.
Cohen's bonus shall be based upon the performance of the Company and 25% of Dr.
Cohen's bonus shall be based upon his individual performance. Dr. Cohen's base
compensation and bonus for the 1998 calendar year, and for each year of any
additional periods, shall be determined by the Compensation Committee.
The Company hired Gregory Peters pursuant to an offer letter dated July 1996
(the "Peters Letter"). Pursuant to the Peters Letter, in the event that Mr.
Peters is terminated other than for cause, Mr. Peters will be paid his previous
six months base salary as severance. Should the Company be acquired by another
company (a "Business Combination") and Mr. Peters is not offered a similar
position by that Company, then pursuant to the Peters Letter, Mr. Peters shall
be paid an additional six months severance and all vesting dates shall be
changed to commence on the date of the Business Combination.
In April 1997, the Company entered into a separation, waiver and mutual
release with Frank Cicio (the "Cicio Agreement") whereby Mr. Cicio and the
Company agreed that Mr. Cicio's separation from his position as Executive Vice
President of Sales and Marketing of the Company was effective November 15, 1996
and whereby the Company and Mr. Cicio settled any outstanding severance
obligations and any and all disputes which might exist between them. Pursuant to
the Cicio Agreement, the Company accelerated the vesting on a previously
unvested option to purchase 45,000 shares of Common Stock to November 15, 1996
at an exercise price of $0.20 per share. The option expires 90 days from August
31, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee, formed in June 1995, consists of
Messrs. Davoli and Federman and determines the salaries and incentive
compensation of the officers of the Company and provides recommendations for the
salaries and incentive compensation of the other employees and the
7
<PAGE>
consultants of the Company. The Compensation Committee also administers various
incentive compensation, stock and benefit plans. Certain members of the
Company's Board of Directors are parties to transactions with the Company. See
"Certain Transactions."
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors advises the Chief
Executive Officer and the Board of Directors on matters of the Company's
compensation philosophy and the compensation of executive officers and other
individuals compensated by the Company. The Compensation Committee also is
responsible for the administration of the Company's 1995 Plan under which option
grants and direct stock issuances may be made to executive officers. The
Compensation Committee has reviewed and is in accord with the compensation paid
to executive officers in 1996.
GENERAL COMPENSATION POLICY. The fundamental policy of the Compensation
Committee is to provide the Company's executive officers with competitive
compensation opportunities based upon their contribution to the development and
financial success of the Company and their personal performance. It is the
Compensation Committee's objective to have a portion of each executive officer's
compensation contingent upon the Company's performance as well as upon such
executive officer's own level of performance. Accordingly, the compensation
package for each executive officer is comprised of three elements: (i) base
salary, (ii) bonus which reflects both individual performance and the
performance of the Company which, together with base salary, is designed
primarily to be competitive with salary and bonus levels in the industry and
(iii) long-term stock-based incentive awards which strengthen the mutuality of
interests between the executive officers and the Company's stockholders.
FACTORS. The principal factors which the Compensation Committee considered
with respect to each executive officer's compensation package for fiscal year
1996 are summarized below. The Compensation Committee may, however, in its
discretion apply entirely different factors in advising the Chief Executive
Officer and the Board of Directors with respect to executive compensation for
future years.
- BASE SALARY. The suggested base salary for each executive officer is
determined on the basis of the following factors: experience, personal
performance, the salary levels in effect for comparable positions within
and without the industry and internal base salary comparability
considerations. The weight given to each of these factors differs from
individual to individual, as the Compensation Committee deems appropriate.
- BONUS. The compensation of executive officers is closely related to
Company and individual performance. A large portion of the cash
compensation of executive officers consists of contingent compensation.
Bonus awards are based on, among other things, the Company's budgeted
versus actual earnings per share, relationship between budgeted versus
actual profits, as well as specified individual performance objectives and
goals that are tailored to the responsibilities and functions of key
executives.
- LONG-TERM INCENTIVE COMPENSATION. Long-term incentives are provided
through grants of stock options. The grants are designed to align the
interests of each executive officer with those of the stockholders and
provide each individual with a significant incentive to manage the Company
from the perspective of an owner with an equity stake in the Company. Each
option generally becomes exercisable in installments over a four or five
year period, contingent upon the executive officer's continued employment
with the Company. Accordingly, the option grant will provide a return to
the executive officer only if the executive officer remains employed by
the Company during the vesting period, and then only if the market price
of the underlying shares appreciates.
The number of shares subject to each option grant is set at a level intended
to create a meaningful opportunity for stock ownership based on the executive
officer's current position with the Company, the base salary associated with
that position, the size of comparable awards made to individuals in similar
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<PAGE>
positions within the industry, the individual's potential for increased
responsibility and promotion over the option term and the individual's personal
performance in recent periods. The Compensation Committee also considers the
number of unvested options held by the executive officer in order to maintain an
appropriate level of equity incentive for that individual. However, the
Compensation Committee does not adhere to any specific guidelines as to the
relative option holdings of the Company's executive officers. There were 485,000
stock options granted to executive officers in 1996.
Through the Company's Employee Stock Purchase Plan, the Company offers
additional opportunities for equity ownership to executive officers and other
employees
CEO COMPENSATION. In advising the Board of Directors with respect to the
compensation payable to the Company's Chief Executive Officer, the Compensation
Committee seeks to achieve two objectives: (i) establish a level of base salary
competitive with that paid by companies within the industry which are of
comparable size to the Company and by companies outside of the industry with
which the Company competes for executive talent and (ii) make a significant
percentage of the total compensation package contingent upon the Company's
performance and stock price appreciation.
The base salary established for Dr. Cohen on the basis of the foregoing
criteria was intended to provide a level of stability and certainty each year.
Accordingly, this element of compensation was not affected to any significant
degree by Company performance factors.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). As a result of
Section 162(m) of the Internal Revenue Code of 1986, as amended, which was
enacted into law in 1993, the Company will not be allowed a federal income tax
deduction for compensation paid to certain executive officers, to the extent
that compensation exceeds $1 million per officer in any one year. This
limitation will apply to all compensation paid to the covered executive officers
which is not considered to be performance based. Compensation which does qualify
as performance-based compensation will not have to be taken into account for
purposes of this limitation. The 1995 Plan contains certain provisions which are
intended to assure that any compensation deemed paid in connection with the
exercise of stock options granted under that plan with an exercise price equal
to the market price of the option shares on the grant date will qualify as
performance-based compensation.
The Compensation Committee does not expect that the compensation to be paid
to the Company's executive officers for 1997 will exceed the $1 million limit
per officer.
THE COMPENSATION COMMITTEE
MR. ROBERT E. DAVOLI
MR. CHARLES FEDERMAN
9
<PAGE>
PROPOSAL 2
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors
appointed Ernst & Young LLP, independent public accountants and auditors of the
Company since 1993, as auditors of the Company to serve for the year ending
December 31, 1997, subject to the ratification of such appointment by the
stockholders at the Annual Meeting. A majority of the votes of the outstanding
shares of Common Stock is required to ratify the appointment of the auditors.
Abstentions will be counted as an "against" vote and broker non-votes will be
disregarded and will have no outcome on the vote. A representative of Ernst &
Young LLP will attend the Annual Meeting of Stockholders with the opportunity to
make a statement if he or she so desires and will also be available to answer
inquiries.
THE BOARD RECOMMENDS APPROVAL OF THIS PROPOSAL
PROPOSAL 3
APPROVAL OF AMENDMENT TO 1995 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's stockholders are being asked to approve an amendment to the
1995 Stock Option/ Stock Issuance Plan (the "1995 Plan") which includes the
following changes:
(i) increase the number of shares of Common Stock available for issuance
by one million shares;
(ii) eliminate the restriction that the individuals who serve as Plan
Administrator may not receive any discretionary option grants or direct
stock issuances from the Company while serving as Plan Administrator or
during the twelve month period preceding appointment as Plan Administrator;
(iii) require stockholder approval of future amendments to the 1995 Plan
only to the extent necessary to satisfy applicable laws or regulations;
(iv) eliminate both the six month holding period requirement and the ten
business day "window" period requirement for the exercise of any stock
appreciation rights granted under the 1995 Plan; and
(v) allow the shares issued under the 1995 Plan which are subsequently
reacquired by the Company pursuant to the Company's exercise of its
repurchase rights to be added back to the share reserve available for future
issuance under the 1995 Plan.
The amendment to the 1995 Plan was adopted by the Board on January 21, 1997,
subject to stockholder approval at the 1997 Annual Meeting. The Board believes
it is in the best interests of the Company to increase the share reserve so that
the Company can continue to attract and retain the services of those persons
essential to the Company's growth and financial success. The purpose of the
remaining changes to the 1995 Plan is to provide the Plan Administrator with
more flexibility as is allowed under recent changes to the regulations governing
employee option plans such as the 1995 Plan.
The following is a summary of the principal features of the 1995 Plan. The
summary, however, does not purport to be a complete description of all the
provisions of the 1995 Plan. Any stockholder of the Company who wishes to obtain
a copy of the actual plan document may do so upon written request to the
Corporate Secretary at the Company's principal executive offices in Princeton,
NJ.
EQUITY INCENTIVE PROGRAMS
The 1995 Plan contains four separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) a Stock Issuance Program, (iii) a
Salary Investment Option Grant Program and (iv) an Automatic Option Grant
Program. The principal features of these programs are described below. The 1995
10
<PAGE>
Plan (other than the Automatic Option Grant Program) is administered by the
Compensation Committee of the Board. This committee (the "Plan Administrator")
has complete discretion (subject to the provisions of the 1995 Plan) to
authorize option grants and direct stock issuances under the 1995 Plan. However,
all grants under the Automatic Option Grant Program are made in strict
compliance with the provisions of that program, and no administrative discretion
is exercised by the Plan Administrator with respect to the grants made
thereunder.
SHARE RESERVE
4,933,630 shares of Common Stock has been reserved for issuance over the ten
year term of the 1995 Plan. In no event may any one participant in the 1995 Plan
be granted stock options, separately exercisable stock appreciation rights and
direct stock issuances for more than 350,000 shares per calendar year.
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to the securities issuable (in the aggregate and to each participant) under
the 1995 Plan and to the securities and exercise price under each outstanding
option.
ELIGIBILITY
Officers and other employees of the Company and its parent or subsidiaries
(whether now existing or subsequently established), non-employee members of the
Board and the board of directors of its parent or subsidiaries and consultants
and independent advisors of the Company and its parent and subsidiaries are
eligible to participate in the Discretionary Option Grant and Stock Issuance
Programs. Employees of the Company and its parent or subsidiaries are also
eligible to participate in the Salary Investment Option Grant Program. Only
non-employee members of the Board are eligible to participate in the Automatic
Option Grant Program.
As of March 21, 1997, approximately 4 executive officers, 227 other
employees and 4 non-employee Board members were eligible to participate in the
1995 Plan, and 4 non-employee Board members were eligible to participate in the
Automatic Option Grant Program.
VALUATION
The fair market value per share of Common Stock on any relevant date under
the 1995 Plan will be the closing selling price per share on that date on the
Nasdaq National Market. On March 21, 1997, the closing selling price per share
was $6.00.
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at an
exercise price per share not less than the fair market value per share of Common
Stock on the option grant date. No granted option will have a term in excess of
ten years.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
11
<PAGE>
TANDEM STOCK APPRECIATION RIGHTS provide the holders with the right to
surrender their options for an appreciation distribution from the
Company equal in amount to the excess of (a) the fair market value of
the vested shares of Common Stock subject to the surrendered option over
(b) the aggregate exercise price payable for such shares. Such
appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash or in shares of Common Stock.
LIMITED STOCK APPRECIATION RIGHTS may be granted to officers of the
Company as part of their option grants. Any option with such a limited
stock appreciation right in effect may be surrendered to the Company
upon the successful completion of a hostile take-over of the Company. In
return for the surrendered option, the officer will be entitled to a
cash distribution from the Company in an amount per surrendered option
share equal to the excess of (a) the take-over price per share over (b)
the exercise price payable for such share.
The Plan Administrator will have the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program which have
exercise prices in excess of the then current market price of Common Stock and
to issue replacement options with an exercise price based on the market price of
Common Stock at the time of the new grant.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share not
less than the fair market value per share of Common Stock, payable in cash or
through a promissory note payable to the Company. Shares may also be issued
solely as a bonus for past services.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. The Plan Administrator will, however, have the discretionary
authority at any time to accelerate the vesting of any unvested shares.
SALARY INVESTMENT OPTION GRANT PROGRAM
The Plan Administrator has complete discretion in implementing the Salary
Investment Option Grant Program for one or more calendar years and in selecting
the executive officers and other eligible individuals who are to participate in
the program for those years. As a condition to such participation, each selected
individual must, prior to the start of the calendar year of participation, file
with the Plan Administrator an irrevocable authorization directing the Company
to reduce, by a designated multiple of one percent (1%), his or her base salary
for the upcoming calendar year. The salary reduction amount must not be less
than Five Thousand Dollars ($5,000.00), and may not be more than the LESSER of
(i) twenty percent (20%) of his or her base salary or (ii) Twenty Thousand
Dollars ($20,000.00). Each individual who files a proper salary reduction
authorization will be granted a stock option under the Salary Investment Option
Grant Program on the first trading day in January of the calendar year for which
that salary reduction is to be in effect.
Each option will be subject to substantially the same terms and conditions
applicable to option grants made under the Discretionary Option Grant Program,
except for the following differences:
-- Each option will be non-statutory option.
-- The exercise price per share will be equal to one-third of the fair
market value per share of Common Stock on the option grant date, and the
number of option shares will be determined by dividing the total dollar
amount of the authorized reduction in the participant's base salary by
two-thirds of the fair market value per share of Common Stock on the
option grant date. As a result, the total spread on the option (the fair
market value of the option shares on the grant date less the aggregate
exercise price payable for those shares) will equal the dollar amount of
the
12
<PAGE>
reduction to the optionee's base salary to be in effect for the calendar
year for which the option grant is made.
-- The option will become exercisable for the option shares in a series
of twelve (12) successive equal monthly installments upon the optionee's
completion of each calendar month of service in the calendar year for
which the salary reduction is in effect.
-- Each option will remain outstanding for vested shares until the
earlier of (i) the expiration of the ten (10)-year option term or (ii)
the expiration of the two (2)-year period measured from the date the
optionee's service terminates.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member will automatically be granted at that time an option
grant for 25,000 shares of Common Stock, provided such individual has not
previously been in the Company's employ. In addition, on the date of each Annual
Stockholders Meeting, beginning with the 1996 Annual Meeting, each individual
who is to continue to serve as a non-employee Board member after such meeting
will automatically be granted an option to purchase 2,500 shares of Common
Stock, provided such individual has served as a non-employee Board member for at
least six months. There will be no limit on the number of such 2,500 share
options which any one non-employee Board member may receive over the period of
Board service, and non-employee Board members who have previously served in the
Company's employ will be eligible for one or more 2,500 share option grants.
Each option will have an exercise price per share equal to 100% of the fair
market value per share of Common Stock on the option grant date and a maximum
term of ten years measured from the option grant date.
Each option will be immediately exercisable for all the option shares, but
any purchased shares will be subject to repurchase by the Company, at the
exercise price paid per share, upon the optionee's cessation of Board service.
Each initial option grant will vest (and the Company's repurchase rights will
lapse) in four equal annual installments over the optionee's period of Board
service, with the first such installment to vest upon the completion of one year
of Board service measured from the option grant date. Each annual option grant
will vest (and the Company's repurchase rights will lapse) upon the completion
of one year of Board service measured from the option grant date.
The shares subject to each automatic option grant will immediately vest upon
the optionee's death or permanent disability or an acquisition of the Company by
merger or asset sale or a hostile change in control of the Company (whether by
successful tender offer for more than 50% of the outstanding voting stock or by
proxy contest for the election of Board members). In addition, upon the
successful completion of a hostile take-over, each automatic option grant may be
surrendered to the Company for a cash distribution per surrendered option share
in an amount equal to the excess of (a) the take-over price per share over (b)
the exercise price payable for such share.
GENERAL PROVISIONS
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation will
automatically accelerate in full, and all unvested shares under the Stock
Issuance Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned
13
<PAGE>
to the successor corporation. Any options assumed or replaced in connection with
such acquisition will be subject to immediate acceleration, and any unvested
shares which do not vest at the time of such acquisition will be subject to full
and immediate vesting, in the event the individual's service is subsequently
terminated within 18 months following the acquisition. Each option will
automatically accelerate and all unvested shares will be subject to full and
immediate vesting in the event the individual's service is terminated within 18
months following a hostile change in control of the Company (whether by
successful tender offer for more than 50% of the outstanding voting stock or by
proxy contest for the election of Board members).
In the event that the Company is acquired or there is a hostile change in
control of the Company (whether by successful tender offer for more than 50% of
the outstanding voting stock or by proxy contest for the election of Board
members), each outstanding option under the Salary Investment Option Grant
Program will automatically accelerate in full. Each option outstanding at the
time of an acquisition of the Company will be assumed by the successor
corporation.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
FINANCIAL ASSISTANCE
The Plan Administrator may permit one or more participants to pay the
exercise price of outstanding options or the purchase price of shares under the
1995 Plan by delivering a promissory note payable in installments. The Plan
Administrator will determine the terms of any such promissory note. However, the
maximum amount of financing provided any participant may not exceed the cash
consideration payable for the issued shares plus all applicable taxes incurred
in connection with the acquisition of the shares. Any such promissory note may
be subject to forgiveness in whole or in part, at the discretion of the Plan
Administrator, over the participant's period of service.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the Plan Administrator
may allow such individuals to deliver previously acquired shares of Common Stock
in payment of such tax liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1995 Plan in any or all respects
whatsoever subject to any stockholder approval required under applicable laws
and regulations. The Board may terminate the 1995 Plan at any time, and the 1995
Plan will in all events terminate on June 30, 2005.
14
<PAGE>
STOCK AWARDS
The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table and the various indicated individuals and
groups, the number of shares of Common Stock subject to options granted between
January 1, 1996 and March 21, 1997, together with the weighted average exercise
price payable per share.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF OPTION AVERAGE
NAME SHARES EXERCISE PRICE
- -------------------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C>
Benjamin C. Cohen............................................................... -- --
Chief Executive Officer, President and
Chairman of the Board of Directors
Frank C. Cicio, Jr.............................................................. -- --
Executive Vice President, Sales and Marketing
Daniel Shiffman................................................................. -- --
Executive Vice President, Research and Development
All current executive officers as a group....................................... -- --
(4 persons)
Paul E. Blondin................................................................. 45,000 $ 6.00
Director
Robert E. Davoli................................................................ 2,500 13.50
Director
Charles Federman................................................................ 2,500 13.50
Director
Richard A. Hosley, II........................................................... 2,500 13.50
Director
All non-employee directors as a group........................................... 52,500 7.07
(4 persons)
All employees, including current officers who are not........................... 1,530,700 7.10
executive officers as a group
(219 persons)
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1995 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise disposed
of. For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. A qualifying disposition occurs if the sale
or other disposition is made after the optionee has held the shares for more
than two years after the option grant date and more than one year after the
exercise date. If either of these two holding periods is not satisfied, then a
disqualifying disposition will result.
15
<PAGE>
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which the ordinary income
is recognized by the optionee.
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the 1995 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less than the
fair market value of the shares on the grant or issue date will result in a
compensation expense to the Company's earnings equal to the difference between
the exercise or issue price and the fair market value of the shares on the grant
or issue date. Such expense will be accruable by the Company over the period
that the option shares or issued shares are to vest. Option grants or stock
issuances at 100% of fair market value will not result in any charge to the
Company's earnings. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis. Under the new FASB release, footnote disclosure
will be required as to the impact the outstanding options under the 1995 Plan
would have upon the Company's reported earnings were those options appropriately
valued as compensation expense.
16
<PAGE>
Should one or more optionees be granted stock appreciation rights which have
no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the 1997 Annual Meeting
is required for approval of the amendment to the 1995 Plan. Should such
stockholder approval not be obtained, then the share reserve will not be
increased and the members of the Compensation committee will not become eligible
to receive option grants under the Discretionary Option Grant Program or receive
issuances under the Stock Issuance Program and all options previously granted
under the 1995 Plan on the basis of the share increase will terminate without
becoming exercisable for any of the shares of Common Stock subject to those
options. The 1995 Plan will, however, continue to remain in effect, and option
grants and stock issuances may continue to be made pursuant to the provisions of
the Plan prior to its amendment until the available reserve of Common Stock
under such plan is issued.
THE BOARD BELIEVES THAT IT IS IN THE BEST INTERESTS OF THE COMPANY TO
CONTINUE TO HAVE A COMPREHENSIVE EQUITY INCENTIVE PROGRAM FOR THE COMPANY WHICH
WILL PROVIDE A MEANINGFUL OPPORTUNITY FOR OFFICERS, EMPLOYEES AND NON-EMPLOYEE
BOARD MEMBERS TO ACQUIRE A SUBSTANTIAL PROPRIETARY INTEREST IN THE ENTERPRISE
AND THEREBY ENCOURAGE SUCH INDIVIDUALS TO REMAIN IN THE COMPANY'S SERVICE AND
MORE CLOSELY ALIGN THEIR INTERESTS WITH THOSE OF THE STOCKHOLDERS.
THE BOARD RECOMMENDS FOR THE APPROVAL OF THE AMENDMENT TO THE 1995 PLAN.
NEW PLAN BENEFITS
There have been no benefits awarded to date under the proposed amendments to
the 1995 Plan.
In accordance with the Automatic Option Grant Program in the 1995 Plan, each
of Messrs. Blondin, Davoli, Federman, and Hosley, if continuing to serve as a
non-employee director following the Annual Meeting, will receive options to
purchase 2,500 shares of Common Stock with an exercise price equal to the fair
market value of the Company s Common Stock on May 7, 1997.
17
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph comparing the annual percentage change in the
Company's cumulative total stockholder return on its Common Stock from October
16, 1995 (the date public trading of the Company's stock commenced) to the last
day of the Company's last completed fiscal year (as measured by dividing (i) the
sum of (A) the cumulative amount of dividends for the measurement period,
assuming dividend reinvestment, and (B) the excess of the Company's share price
at the end over the price at the beginning of the measurement period, by (ii)
the share price at the beginning of the measurement period) with the cumulative
total return so calculated of the Nasdaq Stock Market-US Index and a
line-of-business index consisting of companies reporting under the Standard
Industrial Classification ( SIC ) Code 737 (Nasdaq Computer & Data Processing
Services Stocks).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LOGIC WORKS SIC CODE 737 NASDAQ STOCK MARKET-US INDEX
<S> <C> <C> <C>
10/17/95 100.00 100.00 100.00
12/31/95 113.64 105.80 102.04
12/31/96 51.14 130.66 125.52
</TABLE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, which might incorporate future filings made by
the Company under those statutes, the preceding Compensation Committee Report on
Executive Compensation and the Company Stock Performance Graph will not be
incorporated by reference into any of those prior filings, nor will such report
or graph be incorporated by reference into any future filings made by the
Company under those statutes.
18
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 21, 1997, by (i) each
Director and nominee for Director, (ii) each of the Named Executive Officers,
(iii) each person (or group of affiliated persons) who is known by the Company
to own beneficially five percent or more of the outstanding shares of Common
Stock, and (iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
BENEFICIALLY OWNED PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OUTSTANDING(1)
- ----------------------------------------------------------------- -------------------- ---------------------
<S> <C> <C>
Entities affiliated with Geocapital.............................. 472,065(2) 4.0%
(Charles Federman)
One Bridge Plaza
Fort Lee, NJ 07024
Robert E. Davoli................................................. 297,582(3) 2.5%
Richard A. Hosley, II............................................ 13,750(4) *
Paul E. Blondin.................................................. -- *
Benjamin C. Cohen................................................ 4,247,467(5) 35.8%
Logic Works, Inc.
University Square at Princeton
111 Campus Drive
Princeton, NJ 08540
Frank C. Cicio, Jr............................................... 245,636(6) 2.0%
Daniel Shiffman.................................................. 91,750(7) *
All current directors and executive officers as a group.......... 5,218,714(8,9) 43.3%
(9 persons)
</TABLE>
- ------------------------
* Represents beneficial ownership of less than one percent of the Common
Stock.
(1) Gives effect to the shares of Common Stock issuable within 60 days of March
21, 1997 upon the exercise of all options and other rights beneficially
owned by the indicated stockholders on that date. Unless otherwise
indicated, the persons named in the table have sole voting and sole
investment control with respect to all shares beneficially owned. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting and investment power with respect to
shares.
(2) Mr. Federman, a Director of the Company, is the Chairman of the Executive
Committee of an affiliate of Geocapital II and Geocapital III and, as such,
may be deemed to share voting and investment power with respect to such
shares. Mr. Federman disclaims beneficial ownership of such shares except to
the extent of his interest in such shares arising from his interest in
Geocapital II and Geocapital III. Also, includes 8,750 shares of Common
Stock issuable upon the exercise of stock options. See Note (1).
(3) Includes 15,000 shares of Common Stock issuable upon the exercise of stock
options. See Note (1).
(4) Includes 13,750 shares of Common Stock issuable upon the exercise of stock
options. See Note (1).
(5) Includes 128,800 shares owned by Margaret Ramsey Cohen, Dr. Cohen's wife,
and 1,000,000 shares owned by Coherams Limited Partnership.
19
<PAGE>
(6) Includes 212,736 shares of Common Stock issuable upon the exercise of stock
options (See Note (1)), and 3,400 shares owned by Jeffrey J. Cicio, Trustee
for the Cicio Family Trust.
(7) Includes 24,250 shares of Common Stock issuable upon the exercise of a stock
option. See Note (1).
(8) Includes the beneficial ownership for John P. Bantleman, Gregory A. Peters,
and Frank T. Watts, who are executive officers of the Company, but did not
meet the requirements to be Named Executive Officers in the Summary
Compensation Table.
(9) See Notes (2) through (5), and (7).
CERTAIN TRANSACTIONS
In May 1996, the Company repurchased 77,625 shares at a price of $3.60 per
share, from Mr. Mark Finkel in connection with his resignation as Chief
Financial Officer of the Company. The repurchase was payable by cancellation of
a portion of a promissory note issued to Mr. Finkel at the time of his exercise
of options granted to him.
In September 1996, the Company entered into a promissory note and pledge
agreement with Mr. Gregory Peters, Executive Vice President, Finance and
Administration in the amount of $250,000. The note is non-interest bearing and
is due 90 days after separation from the Company.
In October 1996, the Company granted to Mr. Peters options to purchase a
total of 250,000 shares of Common Stock, at an exercise price of $6.00 per
share.
In October 1996, the Company granted to Mr. Frank Watts, Acting Executive
Vice President Sales, options to purchase a total of 10,000 shares of Common
Stock, at an exercise price of $6.00 per share. Mr. Watts was named Executive
Vice President Sales, effective January 1, 1997 at which time he was granted an
additional 100,000 shares of Common Stock, at an exercise price of $5.50 per
share.
In November 1996, the Company granted to Mr. John Bantleman, Executive Vice
President, Marketing, options to purchase a total of 225,000 shares of Common
Stock, at an exercise price of $5.63 per share.
For information regarding employment agreements and severance agreements
with executive officers, see "Executive Compensation and Other
Information--Employment Arrangements."
20
<PAGE>
STOCKHOLDER PROPOSALS
In accordance with regulations issued by the Securities and Exchange
Commission, stockholder proposals intended for presentation at the 1998 Annual
Meeting of Stockholders must be received by the Secretary of the Company no
later than December 11, 1997 if such proposals are to be considered for
inclusion in the Company's Proxy Statement.
OTHER MATTERS
Management knows of no matters that are to be presented for action at the
meeting other than those set forth above. If any other matters properly come
before the meeting, the persons named in the enclosed form of proxy will vote
the shares represented by proxies in accordance with their best judgment on such
matters.
Proxies will be solicited by mail and may also be solicited in person or by
telephone by some regular employees of the Company. The Company may also
consider the engagement of a proxy solicitation firm. Costs of the solicitation
will be borne by the Company.
A COPY OF THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996, AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE PROVIDED WITHOUT
CHARGE UPON WRITTEN REQUEST TO GREGORY A. PETERS, SECRETARY OF THE COMPANY, AT
LOGIC WORKS, INC. 111 CAMPUS DRIVE, PRINCETON, NEW JERSEY 08540.
By Order of the Board of Directors
Benjamin C. Cohen
Chief Executive Officer and President
Princeton, New Jersey
April 10, 1997
21
<PAGE>
EXHIBIT 1
LOGIC WORKS, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
(As Amended and Restated As of January 21, 1997)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option/Stock Issuance Plan is intended to promote
the interests of Logic Works, Inc., a Delaware corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator,
be granted options to purchase shares of Common Stock,
(ii) the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary
invested each year in options to purchase shares of Common Stock,
(iii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued shares
of Common Stock directly, either through the immediate purchase of
such shares or as a bonus for services rendered the Corporation (or
any Parent or Subsidiary), and
(iv) the Automatic Option Grant Program under which Eligible
Directors shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock.
<PAGE>
B. The provisions of Articles One and Six shall apply to all equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant, Salary Investment Option Grant and
Stock Issuance Programs with respect to Section 16 Insiders.
B. Administration of the Discretionary Option Grant, Salary
Investment Option Grant and Stock Issuance Programs with respect to all other
persons eligible to participate in those programs may, at the Board's
discretion, be vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to administer those programs with respect to such
persons.
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant,
Salary Investment Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of such
programs and any outstanding options or stock issuances thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator within the
scope of its administrative functions under the Plan shall be final and binding
on all parties who have an interest in the Discretionary Option Grant, Salary
Investment Option Grant or Stock Issuance Program under its jurisdiction or any
option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to option
grants made thereunder.
2.
<PAGE>
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Only Employees shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant and
Salary Investment Option Grant Programs, which eligible persons are to receive
option grants, the time or times when such option grants are to be made, the
number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each option is to become exercisable, the vesting schedule (if
any) applicable to the option shares and the maximum term for which the option
is to remain outstanding and (ii) with respect to stock issuances under the
Stock Issuance Program, which eligible persons are to receive stock issuances,
the time or times when such issuances are to be made, the number of shares to be
issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid by the Participant for such
shares.
D. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant and/or Salary
Investment Option Grant Program or to effect stock issuances in accordance with
the Stock Issuance Program.
E. The individuals eligible to participate in the Automatic Option
Grant Program shall be those individuals who first become non-employee Board
members after the Automatic Option Grant Program Effective Date, whether through
appointment by the Board or election by the Corporation's stockholders, and
those individuals who continue to serve as non-employee Board members after the
Automatic Option Grant Program Effective Date. A non-employee Board member who
has previously been in the employ of the Corporation (or any Parent or
Subsidiary) shall not be eligible to receive an option grant under the Automatic
Option Grant Program at the time he or she first becomes a non-employee Board
member, but such individual shall be eligible to receive periodic option grants
under the Automatic Option Grant
3.
<PAGE>
Program upon his or her continued service as a non-employee Board member at one
or more Annual Stockholders Meetings.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 4,933,630 shares.
Such authorized share reserve is comprised of (i) the number of shares which
remained available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders, including
the shares subject to the outstanding options incorporated into the Plan and any
other shares which would have been available for future option grants under the
Predecessor Plan, plus (ii) 1,284,860 shares authorized by the Board prior to
the Plan Effective Date and (iii) an additional 1,000,000 shares authorized by
the Board, subject to stockholder approval.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 350,000 shares of Common Stock per calendar year.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
Unvested shares issued under the Plan (including shares issued upon exercise of
options incorporated from the Predecessor Plan) and subsequently repurchased by
the Corporation, at the option exercise price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for subsequent issuance under the Plan and
shall accordingly be available for reissuance through one or more subsequent
option grants or direct stock issuances under the Plan. However, should the
exercise price of an option under the Plan (including any option incorporated
from the Predecessor Plan) be paid with shares of Common Stock or should shares
of Common Stock otherwise issuable under the Plan be withheld by the Corporation
in satisfaction of the withholding taxes incurred in connection with the
exercise of an option or the vesting of a stock issuance under the Plan, then
the number of shares of Common Stock available for issuance under the Plan shall
be reduced by the gross number of shares for which the option is exercised or
which vest under the stock issuance, and not by the net number of shares of
Common Stock issued to the holder of such option or stock issuance.
4.
<PAGE>
D. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities for which any one
person may be granted options, separately exercisable stock appreciation rights
and direct stock issuances per calendar year, (iii) the number and/or class of
securities for which automatic option grants are to be subsequently made per
Eligible Director under the Automatic Option Grant Program and (iv) the number
and/or class of securities and the exercise price per share in effect under each
outstanding option (including any option incorporated from the Predecessor Plan)
in order to prevent the dilution or enlargement of benefits thereunder. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
5.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than the Fair Market Value per share of
Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Six and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the Corporation.
(ii) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide
irrevocable written instructions to (a) a
Corporation-designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out
of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state
and local income and employment taxes required to be withheld
by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete
the sale transaction.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
6.
<PAGE>
B. Exercise and Term of Options. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable
for such period of time thereafter as shall be determined by
the Plan Administrator and set forth in the documents
evidencing the option, but no such option shall be exercisable
after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by
the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of
descent and distribution.
(iii) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of
Service. Upon the expiration of the applicable exercise period
or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any
vested shares for which the option has not been exercised.
However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to
the extent it is not otherwise at that time exercisable for
vested shares.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee
shall terminate immediately and cease to be outstanding.
(v) In the event of an Involuntary Termination following
a Corporate Transaction,the provisions of Section III of this
Article Two shall govern the period for which the outstanding
options are to remain exercisable following the Optionee's
cessation of Service and shall supersede any provisions to the
contrary in this Section.
7.
<PAGE>
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of
Service from the period otherwise in effect for that option to
such greater period of time as the Plan Administrator shall
deem appropriate, but in no event beyond the expiration of the
option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect
to the number of vested shares of Common Stock for which such
option is exercisable at the time of the Optionee's cessation
of Service but also with respect to one or more additional
installments in which the Optionee would have vested under the
option had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for the benefit of one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.
8.
<PAGE>
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Dollar Limitation. The aggregate Fair Market Value (determined as
of the respective date or dates of grant) of the shares of Common Stock for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
C. 10% Stockholder. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) or to be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof), (ii) such option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested option shares at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
9.
<PAGE>
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan on both an aggregate and per
individual basis following the consummation of such Corporate Transaction and
(ii) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same.
E. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time shall automatically
accelerate (and any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination.
F. Each outstanding option shall automatically accelerate (and any
outstanding repurchase rights shall automatically terminate and the shares of
Common Stock subject to those terminated rights shall immediately vest in full)
in the event the Optionee's Service should terminate by reason of an Involuntary
Termination within eighteen (18) months following the effective date of a Change
in Control. Any options so accelerated shall remain exercisable for fully-vested
shares until the earlier of (i) the expiration of the option term (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination.
10.
<PAGE>
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
H. The grant of options under the Discretionary Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new option grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish,
to elect between the exercise of the underlying option for shares of
Common Stock and the surrender of that option in exchange for a
distribution from the Corporation in an amount equal to the excess
of (a) the Fair Market Value (on the option surrender date) of the
number of shares in which the Optionee is at the time vested under
the surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator. If the surrender is so approved,
then the distribution to which the Optionee shall be entitled may be
made in shares of Common Stock valued at Fair Market Value on the
option surrender date, in cash, or partly in shares and partly in
cash, as the Plan Administrator shall in its sole
11.
<PAGE>
discretion deem appropriate.
(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights
at any time prior to the later of (a) five (5) business days after
the receipt of the rejection notice or (b) the last day on which the
option is otherwise exercisable in accordance with the terms of the
documents evidencing such option, but in no event may such rights be
exercised more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each such
individual holding one or more options with such a limited stock
appreciation right in effect shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile
Take-Over) to surrender each such option to the Corporation, to the
extent the option is at the time exercisable for vested shares of
Common Stock. In return for the surrendered option, the Optionee
shall receive a cash distribution from the Corporation in an amount
equal to the excess of (a) the Take-Over Price of the shares of
Common Stock which are at the time vested under each surrendered
option (or surrendered portion thereof) over (b) the aggregate
exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the option surrender date.
(iii) Neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such
option surrender and cash distribution.
(iv) The balance of the option (if any) shall continue in full
force and effect in accordance with the documents evidencing such
option.
12.
<PAGE>
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Program is to be in effect and to select the Employees eligible to
participate in the Salary Investment Option Grant Program for those calendar
year or years. Each selected Employee who elects to participate in the Salary
Investment Option Grant Program must, prior to the start of each calendar year
of participation, file with the Plan Administrator (or its designate) an
irrevocable authorization directing the Corporation to reduce his or her base
salary for that calendar year by a designated multiple of one percent (1%).
However, the amount of such salary reduction must be not less than Five Thousand
Dollars ($5,000.00) and must not be more than the lesser of (i) twenty percent
(20%) of his or her rate of base salary for the calendar year or (ii) Twenty
Thousand Dollars ($20,000.00). Each individual who files a proper salary
reduction authorization shall automatically be granted an option under this
Salary Investment Option Grant Program on the first trading day in January of
the calendar year for which that salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below.
A. Exercise Price.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
13.
<PAGE>
X = A ) (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the Optionee's base salary
reduction for the calendar year, and
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. Exercise and Term of Options. The option shall become exercisable
in a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar year for
which the salary reduction is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the two (2)-year period measured from the date of
such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by the
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the two
(2)-year period measured from the date of the Optionee's cessation of Service.
However, the option shall, immediately upon the Optionee's cessation of Service
for any reason, terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. Each such outstanding option
shall be assumed
14.
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by the successor corporation (or parent thereof) in the Corporate Transaction
and shall remain exercisable for the fully-vested shares until the earlier of
(i) the expiration of the option term or (ii) the expiration of the two (2)-year
period measured from the date of Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable for all of the shares of
Common Stock at the time subject to such option and may be exercised for any or
all of such shares as fully-vested shares of Common Stock. The option shall
remain so exercisable until the earlier of (i) the expiration of the option term
or (ii) the expiration of the two (2)-year period measured from the date of
Optionee's cessation of Service.
C. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
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ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than the Fair Market Value per share of
Common Stock on the stock issuance date.
2. Subject to the provisions of Section I of Article Six
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the
Participant or the performance objectives to be attained,
(ii) the number of installments in which the shares are
to vest,
(iii) the interval or intervals (if any) which are to
lapse
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between installments, and
(iv) the effect which death, Permanent Disability or
other event designated by the Plan Administrator is to have
upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
cessation of the Participant's Service or the non-completion of the vesting
schedule applicable to such shares. Such waiver shall result in the immediate
vesting of the Participant's interest in the shares of Common Stock as to which
the waiver applies. Such waiver may be effected at any time, whether before or
after the Participant's cessation of Service or the attainment or non-attainment
of the applicable
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performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the outstanding repurchase rights under the Stock Issuance
Program shall terminate automatically, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
of any Corporate Transaction, except to the extent (i) those repurchase rights
are assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed in the Stock Issuance Agreement.
B. Any repurchase rights that are assigned in the Corporate
Transaction shall automatically terminate, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
the Participant's Service should subsequently terminate by reason of an
Involuntary Termination within eighteen (18) months following the effective date
of such Corporate Transaction.
C. All of the outstanding repurchase rights under the Stock Issuance
Program shall terminate automatically, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
the Optionee's service should terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of a Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
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ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified
below:
1. Each Eligible Director who is first elected or appointed as
a non-employee Board member after the Automatic Option Grant Program Effective
Date shall automatically be granted, on the date of such initial election or
appointment, a Non-Statutory Option to purchase 25,000 shares of Common Stock.
2. On the date of each Annual Stockholders Meeting, beginning
with the 1996 Annual Meeting, each individual who is to continue to serve as an
Eligible Director shall automatically be granted a Non-Statutory Option to
purchase an additional 2,500 shares of Common Stock, provided such individual
has served as a non-employee Board member for at least six (6) months. There
shall be no limit on the number of such 2,500-share option grants any one
Eligible Director may receive over his or her period of Board service.
B. Exercise Price.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial grant shall vest, and the
Corporation's repurchase right shall lapse, in a series of four (4) equal and
successive annual installments over the Optionee's period of continued service
as a Board member, with the first such installment to vest upon the Optionee's
completion of one (1) year of Board service measured from the option grant date.
Each annual grant shall vest, and the
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Corporation's repurchase right shall lapse, upon the Optionee's completion of
one (1) year of Board service measured from the option grant date.
E. Effect of Termination of Board Service. The following provisions
shall govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) Should the Optionee cease to serve as a Board member for
any reason (other than death or Permanent Disability), then the
Optionee shall have a six (6)-month period following the date of
such cessation of Board service in which to exercise each such
option.
(ii) Should the Optionee die while the option is outstanding,
then the personal representative of the Optionee's estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution shall have a twelve (12)-month period following the
date of the Optionee's cessation of Board service in which to
exercise each such option.
(iii) During the limited post-service exercise period, the
option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable at the
time of the Optionee's cessation of Board service.
(iv) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option
may, during the twelve (12)-month exercise period following the
Optionee's death or Permanent Disability, be exercised for all or
any portion of such shares as fully-vested shares of Common Stock.
(v) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the limited
post-service exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service, terminate and cease to be
outstanding to the extent it is not otherwise at that time
exercisable for vested shares.
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II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of such shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of such shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
automatic option held by him or her. The Optionee shall in return be entitled to
a cash distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the shares of Common Stock at the time subject to the
surrendered option (whether or not the Optionee is otherwise at the time vested
in those shares) over (ii) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation. No approval or consent of the Board
shall be required in connection with such option surrender and cash
distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change
21.
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its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
22.
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ARTICLE SIX
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price under the Discretionary Option Grant Program or
the purchase price for shares issued under the Stock Issuance Program by
delivering a promissory note payable in one or more installments. The terms of
any such promissory note (including the interest rate and the terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In no event may the maximum credit available to the Optionee or
Participant exceed the sum of (i) the aggregate option exercise price or
purchase price payable for the purchased shares plus (ii) any Federal, state and
local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.
B. The Plan Administrator may, in its discretion, determine that one
or more such promissory notes shall be subject to forgiveness by the Corporation
in whole or in part upon such terms as the Plan Administrator may deem
appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or stock appreciation rights or upon the issuance
or vesting of such shares under the Plan shall be subject to the satisfaction of
all applicable Federal, state and local income and employment tax withholding
requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
(i) Stock Withholding: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such Non-Statutory Option or the vesting of such
shares, a portion of those shares with an aggregate Fair Market
Value equal to the percentage of the Taxes (not to exceed one
hundred percent (100%)) designated by the holder.
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(ii) Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised or
the shares vest, one or more shares of Common Stock previously
acquired by such holder (other than in connection with the option
exercise or share vesting triggering the Taxes) with an aggregate
Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF PLAN
A. The Discretionary Option Grant, Salary Investment Option Grant
and Stock Issuance Programs became effective immediately on the Plan Effective
Date, and options may be granted under the Discretionary Option Grant and the
Salary Investment Option Grant Programs from and after the Plan Effective Date.
The Automatic Option Grant Program became effective immediately on the Automatic
Option Grant Program Effective Date. On January 21, 1997, the Plan was amended
to (i) increase the number of shares of Common Stock available for issuance
under the Plan by 1,000,000 shares, (ii) eliminate the restriction that the
individuals who serve as Plan Administrator may not receive any discretionary
option grants or direct stock issuances from the Company while serving as Plan
Administrator or during the twelve month period preceding appointment as Plan
Administrator, (iii) require stockholder approval of future amendments to the
1995 Plan only to the extent necessary to satisfy applicable laws or
regulations, (iv) eliminate both the six month holding period requirement and
the ten business day Awindow@ period requirement for the exercise of any stock
appreciation rights granted under the 1995 Plan and (v) allow the shares issued
under the 1995 Plan which are subsequently reacquired by the Company pursuant to
the Company's exercise of its repurchase rights to be added back to the share
reserve available for future issuance under the 1995 Plan. However, no options
granted under the Plan based on the share increase may be exercised, and no
shares shall be issued under the Plan, until the amendment to the Plan is
approved by the Corporation's stockholders at the 1997 Annual Stockholders
Meeting.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants shall be made under the Predecessor Plan after the
Plan Effective Date. All options outstanding under the Predecessor Plan on such
date shall, immediately upon approval of the Plan by the Corporations's
stockholders, be incorporated into the Plan and treated as outstanding options
under the Plan. However, each outstanding option so incorporated shall continue
to be governed solely by the terms of the documents evidencing such option, and
no provision of the Plan shall be deemed to affect or otherwise modify the
rights or obligations of the holders of such incorporated options with respect
to their acquisition of shares of Common Stock.
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C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two applicable
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest of (i) June 30, 2005,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options or the issuance of
shares (whether vested or unvested) under the Plan or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Upon a
clause (i) termination, all options and unvested stock issuances outstanding on
such date shall thereafter continue to have force and effect in accordance with
the provisions of the documents evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, (i) no such
amendment or modification shall adversely affect the rights and obligations with
respect to options, stock appreciation rights or unvested stock issuances at the
time outstanding under the Plan unless the Optionee or the Participant consents
to such amendment or modification. In addition, certain amendments may require
stockholder approval pursuant to applicable laws and regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
are held in escrow until there is obtained stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
25.
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A. The implementation of the Plan, the granting of any option or
stock appreciation right under the Plan and the issuance of any shares of Common
Stock (i) upon the exercise of any option or stock appreciation right or (ii)
under the Stock Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options and stock appreciation rights
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining such person) or of the Optionee or
the Participant, which rights are hereby expressly reserved by each, to
terminate such person's Service at any time for any reason, with or without
cause.
26.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option grant
program in effect under the Plan.
B. Automatic Option Grant Program Effective Date shall mean the date on
which the Underwriting Agreement is executed and the initial public offering
price of the Common Stock is established.
C. Board shall mean the Corporation's Board of Directors.
D. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board does
not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
E. Code shall mean the Internal Revenue Code of 1986, as amended.
F. Common Stock shall mean the Corporation's common stock.
G. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
A-1.
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(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those immediately prior to such
transaction; or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
H. Corporation shall mean Logic Works, Inc., a Delaware corporation.
I. Discretionary Option Grant Program shall mean the discretionary option
grant program in effect under the Plan.
J. Eligible Director shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
K. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.
M. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported
by the National Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question,
A-2.
<PAGE>
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) If the Common Stock is at the time neither listed on any Stock
Exchange nor traded on the Nasdaq National Market, then the Fair Market
Value shall be determined by the Plan Administrator after taking into
account such factors as the Plan Administrator shall deem appropriate.
N. Hostile Take-Over shall mean the acquisition, directly or indirectly,
by any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
P. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change
in his or her position with the Corporation which materially reduces his
or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and any
non-discretionary and objective-standard incentive payment or bonus award)
by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without the individual's consent.
Q. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee, Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).
A-3.
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R. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
S. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
T. Optionee shall mean any person to whom an option is granted under the
Discretionary Option Grant, Automatic Option Grant or Salary Investment Option
Grant Program.
U. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. Participant shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
W. Permanent Disability or Permanently Disabled shall mean the inability
of the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more. However, solely for the purposes of the Automatic Option Grant Program,
Permanent Disability or Permanently Disabled shall mean the inability of the
non-employee Board member to perform his or her usual duties as a Board member
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
X. Plan shall mean the Corporation's 1995 Stock Option/Stock Issuance
Plan, as set forth in this document.
Y. Plan Administrator shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant, Salary Investment Option Grant and
Stock Issuance Programs with respect to one or more classes of eligible persons,
to the extent such entity is carrying out its administrative functions under
those programs with respect to the persons under its jurisdiction.
Z. Plan Effective Date shall mean July 26, 1995, the date on which the
Plan was adopted by the Board.
AA. Predecessor Plan shall mean the Corporation's 1993 Stock Option Plan.
A-4.
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BB. Primary Committee shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant, Salary Investment Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders.
CC. Salary Investment Option Grant Program shall mean the salary
investment option grant program in effect under the Plan.
DD. Secondary Committee shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant,
Salary Investment Option Grant and Stock Issuance Programs with respect to
eligible persons other than Section 16 Insiders.
EE. Section 16 Insider shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. Service shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
GG. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
HH. Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
II. Stock Issuance Program shall mean the stock issuance program in effect
under the Plan.
JJ. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
KK. Take-Over Price shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
A-5.
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LL. Taxes shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of such holder's options
or the vesting of his or her shares.
MM. 10% Stockholder shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
NN. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-6.
