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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934, as amended.
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 Rule 14a-11(c) or Rule 14a-12
FAXSAV INCORPORATED
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(Name of Registrant as Specified In Its Charter)
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(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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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FAXSAV INCORPORATED
399 Thornall Street
Edison, New Jersey 08837
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 4, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of FaxSav
Incorporated, a Delaware corporation (the "Company"), will be held on Friday
June 4, 1999, at the Sheraton Woodbridge Place Hotel, 515 Route One South,
Iselin, New Jersey 08830 (732) 634-3600 at 10:00 a.m. (Eastern Daylight Time)
for the following purposes, as more fully described in the Proxy Statement
accompanying this Notice:
1. To elect one (1) director to serve for a three-year term ending in the
year 2002 or until his successor is duly elected and qualified;
2. To approve an amendment to the Company's 1996 Stock Option/Stock
Issuance Plan (the "1996 Plan"), to increase the number of shares of
Common Stock authorized for issuance over the term of the 1996 Plan by an
additional 500,000 shares;
3. To ratify the appointment of PricewaterhouseCoopers LLP (formerly
Coopers & Lybrand L.L.P.), independent public accountants, as auditors of
the Company for the fiscal year ending December 31, 1999; and
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on April 12, 1999, are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books of the Company will remain open between the record date and the date of
the meeting. A list of stockholders entitled to vote at the Annual Meeting will
be available for inspection at the executive offices of the Company.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed proxy as
promptly as possible in the envelope enclosed for your convenience. Should you
receive more than one proxy because your shares are registered in different
names and addresses, each proxy should be signed and returned to assure that all
your shares will be voted. You may revoke your proxy at any time prior to the
Annual Meeting. If you attend the Annual Meeting and vote by ballot, your proxy
will be revoked automatically and only your vote at the Annual Meeting will be
counted.
By Order of the Board of Directors
/s/ Thomas F. Murawski
Thomas F. Murawski
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS
April 29, 1999
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IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD
BE COMPLETED AND RETURNED PROMPTLY
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FAXSAV INCORPORATED
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 1999
GENERAL
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of FaxSav Incorporated, a Delaware corporation (the "Company"), for
use at the Annual Meeting of Stockholders to be held on June 4, 1999 (the
"Annual Meeting"). The Annual Meeting will be held at 10:00 a.m. at the Sheraton
Woodbridge Place Hotel, 515 Route One South, Iselin, New Jersey 08830 (732)
634-3600. These proxy solicitation materials were mailed on or about April 29,
1999, to all stockholders entitled to vote at the Annual Meeting.
VOTING
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice and are described in more detail in
this Proxy Statement. On April 12, 1999, the record date for determination of
stockholders entitled to notice of and to vote at the Annual Meeting, 14,062,892
shares of the Company's common stock, par value $0.01 ("Common Stock"), were
issued and outstanding. No shares of the Company's preferred stock, par value
$0.01, were outstanding. Each stockholder is entitled to one vote for each share
of Common Stock held by such stockholder on April 12, 1999. Stockholders may not
cumulate votes in the election of directors.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
as present for purposes of determining the presence or absence of a quorum for
the transaction of business. Abstentions will be counted towards the tabulations
of votes cast on proposals presented to the stockholders and will have the same
effect as negative votes, whereas broker non-votes will not be counted for
purposes of determining whether a proposal has been approved.
PROXIES
If the enclosed form of proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the proxy does not specify how the shares
represented thereby are to be voted, the proxy will be voted FOR the election of
the director proposed by the Board unless the authority to vote for the election
of such director is withheld and, if no contrary instructions are given, the
proxy will be voted FOR the approval of Proposals 2 and 3 described in the
accompanying Notice and Proxy Statement. You may revoke or change your Proxy at
any time before the Annual Meeting by filing with the Chief Financial Officer of
the Company at the Company's principal executive offices at 399 Thornall Street,
Edison, New Jersey 08837, a notice of revocation or another signed Proxy with a
later date. You may also revoke your Proxy by attending the Annual Meeting and
voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to the stockholders. Copies
of solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by a solicitation by
telephone, telegram or other means by directors, officers or employees of the
Company. No additional compensation will be paid to these individuals for any
such services. Except as described above, the Company does not presently intend
to solicit proxies other than by mail.
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DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 2000 Annual Meeting must be received no
later than December 31, 1999, in order that they may be included in the proxy
statement and form of proxy relating to that meeting. In addition, the proxy
solicited by the Board of Directors for the 1999 Annual Meeting will confer
discretionary authority to vote on any stockholder proposal presented at that
meeting, unless the Company receives notice of such proposal not later than
March 15, 2000.
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE
ELECTION OF DIRECTOR
GENERAL
The Company's Certificate of Incorporation provides for a classified Board
of Directors consisting of three classes of directors with staggered three-year
terms, with each class consisting, as nearly as possible, of one-third of the
total number of directors. The Board currently consists of five (5) persons. The
class whose term of office expires at the Annual Meeting currently consists of
two directors, but is being reduced by the Board to one director. The director
elected to this class will serve for a term of three years, expiring at the 2002
annual meeting of stockholders or until his successor has been duly elected and
qualified. The nominee listed below is currently a director of the Company. If
this proposal is approved, the Board will consist of four persons, with two
classes consisting of one director each and one class consisting of two
directors.
The nominee for election has agreed to serve if elected, and management has
no reason to believe that such nominee will be unavailable to serve. In the
event the nominee is unable or declines to serve as a director at the time of
the Annual Meeting, the proxies will be voted for any nominee who may be
designated by the present Board of Directors to fill the vacancy. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
FOR the nominee named below.
NOMINEE FOR TERM ENDING UPON THE 2002 ANNUAL MEETING OF STOCKHOLDERS
THOMAS F. MURAWSKI, joined FaxSav in November 1991, after serving as
Executive Vice President of Western Union Corporation, a global
telecommunications and financial services company ("Western Union"), where he
was President of its Network Services Group. Prior to joining Western Union, Mr.
Murawski served twenty-three years with ITT Corporation, a diversified
manufacturing and services company ("ITT"). He has held operating
responsibilities in the areas of subsidiary and product line management,
engineering, sales and marketing for both voice and data-oriented businesses.
Mr. Murawski's last position with ITT was President and General Manager of ITT
World Communications Inc., an international telecommunications services company.
CONTINUING DIRECTOR FOR TERM ENDING UPON THE 2000 ANNUAL MEETING OF STOCKHOLDERS
RICHARD MILLER, has been a director of the Company since February 1, 1999.
Mr. Miller is currently the Chief Executive Officer of Telematica, Inc., a
consulting firm specializing in commercial and technical strategies for the data
communications and networked applications industry that he founded in 1981 and
re-established in March 1994. From 1991 until March 1994, Mr. Miller served as
Executive Vice President at General Magic, Inc., a provider of CITI
(computer-Internet-telephony integration) solutions for the mobile user
community. Prior to joining General Magic, Inc., Mr. Miller served as Chief
Executive Officer of Rapport Communication, Inc., a consulting firm specializing
in technology strategies in the areas of e-mail, groupware, directory services
and electronic commerce.
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CONTINUING DIRECTORS FOR TERM ENDING UPON THE 2001 ANNUAL MEETING OF
STOCKHOLDERS
ROBERT LABANT, has been a director of the Company since June 1996. Since
July 1996, Mr. Labant has served as President and Chief Operating Officer of
Candle Software Services Corporation, a systems management software company.
From February 1995 until July 1996, Mr. Labant worked as a self-employed
independent consultant to software companies. For twenty-eight years, until
February 1995, Mr. Labant served in various capacities at International Business
Machines Corp. ("IBM"). Mr. Labant's last position at IBM was as Senior Vice
President and General Manager of North American Operations, and previously he
served as Vice President and General Manager of the AS 400 Product Manufacturing
and Development Division. Mr. Labant also serves on the Board of Directors of
Arkwright Insurance, a mutual insurance company, and on the Board of Overseers
of the Amos Tuck School of Business at Dartmouth College.
PETER A. HOWLEY, has been a director of the Company since January 1992. Mr.
Howley is the Chief Executive Officer of IPWireless, Inc., a startup company
formed in April 1999 in the data, internet and voice telecommunications
industry. Mr. Howley has been a private investor since May 1994. From August
1985 until May 1994, Mr. Howley served as President, Chief Executive Officer,
and Chairman of the Board of Directors of Centex Telemanagement, Inc., a
telecommunications management services company. Mr. Howley currently serves as a
director of Worldport Communications, Inc., and Exodus Communications, Inc.
BOARD COMMITTEES AND MEETINGS
The Board of Directors held five meetings and acted by unanimous written
consent twice during the fiscal year ended December 31, 1998 (the "1998 Fiscal
Year"). The Board of Directors has an Audit Committee and a Compensation
Committee. Each director attended or participated in 75% or more of the
aggregate of (i) the total number of meetings of the Board of Directors and (ii)
the total number of meetings held by all committees of the Board on which such
director served during the 1998 Fiscal Year.
The Audit Committee currently consists of two directors, Mr. Drazan and Mr.
Labant, and is primarily responsible for approving the services performed by the
Company's independent auditors and reviewing their reports regarding the
Company's accounting practices and systems of internal accounting controls. The
Audit Committee held one meeting during the 1998 Fiscal Year.
The Compensation Committee currently consists of two directors, Mr. Drazan
and Mr. Howley, and is primarily responsible for determining the salaries and
incentive compensation of the officers of the Company and providing
recommendations for the salaries and incentive compensation of the other
employees and the consultants of the Company. The Compensation Committee also
administers various incentive compensation, stock option and benefit plans. The
Compensation Committee held two meetings during the 1998 Fiscal Year.
DIRECTOR COMPENSATION
CASH COMPENSATION. The Company does not pay cash compensation to any of its
Directors.
STOCK OPTION GRANT. Under the Automatic Option Grant component of the
Company's 1996 Stock Option/Stock Issuance Plan (the "1996 Plan"), each
individual who first becomes a non-employee Board member on or after October 11,
1996 will receive a 22,222 share option grant on the date such individual joins
the Board, provided such individual has not been in the prior employ of the
Company. In addition, at each Annual Stockholders Meeting, each individual who
is to continue to serve as a non-employee Board member after the meeting and has
served as a non-employee Board member for at least six months will receive an
additional option grant to purchase 4,444 shares of Common Stock whether or not
such individual has been in the prior employ of the Company. Each of Messrs.
Labant and Howley will receive an automatic grant of an option to purchase 4,444
shares of Common Stock in connection with the Annual
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Meeting. Mr. Miller received an automatic option grant for 22,222 shares of
Common Stock on February 1, 1999, the date of his appointment to the Board. The
exercise price per share in effect under Mr. Miller's option is $7.49, the fair
market value per share of Common Stock on the grant date. Each grant under the
Automatic Option Grant Program will have an exercise price per share equal to
the fair market value per share of the Company's Common Stock on the grant date,
and will have a maximum term of 10 years, subject to earlier termination should
optionee cease to serve as a Board of Directors member.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEE LISTED ABOVE.
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PROPOSAL TWO
APPROVAL OF AMENDMENT TO THE 1996 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's stockholders are being asked to approve an amendment to the
1996 Plan that will effect an increase the maximum number of shares of Common
Stock authorized for issuance over the term of the 1996 Plan by an additional
500,000 shares to 2,944,175 shares.
The 1996 Plan became effective on June 30, 1996. In March 1998, the Board
amended the 1996 Plan to, among other things, increase the shares of Common
Stock available for issuance under the 1996 Plan and enhance the eligibility
provisions of the Discretionary Option Grant and Stock Issuance Programs under
the 1996 Plan. The stockholders approved those amendments at the 1998 Annual
Meeting. The amendments to the 1996 Plan for which stockholder approval is
sought under this Proposal No. Two were adopted by the Board in April 1999,
subject to stockholder approval at the Annual Meeting.
The proposed share increase will assure that a sufficient reserve of Common
Stock is available under the 1996 Plan to attract and retain the services of key
individuals, including through acquisitions, essential to the Company's
long-term growth and success.
The following is a summary of the principal features of the 1996 Plan,
including the amendment which will become effective upon stockholder approval of
this Proposal No. Two, together with the applicable tax and accounting
implications for the Company and the participants. However, the summary does not
purport to be a complete description of all the provisions of the 1996 Plan. Any
stockholder of the Company who wishes to obtain a copy of the actual plan
document may do so upon written request to the Company's Chief Financial Officer
at the Company's principal executive offices in Edison, New Jersey.
EQUITY INCENTIVE PROGRAMS
The 1996 Plan contains three separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) a Stock Issuance Program and (iii) an
Automatic Option Grant Program. The Compensation Committee of the Board and the
Board have separate but concurrent authority to administer the Discretionary
Option Grant and Stock Issuance Programs. The Plan Administrator (which as used
in this summary will mean either the Compensation Committee or the Board to the
extent each such entity is administering the 1996 Plan) will have complete
discretion (subject to the provisions of the 1996 Plan) to authorize option
grants under the 1996 Plan. However, all grants under the Automatic Option Grant
Program will be made in strict compliance with the provisions of that program,
and no administrative discretion will be exercised by the Plan Administrator
with respect to the grants made thereunder. Stockholder approval of the
amendment to the 1996 Plan subject to this Proposal will constitute pre-approval
of all option grants subsequently made on the basis of the amended 1996 Plan
under that program and the subsequent exercise and cancellation of those options
in accordance with those terms.
SHARE RESERVE
The maximum number of shares of the Company's Common Stock available for
issuance over the term of the Plan may not exceed 2,944,175 shares, including
the 500,000 share increase for which stockholder approval is sought under this
Proposal. In no event may any one participant in the Option Plan receive
options, separately exercisable stock appreciation rights or direct stock
issuances for more than 1,000,000 shares in the aggregate over the term of the
Plan.
The shares of Common Stock issuable under the Plan may be drawn from shares
of the Company's authorized but unissued Common Stock or from shares of Common
Stock reacquired by the Company, including shares repurchased on the open
market.
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will
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be made to the securities issuable (in the aggregate and to each participant)
under the Option Plan and to each outstanding option.
Should an option expire or terminate prior to exercise in full, the shares
subject to the portion of the option not so exercised will be available for
subsequent issuance under the Plan. Unvested shares issued under the Plan and
subsequently repurchased by the Company at the original option or issue price
paid per share will be added back to the share reserve and will accordingly be
available for subsequent issuance under the Plan. However, shares subject to any
options surrendered in connection with outstanding stock appreciation rights
under the Plan will not be available for subsequent issuance.
CHANGES IN CAPITALIZATION
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the maximum number and class of securities issuable under the 1996
Plan, (ii) the maximum number and class of securities for which any one
participant may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under the 1996 Plan, (iii) the
number and class of securities for which option grants will subsequently be made
under the Automatic Option Grant Program to each newly-elected or continuing
non-employee Board member and (iv) the number and class of securities and the
exercise price per share in effect under each outstanding option under the Plan.
All such adjustments will be designed to preclude the enlargement or dilution of
participant rights and benefits under the Option Plan.
ELIGIBILITY
Officers and other employees of the Company and its parent or subsidiaries
(whether now existing or subsequently established), non-employee members of the
Board and the board of directors of its parent or subsidiaries and consultants
and independent advisors of the Company and its parent and subsidiaries will be
eligible to participate in the Discretionary Option Grant and Stock Issuance
Programs. Non-employee members of the Board (including members of the
Compensation Committee) will also be eligible to participate in the Automatic
Option Grant Program.
As of March 31, 1999, approximately seven executive officers, fifty other
employees and four non-employee Board members were eligible to participate in
the Plan, and four non-employee Board members were eligible to participate in
the Automatic Option Grant Program.
VALUATION
The fair market value per share of Common Stock on any relevant date under
the 1996 Plan will be the closing selling price per share on that date on the
Nasdaq National Market. On March 31, 1999, the closing selling price per share
was $7.72.
DISCRETIONARY OPTION GRANT PROGRAM
GRANTS
The Plan Administrator has complete discretion under the Discretionary
Option Grant Program to determine which eligible individuals are to receive
option grants or stock issuances, the time or times when such grants or
issuances are to be made, the number of shares subject to each such grant or
issuance, the status of any granted option as either an incentive stock option
or a non-statutory option under the federal tax laws, the vesting schedule (if
any) to be in effect for the option grant or stock issuance and the maximum term
for which any granted option is to remain outstanding. All expenses incurred in
administering the 1996 Plan will be paid by the Company.
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PRICE AND EXERCISABILITY
The exercise price per share for options granted under the Discretionary
Option Grant Program may not be less than eighty-five percent (85%) of the fair
market value per share of Common Stock on the option grant date. No option
granted will have a term in excess of ten (10) years, and each option will
generally become exercisable in one or more installments over the optionee's
period of service with the Company. The shares of Common Stock acquired upon the
exercise of one or more options may, however, be unvested and subject to
repurchase by the Company, at the exercise price paid per share, if the optionee
ceases service with the Company prior to vesting in those shares. The Plan
Administrator may at any time cancel the Company's outstanding repurchase rights
with respect to those shares and thereby accelerate the vesting of those shares.
The exercise price may be paid in cash or in shares of the Common Stock.
Outstanding options may also be exercised through a same-day sale program
pursuant to which a designated brokerage firm is to effect an immediate sale of
the shares purchased under the option and pay over to the Company, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
exercise price for the purchased shares plus all applicable withholding taxes.
No optionee will have any stockholder rights with respect to the option
shares until such optionee has exercised the option and paid the exercise price
for the purchased shares. Options are generally not assignable or transferable
other than by will or the laws of inheritance and, during the optionee's
lifetime, the option may be exercised only by such optionee. However, the Plan
Administrator may allow non-statutory options to be transferred or assigned
during the optionee's lifetime to one or more members of the optionee's
immediate family or to a trust established exclusively for one or more such
family members, to the extent such transfer or assignment is in furtherance of
the optionee's estate plan.
TERMINATION OF SERVICE
Upon the optionee's cessation of employment or service, the optionee will
have a limited period of time in which to exercise his or her outstanding
options for any shares in which the optionee is vested at that time. However, at
any time while the options remain outstanding, the Plan Administrator will have
complete discretion to extend the period following the optionee's cessation of
employment or service during which his or her outstanding options may be
exercised. The Plan Administrator will also have complete discretion to
accelerate the exercisability or vesting of those options in whole or in part at
any time.
STOCK APPRECIATION RIGHTS
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
TANDEM STOCK APPRECIATION RIGHTS provide the holders with the right to
surrender their options for an appreciation distribution from the Company equal
in amount to the excess of (a) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (b) the aggregate exercise
price payable for those shares. Such appreciation distribution may, at the
discretion of the Plan Administrator, be made in cash or in shares of Common
Stock.
LIMITED STOCK APPRECIATION RIGHTS may be provided to one or more officers of
the Company as part of their option grants. Any option with such a limited stock
appreciation right may be surrendered to the Company upon the successful
completion of a hostile tender offer for more than fifty percent (50%) of the
Company's outstanding voting stock. In return for the surrendered option, the
officer will be entitled to a cash distribution from the Company in an amount
per surrendered option share equal to the excess of (a) the highest price per
share of Common Stock paid in connection with the tender offer over (b) the
exercise price payable for such share.
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CANCELLATION/REGRANT PROGRAM
The Plan Administrator will have the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program which have
exercise prices in excess of the then current market price of the Common Stock
and to issue replacement options with an exercise price based on the market
price of Common Stock at the time of the new grant.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share not
less than eighty-five percent (85%) of their fair market value, payable in cash
or through a promissory note payable to the Company. Shares may also be issued
as a bonus for past services.
The shares issued as a bonus for past services will be fully vested upon
issuance. All other shares issued under the program will be subject to a vesting
schedule tied to the performance of service or the attainment of performance
goals. The Plan Administrator will, however, have the discretionary authority at
any time to accelerate the vesting of any and all unvested shares outstanding
under the 1996 Plan.
AUTOMATIC OPTION GRANT PROGRAM
TERMS
Under the Automatic Option Grant Program, non-employee Board members will
receive option grants at specified intervals over their period of Board service.
All grants under the Automatic Option Grant Program will be made in strict
compliance with the express provisions of such program, and stockholder approval
of this Proposal will also constitute pre-approval of each option subsequently
granted pursuant to the provisions of the Automatic Option Grant Program
summarized below and the subsequent exercise of that option in accordance with
such provisions.
1. Each individual who first becomes a non-employee Board member, whether
through election by the stockholders or appointment by the Board, will
automatically be granted, at the time of such initial election or
appointment, a non-statutory option to purchase 22,222 shares of Common
Stock, provided such individual has not previously been in the Company's
employ.
2. On the date of each Annual Meeting, beginning with the 1997 Annual Meeting,
each individual who is to continue to serve as a non-employee Board member,
whether or not such individual is standing for re-election at that
particular Annual Meeting, will automatically be granted a non-statutory
option to purchase 4,444 shares of Common Stock, provided such individual
has not received an option grant under the Automatic Option Grant Program
within the preceding six (6) months. There will be no limit on the number of
such 4,444-share option grants any one non-employee Board member may receive
over his or her period of Board service, and non-employee Board members who
have previously been in the Company's employee will be eligible to receive
one or more of those annual grants.
3. Each automatic option grant will have an exercise price per share equal to
100% of the fair market value per share of Common Stock on the grant date.
The option will have a maximum term of ten (10) years, subject to earlier
termination at the end of the twelve (12)-month period measured from the
date of the optionee's cessation of Board service. Each option will be
immediately exercisable for all of the option shares. However, any shares
purchased under the option will be subject to repurchase by the Company, at
the exercise price paid per share, upon the optionee's cessation of Board
service prior to vesting in those shares. The shares of Common Stock subject
to the initial 22,222-share grant will vest in a series of four (4)
successive equal annual installments measured from the grant date. The
shares of Common Stock subject to each annual 4,444-share grant will vest
upon completion of one year of Board service measured from the grant date.
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4. Each automatic option will remain exercisable for a twelve (12)-month period
following the optionee's cessation of service as a Board member. In no
event, however, may the option be exercised after the expiration date of the
option term. During the applicable post-service exercise period, the option
may not be exercised for more than the number of option shares (if any) in
which the Board member is vested at the time of his or her cessation of
Board service.
5. The shares subject to each automatic option grant will immediately vest upon
(i) the optionee's death or permanent disability while a Board member, (ii)
an acquisition of the Company by merger or asset sale, (iii) the successful
completion of a tender offer for more than 50% of the Company's outstanding
voting stock or (iv) a change in the majority of the Board effected through
one or more proxy contests for Board membership.
6. Upon the successful completion of a hostile tender offer for more than 50%
of the Company's outstanding voting stock, each outstanding automatic option
grant may be surrendered to the Company for a cash distribution per
surrendered option share in an amount equal to the excess of (a) the highest
price per share of Common Stock paid in connection with such tender offer
over (b) the exercise price payable for such share. Stockholder approval of
this Proposal No. Two will constitute pre-approval of each option
subsequently granted with such a surrender right and the subsequent
surrender of that option in accordance with foregoing provisions. No
additional approval of the Plan Administrator or the Board will be required
at the time of the actual option surrender and cash distribution.
The remaining terms and conditions of each automatic option grant will in
general conform to the terms summarized above for option grants made under the
Discretionary Option Grant Program and will be incorporated into the option
agreement evidencing the automatic grant.
GENERAL PROVISIONS
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation will
automatically accelerate in full, and all unvested shares under the Stock
Issuance Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. The Plan Administrator will have the discretionary
authority to provide for the acceleration of any options assumed in an
acquisition and any unvested shares which do not vest at the time of the
acquisition upon the involuntary termination of the optionee's service within 18
months following the acquisition. In connection with a hostile change in control
of the Company (whether by successful tender offer for more than 50% of the
outstanding voting stock or by proxy contest for the election of Board members),
the Plan Administrator will have the discretionary authority to provide for the
automatic acceleration of outstanding options under the Discretionary Grant
Program and the automatic vesting of outstanding shares under the Stock Issuance
Program at the time of such change in control or upon the subsequent termination
of the optionee's service.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
FINANCIAL ASSISTANCE
The Plan Administrator may permit one or more participants to pay the
exercise price of outstanding options or the purchase price of shares under the
Plan by delivering a promissory note payable in installments. The Plan
Administrator will determine the terms of any such promissory note. However, the
9
<PAGE>
maximum amount of financing provided any participant may not exceed the cash
consideration payable for the purchased shares plus all applicable taxes
incurred in connection with the acquisition of the shares. Any such promissory
note may be subject to forgiveness in whole or in part, at the discretion of the
Plan Administrator, over the participant's period of service. During 1998, the
Company made loans to each of Thomas Murawski, President and Chief Executive
Officer of the Company, and Peter Macaluso, Vice President and Chief Financial
Officer of the Company, in the amounts of $199,998 and $3,600, respectively.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the Plan Administrator
may allow such individuals to deliver previously acquired shares of Common Stock
in payment of such tax liability.
STOCK AWARDS
The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table and the various indicated individuals and
groups, the number of shares of Common Stock subject to options granted under
the 1996 Plan between January 1, 1998 and March 31, 1999 under the Plan together
with the weighted average exercise price payable per share.
10
<PAGE>
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
NAME OPTION SHARES PRICE
- ------------------------------------------------------------------------- ----------------- -------------
<S> <C> <C> <C>
Thomas F. Murawski....................................................... 100,000 $ 3.25
Chief Executive Officer, President and Chairman of the Board of Directors
George Frylinck.......................................................... 35,000 2.98
Vice President, International Marketing and Business Development
James C. Kaufeld......................................................... 35,000 2.98
Vice President, Engineering
Peter S. Macaluso........................................................ 35,000 2.98
Vice President and Chief Financial Officer
Thomas C. Mullaney....................................................... 25,000 2.88
Vice President, Sales
All current executive officers as a group................................ 460,000 3.00
(7 persons)
Jeffrey M. Drazan........................................................ 4,444 3.81
Director
Peter A. Howley.......................................................... 4,444 3.81
Director
Robert Labant............................................................ 26,666 3.08
Director
Richard Miller........................................................... 22,222 7.44
Director
All non-employee directors as a group.................................... 57,776 4.87
(4 persons)
All employees, including current officers who are not executive officers 319,000 4.23
as a group.............................................................
(48 persons)
</TABLE>
As of March 31, 1999, options covering 2,100,094 shares of Common Stock were
outstanding under the 1996 Plan, 530,265 shares remained available for future
option grant or direct issuance (assuming stockholder approval of the increase
which forms part of this Proposal), and 313,816 shares had been issued pursuant
to the exercise of outstanding options or direct issuances under the 1996 Plan.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1996 Plan in any or all respects
whatsoever subject to any required stockholder approval. The Board may terminate
the Plan at any time, and the Plan will in all events terminate on June 29,
2006.
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the 1996 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will,
11
<PAGE>
however, recognize taxable income in the year in which the purchased shares are
sold or otherwise made the subject of a taxable disposition. For Federal tax
purposes, dispositions are divided into two categories: qualifying and
disqualifying. A qualifying disposition occurs if the sale or other disposition
is made after the optionee has held the shares for more than two (2) years after
the option grant date and more than one (1) year after the exercise date. If
either of these two holding periods is not satisfied, then a disqualifying
disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term capital
gain in an amount equal to the excess of (i) the amount realized upon the sale
or other disposition of the purchased shares over (ii) the exercise price paid
for the shares. If there is a disqualifying disposition of the shares, then the
excess of (i) the fair market value of those shares on the exercise date over
(ii) the exercise price paid for the shares will be taxable as ordinary income
to the optionee. Any additional gain or loss recognized upon the disposition
will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. If the optionee makes a qualifying disposition, the
Company will not be entitled to any income tax deduction.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
such distribution for the taxable year in which the ordinary income is
recognized by the optionee.
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the 1996 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
12
<PAGE>
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with the disqualifying disposition of incentive stock option shares
or the exercise of non-statutory options granted with exercise prices equal to
the fair market value of the shares on the grant date will qualify as
performance-based compensation for purposes of Code Section 162(m) and will not
have to be taken into account for purposes of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain
executive officers of the Company. Accordingly, all compensation deemed paid
under the 1996 Plan will remain deductible by the Company without limitation
under Code Section 162(m).
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less than the
fair market value of the shares on the grant or issue date will result in a
direct compensation expense to the Company's earnings equal to the difference
between the exercise or issue price and the fair market value of the shares on
the grant or issue date. Such expense will be accruable by the Company over the
period that the option shares or issued shares are to vest. Option grants or
stock issuances at 100% of fair market value will not result in any direct
charge to the Company's earnings. However, the fair value of those options is
required to be disclosed in the notes to the Company's financial statements, and
the Company must also disclose, in pro-forma statements to the Company's
financial statements, the impact those options would have upon the Company's
reported earnings were the value of those options at the time of grant treated
as compensation expense. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which have
no conditions upon exercisability other than a service or employment
requirement, then such rights will result in compensation expense to the
Company's earnings.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the 1999 Annual Meeting
is required for approval of the amendments to the 1996 Plan. Should such
stockholder approval not be obtained, then the 500,000 share increase to the
share reserve will not be implemented, and any stock options granted on the
basis of the 500,000 share increase to the 1996 Plan will immediately terminate
without becoming exercisable for the shares of Common Stock subject to those
options, and no additional options will be granted on the basis of such share
increase. The 1996 Plan will, however, continue to remain in effect, and option
grants and direct stock issuances may continue to be made pursuant to the
provisions of the 1996 Plan in effect prior to the amendments summarized in this
Proposal No. Two, until the available reserve of Common Stock as last approved
by the stockholders has been issued pursuant to option grants and direct stock
issuances made under the 1996 Plan.
NEW PLAN BENEFITS
As of March 31, 1999, no options have been granted, and no direct stock
issuances have been made, on the basis of the 500,000 share increase which forms
part of this Proposal No. Two. At the 1999 Annual Meeting, each individual who
will continue to serve as a non-employee Board member and has served as a
non-employee Board member for at least six months will receive an option grant
under the Automatic Option Grant Program to purchase 4,444 shares of Common
Stock at an exercise price per share equal to the fair market value per share of
Common Stock on the grant date.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
AMENDMENT TO THE 1996 PLAN.
13
<PAGE>
PROPOSAL THREE:
RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of PricewaterhouseCoopers LLP,
independent public auditors for the Company during the 1998 Fiscal Year, to
serve in the same capacity for the year ending December 31, 1999, and is asking
the stockholders to ratify this appointment. The affirmative vote of a majority
of the shares represented and voting at the Annual Meeting is required to ratify
the selection of PricewaterhouseCoopers LLP.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board of Directors in its discretion may direct the appointment of a different
independent auditing firm at any time during the year if the Board of Directors
believes that such a change would be in the best interests of the Company and
its stockholders.
A representative of PricewaterhouseCoopers LLP is expected to be present at
the Annual Meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP TO SERVE AS THE
COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is granted
by the execution of the enclosed Proxy.
14
<PAGE>
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock as of March
31, 1999, by (i) all persons who are beneficial owners of five percent (5%) or
more of the Company's Common Stock, (ii) each director and nominee for director,
(iii) the executive officers named in the Summary Compensation Table of the
Executive Compensation and Related Information section of this Proxy Statement
and (iv) all current directors and executive officers as a group. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned, subject to community
property laws, where applicable.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF
COMMON STOCK BENEFICIALLY SHARES
NAME OF BENEFICIAL OWNER OWNED(1) OUTSTANDING(1)
- ----------------------------------------------------------------------- ------------------------- -----------------
<S> <C> <C>
Entities affiliated with Sierra Ventures (2) Building 4, Suite 210 3000
Sand Hill Road Menlo Park, California 94025.......................... 1,077,759 7.2%
Brookhaven Capital Management Co. Ltd. 3000 Sand Hill Road, Bldg. 3,
Suite 105 Menlo Park, California 94025............................... 2,428,000 16.2%
Wayne Close (3) 19161 S.E. Debora Drive Boring, Oregon 97009........... 1,231,800 8.2%
Thomas F. Murawski (4)................................................. 453,482 3.0%
Jeffrey Drazan (2)..................................................... 1,077,759 7.2%
Peter A. Howley (5).................................................... 241,002 1.6%
Robert Labant (6)...................................................... 45,444 *
Richard Miller......................................................... 0 *
George Frylinck (7).................................................... 85,902 *
James C. Kaufeld (8)................................................... 92,347 *
Peter S. Macaluso (9).................................................. 89,051 *
Thomas C. Mullaney (10)................................................ 131,555 *
All current directors and executive officers as a group (11 persons)
(11)................................................................. 2,242,208 15.0%
</TABLE>
* Less than one percent.
- ------------------------
(1) Gives effect to the shares of Common Stock issuable within 60 days of March
31, 1999 upon the exercise of all options and other rights beneficially
owned by the indicated stockholders on that date. Unless otherwise
indicated, the persons named in the table have sole voting and sole
investment control with respect to all shares beneficially owned. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting and investment power with respect to
shares.
(2) Includes (i) 687,682 shares of Common Stock held by Sierra III, (ii) 6,916
shares of Common Stock held by Sierra III International and (iii) 338,162
shares of Common Stock held by Sierra V. Mr. Drazan, a Director of the
Company, is a general partner of an affiliate of Sierra III, Sierra III
International and Sierra V and, as such, may be deemed to share voting and
investment power with respect to such shares. Mr. Drazan disclaims
beneficial ownership of such shares except to the extent of his interest in
such shares arising from his interest in Sierra III, Sierra III
International and Sierra
15
<PAGE>
V. Also includes 44,999 shares of Common Stock issuable to Mr. Drazan upon
exercise of stock options.
(3) Includes 1,132,300 shares of Common Stock held in a joint account with Mr.
Close's wife and 4,000 shares of Common Stock held in a joint account with
Mr. Close's father.
(4) Includes 396,927 shares of Common Stock issuable upon exercise of stock
options and 1,000 shares of Common Stock held by Mr. Murawski's son. Mr.
Murawski disclaims beneficial ownership of the shares held by his son.
(5) Includes 47,777 shares of Common Stock issuable upon exercise of stock
options.
(6) Includes 14,444 shares of Common Stock issuable upon exercise of stock
options.
(7) Consists of 85,902 shares of Common Stock issuable upon exercise of stock
options.
(8) Consists of 83,847 shares of Common Stock issuable upon exercise of stock
options.
(9) Consists of 84,051 shares of Common Stock issuable upon exercise of stock
options.
(10) Consists of 120,555 shares of Common Stock issuable upon exercise of stock
options.
(11) See Notes (2) through (10).
16
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation paid by
the Company during 1998, 1997 and 1996 to the Company's Chief Executive Officer
and the four other mostly highly compensated executive officers of the Company
whose total compensation during 1998 exceeded $100,000 (collectively, the "Named
Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL SECURITIES
COMPENSATION (1) UNDERLYING
----------------------- OPTIONS
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) (#)
- -------------------------------------------------------------- ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas F. Murawski............................................ 1998 $ 224,046 $ 56,800 100,000
President and Chief Executive Officer 1997 199,142 40,000 125,000
1996 190,362 61,025 77,778
George Frylinck............................................... 1998 $ 133,470 $ 25,000 35,000
Vice President, International Marketing and Business 1997 118,512 20,000 25,000
Development 1996 118,362 10,440 3,333
James C. Kaufeld.............................................. 1998 $ 158,470 $ 19,880 35,000
Vice President, Engineering 1997 148,512 10,000 25,000
1996 148,362 18,770 6,667
Peter S. Macaluso............................................. 1998 $ 134,410 $ 19,880 35,000
Vice President and Chief Financial Officer 1997 119,424 18,500 25,000
1996 119,334 18,596 8,889
Thomas C. Mullaney............................................ 1998 $ 148,470 $ 25,000 25,000
Vice President, Sales 1997 148,512 -- --
1996 148,362 22,955 --
</TABLE>
- ------------------------
(1) Other compensation in the form of perquisites and other personal benefits
has been omitted as the aggregate amount of such perquisites and other
personal benefits constituted the lesser of $50,000 or 10% of the total
annual salary and bonus of the Named Executive Officer for such year.
17
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows, with respect to the Named Executive Officers,
certain information concerning the grant of stock options in 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------------- VALUE AT
PERCENT OF ASSUMED ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK
SECURITIES GRANTED TO INITIAL PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM (2)
OPTIONS FISCAL PRICE EXPIRATION ----------------------
NAME GRANTED YEAR(1) ($/SHARE) DATE 5% 10%
- ---------------------------------- ----------- --------------- ------------- ------------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas F. Murawski................ 100,000 12.8% $ 3.25 11/10/08 $ 204,391 $ 517,966
George Frylinck................... 35,000 4.5% $ 2.88-3.25 09/01/08-11/10/08 $ 80,912 $ 190,663
James C. Kaufeld.................. 35,000 4.5% $ 2.88-3.25 09/01/08-11/10/08 $ 80,912 $ 190,663
Peter S. Macaluso................. 35,000 4.5% $ 2.88-3.25 09/01/08-11/10/08 $ 80,912 $ 190,663
Thomas C. Mullaney................ 25,000 3.2% $ 2.88 09/01/08 $ 60,473 $ 138,867
</TABLE>
- ------------------------
(1) Based on a aggregate of 779,000 options granted to employees in fiscal 1998,
including options granted to the Named Executive Officers.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the ten-year option term. The assumed 5%
and 10% rates of stock appreciation are mandated by rules of the Securities
and Exchange Commission and do not represent the Company's estimate of the
future market price of the Common Stock from the date of grant to the
current date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information for each Named Executive
Officers regarding stock option holdings as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING THE-MONEY
SHARES UNEXERCISED OPTIONS AT OPTIONS AT FISCAL YEAR
ACQUIRED ON VALUE FISCAL YEAR-END(#) END(1)
EXERCISE REALIZED -------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------ ----------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas F. Murawski........................ 55,555 $ 8,333 365,363 282,748 $ 2,019,883 $ 1,102,162
George Frylinck........................... -- -- 80,408 63,036 433,892 251,798
James C. Kaufeld.......................... 15,000 49,050 79,356 60,754 405,773 232,981
Peter S. Macaluso......................... 5,000 15,150 77,956 66,045 414,082 260,965
Thomas C. Mullaney........................ 7,500 27,337 114,907 60,371 656,897 290,104
</TABLE>
- ------------------------
(1) Amounts calculated by subtracting the exercise price of the options from the
market value of the underlying Common Stock using the closing selling price
on the Nasdaq National Market of $6.18 per share of Common Stock on December
31, 1998.
18
<PAGE>
CERTAIN TRANSACTIONS
STOCK OPTIONS
In 1998, the Company granted executive officers and directors a total of
517,776 stock options with exercise prices ranging from $2.88 per share to $7.44
per share.
LOAN TRANSACTIONS
In 1998, the Company granted a loan to Thomas Murawski, President and Chief
Executive Officer of the Company, in the amount of $199,998.
EMPLOYMENT SEVERANCE AGREEMENTS
The Company does not presently have any employment contracts in effect with
the Chief Executive Officer or any of the other Named Executive Officers.
The Compensation Committee as Plan Administrator of the Plan will have the
authority to provide for the accelerated vesting of the shares of Common Stock
subject to outstanding options held by the Chief Executive Officer and any other
executive officer or the shares of Common Stock subject to direct issuances held
by such individual, in connection with certain changes in control of the Company
or the subsequent termination of the officer's employment following the change
in control event.
Each of the Company's directors and officers, with the exception of Mr.
Labant, is party to an agreement with the Company providing for the acceleration
of the vesting of options to purchase Common Stock held by such director and
officer in the event of the involuntary removal or dismissal (as defined in such
agreement) of such director or officer in connection with an acquisition (as
defined in such agreement) of the Company. Such agreements may have the effect
of delaying or preventing a change in control of the Company, and therefore,
could adversely affect the price of the Company's Common Stock. The Company has
also agreed to pay Mr. Murawski $12,500 per month, plus all benefits, for up to
three months after the termination of his employment without cause.
Each of the Company's officers is party to an agreement with the Company
providing for certain payments in the event of an Involuntary Termination (as
defined in the agreements) in connection with a Change in Control (as defined in
the agreement). Mr. Murawski's agreement provides for the payment of an amount
equal to eighteen months base salary. Mr. Macaluso's agreement provides for the
payment of an amount equal to twelve months base salary. The remaining officers
have agreements providing for the payment of an amount equal to six months base
salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Drazan and Howley. Certain
members of the Company's Board of Directors have been parties to transactions
with the Company. See "Certain Transactions." Although neither Mr. Drazan nor
Mr. Howley was an officer or executive of the Company in fiscal year 1998, Mr.
Drazan briefly served as interim president of the Company in 1991.
No current executive officer of the Company has ever served as a member of
the board of directors or compensation committee of any other entity that has or
has had one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee.
19
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors currently consists of
two nonemployee directors, Messrs. Drazan and Howley. See "Executive
Compensation-Compensation Committee Interlocks and Insider Participation." The
Compensation Committee has reviewed and ratified the compensation paid to
executive officers in 1998.
The Compensation Committee advises the Board of Directors on matters of the
Company's compensation philosophy and the compensation of executive officers and
other individuals compensated by the Company. The Compensation Committee also is
responsible for the administration of the Company's Plan under which option
grants, restricted awards and performance awards may be made to directors,
executive officers and employees of the Company and its subsidiaries.
General Compensation Policy. The fundamental policy of the Compensation
Committee is to provide the Company's executive officers with competitive
compensation opportunities based upon their contribution to the development and
financial success of the Company and their personal performance. It is the
Compensation Committee's objective to have a portion of each executive officer's
compensation contingent upon the Company's performance as well as upon such
executive officer's own level of performance. Accordingly, the compensation
package for each executive officer is comprised of two elements: (i) base salary
which reflects individual performance and is designed primarily to be
competitive with salary levels in the industry and (ii) long-term stock-based
incentive awards which strengthen the mutuality of interests between the
executive officers and the Company's stockholders.
FACTORS.
The principal factors which the Compensation Committee considered in
ratifying the components of each executive officer's compensation package for
fiscal year 1998 are summarized below. The Compensation Committee may, however,
in its discretion apply entirely different factors in advising the Chief
Executive Officer and the Board of Directors with respect to executive
compensation for future years.
- BASE SALARY.
The suggested base salary for each executive officer is determined on the
basis of the following factors: experience, personal performance, the salary
levels in effect for comparable positions within and without the industry and
internal base salary comparability considerations. The weight given to each of
these factors differs from individual to individual, as the Compensation
Committee deems appropriate.
- BONUS.
The suggested bonus for each executive officer is determined on the basis of
the following factors: Company performance, personal performance and the bonus
levels in effect for comparable positions within and without the industry. The
Committee establishes maximum annual bonus amounts for each individual based on
the bonus levels for comparable positions and earned bonus amounts are based on
performance results. The weight given to each of these factors differs from
individual to individual, as the Compensation Committee deems appropriate. In
addition, the Compensation Committee may from time to time award additional cash
bonuses when such bonuses are deemed to be in the best interest of the Company.
- LONG-TERM INCENTIVE COMPENSATION.
Long-term incentives are provided primarily through grants of stock options.
The grants are designed to align the interests of each executive officer with
those of the stockholders and provide each individual with a significant
incentive to manage the Company from the perspective of an owner with an equity
stake in the Company. Each option grant allows the individual to acquire shares
of the Company's Common Stock at a fixed price per share (generally, the market
price on the grant date) over a specified period of time (up to ten years). Each
option generally becomes exercisable in installments over a five-year period,
20
<PAGE>
contingent upon the executive officer's continued employment with the Company.
Accordingly, the option grant will provide a return to the executive officer
only if the executive officer remains employed by the Company during the vesting
period, and then only if the market price of the underlying shares appreciates.
The number of shares subject to each option grant is set at a level intended
to create a meaningful opportunity for stock ownership based on the executive
officer's current position with the Company, the base salary associated with
that position, the size of comparable awards made to individuals in similar
positions within the industry, the individual's potential for increased
responsibility and promotion over the option term and the individual's personal
performance in recent periods. The Compensation Committee also considers the
number of unvested options held by the executive officer in order to maintain an
appropriate level of equity incentive for that individual. However, the
Compensation Committee does not adhere to any specific guidelines as to the
relative option holdings of the Company's executive officers. There were 460,000
stock options granted to executive officers in 1998.
CEO COMPENSATION. Regulations of the Securities and Exchange Commission
require the Board of Directors to disclose their basis for compensation reported
for Mr. Murawski in 1998 and to discuss the relationship between the Company's
performance during the last fiscal year and Mr. Murawski's performance. In
advising the Board of Directors with respect to the compensation payable to the
Company's Chief Executive Officer, the Compensation Committee seeks to establish
a level of base salary competitive with that paid by companies within the
industry which are of comparable size to the Company and by companies outside of
the industry with which the Company competes for executive talent.
The suggested base salary established for Mr. Murawski on the basis of the
foregoing criteria was intended to provide a level of stability and certainty
each year. Accordingly, this element of compensation was not affected to any
significant degree by Company performance factors.
Compliance with Internal Revenue Code Section 162(m). As a result of Section
162(m) of the Internal Revenue Code of 1986, as amended, which was enacted into
law in 1993, the Company will not be allowed a federal income tax deduction for
compensation paid to certain executive officers, to the extent that compensation
exceeds $1 million per officer in any one year. This limitation will apply to
all compensation paid to the covered executive officers which is not considered
to be performance based. Compensation which does qualify as performance-based
compensation will not have to be taken into account for purposes of this
limitation. The Plan contains certain provisions which are intended to assure
that any compensation deemed paid in connection with the exercise of stock
options granted under the plan with an exercise price equal to the market price
of the option shares on the grant date will qualify as performance-based
compensation. The Compensation Committee does not expect that the compensation
to be paid to the Company's executive officers for 1999 will exceed the $1
million limit per officer.
THE COMPENSATION COMMITTEE
MR. PETER A. HOWLEY
MR. JEFFREY M. DRAZAN
21
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph comparing the annual percentage change in the
Company's cumulative total stockholder return on its Common Stock from October
11, 1996 (the date public trading of the Company's stock commenced) to the last
day of the Company's last completed fiscal year (as measured by dividing (i) the
sum of (A) the cumulative amount of dividends for the measurement period,
assuming dividend reinvestment, and (B) the excess of the Company's share price
at the end over the price at the beginning of the measurement period, by (ii)
the share price at the beginning of the measurement period) with the cumulative
total return so calculated of the Nasdaq Stock Market-US Index and a stock index
comprised of companies in a line of business similar to the Company during the
same period.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)
AMONG FAXSAV INCORPORATED, THE NASDAQ STOCK MARKET (US) INDEX
AND THE NASDAQ TELECOMMUNICATIONS INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FAXSAV INCORPORATED NASDAQ STOCK MARKET (U.S.) NASDAQ TELECOMMUNICATIONS
dollars 10/11/1996 100 100 100
12/96 69 103 101
12/97 32 126 149
12/98 77 178 244
<CAPTION>
36,160
<S> <C> <C> <C> <C> <C> <C> <C>
36,160
dollars 60
</TABLE>
- ------------------------
(1) $100 invested on 10/11/96 in FaxSav Incorporated, the Nasdaq Stock Market
(US) Index and the Nasdaq Telecommunications Index.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, which might incorporate future filings made by
the Company under those statutes, the preceding Compensation Committee Report on
Executive Compensation and the Company Stock Performance Graph will not be
incorporated by reference into any of those prior filings, nor will such report
or graph be incorporated by reference into any future filings made by the
Company under those statutes.
22
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the Board of Directors, the executive officers of the Company
and persons who hold more than 10% of the Company's outstanding Common Stock are
subject to the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934 which require them to file reports with respect to their
ownership of the Common Stock and their transactions in such Common Stock. Based
upon (i) the copies of Section 16(a) reports which the Company received from
such persons for their 1998 Fiscal Year transactions in the Common Stock and
their Common Stock holdings, and (ii) the written representations received from
one or more of such persons that no annual Form 5 reports were required to be
filed by them for the 1998 Fiscal Year, the Company believes that all reporting
requirements under Section 16(a) for such fiscal year were met in a timely
manner by its directors, executive officers and greater than ten percent
beneficial owners except as set forth below.
James C. Kaufeld, Vice President, Engineering of the Company, was required
to file a Form 4, Statement of Changes in Beneficial Ownership (a "Form 4") for
the month of May 1998 no later than June 10, 1998 to report an option exercise
for that month. Mr. Kaufeld filed such Form 4 on September 4, 1998.
Thomas C. Mullaney, Vice President, Sales of the Company, was required to
file a Form 4, Statement of Changes in Beneficial Ownership for the month of
June 1998 no later than July 10, 1998 to report an option exercise for that
month. Mr. Mullaney filed such Form 4 on September 8, 1998.
ANNUAL REPORT
A copy of the Annual Report of the Company for the 1998 Fiscal Year has been
mailed concurrently with this Proxy Statement to all stockholders entitled to
notice of and to vote at the Annual Meeting. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy solicitation
material.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the Securities and
Exchange Commission on or about March 30, 1999. A copy of the Annual Report on
Form 10-K has been mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Annual Meeting. The Annual
Report on Form 10-K is not incorporated into this Proxy Statement and is not
considered proxy solicitation material.
By Order of the Board of Directors
/s/ Peter S. Macaluso
Peter S. Macaluso
SECRETARY
Dated: April 29, 1999
23
<PAGE>
FAXSAV INCORPORATED PROXY
ANNUAL MEETING OF STOCKHOLDERS,
JUNE 4, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF FAXSAV INCORPORATED
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders to be held June 4, 1999 and the
Proxy Statement and appoints Thomas F. Murawski, Chairman, President and Chief
Executive Officer, and Peter S. Macaluso, Vice President and Chief Financial
Officer, and each of them, the Proxy of the undersigned, with full power of
substitution, to vote all shares of Common Stock or Preferred Stock of FaxSav
Incorporated (the "Company") which the undersigned is entitled to vote, either
on his or her own behalf or on behalf of any entity or entities, at the Annual
Meeting of Stockholders of the Company to be held at the Sheraton Woodbridge
Place Hotel, 515 Route One South, Iselin, New Jersey 08830 (732) 634-3600 on
Friday, June 4, 1999 at 10:00 Eastern Daylight Time (the "Annual Meeting"), and
at any adjournment or postponement thereof, with the same force and effect as
the undersigned might or could do if personally present at such Annual Meeting.
The shares represented by this Proxy shall be voted in the manner set forth on
the reverse side.
1. To elect one (1) director to serve for a three-year term ending in the
year 2002 or until his successor is duly elected and qualified;
<TABLE>
<S> <C>
FOR WITHHOLD
AUTHORITY TO
VOTE
</TABLE>
Thomas F. Murawski
<PAGE>
<TABLE>
<C> <S> <C> <C> <C>
2. FOR AGAINST ABSTAIN To approve an amendment to the Company's 1996 Stock Option/Stock Issuance Plan (the
"1996 Plan"), to increase the number of shares of Common Stock authorized for issuance
over the term of the 1996 Plan by an additional 500,000 shares;
3. FOR AGAINST ABSTAIN To ratify the appointment of PricewaterhouseCoopers LLP as independent auditors of the
Company for the fiscal year ending December 31, 1999.
4. In accordance with the discretion of the proxy holders, to act upon all matters
incident to the conduct of the meeting and upon other matters as may properly come
before the meeting.
</TABLE>
The Board of Directors recommends a vote IN FAVOR OF the director listed
above and a vote IN FAVOR OF each of the listed proposals. This Proxy, when
properly executed, will be voted as specified above. IF NO SPECIFICATION IS
MADE, THIS PROXY WILL BE VOTED IN FAVOR OF THE ELECTION OF THE DIRECTOR LISTED
ABOVE AND IN FAVOR OF THE OTHER PROPOSALS.
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<S> <C>
Please print the name(s) appearing
on each share certificate(s) over
which you have voting authority: (Print name(s) on certificate)
Please sign your name: Date:
(Authorized Signature(s))
</TABLE>
