0001133884-01-500670.txt : 20011026
0001133884-01-500670.hdr.sgml : 20011026
ACCESSION NUMBER: 0001133884-01-500670
CONFORMED SUBMISSION TYPE: DEF 14A
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 20011120
FILED AS OF DATE: 20011022
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: EXCHANGE APPLICATIONS INC
CENTRAL INDEX KEY: 0001065857
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373]
IRS NUMBER: 043338916
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: DEF 14A
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-24679
FILM NUMBER: 1763425
BUSINESS ADDRESS:
STREET 1: 89 SOUTH STREET
CITY: BOSTON
STATE: MA
ZIP: 02111
BUSINESS PHONE: 6177372244
MAIL ADDRESS:
STREET 1: 89 SOUTH STREET
CITY: BOSYON
STATE: MA
ZIP: 02111
DEF 14A
1
gdef14a-26078.txt
EXCHANGE APPLICATIONS, INC.
D/B/A XCHANGE, INC.
89 SOUTH STREET
BOSTON, MA 02111
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS OF EXCHANGE APPLICATIONS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Exchange
Applications, Inc. (the "Company") will be held at the offices of Bingham Dana
LLP, 16th Floor, 150 Federal Street, Boston, MA 02110, on Tuesday, November 20,
2001, at 10:00 a.m., local time, for the following purposes:
1. To consider and act upon a proposed amendment to the Company's
Certificate of Incorporation, if the Board of Directors determines
that such action is in the best interests of the Company and its
stockholders.
(a) Amend the Company's Certificate of Incorporation to effect a
twenty-for-one (20:1) reverse stock split.
(b) Amend the Company's Certificate of Incorporation to effect a
thirty-for-one (30:1) reverse stock split.
(c) Amend the Company's Certificate of Incorporation to effect a
forty-for-one (40:1) reverse stock split.
2. To ratify the action of the Board of Directors in amending the 1998
Stock Incentive Plan to increase the number of shares of common stock
authorized for issuance thereunder from 9,400,000 to 46,600,000 (to be
adjusted accordingly if the reverse splits contemplated in Proposal
No. 1 above are approved);
3. To approve the issuance of shares of common stock upon conversion of
shares of Series A Convertible Redeemable Preferred Stock; and
4. To transact such other business as may properly come before the
Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on September 28,
2001 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Special Meeting of Stockholders and any adjournments or
postponements thereof. Accordingly, only stockholders of record at the close of
business on September 28, 2001 will be entitled to notice of, and to vote at,
such meeting or any adjournments thereof.
By order of the Board of Directors
/s/ J. Chris Wagner
-------------------------------------
J. CHRIS WAGNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
October 22, 2001
--------------------------------------------------------------------------------
NOTE: THE BOARD OF DIRECTORS SOLICITS THE EXECUTION AND PROMPT RETURN OF
THE ACCOMPANYING PROXY. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT
THE MEETING, PLEASE
COMPLETE, DATE, SIGN AND MAIL THE ACCOMPANYING PROXY AND PROMPTLY
RETURN IT IN THE PRE-ADDRESSED ENVELOPE PROVIDED FOR THAT PURPOSE.
IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW ANY PROXY GIVEN BY YOU
AND VOTE YOUR SHARES IN PERSON.
--------------------------------------------------------------------------------
2
EXCHANGE APPLICATIONS, INC.
D/B/A XCHANGE, INC.
89 SOUTH STREET
BOSTON, MA 02111
---------------
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 20, 2001
---------------
GENERAL INFORMATION
PROXY SOLICITATION
This Proxy Statement is furnished to the holders of the common stock, $.001
par value per share ("Common Stock"), of Exchange Applications, Inc. d/b/a
Xchange, Inc. (the "Company") in connection with the solicitation of proxies on
behalf of the Board of Directors of the Company for use at the Special Meeting
of Stockholders to be held on November 20, 2001 (the "Meeting"), or at any
adjournment or postponement thereof, pursuant to the accompanying Notice of
Special Meeting of Stockholders. The purposes of the Meeting and the matters to
be acted upon are set forth in the accompanying Notice of Special Meeting of
Stockholders. The Board of Directors knows of no other business that will come
before the Meeting.
This Proxy Statement and proxies for use at the Meeting will be first mailed
to stockholders on or about October 22, 2001, and such proxies will be solicited
chiefly by mail, but additional solicitations may be made by telephone or
telegram by the officers or regular employees of the Company. The Company may
enlist the assistance of brokerage houses in soliciting proxies. All
solicitation expenses, including costs of preparing, assembling and mailing
proxy material, will be borne by the Company.
REVOCABILITY AND VOTING OF PROXY
A form of proxy for use at the Meeting and a return envelope for the proxy
are enclosed. Stockholders may revoke the authority granted by their execution
of proxies at any time before their effective exercise by filing with the
Secretary of the Company a written revocation or a duly executed proxy bearing a
later date or by voting in person at the Meeting. Shares represented by executed
and unrevoked proxies will be voted in accordance with the choice or
instructions specified thereon. If no specifications are given, the proxies
intend to vote the shares represented thereby to approve Proposal Nos. 1, 2, and
3 as set forth in the accompanying Notice of Special Meeting of Stockholders and
in accordance with their best judgment on any other matters that may properly
come before the Meeting.
RECORD DATE AND VOTING RIGHTS
Only stockholders of record at the close of business on September 28, 2001
are entitled to notice of, and to vote at, the Meeting or any adjournment or
postponement thereof. As of September 28, 2001, the Company had outstanding
34,373,820 shares of Common Stock, each of which is entitled to one vote upon
the matters to be presented at the Meeting. Additionally, there are currently
outstanding
5,325,645 shares of preferred stock ("Preferred Stock"), each of which is
entitled to vote upon matters presented at the Meeting on an "as-if" converted
basis. The shares of Preferred Stock are currently convertible into 6,488,781
shares of Common Stock. The presence, in person or by proxy, of a majority of
the issued and outstanding shares of Common Stock will constitute a quorum for
the transaction of business at the Meeting. Proposal No. 1, approval of
amendment to the Company's Certificate of Incorporation, requires the
affirmative vote of holders of a majority of the outstanding shares of the
Company's Common Stock. All other matters submitted to the stockholders will
require the affirmative vote of a majority of shares present in person or by
proxy at which a quorum is present, as required under Delaware law for approval
of prososals presented to shockholders. Votes withheld, abstentions, and broker
"non-votes" are counted as present or represented for purposes of determining
the presence or absence of a quorum for the Meeting. A broker "non-vote" occurs
when a nominee holding shares for a beneficial owner does not vote on one or
more proposals because the nominee does not have discretionary voting power and
has not received instructions from the beneficial owner. Abstentions are
included in the number of shares present or represented and voting on each
matter. Broker "non-votes" are not so included.
Stockholders of the company are requested to complete, sign, date and
promptly return the accompanying Proxy Card in the enclosed postage-prepaid
envelope. Shares represented by a properly executed proxy received prior to the
vote at the Annual Meeting and not revoked will be voted at the Annual Meeting
as directed on the proxy. If a properly executed proxy is submitted and no
instructions are given, the proxy will be voted for the election of each of the
three proposals in this Proxy Statement. It is not anticipated that any matters
other than those set forth in the Proxy Statement will be presented at the
Annual Meeting. If other matters are presented, proxies will be voted in
accordance with the discretion of the proxy holders.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of September 28, 2001 of (i) each
director of the Company, (ii) the Company's Chief Executive Officer and its
other four most highly compensated executive officers, (iii) all directors and
executive officers as a group and (iv) each person known to the Company to be
the beneficial owner of more than 5% of the issued and outstanding Common Stock.
As of September 28, 2001, 34,373,820 shares of Common Stock were outstanding.
Additionally, there are currently outstanding 5,325,645 shares of Preferred
Stock, each of which is entitled to vote upon matters presented at the Meeting
on an "as-if" converted basis. The Preferred shares are currently convertible
into 6,488,781 shares of Common Stock.
AMOUNT AND NATURE OF PERCENTAGE OF
BENEFICIAL OWNERSHIP OUTSTANDING SHARES OF
NAME ** OF COMMON STOCK (1) COMMON STOCK OWNED (1)
---- ------------------- ----------------------
Andrew J. Frawley (2) ........................... 2,842,747 7.9%
Ramanan Raghavendran (3)......................... 2,500 *
Dean F. Goodermote (4) .......................... 32,500 *
2
William Bryant (5) .............................. 40,031 *
Deven Parekh (6)................................. 40,160,743 54.1%
J. Chris Wagner.................................. 0 *
N. Wayne Townsend (7)............................ 184,900 *
F. Daniel Haley (8).............................. 193,752 *
Tony Heywood (9)................................. 168,457 *
THK Private Equities (10)........................ 19,990,136 36.8%
Boston Pipes, LLC (11)........................... 12,493,835 26.7%
InSight Venture Partners (12).................... 40,160,743 54.1%
All directors and executive
officers as a group (twelve
persons)....................................... 43,692,187 57.1%
* Indicates less than 1% of the outstanding shares of Common Stock.
** Addresses are given only for beneficial owners of more than 5% of the
outstanding shares of Common Stock.
(1) Beneficial ownership is calculated in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person
that are currently exercisable or become exercisable within 60 days
following September 28, 2001 are deemed outstanding. However, such
shares are not deemed outstanding for the purpose of computing the
percentage ownership of any other person. Unless otherwise indicated in
the footnotes to this table, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable.
(2) Includes 273,290 shares of Common Stock subject to options that are
exercisable within 60 days of September 28, 2001 and 1,249,383 shares
of Common Stock subject to conversion of debentures within 60 days of
September 28, 2001. Pursuant to a Securities Purchase Agreement entered
into with the Company on August 29, 2001, Mr. Frawley controls
Convertible Debentures upon which interest accrues at a rate of 12
percent per annum and which are convertible into Common Stock in an
amount equal to 103 percent of the principal, plus accrued interest,
divided by a conversion price of $.3183 per share.
3
Mr. Frawley's address is 89 South Street, Boston, MA 02211.
(3) Includes 2,500 shares of Common Stock subject to options that are
exercisable within 60 days of September 28, 2001.
(4) Includes 30,500 shares of Common Stock subject to options that are
exercisable within 60 days of September 28, 2001.
(5) Includes 36,510 shares of Common Stock subject to options that are
exercisable within 60 days of September 28, 2001.
(6) Mr. Parekh has beneficial ownership of the shares listed pursuant to
his status as a partner at InSight Venture Partners. Includes 4,974,697
shares held by InSight Venture Partners IV, L.P.; 683,752 shares held
by InSight Venture Partners (Cayman) IV, L.P.; 42,828 shares held by
InSight Venture Partners IV (Fund B), L.P.; and 787,503 held by InSight
Venture Partners IV (Co-Investors), L.P. The InSight entities are
referred to collectively as "InSight". Pursuant to a Securities
Purchase Agreement entered into between InSight and the Company on
January 10, 2001, InSight owns 5,325,645 shares of Convertible
Preferred Stock upon which dividends accrue daily at a rate of 10
percent per annum and compound quarterly. Insight has voting rights
over these shares on an "as if" converted basis and these shares are
convertible into 6,488,781 shares of Common Stock within 60 days of
September 28, 2001.
Also includes 25,628,613 shares exercisable within 60 days of September
28, 2001 held by InSight Venture Partners IV, L.P., 3,522,551 shares
exercisable within 60 days of September 28, 2001 held by InSight
Venture Partners (Cayman) IV, L.P., 220,641 shares exercisable within
60 days of September 28, 2001 held by InSight Venture Partners IV (Fund
B), L.P., and 4,057,054 shares exercisable within 60 days of September
28, 2001 held by InSight Venture Partners IV (Co-Investors), L.P.
Pursuant to a Securities Purchase Agreement entered into with the
Company on August 29, 2001, InSight owns Convertible Debentures upon
which interest accrues at a rate of 12 percent per annum and which are
convertible into Common Stock in an amount equal to 103 percent of the
principal, plus accrued interest, divided by a conversion price of
$.3183 per share.
InSight's address is 680 Fifth Avenue, Eighth Floor, New York, New
York, 10019.
(7) Includes 144,298 shares of Common Stock subject to options that are
exercisable within 60 days of September 28, 2001.
(8) Includes 193,750 shares of Common Stock subject to options that are
exercisable within 60 days of September 28, 2001.
(9) Includes 168,457 shares of Common Stock subject to options that are
exercisable within 60 days of September 28, 2001.
(10) Includes 19,990,136 shares of Common Stock subject to conversion within
60 days of September 28, 2001. Pursuant to a Securities Purchase
Agreement entered into with the Company on August 29, 2001, THK Private
Equities owns Convertible Debentures upon which interest accrues at a
rate of 12 percent per annum and which are convertible into Common
Stock in an amount equal to 103 percent of the principal, plus accrued
interest, divided by a conversion price of $.3183 per share.
4
THK Private Equities' address is 1730 So. El Camino Real, Suite 400,
San Mateo, CA 94402.
(11) Includes 12,493,835 shares of Common Stock subject to conversion within
60 days of September 28, 2001. Pursuant to a Securities Purchase
Agreement entered into with the Company on August 29, 2001, Boston
Pipes LLC owns Convertible Debentures upon which interest accrues at a
rate of 12 percent per annum and which are convertible into Common
Stock in an amount equal to 103 percent of the principal, plus accrued
interest, divided by a conversion price of $.3183 per share.
Boston Pipes, LLC's address is 2373 Broadway, Suite 1208, New York, NY
10024.
(12) See Footnote (6) for information regarding Insight Venture Partners.
CHANGE IN CONTROL
Under certain circumstances, based upon the securities of the Company
currently outstanding, the conversion or exercise, as the case may be, of the
Convertible Debentures, Series A Convertible Redeemable Preferred Stock, and the
warrants may at a subsequent date result in a change of control of the
Registrant.
PROPOSAL NO. 1
APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION
GENERAL
On September 27, 2001 the Company's Board of Directors approved and
recommended to the shareholders that they approve separate amendments to the
Company's Certificate of Incorporation to provide the Company with the option to
effect one or more reverse stock splits of the issued and outstanding Common
Stock at ratios of twenty-to-one, thirty-to-one, and forty-to-one, if the Board
of Directors determines that any such action is necessary and in the best
interests of the Company and its stockholders. If implemented, the Company would
continue to have 150,000,000 authorized shares of Common Stock after a reverse
stock split. The decision of whether to implement a reverse stock split, if
authorized by the stockholders, will be determined by the Compnay's Board of
Directos in its sole discretion
THE REVERSE STOCK SPLIT
If the shareholders approve the reverse stock split, management intends
to effect the reverse stock split as soon as practicable subsequent to receiving
the requisite shareholder approval and will notify shareholders of the
effectiveness of the reverse stock split by a press release. The Board of
Directors reserves the right, notwithstanding shareholder approval and without
further action by the shareholders, to abandon the reverse stock split, if, at
any time prior to filing the Certificate of Amendment with the Delaware
Secretary of State, the Board of Directors, in its sole discretion, determines
that the reverse stock split is no longer in the best interests of the Company
and its shareholders.
5
REASONS FOR THE REVERSE STOCK SPLIT
The primary reason for the reverse stock split is to is to combine the
outstanding shares of Common Stock in order to increase the price per share of
the Common Stock above the minimum bid requirement of $1.00 per share required
by The Nasdaq Stock Market, Inc. ("Nasdaq"). The Common Stock is quoted on The
Nasdaq National Market.
The Company received a letter dated August 15, 2001, from the staff of
Nasdaq (the "Staff") advising the Company that the bid price for its Common
Stock had been below $1.00 per share for a period of thirty consecutive trading
days. The Staff further advised the Company that it would be given a period of
ninety days within which to comply with the minimum bid price requirement in
order to maintain its listing on The Nasdaq National Market. Therefore, in order
to maintain this listing, the Company was notified that it was required to
demonstrate a closing bid price of at least $1.00 per share for ten consecutive
days on or before November 13, 2001.
In response to the extraordinary market conditions following the
tragedy of September 11th, Nasdaq has implemented an across-the-board moratorium
on the minimum bid requirements for continued listing on Nasdaq. Although a
proposal to suspend these requirements until January 2, 2002, was approved by
the Nasdaq Board of Directors and is effective immediately, there can be no
assurances that the moratorium will continue after January 2, 2002.
The Company believes that, if the reverse stock split is implemented,
it is likely that the closing bid price of the Common Stock will increase above
$1.00 and the Company would be in compliance with the minimum bid price
requirement. The reverse stock split would decrease the number of issued and
outstanding shares of Common Stock, presumably increasing the per share market
price of the Common Stock; however, the price per share of the Common Stock is
also based on our financial performance and other factors, some of which may be
unrelated to the number of shares outstanding. Accordingly, there can be no
assurance that the closing bid price of the Common Stock after the reverse stock
split will increase in an amount proportionate to the decrease in the number of
issued and outstanding shares or will increase at all or that any increase can
be sustained for a prolonged period of time. Furthermore, even if the closing
bid price of the Common Stock increases to above $1.00, there can be no
assurance that the Company will be able to maintain compliance with all of the
requirements of The Nasdaq National Market maintenance standards. If the Company
fails to maintain compliance with one or more of these requirements, the Common
Stock would be subject to delisting from The Nasdaq National Market. Although
the Company believes that the reverse stock split will have no detrimental
effect on the total value of the Common Stock there can be no assurance that the
total value of the Common Stock after the reverse stock split will be the same
as before. To the extent that a shareholder's holding is reduced by reason of
the reverse stock split to less than 100 shares of Common Stock, the brokerage
fees for the sale of such shares will in all likelihood be higher than the
brokerage fees applicable to the sale of round lots of shares. The Company
believes that the long-term interests of our shareholders are best served by
maintaining a Nasdaq listing for the Company's shares. The reasoning is as
follows:
|X| A listing will preserve liquidity. The Company is actively traded so
listing will help retain market makers. As The Nasdaq National Market
is regulated, market makers tend to adhere to standards which result
in tighter spreads, reduced volatility and greater depth of supply and
demand. All these factors contribute to the perception and reality of
enhanced liquidity which is important to attracting new shareholders
and equally important to existing shareholders.
6
|X| A listing will sustain visibility to the investment community. If our
listing is maintained, our share price will be quoted daily in The
Wall Street Journal.
|X| A listing will enhance credibility with investors and customers. The
fact that Nasdaq has reviewed the Company's plan and chosen to permit
continued listing is a positive comment on the viability of the plan.
|X| A listing will create acquisition currency. If our shares are not
listed, it will be increasingly difficult to persuade acquisition
targets to accept the Company shares.
|X| A listing will expand the universe of potential investors. Many
individual and institutional investors will not buy unlisted shares.
|X| A listing will enhance access to capital.
|X| A listing, once lost, is more difficult to regain than it is to
maintain.
|X| The alternative to a Nasdaq listing is the Over-the-Counter Bulletin
Board. With regard to market makers and liquidity, the
Over-the-Counter Bulletin Board lacks the status and recognition
inherent in a Nasdaq listing.
IN ADDITION TO THE REASONS ARTICULATED ABOVE, THE IMPLEMENTATION OF A
REVERSE STOCK SPLIT WOULD DECREASE THE NUMBER OF ISSUED AND OUTSTANDING SHARES
OF COMMON STOCK, THEREBY INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK AVAILABLE FOR ISSUANCE. ACCORDING TO THE TERMS OF A SECURITIES PURCHASE
AGREEMENT, DATED AS OF AUGUST 29, 2001, AMONG THE COMPANY AND THE PURCHASERS
IDENTIFIED THEREIN, IF THE COMPANY AND ITS SHAREHOLDERS FAIL TO ENSURE THAT
THERE ARE SUFFICIENT AUTHORIZED AND UNISSUED SHARES AVAILABLE TO ENABLE THE
COMPANY TO ISSUE COMMON STOCK UPON THE EXERCISE OR CONVERSION OF THE WARRANTS
AND CONVERTIBLE DEBENTURES ISSUED PURSUANT TO THE SECURITIES PURCHASE AGREEMENT,
THE INTEREST RATE APPLICABLE TO THE CONVERTIBLE DEBENTURES WILL INCREASE FROM A
RATE OF TWELVE PERCENT TO TWENTY PERCENT PER ANNUM. THE IMPLEMENTATION OF THE
REVERSE STOCK SPLIT WOULD ENSURE THAT SUFFICIENT COMMON STOCK IS AVAILABLE FOR
SUCH CONVERSION.
IMPLEMENTATION OF THE REVERSE STOCK SPLIT
Pursuant to the reverse stock split, each holder of forty shares of
Common Stock, immediately prior to the effectiveness of the reverse stock split
would become the holder of one share of Common Stock. The reverse stock split
will become effective after the Company files the Certificate of Amendment with
the Delaware Secretary of State. If the reverse stock split is approved by the
shareholders, the Board of Directors intends to cause the Certificate of
Amendment to be filed as soon as practicable after the date of the meeting.
However, notwithstanding approval by the shareholders, the Board of Directors
may elect not to file, or to delay the filing of, the Certificate of Amendment,
if the Board of Directors determines that filing the Certificate of Amendment
would not be in the best interest of the Company or its shareholders at such
time.
EFFECTS OF THE REVERSE STOCK SPLIT
With the exception of the number of issued and outstanding shares, the
rights and preferences of the shares of Common Stock prior and subsequent to the
reverse stock split will remain the same. The reverse stock split may result in
some shareholders owning "odd-lots" of less than 100 shares of Common Stock.
Brokerage commissions and other costs of transactions in odd-lots are generally
7
somewhat higher than the costs of transactions in "round-lots" of even multiples
of 100 shares. The per share par value of the Common Stock will not change as a
result of the reverse stock split. In addition, at the effective time each
option and warrant to purchase Common Stock and any other convertible security
outstanding on the effective time will be adjusted so that the number of shares
of Common Stock issuable upon their exercise shall be divided by forty (and
corresponding adjustments will be made to the number of shares vested under each
outstanding option) and the exercise price of each option and warrant shall be
multiplied by forty. No fractional shares will be issued upon the reverse split.
In lieu thereof, the Company will pay each holder of a fractional interest an
amount in cash equal to the value of such fractional interest as described
herein.
EXCHANGE OF STOCK CERTIFICATES
Upon the effectiveness of the Certificate of Amendment, the reverse
stock split will occur without any further action on the part of shareholders
and without regard to the date or dates on which the stock certificates are
physically surrendered in exchange for certificates representing the number of
shares of new Common Stock such shareholders are entitled to receive as a
consequence of the reverse stock split. As soon as possible after the
effectiveness of the reverse stock split, holders of Common Stock will be
notified and requested to surrender their present stock certificates for new
certificates representing the number of whole shares of Common Stock into which
such shares have been converted as a result of the reverse stock split. Until so
surrendered, each current certificate representing shares of Common Stock will
be deemed for all corporate purposes after the effectiveness of the reverse
stock split to evidence ownership of Common Stock in the appropriately reduced
whole number of shares. No service charges will be payable by holders of shares
of Common Stock in connection with the exchange of certificates. All of such
expenses will be borne by the Company. STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK
CERTIFICATES AND SHOULD NOT SUBMIT ANY CERTIFICATES UNTIL REQUESTED TO DO SO.
FRACTIONAL SHARES
No fractional share certificates for Common Stock will be issued in
connection with the reverse stock split, but in lieu thereof, the aggregate
number of whole shares resulting from the combination of all fractional shares
otherwise issuable will be sold by the Company in public or private transactions
as soon as practicable after the effective date on the basis of prevailing
market prices of the Common Stock at the time of sale. After the effective date,
the Company will pay shareholders entitled to receive a fractional share cash in
lieu of their fractional interests upon surrender of their stock certificates.
No service charges or brokerage commissions will be payable by shareholders in
connection with the sale of fractional interests, all of which costs will be
borne by the Company. Shareholders will not be entitled to receive cash for any
whole new shares of Common Stock into which their current shares are converted.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT
The following is a summary of the material federal income tax
consequences of the reverse stock split to a shareholder and is for general
information purposes only. Shareholders should consult their own tax advisors as
to any federal, state, local and foreign tax effects of the reverse stock split
in light of their individual circumstances. The change of the old amounts of
Common Stock for the new amounts of Common Stock should not have material
federal income tax consequences to shareholders. The change of the old amounts
of Common Stock for the new amounts of Common Stock generally will not cause any
gain or loss to be recognized by a shareholder, except for cash received for a
fractional
8
share. A shareholder who receives cash for a fractional share will recognize
gain or loss equal to the difference between the amount of cash received and the
shareholder's basis in the fractional share. The aggregate basis of the shares
of the new amounts of Common Stock, including any fractional share for which a
shareholder receives cash, will be the same as the aggregate basis of the old
amounts of Common Stock held by the shareholder. A shareholder's holding period
for shares of the new amounts of Common Stock will include the holding period
for shares of the old amounts of Common Stock held by the shareholder if they
are held as a capital asset at the effective time of the reverse stock split.
EACH SHAREHOLDER SHOULD CONSULT WITH THE SHAREHOLDER'S OWN TAX ADVISOR ABOUT THE
TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT IN LIGHT OF THE SHAREHOLDER'S
PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLICATION OF ANY FEDERAL, STATE, LOCAL
OR FOREIGN TAX LAW.
ACCOUNTING EFFECTS OF THE REVERSE SPLIT
Following the effective time, the par value of the Common Stock will
remain the same. As a result, the Company's stated capital will be reduced and
capital in excess of par value (paid-in capital) increased accordingly.
Shareholders' equity will remain unchanged.
NO DISSENTER'S RIGHTS
Under Delaware law, the Company's Certificate of Incorporation or the
Company's By-laws, shareholders are not entitled to dissenter's rights of
appraisal with respect to a reverse stock split.
APPROVAL REQUIRED
In order for the shareholders to authorize the reverse stock split, a
majority of the shares of outstanding common stock entitled to vote at the
meeting must vote in person or by proxy in favor of this proposal. Abstentions
and shares held in street name that are not voted on this proposal will have the
same effect as a vote against the proposal.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 1 TO BE IN THE BEST INTERESTS
OF THE COMPANY AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
PROPOSAL.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below sets forth certain compensation information for the
fiscal years ended December 31, 2000, 1999, and 1998 with respect to the
Company's Chief Executive Officer and its other four most highly compensated
executive officers (the "Named Executive Officers") whose 2000 compensation
exceeded $100,000.
9
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ---------------------------------
NAME AND COMPENSATION(1) RESTRICTED SECURITIES
-------------------------- STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(2) OPTIONS (3) COMPENSATION
------------------------------- -------- ------------ ------------ ---------------- --------------- ----------------
J. Chris Wagner 2000 -- -- -- -- --
President and Chief 1999 -- -- -- -- --
Executive Officer 1998 -- -- -- -- --
Andrew J. Frawley 2000 $ 275,000 $ 21,700 $ 1,179,628 250,000 --
Chairman of the Board 1999 $ 275,000 $ 55,000 $ 28,683,260 300,000 --
1998 $ 200,000 $100,000 $ 16,661,664 210,000 --
N. Wayne Townsend 2000 $ 166,271 $ 18,081 - 70,000 --
Sr Vice President, 1999 $ 134,375 $ 77,762 $ 286,647 60,000 --
Services 1998 $ 134,375 $ 77,762 $ 736,088 23,000 --
Tony Heywood 2000 (4) $ 165,000 $ 50,003 -- 400,000 --
Sr Vice President, 1999 (4) -- -- -- -- --
International 1998 (4) -- -- -- -- --
F. Daniel Haley 2000 $ 185,417 $ 10,850 -- 110,000 --
Chief Financial Officer 1999 $ 150,000 $ 48,653 -- 120,000 --
1998 (5) $ 21,635 $ 25,000 -- 200,000 --
---------------
(1) Excludes certain perquisites and other benefits the amount of which did not
exceed 10% of the employee's total salary and bonus.
(2) Represents the value of vested restricted stock at December 31, 2000, 1999
and 1998 using a fair market value for the Common Stock of $1.22, $27.94,
and $9.81 per share, respectively.
(3) In December 2000, the Comapny offered employees the opportunity to
participate in a program, pursuant to which each employee could elect to
replace certain outstanding options with new options on a one-for-one
basis. All options granted to executive officers in 2000 were cancelled
and returned to the Comapny on December 15, 2000 pursuant to the program
and then re-issued on June 18, 2001 at an exercise price of $1.18 per
share.
(4) Reflects compensation for Mr. Heywood from the date he began employment
with the Company, February 7, 2000.
(5) Reflects compensation for Mr. Haley from the date he began employment with
the Company, November 1, 1998.
10
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding grants of stock options
to the Named Executive Officers during the fiscal year ended December 31, 2000.
NUMBER OF PERCENT
SECURITIES OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE GRANT DATE
GRANTED EMPLOYEES IN OR BASE EXPIRATION PRESENT
NAME (SHARES) FISCAL 2000 PRICE (1) DATE VALUE(2)
----------------------------------------------------------------------------------------------------------------
J. Chris Wagner -- -- -- -- --
Andrew J. Frawley 250,000 5.2% $47.75 1/27/09 $0
N. Wayne Townsend 70,000 1.5% $47.75 1/27/09 $0
Tony Heywood 300,000 6.2% $47.75 1/27/09 $0
Tony Heywood 100,000 2.1% $20.94 6/13/05 $0
F. Daniel Haley 110,000 2.3% $47.75 1/27/09 $0
----------
(1) The exercise price for the options was based on the market price of the
underlying Common Stock on the date of issuance.
(2) In December 2000, the Comapny offered employees the opportunity to
participate in a program, pursuant to which each employee could elect to
replace certain outstanding options with new options on a one-for-one
basis. All options granted to executive officers in 2000 were cancelled
and returned to the Comapny on December 15, 2000 pursuant to the program
and then re-issued on June 18, 2001 at an exercise price of $1.18 per
share.
11
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the stock
options exercised during the fiscal year ended December 31, 2000, and the
unexercised stock options held at the end of such fiscal year by the Named
Executive Officers.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS
DECEMBER 31, 2000(1) DECEMBER 31, 2000(2)
-----------------------------------------------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------------------------------------------------------------------------------------------------
J. Chris Wagner -- -- -- -- -- --
Andrew J. Frawley 409,296 $5,785,575 128,604 277,500 $ 0 $ 0
N. Wayne Townsend 60,450 $ 782,405 45,800 106,750 $ 16,088 $ 50,050
Tony Heywood -- -- -- -- -- --
F. Daniel Haley 79,000 $2,694,405 50,000 87,500 $ 0 $ 0
----------
(1) "Exercisable" refers to those options which were both exercisable and
vested, while "Unexercisable" refers to those options which were
unvested.
(2) Based on the difference between the aggregate exercise price and the
closing price of the Common Stock of $1.22 per share on the Nasdaq
National Market as of December 31, 2000.
COMPENSATION OF DIRECTORS
Mr. Wagner and Mr. Frawley are full-time officers of the Company; they
receive no additional compensation for serving on the Board of Directors or its
committees. No other director is a full-time officer of the Company. The 1998
Director Stock Option Plan provides for the grant of stock options to
non-employees directors, but no stock options were granted to non-employee
Directors during 2000. Directors who are employees of the Company are not paid
any fees or additional compensation for service as members of the Board or any
committee thereof. The Company may enter from time to time into customary
arrangements with respect to fees and other compensation (including expense
reimbursement) for directors who are not employees of the Company or any of its
subsidiaries.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Audit Committee or the Compensation
Committee is a past or current officer or employee of the Company.
12
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE OFFICER COMPENSATION
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company's compensation philosophy is that executive officer
compensation should reflect the value created and protected for stockholders,
while furthering the Company's short- and long-term strategic goals and values
by aligning compensation with business objectives and individual performance.
Short- and long-term compensation should provide an incentive for the
achievement of strategic goals, be tied to the Company's achievement of
quarterly performance targets and attract and retain qualified executive
officers essential to the long-term success of the Company. Accordingly, the
Company's executive officer compensation package consists of three primary
components: base salary, quarterly and annual cash bonuses and grants of stock
options.
In evaluating its executive officers' performance, the Company
generally follows the process outlined below:
o Prior to or shortly after the beginning of each fiscal year, the
Company sets goals and objectives that are reviewed with, and
ultimately approved by, the full Board of Directors. The Chief
Executive Officer reports to the Board on the Company's progress
toward the achievement of these goals and objectives throughout
the year at Board meetings and at other times as necessary.
o The Chief Executive Officer submits for the Compensation
Committee's consideration at the end of the fiscal year the
amount of proposed compensation (following fiscal year base
salary, current fiscal year cash bonus and stock option awards)
for himself and for the Company's other executive officers. The
executive officers' fiscal year cash bonus is payable upon the
achievement of well-defined objectives established at the
beginning of each year. The following fiscal year base salary, as
well as current year stock option awards, are based on more
subjective factors, including the Board of Directors' evaluation
of the Company's success in meeting its strategic objectives
during the most recent fiscal year and the Chief Executive
Officer's subjective evaluation of each executive officer's
individual performance relative to a set of pre-determined
individual performance objectives.
o The Compensation Committee acts upon the recommendations made
with respect to the executive officers after weighing the Board
of Directors' evaluation of the Company's overall achievements
for the year, the Chief Executive Officer's discussion of each
executive officer's individual performance for the year and each
executive officer's current level of compensation. The
Compensation Committee performs a comprehensive review of the
compensation paid to the Company's executive officers. That
review, combined with the Compensation Committee members' general
industry experience, enables the Compensation Committee to assess
whether proposed compensation levels are in keeping with industry
norms. Additionally, the Compensation Committee retains outside
consultants to evaluate and help establish competitive
compensation levels appropriate to various executive roles.
13
o The Compensation Committee applies the same criteria in
evaluating the Chief Executive Officer's cash compensation as
that applied to the other executive officers of the Company as
previously explained.
COMPENSATION FOR FISCAL 2000
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Wagner was not the Chief Executive Officer for the fiscal year
ended December 31, 2000. At that time, and until July 26, 2001, Mr. Andrew J.
Frawley was Chief Executive Officer of the Company.
In January 2000, the Compensation Committee determined that Mr. Frawley
achieved the major objectives of the previous year, including the successful
completion of a follow on stock offering in June 1999 and the identification and
acquisition of the eXstatic Software (formerly Gino Borland, Inc.) in August
1999, and awarded Mr. Frawley a bonus accordingly. The actual bonus granted to
Mr. Frawley for fiscal 1999 was $55,000, which was paid based on the achievement
of quarterly objectives throughout the year. In addition, the Compensation
Committee set Mr. Frawley's 2000 annual base salary at the same $275,000 level
paid in 1999, feeling that it represented a level commensurate with chief
executive officers of other public companies who are of similar size and growth
characteristic.
In January 2001, the Compensation Committee determined that Mr. Frawley
achieved many of the major objectives of the previous year, including the
successful development and rollout of the Company's new solution suite, Xchange
7.0, and the successful acquisition and integration of Knowledge Stream
Partners, Inc. and Customer Analytics, Inc. Mr. Frawley received Q1 and Q2
bonuses in the aggregate of $21,700 based on the achievement of specified
quarterly objectives. However, as a result of the Company's failure to meet
pre-determined expectations in the third quarter of 2000, Mr. Frawley did not
receive any bonus for the second half of the year. The Compensation Committee
set Mr. Frawley's 2001 annual base salary at $275,000, feeling that it
represented a level commensurate with chief executive officers of other public
companies who are of similar size and growth characteristic.
REPORT ON EXECUTIVE COMPENSATION
In January 2000, Mr. Frawley recommended, and the Compensation
Committee accepted, base salary increases for the executive staff of up to 17%.
The increases were determined after reviewing performance against goals and
objectives set for the year and also against salaries of similar positions in
comparable companies.
The executive officers' stock options awarded during the year to
executive officers who were employed as of January 1, 2000, other than Mr.
Frawley, amounted to 1,512,193 shares of Common Stock.
14
CONCLUSION
The Company does not believe that section 162(m) of the Internal
Revenue Code, which disallows a tax deduction for certain compensation in excess
of $1 million, will generally have an effect on the Company.
The Compensation Committee believes that the total 2000-related
compensation of the Chief Executive Officer and each of the executive officers,
as described above, is fair and is within the range of compensation for
executive officers in similar positions at comparable companies.
COMPENSATION COMMITTEE
Dean Goodermote
William Bryant
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO 1998 INCENTIVE PLAN
On September 27, 2001, the Board of Directors increased the authorized
number of shares of Common Stock reserved for issuance under the Company's 1998
Stock Incentive Plan (the "Plan") from 9,400,000 to 46,600,000 (to be adjusted
accordingly if the reverse stock splits comtemplated in Proposal No. 1 above are
approved). The Company, through the granting of incentive and nonstatutory stock
options, provides incentives to key employees and other persons who provide
services to the Company by enabling them to acquire or increase their
proprietary interest in the Company.
The affirmative vote of the holders of a majority of Common Stock
present at the Meeting, in person or by proxy, is required to approve the
amendment to the Plan.
SUMMARY DESCRIPTION OF THE 1998 STOCK INCENTIVE PLAN
The Plan is administered by the Compensation Committee of the Board of
Directors. Subject to the terms of the Plan, the Compensation Committee has
complete authority to designate persons to receive awards, to grant the awards,
to determine the form of the awards and to fix all terms of any awards granted.
Incentive stock options, which are intended to meet the requirements of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), may be
granted only to officers and other employees of the Company and must have an
exercise price of not less than 100% of the fair market value of the Company's
Common Stock on the date of grant (not less than 10% for incentive stock options
granted to any 10% stockholder of the Company). The aggregate exercise price of
the shares of Common Stock as to which an incentive stock option becomes
exercisable in any calendar year may not exceed $100,000. The term of an
incentive stock option may not exceed ten years (five years in the case of an
incentive stock option granted to any 10% stockholder of the Company).
Nonstatutory stock options may be granted on such terms (date of grant, vesting,
number of shares and exercise price) as the Board may determine, subject to the
terms of the Plan. Grants of restricted stock may be made to eligible persons
and are evidenced by a restricted stock agreement, subject to the terms of the
Plan. The Plan may be terminated or amended by the Board of Directors at any
time, subject to any required regulatory approval. The stockholders of the
Company must approve any amendment if such approval is required to comply with
any applicable tax or regulatory requirement.
15
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND THE PARTICIPANTS
NONSTATUTORY OPTIONS. There are no Federal income tax consequences to
the Company or the participants upon grant of nonstatutory options. Upon the
exercise of such an award (or other realization event, such as the lapse of a
forfeiture restriction), (i) the participant will recognize ordinary income in
an amount equal to the amount by which the fair market value of the Common Stock
acquired upon the exercise of such award exceeds the exercise price, if any, and
(ii) the Company will receive a corresponding deduction. A sale of Common Stock
so acquired will give rise to a venture gain equal to the difference between the
fair market value of the Common Stock on the exercise and sale dates.
INCENTIVE STOCK OPTIONS. Except as noted below, there are no Federal
income tax consequences to the Company or the participant upon grant or exercise
of an incentive stock option. If the participant holds shares of Common Stock
purchased pursuant to the exercise of an incentive stock option for at least two
years after the date the option was granted and at least one year after the
exercise of the option, the subsequent sale of Common Stock will give rise to a
long-term capital gain or loss to the participant and no deduction will be
available to the Company. If the participant sells the shares of Common Stock
within two years after the date an incentive stock option is granted or within
one year after the exercise of an option, the participant will recognize
ordinary income in an amount equal to the difference between the fair market
value at the exercise date and the option exercise price, and the Company will
be entitled to an equivalent deduction. Some participants may have to pay
alternative minimum tax upon exercise of an incentive stock option.
RESTRICTED STOCK AWARDS. When a participant receives an award of
restricted stock that is subject to a substantial risk of forfeiture, the
participant will not have to report any taxable income except as follows: if (i)
the participant makes an "83(b) election", at the date the participant receives
the restricted stock award he or she will have to report compensation income
equal to the difference between the value of the shares and the price paid for
the shares, if any (value is determined without regard to the risk of
forfeiture); and (ii) if the participant does not make an 83(b) election, at the
date or dates the substantial risk of forfeiture that applies to the award
expire, the participant will have to report compensation income equal to the
difference between the then-value of the shares and the price paid for the
shares, if any. Participants may have to report taxable gain or loss when they
sell the shares they received as restricted stock awards.
Although the foregoing summarizes the essential features of the Plan,
it is qualified in its entirety by reference to the full text of the Plan as
amended, which is attached as Exhibit 1 to this Proxy Statement.
NEW PLAN BENEFITS
1998 STOCK INCENTIVE PLAN
The following table sets forth, as of September 28, 2001, the number of
options to purchase Common Stock under the 1998 Stock Incentive Plan since the
Plan was adopted by the Company by each of (i) the Company's Chief Executive
Officer and its other four most highly compensated executive officers, (ii) all
directors of the Company who are not executive officers of the Company as a
group, (iii) all present executive officers of the Company as a group, and (iv)
all employees of the Company, including all other current officers, as a group:
16
NAME AND POSITION NUMBER DOLLAR VALUE(1)
OF UNITS
J. Chris Wagner, President and CEO (2) 1,943,552 --
Andrew J. Frawley, Chairman of the Board (3)..................................800,000 --
N. Wayne Townsend, Senior Vice President, Services (4)........................275,000 --
Tony Heywood, Senior Vice President International (5).........................700,000 --
F. Daniel Haley, Chief Financial Officer(6)...................................385,000 --
All Directors who are not executive officers as a group -- --
All executive officers as a group 4,553,802 --
All employees of the Company who are not executive officers 2,850,602 --
(1) Market value of underlying securities at September 18, 2001, minus the
exercise price of "in-the-money" options.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL THEREOF.
PROPOSAL NO. 3
TO APPROVE THE ISSUANCE OF SHARES OF COMMON STOCK UPON CONVERSION OF SHARES OF
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK AND AS DIVIDENDS THEREON.
On January 10, 2001, (the "Original Issuance Date") the Company issued
5,325,645 shares of Series A Convertible Redeemable Preferred Stock, $0.001 par
value per share (the "Series A Preferred Shares"), in a private placement to
Insight for an aggregate purchase price of $6.725 million. Dividends accrue on
the initial purchase price per share at an annual rate equal to ten percent, and
are compounded quarterly. The purchasers may convert the Series A Preferred
Share and any accrued dividends into Common Stock at any time. The conversion
price, initially set as the initial purchase price per share of $1.2628 may be
adjusted periodically as explained herein. In addition, the purchasers may
require the Company to redeem any unconverted Series A Preferred Shares at any
time after January 10, 2004 at a three percent premium to the initial purchase
price per share plus accrued dividends.
17
In accordance with Nasdaq Rule 4350, which generally requires
stockholder approval for the issuance or potential issuance of securities
representing twenty percent or more of an issuer's outstanding listed securities
or twenty percent or more of the voting power outstanding before the Original
Issuance Date, and under the terms of the agreement pursuant to which the
Company sold the Series A Preferred Shares, the Company must solicit shareholder
approval for the issuance of shares of Common Stock upon conversion of or in
lieu of cash dividends on the Series A Preferred Shares, if the issuance thereof
would have otherwise been limited by the rules of the Nasdaq Stock Market.
Accordingly, absent shareholder approval, the Company can issue up to 6,488,781
shares of Common Stock upon conversion of the Series A Preferred Shares, which
number represents 19.9 percent of the shares of Common Stock outstanding on the
Original Issuance Date. If the Company obtains shareholder approval, there is no
limit on the number of shares that could be issued upon conversion of or in lieu
of cash dividends on the Series A Preferred Shares and such issuance of shares
of Common Stock will no longer be subject to shareholder approval under Nasdaq
Rule 4350. If the Company does not obtain shareholder approval and, therefore,
is not obligated to issue shares representing twenty percent or more of the
number of shares outstanding due to restrictions relating to Nasdaq Rule 4350
that the Company is otherwise contractually required to issue, the Company may
be required to redeem all or a portion of the outstanding Series A Preferred
Shares.
The number of shares of Common Stock issuable upon conversion of a
Series A Preferred Share is determined by dividing the original issuance price
of such Series A Preferred Share plus accrued and unpaid dividends by the
conversion price then in effect. The conversion price was initially set at
$1.2628 and is adjusted if the Company issues any securities for a consideration
per share less than the conversion price in effect immediately prior to such
issuance. The current conversion price is $.3226. As of September 28, 2001, the
number of shares of Common Stock issuable upon conversion of the Series A
Preferred Shares is 22,384,018.
The terms of the Series A Preferred Shares are complex and only briefly
summarized in this proxy statement. Stockholders wishing further information
concerning the rights, preferences and terms of the Series A Preferred Shares
are referred to the full description contained in the Company's Current Report
on Form 8-K filed with the SEC on January 24, 2001 and the exhibits to such
report.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 3 TO BE IN THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL
THEREOF.
STOCKHOLDER PROPOSALS
All stockholder proposals that are intended to be presented at the 2002
Annual Meeting of Stockholders of the Company must be received by the Company
not later than January 21, 2002, for inclusion in the Board of Directors' proxy
statement and form of proxy relating to such annual meeting.
18
OTHER BUSINESS
The Board of Directors knows of no other business to be acted
upon at the Meeting. However, if any other business properly comes before the
Meeting, it is the intention of the persons named in the enclosed proxy to vote
on such matters in accordance with their judgment.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ J. Chris Wagner
----------------------------------
J. CHRIS WAGNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Exchange Applications, Inc.
89 South Street
Boston, MA 02111
October 22, 2001
19
EXCHANGE APPLICATIONS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
SPECIAL MEETING OF STOCKHOLDERS ON NOVEMBER 20, 2001
The undersigned hereby appoints J. Chris Wagner and F. Daniel Haley and
each of them proxies, each with power of substitution, to vote at the Special
Meeting of Stockholders of EXCHANGE APPLICATIONS, INC. to be held on November
20, 2001 (including any adjournments or postponements thereof), with all the
powers the undersigned would possess if personally present, as specified on the
ballot below on the matters listed below and, in accordance with their
discretion, on any other business that may come before the meeting, and revokes
all proxies previously given by the undersigned with respect to the shares
covered hereby.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
DETACH HERE ------------------------------------------------------
Detach card below, sign, date and mail in postage paid envelope provided.
EXCHANGE APPLICATIONS, INC.
89 South Street, Boston, MA 02111
[X] Please mark votes as in this example.
1. Proposal to amend the Certificate of Incorporation to effect one or more
reverse stock splits in the ratios set forth below.
(a) A twenty-for-one reverse stock split FOR [_] AGAINST [_] ABSTAIN [_]
(b) A thirty-for-one reverse stock split FOR [_] AGAINST [_] ABSTAIN [_]
(c) A forty-for-one reverse stock split FOR [_] AGAINST [_] ABSTAIN [_]
2. Proposal to ratify the amendment to the 1998 Stock Incentive Plan to increase
the number of authorized shares.
FOR [_]
AGAINST [_]
ABSTAIN [_]
3. Proposal to approve the issuance of shares of Common Stock upon conversion of
shares of Series A Convertible Preferred Stock.
FOR [_]
AGAINST [_]
ABSTAIN [_]
MARK HERE FOR ADDRESS CHANGE AND [_] NOTE AT LEFT
This proxy when properly executed will be voted in the manner directed herein by
the stockholder. If no contrary specification is made, this proxy will be voted
FOR Proposal Nos. 1 and 2 and upon such other business as may properly come
before the Annual Meeting and any adjournments or postponements thereof in the
appointed proxies' discretion.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
Please date, sign as name appears at left, and return this proxy in the enclosed
envelope, whether or not you expect to attend the meeting. You ma nevertheless
vote in person if you do attend.
(Executors, administrators, trustees, custodians, etc. should indicate capacity
in which signing. When stock is held in the name of more than one person, each
person should sign the proxy.
Signature
-------------------
Date
------------------------
EX-1
3
gex1-26078.txt
EXHIBIT 1
EXCHANGE APPLICATIONS, INC.
1998 STOCK INCENTIVE PLAN
1. PURPOSE. This Exchange Applications, Inc. 1998 Stock Incentive Plan (the
"Plan") is intended to provide incentives (a) to the officers and other
employees of Exchange Applications, Inc. (the "Company"), its parent (if any)
and any present or future subsidiaries of the Company (collectively, "Related
Corporations") by providing them with opportunities to purchase stock in the
Company pursuant to options which qualify as "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
granted hereunder ("ISO" or "ISOs"); (b) to directors, officers, employees and
consultants of the Company and Related Corporations by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified
Options"); and (c) to directors, officers, employees and consultants of the
Company and Related Corporations by providing them with opportunities to make
direct purchases of restricted stock in the Company ("Restricted Stock"). Both
ISOs and Non-Qualified options are referred to hereafter individually as an
"Option" and collectively as "Options." As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation" as those
terms are defined in Section 424 of the Code.
2. ADMINISTRATION OF THE PLAN. (a) The Plan shall be administered by the
Board of Directors of the Company (the "Board"). The Board may appoint a
Compensation Committee (the "Committee") of two or more of its members to
administer the Plan. Subject to ratification of the grant of each option or
Restricted Stock by the Board (if so required by applicable state law), and
subject to the terms of the Plan, the Committee, if so appointed, shall have the
authority to (i) determine the employees of the Company and Related Corporations
(from among the class of employees eligible under paragraph 3 to receive ISOs)
to whom ISOs may be granted, and to determine (from among the class of
individuals and entities eligible under paragraph 3 to receive Non-Qualified
Options and Restricted Stock) to whom Non-Qualified options or Restricted Stock
may be granted; (ii) determine the time or times at which options or Restricted
Stock may be granted; (iii) determine the option price of shares subject to each
option, which price with respect to ISOs shall not be less than the minimum
specified in paragraph 6, and the purchase price of Restricted Stock; (iv)
determine whether each option granted shall be an ISO or a Non-Qualified option;
(v) determine (subject to paragraph 7) the time or times when each option shall
become exercisable and the duration of the exercise period; (vi) determine
whether restrictions such as repurchase options are to be imposed on shares
subject to options and to Restricted Stock, and the nature of such restrictions,
if any; and (vii) interpret the Plan and prescribe and rescind rules and
regulations relating to it. If the Committee determines to issue a Non-Qualified
Option, it shall take whatever actions it deems necessary, under Section 422 of
the Code and the regulations promulgated thereunder, to ensure that such Option
is not treated as an ISO. The interpretation and construction by the Committee
of any provisions of the Plan or of any Option or authorization or agreement for
Restricted Stock granted under it shall be final unless otherwise determined by
the Board. The Committee may from time to time adopt such rules and regulations
for carrying out the Plan as it may deem best. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option or Restricted Stock granted under it.
(b) The Committee may select one of its members as its chairman, and shall
hold meetings at such time and places as it may determine. Acts by a majority of
the Committee, or acts reduced to or
1
approved in writing by a majority of the members of the Committee, shall be the
valid acts of the Committee. All references in the Plan to the Committee shall
mean the Board if there is no Committee so appointed. From time to time the
Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause), and appoint new members in
substitution therefor, fill vacancies however caused, or remove all members of
the Committee and thereafter directly administer the Plan.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any officer or
other employee of the Company or any Related Corporation. Those directors of the
Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options and Restricted Stock may be granted to any director
(whether or not an employee), officer, employee or consultant of the Company or
any Related Corporation. The Committee may take into consideration an optionee's
individual circumstances in determining whether to grant an ISO or a
Non-Qualified Option or Restricted Stock. Granting of any Option or Restricted
Stock to any individual or entity shall neither entitle that individual or
entity to, nor disqualify him from, participation in any other grant of Options
or Restricted Stock.
4. STOCK. The stock subject to options and Restricted Stock shall be
authorized but unissued shares of Common Stock of the Company, $.001 par value
per share (the "Common Stock"), or shares of Common Stock re-acquired by the
Company in any manner. The aggregate number shares which may be issued pursuant
to the Plan is 2,700,000, subject to adjustment as provided in paragraph 13. Any
such shares may be issued as ISOs, Non-Qualified Options or Restricted Stock so
long as the aggregate number of shares so issued does not exceed such number, as
adjusted. If any Option granted under the Plan shall expire, be cancelled or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part, or if any Restricted Stock
shall be reacquired by the Company by exercise of its repurchase option, the
shares subject to such expired, terminated or cancelled Option and reacquired
shares of Restricted Stock shall again be available for grants of Options or
Restricted Stock under the Plan.
5. GRANTS UNDER THE PLAN. Options or Restricted Stock may be granted under
the Plan at any time on or after July 15, 1998 and prior to July 15, 2008. Any
such grants of ISOs shall be subject to the receipt, within 12 months of July
15, 1998, of the approval of Stockholders as provided in paragraph 17. The date
of grant of an Option under the Plan will be the date specified by the Committee
at the time it awards the option; provided, however, that such date shall not be
prior to the date of award. The Committee shall have the right, with the consent
of the optionee, to convert an ISO granted under the Plan to a Non-Qualified
Option pursuant to paragraph 15.
6. MINIMUM OPTION PRICE. (a) The price per share specified in the agreement
relating to each ISO granted under the Plan shall not be less than the fair
market value per share of Common Stock on the date of such grant. In the case of
an ISO to be granted to an employee owning stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than 110 percent of the fair
market value of Common Stock on the date of grant.
(b) In no event shall the aggregate fair market value (determined at the
time the option is granted) of Common Stock for which ISOs granted to any
employee are exercisable for the first time by such employee during any calendar
year (under all stock option plans of the Company and any Related Corporation)
exceed $100,000. If the foregoing limitation is exceeded, the balance shall be
non-statutory options.
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(c) If, at the time an Option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined as of
the last business day for which the prices or quotes discussed in this sentence
are available prior to the date such Option is granted and shall mean (i) the
average (on that date) of the high and low prices of the Common Stock on the
principal national securities exchange on which the Common Stock is traded, if
such stock is then traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the Nasdaq National
Market System, if the Common Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq National Market
System or on a national securities exchange. However, if the Common Stock is not
publicly traded at the time an option is granted under the Plan, "fair market
value" shall be deemed to be the fair value of the Common Stock as determined by
the Committee after taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and offer prices of the
Common Stock in private transactions negotiated at arms' length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than ten years from the date of grant or, in the case of
ISOs granted to an employee owning stock possessing more than ten percent of the
total combined voting power of all classes of stock of the Company or any
Related Corporation, not more than five years from date of grant. Subject to
earlier termination as provided in paragraphs 9 and 10, the term of each ISO
shall be the term set forth in the original instrument granting such ISO, except
with respect to any part of such ISO that is converted into a Non-Qualified
option pursuant to paragraph 15.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
12, each option granted under the Plan shall be exercisable as follows:
(a) The Option shall either be fully exercisable on the date of grant or
shall become exercisable thereafter in such installments as the Committee may
specify.
(b) Once an installment becomes exercisable it shall remain exercisable
until expiration or termination of the Option, unless otherwise specified by the
Committee.
(c) Each Option or installment may be exercised at any time or from time to
time, in whole or in part, for up to the total number of shares with respect to
which it is then exercisable.
(d) The Committee shall have the right to accelerate the date of exercise
of any installment; provided that the Committee shall not accelerate the
exercise date of any installment of any Option granted to any employee as an ISO
(and not previously converted into a Non-Qualified Option pursuant to paragraph
15) if such acceleration would violate the annual vesting limitation contained
in Section 422(d) of the Code which provides generally that the aggregate fair
market value (determined at the time the option is granted) of the stock with
respect to which ISOs granted to any employee are exercisable for the first time
by such employee during any calendar year (under all plans of the Company and
any Related Corporation) shall not exceed $100,000.
9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed by
the Company or any Related Corporation other than by reason of death or
disability as provided in paragraph 10, no further installments of his ISOs
shall become exercisable, and his ISOs shall terminate after the passage of 60
days from the date of termination of his employment, but in no event later than
on their specified
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expiration dates except to the extent that such ISOs (or unexercised
installments thereof) have been converted into Non-Qualified Options pursuant to
paragraph 15. Leave of absence with the written approval of the Committee shall
not be considered an interruption of employment under the Plan, provided that
such written approval contractually obligates the Company or any Related
Corporation to continue the employment of the employee after the approved period
of absence. Employment shall also be considered as continuing uninterrupted
during any other bona fide leave of absence (such as those attributable to
illness, military obligations or governmental service) provided that the period
of such leave does not exceed 90 days or, if longer, any period during which
such optionee's right to reemployment is guaranteed by statute. Nothing in the
Plan shall be deemed to give any grantee of any option or Restricted Stock the
right to be retained in employment or other service by the Company or any
Related Corporation for any period of time. ISOs granted under the Plan shall
not be affected by any change of employment within or among the Company and
Related Corporations, so long as the optionee continues to be an employee of the
Company or any Related Corporation. In granting any Non-Qualified option, the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
or cancellation provisions as the Committee may determine.
10. DEATH; DISABILITY; DISSOLUTION. If an optionee ceases to be employed
by the Company and all Related Corporations by reason of his death, any Option
of his may be exercised, to the extent of the number of shares with respect to
which he could have exercised it on the date of his death, by his estate,
personal representative or beneficiary who has acquired the option by will or by
the laws of descent and distribution, at any time prior to the earlier of the
Option's specified expiration date or 180 days from the date of the optionee's
death.
If an optionee ceases to be employed by the Company and all Related Corporations
by reason of his disability, he shall have the right to exercise any Option held
by him on the date of termination of employment, to the extent of the number of
shares with respect to which he could have exercised it on that date, at any
time prior to the earlier of the option's specified expiration date or 180 days
from the date of the termination of the optionee's employment. For the purposes
of the Plan, the term "disability" shall have the meaning assigned to it in
Section 22(e)(3) of the Code or any successor statute.
In the case of a partnership, corporation or other entity holding a
Non-Qualified Option, if such entity is dissolved, liquidated, becomes insolvent
or enters into a merger or acquisition with respect to which such optionee is
not the surviving entity, such Option shall terminate immediately.
11. ASSIGNABILITY. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the Optionee each Option shall be exercisable only by him.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including transfer and repurchase restrictions applicable to
shares of Common Stock issuable upon exercise of Options. The Committee may from
time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
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13. ADJUSTMENTS. Upon the happening of any of the following described
events, an optionee's rights with respect to Options granted to him hereunder
shall be adjusted as hereinafter provided:
(a) Subject to any contrary provision contained in any instrument evidencing
an option, in the event shares of Common Stock shall be sub-divided or combined
into a greater or smaller number of shares or if, upon a merger, consolidation,
reorganization, split-up, liquidation, combination, recapitalization or the like
of the Company, the shares of Common Stock shall be exchanged for other
securities of the Company or of another corporation, each optionee shall be
entitled, subject to the conditions herein stated, to purchase such number of
shares of common stock or amount of other securities of the Company or such
other corporation as were exchangeable for the number of shares of Common Stock
which such optionee would have been entitled to purchase except for such action,
and appropriate adjustments shall be made in the purchase price per share to
reflect such subdivision, combination, or exchange.
(b) In the event the Company shall issue any of its shares as a stock
dividend upon or with respect to the shares of stock of the class which shall at
the time be subject to option hereunder, each optionee upon exercising an Option
shall be entitled to receive (for the purchase price paid upon such exercise)
the shares as to which he is exercising his Option and, in addition thereto (at
no additional cost), such number of shares of the class or classes in which such
stock dividend or dividends were declared or paid, and such amount of cash in
lieu of fractional shares, as he would have received if he had been the holder
of the shares as to which he is exercising his option at all times between the
date of grant of such Option and the date of its exercise.
(c) Notwithstanding the foregoing, any adjustments made pursuant to
subparagraph (a) or (b) shall be made only after the Committee, after consulting
with counsel for the Company, determines whether such adjustments with respect
to ISOs will constitute a "modification" of such ISOs as that term is defined in
Section 424 of the Code, or cause any adverse tax consequences for the holders
of such ISOs. No adjustments shall be made for dividends paid in cash or in
property other than securities of the Company.
(d) No fractional shares shall actually be issued under the Plan. Any
fractional shares which, but for this subparagraph (d), would have been issued
to an optionee pursuant to an Option, shall be deemed to have been issued and
immediately sold to the Company for their fair market value, and the optionee
shall receive from the Company cash in lieu of such fractional shares.
(e) Upon the happening of any of the foregoing events described in
subparagraphs (a) or (b) above, the class and aggregate number of shares set
forth in paragraph 4 hereof which are subject to options which previously have
been or subsequently may be granted under the Plan shall also be appropriately
adjusted to reflect the events specified in such subparagraphs. The Committee
shall determine the specific adjustments to be made under this paragraph 13, and
subject to paragraph 2, its determination shall be conclusive.
14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address. Such notice shall identify the option being exercised
and specify the number of shares as to which such Option is being exercised,
accompanied by full payment of the purchase price therefor either (i) in United
States dollars in cash or by check, or (ii) at the discretion of the Committee,
through delivery of shares of Common Stock having fair market value equal as of
the date of the exercise to the cash exercise price of the Option, or (iii) at
the discretion of the Committee, by delivery of the optionee's personal recourse
note bearing interest
5
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, or (iv) at the
discretion of the Committee, by any combination of (i), (ii) and (iii) above.
The holder of an Option shall not have the rights of a shareholder with respect
to the shares covered by his option until the date of issuance of a stock
certificate to him for such shares. Except as expressly provided above in
paragraph 13 with respect to change in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which the record
date is before the date such stock certificates is issued.
15. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS: TERMINATION OF ISOS. The
Committee, at the written request of any optionee, may in its discretion take
such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with the Plan. Nothing in the Plan shall be
deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
16. RESTRICTED STOCK. Each grant of Restricted Stock under the Plan shall be
evidenced by an instrument (a "Restricted Stock Agreement") in such form as the
Committee shall prescribe from time to time in accordance with the Plan and
shall comply with the following terms and conditions, and with such other terms
and conditions as the Committee, in its discretion, shall establish:
(a) The Committee shall determine the number of shares of Common Stock to be
issued to an eligible person pursuant to the grant of Restricted Stock, and the
extent, if any, to which they shall be issued in exchange for cash, other
consideration, or both.
(b) Shares issued pursuant to a grant of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise disposed of, except by will or the
laws of descent and distribution, or as otherwise determined by the Committee in
the Restricted Stock Agreement, for such period as the Committee shall
determine, from the date on which the Restricted Stock is granted (the
"Restricted Period"). The Company will have the option to repurchase the Common
Stock at such price as the Committee shall have fixed in the Restricted Stock
Agreement which option will be exercisable (i) if the participant's continuous
employment or performance of services for the Company and the Related
Corporations shall terminate prior to the expiration of the Restricted Period,
(ii) if, on or prior to the expiration of the Restricted Period or the earlier
lapse of such repurchase option, the participant has not paid to the Company an
amount equal to any federal, state, local or foreign income or other taxes which
the Company determines is required to be withheld in respect of such Restricted
Stock, or (iii) under such other circumstances as determined by the Committee in
its discretion. Such repurchase option shall be exercisable on such terms, in
such manner and during such period as shall be determined by the Committee in
the Restricted Stock Agreement. Each certificate for shares issued as Restricted
Stock shall bear an appropriate legend referring to the foregoing repurchase
option and other restrictions; shall be deposited by the stockholder with the
Company, together with a stock power endorsed in blank; or shall be evidenced in
such other manner permitted by applicable law as determined by the
6
Committee in its discretion. Any attempt to dispose of any such shares in
contravention of the foregoing repurchase option and other restrictions shall be
null and void and without effect. If shares issued as Restricted Stock shall be
repurchased pursuant to the repurchase option described above, the stockholder,
or in the event of his death, his estate, personal representative, or
beneficiary who has acquired the Restricted Stock by will or by the laws of
descent and distribution, shall forthwith deliver to the Secretary of the
Company the certificates for the shares, accompanied by such instrument of
transfer, if any, as may reasonably be required by the Secretary of the Company.
If the repurchase option described above is not exercised by the Company, such
repurchase option and the restrictions imposed pursuant to the first sentence of
this subparagraph (b) shall terminate and be of no further force and effect.
(c) If a person who has been in continuous employment or performance of
services for the Company or a Related Corporation since the date on which
Restricted Stock was granted to him shall, while in such employment or
performance of services, die, or terminate such employment or performance of
services by reason of disability or by reason of early, normal or deferred
retirement under an approved retirement program of the Company or a Related
Corporation (or such other plan or arrangement as may be approved by the
Committee in its discretion, for this purpose) and any of such events shall
occur after the date on which the Restricted Stock was granted to him and prior
to the end of the Restricted Period, the Committee may determine to cancel the
repurchase option (and any and all other restrictions) on any or all of the
shares of Restricted Stock; and the repurchase option shall become exercisable
at such time as to the remaining shares, if any.
17. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on July
15, 1998, subject to approval of the Plan by the holders of a majority of the
outstanding voting stock of the Company. The Plan shall expire on July 15, 2008
(except as to options and Restricted Stock outstanding on that date). Subject to
the provisions of paragraph 5 above, Options and Restricted Stock may be granted
under the Plan by the Committee, prior to the date of stockholder approval of
the Plan. If the approval of stockholders is not obtained by July 15, 1999, any
grants of options or Restricted Stock under the Plan made prior to that date
will be rescinded. The Board may terminate or amend the Plan in any respect at
any time, except that, any amendment that (a) increases the total number of
shares that may be issued under the Plan (except by adjustment pursuant to
paragraph 13), (b) changes the class of persons eligible to participate in the
Plan, or (c) materially increases the benefits to participants under the Plan,
shall be subject to approval by stockholders obtained within 12 months before or
after the Board adopts a resolution authorizing any of the foregoing amendments,
and shall be null and void if such approval is not obtained. Except as provided
in the fourth sentence of this paragraph 17, in no event may action of the Board
or stockholders alter or impair the rights of an optionee or purchaser of
Restricted Stock without his consent, under any Option or Restricted Stock
previously granted to him.
18. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options and Restricted Stock authorized under the
Plan shall be used for general corporate purposes.
19. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
20. WITHHOLDING OF ADDITIONAL INCOME TAXES. The Company, in accordance with
the Code, may, upon exercise of a Non-Qualified Option or the purchase of Common
Stock for less than its fair market value or the lapse of restrictions on
Restricted Stock or the making of a Disqualifying Disposition (as
7
defined in paragraph 21) require the employee to pay additional withholding
taxes in respect of the amount that is considered compensation includable in
such person's gross income.
21. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives IS0s shall agree to notify the Company in writing immediately after the
employee makes a disqualifying disposition of any Common Stock received pursuant
to the exercise of an ISO (a "Disqualifying Disposition"). Disqualifying
Disposition means any disposition (including any sale) of such stock before the
later of (a) two years after the employee was granted the ISO under which he
acquired such stock, or (b) one year after the employee acquired such stock by
exercising such ISO. If the employee has died before such stock is sold, these
holding period requirements do not apply and no Disqualifying Disposition will
thereafter occur.
22. GOVERNING LAWS; CONSTRUCTION. The validity and construction of the Plan
and the instruments evidencing options and Restricted Stock shall be governed by
the laws of the Commonwealth of Massachusetts. In construing this Plan, the
singular shall include the plural and the masculine gender shall include the
feminine and neuter, unless the context otherwise requires.
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