-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JpKbV1VMd4iTXO8h+Hahx4IkZlpApee6xIbzL1eYJmUkTFPYgMOWpaZNWL/9kRRA h5XLyB15IsPsDHQbwQdn1w== 0000891554-99-000952.txt : 19990514 0000891554-99-000952.hdr.sgml : 19990514 ACCESSION NUMBER: 0000891554-99-000952 CONFORMED SUBMISSION TYPE: DEFR14A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19990513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALKER INTERACTIVE SYSTEMS INC CENTRAL INDEX KEY: 0000883983 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 952862954 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEFR14A SEC ACT: SEC FILE NUMBER: 000-19872 FILM NUMBER: 99620998 BUSINESS ADDRESS: STREET 1: MARATHON PLZ THREE NORTH STREET 2: 303 SECOND ST CITY: SAN FRANCISCO STATE: CA ZIP: 94107 BUSINESS PHONE: 4144958811 MAIL ADDRESS: STREET 1: MARATHON PLAZA THREE NORTH STREET 2: 303 SECOND STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94107 DEFR14A 1 REVISED PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant _X_ Filed by a Party other than the Registrant____ Check the appropriate box: ___ Preliminary Proxy Statement ___ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) _X_ Revised Proxy Statement ___ Definitive Additional Materials ___ Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12 Walker Interactive Systems, Inc. (Name of Registrant as Specified In Its Charter) 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. Title of each class of securities to which transaction applies: --------------------------------------------------------------------------- Aggregate number of securities to which transaction applies: --------------------------------------------------------------------------- Perunit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): --------------------------------------------------------------------------- Proposed maximum aggregate value of transaction: --------------------------------------------------------------------------- Total fee paid: --------------------------------------------------------------------------- ___ Fee paid previously with preliminary materials. ___ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: --------------------------------------------------------------------------- Form, Schedule or Registration Statement No.: --------------------------------------------------------------------------- Filing Party: --------------------------------------------------------------------------- Date Filed: --------------------------------------------------------------------------- [LOGO] WALKER Walker Interactive Systems, Inc. 303 Second Street, Three North San Francisco, California 94107 April 16, 1999 Dear Stockholder: On behalf of Walker Interactive Systems, Inc. (the "Company"), I cordially invite you to attend the Annual Meeting of Stockholders, which will begin at 2:00 p.m. local time on Thursday, May 20, 1999, at the Company's headquarters located at 303 Second Street, San Francisco, California. At the meeting, stockholders will be asked to (i) elect three individuals to the Company's Board of Directors to serve a three-year term expiring on the date of the Company's 2002 annual meeting of stockholders, (ii) approve an amendment to the Company's 1992 Employee Stock Purchase Plan to increase the aggregate number of shares available for issuance thereunder, (iii) approve an amendment to the Company's 1993 Non-Employee Directors' Stock Option Plan to increase the aggregate number of shares available for issuance thereunder, and (iv) ratify the selection of Deloitte & Touche LLP as the Company's independent auditors for the next fiscal year. The accompanying Notice and Proxy Statement describe these proposals. We urge you to read this information carefully. The directors and officers of the Company hope that as many stockholders as possible will be present at the meeting. Because the vote of each stockholder is important, we ask that you sign and return the enclosed proxy card in the envelope provided, whether or not you now plan to attend the meeting. This will not limit your right to change your vote at the meeting or to attend the meeting. We appreciate your cooperation and interest in the Company. To assist us in preparation for the meeting, please return your proxy card at your earliest convenience. Sincerely yours, /s/ LEONARD Y. LIU --------------------- LEONARD Y. LIU Chairman of the Board [LOGO] WALKER Walker Interactive Systems, Inc. 303 Second Street, Three North San Francisco, California 94107 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held On Thursday, May 20, 1999 TO THE STOCKHOLDERS OF WALKER INTERACTIVE SYSTEMS, INC.: NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Walker Interactive Systems, Inc., a Delaware corporation (the "Company"), will be held on Thursday, May 20, 1999 at 2:00 p.m. local time at the Company's headquarters, 303 Second Street, San Francisco, California for the following purposes: 1. To elect three directors to hold office until the 2002 Annual Meeting of Stockholders. 2. To approve the Company's 1992 Employee Stock Purchase Plan, as amended, to increase the aggregate number of shares of Common Stock authorized for issuance under such plan from 950,000 shares to 1,500,000 shares, an increase of 550,000 shares. 3. To approve the Company's 1993 Non-Employee Directors' Stock Option Plan, as amended, to increase the aggregate number of shares of Common Stock authorized for issuance under such plan from 250,000 shares to 350,000, an increase of 100,000 shares. 4. To ratify the selection of Deloitte & Touche LLP as independent auditors of the Company for its fiscal year ending December 31, 1999. The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. The Board of Directors has fixed the close of business on March 31, 1999 as the record date for the determination of stockholders entitled to notice of and to vote at this Annual Meeting and at any adjournment or postponement thereof. By Order of the Board of Directors, /s/ BARBARA M. HUBBARD ------------------------ BARBARA M. HUBBARD Vice President, Finance, and Assistant Secretary San Francisco, California April 16, 1999 - -------------------------------------------------------------------------------- ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME. - -------------------------------------------------------------------------------- [LOGO] WALKER Walker Interactive Systems, Inc. 303 Second Street, Three North San Francisco, California 94107 PROXY STATEMENT INFORMATION CONCERNING SOLICITATION AND VOTING GENERAL The enclosed proxy is solicited on behalf of the Board of Directors of Walker Interactive Systems, Inc., a Delaware corporation (the "Company"), for use at the Annual Meeting of Stockholders (the "Annual Meeting"), to be held on Thursday, May 20, 1999, at 2:00 p.m. local time or at any adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will be held at the Company's headquarters located at 303 Second Street, San Francisco, California. The Company intends to mail this proxy statement and accompanying proxy card on or about April 16, 1999, to all stockholders entitled to vote at the Annual Meeting. SOLICITATION The Company will bear the entire cost of solicitation of proxies, including preparation, assembly, printing and mailing of this proxy statement, the proxy and any additional information furnished to stockholders. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding in their names shares of Common Stock beneficially owned by others to forward to such beneficial owners. The Company may reimburse persons representing beneficial owners of Common Stock for their costs of forwarding solicitation materials to such beneficial owners. Original solicitation of proxies by mail may be supplemented by telephone, telegram or personal solicitation by directors, officers or other regular employees of the Company. No additional compensation will be paid to directors, officers or other regular employees for such services. VOTING RIGHTS AND OUTSTANDING SHARES Only holders of record of Common Stock at the close of business on March 31, 1999 will be entitled to notice of and to vote at the Annual Meeting. At the close of business on March 31, 1999, the Company had outstanding and entitled to vote 13,949,833 shares of Common Stock. Each holder of record of Common Stock on such date will be entitled to one vote for each share held on all matters to be voted upon at the Annual Meeting. All votes will be tabulated by the inspector of election appointed for the meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes. Abstentions will be counted towards the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether a matter has been approved. REVOCABILITY OF PROXIES Any person giving a proxy pursuant to this solicitation has the power to revoke it at any time before it is voted. It may be revoked by filing with the Secretary of the Company at the Company's principal executive office, 303 Second Street, Three North, San Francisco, California 94107, a written notice of revocation or a duly executed proxy bearing a later date, or it may be revoked by attending the meeting and voting in person. Attendance at the meeting will not, by itself, revoke a proxy. STOCKHOLDER PROPOSALS Proposals of stockholders that are intended to be presented at the Company's 2000 annual meeting of stockholders must be received by the Company not later than December 18, 1999 in order to be included in the proxy statement and proxy relating to that annual meeting. Pursuant to the Company's Bylaws, stockholders who wish to bring matters before, or propose nominees for director at, the Company's 2000 annual meeting of stockholders that are not to be included in such proxy statement and proxy must provide specified information to the Company not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the 1999 annual meeting (or May 20, 2000). Stockholders are also advised to review the Company's Bylaws, which contain additional requirements with respect to advance notice of stockholder proposals and director nominations. PROPOSAL 1 ELECTION OF DIRECTORS The Company's Restated Certificate of Incorporation and Bylaws provide that the Board of Directors shall be divided into three classes with each class having a three-year term. Vacancies on the Board may be filled only by persons elected by a majority of the remaining directors. A director elected by the Board to fill a vacancy (including a vacancy created by an increase in the Board of Directors) shall serve for the remainder of the full term of the class of directors in which the vacancy occurred and until such director's successor is elected and qualified. The Board of Directors is presently composed of six members. There are three directors being nominated for election as Class I Directors. Each of the nominees for election to this class is currently a director of the Company. If elected at the Annual Meeting, each of the nominees would serve until the 2002 annual meeting and until his successor is elected and has qualified, or until such director's earlier death, resignation or removal. Directors are elected by a plurality of the votes present in person or represented by proxy and entitled to vote at the meeting. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of thethree nominees named below. In the event that any nominee should be unavailable for election as a result of an unexpected occurrence, such shares will be voted for the election of such substitute nominee as management may propose. Each person nominated for election has agreed to serve if elected, and management has no reason to believe that any nominee will be unable to serve. Set forth below is biographical information for each person nominated and each person whose term of office as a director will continue after the Annual Meeting. NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2002 ANNUAL MEETING Class I Directors Mr. Leonard Y. Liu, age 57, has served as the Chairman, President and Chief Executive Officer of the Company since June 1995. Prior to joining the Company, Mr. Liu served as Chief Operating Officer of Cadence Design Systems, Inc. ("Cadence"), an electronic automated design software company, from January 1993 to March 1995, and has been a director of Cadence since June 1989. Mr. Liu was Chairman and Chief Executive Officer of Acer America Corporation and President of Acer, Inc., a personal computer company, from 1989 until March 1992. From 1969 to April 1989, Mr. Liu held various technical and general management positions in IBM Corporation, a computer company. In addition to Cadence, Mr. Liu is currently a director of Advanced Semiconductor Engineering Inc. Mr. David C. Wetmore, age 50, has served as a director of the Company since May 1993. Since November 1995, Mr. Wetmore has served as Managing Director of Updata Capital, Inc., an investment banking organization serving the 2. technology industry. From January 1995 through April 1995, Mr. Wetmore was Executive Vice President, Europe and Agents, of Legent Corporation ("Legent"), a developer and distributor of productivity enhancement system software. From August 1992 to December 1994, Mr. Wetmore served as Legent's Executive Vice President and Chief Operating Officer. From August 1988 to August 1992, Mr. Wetmore was employed by Goal Systems International, Inc., a software products company, in various positions, most recently as Chairman of the Board, President and Chief Executive Officer. Mr. Wetmore is currently a director of Grange Mutual Insurance Companies, Career Builder, Inc., Profit Management Group, Inc., Technology Builders, Inc. and Nationwide Investing Foundation, Plc., a registered investment company. Mr. William A. Hasler, age 57, has served as a director of the Company since February 1996. Since July 1998, Mr. Hasler has been the Co-Chief Executive Officer of Aphton Corporation, a bio-pharmaceutical company. From August 1991 to July 1998, Mr. Hasler was the Dean and Department Chair of the Walter A. Haas School of Business at the University of California, Berkeley. From July 1972 to August 1991, Mr. Hasler was employed by KPMG Peat Marwick in various positions, most recently as Vice Chairman responsible for the worldwide management consulting practice. Mr. Hasler is currently a director of Solectron Corporation, Tenera Corporation, TCSI Corporation, Aphton Corporation and Asia Pacific Wire & Cable Corporation Limited. MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF THE NAMED NOMINEES. DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING Class II Directors Ms. Tania Amochaev, age 49, has served as a director of the Company since May 1994. Ms. Amochaev joined QuickResponse Services, Inc., a provider of supply chain management solutions to the retail industry, as President in May 1992 and was appointed Chief Executive Officer in May 1993. In February 1997, Ms. Amochaev resigned from that position and was named Chairman of the Executive Committee of QuickResponse Services, Inc. Ms. Amochaev was Chief Executive Officer of Natural Language, Inc., a client/server database tool software company, from May 1988 to March 1992. From 1984 to 1987, Ms. Amochaev was President and Chief Executive Officer of Comserv Corporation, a manufacturing applications software company acquired in 1987 by Management Science America. Ms. Amochaev is currently a director of Governmental Technology Services, Inc., Symantec Corporation and QRS Corporation. Mr. John M. Lillie, age 62, has served as a director of the Company since July 1996. Since July 1998, Mr. Lillie has been President of Sequoia Associates, a private investment firm. From 1996 to 1998, he served as Chairman of the Board of The Epic Team, Inc., a manufacturer of bicycles and bicycle accessories. Mr. Lillie served as Chairman of the Board and Chief Executive Officer of APL, Ltd. from 1991 to 1995. Mr. Lillie is currently a director of The Gap, Inc., Consolidated Freightways and Circle International, Inc. DIRECTOR CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING Class III Director Mr. Richard C. Alberding, age 68, has served as a director of the Company since October 1991. Mr. Alberding was employed by Hewlett-Packard Co., a computer company, from 1958 until his retirement in June 1991, serving in 3. various positions, most recently as Executive Vice President with responsibility for Hewlett-Packard's Marketing and International operations. Mr. Alberding is currently a director of Kennametal, Inc., Sybase, Inc., Digital Microwave Corp., Paging Network, Inc., Digital Link, Inc., Quickturn Design Systems, Inc. and JLK Direct Distribution, Inc. BOARD COMMITTEES AND MEETINGS During the fiscal year ended December 31, 1998, the Board of Directors held seven meetings. The Board has an Audit Committee, a Compensation Committee and a Non-Officer Stock Option Committee. The Audit Committee meets with the Company's independent auditors at least annually to review the results of the annual audit and discuss the financial statements, recommends to the Board the independent auditors to be retained, and receives and considers the independent auditors' comments as to controls, adequacy of staff and management performance and procedures in connection with audit and financial controls. The Audit Committee met four times during the fiscal year ended December 31, 1998. It is currently composed of three non-employee directors, Ms. Amochaev and Messrs. Lillie and Wetmore. The Compensation Committee makes recommendations concerning salaries and incentive compensation and otherwise determines compensation levels and performs such other functions regarding compensation as the Board may delegate. The Compensation Committee, which is currently composed of three non-employee directors, Messrs. Alberding, Hasler and Lillie, met nine times during the fiscal year ended December 31, 1998. The Non-Officer Stock Option Committee is authorized to make stock option grants under the Company's 1994 Equity Incentive Plan and 1995 Non-Statutory Stock Option Plan for Non-Officers to employees who are not officers. The Non-Officer Stock Option Committee, which is composed of one director, Mr. Liu, acted forty times during the fiscal year ended December 31, 1998. During the fiscal year ended December 31, 1998, each incumbent Board member attended at least 75% of the aggregate of the meetings of the Board and each incumbent Board member, except for Mr. Lillie, attended at least 75% of the aggregate of the meetings of the committees on which he or she served which were held during the period for which he or she was a director or committee member. Mr. Lillie attended six of the seven meetings of the Board held during the fiscal year ended December 31, 1998. Mr. Lillie was absent for three meetings each of the Audit Committee and Compensation Committee. However, because meetings of both such Committees were conducted simultaneously on two occasions, Mr. Lillie was unable to attend one meeting of each such Committee. PROPOSAL 2 APPROVAL OF 1992 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED In January 1992, the Company's Board of Directors (the "Board") adopted, and the stockholders subsequently approved, the Company's 1992 Employee Stock Purchase Plan (the "Purchase Plan"), authorizing the issuance of 150,000 shares of the Company's Common Stock. In January 1993, March 1995 and February 1998, the Board adopted, and the stockholders subsequently approved, amendments to the Purchase Plan to increase the number of shares authorized for issuance thereunder to an aggregate of 350,000, 650,000 and 950,000 shares respectively. At January 31, 1999, an aggregate of 760,243 shares had been issued under the Purchase Plan and only 189,757 shares remained available for the grant of future rights under the Purchase Plan. In February 1999, the Board adopted an amendment to the Purchase Plan, subject to stockholder approval, to increase the number of shares authorized for issuance under the Purchase Plan from a total of 950,000 shares to a 4. total of 1,500,000 shares. This amendment is intended to afford the Company greater flexibility in providing employees with stock incentives and ensure that the Company can continue to provide such incentives at levels determined appropriate by the Board. The Board anticipates that the increase will provide sufficient shares to satisfy the Company's needs over at least a two-year period. During the last fiscal year, shares were purchased under the Purchase Plan by the executive officers of the Company in the amounts and at the weighted average prices per share as follows: Ms. Hubbard, 1,784 shares ($7.78); all current executive officers as a group, 1,784 shares ($7.78); and all employees (excluding executive officers), 160,703 shares ($7.53). The Board also amended the Purchase Plan to modify the permissible effect of an amendment to the Purchase Plan upon rights granted prior to such Purchase Plan amendments. Purchase Plan amendments will be permitted to alter rights granted under the Purchase Plan so long as such amendments do not impair such rights. Notwithstanding the foregoing, amendments may impair rights granted under the Purchase Plan if such amendments are necessary to ensure that the Purchase Plan will remain qualified under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). Stockholders are requested in this Proposal 2 to approve the Purchase Plan, as amended. The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the meeting will be required to approve the Purchase Plan, as amended. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2. The essential features of the Purchase Plan, as amended, are outlined below: Purpose The purpose of the Purchase Plan is to provide a means by which employees of the Company (and any parent or subsidiary of the Company designated by the Board of Directors to participate in the Purchase Plan) may be given an opportunity to purchase Common Stock of the Company through payroll deductions, to assist the Company in retaining the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company. The rights to purchase Common Stock granted under the Purchase Plan are intended to qualify as options issued under an "employee stock purchase plan" as that term is defined in Section 423(b) of the Code. Administration The Purchase Plan is administered by the Board of Directors, which has the final power to construe and interpret the Purchase Plan and the rights granted under it. The Board has the power, subject to the provisions of the Purchase Plan, to determine when and how rights to purchase Common Stock of the Company will be granted, the provisions of each offering of such rights (which need not be identical), and whether any parent or subsidiary of the Company shall be eligible to participate in such plan. The Board has the power, which it has not exercised, to delegate administration of such plan to a committee of not less than two Board members (the "Committee"). The Board may abolish any such Committee at any time and revest in the Board the administration of the Purchase Plan. Stock Subject to Purchase Plan Subject to approval of this proposal, 1,500,000 shares are reserved for issuance under the Purchase Plan. If rights granted under the Purchase Plan expire, lapse or otherwise terminate without being exercised, the Common Stock not purchased under such rights again becomes available for issuance under the Purchase Plan. 5. Offerings The Purchase Plan is implemented by offerings of rights to all eligible employees from time to time by the Board. Currently, each such offering has a 24-month duration. However, the Board has discretion to change the length of offerings under the Purchase Plan. Prior to July 1, 1998, each such offering had a 12-month duration. Eligibility Any person who customarily is employed at least 20 hours per week and five months per calendar year by the Company (or by any parent or subsidiary of the Company designated from time to time by the Board) on the first day of an offering period is eligible to participate in that offering under the Purchase Plan. The Board may impose a requirement for future offerings that an employee be in the continuous employ of the Company for a certain period designated by the Board to be eligible to participate in the offering. The Board may provide that officers of the Company who are "highly compensated" as defined in the Code are not eligible to be granted rights under an offering. Notwithstanding the foregoing, no employee is eligible for the grant of any rights under the Purchase Plan if, immediately after such grant, the employee would own, directly or indirectly, stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any parent or subsidiary of the Company (including any stock which such employee may purchase under all outstanding rights and options), nor will any employee be granted rights that would permit him or her to buy stock valued at more than $25,000 (determined based upon the fair market value of the shares at the time such rights are granted) under all employee stock purchase plans of the Company in any calendar year. The number of shares of Common Stock that an eligible employee can purchase in any calendar year is limited to 10,000 shares, aggregating purchases from all Offerings during such year. At February 28, 1999, approximately 534 of the Company's approximately 545 employees were eligible to participate in the Purchase Plan. Participation in the Plan Eligible employees become participants in the Purchase Plan by delivering to the Company, prior to the date selected by the Board as the offering date for the offering, an agreement authorizing payroll deductions of up to 15%, or such lesser percentage as approved by the Board, of such employees' total compensation during the purchase period. Purchase Price The purchase price per share at which shares are sold in an offering under the Purchase Plan is the lower of (a) 85% of the fair market value of a share of Common Stock on the date of commencement of the offering, and (b) 85% of the fair market value of a share of Common Stock on the date of purchase. Payment of Purchase Price; Payroll Deductions The purchase price of the shares is accumulated by payroll deductions over the offering period. A participant may increase, reduce or commence payroll deductions after the beginning of any purchase period only as provided for in the offering. A participant may make additional payments into his or her account only if specifically provided for in the offering and only if the participant has not had the maximum amount withheld during the purchase period. All payroll deductions made for a participant are credited to his or her account under the Purchase Plan and deposited with the general funds of the Company. 6. Purchase of Stock By executing an agreement to participate in the Purchase Plan, the employee is entitled to purchase shares under the Purchase Plan. In connection with offerings made under the Purchase Plan, the Board specifies a maximum number of shares any employee may be granted the right to purchase and the maximum aggregate number of shares which may be purchased pursuant to such offering by all participants. If the aggregate number of shares to be purchased upon exercise of rights granted in the offering would exceed the maximum aggregate number, the Board would make a pro rata allocation of shares available in a uniform and equitable manner. Unless the employee's participation is discontinued, his or her right to purchase shares is exercised automatically at the end of the purchase period at the applicable price. See "Withdrawal" below. Withdrawal While each participant in the Purchase Plan is required to sign an agreement authorizing payroll deductions, the participant may withdraw from a given offering by terminating his or her payroll deductions and by delivering to the Company a notice of withdrawal from the Purchase Plan. Such withdrawal may be elected at any time prior to the end of the applicable offering period, except as provided by the Board or the Committee in the offering. Upon any withdrawal from an offering by the employee, the Company will distribute to the employee his or her accumulated payroll deductions without interest, less any accumulated deductions previously applied to the purchase of stock on the employee's behalf during such offering, and such employee's interest in the offering automatically will be terminated. The employee is not entitled to again participate in such offering. An employee's withdrawal from an offering will not have any effect upon such employee's eligibility to participate in subsequent offerings under the Purchase Plan. Termination of Employment Rights granted pursuant to any offering under the Purchase Plan terminate immediately upon cessation of an employee's employment for any reason, and the Company will distribute to such employee all of his or her accumulated payroll deductions, without interest. Restrictions on Transfer Rights granted under the Purchase Plan are not transferable and may be exercised only by the person to whom such rights are granted. Adjustment Provisions If any change is made in the stock subject to the Purchase Plan, or subject to any rights granted under the Purchase Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Purchase Plan and outstanding rights will be appropriately adjusted in the class and maximum number of shares subject to the Purchase Plan and the class, number of shares and price per share of stock subject to outstanding rights. Effect of Certain Corporate Events In the event of a dissolution, liquidation or specified type of merger of the Company, the surviving corporation either will assume the rights under the Purchase Plan or substitute similar rights, such rights will continue in full force and effect, or the exercise date of any ongoing offering will be accelerated such that the outstanding rights may be exercised immediately prior to, or concurrent with, any such event. 7. Duration, Amendment and Termination The Board may suspend or terminate the Purchase Plan at any time. Unless terminated earlier, the plan will terminate in January 2002. The Board may amend the Purchase Plan at any time. Any amendment of the Purchase Plan must be approved by the stockholders within 12 months of its adoption by the Board if such amendment requires stockholder approval in order for the Purchase Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or with any Nasdaq or securities exchange listing requirements. Rights granted before amendment or termination of the Purchase Plan will not be altered or impaired by any amendment or termination of such plan without consent of the person to whom such rights were granted, unless such amendment is necessary to comply with any laws or governmental regulations or to ensure that the Purchase Plan will remain qualified under Section 423 of the Code. Federal Income Tax Information Rights granted under the Purchase Plan are intended to qualify for favorable federal income tax treatment associated with rights granted under an employee stock purchase plan which qualifies under provisions of Section 423 of the Code. A participant will be taxed on amounts withheld for the purchase of shares as if such amounts actually were received. Other than this, no income will be taxable to a participant until disposition of the shares acquired, and the method of taxation will depend upon the holding period of the acquired shares. If the stock is sold or disposed of at least two years after the beginning of the offering period and at least one year after the stock is transferred to the participant, then the lesser of (a) the excess of the fair market value of the stock at the time of such disposition over the exercise price or (b) the excess of the fair market value of the stock as of the beginning of the offering period over the exercise price (determined as of the beginning of the offering period) will be treated as ordinary income. Any further gain or any loss will be taxed as capital gain or loss. Such capital gains are generally subject to lower tax rates than ordinary income. If the stock is sold or disposed of before the expiration of either of the holding periods described above, then the excess of the fair market value of the stock on the exercise date over the exercise price will be treated as ordinary income at the time of such disposition, and the Company may, in the future, be required to withhold income taxes relating to such ordinary income from other payments made to the participant. The balance of any gain or loss will be treated as capital gain or loss. Even if the stock is later disposed of for less than its fair market value on the exercise date, the same amount of ordinary income is attributed to the participant, and a capital loss is recognized equal to the difference between the sales price and the fair market value of the stock on such exercise date. There are no federal income tax consequences to the Company by reason of the grant or exercise of rights under the Purchase Plan. The Company is entitled to a deduction to the extent amounts are taxed as ordinary income to a participant by reason of a disposition before the expiration of the holding periods described above (subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of tax reporting obligations). The foregoing discussion is intended to be a general summary only of the federal income tax aspects of rights granted under the Purchase Plan; tax consequences may vary depending on the particular circumstances at hand. In addition, administrative and judicial interpretations of the application of the federal income tax laws are subject to change. Furthermore, no information is given with respect to state or local taxes that may be applicable. 8. Participants in the Purchase Plan who are residents of or are employed in a country other than the United States may be subject to taxation in accordance with the tax laws of that particular country in addition to or in lieu of United States federal income taxes. PROPOSAL 3 APPROVAL OF 1993 NON EMPLOYEE DIRECTORS' STOCK OPTION PLAN, AS AMENDED In January 1993, the Board adopted, and the stockholders subsequently approved, the Company's 1993 Non-Employee Directors' Stock Option Plan, as amended (the "Directors' Plan"). As a result of a series of amendments, a total of 250,000 shares of Common Stock has been authorized for issuance under the Directors' Plan. As of March 31, 1999, options (net of canceled or expired options) covering an aggregate of 204,000 shares of the Company's Common Stock had been granted under the Directors' Plan. Only 46,000 shares of Common Stock (plus any shares that might in the future be returned to the Directors' Plan as a result of cancellations or expiration of options) remained available for future grant under the Directors' Plan. During the last fiscal year, all current non-employee directors, as a group, received options to purchase 60,000 shares at a weighted-average exercise price of approximately $9.97 per share. See "Executive Compensation-Compensation of Directors." In March 1999, the Board amended the Directors' Plan, subject to stockholder approval, to increase the number of shares of Common Stock authorized for issuance under the Directors' Plan from a total of 250,000 shares to a total of 350,000 shares. The Board adopted this amendment to ensure that the Company can continue to grant stock options at levels prescribed by the terms of the Directors' Plan. Stockholders are requested in this Proposal 3 to approve the Directors' Plan, as amended. The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the meeting will be required to approve the Directors' Plan, as amended. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter has been approved. MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3. The essential features of the Directors' Plan are outlined below: General The Directors' Plan provides for the non-discretionary grant of nonstatutory stock options to members of the Company's Board who are not employees of theCompany or any affiliate of the Company. Options granted under the Directors' Plan are not intended to qualify as "incentive stock options" within the meaning of Section 422 of the Code. See "Federal Income Tax Information" for a discussion of the tax treatment of nonstatutory stock options. Purpose The Board adopted the Directors' Plan to provide a means by which non-employee directors of the Company may be given an opportunity to purchase stock in the Company, to assist in retaining the services of such persons, to secure and retain the services of persons capable of filling such positions and to provide incentives for such persons to exert maximum efforts for the success of the Company. Five of the current directors of the Company are eligible to participate in the Directors' Plan. 9. Administration The Board administers the Directors' Plan. The Board has the power to construe and interpret the Directors' Plan but not to determine the persons to whom or the dates on which options will be granted, the number of shares to be subject to each option, the time or times during the term of each option within which all or a portion of such option may be exercised, the exercise price, the type of consideration or the other terms of the options. The Board has the power, which it has not yet exercised, to delegate administration of the Directors' Plan to a committee composed of not fewer than two members of the Board. As used herein with respect to the Directors' Plan, the "Board" refers to any committee the Board appoints as well as to the Board itself. Eligibility The Directors' Plan provides that options may be granted only to non-employee directors of the Company. A "non-employee director" is defined in the Directors' Plan as a director of the Company who is not otherwise an employee of the Company or any affiliate. Stock Subject to the Directors' Plan Subject to this Proposal, an aggregate of 350,000 shares of Common Stock is reserved for issuance under the Directors' Plan. If options granted under the Directors' Plan expire or otherwise terminate without being exercised, the shares of Common Stock not acquired pursuant to such options again become available for issuance under the Directors' Plan. Terms of Options The following is a description of the terms of options under the Directors' Plan. Each option granted under the Directors' Plan is non-discretionary and must be made in accordance with the terms described below. Automatic Grants. The Directors' Plan provides for the automatic, non-discretionary grant of options to purchase 6,000 shares of the Company's Common Stock, on January 2 of each year, to each non-employee director in service as of such date. However, the automatic grant scheduled to be made on January 2, 1999 was made on December 15, 1998. In addition, each new member of the Board is granted options to purchase 15,000 shares of the Company's Common Stock as of the date of his or her initial election to the Board. Exercise Price; Payment. The exercise price of options may not be less than 100% of the fair market value of the stock subject to the option on the date of the grant. At March 31, 1999, the closing price of the Company's Common Stock as reported on the Nasdaq National Market System was $4.25 per share. The exercise price of options granted under the Directors' Plan must be paid: (i) in cash at the time the option is exercised; (ii) by delivery of other Common Stock of the Company; or (iii) by a combination of such methods of payment. Option Exercise. Options granted under the Directors' Plan upona person's initial election as a director become exercisable ("vest") in three equal annual installments commencing on the first anniversary after the date of the option grant provided that the optionholder has, during the entire annual period prior to such vesting date, continuously served as a non-employee director. Other options granted under the Directors' Plan vest in four equal quarterly installments commencing on the date three months after the date of the option grant, provided that the optionholder has, during the entire quarterly period prior to such vesting date, continuously served as a non-employee director. Options granted under the Directors' Plan do not permit exercise prior to vesting. To the extent provided by the terms of an option, an optionholder may satisfy any federal, state or local tax withholding obligation relating to the exercise of such option by a cash payment upon exercise, by authorizing the Company to withhold a portion of the stock otherwise 10. issuable to the optionholder, by delivering already-owned Common Stock of the Company or by a combination of these means. Term. The maximum term of options under the Directors' Plan is 10 years. Restrictions on Transfer The optionholder may not transfer an option otherwise than by will or by the laws of descent and distribution. During the lifetime of the optionholder, an option may be exercised only by the optionholder or his or her guardian or legal representative. Adjustment Provisions Certain transactions, such as a merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise, may change the class and number of shares of Common Stock subject to the Directors' Plan and outstanding options. In that event, the Directors' Plan will be appropriately adjusted as to the class and the maximum number of shares of Common Stock subject to the Directors' Plan, and outstanding options will be adjusted as to the class, number of shares and price per share of Common Stock subject to such options. Effect of Certain Corporate Events The Directors' Plan provides that, in the event of specified types of merger or other corporate reorganization ("change in control"), the time during which outstanding options may be exercised will be accelerated to permit the optionee to exercise all options prior to such change in control. An outstanding option will terminate if the optionholder does not exercise it before a change in control. The acceleration of an option in the event of an acquisition or similar corporate event may be viewed as an anti-takeover provision, which may have the effect of discouraging a proposal to acquire or otherwise obtain control of the Company. Duration, Amendment and Termination The Board may suspend or terminate the Directors' Plan without stockholder approval or ratification at any time or from time to time. Unless sooner terminated, the Directors' Plan will terminate on January 28, 2003. The Board may also amend the Directors' Plan at any time or from time to time. However, the Board may not amend the Plan more than once every six months with respect to the provisions of the Plan that relate to the amount, price and timing of grants, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the rules thereunder. No amendment will be effective unless approved by the stockholders of the Company within twelve months before or after its adoption by the Board if the amendment would (i) increase the number of shares reserved for issuance upon exercise of options; (ii) modify the requirements as to eligibility for participation (to the extent such modification requires stockholder approval in order forthe Directors' Plan to satisfy Section 422 of the Code, if applicable, or Rule 16b-3 promulgated under the Exchange Act; or (iii) change any other provision of the Directors' Plan in any other way if such modification requires stockholder approval in order to comply with Rule 16b-3 promulgated under the Exchange Act. The Board may submit any other amendment to the Directors' Plan for stockholder approval. Federal Income Tax Information Long-term capital gains currently are generally subject to lower tax rates than ordinary income or short-term capital gains. The maximum long-term capital gains rate for federal income tax purposes is currently 20% while the maximum ordinary income rate and short-term capital gains rate is effectively 39.6%. Slightly different rules 11. may apply to optionholders who acquire stock subject to certain repurchase options or who are subject to Section 16(b) of the Exchange Act. Nonstatutory Stock Options. Nonstatutory stock options granted under the Directors' Plan generally have the following federal income tax consequences: There are no tax consequences to the optionholder or the Company by reason of the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock option, the optionholder normally will recognize taxable ordinary income equal to the excess of the stock's fair market value on the date of exercise over the option exercise price. If the optionholder becomes an employee, the Company is required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized. Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, the Company will generally be entitled to a business expense deduction equal to the taxable ordinary income realized by the optionholder. Upon disposition of the stock, the optionholder will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock plus any amount recognized as ordinary income upon exercise of the option. Such gain or loss will be long-term or short-term depending on whether the stock was held for more than one year. Slightly different rules may apply to optionholders who acquire stock subject to certain repurchase options or who are subject to Section 16(b) of the Exchange Act. In the event that there is a change in control of the Company, payments received by certain optionees that are contingent upon the change in control may constitute "parachute payments." If, by reason of such change in control, the exercisability of outstanding options is accelerated, the value of the acceleration is added to other contingent payments, if any, in determining whether the optionee has received "excess parachute payments." In general, if an optionee receives excess parachute payments, an excise tax equal to 20% of the amount of parachute payments is imposed on the optionee, and the Company does not receive a deduction for such amount. PROPOSAL 4 RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS The Board of Directors has selected Deloitte & Touche LLP as the Company's independent auditors for the fiscal year ending December 31, 1999 and has further directed that management submit the selection of independent auditors for ratification by the stockholders at the Annual Meeting. Deloitte & Touche LLP has audited the Company's financial statements since 1988. Representatives of Deloitte & Touche LLP are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they so desire and will be available to respond to questions. Stockholder ratification of the selection of Deloitte & Touche LLP as the Company's independent auditors is not required by the Company's Bylaws or otherwise. However, the Board is submitting the selection of Deloitte & Touche LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee and the Board will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee and the Board in their discretion may direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in the best interests of the Company and its stockholders. The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting will be required to ratify the selection of Deloitte & Touche LLP. MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4. 12. ADDITIONAL INFORMATION MANAGEMENT Officers are appointed annually by the Board and serve at the discretion of the Board. Set forth below is information regarding executive officers of the Company. Name Age Position Leonard Y. Liu 57 Chairman, President and Chief Executive Officer Barbara M. Hubbard 47 Vice President, Finance, Chief Accounting Officer, Assistant Treasurer and Assistant Secretary Ms. Hubbard has served as the Company's Vice President, Finance since November 1998 and Chief Accounting Officer, Assistant Treasurer and Assistant Secretary since May 1996. Ms. Hubbard served as the Company's Vice President and Corporate Controller from April 1996 to November 1998. From May 1994 to July 1995, she was Corporate Controller and Chief Accounting Officer of Intuit, Inc. From October 1991 to April 1994, she was Corporate Controller and Principal Accounting Officer of Software Publishing Corporation. Ms. Hubbard is a Certified Public Accountant in California and Illinois. 13. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the ownership of the Company's Common Stock as of January 31, 1999 by (i) all those known by the Company to be beneficial owners of more than five percent of its Common Stock, (ii) each director and nominee for director, (iii) each of the executive officers named in the Summary Compensation Table and (iv) all executive officers and directors of the Company as a group.
Beneficial Ownership(1) ----------------------------------- Number of Percent of Beneficial Owner Shares Total (%) - ------------------------------------------------------------ --------- ---------- Pequot Capital Management, Inc.............................. 1,399,100 (2) 9.9 500 Nyala Farm Road Westport, CT 06880 Thomson Horstmann & Bryant, Inc............................. 1,014,900 (3) 7.2 Park 80 West, Plaza One Saddlebrook, NJ 07663 Rainier Investment Management, Inc. 845,250 (4) 6.0 Two Union Square 601 Union Street, Suite 2801 Seattle, WA 98101 Leonard Y. Liu.............................................. 750,001 (5)(6) 5.1 Bruce C. Pollock............................................ 121,375 (5)(7) * Thomas W. Hubbs............................................. 5,000 * Barbara M. Hubbard.......................................... 34,947 (5)(8) * Richard C. Alberding........................................ 31,500 (5) * Tania Amochaev.............................................. 31,500 (5) * William A. Hasler........................................... 28,000 (5) * John M. Lillie.............................................. 28,500 (5) * David C. Wetmore ........................................... 41,500 (5) * All directors and executive officers 1,072,323 7.2 as a group (9 persons).............................
- ---------- * Less than one percent. (1) This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the Securities and Exchange Commission (the "SEC"). Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, the Company believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 14,135,478 shares outstanding on January 31, 1999, adjusted as required by rules promulgated by the SEC. (2) Pequot Capital Management, Inc., is an investment adviser registered under Section 203 of the Investment Advisers Act of 1940. (3) Thomson Horstmann & Bryant, Inc., is an investment adviser registered under Section 203 of the Investment Advisers Act of 1940. (4) Rainier Investment Management, Inc., is an investment adviser registered under Section 203 of the Investment Advisers Act of 1940. 14. (5) Includes shares which certain directors and executive officers of the Company have the right to acquire within 60 days after the date of this table pursuant to outstanding options as follows: Leonard Y. Liu, 480,001 shares; Bruce C. Pollock, 112,375 shares; Barbara M. Hubbard, 32,500 shares; Richard C. Alberding, 25,500 shares; Tania Amochaev, 31,500 shares; William A. Hasler, 23,000 shares; John M. Lillie, 23,500 shares; David C. Wetmore, 34,500 shares; and all directors and executive officers as a group, 762,876 shares. (6) Does not include 2,630 shares held by Mr. Liu's son, Jesse Liu, and 1,600 shares held by Mr. Liu's grandson, Brandon Liu, as to which shares Mr. Liu disclaims beneficial ownership. (7) Includes 2,000 shares held in spouse's retirement plan. (8) Includes 2,447 shares acquired through the 1992 Employee Stock Purchase Plan. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten-percent stockholders are required bythe SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 1998, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten-percent beneficial owners were complied with; except that two reports regarding two transactions effected by Updata Cpaital, Inc., an investment banking organization of which Mr. Wetmore is Managing Director, were filed late. 15. EXECUTIVE COMPENSATION COMPENSATION OF DIRECTORS Each non-employee director of the Company receives a quarterly retainer of $2,500 and a per meeting fee of $1,000 (plus $1,500 per year for serving as a committee chairman and $1,000 per year for serving as a committee member). In the fiscal year ended December 31, 1998, the total cash compensation earned by non-employee directors was $77,000. The members of the Board of Directors are also eligible for reimbursement for their expenses incurred in connection with attendance at Board meetings in accordance with Company policy. Each non-employee director of the Company also receives stock option grants under the Directors' Plan. See "Stockholder Proposals-Proposal 3-Approval of 1993 Non-Employee Directors' Stock Option Plan, as amended". On January 2, 1998, the Company granted options covering 6,000 shares to each of Messrs. Alberding, Hasler, Lillie and Wetmore and Ms. Amochaev at an exercise price of $13.5625 per share under the Directors' Plan. The fair market value of such Common Stock on the date of such grant was $13.5625 per share (based on the closing sales price reported in the Nasdaq National Market for the date of grant). On December 14, 1998, the Company granted options covering 6,000 shares to each of Messrs. Alberding, Hasler, Lillie and Wetmore and Ms. Amochaev at an exercise price of $6.3750 per share under the Directors' Plan for 1999 service. The fair market value of such Common Stock on the date of such grant was $6.3750 per share (based on the closing sales price reported in the Nasdaq National Market for the date of grant). As of March 31, 1999, Mr. Hasler had exercised options for 2,500 shares under the Directors' Plan; no other options had been exercised under the Directors' Plan. 16. COMPENSATION OF EXECUTIVE OFFICERS Summary of Compensation The following table shows for the fiscal years ended December 31, 1998, 1997 and 1996, compensation awarded, paid to, or earned by the Company's Chief Executive Officer, its other most highly compensated executive officer at December 31, 1998 and two former executive officers who departed from the Company during fiscal year 1998 (the "Named Executive Officers"): Summary Compensation Table
Long-Term Annual Compensation Compensation Awards ---------------------- ------------ All Other Securities Compen- Name and Principal Salary Bonus Underlying sation Position Year ($) ($) Options (#) ($) ------------------ ---- ------ ----- ------------ --------- Leonard Y. Liu 1998 375,000 99,120 475,000 7,070 (1) Chairman, President and 1997 375,000 170,894 -- 7,070 (1) Chief Executive Officer 1996 375,000 283,190 75,000 4,555 (1) Thomas W. Hubbs (3) 1998 110,913 30,873 120,000 607 (2) Senior Vice President and Chief Financial Officer Bruce C. Pollock (4) 1998 107,500 3,263 -- 6,035 (1) Senior Vice President and 1997 200,000 36,472 -- 6,325 (1) Chief Financial Officer 1996 200,000 70,287 -- 5,538 (1) Barbara M. Hubbard (5) 1998 155,000 18,098 10,000 5,630 (1) Vice President, Finance 1997 145,000 16,785 10,000 5,585 (1) and Chief Accounting Officer 1996 105,000 29,825 40,000 328 (2)
- ---------- (1) Consists of matching contributions pursuant to the Company's 401(k) Plan and, in some cases, term life insurance premiums paid by the Company. (2) Consists of term life insurance premiums paid by the Company. (3) Mr. Hubbs joined the Company in April 1998 and left the Company in October 1998. Prior to the occurrence of any vesting, stock options granted to Mr. Hubbs terminated at the time he left the Company. (4) Mr. Pollock left the Company in June 1998. (5) Ms. Hubbard joined the Company in April 1996. 17. Stock Option Grants And Exercises The Company grants options to its executive officers under its 1989 Stock Option Plan and its 1994 Equity Incentive Plan (collectively, the "Plans"). As of February 27, 1999, options to purchase a total of 1,945,085 shares were outstanding under the Plans and options to purchase 486,206 shares remained available for grant thereunder. The Company also may grant stock options to non-officer employees under its 1995 Nonstatutory Stock Option Plan for Non-Officer Employees (the "Nonstatutory Plan"). The Nonstatutory Plan authorizes the issuance of 2,500,000 shares of the Company's Common Stock. Only employees of the Company who hold positions below the level of Officer (within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder) and are not subject to Section 16 of the Exchange Act are eligible to receive options under the Nonstatutory Plan. Options granted under the Nonstatutory Plan are not intended by the Company to qualify as incentive stock options under the Code. As of April 15, 1999, options to purchase a total of 1,706,442 shares were outstanding under the Nonstatutory Plan and options to purchase 691,687 shares remained available for grant thereunder. The following tables show for the fiscal year ended December 31, 1998, certain information regarding options granted to, exercised by and held at year-end by the Named Executive Officers: Option Grants in Last Fiscal Year
Individual Grants ---------------------------------------------------------------- Potential Realizable Value at Assumed Annual Rates of Number of % of Total Stock Price Securities Options Appreciation for Underlying Granted to Exercise or Option Term(1) Options Employees in Base Price Expiration ------------------------- Name Granted (#) Fiscal Year(2) ($/Sh)(3) Date 5%($) 10%($) ---- ----------- -------------- ----------- ---------- ------------------------- Leonard Y. Liu 300,000(5) 10.9% 9.13 8/5/08 1,722,542 4,365,261 100,000(4) 3.6% 9.13 8/5/08 574,181 1,455,087 75,000(4) 2.7% 16.00 3/5/08 754,674 1,912,491 Thomas W. Hubbs 120,000(4) 4.4% 14.88 5/21/08(6) -- -- Bruce C. Pollock -- -- -- -- -- -- Barbara M. Hubbard 10,000(4) 0.4% 4.75 10/23/08 29,872 75,703
- ---------- (1) Reflects the value of the stock option on the date of grant assuming (i) for the 5% column, a five-percent annual rate of appreciation in the Company's Common Stock over the ten-year term of the option and (ii) for the 10% column, a ten-percent annual rate of appreciation in the Company's Common Stock over the ten-year term of the option, in each case without any discounting to net present value and before income taxes associated with the exercise. Actual gains, if any, on stock option exercises depend on the future performance of the Company's Common Stock and the continued employment of the Named Executive Officer through the vesting period and exercise period. These amounts represent assumed rates of appreciation only, based on SEC rules, and may not necessarily be indicative of results obtained. (2) Based on options to purchase 2,741,000 shares of the Company's Common Stock granted in 1998. (3) All options were granted at the fair market value at the date of grant. (4) Options vest over a four-year period at the rate of 25% per year. The options will fully vest upon a change of control, as defined in the Plans, unless the acquiring company assumes the options or substitutes similar options. (5) Option will vest on the earlier of the following occurrences: (i) entirely on June 25, 2003; or (ii) in the amount of 75,000 shares upon completion of each of the Company's fiscal years 1998 through 2001, if 18. certain Company performance goals are met. (6) Mr. Hubbs left the Company in October 1998, and consequently his stock option terminated prior to the first vesting date of such option. Fiscal Year-End Option Values (1) Number of Securities Value of Unexercised Underlying Unexercised In-The-Money Name Options at FY-End (#) Options at FY-End ($)(2) - ---- --------------------------- --------------------------- Exercisable Unexercisable Exercisable Unexercisable ----------- ------------- ----------- ------------- Leonard Y. Liu 430,000 675,000 539,688 223,438 Thomas W. Hubbs -- -- -- -- Bruce C. Pollock 108,250 16,750 0 0 Barbara M. Hubbard 22,500 37,500 0 0 - ---------- (1) No Named Executive Officers exercised stock options during the fiscal year ended December 31, 1998. (2) Fair market value of the Company's Common Stock at December 31, 1998 ($6.75) minus the exercise price of the options. EMPLOYMENT AGREEMENTS Mr. Liu entered into an employment agreement with the Company that provided for a one-time signing bonus in the amount of $187,500, the grant of options to purchase 600,000 shares of Common Stock and a $250,000 line of credit to be used for the purchase of shares of the Company's Common Stock on the open market. As of March 15, 1999, Mr. Liu had not drawn upon the line of credit. In addition, the employment agreement, as amended, provides that, in the event he is terminated without cause or he terminates his employment because the Company has reduced his responsibilities, functions, titles or overall compensation package, he will be entitled to receive severance payments equal to twelve months of base salary, accelerated vesting of all options that otherwise would have vested over the six-month period immediately following such termination and six months after termination to exercise any and all vested stock options. With respect to options granted subsequent to March 4, 1998, the agreement provides that upon such event Mr. Liu will receive accelerated vesting of all options that otherwise would have vested over the twelve-month period immediately following termination and twelve months after termination to exercise vested options. The agreement also provides that if Mr. Liu is terminated or his responsibilities reduced substantially, as the result of an acquisition of the Company or a similar corporate event, Mr. Liu will be entitled to receive severance payments in the amount of twenty-four months of base salary,a bonus payment in the amount of twice the average bonus that Mr.Liu received for the Company's prior two fiscal years, accelerated vesting of all remaining unvested options and twelve months after termination to exercise any and all vested stock options. With respect to options granted subsequent to March 4, 1998, the agreement provides that Mr. Liu shall have twenty-four months after termination to exercise vested options. Ms. Hubbard entered into an agreement with the Company providing that, upon Ms. Hubbard's termination of service with the Company, until the earlier of such time as she has obtained new full-time employment or eight months, she will receive continued salary payments and health insurance benefits. The agreement also provides that Ms. Hubbard will have 12 months from the date of termination of service to exercise the options to purchase the Company's Common Stock held by her. 19. REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION(1) The Compensation Committee of the Board of Directors (the "Committee") is composed of the non-employee directors identified at the end of this report. None of these non-employee directors has any interlocking or other type of relationship that would call into question his independence as a committee member. The Committee is responsible for setting and administering the policies which govern annual performance, and determines the compensation of the Chief Executive Officer ("CEO") and other executive officers of the Company. COMPENSATION PHILOSOPHY The objectives of the Company's executive compensation policies are to attract, retain and reward executive officers who contribute to the Company's success, to align the financial interests of executive officers with the performance of the Company, to ensure a direct relationship between executive pay and shareholder value, to motivate executive officers to achieve the Company's business objectives and to reward individual performance. During fiscal year 1998, the Company used base salary, annual incentives and long-term incentives under the Plans to achieve these objectives. In carrying out these objectives, the Committee considers the following: o The level of compensation paid to executive officers in positions of companies similarly situated in size and products. To ensure that pay is competitive, the Committee, from time to time, compares the Company's executive compensation packages with those offered by other companies in the same or similar industries or with other similar attributes. Compensation surveys used by the Company typically include public and private companies comparable in size, products or industry to the Company. o The individual performance of each executive officer. Individual performance includes meeting individual performance objectives, demonstration of job knowledge, skills, teamwork and acceptance of the Company's core values. o Corporate performance. Corporate performance is evaluated by factors such as performance relative to competitors, performance relative to business conditions and progress in meeting the Company's objectives and goals as typically reflected in the annual operating plan. o The responsibility and authority of each position relative to other positions within the Company. The Committee does not quantitatively weight these factors but considers all of these factors as a whole in establishing executive compensation. The application given each of these factors in establishing the components of executive compensation follows. - ---------- (1) This Section is not "soliciting material," is not deemed "filed" with the SEC and is not to be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. 20. BASE SALARY Base salaries are established for each executive officer at levels that are intended to be competitive with salaries for comparable positions at other software and computer industry companies of similar size and products. The Company seeks to pay salaries to executive officers that are commensurate with their qualifications, duties and responsibilities and that are competitive in the marketplace. In conducting periodic compensation reviews, the Committee considers each individual executive officer's achievements in meeting Company financial and business objectives during the prior fiscal year, as well as the executive officer's performance of individual responsibilities and the Company's financial position and overall performance. The Committee periodically considers the low, midpoint and upper ranges of base salaries published by compensation surveys in establishing base salaries for each executive officer. ANNUAL INCENTIVE Annual bonus incentives for executives are intended to reflect the Company's belief that management's contribution to stockholder returns comes from achieving operating results that maximize the Company's earnings and cash flow over a multi-year time horizon. The Company believes that the achievement of its performance objectives depends on (i) its ability to deliver outstanding products and services to its customers, (ii) its success in establishing and maintaining a position of strength in its chosen markets, and (iii) its short- and long-term profitability, as well as the quality of that profitability. For purposes of annual incentive compensation, progress toward these performance objectives is measured against the results anticipated in the Company's annual operating plan, which is approved by the Board of Directors. The 1998 incentive compensation for executive officers other than the Chief Executive Officer was based in part on the achievement of total Company results consistent with the Company's 1998 operating plan, as well as achievement of other objectives in the 1998 operating plan specific to such officers' individual areas of management responsibility. The Company believes that this incentive compensation structure closely links the incentives paid to its executives with the results necessary to create long-term value for stockholders. LONG-TERM INCENTIVE The Compensation Committee also endorses the position that stock ownership by management is beneficial in aligning management and stockholder interests in enhancing stockholder value. In that regard, stock options also are used to retain executives and motivate results to improve long-term stock market performance. Stock options are granted at the prevailing market value and will have value only if the Company's stock price increases. As part of its periodic review of compensation, the Compensation Committee reviews the stock option holdings of the Company's officers and senior executives, and recommends additional stock option grants as appropriate. The Compensation Committee determines the number of options to be granted to executive management based on (i) competitive practice within the comparison group used in determining base salary, (ii) historical performance of the executive, and (iii) the amount of prior grants held by the executives, as well as the number of vested versus unvested options. When using comparative data, the Company targets its option grants in the mid to high range of comparable companies. Section 162(m) of the Code limits the Company to a deduction for federal income tax purposes of no more than $1.0 million of compensation paid to certain Named Executive Officers in a taxable year. Compensation above $1.0 million may be deducted if it is "performance-based compensation" within the meaning of the Code. Stock options granted under the Company's 1994 Equity Incentive Plan with an exercise price at least equal to the fair market value of the Company's common stock on the date of grant are considered to be "performance-based compensation." 21. CEO COMPENSATION During the fiscal year ended December 31, 1998, Mr. Liu served as Chairman, President and Chief Executive Officer throughout the year and continues to hold such offices. Mr. Liu's base salary, annual incentives and long-term incentives were determined in accordance with the criteria described in the "Base Salary," "Annual Incentive" and "Long-Term Incentive" sections of this report. Mr. Liu's base salary in 1998 was $375,000; see "Summary Compensation Table." This amount, together with a potential annual incentive tied to the achievement of 1998 revenue and net income targets, was estimated to provide an annual cash compensation level which would be competitive with the mid to high range of compensation paid by comparable software companies. Based on Mr. Liu's and the Company's operating performance in 1998, Mr. Liu earned an incentive bonus of $99,120. Mr. Liu's total cash compensation in 1998 was $481,190. As part of its annual review of senior executive compensation, the Compensation Committee, at its meeting on February 10, 1999, increased Mr. Liu's annual incentive bonus at achievement of 100% of plan to $300,000 per year from $250,000 per year. CONCLUSION Through the plans described above, a significant portion of the Company's executive compensation programs and Mr. Liu's compensation are contingent on Company performance and realization of benefits closely linked to increases in long-term stockholder value. The Company remains committed to this philosophy of pay for performance, recognizing that the competitive market for talented executives and the volatility of the Company's business may result in highly variable compensation for a particular time period. COMPENSATION COMMITTEE William A. Hasler, Chairman Richard C. Alberding John M. Lillie 22. PERFORMANCE MEASUREMENT COMPARISON(1) Set forth below is a line graph comparing the cumulative total stockholder return on the Company's Common Stock, based on its market price, with the cumulative total return of companies on Standard & Poor's 500 Index (the "S&P 500") and the Nasdaq Computer and Data Processing Stocks Index, assuming reinvestment of dividends, for the period beginning December 31, 1993 through the Company's fiscal year ended December 31, 1998. This graph assumes that the value of the investment in the Company's Common Stock and each of the comparison groups was $100 on December 31, 1993. Comparison of Cumulative Total Return on Investment [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] - -------------------------------------------------------------------------------- 12/31/93 12/30/94 12/29/95 12/31/96 12/31/97 12/31/98 - -------------------------------------------------------------------------------- NASDAQ 100.00 97.75 138.26 170.01 208.58 293.21 Walker 100.00 71.05 78.29 142.76 144.74 71.05 S&P 500 100.00 101.37 139.51 172.01 229.60 303.18 - -------------------------------------------------------------------------------- - ---------- (1) This section is not "soliciting material," is not deemed filed with the SEC and is not to be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing. 23. CERTAIN TRANSACTIONS The Company has entered into indemnity agreements with certain officers and directors which provide, among other things, that the Company will indemnify such officer or director, under the circumstances and to the extent provided for therein, for expenses, damages, judgments, fines and settlements he or she may be required to pay in actions or proceedings to which he or she is or may be made a party by reason of his or her position as a director, officer or other agent of the Company, and otherwise to the full extent permitted under Delaware law and the Company's Bylaws. OTHER MATTERS The Board of Directors knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment. By Order of the Board of Directors, /s/ BARBARA M. HUBBARD ----------------------- BARBARA M. HUBBARD Vice President, Finance and Assistant Secretary April 16, 1999 24. SKU-1101-PS-99 25. WALKER INTERACTIVE SYSTEMS, INC. EMPLOYEE STOCK PURCHASE PLAN Adopted January 15, 1992 Approved by the Stockholders on March 6, 1992 Amended on January 28, 1993 Approved by the Stockholders on April 23, 1993 Amended on March 3, 1995 Approved by the Stockholders on May 25, 1995 Amended on February 11, 1998 Approved by the Stockholders on May 21, 1998 Amended on February 10, 1999 Approved by the Stockholders on ___________ 1. PURPOSE. (a) The purpose of the Employee Stock Purchase Plan (the "Plan") is to provide a means by which employees of Walker Interactive Systems, a Delaware corporation (the "Company"), and its Affiliates, as defined in subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the rights to purchase stock of the Company granted under the Plan be considered options issued under an "employee stock purchase plan" as that term is defined in Section 423(b) of the Code. 2. ADMINISTRATION. (a) The Plan shall be administered by the Board of Directors (the "Board") of the Company unless and until the Board delegates administration to a Committee, as provided in subparagraph 2(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan. (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine when and how rights to purchase stock of the Company shall be granted and the provisions of each offering of such rights (which need not be identical). (ii) To designate from time to time which Affiliates of the Company shall be eligible to participate in the Plan. (iii)To construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iv) To amend the Plan as provided in paragraph 13. (v) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company. (c) The Board may delegate administration of the Plan to a Committee composed of not fewer than two (2) members of the Board (the "Committee"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of paragraph 12 relating to adjustments upon changes in stock, the stock that may be sold pursuant to rights granted under the Plan shall not exceed in the aggregate One Million Five Hundred Thousand (1,500,000) shares of the Company's common stock (the "Common Stock"). If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 4. GRANT OF RIGHTS; OFFERING. The Board or the Committee may from time to time grant or provide for the grant of rights to purchase Common Stock of the Company under the Plan to eligible employees (an 2 "Offering") on a date or dates (the "Offering Date(s)") selected by the Board or the Committee. Each Offering shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. If an employee has more than one right outstanding under the Plan, unless he or she otherwise indicates in agreements or notices delivered hereunder: (1) each agreement or notice delivered by that employee will be deemed to apply to all of his or her rights under the Plan, and (2) a right with a lower exercise price (or an earlier-granted right, if two rights have identical exercise prices), will be exercised to the fullest possible extent before a right with a higher exercise price (or a later-granted right, if two rights have identical exercise prices) will be exercised. The provisions of separate Offerings need not be identical, but each Offering shall include (through incorporation of the provisions of this Plan by reference in the Offering or otherwise) the substance of the provisions contained in paragraphs 5 through 8, inclusive. 5. ELIGIBILITY. (a) Rights may be granted only to employees of the Company or, as the Board or the Committee may designate as provided in subparagraph 2(b), to employees of any Affiliate of the Company. Except as provided in subparagraph 5(b), an employee of the Company or any Affiliate shall not be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee has been in the employ of the Company or any Affiliate for such continuous period preceding such grant as the Board or the Committee may require, but in no event shall the required period of continuous employment be equal to or greater than two (2) years. In addition, unless otherwise determined by the Board or the Committee and set forth in the terms of the applicable Offering, no employee of the Company or any Affiliate shall be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee's customary employment with the Company or such Affiliate is at least twenty (20) hours per week and at least five (5) months per calendar year. (b) The Board or the Committee may provide that, each person who, during the course of an Offering, first becomes an eligible employee of the Company or designated Affiliate will, on a date or dates specified in the Offering which coincides with the day on which such person becomes an eligible employee or occurs thereafter, receive a right under that Offering, which right shall thereafter be deemed to be a part of that Offering. Such right shall have the same characteristics as any rights originally granted under that Offering, as described herein, except that: (i) the date on which such right is granted shall be the "Offering Date" of such right for all purposes, including determination of the exercise price of such right; (ii) the Purchase Period (as defined below) for such right shall begin on its Offering Date and end coincident with the end of such Offering; and (iii) the Board or the Committee may provide that if such person first becomes an eligible employee within a specified period of time before the end of 3 the Purchase Period (as defined below) for such Offering, he or she will not receive any right under that Offering. (c) No employee shall be eligible for the grant of any rights under the Plan if, immediately after any such rights are granted, such employee owns stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Affiliate. For purposes of this subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in determining the stock ownership of any employee, and stock which such employee may purchase under all outstanding rights and options shall be treated as stock owned by such employee. (d) An eligible employee may be granted rights under the Plan only if such rights, together with any other rights granted under "employee stock purchase plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of the Code, do not permit such employee's rights to purchase stock of the Company or any Affiliate to accrue at a rate which exceeds twenty-five thousand dollars ($25,000) of fair market value of such stock (determined at the time such rights are granted) for each calendar year in which such rights are outstanding at any time. (e) Officers of the Company and any designated Affiliate shall be eligible to participate in Offerings under the Plan, provided, however, that the Board may provide in an Offering that certain employees who are highly compensated employees within the meaning of Section 423(b)(4)(D) of the Code shall not be eligible to participate. 6. RIGHTS; PURCHASE PRICE. (a) On each Offering Date, each eligible employee, pursuant to an Offering made under the Plan, shall be granted the right to purchase up to the number of shares of Common Stock of the Company purchasable with a percentage designated by the Board or the Committee not exceeding fifteen percent (15%) of such employee's Earnings (as defined in Section 7(a)) during the period which begins on the Offering Date (or such later date as the Board or the Committee determines for a particular Offering) and ends on the date stated in the Offering, which date shall be no more than twenty-seven (27) months after the Offering Date (the "Purchase Period"). In connection with each Offering made under this Plan, the Board or the Committee shall 4 specify a maximum number of shares which may be purchased by any employee as well as a maximum aggregate number of shares which may be purchased by all eligible employees pursuant to such Offering. In addition, in connection with each Offering which contains more than one Exercise Date (as defined in the Offering), the Board or the Committee may specify a maximum aggregate number of shares which may be purchased by all eligible employees on any given Exercise Date under the Offering. If the aggregate purchase of shares upon exercise of rights granted under the Offering would exceed any such maximum aggregate number, the Board or the Committee shall make a pro rata allocation of the shares available in as nearly a uniform manner as shall be practicable and as it shall deem to be equitable. (b) The purchase price of stock acquired pursuant to rights granted under the Plan shall be not less than the lesser of: (i) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the Offering Date; or (ii) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the Exercise Date. 7. PARTICIPATION; WITHDRAWAL; TERMINATION. (a) An eligible employee may become a participant in an Offering by delivering a participation agreement to the Company within the time specified in the Offering, in such form as the Company provides. Each such agreement shall authorize payroll deductions of up to the maximum percentage specified by the Board or the Committee of such employee's Earnings during the Purchase Period. "Earnings" is defined as the total compensation paid to an employee, including all salary, wages (including amounts elected to be deferred by the employee, that would otherwise have been paid, under any cash or deferred arrangement established by the Company), overtime pay, commissions, bonuses, and other remuneration paid directly to the employee, but excluding profit sharing, the cost of employee benefits paid for by the Company, education or tuition reimbursements, imputed income arising under any Company group insurance or benefit program, traveling expenses, business and moving expense reimbursements, income received in connection with stock options, contributions made by the Company under any employee benefit plan, and similar items of compensation. The payroll deductions made for each participant shall be credited to an account for such participant under the Plan and shall be deposited with the general funds of the Company. A participant may reduce (including to zero), increase or begin such payroll deductions after the beginning of any Purchase Period only as provided for in the Offering. A participant may make additional payments into his or her account only if specifically provided for in the Offering and only if the participant has not had the maximum amount withheld during the Purchase Period. (b) At any time during a Purchase Period a participant may terminate his or her payroll deductions under the Plan and withdraw from the Offering by delivering to the Company a notice of withdrawal in such form as the Company provides. Such withdrawal may be elected at any time prior to the end of the Purchase Period except as provided by the Board or the Committee in the Offering. Upon such withdrawal from the Offering by a participant, the Company shall distribute to such participant all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the participant) under the Offering, without interest, and such participant's interest in that Offering shall be automatically terminated. A participant's withdrawal 5 from an Offering will have no effect upon such participant's eligibility to participate in any other Offerings under the Plan but such participant will be required to deliver a new participation agreement in order to participate in subsequent Offerings under the Plan. (c) Rights granted pursuant to any Offering under the Plan shall terminate immediately upon cessation of any participating employee's employment with the Company and any designated Affiliate, for any reason, and the Company shall distribute to such terminated employee all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the terminated employee), under the Offering, without interest. (d) Rights granted under the Plan shall not be transferable, and shall be exercisable only by the person to whom such rights are granted. 8. EXERCISE. (a) On each exercise date, as defined in the relevant Offering (an "Exercise Date"), each participant's accumulated payroll deductions and other additional payments specifically provided for in the Offering (without any increase for interest) will be applied to the purchase of whole shares of stock of the Company, up to the maximum number of shares permitted pursuant to the terms of the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares shall be issued upon the exercise of rights granted under the Plan. The amount, if any, of accumulated payroll deductions remaining in each participant's account after the purchase of shares which is less than the amount required to purchase one share of stock on the final Exercise Date of an Offering shall be held in each such participant's account for the purchase of shares under the next Offering under the Plan, unless such participant withdraws from such next Offering, as provided in subparagraph 7(b), or is no longer eligible to be granted rights under the Plan, as provided in paragraph 5, in which case such amount shall be distributed to the participant after said final Exercise Date, without interest. The amount, if any, of accumulated payroll deductions remaining in any participant's account after the purchase of shares which is equal to the amount required to purchase whole shares of stock on the final Exercise Date of an Offering shall be distributed in full to the participant after such Exercise Date, without interest. (b) No rights granted under the Plan may be exercised to any extent unless the Plan (including rights granted thereunder) is covered by an effective registration statement pursuant to the Securities Act of 1933, as amended (the "Securities Act"). If on an Exercise Date of any Offering hereunder the Plan is not so registered, no rights granted under the Plan or any Offering shall be exercised on said Exercise Date and the Exercise Date shall be delayed until the Plan is subject to such an effective registration statement, except that the Exercise Date shall not be delayed more than two (2) months and the Exercise Date shall in no event be more than twenty-seven (27) months from the Offering Date. If on the Exercise 6 Date of any Offering hereunder, as delayed to the maximum extent permissible, the Plan is not registered, no rights granted under the Plan or any Offering shall be exercised and all payroll deductions accumulated during the purchase period (reduced to the extent, if any, such deductions have been used to acquire stock) shall be distributed to the participants, without interest. 9. COVENANTS OF THE COMPANY. (a) During the terms of the rights granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such rights. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the rights granted under the Plan. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such rights unless and until such authority is obtained. 10. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to rights granted under the Plan shall constitute general funds of the Company. 11. RIGHTS AS A STOCKHOLDER. A participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to rights granted under the Plan unless and until certificates representing such shares shall have been issued. 12. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any rights granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding rights will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding rights. (b) In the event of: (1) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in which 7 more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, then, as determined by the Board in its sole discretion (i) any surviving corporation may assume outstanding rights or substitute similar rights for those under the Plan, (ii) such rights may continue in full force and effect, or (iii) participants' accumulated payroll deductions may be used to purchase Common Stock immediately prior to the transaction described above and the participants' rights under the ongoing Offering terminated. 13. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment to the extent stockholder approval is necessary to satisfy the requirements of Section 423 of the Code, Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or any Nasdaq or securities exchange listing requirements. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to employee stock purchase plans and/or to bring the Plan and/or rights granted under it into compliance therewith. (b) Rights and obligations under any rights granted before amendment of the Plan shall not be impaired by any amendment of the Plan, except with the consent of the person to whom such rights were granted or except as necessary to comply with any laws or governmental regulation, or except as necessary to ensure that the Plan and/or rights granted under the Plan comply with the requirements of Section 423 of the Code. 14. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on January 15, 2002. No rights may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any rights granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom such rights were granted or except as necessary to comply with any laws or governmental regulation. 8 15. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no rights granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company. 9 WALKER INTERACTIVE SYSTEMS, INC. 1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN Adopted on January 28, 1993 Approved by the Stockholders on April 23, 1993 Amended on March 3, 1995 Approved by the Stockholders on May 25, 1995 Amended on March 12, 1996 Approved by the Stockholders on May 9, 1996 Amended on December 14, 1998, March 18, 1999 and April 12, 1999 Approved by the Stockholders on ___________ 1. PURPOSE. (a) The purpose of the 1993 Non-Employee Directors' Stock Option Plan (the "Plan") is to provide a means by which each director of Walker Interactive Systems, Inc., a Delaware corporation (the "Company"), who is not otherwise an employee of the Company or of any Affiliate of the Company (each such person being hereafter referred to as a "Non-Employee Director") will be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of persons now serving as Non-Employee Directors of the Company, to secure and retain the services of persons capable of serving in such capacity, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the options issued under the Plan not be incentive stock options as that term is used in Section 422 of the Code. 2. ADMINISTRATION. (a) The Plan shall be administered by the Board of Directors of the Company (the "Board") unless and until the Board delegates administration to a committee, as provided in subparagraph 2(c). (b) The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members of the Board (the "Committee"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of paragraph 10 relating to adjustments upon changes in stock, the stock that may be sold pursuant to options granted under the Plan shall not exceed in the aggregate three hundred fifty thousand (350,000) shares of the Company's common stock. If any option granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 4. ELIGIBILITY. Options shall be granted only to Non-Employee Directors of the Company. 2 5. NON-DISCRETIONARY GRANTS. (a) Each person who is, after the date of the approval of the Plan by the Board (the "Adoption Date"), elected for the first time to be a Non-Employee Director of the Company shall, upon the date of his or her initial election to be a Non-Employee Director by the Board or stockholders of the Company, be automatically granted an option to purchase twelve thousand (12,000) shares of common stock of the Company on the terms and conditions set forth herein; provided however, that each person elected for the first time as a Non-Employee Director of the Company after March 12, 1996 shall, upon the date of such election, be automatically granted an option to purchase fifteen thousand (15,000) shares of common stock of the Company. (b) Each person who is, as of the Adoption Date, a Non-Employee Director of the Company shall, on the Adoption Date, be automatically granted an option to purchase three thousand (3,000) shares of common stock of the Company on the terms and conditions set forth herein. (c) After the Adoption Date, so long as any such person remains a Non-Employee Director of the Company and the Plan remains in effect, each Non-Employee Director shall, on January 2 of each calendar year, commencing January 2, 1994, be automatically granted an option to purchase three thousand (3,000) shares of common stock of the Company on the terms and conditions set forth herein; provided however, that, effective January 2, 1997, each Non-Employee Director of the Company shall be automatically granted an option to purchase six thousand (6,000) shares of common stock of the Company. Notwithstanding any of the foregoing, no grant of options pursuant to the foregoing sentence shall be made on January 2, 1999, but in lieu thereof, on December 15, 1998, each Non-Employee Director of the Company 3 shall be automatically granted an option to purchase six thousand (6,000) shares of common stock of the Company. 6. OPTION PROVISIONS. Each option shall contain the following terms and conditions: (a) No option shall be exercisable after the expiration of ten (10) years from the date it was granted. In any and all circumstances, an option may be exercised following termination of the optionee's service as a Non-Employee Director of the Company only as to that number of shares as to which it was vested (i.e. exercisable) on the date of termination of such service under the provisions of subparagraph 6(e). (b) The exercise price of each option shall be one hundred percent (100%) of the fair market value of the stock subject to such option on the date such option is granted. (c) The purchase price of stock acquired pursuant to an option shall be paid, to the extent permitted by applicable statutes and regulations, either (1) in cash at the time the option is exercised, or (2) provided that at the time of the exercise the Company's common stock is publicly traded and quoted regularly in the Wall Street Journal, payment by delivery of shares of common stock of the Company already owned by the optionee, held for the period required to avoid any charge to the Company's reported earnings that would not be incurred if the exercise price was paid in cash, and owned free and clear of any liens, claims, encumbrances or security interest, which common stock shall be valued at fair market value on the date preceding the date of exercise, or (3) by a combination of such methods of payment. (d) An option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the option is granted only by such person or by his or her guardian or legal representative. 4 (e) An option granted pursuant to the Plan shall vest (i.e. become exercisable) with respect to each optionee in four (4) equal quarterly installments commencing on the date three months after the date of grant of the option, provided that the optionee has, during the entire quarterly period to such vesting date, continuously served as a Non-Employee Director of the Company, whereupon such option shall become fully exercisable in accordance with its terms with respect to that portion of the shares represented by that installment. Notwithstanding the foregoing, an option granted after March 12, 1996 pursuant to Section 5(a) of the Plan shall vest with respect to each optionee in three (3) equal annual installments commencing on the first anniversary after the date of grant of the option, provided that the optionee has, during the entire annual period prior to such vesting date, continuously served as a Non-Employee Director of the Company where upon such option shall become fully exercisable in accordance with its terms with respect to that portion of the shares represented by that installment. (f) The Company may require any optionee, or any person to whom an option is transferred under subparagraph 6(d), as a condition of exercising any such option: (1) to give written assurances satisfactory to the Company as to the optionee's knowledge and experience in financial and business matters; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the option for such person's own account and not with any present intention of selling or otherwise distributing the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the option has been registered under a then-currently-effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or (ii), as to any particular requirement, a determination is made by counsel for 5 the Company that such requirement need not be met in the circumstances under the then-applicable securities laws. (g) Notwithstanding anything to the contrary contained herein, an option may not be exercised unless the shares issuable upon exercise of such option are then registered under the Securities Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. 7. COVENANTS OF THE COMPANY. (a) During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the options granted under the Plan; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any option granted under the Plan, or any stock issued or issuable pursuant to any such option. If the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such options. 8. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company. 6 9. MISCELLANEOUS. (a) Neither an optionee nor any person to whom an option is transferred under subparagraph 6(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until such person has satisfied all requirements for exercise of the option pursuant to its terms. (b) Nothing in the Plan or in any instrument executed pursuant thereto shall confer upon any Non-Employee Director any right to continue in the service of the Company or any Affiliate or shall affect any right of the Company, its Board or stockholders or any Affiliate to terminate the service of any Non-Employee Director with or without cause. (c) No Non-Employee Director, individually or as a member of a group, and no beneficiary or other person claiming under or through him or her, shall have any right, title or interest in or to any option reserved for the purposes of the Plan except as to such shares of common stock, if any, as shall have been reserved for him or her pursuant to an option granted to him or her. (d) In connection with each option made pursuant to the Plan, it shall be a condition precedent to the Company's obligation to issue or transfer shares to a Non-Employee Director, or an affiliate of such Non-Employee Director, or to evidence the removal of any restrictions on transfer, that such Non-Employee Director make arrangements satisfactory to the Company to insure that the amount of any federal or other withholding tax required to be withheld with respect to such sale or transfer, or such removal or lapse, is made available to the Company for timely payment of such tax. 7 10. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding options will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding options. (b) In the event of: (1) a merger or consolidation in which the Company is not the surviving corporation; (2) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (3) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, then the time during which outstanding options may be exercised shall be accelerated to permit the optionee to exercise all such options prior to such merger, consolidation, reverse merger or reorganization, and the options terminated if not exercised prior to such event. 11. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan, provided, however, that the Board shall not amend the plan more than once every six months, with respect to the provisions of the plan which relate to the amount, price and timing of grants, other than to comport with changes in the Code, the Employee Retirement Income Security Act, or the rules thereunder. Except as provided in paragraph 10 relating to adjustments upon changes in stock, 8 no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (1) Increase the number of shares reserved for options under the Plan; (2) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to comply with the requirements of Rule 16b-3 promulgated under the Exchange Act); or (3) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to comply with the requirements of Rule 16b-3 promulgated under the Exchange Act. (b) Rights and obligations under any option granted before any amendment of the Plan shall not be altered or impaired by such amendment of the Plan unless (i) the Company requests the consent of the person to whom the option was granted and (ii) such person consents in writing. 12. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on January 28, 2003. No options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any option granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom the option was granted. (c) The Plan shall terminated upon the occurrence of any of the events described in paragraph 10(b) above. 9 13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE. (a) The Plan shall become effective upon adoption by the Board of Directors, subject to the condition subsequent that the Plan is approved by the stockholders of the Company. (b) No option granted under the Plan shall be exercised or exercisable unless and until the condition of subparagraph 13(a) above has been met. 10 [GRAPHIC OMITTED] Walker Interactive Systems, Inc. 303 Second Street, Three North San Francisco, California 94107 April 16, 1999 You are cordially invited to attend the Annual Meeting of Stockholders of Walker Interactive Systems, Inc., which will be held on Thursday, May 20, 1999 at 2:00 p.m., local time, at the Company's headquarters, 303 Second Street, San Francisco, California. At the meeting, we will vote on the proposals described in the accompanying Notice and Proxy Statement and report to you on the operations of the Company. You will have the opportunity to ask questions about the business that may be of general interest to you and other stockholders. Your vote is important regardless of how many shares you own and whether or not you plan to attend the Annual Meeting of Stockholders. Please take a few minutes now to review the proxy statement and to sign and date your proxy and return it in the postage-paid envelope provided. Sincerely, LEONARD Y. LIU --------------------- LEONARD Y. LIU Chairman, President and Chief Executive Officer DETACH HERE Please mark __X__ votes as in this example. MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW AND FOR PROPOSALS 2, 3 AND 4. 1. To elect three directors to hold office until the 2002 Annual Meeting of Stockholders. Nominees: William A. Hasler, Leonard Y. Liu and David C. Wetmore FOR WITHHELD [_] [_] [_] ________________________________________ For all nominees except as noted above 2. To approve the Company's 1992 FOR AGAINST ABSTAIN Employee Stock Purchase Plan, as amended, to increase the aggregate [_] [_] [_] number of shares of Common Stock authorized for issuance under such plan from 950,000 shares to 1,500,000, an increase of 550,000 shares. 3. To approve the Company's 1993 FOR AGAINST ABSTAIN Non-Employee Directors' Stock Option Plan, as amended, to [_] [_] [_] increase the aggregate number of shares of Common Stock authorized for issuance under such plan from 250,000 shares to 350,000, an increase of 100,000 shares. 4. To ratify the selection of Deloitte FOR AGAINST ABSTAIN & Touche LLP as independent auditors of the Company for its [_] [_] [_] fiscal year ending December 31, 1999. Please vote, date and promptly return this proxy in the enclosed return envelope which is postage prepaid if mailed in the United States. Please sign exactly as your name appears hereon. If the stock is registered in the names of two or more persons, each should sign. Executors, administrators, trustees, guardians and attorneys-in-fact should add their titles. If signer is a corporation, please give full corporate name and have a duly authorized officer sign, stating title. If signer is a partnership, please sign in partnership name by authorized person. Signature:_________________ Date:______ Signature:_________________ Date:______ -----END PRIVACY-ENHANCED MESSAGE-----