<PAGE>
14A COVER
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934, as amended.
Filed by the registrant
/X/
Filed by a party other
than the registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Logic Works, Inc.
-----------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement)
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:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid.
/ / Fee paid previously with preliminary materials:
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11 (a)(2) and identify
<PAGE>
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 it filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.
(3) Filing Party:
(4) Date Filed:
-2-
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Logic Works, Inc.
University Square at Princeton
111 Campus Drive
Princeton, NJ 08540
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
October 30, 1997
The Special Meeting of Stockholders (the "Special Meeting") of Logic
Works, Inc. (the "Company") will be held at the offices of the Company,
University Square at Princeton, 111 Campus Drive, Princeton, NJ 08540 on
October 30, 1997 at 9:00 a.m. (Eastern Daylight Time) for the following
purposes:
(1) To approve an amendment to the Company's Employee Stock Purchase
Plan which will (i) increase the maximum number of shares of Common Stock
authorized for issuance over the term of the Purchase Plan by 500,000
shares, (ii) provide that a new twenty-four (24) month offering period will
begin in the event that the fair market value of the Common Stock on any
semi-annual purchase date within an offering period is less than the fair
market value of the Common Stock on the start date of such offering period
and (iii) amend the stockholder approval provisions consistent with recent
amendments to Rule 16b-3 of the Securities Exchange Commission which exempt
certain officer and director transactions under the Purchase Plan from the
short-swing liability provisions of the Federal securities laws; and
(2) To approve an amendment to the 1995 Stock Option/Stock Issuance
Plan to effect an increase the number of shares of Common Stock of the
Company available for issuance by 1,000,000 shares, and to make such
other changes as described in the enclosed Proxy Statement.
Only stockholders of record at the close of business on September 17,
1997 will be entitled to notice of, and to vote at, the Special 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 (10) 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 Special 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
Gregory A. Peters
Acting Chief Executive Officer and President,
and Chief Financial Officer
October , 1997
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD
BE COMPLETED AND RETURNED PROMPTLY
<PAGE>
Logic Works, Inc.
PROXY STATEMENT
October , 1997
This Proxy Statement is furnished to stockholders of record of Logic
Works, Inc. (the "Company") as of September 17, 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 Special Meeting of Stockholders to
be held on October 30, 1997 (the "Special 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
approval of the amendment to the Company's Employee Stock Purchase Plan (the
"Purchase Plan") and (ii) "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 Special 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 Special 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 Special Meeting.
Abstentions will be counted in tabulations of the votes cast on each of the
proposals presented at the Special Meeting, whereas broker non-votes will not
be counted for purposes of determining whether a proposal has been approved.
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 October __, 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 Special Meeting, each stockholder of record at the
close of business on September 17, 1997 will be entitled to one vote for each
share of Common Stock owned on that date as to each matter presented at the
Special Meeting. At September 17, 1997, there were 12,494,008 shares of
Common Stock outstanding and held by 153 stockholders of record. A list of
stockholders eligible to vote at the Special Meeting will be available for
inspection at the Special Meeting and for a period of ten days prior to the
Special Meeting during regular business hours at the principal executive
offices of the Company at the address specified above.
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
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director of the Company will automatically be granted an option to purchase
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 to purchase 2,500 shares of Common
Stock.
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 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 1995 Plan.
In October 1996, the Company granted to Mr. Blondin, upon his election to
the Board of Directors, (i) an option to purchase 25,000 shares of Common
Stock at $6.00 per share in accordance with the Automatic Option Grant
Program of the 1995 Plan and (ii) an additional option to purchase 20,000
shares of Common Stock at $6.00 per share. Each 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.
In May 1997, the Company granted to each of Messrs. Davoli, Federman and
Hosley an option to purchase 2,500 shares of Common Stock at $5.375 per share
in accordance with the Automatic Option Grant Program of the 1995 Plan.
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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 person who then
served as 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 "1996 Named Executive Officers").
<TABLE>
<CAPTION> LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION(1)(2) SECURITIES
-------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- ---------------------------------------------------- --------- ---------- --------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Benjamin C. Cohen(3) 1996 $229,000 -- -- --
Chief Executive Officer and 1995 170,000 $180,638 -- $3,435(4)
President
Frank C. Cicio, Jr. 1996 83,333(5) 156,037 -- --
Executive Vice President, 1995 100,000 238,616 10,000 --
Sales and Marketing
Daniel Shiffman 1996 125,000 42,500 -- --
Executive Vice President, 1995 83,333(6) 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 1996 Named Executive Officer 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) Does not include summary compensation information for (i) Gregory A.
Peters, Acting Chief Executive Officer and President, and Chief Financial
Officer, who was retained on July 1, 1996 as the Chief Financial Officer
of the Company at an annual base salary of $185,000 per year and who has
served as Acting Chief Executive Officer and President of the Company
since May, 1997, at which time his base salary was increased by $50,000
on an annualized basis, or (ii) Frank Watts, Executive Vice President,
Worldwide Sales, who was retained on January 1, 1997 at an annual base
salary of $100,000 per year.
(3) Effective April 21, 1997, Dr. Cohen no longer served as President and Chief
Executive Officer of the Company. Dr. Cohen remains Chairman of the Board
of Directors. Under the terms of an employment agreement which terminates
on December 31, 1998, Dr. Cohen will receive base compensation of
$235,000 per year during 1997 and 1998 and is eligible for an annual
bonus of up to $115,000.
(4) Represents premiums paid for a whole life insurance policy.
(5) Mr. Cicio's last date of employment with the Company was November 15, 1996.
(6) Represents Daniel Shiffman's salary from his first date of employment, May
1, 1995 to December 31, 1995. Mr. Shiffman's annual base salary for 1997 is
$125,000 per year and he is eligible for a bonus of $75,000 per year.
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OPTION GRANTS IN LAST FISCAL YEAR
There were no stock options or stock appreciation rights granted during
1996 to any 1996 Named Executive Officers. During 1996, the Company granted
to Mr. Peters (i) an option to purchase 200,000 shares of Common Stock at an
exercise price of $6.00 per share, 50,000 shares of which option vested
December 31, 1996 and the balance of which will vest in three annual equal
installments commencing October 21, 1997 and (ii) an option to purchase
50,000 shares of Common Stock, which vests in full October 21, 2001, subject
to acceleration based upon performance-based criteria. Both options expire
October 20, 2006.
During 1997 (through September 17, 1997), the Company has granted (i) Mr.
Peters an option to purchase 50,000 shares of Common Stock at an exercise
price of $5.38 per share, which option vests in four equal annual
installments commencing May 7, 1998 and expires May 7, 2007; (ii) Mr. Watts
an option to purchase 100,000 shares of Common Stock, at an exercise price of
$5.50 per share, which option vests in four equal annual installments
commencing January 2, 1998 and expires January 2, 2007 and an option to
purchase 40,000 shares of Common Stock at an exercise price of $7.88 per
share, which option vests in four equal annual installments commencing August
8, 1998 and expires August 8, 2007; and (iii) Mr.Shiffman an option to
purchase 50,000 shares of Common Stock, at an exercise price of $5.38 per
share, which option vests in four equal annual installments commencing May 7,
1998 and expires May 7, 2007.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information with respect to the
1996 Named Executive Officers regarding stock option holdings as of December
31, 1996. No stock appreciation rights were exercised by any 1996 Named
Executive Officer during fiscal year 1996 and no stock appreciation rights
were outstanding as of December 31, 1996.
<TABLE>
<CAPTION>
NET VALUES OF UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS(1)(2)
SHARES ACQUIRED VALUE ---------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISE UNEXERCISED EXERCISE UNEXERCISED
- ----------------------------------------- --------------- ---------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Benjamin C. Cohen........................ -- -- -- -- -- --
Frank C. Cicio, Jr.(3)................... 50,000 $ 493,436 337,736 -- $ 2,621,433 --
Daniel Shiffman(4)....................... 5,000 36,375 50,500 62,500 228,513 282,813
</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 $8.125 per share of Common Stock
on September 17, 1997.
(2) Does not include stock option holdings information for Gregory A. Peters
and Frank T. Watts. As of September 17, 1997, (i) Mr. Peters held 300,000
unexercised options, of which 50,000 are exercisable and 250,000 are
unexercisable and the Net Values of Mr. Peters unexercised In-the-Money
Options are $106,250 for exercisable options and $562,500 for
unexercisable options and (ii) Mr. Watts held 140,000 unexercised
options, none of which are currently exercisable, and the Net Values of
Mr. Watt's unexercised In-the-Money Options are $272,500.
(3) During 1997, Frank Cicio exercised options to purchase 332,736 shares with
a realized value of $2,225,596.
5
<PAGE>
(4) During 1997, Daniel Shiffman was granted options to purchase 50,000 shares.
As of September 17, 1997, none of these options are exercisable and the Net
Value of the unexercised In-the-Money Options is $137,500.
EMPLOYMENT ARRANGEMENTS
The Company and Benjamin C. Cohen have entered into an employment
agreement, effective as of April 21, 1997 (the "Cohen Agreement"), whereby
Dr. Cohen and the Company terminated his prior employment agreement with the
Company. Pursuant to the terms of the Cohen Agreement, Dr. Cohen will
continue to serve as Chairman of the Board of Directors of the Company
through December 31, 1998. Under the Cohen Agreement, Dr. Cohen will perform
such duties as are assigned to him by the Company's Chief Executive Officer
in areas including project strategy, strategic marketing, customer relations,
business development and dealings with the investment community. During the
term of the agreement, Dr. Cohen will receive base compensation of $235,000
per year, and be eligible for an annual performance-based bonus of $115,000.
If (i) the Company terminates Dr. Cohen's employment without good cause, or
(ii) Dr. Cohen terminates his employment or the agreement has expired and Dr.
Cohen, in either case, executes a Settlement Agreement and Mutual Release,
Dr. Cohen will receive severance payments totaling $470,000, payable monthly
over a two-year period, which period shall be measured from the last day of
Dr. Cohen's employment.
In July 1996, the Company entered into a letter agreement with Mr. Peters
(the "Peters Letter") whereby Mr. Peters would be employed as Chief Financial
Officer. In addition to specifying base compensation for 1996 and 1997,
performance bonus potential and stock options, the letter agreement provided
that, in the event 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 and Mr. Peters is not offered the
Chief Financial Officer position or a similar position by the acquiror, Mr.
Peters will be paid an additional six months' severance and all options will
accelerate to vest on the date of the acquisition.
In April 1997, the Company entered into a separation, waiver and mutual
release with Frank Cicio (the "Cicio Agreement"), 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 of a previously unvested option to purchase 45,000
shares of Common Stock at an exercise price of $0.20 per share and extended
the option expiration date to November 29, 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
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."
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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 officer and the
Company's stockholders.
FACTORS. The principal factors which the Compensation Committee
considered with respect to each executive officer's compensation package for
1996 and 1997 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 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
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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 options to purchase 475,000 shares of Common
Stock granted to executive officers in 1996 and options to purchase 240,000
shares of Common Stock granted to executive officers in 1997 (through
September 17, 1997).
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. The base salary for Mr. Peters, following his appointment as the Acting
Chief Executive Officer and President of the Company, was increased by
$50,000 per annum on the basis of the criteria described above and
recognition of his increased responsibility. 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
8
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PROPOSAL 1
APPROVAL OF AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION
The Company's stockholders are being asked to approve an amendment to the
Company's Employee Stock Purchase Plan (the "Purchase Plan") which will:
(i) increase the maximum number of shares of Common Stock authorized
for issuance over the term of the Purchase Plan from 250,000 to 750,000
shares,
(ii) provide that a new twenty-four (24) month offering period will
begin in the event that the fair market value of the Common Stock on any
semi-annual purchase date within an offering period is less than the fair
market value of the Common Stock on the start date of such offering period,
and
(iii) amend the stockholder approval provisions consistent with recent
amendments to Rule 16b-3 of the Securities Exchange Commission which
exempts certain officer and director transactions under the Purchase Plan
from the short-swing liability provisions of the Federal securities laws.
The Board believes that it is in the best interests of the Company's
stockholders to approve the amendment to the Purchase Plan to ensure that
such plan will continue to serve as a meaningful incentive for the employees
of the Company and its affiliates to continue in the Company's service by
giving them the opportunity to acquire an equity interest in the Company and
thereby further align their interests with those of the stockholders.
The terms and provisions of the Purchase Plan, as amended by the
Board on May 7, 1997, are summarized below. However, the summary does not
purport to be a complete description of the Purchase Plan. Copies of the
actual plan document may be obtained by any stockholder upon written request
to the Corporate Secretary at the Company's principal offices in Princeton,
New Jersey.
PURPOSE
The purpose of the Purchase Plan is to provide eligible employees of
the Company and its participating affiliates with the opportunity to acquire
a proprietary interest in the Company through participation in a
payroll-deduction based employee stock purchase plan under Section 423 of the
Internal Revenue Code. Participating affiliates may include any parent or
subsidiary corporations of the Company, whether now existing or hereafter
established, which elect to extend the benefits of the Purchase Plan to their
eligible employees.
PURCHASE PLAN HISTORY
The Purchase Plan was adopted by the Board on July 26, 1995 and
subsequently approved by the stockholders. The Purchase Plan became effective
on October 16, 1995 (the "Effective Date") upon execution of the underwriting
agreement in connection with the initial public offering of the Company's
Common Stock. The amendment to the Purchase Plan which is the subject of this
Proposal 1 was adopted by the Board on May 7, 1997, subject to the approval
by the stockholders at the Special Meeting.
ADMINISTRATION
The Purchase Plan is administered by the Compensation Committee of
the Board. Such committee, as Plan Administrator, has full authority to adopt
administrative rules and procedures and to interpret the provisions of the
Purchase Plan. All costs and expenses incurred in plan administration are
paid by the Company without charge to
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participants.
SECURITIES SUBJECT TO THE PURCHASE PLAN
The shares of Common Stock issuable under the Purchase Plan may be
either shares newly issued by the Company or shares reacquired by the
Company, including shares purchased on the open market. The maximum number of
shares of Common Stock which may be sold to participants over the term of the
Purchase Plan may not exceed 750,000 shares.
In the event that any change is made to the Company's outstanding
Common Stock (whether by reason of recapitalization, stock dividend, stock
split, exchange or combination of shares or other change in corporate
structure effected without the Company's receipt of consideration),
appropriate adjustments will be made to (i) the class and maximum number of
securities issuable over the term of the Purchase Plan, (ii) the class and
maximum number of securities purchasable per participant on any one
semi-annual purchase date and (iii) the class and number of securities and
the price per share in effect under each outstanding purchase right.
OFFERING PERIODS
Shares of Common Stock are offered under the Purchase Plan through a
series of successive offering periods, each with a maximum duration of
twenty-four (24) months. The initial offering period began on October 16,
1995 and will end on October 31, 1997. A new twenty-four (24)-month period is
scheduled to begin on November 1, 1997. Shares of Common Stock are purchased
semi-annually during each offering period
Should the fair market value per share of Common Stock on any semi-annual
purchase date within an offering period be less than the fair market value
per share of Common Stock on the start date of that offering period, then
that offering period will automatically terminate with the purchase of shares
of Common Stock on such semi-annual purchase date, and a new offering period
will begin on the next business day. The new offering period will have a
duration of twenty-four (24) months, unless a shorter duration is established
by the Plan Administrator within five (5) business days following the start
date of that offering period.
ELIGIBILITY
Any individual who is employed on a basis under which he or she is
expected to work more than twenty (20) hours per week for more than five (5)
months per calendar year in the employ of the Company or any participating
parent or subsidiary corporation is eligible to participate in the Purchase
Plan.
As of September 17, 1997, the following affiliates of the Company were
participating in the Purchase Plan: Logic Works International, Inc., Logic
Works Software Inc./Logic Works Logiciel Inc., Logic Works AG (Logic Works
SARL, Logic Works Europe.), Logic Works GmbH. and Logic Works Limited.
As of September 17, 1997, the Company estimated that approximately 232
employees, including 3 executive officers, were eligible to participate in
the Purchase Plan.
PARTICIPATION
An individual who is an eligible employee may join an offering period on
the start date of such offering period or on any subsequent semi-annual entry
date (the first business day in May and November each year) within that
offering period provided, in each case, that such individual has completed at
least three (3) months of service with the Company or any affiliate of the
Company prior to such date.
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<PAGE>
At the time a participant joins the offering period, he or she will be
granted a right to purchase shares of Common Stock. That right will be
exercised on the last business day in April and October of each year during
that offering period, and all payroll deductions collected from the
participant during the period ending with each such semi-annual purchase date
will automatically be applied to the purchase of Common Stock.
PAYROLL DEDUCTIONS AND STOCK PURCHASES
A participant may authorize periodic payroll deductions in any multiple
of one percent (1%) (up to a maximum of ten percent (10%)) of his or her cash
compensation to be applied to the acquisition of Common Stock under the
Purchase Plan. Cash compensation includes base salary and any overtime
payments, bonuses, commissions, profit-sharing distributions and other
incentive-type payments. On each semi-annual purchase date (the last business
day in April and October each year), the payroll deductions of each
participant will automatically be applied to the purchase of whole shares of
Common Stock at the purchase price in effect for the participant for that
purchase date.
PURCHASE PRICE
The purchase price of the Common Stock acquired on each semi-annual
purchase date will be equal to eighty-five percent (85%) of the lower of (i)
the fair market value per share of Common Stock on the participant's entry
date into the offering period or (ii) the fair market value on the
semi-annual purchase date.
The fair market value of the Common Stock on any relevant date under the
Purchase Plan will be the closing selling price per share on such date on The
Nasdaq National Market. On September 17, 1997, the fair market value per
share of Common Stock was $8.125 per share.
SPECIAL LIMITATIONS
The Purchase Plan imposes the following limitations upon a participant's
rights to acquire Common Stock:
(i) Purchase rights may not be granted to any individual who owns stock
(including stock purchasable under any outstanding purchase rights)
possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company or any of its affiliates.
(ii) Purchase rights granted to a participant may not permit such
individual to purchase more than $25,000 of Common Stock (valued at the
time each purchase right is granted) during any one calendar year.
(iii) No participant may purchase more than 1,500 shares of Common Stock
on any semi-annual purchase date.
TERMINATION OF PURCHASE RIGHTS
A participant may withdraw from the Purchase Plan at any time and elect
to have his or her accumulated payroll deductions either refunded immediately
or applied to the purchase of Common Stock on the next semi-annual purchase
date.
11
<PAGE>
A participant's purchase right will immediately terminate upon his or her
cessation of employment or loss of eligible employee status. Any payroll
deductions which the participant may have made for the semi-annual period in
which his or her employment terminates will be refunded and will not be
applied to the purchase of Common Stock.
STOCKHOLDER RIGHTS
No participant will have any stockholder rights with respect to the
shares covered by his or her purchase rights until the shares are actually
purchased on the participant's behalf. No adjustment will be made for
dividends, distributions or other rights for which the record date is prior
to the date of such purchase.
ASSIGNABILITY
Purchase rights will only be exercisable by the participant and will not
be assignable or transferable by the participant other than by will or the
laws of descent and distribution following the death of the participant.
CORPORATE TRANSACTION
In the event the Company is acquired by merger or asset sale, all
outstanding purchase rights will automatically be exercised immediately prior
to the effective date of such corporate transaction. The purchase price will
be eighty-five percent (85%) of the lesser of (i) the fair market value per
share of Common Stock on the participant's entry date into the offering
period in which such corporate transaction occurs or (ii) the fair market
value per share of Common Stock immediately prior to the effective date of
such corporate transaction. However, the applicable share limitations per
participant will continue to apply to any such purchase.
AMENDMENT AND TERMINATION
The Purchase Plan will terminate upon the earlier of (i) October 31,
2005, (ii) the date on which all shares available for issuance thereunder are
sold pursuant to exercised purchase rights, or (iii) the date on which all
purchase rights are exercised in connection with a corporate transaction.
The Board may at any time alter, suspend or discontinue the Purchase
Plan. However, certain amendments may require stockholder approval pursuant
to applicable laws or regulations.
FEDERAL TAX CONSEQUENCES
The Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant,
and no deductions will be allowable to the Company, upon either the grant or
the exercise of the purchase rights. Taxable income will not be recognized
until there is a sale or other disposition of the shares acquired under the
Purchase Plan or in the event the participant should die while still owning
the purchased shares. If the participant sells or otherwise disposes of the
purchased shares within two (2) years after his or her entry date into the
offering period in which such shares were acquired or within one (1) year
after the semi-annual purchase date on which those shares were actually
acquired, then the participant will recognize ordinary income in the year of
sale or disposition equal to the amount by which the fair market value of the
shares on the purchase date exceeded the purchase price paid for those
shares, and the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than
two (2) years after his or her entry date into the offering period in which
the shares were acquired and more than one year after the semi-annual
purchase date of those shares, then the participant will recognize ordinary
income in the year of sale or disposition equal to the
12
<PAGE>
lesser of (i) the amount by which the fair market value of the shares on the
sale or disposition date exceeded the purchase price paid for those shares or
(ii) fifteen percent (15%) of the fair market value of the shares on the
participant's entry date into that offering period; and any additional gain
upon the disposition will be taxed as a long-term capital gain. The Company
will not be entitled to an income tax deduction with respect to such
disposition.
If the participant still owns the purchased shares at the time of death,
the lesser of (i) the amount by which the fair market value of the shares on
the date of death exceeds the purchase price or (ii) fifteen percent (15%) of
the fair market value of the shares on his or her entry date into the
offering period in which those shares were acquired will constitute ordinary
income in the year of death.
ACCOUNTING TREATMENT
Under current accounting rules, the issuance of Common Stock under the
Purchase Plan will not result in a compensation expense chargeable against
the Company's reported earnings. However, the Company must disclose, in
pro-forma statements to the Company's financial statements, the impact the
purchase rights granted under the Purchase Plan would have upon the Company's
reported earnings were the value of those purchase rights treated as
compensation expense.
STOCK ISSUANCES
The table below shows, as to each of the Company's executive officers
named in the Summary Compensation Table for 1996 and the Company's current
executive officers, and the various indicated groups, the number of shares of
Common Stock purchased under the Purchase Plan between the October 16, 1995
effective date of the Purchase Plan and September 17, 1997, together with the
weighted average purchase price paid per share.
PURCHASE PLAN TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE PURCHASE
NAME SHARES PRICE ($)
- --------------------------------------------------------------------------- ----------- ---------------------------
<S> <C> <C>
Benjamin C. Cohen
Chairman of the Board(1)................................................. -0- -0-
Frank C. Cicio, Jr., Executive Vice President, Sales and Marketing(2)...... -0- -0-
Daniel Shiffman, Executive Vice President, Research and Development........ 3,823 $ 5.94
Gregory A. Peters, Acting Chief Executive Officer and President, and Chief
Financial Officer........................................................ -0- -0-
Frank T. Watts, Executive Vice President, Worldwide Sales.................. -0- -0-
All current executive officers as a group (3 persons)...................... 3,823 $ 5.94
All current directors who are not executive officers as a group (4
persons)................................................................. -0- -0-
All employees, including current officers who are not executive officers,
as a group (229 persons)................................................. 210,730 $ 5.95
</TABLE>
13
<PAGE>
- ------------------------
(1) Effective April 21, 1997, Mr. Cohen no longer serves as President and Chief
Executive Officer of the Company.
(2) Mr. Cicio's last date of employment with the Company was November 15, 1996.
NEW PLAN BENEFITS
Purchase rights have been granted for the offering period beginning
October 16, 1995 and ending October 31, 1997. Such purchase rights will be
exercised on October 31,1997, the next purchase date under the Purchase Plan.
Pursuant to the terms of the Purchase Plan, the purchase price on the October
31, 1997 purchase date is calculated as 85% of the lesser of (i) the fair
market value of the Common Stock on October 16, 1995 or (ii) the fair market
value of the Common Stock on October 31, 1997. As the number of Shares
subject to such purchase rights is dependent upon the fair market value of
the Common Stock on October 31, 1997, the exact number of shares subject to
such purchase rights will not be ascertained until such date. However,
assuming that the fair market value of the Common Stock on October 31, 1997
is $8.125 per share (the fair market value on September 17, 1997), and that
the participants in the Purchase Plan maintain their current level of
participation through the October 31,1997 purchase date, then the table
below, (assuming a purchase price of $6.90 per share which represents 85% of
the fair market value of the Common Stock as of September 17, 1997) shows the
number of additional shares (from the 500,000 share increase that is the
subject of this proposal) which may be required to satisfy the purchase
rights outstanding under the Purchase Plan on October 31, 1997 to each of the
Company's 1996 Named Executive Officers and the Company's current executive
officers, and the various indicated groups.
PURCHASE PLAN TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------------------------------------------ -----------
<S> <C>
Benjamin C. Cohen.................................................................................... -0-
Chairman of the Board(1)
Frank C. Cicio, Jr., Executive Vice President, Sales and Marketing(2)................................ -0-
Daniel Shiffman, Executive Vice President, Research and Development.................................. 1,500
Gregory A. Peters, Acting Chief Executive Officer and President, and Chief Financial Officer......... 1,500
Frank T. Watts, Executive Vice President, Worldwide Sales............................................ -0-
All current executive officers as a group (3 persons)................................................ 3,000
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------------------------------------------ -----------
<S> <C>
All current directors who are not executive officers as a group....................................... -0-
All employees, including current officers who are not executive officers, as a group (229 persons).... 39,758
</TABLE>
- ------------------------
(1) Effective April 21, 1997, Mr. Cohen no longer serves as President and Chief
Executive Officer of the Company.
(2) Mr. Cicio's last date of employment was November 15, 1996.
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 Special
Meeting is required for approval of the amendment to (i) increase the share
reserve under the Purchase Plan by an additional 500,000 shares, (ii) provide
for a new twenty-four (24)-month offering period to begin in the event that
the fair market value of the Common Stock on any semi-annual purchase date
within an offering period is less than the fair market value on the start
date of such offering period and (iii) amend the stockholder approval
provisions to take advantage of recent amendments to Rule 16b-3 of the
Securities Exchange Commission which exempts certain officer and directors
transaction under the Purchase Plan from the short-swing liability provisions
of the Federal securities laws. Should such stockholder approval not be
obtained, then, to the extent that purchase rights have been granted under
the Purchase Plan in reliance upon the 500,000-share increase, such purchase
rights will terminate, the Plan Administrator will allocate the remaining
shares of Common Stock available for issuance under the Purchase Plan on a
pro rata basis between the participants, any excess payroll deductions will
be refunded to participants and the Purchase Plan will immediately terminate.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE AMENDMENT TO THE
PURCHASE PLAN.
PROPOSAL 2
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 1,000,000 shares from 3,933,630 to 4,933,630 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
15
<PAGE>
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. The amendment was submitted to the
Company's stockholders at the Company's 1997 Annual Meeting of Stockholders
on May 7, 1997. A sufficient number of votes in favor of the amendment,
however, was not obtained at that 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, New Jersey.
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 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
Under the 1995 Plan, 4,933,630 shares of Common Stock have been reserved
for issuance over the plan's ten year term. 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.
16
<PAGE>
ELIGIBILITY
Officers, 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 September 17, 1997, approximately 3 executive officers, 229 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 September 17, 1997, the closing selling
price per share was $8.125.
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:
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 takeover 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
17
<PAGE>
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 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.
18
<PAGE>
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 Meeting of Stockholders, 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
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
19
<PAGE>
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.
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 September 17, 1997, together with the weighted
average exercise price payable per share.
20
<PAGE>
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
NAME OPTION SHARES EXERCISE PRICE
- ----------------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Benjamin C. Cohen(1)
Chairman of the Board............................................................ -- --
Frank C. Cicio, Jr.(2)
Executive Vice President, Sales and Marketing.................................... -- --
Daniel Shiffman
Executive Vice President, Research and Development............................... 50,000 $ 5.38
Gregory A. Peters
Acting Chief Executive Officer and President, and Chief Financial Officer........ 300,000 5.90
Frank T. Watts
Executive Vice President, Worldwide Sales........................................ 140,000 6.18
All current executive officers as a group (3 persons).............................. 490,000 5.92
Paul E. Blondin
Director......................................................................... 47,500 5.97
Robert E. Davoli
Director......................................................................... 5,000 9.44
Charles Federman
Director......................................................................... 5,000 9.44
Richard A. Hosley, II
Director......................................................................... 5,000 9.44
All non-employee directors as a group (4 persons).................................. 62,500 6.80
7.31
All employees, including current officers who are not executive officers
(229 persons as a group)......................................................... 1,347,750
</TABLE>
- -----------------------
(1) Effective April 21, 1997, Mr. Cohen no longer serves as President and Chief
Executive Officer of the Company.
(2) Represents Mr. Cicio's option transactions through his last date of
employment, November 15, 1996.
21
<PAGE>
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.
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 nonstatutory 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.
22
<PAGE>
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.
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 Special
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. 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 1995 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 THAT THE STOCKHOLDERS VOTE FOR
THE AMENDMENT TO THE 1995 PLAN.
NEW PLAN BENEFITS
There have been no options or other benefits awarded to date under the
proposed amendment 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 next Annual Meeting of Stockholders,
will receive options to purchase 2,500 shares of Common Stock with an
exercise price equal to the
23
<PAGE>
fair market value of the Company's Common Stock on the date of such meeting.
24
<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).
10/17/95 12/31/95 12/31/96
SIC code 737 100.00 105.80 130.66
Nasdaq Stock Market-US Index 100.00 102.04 125.52
Logic Works 100.00 113.64 51.14
Actual #s
10/17/95 12/31/95 12/31/96
SIC code 737 710.64 751.88 928.539
Nasdaq Stock Market-US Index 338.80 345.715 425.258
Logic Works 11 12.5 5.625
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.
25
<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 September 17, 1997,
by (i) each Director and nominee for Director, (ii) each of the 1996 Named
Executive Officers, and current 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 PERCENTAGE OF
BENEFICIALLY SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OUTSTANDING(1)
- ---------------------------------------------------------------------------- -------------------- -----------------
<S> <C> <C>
Entities affiliated with Geocapital....................... 478,315(2) 3.8%
(Charles Federman)
One Bridge Plaza Fort
Lee, NJ07024
Robert E. Davoli.......................................... 310,082(3) 2.5%
Richard A. Hosley, II..................................... 25,000(4) *
Paul E. Blondin........................................... 34,050(5) *
Benjamin C. Cohen......................................... 3,593,667(6) 28.9%
Logic Works, Inc.
University Square at Princeton
111 Campus Drive
Princeton, NJ08540
Frank C. Cicio, Jr........................................ 5,000(7) *
Daniel Shiffman........................................... 92,073(8) *
Gregory A. Peters......................................... 115,800(9) *
Frank T. Watts............................................ 7,500(10) *
All current directors and executive officers as a group
(8 persons).............................................. 4,656,487(11) 36.7%
</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
September 17, 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
26
<PAGE>
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
15,000 shares of Common Stock issuable upon the exercise of stock options.
See Note (1).
(3) Includes 27,500 shares of Common Stock issuable upon the exercise of stock
options. See Note (1).
(4) Includes 25,000 shares of Common Stock issuable upon the exercise of stock
options. See Note (1).
(5) Includes 11,250 shares of Common Stock issuable upon the exercise of stock
options. See Note (1).
(6) Includes 1,000,000 shares owned by Coherams Limited Partnership, of which
Dr. Cohen is a General Partner.
(7) Consists of 5,000 shares of Common Stock issuable upon the exercise of
stock options. See Note (1). Mr. Cicio's last day of employment with the
Company was November 15, 1996.
(8) Includes 81,750 shares of Common Stock issuable upon the exercise of a
stock option. See Note (1).
(9) Includes 100,000 shares of Common Stock issuable upon the exercise of a
stock option. See Note (1).
(10) Includes 7,500 shares of Common Stock issuable upon the exercise of a
stock option. See Note (1).
(11) See Notes (2) through (6), and (8) through (10).
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 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.
BY ORDER OF THE BOARD OF DIRECTORS
Gregory A. Peters
Acting Chief Executive Officer and President,
and Chief Financial Officer
27
<PAGE>
PRINCETON, NEW JERSEY
28
<PAGE>
PROXY CARD
(Form of Proxy)
LOGIC WORKS, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS - OCTOBER 30, 1997
(THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY)
The undersigned stockholder of Logic Works, Inc. hereby appoints
Gregory A. Peters and Daniel Shiffman and each of them, with full power of
substitution, proxies to vote the shares of stock which the undersigned
could vote if personally present at the Special Meeting of Stockholders of Logic
Works, Inc. to be held at the offices of the Company, University Square at
Princeton, 111 Campus Drive, Princeton, NJ 08540 on October 30, 1997 at
9:00 a.m. (eastern daylight time).
1. AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
FOR AGAINST ABSTAIN WITH RESPECT TO
/ / / / / /
proposal to approve the amendment to the
Employee Stock Purchase Plan as described in the Proxy Statement.
2. AMENDMENT TO THE 1995 STOCK OPTION/STOCK ISSUANCE PLAN
FOR AGAINST ABSTAIN WITH RESPECT TO
/ / / / / /
proposal to approve the amendment to the 1995
Stock Option/Stock Issuance Plan as described in the Proxy Statement.
3. IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 AND
PROPOSAL 2.
Please date and sign exactly as your name appears on the envelope in which
this material was mailed. If shares are held jointly, each stockholder
should sign. Executors, administrators, trustees, etc. should use full title
and, if more than one, all should sign. If the Stockholder is a corporation,
please sign full corporate name by an authorized officer. If the stockholder
is a partnership, please sign full partnership name by an authorized person.
-----------------------------------------
-----------------------------------------
Signature(s) of Stockholder
Dated:
--------------------------
- ---------------------------------
<PAGE>
Exhibit 99.1
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
Program upon his or her continued service as a non-employee Board member at
one or more Annual Stockholders Meetings.
3
<PAGE>
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.
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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.
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as
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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 discretion deem appropriate.
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(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.
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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):
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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 by the successor corporation (or parent
thereof) in the Corporate Transaction and shall remain exercisable for the
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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 between installments, and
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(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 performance objectives.
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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 Corporation's repurchase right shall lapse, upon the Optionee's
completion of one (1) year of Board service measured from the option grant
date.
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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 its capital or business structure or to merge,
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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.
<PAGE>
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.
(ii) Stock Delivery: The election to deliver to the
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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 "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. 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.
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.
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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
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
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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.
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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:
(i) a merger or consolidation in which securities possessing
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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, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
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(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).
R. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
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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.
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.
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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.
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
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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.
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Exhibit 99.2
LOGIC WORKS, INC.
EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of Logic Works, Inc. by providing eligible employees with the
opportunity to acquire a proprietary interest in the Corporation through
participation in a payroll-deduction based employee stock purchase plan
designed to qualify under Section 423 of the Code. Capitalized terms herein
shall have the meanings assigned to such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with
the requirements of Code Section 423. Decisions of the Plan Administrator
shall be final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of
Common Stock purchased 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
750,000 (/) shares.
B. 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 class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date and (iii) the number and
class of securities and the price per share in effect under each outstanding
purchase right in order to prevent the dilution or enlargement of benefits
thereunder.
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(1) Includes the 500,000-share increase which is subject to approval by the
Corporation's stockholders at the 1997 Special Stockholder Meeting.
<PAGE>
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i)
the maximum number of shares of Common Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date. However, the initial offering period shall commence at the
Effective Time and terminate on the last business day in October 1997. The
next offering period shall commence on the first business day in November
1997, and subsequent offering periods shall commence as designated by the
Plan Administrator.
C. Each offering period shall be comprised of a series of one or
more successive Purchase Periods. Purchase Periods shall begin on the first
business day in May and November each year and terminate on the last business
day in October and April respectively each year. However, the initial
Purchase Period shall begin at the Effective Time and terminate on the last
business day in April 1996.
D. Should the Fair Market Value per share of Common Stock on any
semi-annual Purchase Date within an offering period be less than the Fair
Market Value per share of Common Stock on the start date of that offering
period, then that offering period shall automatically terminate with the
purchase of shares of Common Stock on such semi-annual Purchase Date, and a
new offering period shall begin on the next business day. The new offering
period shall have a duration of twenty-four (24) months, unless a shorter
duration is established by the Plan Administrator within five (5) business
days following the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date
of the initial offering period shall be eligible to enter that offering
period or any subsequent offering period under the Plan on the start date of
any Purchase Period within the applicable offering period on which he or she
remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after
the start date of the initial offering period shall be eligible to enter that
offering period or any subsequent offering period under the Plan on the start
date of any Purchase Period within the applicable offering period on which he
or she is an Eligible Employee with at least three (3) months of service with
the Corporation or any Corporate Affiliate.
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
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<PAGE>
D. To participate in the Plan for a particular offering period,
the Eligible Employee must complete the enrollment forms prescribed by the
Plan Administrator (including a stock purchase agreement and a payroll
deduction authorization form) and file such forms with the Plan Administrator
(or its designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be any
multiple of one percent (1%) of the Cash Compensation paid to the Participant
during each Purchase Period within that offering period, up to a maximum of
ten percent (10%). The deduction rate so authorized shall continue in effect
for the remainder of the offering period, except to the extent such rate is
changed in accordance with the following guidelines:
(i) The Participant may, at any time during the offering
period, reduce his or her rate of payroll deduction to become effective
as soon as possible after filing the appropriate form with the Plan
Administrator. The Participant may not, however, effect more than one
(1) such reduction per Purchase Period.
(ii) The Participant may, prior to the commencement of any
new Purchase Period within the offering period, increase the rate of his
or her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the ten percent (10%)
maximum) shall become effective as of the start date of the Purchase
Period following the filing of such form.
B. Payroll deductions shall begin on the first pay day following
the Participant's Entry Date into the offering period and shall (unless
sooner terminated by the Participant) continue through the pay day ending
with or immediately prior to the last day of that offering period. The
amounts so collected shall be credited to the Participant's book account
under the Plan, but no interest shall be paid on the balance from time to
time outstanding in such account. The amounts collected from the Participant
shall not be held in any segregated account or trust fund and may be
commingled with the general assets of the Corporation and used for general
corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within
the same or a different offering period.
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VII. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the
right to purchase shares of Common Stock, in a series of successive
installments over the remainder of such offering period, upon the terms set
forth below. The Participant shall execute a stock purchase agreement
embodying such terms and such other provisions (not inconsistent with the
Plan) as the Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or
more of the total combined voting power or value of all classes of stock of
the Corporation or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date
within the offering period, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant (other than any Participant whose
payroll deductions have previously been refunded in accordance with the
Termination of Purchase Right provisions below) on each such Purchase Date.
The purchase shall be effected by applying the Participant's payroll
deductions for the Purchase Period ending on such Purchase Date to the
purchase of whole shares of Common Stock at the purchase price in effect for
the Participant for that Purchase Date.
C. Purchase Price. The purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date
within the offering period shall be equal to eighty-five percent (85%) of the
lower of (i) the Fair Market Value per share of Common Stock on the
Participant's Entry Date into that offering period or (ii) the Fair Market
Value per share of Common Stock on that Purchase Date. However, for each
Participant whose Entry Date is other than the start date of the offering
period, the clause (i) amount shall in no event be less than the Fair Market
Value per share of Common Stock on the start date of that offering period.
D. Number of Purchasable Shares. The number of shares of Common
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Period ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed 1,500 shares, subject to periodic adjustments in the event of certain
changes in the Corporation's capitalization.
E. Excess Payroll Deductions. Any payroll deductions not applied
to the
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<PAGE>
purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on
the Purchase Date shall be promptly refunded.
F. Termination of Purchase Right. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next
Purchase Date in the offering period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions
shall be collected from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during the Purchase
Period in which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares on
the next Purchase Date. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected with
respect to the terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted. In
order to resume participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before his or her scheduled Entry
Date into that offering period.
(iii) Should the Participant cease to remain an
Eligible Employee for any reason (other than death or disability) while
his or her purchase right remains outstanding, then that purchase right
shall immediately terminate, and all of the Participant's payroll
deductions for the Purchase Period in which the purchase right so
terminates shall be immediately refunded. Should the Participant cease
to remain an Eligible Employee by reason of death or disability while
his or her purchase right remains outstanding, then that purchase right
shall immediately terminate, and all of the Participant's payroll
deductions for the Purchase Period in which such death or disability
occurs shall, at the election of the Participant (or, in the event of
the Participant's death, the personal representative of the
Participant's estate), be immediately refunded or held for the purchase
of shares on the next Purchase Date. If no such election is made prior
to the next Purchase Date, then the payroll deductions collected with
respect to the terminated right shall be refunded as soon as possible.
(iv) Should the Participant cease to remain in active
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service by reason of an approved unpaid leave of absence, then no
further payroll deductions shall be collected on the Participant's
behalf during such leave, and the Participant shall have the election,
exercisable up until the last business day of the Purchase Period in
which such leave commences, to (a) withdraw all the payroll deductions
collected on the Participant's behalf to date in that Purchase Period or
(b) have such funds held for the purchase of shares at the end of such
Purchase Period. Upon the Participant's return to active service
following the approved leave, his or her payroll deductions under the
Plan shall automatically resume at the rate in effect at the time the
leave began, provided such return to service occurs prior to the
expiration date of the offering period in which such leave began.
G. Corporate Transaction. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Period in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share equal
to eighty-five percent (85%) of the lower of (i) the Fair Market Value per
share of Common Stock on the Participant's Entry Date into the offering
period in which such Corporate Transaction occurs or (ii) the Fair Market
Value per share of Common Stock immediately prior to the effective date of
such Corporate Transaction. However, the applicable share limitations per
Participant shall continue to apply to any such purchase, and the clause (i)
amount above shall not, for any Participant whose Entry Date for the offering
period is other than the start date of that offering period, be less than the
Fair Market Value per share of Common Stock on such start date.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Corporate
Transaction, and Participants shall, following the receipt of such notice,
have the right to terminate their outstanding purchase rights prior to the
effective date of the Corporate Transaction.
H. Proration of Purchase Rights. Should the total number of
shares of Common Stock to be purchased pursuant to outstanding purchase
rights on any particular date exceed the number of shares then available for
issuance under the Plan, the Plan Administrator shall make a pro rata
allocation of the available shares on a uniform and nondiscriminatory basis,
and the payroll deductions of each Participant, to the extent in excess of
the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded.
I. Assignability. During the Participant's lifetime, the purchase
right shall be exercisable only by the Participant and shall not be
assignable or transferable by the Participant other than by will or the laws
of descent and distribution following the Participant's death.
J. Stockholder Rights. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in
accordance with the provisions of the Plan and the Participant has become a
holder of record of the purchased shares.
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<PAGE>
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if
and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan
and (ii) similar rights accrued under other employee stock purchase plans
(within the meaning of Code Section 423) of the Corporation or any Corporate
Affiliate, would otherwise permit such Participant to purchase more than
Twenty-Five Thousand Dollars ($25,000) worth of stock of the Corporation or
any Corporate Affiliate (determined on the basis of the Fair Market Value of
such stock on the date or dates such rights are granted) for each calendar
year such rights are at any time outstanding.
B. For purposes of applying such accrual limitations, the
following provisions shall be in effect:
(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue in a series of installments on
each successive Purchase Date during the offering period on which such
right remains outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock
under one (1) or more other purchase rights at a rate equal to
Twenty-Five Thousand Dollars ($25,000) worth of Common Stock (determined
on the basis of the Fair Market Value of such stock on the date or dates
of grant) for each calendar year such rights were at any time
outstanding.
C. Should any purchase right of a Participant not accrue for a
particular Purchase Period by reason of such accrual limitations, then the
payroll deductions which the Participant made during that Purchase Period
with respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of
this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on July 26, 1995 and
subsequently approved by the Corporation's stockholders. The Plan became
effective on October 16, 1995 (the "Effective Time") upon execution of the
underwriting agreement in connection with the initial public offering of the
Common Stock.
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On May 7, 1997 the Board adopted the following amendments to the
Plan subject to approval by the Corporation's stockholders; (i) the number of
shares of Common Stock available for issuance thereunder was increased from
250,000 to 750,000 shares, (ii) a new twenty-four (24) month offering period
will begin in the event that the Fair Market Value of the Common Stock on any
semi-annual Purchase Date within an offering period is less than the Fair
Market Value of the Common Stock on the start date of such offering period
and (iii) the stockholder approval requirements for amending the Plan were
amended to take advantage of changes to Rule 16-(b)3 of the Securities and
Exchange Commission. The amendments shall become effective upon approval by
the Corporation's stockholders at the 1997 Special Stockholder Meeting. In
the event such stockholder approval is not obtained, then, to the extent that
purchase rights have been granted under the Plan in reliance upon the
500,000-share increase, such purchase rights will terminate, the Plan
Administrator will allocate the remaining shares of Common Stock available
for issuance under the Purchase Plan on a pro rata basis between the
Participants, any excess payroll deductions will be refunded to Participants
and the Plan will immediately terminate.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in October 2005, (ii) the date
on which all shares available for issuance under the Plan shall have been
sold pursuant to purchase rights exercised under the Plan or (iii) the date
on which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and
no further payroll deductions shall be collected, under the Plan following
its termination.
X. AMENDMENT OF THE PLAN
The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with
respect to purchase rights at the time outstanding under the Plan unless the
Participant consents to such amendment or modification. In addition, certain
amendments may require stockholder approval pursuant to applicable laws or
regulations.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right
to continue in the employ of the Corporation or any Corporate Affiliate for
any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate Affiliate employing
such person) or of the Participant, which rights are hereby expressly
reserved by each, to terminate such person's employment at any time for any
reason, with or without cause.
C. The provisions of the Plan shall be governed by the laws of the
State of New
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Jersey without resort to that State's conflict-of-laws rules.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
B. Cash Compensation shall mean the (i) regular base salary paid
to a Participant by one or more Participating Companies during such
individual's period of participation in the Plan, plus (ii) any pre-tax
contributions made by the Participant to any Code Section 401(k) salary
deferral plan or any Code Section 125 cafeteria benefit program now or
hereafter established by the Corporation or any Corporate Affiliate, plus
(iii) all of the following amounts to the extent paid in cash: overtime
payments, bonuses, commissions, profit-sharing distributions and other
incentive-type payments. However, Cash Compensation shall not include any
contributions (other than Code Section 401(k) or Code Section 125
contributions) made on the Participant's behalf by the Corporation or any
Corporate Affiliate to any deferred compensation plan or welfare benefit
program now or hereafter established.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
D. Common Stock shall mean the Corporation's common stock.
E. Corporate Affiliate shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(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 securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation.
G. Corporation shall mean Logic Works, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Logic Works, Inc. which shall by appropriate action
adopt the Plan.
H. Effective Time shall mean the time at which the Underwriting
Agreement is
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executed and finally priced. Any Corporate Affiliate which becomes a
Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.
I. Eligible Employee shall mean any person who is engaged, on a
regularly-scheduled basis of more than twenty (20) hours per week for more
than five (5) months per calendar year, in the rendition of personal services
to any Participating Corporation as an employee for earnings considered wages
under Code Section 3401(a).
J. Entry Date shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan.
The earliest Entry Date under the Plan shall be the Effective Time.
K. 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, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) For purposes of the initial offering period which
begins at the Effective Time, the Fair Market Value shall be deemed to
be equal to the price per share at which the Common Stock is sold in the
initial public offering pursuant to the Underwriting Agreement.
L. 1933 Act shall mean the Securities Act of 1933, as amended.
M. Participant shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
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N. Participating Corporation shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by
the Board to extend the benefits of the Plan to their Eligible Employees.
The Participating Corporations in the Plan as of the Effective Time are
listed in attached Schedule A.
O. Plan shall mean the Corporation's Employee Stock Purchase Plan,
as set forth in this document.
P. Plan Administrator shall mean the committee of two (2) or more
Board members appointed by the Board to administer the Plan.
Q. Purchase Date shall mean the last business day of each Purchase
Period. The initial Purchase Date shall be April 30, 1996.
R. Purchase Period shall mean each successive six (6)-month period
within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant. However, the first
Purchase Period shall commence at the Effective Time and end on April 30,
1996.
S. Stock Exchange shall mean either the American Stock Exchange or
the New York Stock Exchange.
T. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
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