<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
INDIVIDUAL, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
INDIVIDUAL, INC.
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
________________________________________________________________________
(3) Filing Party:
________________________________________________________________________
(4) Date Filed:
________________________________________________________________________
<PAGE>
INDIVIDUAL, INC.
8 NEW ENGLAND EXECUTIVE PARK WEST
BURLINGTON, MA 01803
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1997
To the Stockholders of Individual, Inc.:
The Annual Meeting of Stockholders of Individual, Inc., a Delaware
corporation (the "Company"), will be held on Thursday, May 22, 1997 at 9:00
a.m., local time, at the offices of Testa, Hurwitz & Thibeault, LLP,
20th Floor Conference Center, High Street Tower, 125 High Street, Boston,
Massachusetts 02110, for the following purposes:
1. To elect two (2) Class I directors to serve for a three-year term and
until their successors are elected and qualified.
2. To ratify an amendment to the Company's Amended and Restated 1989 Stock
Option Plan, increasing the number of shares of Common Stock of the
Company authorized for issuance pursuant to the Amended and Restated
1989 Stock Option Plan from 3,500,000 to 5,000,000.
3. To ratify the selection of Coopers & Lybrand L.L.P. as independent
auditors for the fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
Only stockholders of record at the close of business on April 7, 1997, the
record date fixed by the Board of Directors, are entitled to notice of and to
vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. Any
stockholder attending the Annual Meeting may vote in person even if such
stockholder has returned a proxy.
By Order of the Board of Directors
Robert L. Lentz
Senior Vice President, Finance and
Administration, Chief Financial
Officer, Treasurer and Secretary
Burlington, Massachusetts
April 17, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED
BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE>
INDIVIDUAL, INC.
8 NEW ENGLAND EXECUTIVE PARK WEST
BURLINGTON, MASSACHUSETTS 01803
PROXY STATEMENT
APRIL 17, 1997
Proxies in the form enclosed with this proxy statement are solicited by the
Board of Directors of Individual, Inc., a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders to be held on May
22, 1997, at 10:00 a.m., local time, at the offices of Testa, Hurwitz &
Thibeault, LLP, 20th Floor Conference Center, High Street Tower, 125 High
Street, Boston, Massachusetts 02110, or at any adjournments thereof.
Only stockholders of record at the close of business on April 7, 1997 (the
"Record Date") will be entitled to notice of and to vote at the Annual Meeting
and any adjournments thereof. As of the Record Date, an aggregate of
14,638,072 shares of Common Stock, $.01 par value per share (the "Common
Stock"), of the Company were issued and outstanding. The holders of Common
Stock are entitled to one vote per share on any proposal presented at the
Annual Meeting. Stockholders may vote in person or by proxy. Execution of a
proxy will not in any way affect a stockholder's right to attend the Annual
Meeting and vote in person. Any stockholder giving a proxy has the right to
revoke it at any time before it is exercised, by (1) filing with the Secretary
of the Company, before the taking of the vote at the Annual Meeting, a written
notice of revocation bearing a later date than the proxy, (2) duly executing a
later-dated proxy relating to the same shares and delivering it to the
Secretary of the Company before the taking of the vote at the Annual Meeting
or (3) attending the Annual Meeting and voting in person (although attendance
at the Annual Meeting will not in and of itself constitute a revocation of a
proxy).
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum for the transaction of business. Votes
withheld from any nominee, abstentions and broker "non-votes" are counted as
present or represented for purposes of determining the presence or absence of
a quorum for the Annual Meeting. A "non-vote" occurs when a nominee holding
shares for a beneficial owner votes on one proposal, but does not vote on
another proposal because, in respect of such other proposal, the nominee does
not have discretionary voting power and has not received instructions from the
beneficial owner.
In the election of Class I Directors, the nominees receiving the highest
number of affirmative votes of the shares present or represented and entitled
to vote at the Annual Meeting shall be elected as Class I Directors. On all
other matters being submitted to stockholders, an affirmative vote of a
majority of the shares present or represented and voting on each such matter
is required for approval. An automated system administered by the Company's
transfer agent tabulates the votes. The vote on each matter submitted to
stockholders is tabulated separately. Abstentions are included in the number
of shares present or represented and voting on each matter. Broker "non-votes"
are not so included.
The persons named as attorneys in the proxies are officers of the Company.
All properly executed proxies returned in time to be counted at the Annual
Meeting will be voted. Any stockholder giving a proxy has the right to
withhold authority to vote for any individual nominee to the Board of
Directors by striking a line through the nominee's name on the proxy. In
addition to the election of two Class I Directors, the stockholders will
consider and vote upon proposals to amend the Company's Amended and Restated
1989 Stock Option Plan to increase the number of shares of Common Stock of the
Company authorized for issuance thereunder from 3,500,000 to 5,000,000 and to
ratify the selection of auditors, as further described in this proxy
statement. Where a choice has been specified on the proxy with respect to the
foregoing matters, the shares represented by the proxy will be voted in
accordance with the specifications and will be voted FOR if no specification
is indicated.
<PAGE>
The Board of Directors of the Company knows of no other matters to be
presented at the Annual Meeting. If any other matter should be presented at
the Annual Meeting (or any adjournments thereof) upon which a vote properly
may be taken, shares represented by all proxies received by the Board of
Directors will be voted with respect thereto in accordance with the judgment
of the persons named as attorneys in the proxies.
An Annual Report to Stockholders, containing financial statements for the
fiscal year ended December 31, 1996, is being mailed together with this proxy
statement to all stockholders entitled to vote. This proxy statement and the
form of proxy were first mailed to stockholders on or about April 17, 1997.
2
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the Record Date by: (i) each
person who, to the knowledge of the Company, owned beneficially more than 5%
of the shares of Common Stock of the Company outstanding at such date; (ii)
each director or nominee for director; (iii) each executive officer identified
in the Summary Compensation Table set forth below under "Compensation and
Other Information Concerning Directors and Officers;" and (iv) all directors,
nominees for director, and executive officers as a group.
<TABLE>
<CAPTION>
SHARES PERCENT OF
BENEFICIALLY COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OUTSTANDING(2)
------------------------------------ ------------ --------------
<S> <C> <C>
Funds managed by Burr, Egan, Deleage & Co.(3)...... 1,289,399 8.8%
One Post Office Square
Suite 3800
Boston, MA 02109
The Venture Capital Fund of New England II, 1,077,816 7.4
L.P.(4)...........................................
160 Federal Street
Boston, MA 02110
Microsoft Corporation(5)........................... 1,050,000 7.2
One Microsoft Way
Redmond, WA 98052
Joseph A. Amram(6)................................. 986,607 6.5
1000 Chestnut Street, #5A
San Francisco, California 94109
Knight-Ridder Information, Inc.(7)................. 900,000 6.1
3460 Hillview Avenue
Palo Alto, CA 94304
BEA Associates(8).................................. 829,300 5.7
153 East 53rd Street
One Citicorp Center
New York, NY 10022
Michael E. Kolowich(9)............................. 317,671 2.1
c/o Individual, Inc.
8 New England Executive Park West
Burlington, MA 01803
William A. Devereaux(10)........................... 295,999 2.0
Jeffery S. Galt(11)................................ -- *
Elon Kohlberg(12).................................. 13,444 *
Marino R. Polestra(13)............................. 8,888 *
Daniel Rosen(14)................................... 8,888 *
James D. Daniell(15)............................... 1,111 *
Janesse T. Bruce(16)............................... 62,500 *
Robert L. Lentz(16)................................ 46,584 *
Annette E. Lissauer(16)............................ 211,296 1.4
Richard C. Vancil(16).............................. 110,134 *
Bruce D. Glabe..................................... 24,500 *
All directors, nominees and executive officers as a
group (13 persons)(17)............................ 1,777,650 11.4
</TABLE>
3
<PAGE>
- --------
* Less than 1% of the outstanding shares of Common Stock.
(1) Except as noted in the footnotes to this table, each person or entity
named in the table has sole voting and investment power with respect to
the shares of Common Stock. The inclusion herein of any shares of Common
Stock deemed owned beneficially does not constitute an admission of
beneficial ownership of those shares.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission"), and includes
voting and investment power with respect to shares. The number of shares
of Common Stock deemed outstanding as of the Record Date includes: (i)
14,638,072 shares of Common Stock outstanding on such date and (ii) all
shares of Common Stock subject to options and warrants currently
exercisable or exercisable within 60 days after the Record Date
("presently exercisable stock options").
(3) Consists of 1,090,444 shares of Common Stock owned by Alta IV Limited
Partnership and 198,955 shares of Common Stock owned by C.V. Sofinnova
Partners Five. The respective general partners of Alta IV Limited
Partnership and C.V. Sofinnova Partners Five exercise sole voting and
investment powers with respect to the shares owned by such funds. The
principals of Burr, Egan, Deleage & Co. are general partners of Alta IV
Management Partners, L.P. (which is the general partner of Alta IV
Limited Partnership). As general partners of the fund, they may be deemed
to share voting and investment power for the shares held by the fund.
Burr, Egan, Deleage & Co. serves as an advisor to C.V. Sofinnova Partners
Five. The principals of Burr, Egan, Deleage & Co. disclaim beneficial
ownership of all such shares held by all of the aforementioned funds,
except to the extent of their proportionate pecuniary interests therein.
Marino R. Polestra, a Vice President of Burr, Egan, Deleage & Co. and a
director of the Company, disclaims beneficial ownership with respect to
all shares held by all of the above-mentioned funds.
(4) FH & Co. II, L.P. ("FH II") is the general partner of The Venture Capital
Fund of New England II, L.P. FH II and the general partners of FH II may
be deemed to own beneficially all of the shares held by The Venture
Capital Fund of New England II, L.P. Excludes 4,000 shares owned by a
general partner of FH II. FH II and each of the general partners of FH II
expressly disclaims beneficial ownership with respect to all shares held
by The Venture Capital Fund of New England II, L.P.
(5) Daniel Rosen, Senior Director of Microsoft Corporation and a director of
the Company, may be deemed to share voting and investment power with
respect to the shares held by Microsoft. Mr. Rosen disclaims beneficial
ownership with respect to such shares. The Company has established
business arrangements with Microsoft. See "Certain Relationships and
Related Transactions."
(6) Includes 2,222 shares of Common Stock issuable pursuant to presently
exerciable stock options and 519,300 shares of Common Stock issuable
pursuant to presently exercisable warrants. Also includes (i) 3,750
shares of Common Stock held in trust by Mr. Amram and his wife, as
Trustees of the Knowledge = Freedom Foundation, a charitable trust (the
"Foundation"), (ii) 5,617 shares of Common Stock held by Martha Amram,
Mr. Amram's wife, and (iii) 5,000 shares of Common Stock and 45,000
shares issuable pursuant to presently exercisable warrants held in trust
by an independent trustee for the benefit of Mr. Amram's two children.
Mr. Amram disclaims beneficial ownership with respect to the shares held
by Martha Amram and the shares and warrants held in trusts for the
benefit of the Foundation and Mr. Amram's children.
(7) Jeffery S. Galt, a director of the Company and the President of Knight-
Ridder Information, Inc., may be deemed to share voting and investment
power with respect to such shares. Mr. Galt disclaims beneficial
ownership with respect to the shares held by Knight-Ridder. The Company
has established business arrangements with Knight-Ridder. See "Certain
Relationships and Related Transactions."
(8) BEA Associates is an Investment Adviser registered under the Investment
Advisers Act of 1940. CS Holding indirectly owns 80% of the partnership
units in BEA Associates. The foregoing information is based on public
filings made by BEA Associates with the Commission.
(9) Includes 166,671 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(10) Includes 25,867 shares of Common Stock issuable pursuant to presently
exercisable stock options and 9,000 shares of Common Stock issuable
pursuant to presently exercisable warrants.
(11) Excludes 900,000 shares of Common Stock held by Knight-Ridder
Information, Inc., with respect to which Mr. Galt disclaims beneficial
ownership. See footnote 8 above.
4
<PAGE>
(12) Includes 13,444 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(13) Includes 8,888 shares of Common Stock issuable pursuant to presently
exercisable stock options. Excludes 1,090,444 shares of Common Stock
owned by Alta IV Limited Partnership and 198,955 shares of Common Stock
owned by C.V. Sofinnova Partners Five, with respect to which Mr. Polestra
disclaims beneficial ownership. See footnote 3 above.
(14) Includes 8,888 shares of Common Stock issuable pursuant to presently
exercisable stock options. Excludes 1,050,000 shares of Common Stock held
by Microsoft Corporation, with respect to which Mr. Rosen disclaims
beneficial ownership. See footnote 7 above.
(15) Includes 1,111 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(16) Includes shares of Common Stock issuable pursuant to presently
exercisable stock options in the following amounts: Ms. Bruce: 62,500;
Mr. Lentz: 34,584; Ms. Lissauer: 47,421; and Mr. Vancil: 51,509. Also
includes shares of Common Stock issuable pursuant to presently
exercisable warrants in the following amounts: Ms. Lissauer: 82,500; and
Mr. Vancil: 8,625.
(17) Includes 358,133 shares of Common Stock issuable pursuant to presently
exercisable stock options and 573,300 shares of Common Stock issuable
pursuant to presently exercisable warrants. Excludes shares of Common
Stock beneficially owned by funds managed by Burr, Egan, Deleage & Co.,
Microsoft Corporation and Knight-Ridder Information, Inc. See footnotes
3, 7 and 8 above.
5
<PAGE>
PROPOSAL I
ELECTION OF DIRECTORS
NOMINEES
In accordance with the Company's Amended and Restated By-Laws, the Company's
Board of Directors is divided into three classes and is currently fixed at
eight (8) members. The Board is currently comprised of two Class I Directors,
Marino R. Polestra and Jeffery S. Galt, three Class II Directors, James D.
Daniell, Elon Kohlberg and Daniel Rosen, and three Class III Directors, Joseph
A. Amram, William A. Devereaux and Michael E. Kolowich. The initial terms of
the Class I Directors, Class II Directors and Class III Directors will expire
upon the election and qualification of directors at the Annual Meeting of
Stockholders held following the fiscal years ending in December 1996, 1997 and
1998, respectively. At each Annual Meeting of Stockholders, directors will be
elected (or reelected) for a three-year term to succeed the directors of the
same class whose terms are then to expire. All directors will hold office
until their successors have been duly elected and qualified or until their
earlier resignation or removal.
Two Class I Directors will be elected at the 1997 Annual Meeting of
Stockholders for a term of three years. The Board of Directors has nominated
and recommends that Marino R. Polestra and Jeffery S. Galt, each of whom is
currently serving as a Class I Director of the Company, be elected to hold
office until the Annual Meeting of Stockholders to be held in the year 2000
and until their successors have been duly elected and qualified or until their
earlier resignation or removal. Both of the nominees have indicated their
willingness to serve as directors, if elected; however, if either nominee
should for any reason be unable or unwilling to serve, the proxies will be
voted for the election of such other person for the office of director as the
Board of Directors may recommend in the place of such nominee or for fixing
the number of directors at a lesser number. Shares represented by all proxies
received by the Board of Directors and not so marked as to withhold authority
to vote for Messrs. Polestra or Galt will be voted FOR the election of both
nominees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THE NOMINEES LISTED BELOW.
The following table sets forth for each nominee to be elected at the Annual
Meeting and for each director whose term of office will extend beyond the
Annual Meeting, the year each such nominee or director was first elected a
director, the positions currently held by each nominee or director with the
Company, the year each nominee's or director's term will expire and the class
of director of each nominee or director.
<TABLE>
<CAPTION>
NOMINEE'S OR DIRECTOR'S
NAME AND YEAR NOMINEE YEAR CURRENT
OR DIRECTOR FIRST POSITION(S) CURRENTLY HELD TERM CLASS OF
BECAME A DIRECTOR WITH THE COMPANY WILL EXPIRE DIRECTOR
----------------------- -------------------------- ------------ --------
<S> <C> <C> <C>
NOMINEES:
Jeffery S. Galt......... Director 1997 I
(1997)
Marino R. Polestra...... Director 1997 I
(1991)
CONTINUING DIRECTORS:
Michael E. Kolowich..... President and Chief Executive Officer 1999 III
(1996)
Joseph A. Amram......... Director 1999 III
(1989)
James D. Daniell........ Director 1998 II
(1997)
William A. Devereaux.... Director 1999 III
(1989)
Elon Kohlberg........... Director 1998 II
(1995)
Daniel Rosen............ Director 1998 II
(1995)
</TABLE>
6
<PAGE>
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The business and affairs of the Company are managed under the direction of
its Board of Directors. The Board of Directors met seventeen (17) times and
acted by unanimous written consent two (2) times during the fiscal year ended
December 31, 1996. During fiscal 1996, each of the directors attended at least
75% of the meetings of the Board of Directors and of all committees on which
he served.
The Board of Directors has an Executive Committee, an Audit Committee and a
Compensation Committee. The Executive Committee was established so that the
Company would have a properly constituted committee of the Board of Directors
to act in the absence of the full Board of Directors. The Board of Directors
has delegated to the Executive Committee full authority to exercise all of the
powers and authority of the Board of Directors in the management of the
business and affairs of the Company, to the full extent permitted by the
General Corporation Law of the State of Delaware and the Company's Amended and
Restated By-Laws. The current members of the Executive Committee are William
A. Devereaux, James D. Daniell, Michael E. Kolowich and Marino R. Polestra.
The Executive Committee met one (1) time and acted by unanimous written
consent two (2) times during the fiscal year ended December 31, 1996.
The Audit Committee is responsible for reviewing audit functions, including
accounting and financial reporting practices of the Company, the adequacy of
the Company's system of internal accounting control, the quality and integrity
of the Company's financial statements and relations with independent auditors.
The current members of the Audit Committee are Joseph A. Amram and Marino R.
Polestra. The Audit Committee met two (2) times during the fiscal year ended
December 31, 1996.
The Compensation Committee is responsible for establishing the compensation
of the Company's directors, officers and employees, including salaries,
bonuses, commissions, and benefit plans, administering the Company's Amended
and Restated 1989 Stock Option Plan, 1996 Employee Stock Purchase Plan, 1996
Non-Employee Director Stock Option Plan and Amended and Restated FreeLoader
1996 Stock Option Plan, and other forms of or matters relating to
compensation. William A. Devereaux and Jeffery S. Galt are the directors
currently serving on the Compensation Committee. The Compensation Committee
acted by unanimous written consent seven (7) times during the fiscal year
ended December 31, 1996.
The Board of Directors does not currently have a standing nominating
committee.
7
<PAGE>
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth for each Class I nominee to be elected at the
Annual Meeting, the current Class II Directors and Class III Directors who
will continue to serve as directors beyond the Annual Meeting, and the
executive officers of the Company, their ages and present positions with the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael E. Kolowich(3).......... 44 President and Chief Executive Officer
Robert L. Lentz................. 46 Senior Vice President, Finance and
Administration, Chief Financial Officer,
Treasurer and Secretary
Janesse T. Bruce................ 40 Senior Vice President, Single-User Markets
Michael D. Kinkead.............. 53 Senior Vice President, Enterprise Markets
Michael F. Kraley............... 46 Senior Vice President, Engineering and
Chief Technology Officer
G. Neil Skene Jr. .............. 45 Senior Vice President and Editor-in-Chief
Joseph A. Amram(2).............. 40 Director
James D. Daniell(3)............. 33 Director
William A. Devereaux(1)(3)...... 51 Director
Jeffery S. Galt(1).............. 40 Director
Elon Kohlberg................... 50 Director
Marino R. Polestra(2)(3)........ 39 Director
Daniel Rosen.................... 47 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Member of Executive Committee.
DIRECTORS TO BE ELECTED AT THE ANNUAL MEETING
JEFFERY S. GALT has served as a director of the Company since March 1997.
Mr. Galt has been President of Knight-Ridder Information, Inc. since October
1996, and was acting President of Knight-Ridder Information, Inc. from January
1996 to September 1996. From November 1993 to January 1996, Mr. Galt served as
Executive Vice President, Chief Operating Officer of Knight-Ridder
Information, Inc. Prior to that, he served from June 1992 to November 1993 as
Executive Vice President, Planning, Development, and Technology at Specialized
Management Support, Inc., a provider of electronic data services and real
estate information to the financial services industry. From August 1991 to
June 1992, Mr. Galt was Vice President, Marketing, Planning & Business
Development at TRW Information Services Division, a provider of consumer and
business credit and real estate information to the financial services
industry.
MARINO R. POLESTRA has served as a director of the Company since January
1991. Since February 1989, Mr. Polestra has been a Vice President of Burr,
Egan, Deleage & Co., a venture capital firm, and a general partner of certain
funds affiliated with Burr, Egan, Deleage & Co. Since February 1996, Mr.
Polestra has been general partner of Alta California Partners, L.P. Mr.
Polestra also serves as a director of Security Dynamics Technologies, Inc. and
Premisys Communications, Inc.
DIRECTORS WHOSE TERMS EXTEND BEYOND THE ANNUAL MEETING
MICHAEL E. KOLOWICH joined the Company in September 1996 as President and
Chief Executive Officer and a director of the Company. Prior to joining the
Company, Mr. Kolowich served from July 1996 until September 1996 as Vice
President/Business Operations of Nets Inc., an Internet content provider
formed in June 1996 when AT&T New Media Services, a provider of interactive
online information services for business professionals, merged with
Industry.Net. Mr. Kolowich served as President of AT&T New Media Services and
AT&T Interchange Online Network from December 1994 until the merger with
Industry.Net in June 1996. From April 1991 until December 1994, Mr. Kolowich
was President of Ziff-Davis Interactive, an electronic publishing division of
Ziff-Davis Publishing Company.
8
<PAGE>
JOSEPH A. AMRAM has served as a director of the Company since January 1989
and has been Managing Director of YAA Enterprises, a private investment and
consulting company, since August 1996. Mr. Amram served as President and Chief
Executive Officer of the Company from its inception in January 1989 through
July 1996.
JAMES D. DANIELL has served as a director of the Company since March 1997.
Dr. Daniell has been Chief Operating Officer and Vice President of Strategy
and New Business Development at AT&T Networked Commerce Services since
February 1997. From November 1996 to February 1997, Dr. Daniell served as Vice
President of Electronic Messaging and New Business Development at AT&T Easy
Commerce Services. Prior to that, from December 1995 to November 1996, Dr.
Daniell was Vice President of Corporate and New Business Development at AT&T
Corporation. Dr. Daniell served from April 1994 to December 1995 as Vice
President, Business Communications Services Strategy and New Business
Development, at AT&T Corporation. Prior to that, Dr. Daniell was a founder and
Vice President of Business Development and Strategic Relations at Bridge
Builder Technologies, a software tools company, from May 1993 to April 1994.
Before joining Bridge Builder Technologies, Dr. Daniell served from March 1991
to May 1993 as Strategic Planning Director and Vice President at UNIX Systems
Laboratories. Dr. Daniell also serves as a director of LIN Television.
WILLIAM A. DEVEREAUX has served as a director of the Company since 1989 and
has served as Chairman of the Board since July 1996. Mr. Devereaux has been
Managing Director, American Capital Company, a venture capital and merchant
banking company, from 1987 to 1992 and since 1995. From 1993 to 1994, Mr.
Devereaux was Vice President, Strategic Planning at the Communications
Division of General Instrument Corp. Prior to that, from 1979 to 1987, Mr.
Devereaux was Executive Vice President at American Cable Systems, a national
provider of cable television services.
ELON KOHLBERG has served as a director of the Company since August 1995. Mr.
Kohlberg has been a Professor of Business Administration at the Harvard
Business School since 1976. Mr. Kohlberg also serves as a director of TEVA
Industries and the Lemmon Company.
DANIEL ROSEN has served as a director of the Company since October 1995. Mr.
Rosen has been Senior Director--Strategic Relationships and General Manager--
Microsoft Network Transactions, at Microsoft Corporation since 1994. From 1980
to 1994, Mr. Rosen served in a variety of positions at AT&T Corporation, the
last such position being Vice President and General Manager--AT&T PersonaLink
Services.
EXECUTIVE OFFICERS
ROBERT L. LENTZ joined the Company in March 1996 as Vice President, Finance,
and has served as Senior Vice President, Finance and Administration, Chief
Financial Officer, Treasurer and Secretary since January 1997. Prior to
joining the Company, Mr. Lentz served since 1993 as Vice President, Finance
and Operations of Teloquent Communications Corporation, a telecommunications
software company. Prior to that, Mr. Lentz served from 1990 to 1993 as Senior
Vice President and General Manager, Information Systems Division, in the
Personal Communications Division of Electronic Data Systems Corporation, a
provider of software and information technology services to the personal
communications industry.
JANESSE T. BRUCE joined the Company in January 1996 as Senior Vice President
and General Manager, Internet and Single-User Services, and has served as
Senior Vice President, Single-User Markets, since January 1997. Prior to
joining the Company, Ms. Bruce served with Cowles Media Company as Managing
Director of Walking Inc., publisher of Walking Magazine and other
fitness/health-related books and newsletters. Ms. Bruce founded Walking Inc.
in July 1990 and served as its CEO and Publisher until August 1994, when the
corporation was sold to Cowles Media Company. Prior to founding Walking Inc.,
Ms. Bruce also held positions at Newsweek and Rolling Stone magazines and at
Hearst Magazine Company.
MICHAEL D. KINKEAD has served as Senior Vice President, Enterprise Markets
since joining the Company in October 1996. Prior to joining the Company, Mr.
Kinkead founded SandPoint, an electronic news and information services
company, in 1989, and served as President and Chief Executive Officer until
the acquisition of SandPoint by Information Access Company ("IAC") in February
1995. Mr. Kinkead served on the Executive Committee of IAC as Vice President
of Planning from September 1995 until the Company's acquisition of the Hoover
business from IAC in October 1996.
9
<PAGE>
MICHAEL F. KRALEY has served as Senior Vice President, Engineering and Chief
Technology Officer since joining the Company in September 1996. Prior to
joining the Company, Mr. Kraley served from January 1996 to April 1996 as
Chief Technology Officer at AT&T New Media Services. From December 1994 to
January 1996, Mr. Kraley was Vice President, Development and Operations at
AT&T New Media Services. Prior to that, Mr. Kraley served as Vice President,
Development at Ziff-Davis Interactive from December 1992 to December 1994, and
as Senior Director at Ziff-Davis Interactive from March 1992 to December 1992.
G. NEIL SKENE JR. joined the Company in March 1997 as Senior Vice President
and Editor-in-Chief. Prior to joining the Company, Mr. Skene served from
February 1991 to January 1997 as President, Editor and Publisher of
Congressional Quarterly Inc., a print and electronic publisher of books and
periodicals relating to government, and from January 1990 to February 1991 as
Editor and Publisher of Congressional Quarterly Inc.
Executive Officers of the Company are elected by the Board of Directors on
an annual basis and serve until their successors have been duly elected and
qualified, or until their earlier resignation or removal. There are no family
relationships among any of the Company's executive officers or directors.
10
<PAGE>
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION SUMMARY
The following table sets forth summary information concerning the
compensation earned for services rendered to the Company in all capacities for
the fiscal years ended December 31, 1996 and 1995, by (i) the Chief Executive
Officer, (ii) each of the other four most highly compensated executive
officers of the Company at December 31, 1996 who earned more than $100,000 in
salary and bonus in fiscal 1996 and (iii) two former executive officers of the
Company (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION(2)
---------------------------------------------- ---------------------
NAME AND OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION(1)($) OPTIONS (# OF SHARES) COMPENSATION($)
------------------ ---- ----------- ---------- ------------------ --------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Kolowich(3).. 1996 50,583.31 26,700 -- 1,000,000 --
President and Chief 1995 -- -- -- -- --
Executive Officer
Janesse T. Bruce........ 1996 117,621.68 32,780.77 -- 120,000 --
Senior Vice President, 1995 -- -- -- -- --
Single User Markets
Robert L. Lentz......... 1996 93,037.88 37,515.38 -- 110,000 --
Senior Vice President, 1995 -- -- -- -- --
Finance and Administration,
Chief Financial
Officer,
Treasurer and Secretary
Annette E. Lissauer..... 1996 100,000 29,930 -- -- --
Vice President 1995 91,003 21,760 -- 37,500 --
Richard C. Vancil....... 1996 110,000 13,580 -- -- --
Vice President, 1995 100,583 10,815 -- 22,500 --
Marketing
and Business
Development
Joseph A. Amram(4)...... 1996 85,744 -- -- -- 100,000(5)
1995 108,733 25,000 -- 181,667 --
Bruce D. Glabe(6)....... 1996 132,322 19,673 -- -- --
1995 118,750 19,100 -- 41,250 --
</TABLE>
- --------
(1) In accordance with the rules of the Commission, the compensation described
in this table does not include medical, group life insurance or other
benefits received by the Named Executive Officers which are available
generally to all salaried employees of the Company, and certain
perquisites and other personal benefits, securities or property received
by the Named Executive Officers which do not exceed the lesser of $50,000
or 10% of any such officer's salary and bonus disclosed in this table.
(2) Represents stock options granted during the fiscal years ended December
31, 1995 and December 31, 1996 under the Company's Amended and Restated
1989 Stock Option Plan. The Company did not grant any restricted stock
awards or stock appreciation rights or make any long-term incentive plan
payouts during the fiscal years ended December 31, 1995 and December 31,
1996.
(3) Mr. Kolowich became President and Chief Executive Officer of the Company
in September 1996. Mr. Kolowich's annual salary is $170,000, and his
target annual incentive bonus is $80,000 (payable in Common Stock of the
Company). See "Certain Relationships and Related Transactions."
11
<PAGE>
(4) Mr. Amram's employment with the Company terminated in August 1996. Mr.
Amram served as President and Chief Executive Officer from the Company's
inception in January 1989 through July 1996, and is currently a director
of the Company.
(5) $100,000 was paid to Mr. Amram in December 1996 pursuant to Mr. Amram's
severance agreement with the Company. See "Certain Relationships and
Related Transactions."
(6) Mr. Glabe's employment with the Company terminated in December 1996.
12
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning grants of
stock options made to the Named Executive Officers pursuant to the Company's
Amended and Restated 1989 Stock Option Plan during the fiscal year ended
December 31, 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN BASE PRICE PER EXPIRATION -------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) SHARE($)(3) DATE(1) 5%($) 10%($)
---- ------------- -------------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Kolowich..... 1,000,000 38.99% 6.00 9/3/06 3,773,368 9,562,455
Janesse T. Bruce........ 120,000 4.68 6.25 1/23/06 471,671 1,195,307
Robert L. Lentz......... 110,000 4.29 6.25 3/6/06 432,365 1,095,698
Annette E. Lissauer..... -- -- -- -- -- --
Richard C. Vancil....... -- -- -- -- -- --
Joseph A. Amram......... -- -- -- -- -- --
Bruce D. Glabe.......... -- -- -- -- -- --
</TABLE>
- --------
(1) The options, which were granted under the Company's Amended and Restated
1989 Stock Option Plan, have a term of ten years, subject to earlier
termination in certain events related to termination of employment. Such
options generally become exercisable over a four-year period, 1/48th of
such options vesting each month commencing on the last day of the first
full month after the date of grant.
(2) Based on an aggregate of 2,564,857 shares subject to options granted to
employees of the Company in fiscal 1996.
(3) All options were granted at an exercise price equal to or greater than
fair market value as determined by the Board of Directors of the Company
on the date of grant. On August 22, 1996 and October 23, 1996, the Board
of Directors of the Company repriced all outstanding stock options of the
Company which were granted to employees between December 8, 1995 and July
8, 1996, by reducing the exercise price applicable to such options to
$6.25 per share. See "Option Repricings."
(4) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%)
on the market value of the Company's Common Stock on the date of option
grant over the term of the options. These numbers are calculated based on
rules promulgated by the Commission and do not reflect the Company's
estimate of future stock price growth. Actual gains, if any, on stock
option exercises and Common Stock holdings are dependent on the timing of
such exercise and the future performance of the Company's Common Stock.
There can be no assurance that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by
the individuals.
13
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to options to
purchase the Company's Common Stock granted to the Named Executive Officers
under the Company's Amended and Restated 1989 Stock Option Plan, including (i)
the number of shares of Common Stock purchased upon exercise of options during
the fiscal year ended December 31, 1996; (ii) the net value realized upon such
exercise; (iii) the number of unexercised options outstanding at December 31,
1996; and (iv) the value of such unexercised options at December 31, 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBERS OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT YEAR END YEAR END
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE($)(2)
---- ----------- -------------- ------------------------- -------------------------------
<S> <C> <C> <C> <C>
Michael E. Kolowich..... -- -- 62,501/937,499 --/--
Janesse T. Bruce........ -- -- 50,625/69,375 --/--
Robert L. Lentz......... -- -- 20,625/89,375 --/--
Annette E. Lissauer..... 13,800 191,365(3) 91,633/36,017 470,079/50,071
21,000 256,832
Richard C. Vancil....... 30,000 424,490 73,905 /23,595 321,859/20,587
Joseph A. Amram......... 60,000 828,897(3) --/-- --/--
66,750 1,290,585
Bruce D. Glabe.......... 45,000 212,015 80,625/-- 375,772/--
</TABLE>
- --------
(1) Amounts disclosed in this column were calculated based on the difference
between the fair market value of the Company's Common Stock on the date of
exercise and the exercise price of the options, in accordance with
regulations promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and do not reflect amounts actually received
by the Named Executive Officers. Named Executive Officers will receive
cash only if and when they sell the Common Stock issued upon exercise of
the options, and the amount of cash received by such individuals is
dependent upon the price of the Company's Common Stock at the time of such
sale.
(2) Value is based on the difference between the option exercise price and the
fair market value at December 31, 1996, the fiscal year-end ($6.00 per
share as quoted on the Nasdaq National Market), multiplied by the number
of shares underlying the option.
(3) There was no public trading market for the Common Stock as of the date of
exercise of these options. Accordingly, these values have been calculated
on the basis of the initial public offering price of $14.00 per share,
minus the applicable per share exercise price.
14
<PAGE>
OPTION REPRICINGS
Report of the Board of Directors on Repricing of Options
On August 22, 1996 and October 23, 1996, the Board of Directors of the
Company authorized the repricing of all outstanding stock options of the
Company which were granted to employees of the Company between December 8,
1995 and July 8, 1996, by amending such options solely to reduce the exercise
price of such options to $6.25 per share, the closing sale price of the
Company's Common Stock on the Nasdaq National Market on August 22, 1996. The
repricing of each option was conditioned upon the written consent of the
optionholder prior to December 1, 1996. In total, options to purchase an
aggregate of 751,369 shares of Common Stock at exercise prices ranging from
$8.00 to $22.25 were repriced. Other than the reduction in the exercise price,
all other terms and conditions applicable to the repriced options remained the
same, including the terms of vesting.
As described below in the Compensation Committee Report on Executive
Compensation and in the Company's Amended and Restated 1989 Stock Option Plan,
stock options are intended to provide long-term incentives to officers and
other employees of the Company to improve the Corporation's financial
performance and to assist in the recruitment, motivation and retention of key
professional and managerial personnel. In authorizing the option repricing,
the Board of Directors considered the fact that the broad decline in the price
of the Company's Common Stock had resulted in a substantial number of the
Company's outstanding stock options having exercise prices well above the
recent historical trading prices for the Common Stock. The Board determined
that the disparity between the exercise price of the options and the then
current market price did not provide meaningful incentives to the officers and
employees holding the options to perform to their maximum potential and work
towards the success of the Company. In addition, the Board considered the
importance to the Company of retaining key employees following the appointment
of a new management team in 1996. For these reasons, the Board determined it
to be in the best interests of the Company and its stockholders to restore the
incentive for executive officers and employees to remain with the Company and
exert their maximum efforts on behalf of the Company by reducing the exercise
price of the overpriced options.
Respectfully Submitted by the Board of Directors
Michael E. Kolowich
Joseph A. Amram
William A. Devereaux
Elon Kohlberg
Marino R. Polestra
Daniel Rosen
15
<PAGE>
Option Repricing Table
The following table provides the specified information concerning all
repricings of options to purchase the Company's Common Stock held by any
executive officer of the Company since March 15, 1996, the date of the
Company's initial public offering of its Common Stock:
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES OPTION TERM
UNDERLYING MARKET PRICE OF EXERCISE PRICE REMAINING AT
OPTIONS STOCK AT TIME AT TIME OF NEW DATE OF
REPRICED OR OF REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME AND POSITION DATE AMENDED(#) AMENDMENT($) AMENDMENT($) PRICE($) AMENDMENT(1)
----------------- -------- ----------- --------------- -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Janesse T. Bruce....... 8/22/96 120,000 6.25 8.00 6.25 9 years
Senior Vice President,
Single User Markets
Robert L. Lentz........ 8/22/96 110,000 6.25 10.80 6.25 9 years
Senior Vice President,
Finance and
Administration, Chief
Financial Officer,
Treasurer and
Secretary
Annette E. Lissauer.... 10/23/96 30,000 5.50 8.00 6.25 9 years
Vice President
Richard C. Vancil...... 10/23/96 15,000 5.50 8.00 6.25 9 years
Vice President,
Marketing and Business
Development
Bruce D. Glabe......... 10/23/96 11,250 5.50 8.00 6.25 9 years
Robert E. McWalter..... 8/22/96 22,500 6.25 10.80 6.25 9 years
Vice President, 10/23/96 9,000 5.50 8.00 6.25 9 years
Enterprise News Sales
Majed G. Tomeh......... 10/23/96 15,000 5.50 8.00 6.25 9 years
Vice President
Harry C. Wu............ 10/23/96 15,000 5.50 8.00 6.25 9 years
Vice President
John S. Zahner......... 8/22/96 25,000 6.25 14.625 6.25 9 years
Vice President, 10/23/96 15,000 5.50 8.00 6.25 9 years
Personal Broadcast
Networks
</TABLE>
- --------
(1) All repriced options described in the table have a term of ten years from
the date of grant.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
compensation committee of the Board of Directors (the "Compensation
Committee"). The Compensation Committee currently consists of William A.
Devereaux and Jeffery S. Galt, each of whom is an independent, non-employee
director. Pursuant to authority delegated by the Board of Directors, the
Compensation Committee is responsible for reviewing and approving compensation
matters relating to the Company's executive officers and for establishing the
specific short- and long-term compensation elements thereunder. The
Compensation Committee also oversees the general compensation structure for
all of the Company's employees. In addition, the Compensation Committee
16
<PAGE>
administers the Company's Amended and Restated 1989 Stock Option Plan, 1996
Employee Stock Purchase Plan and Amended and Restated FreeLoader 1996 Stock
Plan.
The Company's executive compensation program is designed to provide levels
of compensation that assist the Company in attracting, motivating and
retaining qualified executive officers and aligning the financial interests of
the Company's executive officers with those of its stockholders by providing a
competitive compensation package based on corporate and individual
performance. Compensation under the executive compensation program is
comprised of three principal elements: (i) cash compensation in the form of
base salary, (ii) annual incentive compensation in the form of cash bonuses,
and (iii) long-term incentive awards in the form of stock option grants. In
addition, the compensation program is comprised of various benefits, including
medical and insurance plans, the Company's 1996 Employee Stock Purchase Plan
and a 401(k) retirement savings plan. These plans are generally available to
all employees of the Company. In all cases, the Compensation Committee's
specific decisions involving executive officer compensation are ultimately
based on the Committee's judgment regarding the best interests of the
Company's stockholders.
Base Salary
Base salaries for each of the Company's executive officers, including the
Chief Executive Officer, are generally set within the range of salaries that
the Compensation Committee believes are paid to executive officers with
comparable qualifications, experience and responsibilities at similar
companies. The Compensation Committee reviews industry surveys in order to
keep track of current market practices with respect to executive compensation.
In setting base salaries, the Compensation Committee generally takes into
account such factors as (i) the Company's past financial performance and
future expectations, (ii) business unit performance and future expectations,
(iii) individual performance and experience and (iv) past salary levels, both
at the Company and, with respect to executive officers new to the Company, at
such officers' prior place of employment. The Compensation Committee does not
assign relative weights or rankings to these factors, but instead makes a
determination based upon the consideration of all of these factors, as well as
the progress made with respect to the Company's long-term goals and
strategies. Base salary levels for each of the Company's executive officers,
other than the Chief Executive Officer, are also based upon evaluations and
recommendations made by the Chief Executive Officer.
In setting overall compensation levels, the Compensation Committee places
special emphasis on aligning total executive compensation levels with
corporate performance. Generally, salary decisions for the Company's executive
officers are made by the Compensation Committee near the beginning of each
calendar year. While reviewed annually, base salaries are only adjusted as
deemed necessary by the Compensation Committee in determining total
compensation for each executive officer.
Base salary levels for fiscal 1996 were established in accordance with the
foregoing criteria. With respect to executive officers who first joined the
Company in fiscal 1996, special consideration was given to each officer's
compensation package at his or her prior place of employment.
Annual Incentive Compensation
Each executive officer is eligible to receive cash bonuses on a quarterly
basis and at the end of the fiscal year based upon the Company's financial
performance and the performance of the individual executive officer. Cash
bonuses are intended to constitute a significant portion of an executive
officer's incentive and total compensation package.
An annual target cash bonus is established by the Compensation Committee
based on the Committee's appraisal of current market practices for the payment
of incentive compensation to executive officers with comparable
qualifications, experience and responsibilities at similar companies. Annual
target cash bonuses for each of the Company's executive officers, other than
the Company's Chief Executive Officer, are also based upon the recommendations
of the Chief Executive Officer. An executive officer's annual cash bonuses are
generally
17
<PAGE>
targeted at approximately one-third of his or her base salary. Up to
approximately 50% of each executive officer's annual target cash bonus is paid
to the officer on a quarterly basis, subject to the Company's achievement of
plan with respect to revenue growth as offset by losses exceeding plan, as
well as individual performance. In addition, up to approximately 50% of the
annual target cash bonus is paid to the officer shortly after the end of the
fiscal year, subject to the Company's achievement of plan with respect to
revenue growth, as well as individual performance. If revenue growth is not
achieved in accordance with plan, the executive officers may not receive 100%
of their annual target bonus. If revenue growth exceeds plan, the executive
officers may receive greater than 100% of their annual target bonus.
Stock Options
Stock options are the principal vehicle used by the Company for the payment
of long-term compensation to executive officers, to provide a stock-based
incentive to improve the Company's financial performance and to assist in the
recruitment, motivation and retention of key professional and managerial
personnel. Long-term incentive compensation in the form of stock options
enables executive officers to share in the appreciation of the value of the
Company's Common Stock. Accordingly, the Compensation Committee believes that
stock options more closely align the interests of the executive officers with
those of the stockholders by encouraging executive officers to maximize the
value of the Company. The Company's stock option plans are administered by the
Compensation Committee. To date, the Compensation Committee has not granted
stock options at less than fair market value.
Stock options are granted to executive officers from time to time based
primarily upon the individual's actual and/or potential contributions to the
Company, competitive market practices and the Company's financial performance.
When establishing stock option grant levels, the Compensation Committee
considers existing levels of stock ownership, previous grants of stock
options, vesting schedules of outstanding options and the current market value
of the Company's Common Stock. The exercisability of stock options over a
period of time is designed to defer the receipt of compensation by the option
holder, thereby creating an incentive for the individual to remain with the
Company. From time to time as options held by an executive officer vest, the
Compensation Committee will, subject to individual and corporate performance,
grant additional stock options to the executive officers in order to provide
continuing incentives for future performance.
Options granted in fiscal 1996 were granted at an exercise price per share
equal to the fair market value of the Common Stock. In August and October
1996, certain options granted to employees of the Company between December 8,
1995 and July 8, 1996 were amended to reduce the exercise price applicable to
such options to the then current fair market value of the Company's Common
Stock. See "Option Repricings."
Other Benefits
The Company also has various broad-based employee benefit plans. Executive
officers participate in these plans on the same terms as eligible, non-
executive employees, subject to any legal limits on the amounts that may be
contributed or paid to executive officers under these plans. The Company
offers a stock purchase plan under which employees may purchase Common Stock
at a discount, as well as a 401(k) retirement savings plan, which permits
employees to invest in a wide variety of funds on a pre-tax basis. The Company
also maintains group health, disability and life insurance, and other benefits
plans for its employees.
Chief Executive Officer Compensation
The compensation payable to Michael E. Kolowich for his services as
President and Chief Executive Officer of the Company commencing in September
1996 was determined by a special committee of the Board of Directors
consisting of William A. Devereaux and Marino R. Polestra and was approved by
the full Board of Directors. The principal factors affecting the determination
of Mr. Kolowich's compensation package were a review of industry-comparable
Chief Executive Officer compensation, reference to Mr. Kolowich's previous
18
<PAGE>
compensation package with prior employers Nets, Inc. and AT&T New Media
Services, and an assessment of Mr. Kolowich's qualifications and expected
contributions to the Company's future growth.
Mr. Kolowich's annual base salary for 1996-1997 was set at $170,000 upon the
commencement of his employment in September 1996. In addition, upon joining
the Company, Mr. Kolowich was awarded stock options and the right to purchase
Common Stock of the Company. The Board of Directors also awarded Mr. Kolowich
an annual incentive bonus for 1996 of $26,700. See "Executive Compensation"
and "Certain Relationships and Related Transactions."
The Compensation Committee determined the base salary, cash bonuses and
stock options received by Joseph A. Amram, the Company's President and Chief
Executive Officer until August 1996. Mr. Amram's compensation in 1996 was
based on the Compensation Committee's assessment of competitive salaries paid
to founders and Chief Executive Officers at comparable companies, as well as
an assessment of Mr. Amram's qualifications and performance. The Company and
Mr. Amram entered into an agreement in December 1996 pursuant to which the
Company agreed to make severance payments to Mr. Amram through July 1998. See
"Certain Relationships and Related Transactions."
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the tax deduction to $1 million for compensation paid to any
of the executive officers, unless certain requirements are met. The
Compensation Committee has considered these requirements and the related
regulations. It is the Compensation Committee's present intention that, so
long as it is consistent with its overall compensation objectives,
substantially all executive compensation shall be deductible for federal
income tax purposes.
The Compensation Committee approved the 1996 year-end annual incentive
compensation for the executive officers, other than the Chief Executive
Officer. The full Board of Directors approved the 1996 year-end annual
incentive compensation for Michael E. Kolowich, the Company's Chief Executive
Officer.
Respectfully submitted by
Joseph A. Amram
William A. Devereaux
Elon Kohlberg
Marino R. Polestra
Daniel Rosen
No person who served as a member of the Compensation Committee was, during
the fiscal year ended December 31, 1996, an officer or employee of the Company
or any of its subsidiaries, was formerly an officer of the Company or any of
its subsidiaries, or had any relationship requiring disclosure herein. No
executive officer of the Company served as a member of the compensation
committee of another entity (or other committee of the Board of Directors
performing equivalent functions or, in the absence of any such committee, the
entire Board of Directors), one of whose executive officers served as a
director of the Company.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are reimbursed for their
reasonable out-of-pocket expenses incurred in attending meetings. Non-employee
directors are also eligible to receive options under the Company's 1996 Non-
Employee Director Stock Option Plan. See "Other Stock Plans--1996 Non-Employee
Director Stock Option Plan." Directors who are employees are not compensated
for their service on the Board or any committee thereof.
19
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative total
stockholder return on the Company's Common Stock during the period from the
Company's initial public offering on March 15, 1996 through December 31, 1996,
with the cumulative total return for (i) the Nasdaq National Market Index (U.S.
companies) and (ii) the Nasdaq Computer and Data Processing Stocks Index. The
comparison assumes that $100 was invested on March 15, 1996 in the Company's
Common Stock at the closing sale price of $15.75 on the first day of trading,
and in each of the foregoing indices, and assumes reinvestment of dividends, if
any.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)(2)
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
NASDAQ
Computer &
Measurement period Individual, NASDAQ Data Processing
(Fiscal Year Covered) Inc. U.S.Index Index
- --------------------- -------- --------- ---------------
<S> <C> <C> <C>
Measurement PT -
03/15/96 $ 100.00 $ 100.00 $ 100.00
03/29/96 $ 96.83 $ 100.24 $ 99.53
06/28/96 $ 104.76 $ 108.42 $ 110.64
09/30/96 $ 33.33 $ 112.28 $ 112.84
12/31/96 $ 38.10 $ 117.80 $ 117.41
</TABLE>
- --------
(1) Prior to March 15, 1996, the Company's Common Stock was not publicly
traded. Comparative data is provided only for the period since that date.
This graph is not "soliciting material," is not deemed filed with the
Commission and is not to be incorporated by reference in any filing of the
Company under the Securities Act of 1933, as amended (the "Securities Act")
or the Exchange Act whether made before or after the date hereof and
irrespective of any general incorporation language in any such filing.
(2) The stock price performance shown on the graph is not necessarily
indicative of future price performance.
20
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 13, 1993, the Company issued and sold to Knight-Ridder
Information, Inc. 600,000 shares of Series F Preferred Stock of the Company at
a price of $5.00 per share, for total consideration of $3,000,000 (which
shares were converted into 900,000 shares of Common Stock pursuant to the 3-
for-2 stock split and the conversion of all outstanding shares of Preferred
Stock to Common Stock effected in March 1996 in connection with the Company's
initial public offering). Jeffery S. Galt, President of Knight-Ridder
Information, Inc., is a director of the Company. The Company also has
established business relationships with Knight-Ridder, but has not recognized
material revenue from such business arrangements.
On October 3, 1995, the Company issued and sold to Microsoft Corporation
700,000 shares of the Series G Preferred Stock of the Company at a price of
$15.00 per share, for total consideration of $10,500,000 (which shares were
converted into 1,050,000 shares of Common Stock pursuant to the 3-for-2 stock
split and the conversion of the Company's outstanding shares of Preferred
Stock to Common Stock in connection with the initial public offering). In
connection with the sale of the Series G Preferred Stock, the Company, the
Company's founders (the "Founders") and the holders of the Company's Series A,
Series B, Series C, Series D and Series E Preferred Stock (the "Preferred
Investors") entered into the Series G Stockholders' Agreement with Microsoft
(the "Microsoft Stockholders' Agreement"). The Microsoft Stockholders'
Agreement provides Microsoft with a right of first negotiation during the
period from September 1, 1996 to September 1, 1999, with respect to any
proposed sale of control of the Company by the Company or by any Founders or
Preferred Investors holding a majority of the shares of the Company's
outstanding voting securities ("Selling Persons"). Pursuant to the right of
first negotiation, the Selling Persons must provide Microsoft with the option
of negotiating with the Selling Persons for the purchase of control of the
Company for an initial period of 60 days, during which time the Selling
Persons are prohibited from entering into a letter of intent or binding
agreement for such sale with any other party. If the Selling Persons choose
not to sell the Company to Microsoft after negotiating in good faith for 60
days, the Selling Persons may negotiate for the sale of the Company with any
other person on terms that are no more favorable to such other person than the
terms that were initially offered to Microsoft, subject to certain additional
restrictions.
Daniel Rosen, Senior Director--Strategic Relationships and General Manager--
Microsoft Network Transactions, at Microsoft, is a director of the Company.
The Company also has established business relationships with Microsoft, but
has not recognized material revenue from such business arrangements.
On September 3, 1996, the Company entered into an Employment Agreement with
Michael E. Kolowich (the "Kolowich Employment Agreement"), which provides the
terms and conditions of Mr. Kolowich's employment as President and Chief
Executive Officer of the Company. Pursuant to the Kolowich Employment
Agreement, the Company agreed to pay Mr. Kolowich an annual base salary of
$170,000, subject to adjustment annually. The Company also agreed to pay Mr.
Kolowich an annual target incentive bonus of up to $80,000 for fiscal 1997,
and an annual target incentive bonus in an amount to be agreed upon by the
Company and Mr. Kolowich for each fiscal year thereafter. The incentive bonus
may be greater than the target bonus for any given year if the Company's
annual financial goals and objectives for that year are exceeded. All such
incentive bonus payments will be paid to Mr. Kolowich in the form of Common
Stock of the Company, valued at the fair market value of such Common Stock on
the first day of the fiscal year for which the bonus was achieved.
In addition, pursuant to the Kolowich Employment Agreement, the Company
agreed to sell to Mr. Kolowich, and Mr. Kolowich agreed to purchase from the
Company, 100,000 shares of Common Stock at the price of $6.00 per share, which
was the fair market value of the Common Stock on the date Mr. Kolowich
accepted the Company's offer of employment. The sale was consummated on
September 18, 1996. The Company also granted to Mr. Kolowich pursuant to the
Company's Amended and Restated 1989 Stock Option Plan stock options to
purchase 1,000,000 shares of Common Stock at an exercise price of $6.00 per
share. Of such options, 66,664 are incentive stock options and the remaining
933,336 are non-qualified stock options. All of the options vest in 48 equal
monthly installments, subject to acceleration of vesting with respect to
certain of the options under certain circumstances.
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In addition to the Company's standard disability insurance benefits, the
Company also agreed to provide Mr. Kolowich with additional long-term
disability insurance sufficient, together with the standard disability
insurance, to replace three-quarters of Mr. Kolowich's base salary and
targeted incentive bonuses. Both Mr. Kolowich and the Company can terminate
Mr. Kolowich's employment with the Company with or without cause. If the
Company terminates Mr. Kolowich's employment without cause, the vesting of Mr.
Kolowich's stock options will be accelerated.
On December 17, 1996, the Company entered into an Agreement and Release with
Joseph A. Amram, the Company's former President and Chief Executive Officer
and a current director of the Company, relating to severance pay and other
matters in connection with the cessation of Mr. Amram's employment with the
Company in August 1996. Pursuant to the Agreement and Release, the Company
agreed to pay Mr. Amram $480,000, the equivalent of two years' compensation,
$100,000 of which was paid upon execution of the Agreement and Release and the
remainder of which will be paid to Mr. Amram in equal monthly installments of
$20,000 through July 31, 1998. The Agreement and Release also contains mutual
releases by each party in favor of the other relating to, among other things,
claims arising out of Mr. Amram's employment and cessation of employment with
the Company, as well as certain other commitments of the parties.
On August 22, 1996 and October 23, 1996, the Board of Directors of the
Company repriced all outstanding stock options of the Company which were
granted to employees between December 8, 1995 and July 8, 1996, including
options held by certain of the executive officers of the Company. See "Option
Repricings."
PROPOSAL II
PROPOSAL TO RATIFY THE AMENDMENT OF
THE AMENDED AND RESTATED 1989 STOCK OPTION PLAN
AMENDMENT TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE
The Company's 1989 Stock Option Plan was adopted by the Board of Directors
on April 1, 1989 and approved by the Company's stockholders in September 1989.
The Amended and Restated 1989 Stock Option Plan (the "1989 Plan"), which
amended and restated the 1989 Stock Option Plan, was adopted by the Board of
Directors on January 30, 1996 and approved by the Company's stockholders on
March 4, 1996. The Board of Directors has approved and recommended to the
Company's stockholders that they ratify an amendment to the 1989 Plan,
increasing the number of shares of Common Stock authorized for issuance
thereunder from 3,500,000 to 5,000,000.
DESCRIPTION OF THE 1989 PLAN
The purpose of the 1989 Plan is to provide incentives to officers and other
employees of the Company by providing them with opportunities to purchase
stock in the Company pursuant to options granted thereunder which qualify as
"incentive stock options" ("ISO" or "ISOs") under Section 422(b) of the Code;
and to directors, officers, employees and consultants of the Company by
providing them with opportunities to purchase stock in the Company pursuant to
options granted thereunder which do not qualify as ISOs ("Non-Qualified
Option" or "Non-Qualified Options;" together with ISOs referred to
collectively herein as "Options").
The 1989 Plan is administered by the Compensation Committee of the Board of
Directors. Subject to the provisions of the 1989 Plan, the Compensation
Committee has the authority to select the optionees and determine the terms of
the options granted, including (i) the number of shares subject to each
option, (ii) when the option becomes exercisable, (iii) the exercise price of
the option (which in the case of an ISO cannot be less than the fair market
value of the Common Stock as of the date of grant), (iv) the duration of the
option, and (v) the time, manner and form of payment upon exercise of an
option.
Options may be granted under the 1989 Plan at any time prior to April 1,
1999. The exercise price per share of ISOs granted under the 1989 Plan cannot
be less than the fair market value of the Common Stock on the date
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of grant (or, in the case of ISOs granted to employees holding more than 10%
of the total combined voting power of all classes of stock of the Corporation,
110% of the fair market value per share of the Common Stock on the date of
grant). The 1989 Plan provides that, subject to earlier termination as
specified in the 1989 Plan or the Option agreement, each Option shall expire
on the date specified by the Committee, but not more than (i) ten years and
one day from the date of grant in the case of Non-Qualified Options, (ii) ten
years from its date of grant in the case of ISOs, and (iii) five years in the
case of ISOs granted to an employee holding more than 10% of the total
combined voting power of all classes of stock of the Company.
Any shares subject to an Option which expires or terminates unexercised may
again be available for grant under the 1989 Plan; however, such shares are
included in the determination of the aggregate number of shares of Common
Stock deemed to have been granted to such employee under the 1989 Plan.
Each Option granted under the 1989 Plan may be either fully exercisable at
the time of the grant or may become exercisable in such installments as the
Compensation Committee may specify. Each Option may be exercised from time to
time, in whole or in part, up to the total number of shares with respect to
which it is then exercisable. The Compensation Committee has the right to
accelerate the date of exercise of any installment of any Option, provided
such acceleration would not violate the $100,000 per year limitation on the
fair market value of stock (determined as of the grant date) subject to ISOs
granted to any employee which become exercisable for the first time in any
calendar year.
An Option is not assignable or transferable by the optionholder except by
will or by the laws of descent and distribution. If an ISO optionee ceases to
be employed by the Company and all Related Corporations other than by reason
of death or disability, no further installments of such ISOs may become
exercisable, and such ISOs will terminate after the passage of three (3)
months after the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereof) have been converted into Non-Qualified
Options. If an ISO optionee dies or is disabled, any ISO held by the optionee
may be exercised, to the extent of the number of shares with respect to which
he could have exercised it on the date of his death or disability, by the
optionee's estate, personal representative or beneficiary, or by the optionee,
at any time prior to the earlier of the specified expiration date of the ISO
or 180 days after the date of the termination of the optionee's employment by
such death or disability.
An Option (or any part or installment thereof) may be exercised by giving
written notice delivered to the principal office of the Company. The notice
must identify the Option being exercised and specify the number of shares as
to which such Option is being exercised, accompanied by full payment of the
purchase price. Payment of the purchase price must be in cash or check, or in
the discretion of the Compensation Committee, by personal recourse note with
interest, by tendering Common Stock of the Company or through the delivery of
an assignment of sufficient amount of the proceeds from the sale of the Common
Stock acquired upon exercise. If the Compensation Committee exercises such
discretion with respect to an ISO, it must do so in writing at the time of the
grant of the ISO. The holder of an Option does not have the rights of a
shareholder with respect to the shares covered by his Option until the date of
issuance of a stock certificate to him for such shares.
Option holders are protected against dilution in the event of a stock
dividend, stock split, recapitalization, reorganization, consolidation, merger
or similar transaction. The Board of Directors may from time to time adopt
amendments to the 1989 Plan, certain of which are subject to stockholder
approval, and may terminate the 1989 Plan at any time (although such action
shall not affect Options previously granted). Unless terminated sooner, the
1989 Plan will terminate at the end of the day on March 31, 1999 (except as to
Options outstanding on that date).
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STOCK OPTIONS GRANTED SINCE INCEPTION UNDER THE 1989 PLAN
The following table sets forth as of the Record Date, options granted under
the 1989 Plan to (i) each of the Named Executive Officers, (ii) each nominee
for election as a director, (iii) all current executive officers of the
Company as a group, (iv) all current directors of the Company who are not
executive officers as a group and (v) all employees, including all current
officers who are not executive officers, as a group:
<TABLE>
<CAPTION>
NO. OF
OPTIONS
NAME TITLE GRANTED
---- ----- ---------
<S> <C> <C>
Michael E. Kolowich.......... President and Chief Executive Officer 1,013,333
Janesse T. Bruce............. Senior Vice President, Single User 150,000
Markets
Robert L. Lentz.............. Senior Vice President, Finance and 140,000
Administration, Chief Financial
Officer, Treasurer and Secretary
Annette E. Lissauer.......... Vice President 187,500
Richard C. Vancil............ Vice President, Marketing and Business 162,500
Development
Joseph A. Amram.............. Director 537,167
Bruce D. Glabe............... -- 153,750
Jeffery S. Galt.............. Director --
Marino R. Polestra........... Director 20,000
All executive officers as a -- 1,623,333
group (6 persons)...........
All current directors who are
not executive officers as a
group (7 persons)........... -- 649,294
All employees who are not
executive officers as a
group....................... -- 2,649,773
</TABLE>
The total number of options granted under the 1989 Plan as of the Record
Date was 5,086,050 (of which 1,000,936 have been canceled). As of the Record
Date, options to purchase a total of 3,281,330 shares of Common Stock were
outstanding under the 1989 Plan, of which 660,280 shares were then
exercisable.
Information with respect to the number of options granted to the Named
Executive Officers during fiscal 1996 appears above under the caption "Option
Grants in Last Fiscal Year." On August 22, 1996 and October 23, 1996, the
Board of Directors of the Company repriced all outstanding stock options of
the Company which were granted to employees between December 8, 1995 and July
8, 1996, by reducing the exercise price applicable to such options to $6.25
per share. See "Option Repricings."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS WITH RESPECT TO THE 1989 PLAN
The following discussion of United States federal income tax consequences of
the issuance and exercise of options granted under the 1989 Plan is based upon
the provisions of the Code as in effect on the date of this Proxy Statement,
current regulations, and existing administrative rulings of the Internal
Revenue Service. It is not intended to be a complete discussion of all of the
federal income tax consequences of this plan or of the requirements that must
be met in order to qualify for the described tax treatment.
A. Incentive Stock Options. The following general rules are applicable under
current United States federal income tax law to ISOs granted under the 1989
Plan:
1. In general, no taxable income results to the optionee upon the grant
of an ISO or upon the issuance of shares to him or her upon the exercise of
the ISO, and no federal income tax deduction is allowed to the Company upon
either the grant or exercise of an ISO.
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<PAGE>
2. If shares acquired upon exercise of an ISO are not disposed of within
(i) two years following the date the ISO was granted or (ii) one year
following the date the shares are issued to the optionee pursuant to the
ISO exercise (the "Holding Periods"), the difference between the amount
realized on any subsequent disposition of the shares and the exercise price
will generally be treated as capital gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are disposed of on or
before the expiration of one or both of the requisite Holding Periods (a
"Disqualifying Disposition"), then in most cases the lesser of (i) any
excess of the fair market value of the shares at the time of exercise of
the ISO over the exercise price or (ii) the actual gain on disposition,
will be treated as compensation to the optionee and will be taxed as
ordinary income in the year of such disposition.
4. In any year that an optionee recognizes compensation income on a
Disqualifying Disposition of stock acquired by exercising an ISO, the
Company generally should be entitled to a corresponding deduction for
federal income tax purposes.
5. Any excess of the amount realized by the optionee as the result of a
Disqualifying Disposition over the sum of (i) the exercise price and (ii)
the amount of ordinary income recognized under the above rules will be
treated as capital gain.
6. Capital gain or loss recognized on a disposition of shares will be
long-term capital gain or loss if the optionee's holding period for the
shares exceeds one year.
7. An optionee may be entitled to exercise an ISO by delivering shares of
the Company's Common Stock to the Company in payment of the exercise price,
if the optionee's ISO agreement so provides. If an optionee exercises an
ISO in such fashion, special rules will apply.
8. In addition to the tax consequences described above, the exercise of
ISOs may result in a further "minimum tax" under the Code. The Code
provides that an "alternative minimum tax" (at a maximum rate of 28%) will
be applied against a taxable base which is equal to "alternative minimum
taxable income," reduced by a statutory exemption. In general, the amount
by which the value of the Common Stock received upon exercise of the ISO
exceeds the exercise price is included in the optionee's alternative
minimum taxable income. A taxpayer is required to pay the higher of his
regular tax liability or the alternative minimum tax. A taxpayer who pays
alternative minimum tax attributable to the exercise of an ISO may be
entitled to a tax credit against his or her regular tax liability in later
years.
9. Special rules apply if the Common Stock acquired through the exercise
of an ISO is subject to vesting, or is subject to certain restrictions on
resale under federal securities laws applicable to directors, officers or
10% stockholders.
B. Non-Qualified Stock Options. The following general rules are applicable
under current federal income tax law to options that do not qualify as ISOs
under the 1989 Plan:
1. The optionee generally does not recognize any taxable income upon the
grant of a Non-Qualified Option, and the Company is not allowed a federal
income tax deduction by reason of such grant.
2. The optionee generally will recognize ordinary compensation income at
the time of exercise of the Non-Qualified Option in an amount equal to the
excess, if any, of the fair market value of the shares on the date of
exercise over the exercise price. The Company may be required to withhold
income tax on this amount.
3. When the optionee sells the shares acquired through the exercise of a
Non-Qualified Option, he or she generally will recognize a capital gain or
loss in an amount equal to the difference between the amount realized upon
the sale of the shares and his or her basis in the stock (generally, the
exercise price plus the amount taxed to the optionee as compensation
income). If the optionee's holding period for the shares exceeds one year,
such gain or loss will be a long-term capital gain or loss.
4. The Company generally should be entitled to a federal income tax
deduction when compensation income is recognized by the optionee.
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<PAGE>
5. An optionee may be entitled to exercise a Non-Qualified Option by
delivering shares of the Company's Common Stock to the Company in payment
of the exercise price. If an optionee exercises a Non-Qualified Option in
such fashion, special rules will apply.
6. Special rules apply if the Common Stock acquired through the exercise
of a Non-Qualified Option is subject to vesting, or is subject to certain
restrictions on resale under federal securities laws applicable to
directors, officers or 10% stockholders.
VOTES REQUIRED FOR APPROVAL
The ratification of the amendment to the 1989 Plan requires the affirmative
vote of the holders of a majority of the shares of Common Stock present in
person or represented by proxy, and entitled to vote on such proposal at the
Annual Meeting. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
PROPOSAL II TO RATIFY THE AMENDMENT OF THE COMPANY'S 1989 PLAN, INCREASING
FROM 3,500,000 TO 5,000,000 THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE
THEREUNDER.
OTHER STOCK PLANS
In addition to the 1989 Plan, the Company currently has two stock ownership
plans authorized for prospective issuances: the 1996 Employee Stock Purchase
Plan and the 1996 Non-Employee Director Stock Option Plan.
1996 EMPLOYEE STOCK PURCHASE PLAN. The 1996 Employee Stock Purchase Plan
(the "Purchase Plan") was adopted by the Board of Directors of the Company on
January 30, 1996 and was approved by the stockholders of the Company on March
4, 1996. The Purchase Plan provides for the issuance of a maximum of 500,000
shares of Common Stock pursuant to the exercise of nontransferable options
granted to participating employees. The Purchase Plan is intended to encourage
stock ownership by all eligible employees of the Company so that they may
share in the growth of the Company, and is designed to encourage eligible
employees to remain in the employ of the Company. It is intended that options
granted pursuant to the Purchase Plan will constitute options pursuant to an
"employee stock purchase plan" within the meaning of Section 423(b) of the
Code.
The Purchase Plan is administered by the Compensation Committee. All
employees of the Company, except employees who immediately after the option
was granted would own five percent or more of the Company's stock, whose
customary employment is more than 10 hours per week and more than five months
in any calendar year, are eligible to participate in the Purchase Plan. To
participate in the Purchase Plan, an employee must authorize the Company to
deduct an amount (not less than one percent or more than ten percent of a
participant's regular pay) from his or her compensation, including base pay or
salary, and any overtime, bonuses, or commissions, during six-month periods
commencing on April 1 and October 1 of each year (each a "Payment Period").
The initial Payment Period under the Purchase Plan commenced on March 14,
1996, the effective date of the Company's initial public offering, and ended
on September 30, 1996. The maximum number of shares of Common Stock that an
employee may purchase in any Payment Period is 1,000 shares. In addition, no
employee may be granted an option which permits the employee's right to
purchase stock under the Purchase Plan to accrue at a rate which exceeds
$25,000 of the fair market value of such stock for each calendar year. Any
excess is refunded to the employee to the extent the 1,000 share or $25,000
limits are exceeded.
The exercise price for the option for each Payment Period is 85% of the
average market price of the Company's Common Stock on the first or last
business day of the Payment Period, whichever is less. If an employee is not a
participant on the last day of the Payment Period, such employee is not
entitled to exercise his or her option, and the amount of his or her
accumulated payroll deductions will be refunded. An employee's rights under
the Purchase Plan terminate upon his or her voluntary withdrawal from the
Purchase Plan at any time or upon termination of employment.
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<PAGE>
To date, 93,522 options have been exercised under the Purchase Plan. As of
the Record Date, 267 employees were eligible to participate in the Purchase
Plan, and 138 were participating. Unless terminated sooner, the Purchase Plan
shall terminate on March 31, 2006.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS WITH RESPECT TO THE PURCHASE PLAN
The following discussion of United States federal income tax consequences of
the issuance and exercise of options granted under the Purchase Plan is based
upon the provisions of the Code as in effect on the date of this Proxy
Statement, current regulations, and existing administrative rulings of the
Internal Revenue Service. It is not intended to be a complete discussion of
all of the federal income tax consequences of this plan or of the requirements
that must be met in order to qualify for the described tax treatment.
The following general rules are currently applicable under current federal
income tax law to options granted under the Purchase Plan:
1. The amounts deducted from an employee's pay under the Purchase Plan
will be included in the employee's compensation subject to federal income
tax. In general, no additional income will be realized by the employee
either at the time options are granted pursuant to the Purchase Plan or at
the time the employee purchases shares pursuant to the Purchase Plan.
2. If the employee disposes of shares of Common Stock more than two years
after the first business day of the Payment Period in which the employee
acquired the shares, then upon such disposition the employee will recognize
ordinary compensation in an amount equal to the lesser of:
(a) the excess, if any, of the fair market value of the shares on the
date of disposition over the amount the employee paid for the shares,
or
(b) the excess of the fair market value of the shares on the first
business day of the Payment Period over the option price.
In addition, the employee generally will recognize capital gain or loss
in an amount equal to the difference between the amount realized upon the
sale of shares and the employee's basis in the shares (i.e., the amount the
employee paid for the shares plus the amount, if any, taxed as ordinary
compensation income). If the employee's holding period for the shares is
more than one year, such gain or loss will be long-term capital gain or
loss.
3. If the employee disposes of shares of Common Stock within two years
after the first business day of the Payment Period in which the employee
acquired the shares, then upon disposition the employee will recognize
ordinary compensation in an amount equal to the excess, if any, of the fair
market value of the shares on the last business day of the Payment Period
over the amount the employee paid for the shares.
In addition, the employee generally will recognize capital gain or loss
in an amount equal to the difference between the amount realized upon the
sale of shares and the employee's basis in the shares (i.e., the amount the
employee paid for the shares plus the amount, if any, taxed as ordinary
compensation income). If the employee's holding period for the shares is
more than one year, such gain or loss will be long-term capital gain or
loss.
4. If the two-year holding period is satisfied, the Company will not
receive any deduction for federal income tax purposes with respect to the
options or the shares of Common Stock issued upon their exercise. If the
two-year holding period is not satisfied, the Company generally will be
entitled to a federal income tax deduction in an amount equal to the amount
which is considered ordinary compensation income.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. The 1996 Non-Employee Director
Stock Option Plan (the "Director Plan") was adopted by the Board of Directors
of the Company on January 30, 1996 and was approved by the stockholders of the
Company on March 4, 1996. The Director Plan provides for the issuance of a
maximum of 500,000 shares of Common Stock of the Company pursuant to the
exercise of options granted to non-employee directors of the Company. The
Director Plan is administered by the Compensation Committee of the Board of
Directors.
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<PAGE>
The Director Plan authorizes the automatic grant of stock options to members
of the Board of Directors of the Company who are neither employees nor
officers of the Company. The purpose of the Director Plan is to promote the
interests of the Company by providing an inducement to obtain and retain the
services of qualified persons who are not employees or officers of the Company
to serve as members of its Board. Under the Director Plan, each non-employee
director who is not an employee or officer of the Company and who is first
elected to the Board of Directors on or after March 20, 1996, shall
automatically be granted on the date of such initial election to the board,
without further action by the Board, an option (collectively, the "Initial
Options") to purchase 20,000 shares of Common Stock (subject to adjustment in
accordance with the Director Plan). Commencing with the annual meeting of
stockholders to be held in 1997, each non-employee director who has
continuously served as a director since the last annual meeting of
stockholders shall automatically be granted on the date of each annual meeting
of stockholders for so long as such director remains a director of the
Corporation, without further action by the Board, an option (collectively, the
"Annual Options") to purchase 10,000 shares of Common Stock. In addition, the
Compensation Committee may, from time to time in its discretion, grant options
under the Director Plan to purchase Common Stock of the Company to any non-
employee director, in which event the Committee shall also determine the
number of shares of Common Stock subject to such options and the applicable
vesting provisions. The exercise price per share for all options granted under
the Director Plan will be equal to the fair market value per share of the
Common Stock as of the date of the grant.
Options granted under the Director Plan shall be exercisable only with
respect to vested shares. Initial Options shall vest in 36 equal monthly
installments commencing on the last day of the first full calendar month
following the date of grant, provided that the optionee has continuously
served as a member of the Board of Directors through each such vesting date.
Annual Options shall vest in 12 equal monthly installments commencing on the
last day of the first full calendar month following the date of grant,
provided that the optionee has continuously served as a member of the Board of
Directors through each such vesting date. An Option may be exercised in whole
or in part by giving written notice to the Company, stating the number of
shares with respect to which the option is being exercised, and making payment
in full for such shares.
Options are exercisable by the optionee to the extent vested only while the
optionee is serving as a director of the Company or within 90 days after the
optionee ceases to be a director of the Company at any time prior to the
scheduled expiration of the Option (except that if a director dies or becomes
permanently disabled while he or she is serving as a director of the Company,
the option becomes fully vested and remains exercisable until the scheduled
expiration date of the Option). If an optionee ceases to be a member of the
Board of Directors in connection with or following a business combination
which is accounted for as a pooling of interests, any portion of the Options
granted to such optionee under the Director Plan may be exercised, to the
extent then vested, until the later of 90 days after the optionee ceases to be
a director or 30 days following the expiration of any pooling-of-interests
lock-up period relating to such business combination. In the event the Company
is acquired by (i) the sale, issuance, exchange or transfer, in a single
transaction or a series of related transactions, of greater than fifty percent
(50%) of the outstanding capital stock of the Company to a third party, (ii)
the sale of all or substantially all of the assets of the Company, or (iii) a
merger, consolidation or other reorganization involving the Company and one or
more other entities in which the shares of the Company's outstanding capital
stock immediately prior to such transaction are converted into, exchanged for
or represent less than a majority of the voting power of the surviving or
resulting entity, then each Option granted under the Director Plan which is
outstanding but unvested as of the effective date of such event shall become
exercisable in full immediately prior to the effective date of such event.
Options may not be assigned or transferred except by will or by the laws of
descent and distribution or pursuant to a domestic relations order. Unless
sooner terminated, the term of each Option granted under the Director Plan
expires ten years after the date of grant. No Options may be granted under the
Director Plan after January 30, 2006.
On the Record Date, the fair market value of the Company's Common Stock was
$5.875, the last reported sale price of the Company's Common Stock quoted on
the Nasdaq National Market on such date.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS WITH RESPECT TO THE DIRECTOR PLAN
The United States federal income tax consequences of the issuance and
exercise of options granted under the Director Plan are substantially the same
as the consequences described above with respect to Non-Qualified Options
under the 1989 Plan.
PROPOSAL III
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of Coopers & Lybrand L.L.P.,
independent certified public accountants, to serve as auditors for the fiscal
year ending December 31, 1997. Coopers & Lybrand L.L.P. has served as the
Company's auditors since fiscal 1991. It is expected that a member of the firm
will be present at the Annual Meeting of Stockholders with the opportunity to
make a statement if so desired and will be available to respond to appropriate
questions. Stockholder ratification of the Company's independent public
accountants is not required under Delaware law or the Company's Third Amended
and Restated Certificate of Incorporation or its Amended and Restated By-Laws,
but the results of this vote will be considered by the Board of Directors in
selecting auditors for future fiscal years. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR PROPOSAL III TO RATIFY THE SELECTION OF COOPERS &
LYBRAND L.L.P.
SECTION 16 REPORTING
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and holders of more than 10% of the Company's Common Stock
(collectively, the "Reporting Persons") to file with the Commission initial
reports of ownership and reports of changes in ownership of Common Stock of
the Company. Such persons are required by regulations of the Commission to
furnish the Company with copies of all such filings. Based on its review of
the copies of such filings received by it with respect to the fiscal year
ended December 31, 1996 and representations from certain Reporting Persons,
the Company believes that all Reporting Persons complied with all Section
16(a) filing requirements in the fiscal year ended December 31, 1996.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy statement to
be furnished to all stockholders entitled to vote at the next Annual Meeting
of Stockholders of the Company must be received at the Company's principal
executive offices not later than December 18, 1997. Any such proposal must
comply with the rules and regulations of the Commission. In order to curtail
controversy as to the date on which a proposal was received by the Company, it
is suggested that proponents submit their proposals by Certified Mail, Return
Receipt Requested to Individual, Inc., 8 New England Executive Park West,
Burlington, Massachusetts 01803, Attention: Corporate Secretary.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Company, and in
addition to soliciting stockholders by mail through its regular employees, the
Corporation may request banks, brokers and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Company
registered in the names of a nominee and, if so, will reimburse such banks,
brokers and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket costs. Solicitation by officers and employees of the Company may
also be made of some stockholders in person or by mail, telephone or telegraph
following the original solicitation.
29
<PAGE>
1502-PS-97
<PAGE>
EXHIBIT 99
INDIVIDUAL, INC.
AMENDED AND RESTATED 1989 STOCK OPTION PLAN,
AS AMENDED
1. PURPOSE. This Amended and Restated 1989 Stock Option Plan (the "Plan")
-------
is intended to provide incentives: (a) to the officers and other employees of
Individual, Inc. (the "Company"), its parent (if any) and any present or future
subsidiaries of the Company (collectively, "Related Corporations") by providing
them with opportunities to purchase stock in the Company pursuant to options
granted hereunder which qualify as "incentive stock options" under Section
422(b) of the Internal Revenue Code of 1986 (the "Code") ("ISO" or "ISOs"), and
(b) to directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Option" or "Non-Qualified Options"). Both ISOs and Non-
Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options". As used herein, the terms "parent" and "subsidiary"
mean "parent corporation" and "subsidiary corporation", respectively, as those
terms are defined in Section 424 of the Code.
2. ADMINISTRATION OF THE PLAN.
--------------------------
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered
---------------------------------
by the Board of Directors of the Company (the "Board") or by a committee
appointed by the Board (the "Committee"); provided that the Plan shall be
administered: (i) to the extent required by applicable regulations under
Section 162(m) of the Code, by two or more "outside directors" (as defined
in applicable regulations thereunder) and (ii) to the extent required by
Rule 16b-3 promulgated under the Securities Exchange Act of 1934 or any
successor provision ("Rule 16b-3"), by a disinterested administrator or
administrators within the meaning of Rule 16b-3. Hereinafter, all
references in this Plan to the "Committee" shall mean the Board if no
Committee has been appointed. Subject to ratification of the grant or
authorization of each Option by the Board (if so required by applicable
state law), and subject to the terms of the Plan, the Committee shall have
the authority to (i) determine the employees of the Company and Related
Corporations (from among the class of employees eligible under paragraph 3
to receive ISOs) to whom ISOs may be granted, and to determine (from among
the class of individuals and entities eligible under paragraph 3 to receive
Non-Qualified Options) to whom Non-Qualified Options may be granted; (ii)
determine the time or times at which Options may be granted; (iii)
determine the option price of shares subject to each Option, which price
shall not be less than the minimum price specified in paragraph 6; (iv)
determine whether each Option granted shall be an ISO or a Non-Qualified
Option; (v) determine (subject to paragraph 7) the time or times when each
Option shall become exercisable and the duration of the exercise period;
(vi) determine whether restrictions such as repurchase rights are to be
<PAGE>
-2-
imposed on shares subject to Options and the nature of such restrictions,
if any, and (vii) interpret the Plan and prescribe and rescind rules and
regulations relating to it. If the Committee determines to issue a Non-
Qualified Option, it shall take whatever actions it deems necessary, under
Section 422 of the Code and the regulations promulgated thereunder, to
ensure that such Option is not treated as an ISO. The interpretation and
construction by the Committee of any provisions of the Plan or of any
Option granted under it shall be final unless otherwise determined by the
Board. The Committee may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem advisable. No member
of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any option
granted under it.
B. GRANT OF OPTIONS TO BOARD MEMBERS. Subject to the provisions of
---------------------------------
the first sentence of paragraph 2(A), options may be granted to members of
the Board, but any such grant shall be made and approved in accordance with
this paragraph 2(B), if applicable. All grants of Options to members of
the Board shall in all other respects be made in accordance with the
provisions of this Plan applicable to other eligible persons. Members of
the Board who either (i) are eligible for Options pursuant to the Plan or
(ii) have been granted Options may vote on any matters affecting the
administration of the Plan or the grant of any Options pursuant to the
Plan, except that no such member shall act upon the granting to himself of
Options, but any such member may be counted in determining the existence of
a quorum at any meeting of the Board during which action is taken with
respect to the granting to him of Options.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any employee of
-----------------------------
the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan. Non-
Qualified Options may be granted to any employee, officer or director (whether
or not also an employee) or consultant of the Company or any Related
Corporation. The Committee may take into consideration an optionee's individual
circumstances in determining whether to grant an ISO or a Non-Qualified Option.
Granting of any Option to any individual or entity shall neither entitle that
individual or entity to, nor disqualify him from, participation in any other
grant of Options.
4. STOCK. The stock subject to Options shall be authorized but unissued
-----
shares of Common Stock of the Company, par value $.0l per share (the "Common
Stock"), or shares of Common Stock reacquired by the Company in any manner. The
aggregate number of shares which may be issued pursuant to the Plan is
5,000,000, subject to adjustment as provided in paragraph 13 (such number of
shares set forth in this Section 4 gives effect to the 3-for-2 stock split of
the Common Stock authorized by the Board of Directors on January 30, 1996). Any
such shares may be issued pursuant to the exercise of ISOs or Non-Qualified
Options, so long as the aggregate number of shares so issued does not exceed
such number, as adjusted. If any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part, the unpurchased shares
subject to such Options shall again be available for grants of Options under the
Plan. No
<PAGE>
-3-
employee of the Company or any Related Corporation may be granted options to
acquire in the aggregate more than 250,000 shares of Common Stock under the Plan
during any taxable year of the Company. If any Option granted under the Plan
shall expire or terminate for any reason without having been exercised in full
or shall cease for any reason to be exercisable in whole or in part or shall be
repurchased by the Company, the shares subject to such Option shall be included
in the determination of the aggregate number of shares of Common Stock deemed to
have been granted to such employee under the Plan.
5. GRANTING OF OPTIONS. Options may be granted under the Plan at any time
-------------------
after April 1, 1989 and prior to April 1, 1999. The date of grant of an Option
under the Plan will be the date specified by the Committee at the time it grants
the Option; provided, however, that such date shall not be prior to the date on
which the Committee acts to approve the grant. The Committee shall have the
right, with the consent of the optionee, to convert an ISO granted under the
Plan to a Non-Qualified Option pursuant to paragraph 16.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
-------------------------------------
A. PRICE FOR NON-QUALIFIED OPTIONS. The exercise price per share
-------------------------------
specified in the agreement relating to each Non-Qualified Option granted
under the Plan shall in no event be less than the lesser of (i) the book
value per share of Common Stock as of the end of the fiscal year of the
Company immediately preceding the date of such grant, or (ii) fifty percent
(50%) of the fair market value per share of Common Stock on the date of
such grant.
B. PRICE FOR ISOS. The exercise price per share specified in the
--------------
agreement relating to each ISO granted under the Plan shall not be less
than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, the
price per share specified in the agreement relating to such ISO shall not
be less than one hundred ten percent (110%) of the fair market value per
share of Common Stock on the date of grant. For purposes of determining
stock ownership under this paragraph, the rules of Section 424(d) of the
Code shall apply.
C. $100,000 ANNUAL LIMITATION ON ISOS. Each eligible employee may be
----------------------------------
granted Options treated as ISOs only to the extent that, in the aggregate
under this Plan and all incentive stock option plans of the Company and any
Related Corporation, ISOs do not become exercisable for the first time by
such employee during any calendar year with respect to stock having a fair
market value (determined at the time the ISOs were granted) in excess of
$100,000. The Company intends to designate any Options granted in excess
of such limitation as Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is
----------------------------------
granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the date of grant, or, if the
prices or quotes discussed in
<PAGE>
-4-
this sentence are unavailable for such date, the last business day for
which such prices or quotes are available prior to the date such Option is
granted and shall mean (i) the average (on that date) of the high and low
prices of the Common Stock on the principal national securities exchange on
which the Common stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the Nasdaq National Market, if the Common
Stock is not then traded on a national securities exchange; or (iii) the
closing bid price (or average of bid prices) last quoted (on that date) by
an established quotation service for over-the-counter securities, if the
Common Stock is not reported on the Nasdaq National Market. However, if the
Common Stock is not publicly traded at the time an Option is granted under
the Plan, "fair market value" shall be deemed to be the fair value of the
Common Stock as determined by the Committee after taking into consideration
all factors which it deems appropriate, including, without limitation,
recent sale and offer prices of the Common Stock in private transactions
negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
---------------
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years and one day from the date of grant in the case of Non-Qualified Options,
(ii) ten years from the date of grant in the case of ISOs generally, and (iii)
five years from the date of grant in the case of ISOs granted to an employee
owning stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Related Corporation.
Subject to earlier termination as provided in paragraphs 9 and 10, the term of
each ISO shall be the term set forth in the original instrument granting such
ISO, except with respect to any part of such ISO that is converted into a Non-
Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
------------------
12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on the date
-------
of grant or shall become exercisable thereafter in such installments as the
Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
----------------------------
exercisable it shall remain exercisable until expiration or termination of
the Option, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may be exercised at
----------------
any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
-----------------------
accelerate the date on which any installment of any Option becomes
exercisable; provided that the Committee shall not, without the consent of
the optionee accelerate the exercise date of any installment of any Option
granted to any employee as an ISO (and not previously converted into a Non-
Qualified Option pursuant to paragraph 16) if such acceleration
<PAGE>
-5-
would violate the annual vesting limitation contained in Section 422(d) of
the Code, as described in paragraph 6(C).
9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed by
-------------------------
the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of 3 months
from the date of termination of his employment, but in no event later than on
their specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified Options
pursuant to paragraph 16. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Option the right to be
retained in employment or other service by the Company or any Related
Corporation for any period of time.
10. DEATH; DISABILITY.
-----------------
A. DEATH. If an ISO optionee ceases to be employed by the Company
-----
and all Related Corporations by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he
could have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the
laws of descent and distribution, at any time prior to the earlier of the
specified expiration date of the ISO or 180 days from the date of the
optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the
----------
Company and all Related Corporations by reason of his disability, he shall
have the right to exercise any ISO held by him on the date of termination
of employment, to the extent of the number of shares with respect to which
he could have exercised it on that date, at any time prior to the earlier
of the specified expiration date of the ISO or 180 days from the date of
the termination of the optionee's employment. For the purposes of the
Plan, the term "disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code or successor statute.
11. ASSIGNABILITY. No Option shall be assignable or transferable by the
-------------
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee each Option shall be exercisable only by him.
<PAGE>
-6-
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
-------------------------------
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
-----------
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of Options shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
-------------------------
with or acquired by another entity in a merger or other reorganization in
which the holders of the outstanding voting stock of the Company
immediately preceding the consummation of such event, shall, immediately
following such event, hold, as a group, less than a majority of the voting
securities of the surviving or successor entity, or in the event of a sale
of all or substantially all of the Company's assets or otherwise (each, an
"Acquisition"), the Committee or the board of directors of any entity
assuming the obligations of the Company hereunder (the "Successor Board"),
shall, as to outstanding Options, either (i) make appropriate provision for
the continuation of such Options by substituting on an equitable basis for
the shares then subject to such Options either (a) the consideration
payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition, (b) shares of stock of the surviving or
successor corporation or (c) such other securities as the Successor Board
deems appropriate, the fair market value of which shall not materially
exceed the fair market value of the shares of Common Stock subject to such
Options immediately preceding the Acquisition; or (ii) upon written notice
to the optionees, provide that all Options must be exercised, to the extent
then exercisable or to be exercisable as a result of the Acquisition,
within a specified number of days of the date of such notice, at the end of
which period the Options shall terminate; or (iii) terminate all Options in
exchange for a cash payment equal to the excess of the fair market value of
the
<PAGE>
-7-
shares subject to such Options (to the extent then exercisable or to be
exercisable as a result of the Acquisition) over the exercise price
thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
----------------------------------
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the
Company or of another corporation are issued with respect to the
outstanding shares of Common Stock, an optionee upon exercising an Option
shall be entitled to receive for the purchase price paid upon such exercise
the securities he would have received if he had exercised his Option prior
to such recapitalization or reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
--------------------
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs
shall be made only after the Committee, after consulting with counsel for
the Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the
Code) or would cause any adverse tax consequences for the holders of such
ISOs. If the Committee determines that such adjustments made with respect
to ISOs would constitute a modification of such ISOs, it may refrain from
making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by
the Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
-----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued under the
-----------------
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the events described in
-----------
subparagraphs A, B or C above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Options which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall determine the
specific adjustments to be made under this paragraph 13 and, subject to
paragraph 2, its determination shall be conclusive.
If any person or entity owning restricted Common Stock obtained by exercise
of an Option made hereunder receives shares or securities or cash in connection
with a corporate transaction described in subparagraphs A, B or C above as a
result of owning such restricted
<PAGE>
-8-
Common Stock, such shares or securities or cash shall be subject to all of the
conditions and restrictions applicable to the restricted Common Stock with
respect to which such shares or securities or cash were issued, unless otherwise
determined by the Committee or the Successor Board.
14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment
---------------------------
thereof) shall be exercised by giving written notice to the Company at its
principal office address. Such notice shall identify the Option being exercised
and specify the number of shares as to which such Option is being exercised,
accompanied by full payment of the purchase price therefor either (a) in United
States dollars in cash or by check, or (b) at the discretion of the Committee,
through delivery of shares of Common Stock having a fair market value equal as
of the date of the exercise to the cash exercise price of the Option, (c) at the
discretion of the Committee, by delivery of the grantee's personal recourse note
bearing interest payable not less than annually at no less than 100% of the
lowest applicable Federal rate, as defined in Section 1274(d) of the Code, (d)
at the discretion of the Committee and consistent with applicable law, through
the delivery of an assignment to the Company of a sufficient amount of the
proceeds from the sale of the Common Stock acquired upon exercise of the Option
and an authorization to the broker or selling agent to pay that amount to the
Company, which sale shall be at the participant's direction at the time of
exercise, or (e) at the discretion of the Committee, by any combination of (a),
(b), (c) and (d) above. If the Committee exercises its discretion to permit
payment of the exercise price of an ISO by means of the methods set forth in
clauses (b), (c), (d) or (e) of the preceding sentence, such discretion shall be
exercised in writing at the time of the grant of the ISO in question. The
holder of an Option shall not have the rights of a shareholder with respect to
the shares covered by his Option until the date of issuance of a stock
certificate to him for such shares. Except as expressly provided above in
paragraph 13 with respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which the record
date is before the date such stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was first adopted by the Board
--------------------------
on April 1, 1989, and was approved by the stockholders in September 1989. The
Plan shall expire at the end of the day on March 31, 1999 (except as to Options
outstanding on that date). The Board may terminate or amend the Plan in any
respect at any time, except that, without the approval of the stockholders
obtained within 12 months before or after the Board adopts a resolution
authorizing any of the following actions: (a) the total number of shares that
may be issued under the Plan may not be increased (except by adjustment pursuant
to paragraph 13); (b) the benefits accruing to participants under the Plan may
not be materially increased; (c) the requirements as to eligibility for
participation in the Plan may not be materially modified ; (d) the provisions of
paragraph 3 regarding eligibility for grants of ISOs may not be modified; (e)
the provisions of paragraph 6(B) regarding the exercise price at which shares
may be offered pursuant to ISOs may not be modified (except by adjustment
pursuant to paragraph 13); (f) the expiration date of the Plan may not be
extended; and (g) the Board may not take any action which would cause the Plan
to fail to comply with Rule 16b-3 in the absence of stockholder approval.
Except as otherwise provided in this paragraph 15, in no event may action of the
Board or stockholders alter or impair the rights of a grantee, without his
consent, under any Option previously granted to him.
<PAGE>
-9-
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS.
------------------------------------------------------------------
The Committee, at the written request or with the written consent of any
optionee, may in its discretion take such actions as may be necessary to convert
such optionee's ISOs (or any installments or portions of installments thereof)
that have not been exercised on the date of conversion into Non-Qualified
Options at any time prior to the expiration of such ISOs, regardless of whether
the optionee is an employee of the Company or a Related Corporation at the time
of such conversion. Such actions may include, but not be limited to, extending
the exercise period or reducing the exercise price of the appropriate
installments of such ISOs. At the time of such conversion, the Committee (with
the consent of the Optionee) may impose such conditions on the exercise of the
resulting Non-Qualified Options as the Committee in its discretion may
determine, provided that such conditions shall not be inconsistent with this
Plan. Nothing in the Plan shall be deemed to give any optionee the right to
have such optionee's ISOs converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Committee takes appropriate action.
The Committee, with the consent of the optionee, may also terminate any portion
of any ISO that has not been exercised at the time of such termination.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
--------------------
sale of shares pursuant to Options granted under the Plan shall be used for
general corporate purposes.
18. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
-----------------------
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a Non-
--------------------------------------
Qualified Option, the making of a Disqualifying Disposition (as defined in
paragraph 20), the vesting or transfer of restricted stock or securities
acquired on the exercise of a Option hereunder, or the making of a distribution
or other payment with respect to such stock or securities, the Company may
withhold taxes in respect of amounts that constitute compensation includible in
gross income. The Committee in its discretion may condition (i) the exercise of
an Option, or (ii) the vesting or transferability of restricted stock or
securities acquired by exercising an Option, on the optionee's making
satisfactory arrangement for such withholding. Such arrangement may include
payment by the optionee in cash or by check of the amount of the withholding
taxes or, at the discretion of the Committee, by the optionee's delivery of
previously held shares of Common Stock or the withholding from the shares of
Common Stock otherwise deliverable upon exercise of a Option shares having an
aggregate fair market value equal to the amount of such withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO
----------------------------------------------
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and the regulations thereunder) of any
Common Stock acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is generally any disposition (including any sale) of such Common
Stock occurring on or before the later of (a) two years after the date the
employee was granted the ISO, or (b) one year after the date the employee
acquired Common Stock by exercising the ISO.
21. GOVERNING LAW; CONSTRUCTION. The validity and construction of the
---------------------------
Plan and the instruments evidencing Options shall be governed by the laws of the
State of Delaware, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized. In construing this Plan, the singular
shall include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
