Fill and Sign the Cognos Employee Stock Purchase Plan Secgov Form

APPROVAL OF 1997 STOCK OPTION PLAN (Proposal 2) On March 26, 1997, the Board of Directors adopted the 1997 Stock Option Plan (the "1997 Option Plan"), subject to approval of stockholders at the Annual Meeting. As of the date of adoption of the 1997 Option Plan by the Board, there were approximately 2,570 officers and employees of the Company and its subsidiaries who are eligible to participate in the 1997 Option Plan. The principal provision of the 1997 Stock Option Plan are summarized below. Such summary does not, however, purport to be complete and is qualified in its entirety by the terms of the 1997 Option Plan, a copy of which is attached hereto as Exhibit A and incorporated herein by reference. Description of 1997 Option Plan The 1997 Option Plan provides for the granting of options to acquire Common Stock, which may be either incentive stock options (an "ISO") or nonqualified stock options (an "NSO"). The 1997 Option Plan is administered by the Stock Option Committee of the Board of Directors, and all employees of the Company or any subsidiary and any consultant or adviser providing bona fide services to the Company or any subsidiary (provided that such services are not in connection with the offer or sale of securities in a capital raising transaction) whose participation in the 1997 Option Plan is determined by the Stock Option Committee to be in the best interests of the Company are eligible to receive option grants thereunder. The 1997 Option Plan does not have a termination date, but a grant of an ISO may not occur 10 years after March 26, 1997, the effective date of the 1997 Option Plan. Receipt of option grants under the 1997 Option Plan is contingent upon the execution by each prospective option holder of an agreement in such form as the Stock Option Committee may from time to time determine. The 1997 Option Plan provides for the grant of options to purchase up to 1,800,000 shares of Common Stock. The purchase price per share of Common Stock subject to an option is fixed by the Stock Option Committee when the option is granted. Options to purchase no more than 500,000 shares of Common Stock may be granted to any one eligible individual during the first 10 years after the effective date of the 1997 Option Plan and 200,000 shares per year thereafter. The terms of options granted under the 1997 Option Plan, including the vesting provisions of such options, will be established at the time of grant. The Stock Option Committee, in its sole discretion, may rescind, modify or waive an limitation or condition on the exercise of an option contained in any option agreement so as to accelerate the time at which an option may be exercised or extend the period during which the option may be exercised. No person may receive an ISO if, at the time of grant, such person owns directly or indirectly more than 10% of the total combined voting power of the Company unless the option price is at least 110% of the fair market value of the Common Stock and the exercise period of such ISO is by its terms limited to five years. There is also a $100,000 limit on the value of Common Stock (determined at the time of grant) covered by ISOs that first become exercisable by an optionee in any calendar year. No option granted to a reporting person under Section 16 of the Exchange Act may be exercisable during the first six months after the date of grant.Payment for shares purchased under the 1997 Option Plan may be made: (i) in cash or in cash equivalents; (ii) if permitted by the option agreement, by exchanging shares of Common Stock with a fair market value equal to or less than the total option price plus cash for any difference; (iii) if permitted by the option agreement, by delivery of a promissory note of the person exercising the option; (iv) if permitted by the option agreement, by causing the Company to withhold shares of Common Stock otherwise issuable pursuant to the exercise of an option equal in value to the exercise price; or (V) by a combination of the foregoing. Payment in full of the option price need not accompany the written notice of exercise provided the notice directs that the stock certificate for the shares for which the option is exercised be delivered to a licensed broker acceptable to the Company as the agent for the individual exercising the option and, at the time such stock certificate is delivered, the broker tenders to the Company cash (or cash equivalents acceptable to the Company) equal to the option price. In the event of stock splits, stock dividends, recapitalizations, combinations of shares or certain other events, the 1997 Option Plan provides for adjustment of. (ij the number of shares available for option grants, including the maximum number of shares that may be granted to any one individual, and (ii) the number of shares and the per share exercise price for shares subject to unexercised options. Upon any dissolution or liquidation of the Company, the sale of substantially all of the Company's assets, a merger, reorganization or consolidation in which the Company is not the surviving corporation or any other transaction (including, without limitation, a merger or reorganization in which the Company is the surviving corporation) approved by the Board which results in any person or entity owning 80% or more of the total combined voting power of an classes of stock of the Company, the 1997 Option Plan and the options issued thereunder will terminate, unless provision is made in connection with such transaction for the continuation of the plans and/or the assumption of the options or for the substitution for such options of new options covering the stock of a successor corporation or a parent or subsidiary thereof, with appropriate adjustment as to the number and kinds of shares and the per share exercise price. Options granted under the 1997 Plan generally are non-transferable except by will or by the laws of descent and distribution upon the death of the option holder. The Board of Directors may terminate or amend the 1997 Option Plan at any time; provided, however, that any amendment by the Board which, if not approved by the Company's stockholders would cause the Plan to not comply with Sections 162(m) or 422 of the Internal Revenue Code of 1986, as amended (the "Code"), shall not be effective unless approved by the affirmative vote of stockholders who hold more than 50% of the combined voting power of the outstanding shares of voting stock of the Company present or represented, and entitled to vote thereon at a duly constituted stockholders' meeting. Based on the closing price of $28 1/8 per share on March 17, 1997, the aggregate market value of the 1,800,000 shares of Common Stock issuable under the 1997 Option Plan is $50.6 million. In addition to the 1997 Option Plan, the Company maintains two other stock options plans under which employees are eligible to receive option grants: the 1995 Stock Option Plan (1,298,065 shares reserved, of which 1,269,438 shares have been granted, net of forfeitures, as of March 17, 1997) and the 1996 Non-Incentive Stock Option Plan (1,100,000 shares reserved, of which 1,095,491 shares have been granted as of March 17, 1997). In January 1995, the Company also made a non-plan option grant to Mr. Faeder covering 450,000 shares of Common Stock.Federal Income Tax Consequences The grant of an option will not be a taxable event for the optionee or the Company. Incentive Stock Options. An optionee will not recognize taxable income upon exercise of an ISO (except that the alternative minimum tax may apply), and any gain realized upon a disposition of shares of stock received pursuant to the exercise of an ISO will be taxed as long-term capital gain if the optionee holds the shares for at least two years after the date of grant and for one year after the date of exercise (the "holding period requirement"). The Company will not be entitled to any business expense deduction with respect to the exercise of an ISO, except as discussed below. For the exercise of an option to qualify for the foregoing tax treatment, the optionee generally must be an employee of the Company or a subsidiary from the date the option is granted through a date within three months before the date of exercise of the option. In the case of an optionee who is disabled, the three-month period for exercise following termination of employment is extended to one year. In the case of an employee who dies, both the time for exercising ISOs after termination of employment and the holding period for stock received pursuant to the exercise of the option are waived. If all of the foregoing requirements are met except the holding period requirement mentioned above, the optionee will recognize ordinary income upon the disposition of the stock in an amount generally equal to the excess of the fair market value of the stock at the time the option was exercised over the option exercise price (but not in excess of the gain realized on the sale). The balance of the realized gain, if any, will be capital gain. The employer corporation will be allowed a business expense deduction to the extent the optionee recognizes ordinary income subject to Section 162(m) of the Code summarized below. If an optionee exercises an ISO by tendering shares of Common Stock with a fair market value equal to part or all of the option exercise price, the exchange of shares will be treated as a nontaxable exchange (except that this treatment would not apply if the optionee had acquired the shares being transferred pursuant to the exercise of an-ISO and had not satisfied the holding period requirement summarized above). If the exercise is treated as a tax free exchange, the optionee would have no taxable income from the exchange and exercise (other than minimum taxable income as discussed above) and the tax basis of the shares exchanged would be treated as the substituted basis for the shares received. If the optionee used shares received pursuant to the exercise of an ISO (or another statutory option) as to which the optionee had not satisfied the applicable holding period requirement, the exchange would be treated as a taxable disqualifying disposition of the exchanged shares. If, pursuant to an option agreement, the Company withholds shares in payment of the option price for incentive options, the transaction should generally be treated as if the withheld shares had been sold in a disqualifying disposition after exercise of the option, so that the optionee will realize ordinary income with respect to such shares. The shares paid for by the withheld shares should be treated as having been received upon exercise of an incentive stock option, with the tax consequences described above. However, the Internal Revenue Service has not ruled on the tax treatment of shares received on exercise of an incentive stock option where the option exercise price is paid with withheld shares. Non-Qualified Options. Upon exercising a NSO, an optionee will recognize ordinary income in an amount equal to the difference between the exercise price and the fair market value of the stock on the date of exercise (except that, if the optionee is subject to certain restrictions imposed by the securities laws, the measurement date will be deferred, unless the optionee makes a special tax election within 30 days after exercise). Upon a subsequent sale or exchange of shares acquired pursuant to the exercise of a NSO, the optionee will have taxable gain or loss, measured by the difference between the amount realized on the disposition and the tax basis of the shares (generally, the amount paid for the shares plus the amount treated as ordinary income at the time the option was exercised). If the employer corporation complies with applicable reporting requirements and with the restrictions of Section 162(m) of the Code, it will be entitled to a business expense deduction in the same amount and generally at the same time as the optionee recognizes ordinary income. Under Section 162(m) of the Code, if the optionee is one of certain specified executive officers, then, unless certain exceptions apply, the employer is not entitled to deduct compensation with respect to the optionee, including compensation related to the exercise of stock options, to the extent such compensation in the aggregate exceeds $1.0 million for the taxable year. The options are intended to comply with the exception to Section 162(m) for "performance -based" compensation. If the optionee surrenders shares of Common Stock in payment of part or all of the exercise price for NSOs, no gain or loss will be recognized with respect to the shares surrendered (regardless of whether the shares were acquired pursuant to the exercise of an incentive option) and the optionee will be treated as receiving an equivalent number of shares pursuant to the exercise of the option in a nontaxable exchange. The basis of the shares surrendered will be treated as the substituted tax basis for an equivalent number of option shares received and the new shares will be treated as having been held for the same holding period as had expired with respect to the transferred shares. The difference between the aggregate option exercise price and the aggregate fair market value of the shares received pursuant to the exercise of the option will be taxed as ordinary income. The optionee's basis in the additional shares will be equal to the amount included in the optionee's income. If, pursuant to an option agreement, the Company withholds shares in payment of the option price for NSOs or in payment of tax withholding, the transaction should generally be treated as if the withheld shares had been sold for an amount equal to the exercise price after exercise of the option. Reasons for Obtaining Stockholder Approval The Board has approved the 1997 Option Plan subject to stockholder approval at the Annual Meeting. The Company is submitting the 1997 Option Plan for stockholder approval at the Annual Meeting because stockholder approval is required to (1) qualify the 1997 Option Plan under Section 422 of the Code relating to the grant of ISOS and (ii) obtain a federal income tax deduction under Section 162(m) of the Code for compensation recognized by optionees in connection with the exercise of options granted under the 1997 Option Plan. Section 422 of the Code and applicable Treasury regulations, among other things, condition ISO treatment for option grants on stockholder approval of the stock option plan pursuant to which the ISOs are granted. Under Section 162(m) of the Code and applicable Treasury regulations, no deduction is allowed for annual compensation in excess of $1 million paid by a publicly traded corporation to its chief executive officer and the four other most highly compensated officers. Under those provisions, however, there is no limitation on the deductibility of "qualified performance-based compensation." To satisfy this definition: (1) the compensation must be paid solely on account of the attainment of one or more pre-established, objective performance goals; (ii) the performance goals under which compensation is paid must be established by a compensation committee having the authority to establish and administer performance goals and comprised solely of two or more directors who qualify as "outside directors" for purposes of the exception; (iii) the material terms under which the compensation is to be paid must be disclosed to and subsequently approved by stockholders of the corporation before payment is made in a separate vote; and (iv) the compensation committee must certify in writing before payment of the compensation that the performance goals and any other material terms were in fact satisfied. Under applicable Treasury regulations, in the case of compensation attributable to stock options, the performance goal requirement (summarized in (i) above) and the stockholder approval requirement (summarized in (iii) above) are deemed satisfied, and the certification requirement (summarized in (iv) above) is inapplicable, if: (i) the grant or award is made by a compensation committee satisfying the above requirements; (ii) the plan under which the option is granted states the maximum number of shares with respect to which options may be granted during a specified time period to an employee; (iii) under the option exercise price equals or exceeds the fair market value of the stock on the date of grant; and (iv) the stock option plan is approved by stockholders. The Company has in the past used stock options as an important device to motivate and reward its employees and employees of its subsidiaries, and believes that equity incentives represented by stock options enhance its ability to attract and retain key personnel. Required Vote The approval by the affirmative vote of the holders of a majority of the shares of Common Stock present or represented and entitled to vote at the Annual Meeting is required to approve the 1997 Option Plan. Abstentions will have the same effect as a negative vote. The Board of Directors recommends a vote FOR approval of the 1997 Option Plan. 1995 Stock Option Plan Set forth below is certain information regarding the Company's 1995 Stock Option Plan, as amended (the "1995 Option Plan"). Such information is included in this proxy statement for the purpose of satisfying the requirements of former Rule 16b-3 for options granted under the 1995 Option Plan prior to November 1, 1996. Description of 1995 Option Plan The 1995 Option Plan provides for the granting of options to acquire Common Stock, which may be either ISOs or NSOs. The 1995 Option Plan is administered by the Stock Option Committee of the Board of Directors, and all full-time employees or any other individual (including non- employee directors of, or consultants or advisors providing bona fide services to, the Company) whose participation in the 1995 Option Plan is determined by the Stock Option Committee to be in the best interests of the Company are eligible to receive option grants thereunder. The 1995 Option Plan does not have a termination date, but a grant of an ISO may not occur 10 years after May 16, 1995, the effective date of the 1995 Option Plan. Receipt of option grants under the 1995 Option Plan is contingent upon the execution by each prospective option holder of an agreement in such form as the Stock Option Committee may from time to time determine. The 1995 Option Plan provides for the grant of options to purchase up to 1,298,065 shares of Common Stock. The purchase price per share of Common Stock subject to an option is fixed by the Stock Option Committee when the option is granted. Options to purchase no more than 250,000 shares of Common Stock may be granted to any one eligible individual during the first 10 years after the effective date of the 1995 Option Plan and 50,000 shares per year thereafter. The terms of options granted under the 1995 Option Plan, including the vesting provisions of such options, are established at the time of grant. The Stock Option Committee, in its sole discretion, may rescind, modify or waive an limitation or condition on the exercise of an option contained in any option agreement so as to accelerate the time at which an option may be exercised or extend the period during which the option may be exercised. No person may receive an ISO if, at the time of grant, such person owns directly or indirectly more than 10% of the total combined voting power of the Company unless the option price is at least 110% of the fair market value of the Common Stock and the exercise period of such ISO is by its terms limited to five years. There is also a $100,000 limit on the value of Common Stock (determined at the time of grant) covered by ISOs that first become exercisable by an optionee in any calendar year. No option granted to a reporting person under Section 16 of the Exchange Act may be exercisable during the first six months after the date of grant. Payment for shares purchased under the 1995 Option Plan may be made: (i) in cash or in cash equivalents; (ii) if permitted by the option agreement, by exchanging shares of Common Stock with a fair market value equal to or less than the total option price plus cash for any difference; (iii) if permitted by the option agreement, by delivery of a promissory note of the person exercising the option; (iv) if permitted by the option agreement, by causing the Company to withhold shares of Common Stock otherwise issuable pursuant to the exercise of an option equal in value to the exercise price; or (v) by a combination of the foregoing. Payment in full of the option price need not accompany the written notice of exercise provided the notice directs that the stock certificate for the shares for which the option is exercised be delivered to a licensed broker acceptable to the Company as the agent for the individual exercising the option and, at the time such stock certificate is delivered, the broker tenders to the Company cash (or cash equivalents acceptable to the Company) equal to the option price.In the event of stock splits, stock dividends, recapitalizations, combinations of shares or certain other events, the 1995 Option Plan provides for adjustment of. (i) the number of shares available for option grants, including the maximum number of shares that may be granted to any one individual, and (ii) the number of shares and the per share exercise price for shares subject to unexercised options. Upon any dissolution or liquidation of the Company, the sale of substantially all of the Company's assets, a merger, reorganization or consolidation in which the Company is not the surviving corporation or any other transaction (including, without limitation, a merger or reorganization in which the Company is the surviving corporation) approved by the Board which results in any person or entity owning 80% or more of the total combined voting power of an classes of stock of the Company, the 1995 Option Plan and the options issued thereunder win terminate, unless provision is made in connection with such transaction for the continuation of the plans and/or the assumption of the options or for the substitution for such options of new options covering the stock of a successor corporation or a parent or subsidiary thereof, with appropriate adjustment as to the number and kinds of shares and the per share exercise price. In the event of any such termination, the option agreements entered into with optionees provide that the optionee shall have the right during such period before such termination as the Board of Directors shall determine to exercise the related option in whole or in part and whether or not the option was exercisable at the time of any such termination. Options granted under the 1995 Option Plan generally terminate upon the earliest of. (i) ten years from the date of grant; (ii) termination of employment or other relationship for any reason (to the extent the option has not vested); (iii) termination of employment or other relationship for cause (whether or not the option has vested); (iv) one year after termination of employment or other relationship due to death or disability (to the extent the option has vested); and (v) three months after the optionee's termination of employment or other relationship other than for cause, death or disability (to the extent the option has vested). Options granted under the 1995 Option Plan generally are nontransferable except by will or by the laws of descent and distribution upon the death of the option holder. The Board of Directors may terminate or amend the 1995 Option Plan at any time; provided, however, that any amendment by the Board which, if not approved by the Company's stockholders in accordance with applicable requirements of Rule 16b-3, would cause the Plan to not comply with Rule 16b-3 (or any successor rule or other regulatory requirements) or the Code, shall not be effective unless approved by the affirmative vote of stockholders who hold more than 50% of the combined voting power of the outstanding shares of voting stock of the Company present or represented, and entitled to vote thereon at a duly constituted stockholders' meeting. Plan Benefits The table below indicates options granted to date under the 1995 Option Plan. With the exception of an option grant for 6,666 shares at an exercise price of $3.75 per share, the option exercise price of options granted under the 1995 Option Plan was not less than the fair market value of the Company's Common Stock on the date of grant, as determined pursuant to the Plan. All of such options have been NSOs.Plan Benefits 1995 Option Plan Average Per Share Number Name and Position(s) Exercise Price($) of Options Paul J. Klaassen $-0- -0- Chairman of the Board, President and Chief Executive Officer David W. Faeder 16.20 41,667 Executive Vice President and Chief Financial Officer Timothy S. Smick 11.93 166,667 Executive Vice President and Chief Operating Officer Thomas B. Newell 10.65 155,002 Executive Vice President and General Counsel of the Company and President of Sunrise Development, Inc. Brian C. Swinton 20.00 120,000 Executive Vice President, Sales and Marketing Executive Group (6 persons) 13.89 483,336 Non-Executive Director Group (2 persons) 14.20 50,000 Non-Executive Officer Employee Group (212 persons) 11.34 736,177 Based on the closing price of $28 1/8 per share on March 17, 1997, the aggregate market value of the 1,298,065 shares of Common Stock issuable under the 1995 Option Plan is $36.5 million. Federal Income Tax Consequences For a description of the federal income tax consequences of the issuance and exercise of options under the 1995 Option Plan to the optionee and the Company, see "Approval of 1997 Stock Option Plan -- Federal Income Tax Consequences."