<PAGE> 1
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
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
AUGMENT SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
AUGMENT SYSTEMS, 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> 2
AUGMENT SYSTEMS, INC.
2 ROBBINS ROAD
WESTFORD, MASSACHUSETTS 01886
978-392-8626
------------------------
Dear Stockholder:
You are cordially invited to attend the Special Meeting in lieu of the
Annual Meeting of Stockholders of AUGMENT SYSTEMS, INC. (the "Company") to be
held at 10:00 A.M. on June 29, 1998, at the offices of the Company, 2 Robbins
Road, Westford, Massachusetts 01886 (the "Meeting").
At the Meeting, you will be asked (i) to elect members of the Board of
Directors of the Company; (ii) to ratify the appointment of BDO Seidman LLP as
the Company's independent public accountants; (iii) to approve an amendment to
the Restated Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 30,000,000 to 50,000,000; (iv) to approve an
amendment to the Company's 1995 Stock Option Plan to increase the number of
shares authorized for issuance under the Plan to 4,800,000; (v) to approve, in
compliance with the corporate governance requirements of The Nasdaq Stock
Market, the issuance by the Company of up to 10,000,000 shares of Common Stock
representing more than 20% of the currently outstanding voting power of the
Company; and (vi) to approve an amendment to the Restated Certificate of
Incorporation to adopt a 1 for 3 reverse stock split of the Company's issued and
outstanding Common Stock. Details of the matters to be considered and acted upon
by the stockholders at the Meeting are contained in the Proxy Statement.
The Board of Directors of the Company encourages your participation in the
Company's electoral process and, to that end, solicits your proxy. Please
complete, date and sign the Proxy Card and return it promptly in the enclosed
envelope. If you attend the Meeting, you may vote in person, and if you have
previously returned your proxy, you may vote in person by revoking the returned
proxy.
Sincerely,
Laurence S. Liebson
<PAGE> 3
AUGMENT SYSTEMS, INC.
2 ROBBINS ROAD
WESTFORD, MASSACHUSETTS 01886
978-392-8626
------------------------
NOTICE OF A SPECIAL MEETING IN LIEU OF
THE 1998 ANNUAL MEETING
OF STOCKHOLDERS
JUNE 29, 1998
To the Stockholders of
Augment Systems, Inc.:
Notice is hereby given that a Special Meeting in lieu of the 1998 Annual
Meeting of Stockholders of Augment Systems, Inc. (the "Company") will be held on
June 29, 1998 at 10:00 A.M. local time at the offices of Augment Systems, Inc.,
2 Robbins Road, Westford, Massachusetts 01886, for the following purposes:
1. To elect Directors to hold office until the next annual meeting and
until their successors are duly elected and qualified.
2. To ratify the appointment of BDO Seidman LLP as the Company's
independent public accountants for the fiscal year ending December 31,
1998.
3. To approve an amendment to the Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock
from 30,000,000 to 50,000,000.
4. To approve an amendment to the Company's 1995 Stock Option Plan to
increase the number of shares authorized for issuance under the Plan to
4,800,000.
5. To approve, in compliance with the corporate governance
requirements of The Nasdaq Stock Market, Inc., the issuance by the Company
of up to 10,000,000 shares of Common Stock representing more than 20% of
the currently outstanding voting power of the Company.
6. To approve an amendment to the Restated Certificate of
Incorporation to adopt a 1 for 3 reverse stock split of the Company's
issued and outstanding Common Stock.
7. Such other business as may properly come before the meeting or any
adjournment thereof.
Stockholders of record of the Company's Common Stock at the close of
business on June 12, 1998 will be entitled to vote at the Special Meeting in
lieu of the 1998 Annual Meeting and any adjournment thereof. All stockholders
are cordially invited to attend the meeting.
By Order of the Board of Directors
DUANE A. MAYO
Secretary
Westford, Massachusetts
June 17, 1998
HOLDERS OF RECORD OF COMMON STOCK AS OF THE RECORD DATE ARE URGED TO VOTE, SIGN,
DATE AND RETURN THEIR PROXIES IN THE ENCLOSED ENVELOPE. NO POSTAGE NEED BE
AFFIXED IF MAILED IN THE UNITED STATES. HOLDERS OF RECORD OF THE COMMON STOCK AS
OF THE RECORD DATE WHO DO ATTEND THE MEETING AND WISH TO VOTE IN PERSON MAY
REVOKE THEIR PROXIES.
<PAGE> 4
AUGMENT SYSTEMS, INC.
2 ROBBINS ROAD
WESTFORD, MASSACHUSETTS 01886
978-392-8626
PROXY STATEMENT FOR A SPECIAL MEETING
IN LIEU OF THE 1998 ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD
JUNE 29, 1998
This Proxy Statement and the enclosed proxy card are being furnished to
stockholders of Augment Systems, Inc. (the "Company"), a Delaware corporation,
in connection with the solicitation by the Company's Board of Directors (the
"Board") of proxies to be voted at the Company's Special Meeting in lieu of the
1998 Annual Meeting of Stockholders to be held on Monday, June 29, 1998 at 10:00
A.M. local time at the offices of the Company, 2 Robbins Road, Westford,
Massachusetts 01886, and at any adjournments thereof (the "Meeting"). This Proxy
Statement and the enclosed proxy card are first being mailed or otherwise
furnished to stockholders of the Company on or about June 17, 1998. All
solicitation expenses, including costs of preparing, assembling and mailing
proxy material, will be borne by the Company.
The close of business on June 12, 1998 has been established as the record
date (the "Record Date") for determining the stockholders entitled to notice of
and to vote at the Meeting and at any adjournments thereof. As of the Record
Date, there were issued and outstanding 11,898,952 shares of Common Stock of the
Company. Holders of shares of Common Stock are entitled to one vote for each
share owned at the Record Date on all matters to come before the Meeting and any
adjournments thereof. The presence in person or by proxy of holders of a
majority of the shares of Common Stock entitled to vote at the Meeting
constitutes a quorum for the transaction of business. Shares owned by a
stockholder submitting a proxy card but abstaining from voting on any proposal
are counted in the number of shares present in person or represented by proxy
for purposes of determining whether that proposal has been approved. Shares held
but not voted by brokers are counted only for purposes of determining whether a
quorum is present at the Meeting.
Proxies may be solicited by Directors, officers and employees of the
Company by mail, by telephone, in person or otherwise. No such person will
receive additional compensation for such solicitation. In addition, the Company
will request banks, brokers, and other custodians, nominees, and fiduciaries to
forward proxy materials to the beneficial owners of Common Stock and obtain
voting instructions from such beneficial owners. The Company will reimburse
those firms for their reasonable expenses in forwarding proxy materials and
obtaining voting instructions. The Annual Report to Stockholders for the fiscal
year ended December 31, 1997 is being mailed to the stockholders with this Proxy
Statement, but does not constitute a part hereof.
When the proxy card of a stockholder is duly executed and returned, the
shares represented thereby will be voted in accordance with the voting
instructions given on the proxy by the stockholder. If no such voting
instructions are given on a proxy card with respect to one or more proposals,
the shares represented by that proxy card will be voted in favor of such
proposals and in the discretion of the named proxies with respect to any other
proposals which may properly come before the Meeting. Stockholders may revoke
their proxies at any time prior to any vote at the Meeting by written notice to
the Secretary of the Company at or before the Meeting, by submission of a duly
executed proxy card bearing a later date or by voting in person by ballot at the
Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 9, 1998 with
respect to the beneficial ownership of the capital stock of the Company for (i)
each person who is known by the Company to own beneficially 5% or more of the
outstanding shares of its Common Stock; (ii) each of the directors and executive
officers of the Company; and (iii) all directors and officers as a group. Except
as otherwise indicated, the stockholders listed in the table have sole voting
and investment powers with respect to the
<PAGE> 5
shares indicated. As of June 9, 1998, the Company had 167 Stockholders of
record. Unless otherwise indicated, the address for directors, executive
officers and 5% stockholders is c/o Augment Systems, Inc., 2 Robbins Road,
Westford, MA 01886.
<TABLE>
<CAPTION>
*NUMBER OF SHARES OF
COMMON STOCK PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
- ------------------------------------ --------------------- ----------
<S> <C> <C>
Laurence S. Liebson......................................... 599,177(2) 4.8%
Duane A. Mayo............................................... 235,026(3) 1.9%
Lawrence D. Beaupre......................................... 150,013(4) 1.2%
Fred L. Chanowski........................................... 662,398(5) 5.3%
Jeffrey Leventhal........................................... 200,000(6) 1.7%
Trussel & Co................................................ 1,000,000 8.4%
c/o Westfield Capital Management
One Financial Center
Boston, MA 02110
All directors and executive officers as a group (5
persons)(2)(3)(4)(5)(6)................................... 1,846,614 13.9%
</TABLE>
- ---------------
* Does not reflect the effects of the proposed 1 for 3 reverse stock split of
the Company's Common Stock.
(1) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be beneficially owned and
outstanding for the purpose of computing the percentage ownership of any
other person shown in the table.
(2) Consists solely of shares of Common Stock issuable upon exercise of options,
which will be granted under the Company's 1995 Stock Option Plan (the
"Plan"), subject to shareholder approval of an increase in the number of
shares authorized for issuance under the Plan.
(3) Includes 129,850 shares of Common Stock issuable upon exercise of options.
(4) Includes 78,300 shares of Common Stock issuable upon exercise of options.
(5) Includes 29,880 shares of Common Stock issuable upon exercise of warrants.
Also includes 77,540 shares of Common Stock and 11,952 shares of Common
Stock issuable upon exercise of warrants owned by Alpha Ventures LLC of
which Mr. Chanowski is a founder and managing member and 500,000 shares of
Common Stock issuable upon exercise of warrants held by Venture Management
Consultants, LLC of which Mr. Chanowski is a founder and managing member.
(6) Includes 200,000 shares owned by Leventhal Paget LLC, of which Mr. Leventhal
is a principal and founder.
PROPOSAL 1
ELECTION OF DIRECTORS
The By-Laws of the Company provide that the Board shall consist of not less
than one Director, as shall be fixed from time to time by the Board. The
directors hold office until the next annual meeting of stockholders and until
their successors have been duly elected and qualified. The number of directors
may be decreased at any time and from time to time either by the stockholders or
by a majority of the directors then in office, but only to eliminate vacancies
existing by reason of the death, resignation, removal or expiration of the term
of one or more directors. The number of directors may be increased at any time
and from time to time by the stockholders or a majority of the directors then in
office. The Board has fixed the number of directors to constitute the full Board
for the ensuing year at four, all of whom are to be elected at the Meeting to
serve until the next Annual Meeting of Stockholders and until their respective
successors are elected and qualified.
A plurality of the votes cast in person and represented by proxy at the
Meeting is required for the election of Directors. Shares represented by proxies
will be voted FOR the election as Director of the foregoing
2
<PAGE> 6
nominees unless otherwise specified in the proxy. If any of the nominees for
election to the Board should, for any reason not now anticipated, not be
available to serve as such, proxies will be voted FOR such other candidate as
may be designated by the Board unless the Board reduces the number of Directors.
The Board has no reason to believe that any of the nominees will be unable to
serve if elected.
Laurence S. Liebson, Duane A. Mayo, Fred L. Chanowski and Jeffrey Leventhal
have been nominated for election to the Board of Directors at the Meeting. With
the exception of Laurence S. Liebson, all of such persons are presently
directors of the Company. In January 1998, Mr. Chappell Cory and Mr. Greg Millar
resigned from the Board of Directors to pursue other interests. Mr. Jeffrey
Leventhal was elected to the Board of Directors in January 1998. Effective May
1, 1998, Mr. Lorrin G. Gale resigned as Chairman of the Board. The Board of
Directors recommends a vote "FOR" the election of Laurence S. Liebson, Duane A.
Mayo, Fred L. Chanowski and Jeffrey Leventhal.
The following table sets forth certain information with respect to the
persons who have been nominated to serve as directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Laurence S. Liebson.................. 53 Chairman of the Board, President and Chief Executive
Officer
Duane A. Mayo........................ 47 Vice President of Finance and Administration, Chief
Financial Officer, Treasurer, Secretary and Director
Fred L. Chanowski.................... 47 Director
Jeffrey Leventhal.................... 27 Director
</TABLE>
BACKGROUND OF NOMINEES FOR DIRECTOR AND CERTAIN OFFICERS
LAURENCE S. LIEBSON was appointed as Chairman of the Board, President and
Chief Executive Officer of the Company on May 21, 1998. Prior to joining the
Company, Mr. Liebson led the management buyout of Harris Corporation's
Electronic Design Automation Division, now known as Xynetix Design Systems, Inc.
There he served as CEO from 1993 to 1997 and is currently Chairman of the Board.
Mr. Liebson founded and served as the Chairman and CEO of publicly owned
Xyvision, Inc., a designer and marketer of integrated electronic publishing and
document management systems. Under Mr. Liebson's leadership, Xyvision
experienced a compound annual growth rate of 100% over six years, achieving
annualized revenues of $50 million. Before Xyvision, Mr. Liebson founded and
served as the CEO of Xylogics, Inc., a designer and marketer of storage module
subsystems and communications controllers. Xylogics, which later went public,
was acquired for approximately $400 million by Bay Networks, Inc. Mr. Liebson
also has prior work experience at the NASA Electronic Research Center and Bell
Laboratories.
DUANE A. MAYO has served as Vice President of Finance and Administration of
the Company since March 1995 and as a director, Chief Financial Officer,
Secretary and Treasurer since May 1995. From April 1993 through February 1995,
he served as Chief Financial Officer for Xerographic Laser Images Corporation, a
publicly-held company involved in the development of resolution enhancement
technology. From April 1988 to April 1993, Mr. Mayo was Corporate Controller for
Howtek, Inc., a publicly-held company and supplier of desktop scanners for the
color prepress marketplace.
FRED L. CHANOWSKI has served as a director of the Company since June 1996.
Mr. Chanowski is a Managing Member of Alpha Ventures LLC, a venture capital fund
he founded in 1996, and a partner in Venture Management Consultants, LLC, a
management consulting firm he founded in January 1997. From December 1988
through June 1996, Mr. Chanowski was a telecommunications and information
technology consultant. Mr. Chanowski was the President, Chief Executive Officer
and owner of Telecommunications Management Corp., a management consulting firm
specializing in the areas of telecommunications and information management
technology, from November 1975 until its sale to Computer Task Group in December
1988.
JEFFREY LEVENTHAL has served as a director of the Company since January
1998. Since 1995, Mr. Leventhal has served as President of Remote Lojix, a
computer services company, and since 1996, as
3
<PAGE> 7
President of Leventhal Paget LLC, a private investment partnership. From
1993-1995, Mr. Leventhal was operationally involved in LANSafe Network Services,
a computer service provider.
LAWRENCE D. BEAUPRE has served as Vice President of Manufacturing on a
full-time basis since August 1996, and served in that position on a part-time
basis from March 1995 to July 1996. In March 1998 and upon Mr. Gale's departure,
Mr. Beaupre accepted the position of interim President and Chief Executive
Officer, until the appointment of Laurence S. Liebson on May 21, 1998. He
co-founded QuadTech, Inc., a manufacturer of precision measurement and
calibration instruments in March 1991, serving as its Vice President of
Operations and Chief Operating Officer from April 1991 through June 1995 and as
a consultant from July 1995 to August 1996. He was Vice President and member of
the founding group of other successful companies including Xyvision and Roll
Systems, Inc.
COLIN T. MURPHY has served as Vice President of Sales and Marketing since
July 1997, and previously as Vice President of Marketing and European Sales.
From 1990 to 1996, Mr. Murphy was Director of Sales for Optronics, an Intergraph
division, a leading manufacturer of high end color scanners, imagesetters and
direct to plate systems. From 1988 to 1990, he served as Vice President of
Marketing and International Operations for Imagitex, a manufacturer of image
manipulation workstations.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board held seven meetings during the fiscal year ended December 31,
1997. Each of the Directors attended at least 75% of the Board meetings and
meetings.
During the fiscal year ended December 31, 1997, the Board of Directors had
an Audit Committee comprised of Stanley Young, Chappell Cory and Greg Millar,
and a Compensation Committee comprised of Stanley Young, Fred Chanowski,
Chappell Cory and Greg Millar. Mr. Young resigned from the Board of Directors in
July, 1997, and Mr. Cory and Mr. Millar resigned from the Board of Directors in
January, 1998. The Audit Committee and Compensation Committee are currently
comprised of Jeffrey Leventhal and Fred Chanowski. The Audit Committee reviews
the results and scope of the audit and other services provided by the Company's
independent accountants. The Compensation Committee makes all compensation
decisions regarding the compensation of executive officers and administers the
1995 Stock Option Plan. The Audit Committee and the Compensation Committee did
not meet as separate committees during the fiscal year ended December 31, 1997,
as the full Board performed the functions of both committees during that year.
EXECUTIVE COMPENSATION
The following table sets forth actual compensation, for the fiscal years
ended June 30, 1995, and 1996, and the fiscal year ended December 31, 1997,
including salary, bonuses and certain other compensation, paid by the Company to
its Chief Executive Officer. None of the Company's other executive officers
received cash compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------------------- -------------------- ---------------
OTHER RESTRICTED
NAME AND ANNUAL STOCK LTIP ALL
COMPENSATION BONUS COMPENSATION AWARDS OPTIONS PAYOUTS OTHER
POSITION YEAR SALARY($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------ ------- ------------ ----------- ------------ ---------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lorrin G. Gale.......... 1997(2) 125,000 75,000(1)
Chairman, President
and 1996** 55,862 3,186(2)
Chief Executive
Officer* 1995** 1,885(3)
</TABLE>
- ---------------
(1) In January 1997, pursuant to an employment contract, the Company issued to
Mr. Gale incentive stock options to purchase up to 75,000 shares of Common
Stock. Options to purchase 15,000 shares of
4
<PAGE> 8
Common Stock vested upon the execution of the agreement and options to
purchase 30,000 shares of Common Stock vest on each of the first and second
anniversaries of the agreement.
(2) In July 1995, the Company issued 151,735 shares of restricted Common Stock
valued at $.021 per share to Mr. Gale in consideration for services
rendered.
(3) In June 1995, as part of a recapitalization, the Company issued to Mr. Gale
89,747 shares of restricted Common Stock valued at $.021 per share in lieu
of payment of accrued compensation of $454,843 for the period commencing
June 1992 through March 1995 and in lieu of repayment of $55,000 of loans
payable to Mr. Gale, as well as in exchange for all shares of preferred
stock and common stock then held by Mr. Gale.
* In March 1998, Mr. Gale left the Company as President and Chief Executive
Officer, and effective May 1, 1998, Mr. Gale resigned as Chairman of the
Board.
** Prior to 1997, the Company's fiscal year ended on June 30.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
NAME AND OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
POSITION GRANTED FISCAL YEAR ($/SH) DATE
(a) (b) (c) (d) (e)
-------- ------------ ---------------- ----------- ----------
<S> <C> <C> <C> <C>
Lorrin G. Gale........................... 75,000 34% $4.00 12/31/01
Chairman, President and
Chief Executive Officer*
</TABLE>
- ---------------
* In March 1998, Mr. Gale left the Company as President and Chief Executive
Officer, and effective May 1, 1998, Mr. Gale resigned as Chairman of the
Board.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF
SECURITIES UNEXERCISED IN-
UNDERLYING THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS AT
ACQUIRED AT FY-END FY-END
NAME AND ON VALUE EXERCISABLE/ EXERCISABLE/
POSITION EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
(a) (b) (c) (d) (e)
-------- --------- -------- ------------- ---------------
<S> <C> <C> <C> <C>
Lorrin G. Gale............................ N/A N/A 45,000/30,000 0/0
Chairman, President and Chief Executive
Officer*
</TABLE>
- ---------------
* In March 1998, Mr. Gale left the Company as President and Chief Executive
Officer, and effective May 1, 1998, Mr. Gale resigned as Chairman of the
Board.
EXECUTIVE EMPLOYMENT AGREEMENTS
Effective as of January 1, 1997, the Company entered into a two-year
employment agreement with Mr. Gale. Pursuant to that contract, Mr. Gale was paid
a base salary of $125,000 per annum and was granted incentive stock options to
purchase up to 75,000 shares of Common Stock. Options to purchase 15,000 shares
of Common Stock vested upon the execution of the agreement. Options to purchase
30,000 shares of Common Stock vested on the first anniversary of the agreement.
All such options have an exercise price of $4.00 per share. Pursuant to his
employment agreement, Mr. Gale agreed not to compete with the Company during the
term of his employment and for one year thereafter. Mr. Gale left the Company as
President and Chief Executive Officer in March 1998, and resigned as Chairman of
the Board on May 1, 1998.
Effective as of May 21, 1998, the Company entered into a three-year
employment agreement with Mr. Liebson. Pursuant to Mr. Liebson's employment
agreement, Mr. Liebson is being paid a minimum base salary
5
<PAGE> 9
of $150,000 per annum. In addition, Mr. Liebson received options to purchase up
to 70,000 shares of the Company's Common Stock, at an exercise price of $1.00,
which options vested in full upon issuance. Mr. Liebson also received options to
purchase up to 1,693,954 shares of the Company's Common Stock at an exercise
price of $1.00 per share. Options for 423,289 shares vest immediately and the
remainder vest in equal monthly installments of 35,296 shares over a 35 month
period commencing June 1, 1998 and in one final installment of 35,305 shares on
May 1, 2001. In addition, the options fully vest upon certain "organic events"
of the Company, such as a sale of all or substantially all of the Company's
assets or capital stock, or the merger or consolidation of the Company prior to
the completion of Mr. Liebson's employment. Further, each of the options
contains provisions that are triggered by equity financings (up to $6,000,000
maximum) during the first 12 months subsequent to the date of the Employment
Agreement. The effect of these provisions is (a) to reduce the option exercise
price for all of Mr. Liebson's options to the lowest price at which shares are
sold in such equity financings and (b) to provide Mr. Liebson additional
options, such that the total amount of option shares granted to him equals 8% of
the Company's issued and issuable Common Stock, on a fully diluted basis.
Pursuant to his employment agreement, Mr. Liebson is entitled to receive a
$1,000,000 bonus in the event that during his employment the Company engages in
a merger, a consolidation or another similar transaction, and, as a result, the
aggregate gross consideration paid to the Company and/or its stockholders is
equal to or greater than the valuation placed on the Company in the initial
equity financing that is completed by the Company after the date of the
employment agreement. The employment agreement further provides that in the
event Mr. Liebson's employment is terminated without cause, Mr. Liebson shall be
entitled to receive severance payments in an amount equal to his then current
base salary and any accrued bonuses through the remainder of the initial three
(3)-year term. Pursuant to the employment agreement, Mr. Liebson has agreed not
to compete with the Company, or to solicit or recruit any of the Company's
employees during the term of his employment and for one year thereafter.
DIRECTOR COMPENSATION
The Company's directors do not receive compensation for serving on the
Board of Directors, however, the Company reimburses directors for travel
expenses incurred to attend Board meetings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1995, the Company entered into a consulting agreement with Young
Management Group, Inc. ("Young Management"), a company founded by Stanley A.
Young, who subsequently became a director of the Company in September 1995. In
consideration for consulting services, the Company agreed to pay consulting fees
of $7,000 per month, plus out-of-pocket expenses, of which $3,000 per month was
deferred until completion of the Company's initial public offering, and sold
179,279 shares of Common Stock at a price of $.021 per share to Young
Management. Consulting fees expensed in connection with this agreement during
the fiscal year ended June 30, 1996 were approximately $85,000, of which $56,000
was accrued and unpaid at June 30, 1996. Consulting fees expensed in connection
with this agreement during the six months ended December 31, 1996 were $42,000,
and an aggregate of $67,250 was accrued and unpaid at December 31, 1996. In
August 1996, Young Management transferred all of its shares of Common Stock to
certain affiliates of Young Management, including the Stanley A. Young
Irrevocable Trust and the Stanley A. Young Family Limited Partnership.
In May 1996, the Stanley A. Young Irrevocable Trust was issued a promissory
note in the principal amount of $100,000 (which was subsequently repaid) and
warrants to purchase 23,904 shares of Common Stock with an exercise price of
$1.507 per share in connection with a private placement. In February 1997, the
Stanley A. Young Family Limited Partnership was issued, in a private placement,
promissory notes in the aggregate principal amount of $50,000 and warrants to
purchase 6,375 shares of Common Stock at an exercise price of $2.75 per share
and warrants to purchase 6,375 shares of Common Stock at an exercise price of
$4.125 per share. In November 1995, the Stanley A. Young Irrevocable Trust and
Mr. Young's wife each purchased 3,787 shares of Common Stock at a price of
$1.507 per share and were each issued a convertible promissory note in the
amount of $19,297.50 in a private placement. In November 1996, the Stanley A.
Young
6
<PAGE> 10
Irrevocable Trust converted the principal balance and accrued interest on its
note into 5,320 shares of Common Stock and Mr. Young's wife converted the
principal balance and accrued interest on her note into 5,320 shares of Common
Stock.
In May 1996, the Company issued to Fred L. Chanowski, a director of the
Company, in consideration for consulting services rendered, a warrant to
purchase up to 23,904 shares of Common Stock at an exercise price of $1.507 per
share. Also in May 1996, the Company issued to Mr. Chanowski, in consideration
for a $25,000 loan, a promissory note in the principal amount of $25,000 plus a
warrant to purchase up to 5,976 shares of Common Stock at $1.507 per share.
In October 1996, the Company issued to Mr. Chanowski 19,123 shares of
Common Stock in consideration for consulting services rendered. Mr. Chanowski
also purchased 23,904 shares of Common Stock for $50,000 in October 1996 in a
private placement. Mr. Chanowski paid the $50,000 purchase price by converting a
$25,000 promissory note issued to him in May 1996 and by investing an additional
$25,000 in cash. Mr. Chanowski is a 6.675% member in Alpha Ventures, which holds
77,540 shares of the Company's Common Stock and warrants to purchase 11,952
shares of Common Stock. In April 1997, the Company issued to Venture Management,
of which Mr. Chanowski is a 20% member, a promissory note in the principal
amount of $200,000 in consideration for a $200,000 loan. The promissory note
bears interest at 18% per annum with interest and principal payable at maturity
on May 31, 1998. In May 1997, the Company issued to Venture Management, a
promissory note in the principal amount of $200,000 in consideration for a
$200,000 loan. The promissory note bears interest at 18% per annum with interest
and principal payable at maturity on June 30, 1998. In October 1997, the Company
issued to Venture Management, in consideration of a $400,000 loan, a promissory
note in the principal amount of $400,000 plus a warrant to purchase up to
100,000 shares of Common Stock at $3.00 per share. The promissory note bears
interest at 9% per annum with interest and principal payable at maturity on the
earlier of (i) December 11, 1997; or (ii) the completion of a financing by the
Company. The Company subsequently repaid all three of the promissory notes
issued to Venture Management. In consideration for consulting services, the
Company issued Venture Management a warrant to purchase up to 400,000 shares of
Common Stock at $3.00 per share and agreed to pay consulting fees of $4,000 per
month, plus out-of-pocket expenses up to $1,000 per month.
In January 1998, Leventhal Paget, of which Jeffrey Leventhal is a member,
purchased 200,000 shares of Common Stock for $200,000 in a private placement of
the Company's Common Stock. Mr. Leventhal has been a director of the Company
since January 1998.
In May 1998, in connection with Mr. Liebson's employment as the Company's
Chairman of the Board, President and Chief Executive Officer, each member of the
Board of Directors entered into Indemnity Contracts with the Company, pursuant
to which the Company has agreed to indemnify the Directors against certain
claims, losses, suits and actions, so long as such Director has acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Company.
Pursuant to Mr. Liebson's employment agreement, the Company has established
an irrevocable Letter of Credit in the amount of $150,000 to secure the full and
punctual payment of (i) up to $75,000 of Mr. Liebson's base salary and (ii) up
to $75,000 of any relocation expenses incurred by Mr. Liebson in the event of a
termination of his employment as a result of certain bankruptcy or insolvency
events.
The Company has adopted a policy, by resolution of the Board of Directors,
whereby all transactions between the Company and its officers, directors,
principal stockholders or affiliates are to be approved by a committee of the
Board of Directors, a majority of the members of which shall be independent
directors, or, if required by law, a majority of disinterested directors, and
will be on terms no less favorable to the Company than could be obtained in
arm's length transactions from unaffiliated third parties.
The shares referenced above do not reflect the effects of the proposed 1
for 3 reverse stock split of the Company's issued and outstanding Common Stock.
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<PAGE> 11
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
BDO Seidman LLP, independent certified public accountants, have been
auditors of the Company since 1996. The Board of Directors of the Company has
recommended that the stockholders ratify the appointment of BDO Seidman LLP as
the Company's auditors for the fiscal year ending December 31, 1998. A
representative of BDO Seidman LLP is expected to be present at the Special
Meeting in lieu of the Annual Meeting with the opportunity to make a statement
if the representative desires to do so, and is expected to be available to
respond to appropriate questions.
The Board of Directors recommends a vote "FOR" the appointment of BDO
Seidman LLP as the Company's independent public accountants for the fiscal year
ending December 31, 1998. The affirmative vote of a majority of the shares
represented and voting at the Special Meeting in lieu of the Annual Meeting is
required for approval of this proposal.
PROPOSAL 3
AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
On May 21, 1998, the Board of Directors adopted a resolution to amend the
Company's Restated Certificate of Incorporation to increase the number of
authorized shares of Common Stock from 30,000,000 to 50,000,000. The Board
believes that it is prudent to have additional shares of Common Stock available
for general corporate purposes, including acquisitions, equity financings,
grants of stock options, payment of stock dividends, stock splits or other
recapitalizations, none of which is specifically planned or known at the present
time, but which will be able to be done expediently if such increase is approved
by the stockholders at this Meeting, as a stockholder vote is required to
increase the number of authorized shares of Common Stock and, given the time
normally needed to complete a proxy solicitation, such increase could not be
done expediently in the future. The Board will determine whether, when and on
what terms the issuance of shares of Common Stock may be warranted in connection
with any of the foregoing purposes. In addition, further authorization for the
issuance of the securities by a vote of stockholders will not be solicited prior
to such issuance, unless required by NASDAQ or a stock exchange on which the
Company's securities are then listed. These shares of Common Stock will not
carry preemptive rights.
The Board of Directors recommends a vote "FOR" the proposal to amend the
Restated Certificate of Incorporation of the Company to increase the number of
authorized shares of Common Stock from 30,000,000 to 50,000,000. The affirmative
vote of a majority of the votes cast in person or represented by proxy at the
Meeting is required to approve this proposal.
PROPOSAL 4
AMENDMENT TO THE COMPANY'S 1995 STOCK OPTION PLAN
GENERAL INFORMATION
The 1995 Stock Option Plan was adopted by the Company in July, 1995. Under
this plan, the Board of Directors, at their discretion, can issue either
incentive stock options or non-qualified options to employees and non-qualified
options to consultants, directors or other non-employees. The 1995 Stock Option
Plan is intended to encourage ownership of the stock of the Company by employees
of the Company, to induce qualified personnel to enter and remain in the employ
of the Company and to provide additional incentive for participants to promote
the success of the Company's business.
PROPOSED AMENDMENT OF THE 1995 STOCK OPTION PLAN
The Board of Directors has authorized, subject to stockholder ratification,
an increase in the number of shares available under the Company's 1995 Stock
Option Plan from 800,000 to 4,800,000. A copy of the 1995
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<PAGE> 12
Stock Option Plan is set forth on Appendix A hereto. The increase in the number
of shares reserved for option grants under the 1995 Stock Option Plan is
intended to provide a sufficient number of shares for future option grants to
current and future employees, consultants, directors, and other non-employees,
including approximately 1,700,000 options granted pursuant to the 1995 Stock
Option Plan to Laurence S. Liebson as part of the consideration for Mr. Liebson
entering into an employment agreement with the Company.
The Company believes granting such options is necessary to attract and
retain high quality employees, officers and consultants. For this reason, the
Board of Directors recommends a vote "FOR" the proposal to approve an amendment
to the Company's 1995 Stock Option Plan to increase the number of shares
authorized for issuance under the Plan from 800,000 to 4,800,000. The
affirmative vote of a majority of the votes cast in person or represented by
proxy at the Meeting is required to approve this proposal.
TERMS AND PROVISIONS OF OPTIONS
Incentive stock options may not be granted at a price less than the fair
market value of the shares at the grant date (or less than 110% of fair market
value in the case of employees or officers holding 10% or more of the voting
stock) while the non-qualified options may be granted at a price determined by
the Board of Directors except that the Company has agreed not to grant any
non-qualified options at a price lower than 85% of the fair market value of the
shares at the date of the grant. All grants as of December 31, 1997 were at fair
market value or greater. These options generally vest 10% after 30 days from the
date of grant and the balance ratably over a period of four years. Incentive
stock options granted under the plan expire not more than 10 years from the date
of grant and not more than 5 years in the case of incentive stock options
granted to an employee or officer holding 10% or more of the voting stock of the
Company. All options not exercised at the end of the vesting period
automatically expire.
The last sales price of the Company's Common Stock on the NASDAQ SmallCap
Market on June 9, 1998 was $.75.
TAX EFFECTS OF PARTICIPATION IN THE 1995 STOCK OPTION PLAN
The 1995 Stock Option Plan permits the grant of either non-qualified stock
options or incentive stock options which are intended to satisfy the
requirements of Section 422 of the Internal Revenue Code.
Incentive Stock Options
Except as provided below with respect to the alternative minimum tax, the
optionee will not recognize taxable income upon the grant or exercise of an
incentive stock option. If the optionee holds the shares received pursuant to
the exercise of the option for at least one year after the date of exercise and
for at least two years after the date the option is granted, the optionee will
recognize long-term capital gain or loss upon the disposition of the stock
measured by the difference between the option exercise price (the stock's basis)
and the amount received for such shares upon disposition.
In the event that the optionee disposes of the stock prior to the
expiration of the required holding periods (a "disqualifying disposition"), the
optionee generally will realize ordinary income equal to the difference between
the exercise price and the lower of the fair market value of the stock at the
date of the option exercise or the sale price of the stock. The basis in the
stock acquired upon exercise of the option will equal the amount of income
recognized by the optionee plus the option exercise price. Upon eventual
disposition of the stock, the optionee will recognize long-term or short-term
capital gain or loss, depending on the holding period of the stock and the
difference between the amount realized by the optionee upon disposition of the
stock and the optionee's basis in the stock.
For alternative minimum tax purposes, the excess of the fair market value
of stock on the date of the exercise of the incentive stock option over the
exercise price of the option is included in alternative minimum taxable income.
If the alternative minimum tax applies to the optionee, an alternative minimum
tax credit may reduce the regular tax upon eventual disposition of the stock.
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<PAGE> 13
The Company will not be allowed an income tax deduction upon the grant or
exercise of an incentive stock option. Upon a disqualifying disposition by the
optionee of shares acquired upon exercise of the incentive stock option, the
Company will be allowed a deduction in an amount equal to the ordinary income
recognized by the optionee.
Under proposed regulations issued by the Internal Revenue Service, the
exercise of an option with previously acquired stock of the Company will be
treated as, in effect, two separate transactions. Pursuant to Section 1036 of
the Code, the first transaction will be a tax-free exchange of the previously
acquired shares for the same number of new shares. The new shares will retain
the basis and, except as provided below, the holding periods of the previously
acquired shares. The second transaction will be the issuance of additional new
shares having a value equal to the difference between the aggregate fair market
value of all the new shares being acquired and the aggregate option exercise
price for those shares. Because the exercise of an incentive stock option does
not result in the recognition by the optionee of income, this issuance also will
be tax-free (unless the alternative minimum tax applies, as described above).
The optionee's basis in these additional shares will be zero and the optionee's
holding period for these shares will commence on the date on which the shares
are transferred. For purposes of the one and two-year holding period
requirements which must be met for favorable incentive stock option tax
treatment to apply, the holding periods of previously acquired shares are
disregarded.
Non-qualified Stock Options
As in the case of incentive stock options, no income is recognized by the
optionee on the grant of a non-qualified stock option. On the exercise by an
optionee of a non-qualified option, generally the excess of the fair market
value of the stock when the option is exercised over its cost to the optionee
will be (a) taxable to the optionee as ordinary income and (b) generally
deductible for income tax purposes by the Company.
The Internal Revenue Service will treat the exercise of a non-qualified
stock option with already owned stock of the Company as two transactions. First,
there will be a tax-free exchange of the old shares for a like number of shares
under Section 1036 of the Code, with such exchanged shares retaining the basis
and holding periods of the old shares. Second, there will be an issuance of
additional new shares having a value equal to the difference between the fair
market value of all the new shares being acquired (including the exchanged
shares and the additional new shares) and the aggregate option price for those
shares. The employee will recognize ordinary income under Section 83 of the
Code, in an amount equal to the fair market value of the additional new shares
(i.e., the spread on the option). The additional new shares will have a basis
equal to the fair market value of the additional new shares.
The optionee's tax basis in his stock will equal his cost for the stock
plus the amount of ordinary income the optionee had to recognize with respect to
the non-qualified stock option. Accordingly, upon a subsequent disposition of
stock acquired upon the exercise of a non-qualified stock option, the optionee
will recognize short-term or long-term capital gain or loss, depending upon the
holding period of the stock equal to the difference between the amount realized
upon disposition of the stock by the optionee and the optionee's basis in the
stock.
For all options, different tax rules may apply if the optionee is subject
to Section 16 of the Securities Exchange Act of 1934.
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<PAGE> 14
OPTION GRANTS UNDER THE 1995 STOCK OPTION PLAN
The following table provides information with respect to stock options
received or to be received under the 1995 Stock Option Plan, subject to
shareholder approval of an increase in the number of shares authorized for
issuance under the Plan.
<TABLE>
<CAPTION>
NAME AND POSITION OPTIONS (SHARES)
----------------- ----------------
<S> <C>
Laurence S. Liebson......................................... 1,763,954
Chairman of the Board,
President and Chief Executive Officer
Duane A. Mayo............................................... 129,850
Chief Financial Officer
Lawrence D. Beaupre......................................... 78,300
Vice President of Operations
Executive Group............................................. 1,972,104
Non-Executive Director Group................................ -0-
Non-Executive Officer Employee Group........................ 519,020
</TABLE>
PROPOSAL 5
PROPOSAL TO APPROVE THE ISSUANCE BY THE COMPANY OF UP TO 10,000,000 SHARES OF
COMMON STOCK REPRESENTING MORE THAN 20% OF THE CURRENTLY
OUTSTANDING VOTING POWER OF THE COMPANY
Pursuant to the qualification requirements of The Nasdaq Stock Market, Inc.
("NASDAQ"), shareholder approval is required for the issuance of shares of
common stock representing 20% or more of the voting power of the Company's
securities outstanding before such issuance. By obtaining the approval of the
stockholders, the Board of Directors may issue up to 10,000,000 shares of Common
Stock, $.01 par value, in connection with a private placement to be undertaken
by the Company without violating the corporate governance requirements of
NASDAQ.
The Common Stock to be issued will carry the same rights as shares of
Common Stock currently outstanding. The holders of shares of Common Stock are
entitled to one vote for each share held of record on all matters to be voted on
by stockholders. There is no cumulative voting with respect to the election of
directors, with the result that the holders of more than 50% of the shares voted
can elect all of the directors then being elected. The holders of Common Stock
are entitled to receive dividends when, as and if declared by the Board of
Directors out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining available for distribution to
them after payment of liabilities and after provision has been made for each
class of stock, if any, having preference over the Common Stock. Holders of
shares of Common Stock, as such, have no redemption, preemptive or other
subscription rights, and there are no conversion provisions applicable to the
Common Stock. The proposed issuance of new shares of Common Stock will have no
effect on the rights of existing security holders.
The Company will use the funds to support the ongoing development of new
storage area networking products, to expand its sales and marketing channels and
to support working capital requirements. The Company will not solicit further
authorization for the issuance of the securities by a vote of security holders
prior to the issuance.
The Board of Directors recommends a vote "FOR" the proposal to approve the
issuance of up to 10,000,000 shares of Common Stock representing more than 20%
of the currently outstanding voting power of the Company. The affirmative vote
of a majority of the votes cast in person or represented by proxy at the Meeting
is required to approve this proposal.
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<PAGE> 15
PROPOSAL 6
AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION TO ADOPT A
1 FOR 3 REVERSE STOCK SPLIT OF THE COMPANY'S ISSUED AND
OUTSTANDING COMMON STOCK
To comply with the NASDAQ SmallCap Market listing requirements, the minimum
bid price per share of the Company's Common Stock must be $1.00. To ensure
continued compliance with this listing requirement, the Board of Directors
recommends that the Company adopt a 1 for 3 reverse stock split of the Company's
issued and outstanding shares of Common Stock (the "Reverse Stock Split"). If
approved, the Reverse Stock Split would be effective upon the initial closing of
a private placement to be undertaken by the Company.
If the Reverse Stock Split is effected, the number of shares of Common
Stock under the Company's 1995 Stock Option Plan and any outstanding warrants to
purchase Common Stock will also be adjusted accordingly. Similarly, if the
amendment of the Company's 1995 Stock Option Plan to increase the number of
shares authorized for issuance under the Plan to 4,800,000, contained in
Proposal 4 hereof, is effected, the 4,800,000 shares will be adjusted to
1,600,000 shares. In addition, if the issuance by the Company of up to
10,000,000 shares of Common Stock, contained in Proposal 5 hereof, is effected,
the 10,000,000 shares will be adjusted to 3,333,333 shares upon the
effectiveness of the Reverse Stock Split.
If the proposed amendment is adopted by the stockholders, it will become
effective upon the initial closing of a private placement of the Company's
Common Stock, to be undertaken by the Company, and upon filing and recording a
Certificate of Amendment as required by the General Corporation Law of Delaware.
The Board of Directors recommends a vote "FOR" the proposal to amend the
Restated Certificate of Incorporation to adopt a 1 for 3 reverse stock split of
the Company's issued and outstanding Common Stock. The affirmative vote of a
majority of the votes cast in person or represented by proxy at the Meeting is
required to approve this proposal.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors, executive officers and persons who are beneficial owners of more than
ten percent of the Company's Common Stock to file with the Securities and
Exchange Commission (the "Commission") reports of their ownership of the
Company's securities and of changes in that ownership. To the Company's
knowledge, based on a review of copies of reports filed with the Commission and
written representations by certain reporting persons that no reports on Form 5
were required from those persons, all reports that were required to be filed
under Section 16(a) were timely filed.
STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
In order to be considered for inclusion in the Proxy Statement for the
Company's 1999 Annual Meeting of Stockholders, stockholder proposals must be
received by the Company no later than February 1, 1999. Proposals should be sent
to the attention of the Secretary at the Company's principal offices at 2
Robbins Road, Westford, Massachusetts 01886.
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<PAGE> 16
OTHER MATTERS
The Special Meeting in lieu of the 1998 Annual Meeting of Stockholders is
called for the purposes set forth in the notice. The Board of Directors does not
know of any matter for action by the stockholders at the Meeting other than the
matters described in the notice. However, the enclosed proxy confers
discretionary authority on the persons named therein with respect to matters
which are not known to the Directors at the date of printing hereof and which
may properly come before the Meeting. The intention of the persons named in the
proxy is to vote in accordance with their best judgment on any such matter.
By order of the Board of Directors
DUANE A. MAYO
Secretary
Westford, Massachusetts
June 17, 1998
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<PAGE> 17
APPENDIX A
AUGMENT SYSTEMS INCORPORATED
1995 STOCK OPTION PLAN
1. Purpose of Plan.
The purpose of this 1995 Stock Option Plan (the "Plan") is to promote the
interests of Augment Systems Incorporated, a Delaware corporation (the
"Company", including for the purposes of this paragraph any affiliated
companies), by providing a method whereby employees of the Company, and others
providing material assistance to the Company may be given compensation or
additional compensation for their efforts on behalf of or assistance to the
Company, and to aid the Company in attracting and retaining capable personnel.
2. Scope and Duration of the Plan.
Options granted under this Plan may contain such terms as will qualify the
options as incentive stock options ("ISO's") within the meaning of section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), or in the form of
non-statutory stock options ("NSO's"). Unless otherwise indicated, references in
this Plan to "options" include ISO's and NSO's. Subject to adjustment as
provided in Section 11 hereof, the maximum number and kind of shares of the
Company's capital stock with respect to which options may be granted under this
Plan shall be 800,000 shares of Common Stock, $.01 par value per share ("Common
Stock"). Until termination of this Plan, the Company shall at all times reserve
a sufficient number of shares to meet the requirements of the Plan. Such shares
may be authorized and unissued shares or shares held in the Company's treasury.
There shall become available for subsequent grants under this Plan any
shares of Common Stock underlying an option which cease for any reason to be
subject to purchase under such option. No ISO shall be granted under this Plan
more than 10 years after its adoption by the Board of Directors.
3. Administration of Plan.
The Plan shall be administered by the Board of Directors or by a
Compensation Committee or any successor thereto appointed by the Board of
Directors of the Company (the "Committee"). The Committee shall be qualified as
required by Rule 16b-3, as amended, and other applicable rules under Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
at such time as the provisions thereof may be applicable to the Company. The
Committee shall be comprised of two or more members of the Board of Directors
(or the entire Board acting as the Committee). The Committee shall have full
power and authority to: (i) designate the employees and other persons to whom
options shall be granted; (ii) designate options or any portion thereof as
ISO's; (iii) determine the number of shares of Common Stock for which options
may be granted and the option price or prices; (iv) determine the other terms
and provisions of option agreements (which need not be identical) including, but
not limited to, provisions concerning the time or times when and the extent to
which the options may be exercised and the nature and duration of restrictions
as to transferability or constituting substantial risks of forfeiture, provided
that with respect to ISO's such time or times shall not occur before approval of
this Plan by the stockholders of the Company in the manner provided under
Section 15 below; (v) amend or modify any option, with the consent of the holder
thereof; (vi) accelerate the right of an optionee to exercise in whole or in
part any previously granted option; and (vii) interpret the provisions and
supervise the administration of this Plan.
Options may be granted singly or in combination. The Committee shall have
the authority to grant in its discretion to the holder of an outstanding option
in exchange for the surrender and cancellation of such option, a new option in
the same or a different form and containing such terms as the Committee may deem
appropriate, including without limitation a price which is different (either
higher or lower) than any price provided in the option so surrendered and
canceled.
In connection with the grant of an NSO, the Committee may in its
discretion, concurrently or after grant of the NSO, grant or agree to grant a
tax offset bonus to the optionee to offset in whole or in part the tax liability
of the optionee realized upon exercise of the NSO, provided that any such grant
or agreement to grant a tax offset bonus shall be authorized only if the
Committee anticipates in good faith that the Company would
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<PAGE> 18
receive a net after-tax economic benefit from the grant of such bonus and NSO
instead of the grant of an ISO of similar tenor.
All decisions and selections made by the Committee pursuant to the
provisions of this Plan shall be made by a majority of its members except that
any decision with respect to the grant of an option to a member of the Committee
shall be made by a majority of the other members of the Committee who are not
the holders of options issued pursuant to this Plan, and if there be no such
members, pursuant to vote of a majority of the members of the Board of Directors
who are not the holders of options issued pursuant to this Plan. Any decision
reduced to writing and signed by all of the members of the Committee who are
authorized to make such decision shall be as fully effective as if it had been
made by a majority at a duly held meeting of the Committee.
The Committee may employ attorneys, consultants, accountants or other
persons, and the Committee, the Company and its officers and directors shall be
entitled to rely upon the advice, opinions or valuations of such persons. All
actions taken and all interpretations and determinations made by the Committee
in good faith shall be final and binding upon the Company, all persons who
receive grants of options, and all other interested persons. No member or agent
of the Committee shall be personally liable for any action, determination, or
interpretation made in good faith with respect to this Plan or grants hereunder.
Each member of the Committee shall be indemnified and held harmless by the
Company against any cost or expense (including counsel fees) reasonably incurred
by him or liability (including any sum paid in settlement of a claim with the
approval of the Company) arising out of any act or omission to act in connection
with this Plan unless arising out of such member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
members of the Committee may have as directors or otherwise under the by-laws of
the Company, or any agreement, vote of stockholders or disinterested directors,
or otherwise.
4. Designation of Participants.
Options may be granted only to employees, including officers who are
employees, of the Company or any parent or subsidiary of the Company, and other
individuals, including consultants and non-employee Directors, who are
determined by the Committee to contribute, or have the potential to contribute,
materially to the success of the Company or any parent or subsidiary, provided
that ISO's shall be granted only to persons who are employees of the Company or
any parent or subsidiary of the Company.
5. Option Price.
(a) The purchase price of each share of Common Stock subject to an option
or any portion thereof which has been designated as an ISO shall not be less
than 100% (or 110%, if at the time of grant the optionee owns more than 10% of
the total combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation) of the fair market value of such share on the
date the option is granted, determined without regard to any restriction other
than a restriction which, by its terms, will never lapse. The purchase price of
each share of Common Stock subject to an NSO shall be such price as the
Committee shall determine in its sole discretion.
(b) The fair market value of a share of Common Stock on a particular date
shall be the mean between the highest and lowest quoted selling prices on such
date (the "valuation date") on the securities market where the Common Stock of
the Company is traded, or if there were no sales on the valuation date, on the
next preceding date within a reasonable period (as determined in the sole
discretion of the Committee) on which there were sales. In the event that there
were no sales in such a market within a reasonable period, the fair market value
shall be as determined in good faith by the Board of Directors in its sole
discretion.
6. Term and Exercise of Options.
(a) The term of each ISO granted under this Plan shall be not more than ten
years from the date of grant, or five years from the date of grant if at the
time of grant the optionee owns more than 10% of the total combined voting power
of all classes of stock of the Company or any parent or subsidiary corporation.
The
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<PAGE> 19
term of each NSO granted under this Plan shall be such period of time as the
Committee shall determine in its sole discretion.
(b) An option shall be exercisable at such time or times as shall be
determined by the Committee. An option may be exercised only by written notice
of intent to exercise such option with respect to a specified number of shares
of Common Stock and payment to the Company of the amount of the option price for
the number of shares of Common Stock as to which such notice applies. Payment
for such shares shall be paid at the time of purchase (i) in cash, (ii) with
shares of Common Stock to be valued at the fair market value thereof on the date
of such exercise, determined as provided in Section 5(b), (iii) by written
notice to the Company to withhold from those shares of Common Stock that would
otherwise be obtained on the exercise of such option, the number of shares
having a fair market value on the date of exercise equal to the option exercise
price, (iv) by any other means, including the promissory note of the holder of
the option, which the Committee determines to be consistent with the purpose of
this Plan and applicable law, or (v) a combination of the foregoing. Upon
receipt of payment, the Company shall deliver to the person exercising such
option a certificate or certificates for such shares. It shall be a condition of
the Company's obligation to issue Common Stock upon exercise of an option that
the person exercising the option pay, or make provision satisfactory to the
Company for the payment of, any taxes which the Company is obligated to collect
with respect to the issue of Common Stock upon such exercise. Anything in this
paragraph to the contrary notwithstanding, an option granted to an optionee who
is subject to Section 16(b) of the Exchange Act shall provide that a period of
at least six months must elapse between the date of grant of the option and the
date of disposition of shares acquired upon exercise of the option.
The Committee, subject to Board of Director approval, may establish a
program through which optionees can borrow funds with which to purchase Common
Stock pursuant to exercise of an option.
(c) The proceeds of the sale of Common Stock subject to options are to be
added to the general funds of the Company and used for its general corporate
purposes.
7. Incentive Stock Options.
(a) To the extent required under Section 422 of the Code for ISO treatment,
the aggregate fair market value (determined as of the time of grant) of stock
with respect to which ISO's are exercisable for the first time by an optionee
during any calendar year (under this Plan and under all other plans of the
Company and any parent and subsidiary corporations) shall not exceed $100,000.
(b) In the event of amendments to the Code or applicable rules and
regulations thereunder relating to incentive stock options subsequent to the
date hereof, the Company may amend the provisions of this Plan, and the Company
and the employees holding options may agree to amend outstanding option
agreements, to reflect such amendments.
8. Transfer of Options.
An option or portion thereof designated as an ISO shall not be transferable
by an optionee otherwise than by will or the laws of descent and distribution,
and shall be exercisable during his lifetime only by him. An NSO shall not be
transferable by an optionee otherwise than by will or the laws of descent and
distribution, except that an optionee who is not subject to Section 16(b) of the
Exchange Act may transfer, assign or otherwise dispose of an option (i) to his
spouse, parents, siblings and lineal descendants, (ii) to a trust for the
benefit of the optionee and any of the foregoing, or (iii) to any corporation or
partnership controlled by the optionee, or (iv) pursuant to a "qualified
domestic relations order" as defined in the Code, provided that no such
disposition shall affect any conditions for vesting of rights granted pursuant
to such option.
9. Termination of Employment.
(a) If the employment of an optionee terminates for any reason other than
for cause, or his death, disability (as may be determined by the Committee under
Section 9(c) below), retirement at age 65 or over, or retirement at less than
age 65 with the consent of the Company or any parent or subsidiary company by
16
<PAGE> 20
which he was employed, he may for a period of three months after the date of
termination of his employment (unless a longer period is allowed by the
Committee) exercise options held by him to the extent he was entitled to
exercise such options on the date when his employment terminated. In no event,
however, may such optionee exercise an option at a time when the option would
not be exercisable had the optionee remained an employee. For purposes of this
Section 10, an optionee's employment will not be considered terminated (i) if
the Committee in the exercise of its discretion shall so determine in the case
of sick leave or other bona fide leave of absence approved by the Company or any
parent or subsidiary company or (ii) in the case of a transfer by such optionee
to the employment of an affiliated company of the employing company.
(b) If an optionee dies at a time when he is entitled to exercise an
option, then at any time or times within one year after his death, such option
may be exercised, as to all or any of the shares which the optionee was entitled
to purchase immediately prior to his death, by his executor or administrator or
the person or persons to whom the option is transferred by will or the
applicable laws of descent and distribution. In no event, however, may any
option be exercised after the expiration of such option by its terms, except as
the Committee may otherwise allow for a period up to one year after such
optionee's death.
(c) If an optionee retires from the service of the Company or any parent or
subsidiary company by which he was employed at age 65 or older or retires at
less than age 65 with the consent of the Company or such parent or subsidiary,
or becomes disabled at a time when he is entitled to exercise an option, then
(i) with respect to each NSO, at any time or times within three years of the
date of such retirement or disability, and (ii) with respect to each ISO, at any
time or times within three months after the date of such retirement or within
one year after the date of such disability, he may exercise such option as to
all or any of the shares which he was entitled to purchase under such option
immediately prior to his retirement or disability. In no event, however, may any
option be exercised after the expiration of such option by its terms. The
Committee shall have authority to determine whether or not an optionee has
retired from the service of the Company or any parent or subsidiary company by
which he was employed with the consent of the Company or such parent or
subsidiary, and whether or not an optionee has become disabled (as such term may
be used in the Code); and its determination shall be binding on all concerned.
(d) If termination of employment of an optionee shall be for cause or in
violation of an agreement by the optionee to remain in the employ of the Company
or any parent or subsidiary company, the options held by such optionee shall
terminate forthwith. If an optionee shall breach in a material respect an
agreement to refrain from competition with the Company or any parent or
subsidiary company, or to refrain from solicitation of the Company's customers,
suppliers or employees of the Company or any parent or subsidiary company, the
options, and any shares of Common Stock issued pursuant to the exercise of
options, held by such optionee shall at the option of the Company be forfeited
by the optionee and deemed not to be outstanding.
10. Rights of Stockholders.
The holders of options shall not be or have any of the rights or privileges
of stockholders of the Company in respect of any shares of Common Stock
purchasable upon the exercise of any option until such option shall have been
validly exercised.
11. Adjustments.
Notwithstanding any other provision of this Plan, the Committee may at any
time make or provide for such adjustments to this Plan, to the number and class
of shares available hereunder or to any outstanding options, as it shall deem
appropriate to prevent dilution or enlargement of rights, including adjustments
in the event of distributions to holders of Common Stock of other than a normal
cash dividend, changes in the outstanding Common Stock by reason of stock
dividends, split-ups, recapitalizations, mergers, consolidations, combinations
or exchanges of shares, separations, reorganizations, liquidations and the like.
In the event of any general offer to holders of Common Stock relating to the
acquisition of their shares, the Committee may make such adjustment as it deems
equitable in respect of outstanding options, including in the Committee's
17
<PAGE> 21
discretion revision of outstanding options, so that they may be exercisable for
the consideration payable in the acquisition transaction. Any such determination
by the Committee shall be conclusive.
12. Amendments or Termination.
The Company's Board of Directors may amend, alter, or discontinue this
Plan, except that no amendment or alteration requiring stockholder approval
pursuant to the Code's provisions with respect to ISO's or applicable provisions
of the Exchange Act shall be made without the approval of the Company's
stockholders.
13. Foreign Nationals.
The Committee may in order to fulfill the purposes of this Plan modify
grants to participants who are foreign nationals or employed outside the United
States to accommodate differences in applicable law, tax policy, or custom.
14. Governing Law.
This Plan shall be governed by and construed and enforced in accordance
with the laws of the State of Delaware to the extent that such laws, as
applicable to the Plan, are not superseded by or inconsistent with Federal law.
15. Effective Date.
This Plan is effective as of July 15, 1995, the date of its adoption by the
Company's Board of Directors and Shareholders.
18
<PAGE> 22
PROXY CARD
AUGMENT SYSTEMS, INC.
SPECIAL MEETING IN LIEU OF THE 1998 ANNUAL MEETING OF STOCKHOLDERS
JUNE 29, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned does hereby constitute and appoint Laurence Liebson and Duane
Mayo, or either of them, the attorney(s) of the undersigned, with full power of
substitution, with all the powers which the undersigned would possess if
personally present, to vote all stock of Augment Systems, Inc. (the "Company")
which the undersigned is entitled to vote at the Company's Special Meeting in
lieu of the 1998 Annual Meeting of Stockholders to be held at the offices of the
Company, 2 Robbins Road, Westford, Massachusetts 01886 on June 29, 1998 at 10:00
A.M. local time and at any adjournment thereof, hereby acknowledging receipt of
the Proxy Statement for such meeting and revoking all previous proxies.
This Proxy, when properly executed, will be voted as directed. If no
direction is made, this Proxy will be voted FOR the election as Director for the
nominees named on the reverse side, FOR the appointment of BDO Seidman LLP as
the Company's independent public accountants for the fiscal year ending December
31, 1998, FOR the proposal to amend the Restated Certificate of Incorporation of
the Company to increase the number of authorized shares of Common Stock, FOR the
proposal to amend the Company's 1995 Stock Option Plan, FOR the proposal to
approve the issuance of Common Stock representing more than 20% of the currently
outstanding voting power of the Company FOR the proposal to amend the Restated
Certificate of Incorporation of the Company to adopt a 1 for 3 reverse stock
split of the Company's issued and outstanding Common Stock, and, in the case of
other matters that legally come before the meeting, as said attorney(s) may deem
advisable.
<TABLE>
<S> <C> <C>
1. Election of Directors
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
nominees listed below
<CAPTION>
<S> <C>
1.
[ ]*EXCEPTIONS
Nominees: Laurence S. Liebson Duane A. Mayo Fred L. Chanowski
<CAPTION>
<S> <C>
Nominees: Jeffrey Leventhal
</TABLE>
*(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND STRIKE A LINE THROUGH THAT NOMINEE'S
NAME.)
2. Proposal to ratify the appointment of BDO Seidman LLP as independent public
accountants.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
(Continued and to be signed on reverse side)
<PAGE> 23
3. Proposal to amend the Restated Certificate of Incorporation of the Company to
increase the number of authorized shares of Common Stock from 30,000,000 to
50,000,000.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
4. Proposal to approve an amendment of the Company's 1995 Stock Option Plan to
increase the number of shares reserved for issuance under the Plan to
4,800,000.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
5. Proposal to approve, in compliance with the corporate governance requirements
of NASDAQ, the issuance of up to 10,000,000 shares of Common Stock
representing more than 20% of the outstanding voting power of the Company.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
6. Proposal to amend the Restated Certificate of Incorporation of the Company to
adopt a 1 for 3 reverse stock split of the Company's issued and outstanding
Common Stock.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
Address Change Mark Here [ ]
Mark here if you plan to attend
the meeting [ ]
Please sign name exactly as name
appears on ownership record.
When signing in a fiduciary
capacity, please give full
title. Confiduciaries and joint
owners should each sign.
--------------------------------
Signature
--------------------------------
Date
--------------------------------
Signature
--------------------------------
Date
PLEASE VOTE, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
PLEASE MARK VOTES AS IN THIS EXAMPLE IN BLACK OR BLUE INK. [X]
