<PAGE> 1
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 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MECHANICAL DYNAMICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
MECHANICAL DYNAMICS, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
MECHANICAL DYNAMICS, INC.
2301 COMMONWEALTH BLVD.
ANN ARBOR, MICHIGAN 48105
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 11, 2000
To the Shareholders of Mechanical Dynamics, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Mechanical Dynamics, Inc. (the "Company") will be held at the Holiday Inn North
Campus, 3600 Plymouth Road, Ann Arbor, Michigan 48105, at 4:00 p.m. Eastern Time
on Thursday, May 11, 2000, for the following purposes:
1. To elect three directors to serve until the 2003 Annual Meeting of
Shareholders and until their successors are duly elected and
qualified.
2. To ratify and approve the Board of Directors' selection of Arthur
Andersen LLP as the independent auditors of the Company for the
current fiscal year ending December 31, 2000.
3. To transact such other business as may properly come before the
meeting and any adjournment thereof.
Only shareholders of record at the close of business on March 24, 2000,
will be entitled to notice of, and to vote at, the meeting or any adjournment
thereof.
All shareholders are cordially invited to attend the meeting. Whether or
not you expect to attend the meeting, please complete, date and sign the
enclosed proxy and return it as promptly as possible to ensure your
representation at the meeting. A return postage-prepaid envelope is enclosed for
that purpose. If you return the proxy, you may withdraw your proxy and vote your
shares in person if you attend the meeting.
Your attention is called to the attached Proxy Statement and the
accompanying proxy. A copy of the Annual Report of the Company for the fiscal
year ended December 31, 1999 accompanies this notice.
By Order of the Board of Directors
/s/Michael E. Korybalski
MICHAEL E. KORYBALSKI
Chief Executive Officer
Ann Arbor, Michigan
April 6, 2000
<PAGE> 3
MECHANICAL DYNAMICS, INC.
2301 COMMONWEALTH BLVD.
ANN ARBOR, MICHIGAN 48105
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 11, 2000
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Mechanical Dynamics, Inc. (the "Company")
for use at the 2000 Annual Meeting of Shareholders to be held at the Holiday Inn
North Campus, 3600 Plymouth Road, Ann Arbor, Michigan 48105, at 4:00 p.m.
Eastern Time on Thursday, May 11, 2000, and at any adjournment thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.
The mailing of this Proxy Statement and accompanying proxy will take place on or
about April 6, 2000.
Solicitation
The Company will bear the entire cost of solicitation of proxies in the
enclosed form, including the preparation, assembly, printing and mailing of this
Proxy Statement, the accompanying proxy and any additional information furnished
to shareholders. The solicitation of proxies by mail may be supplemented by
telephone, telegraph or personal solicitation by directors, officers or other
regular employees of the Company; no additional compensation will be paid to
directors, officers or other regular employees for such services. Brokers,
nominees and other similar record holders will be requested to forward
soliciting material and will be reimbursed by the Company upon request for their
out-of-pocket expenses.
VOTING SECURITIES AND PRINCIPAL HOLDERS
Voting Rights and Outstanding Shares
Only shareholders of record at the close of business on March 24, 2000 (the
"Record Date") will be entitled to notice of, and to vote at, the Annual Meeting
or any adjournment of the meeting. As of the close of business on March 24,
2000, the Company had 6,288,818 shares of common stock ("Common Shares" or
"Common Stock") outstanding, the only class of stock outstanding and entitled to
vote.
Each Common Share is entitled to one vote on each matter submitted for a
vote at the meeting. The presence, in person or by proxy, of the holders of
record of a majority of the outstanding Common Shares entitled to vote, or
3,144,410 shares, is necessary to constitute a quorum for the transaction of
business at the meeting or any adjournment thereof.
Revocability of Proxies
A shareholder giving a proxy may revoke it at any time before it is voted
by giving written notice of such revocation to the Secretary of the Company or
by executing and delivering to the Secretary a later dated proxy. Attendance at
the meeting by a shareholder who has given a proxy will not have the effect of
revoking it unless such shareholder gives such written notice of revocation to
the Secretary before the proxy is voted. Any written notice revoking a proxy,
and any later dated proxy, should be sent to Mechanical Dynamics, Inc., 2301
Commonwealth Blvd., Ann Arbor, Michigan 48105, Attention: David Peralta, Chief
Financial Officer.
Valid proxies in the enclosed form which are returned in time for the
meeting and executed and dated in accordance with the instructions on the proxy
will be voted as specified in the proxy. If no specification is made, the
proxies will be voted FOR the election as directors of the nominees listed
below, and FOR the selection of Arthur Andersen LLP as independent auditors of
the Company for the current fiscal year ending December 31, 2000.
1
<PAGE> 4
Principal Holders of the Company's Voting Securities
As of March 24, 2000, the following five persons were the only persons
known by the Company to beneficially own more than 5% of the Company's Common
Shares:
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF
COMMON SHARES COMMON SHARES
NAME BENEFICIALLY OWNED OWNED*
---- ------------------ -------------
<S> <C> <C>
Michael E. Korybalski....................................... 883,879 14.1%
Wellington Management Company LLP........................... 605,000 9.6%
AWM Investment Company, Inc................................. 495,500 7.9%
John C. Angell.............................................. 388,040 6.2%
Fidelity Management & Research Company...................... 343,100 5.5%
</TABLE>
- ---------------
* Based on 6,288,818 Common Shares outstanding as of March 24, 2000.
I. ELECTION OF DIRECTORS
The Board of Directors proposes that the persons named below as nominees
for election as directors for a three-year term be elected as directors of the
Company to hold office until the Annual Meeting of Shareholders to be held in
2003, and until their successors are duly elected and qualified.
Michael E. Korybalski
Mitchell I. Quain
Robert R. Ryan
The above nominees, Michael E. Korybalski, Mitchell I. Quain, and Robert R.
Ryan, are currently serving as directors of the Company. If a quorum is present,
the three nominees receiving the greatest number of votes cast at the meeting or
its adjournment shall be elected. Withheld votes and broker non-votes will not
be deemed votes cast in determining which nominees receive the greatest number
of votes cast, but will be counted for purposes of determining whether a quorum
is present. The persons named in the accompanying proxy intend to vote all valid
proxies received by them FOR the election of the nominees listed above unless
the giver of the proxy withholds authority to vote for any such nominee. The
nominees listed above have consented to serve if elected. If any nominee is
unable or declines to serve, which is not expected, it is intended that the
proxies be voted in accordance with the best judgment of the proxy holders for
another qualified person.
The following information is furnished as of March 24, 2000 with respect to
the nominees for election as directors, with respect to each person whose term
of office as a director will continue after the meeting, with
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<PAGE> 5
respect to each executive officer named in the Summary Compensation Table below,
and with respect to all directors and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE
NATURE OF OF
COMMON SHARES COMMON TERM
DIRECTOR POSITION AND OFFICES BENEFICIALLY SHARES TO
NAME SINCE AGE WITH THE COMPANY OWNED(1) OWNED(2) EXPIRE
---- -------- --- -------------------- ------------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
NOMINEES FOR ELECTION AS DIRECTORS FOR A THREE-YEAR TERM
Michael E. Korybalski......... 1977 53 Chief Executive Officer, 883,879 14.1 2003
Chairman of the Board and
Director
Mitchell I. Quain............. 1996 48 Director 78,592(3) 1.2 2003
Robert R. Ryan................ 1997 42 President, Chief Operating 248,670(4) 3.9 2003
Officer and Director
DIRECTORS CONTINUING IN OFFICE
Herbert S. Amster............. 1990 65 Director 89,930(5) 1.4 2002
David E. Cole................. 1995 62 Director 35,500(6) * 2001
Joseph F. Gloudeman........... 1993 64 Director 58,430(7) * 2002
OTHER CURRENT EXECUTIVE OFFICERS
Michael Hoffmann.............. -- 43 Senior Vice President -- 49,887(8) *
Worldwide Sales & Service
David Peralta................. -- 32 Vice President, Treasurer 21,051(9) *
and Chief Financial Officer
All directors and executive officers as a group (8 persons)................. 1,465,939(10) 22.7
</TABLE>
- ---------------
* Less than 1%
(1) All directors, nominees and executive officers named in this Proxy
Statement have sole investment and voting power with respect to shares of
Common Stock beneficially owned by them.
(2) Based on 6,288,818 shares outstanding as of March 24, 2000.
(3) Includes 58,592 shares held by trusts of which Mr. Quain holds voting power
as the trustee and 20,000 shares subject to options exercisable within 60
days of the Record Date.
(4) Includes 3,000 shares held by Dr. Ryan's wife as custodian for their
children and 50,000 shares subject to options exercisable within 60 days of
the Record Date.
(5) Includes 65,930 shares held by a trust of which Mr. Amster holds voting
power as the trustee, 4,000 shares held by a trust of which Mr. Amster's
wife holds voting power as the trustee and 20,000 shares subject to options
exercisable within 60 days of the Record Date.
(6) Includes 20,000 shares subject to options exercisable within 60 days of the
Record Date.
(7) Includes 38,430 shares held by a trust of which Dr. Gloudeman holds voting
power as the trustee and 20,000 shares subject to options exercisable
within 60 days of the Record Date.
(8) Includes 16,667 shares subject to options exercisable within 60 days of the
Record Date.
(9) Includes 17,500 shares subject to options exercisable within 60 days of the
Record Date.
(10) Includes 164,167 shares which all executive officers and directors as a
group have the right to acquire within 60 days of the Record Date.
BIOGRAPHICAL INFORMATION
The following is a brief account of the business experience during the past
five years of the nominees for the Board of Directors of the Company and of each
director whose term of office will continue after the meeting:
Michael E. Korybalski, a co-founder of the Company, is Chief Executive
Officer and Chairman of the Board and a director of the Company. From 1984 to
February 1997, Mr. Korybalski served as President of the Company. From 1977 to
1984, Mr. Korybalski served as Vice President and General Manager of the
Company. From 1973 to 1977, he was employed as a product engineer with Ford
Motor Company.
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<PAGE> 6
Mr. Korybalski holds B.S.E. and M.S.E. degrees in mechanical engineering, as
well as an M.B.A., from The University of Michigan.
Mitchell I. Quain has served as a director of the Company since 1996. He
has served as Global Head -- Industrial Manufacturing Group at ING Barings, an
investment banking company, since 1997. From 1975 to 1997, Mr. Quain was
employed at Schroder Wertheim & Company, where he most recently served as
Managing Director, Head of Equity Capital Markets. Mr. Quain is a director of
Allied Products Corp., Magnetek, Inc., Strategic Distribution, and Titan
International, Inc.
Robert R. Ryan became the President of the Company in February 1997 and
since 1991 has served as its Chief Operating Officer. Dr. Ryan was elected a
director of the Company in May 1997. He served as the Company's Executive Vice
President from 1991 to February 1997, and as the Company's Vice President of
Product Development from 1988 through 1991. Before joining the Company, Dr. Ryan
held various positions in sales and engineering services at Structural Dynamics
Research Corporation, and served on the engineering faculty at The University of
Michigan. He holds a B.S. from the University of Cincinnati and an M.S. and
Ph.D. in applied mechanics from Stanford University.
Herbert S. Amster has served as a director of the Company since 1990. He is
now an independent management consultant. Mr. Amster was Chairman of the Board
and Chief Executive Officer of Irwin Magnetic Systems, Inc., a manufacturer of
minicartridge tape drives, from 1985 through 1989; Senior Vice President
Corporate Development, and a director, of Cipher Data Products Inc., from 1989
through 1990; and Senior Vice President Corporate Development of Archive Corp.
in 1991. He is currently a director of Jacobson Stores Inc.
David E. Cole has served as a director of the Company since 1995. Dr. Cole
has served as the President of Applied Theory Inc., an automotive consulting
firm since 1979, as Director of the Office for the Study of Automotive
Transportation, The University of Michigan Transportation Research Institute,
since 1978 and as an Associate Professor of Mechanical Engineering and Applied
Mechanics at The University of Michigan since 1971. He is currently a director
of MSX International, Inc., Saturn Electronics & Engineering Corp., Thyssen
Inc., and Plastech Inc.
Joseph F. Gloudeman has served as a director of the Company since 1993. Dr.
Gloudeman has served as President of Gloudeman Consulting, a high-tech
consulting firm, since 1992; as Chairman of the Board, since 1992, and
President, USA Operations, since 1994, of R.O.S.E. Informatik GmbH, a German
software company. Dr. Gloudeman is the former President and Chief Executive
Officer of The MacNeal Schwendler Corporation, and a former Vice President,
Marketing for CRAY Research-Supercomputer. He is currently a director of
Automatic Intuition, Inc.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 1999, the Board of Directors held
five meetings and took action by written consent on one occasion.
Audit Committee
The Board of Directors has an Audit Committee which consists of three
directors. Mr. Amster, Dr. Cole and Mr. Quain are the current members of this
committee. The Audit Committee makes recommendations to the Board of Directors
concerning the appointment of independent auditors and reviews the Company's
accounting principles, policies and reporting practices, aids management in the
establishment and supervision of the Company's financial controls, discusses the
Company's financial controls with the independent auditors and reviews the scope
and results of audits and other accounting-related services and fees. During the
fiscal year ended December 31, 1999, the Audit Committee held three meetings and
took no action by written consent.
4
<PAGE> 7
Compensation Committee
The Board of Directors has a Compensation Committee which consists of two
directors. Mr. Amster and Dr. Gloudeman are the current members of this
committee. The Compensation Committee makes recommendations to the Board of
Directors concerning salaries and incentive compensation for the Company's
officers and employees and administers the Company's Employee Stock Purchase
Plan and the Company's 1996 Stock Incentive Plan for Key Employees. During the
fiscal year ended December 31, 1999, the Compensation Committee held four
meetings and took no action by written consent.
The Company does not have a nominating committee.
COMPENSATION COMMITTEE REPORT
The Compensation Committee's overall compensation policy applicable to the
Company's executive officers is to provide a compensation package that is
intended to attract and retain qualified executives for the Company and to
provide them with incentives to achieve the Company's goals and increase
shareholder value. The Compensation Committee applies this philosophy in
determining compensation for Company executive officers in three areas: salary,
bonuses and stock options. The Compensation Committee believes that the
compensation of the Chief Executive Officer and the Company's other executive
officers should be influenced by the Company's performance. Consistent with this
philosophy, the Compensation Committee approves performance goals for each
executive officer (after receiving the recommendations of Michael E. Korybalski,
Chairman of the Board and Chief Executive Officer, for all executives other than
himself) near the beginning of each year. For 1999, these performance goals
included objective targets for revenue growth and earnings (the "Performance
Goals"), both of which required improvements over 1998 levels.
SALARY
The Compensation Committee's policy is to offer salaries to its executive
officers that are competitive in its industry for similar positions requiring
similar qualifications. The Compensation Committee also adjusts salaries to
reflect its subjective assessment of the executive's performance of his or her
Performance Goals, the amount of salary change appropriate for such performance
and the Company's financial condition (after receiving the performance
evaluations and recommendations of Mr. Korybalski). In determining executive
officers' salaries, the Compensation Committee considers information provided by
the Chief Executive Officer, whose recommendations are based upon salary surveys
specific to the Company's industry, size and geographic location (the
"Surveys"). Such Surveys are prepared by an independent organization using
information provided from approximately 200 companies. These Surveys summarize
information from companies deemed comparable by the Compensation Committee in
terms of such things as product or industry, geography and/or revenue levels. In
addition to their base salaries, the Company's executive officers, including the
Chief Executive Officer, are each eligible to receive a cash bonus and are
entitled to participate in the 1996 Stock Incentive Plan for Key Employees. The
bonus for the Chief Executive Officer and for other executives is based
primarily on Company performance.
The foregoing information was presented to the Compensation Committee in
January 1999. The Compensation Committee reviewed the recommendations and
performance and market data outlined above and established a base salary level
to be effective January 1, 1999 for each executive officer, including the Chief
Executive Officer. In addition to considering the results of the performance
evaluations and information concerning competitive salaries, the Compensation
Committee and Chief Executive Officer place significant weight on the financial
condition of the Company in considering salary adjustments.
BONUSES
The Compensation Committee's policy is to pay bonuses to executives that
compensate them for achieving the Company's revenue growth and earnings targets
set near the beginning of the year and for achieving individual goals based on
their areas of responsibility. These bonuses are intended to make a significant
portion of each executives' compensation dependent on the Company's performance
and to provide
5
<PAGE> 8
executives with incentives to achieve Company goals, increase shareholder value
and work as a team. They are also intended to recognize the executives'
individual contributions to the Company.
The Compensation Committee determines annually the total amount of cash
bonuses available for executive officers. The individual target amounts are
determined based on the Compensation Committee's judgment of the value of the
individual executive's achievement of his or her Performance Goals. In all
cases, the relative target amounts for individual officers are based upon the
total dollars available for bonuses, and historical and expected future
contributions by the individual executive. For 1999, the objectives used by the
Company as the basis for incentive compensation were based primarily on Company
performance. Executives earn a percentage of the target amounts under the bonus
plan relating to the achievement of the Performance Goals, as determined by the
Compensation Committee annually in its discretion. Awards are weighted so that
proportionately higher awards are received when the Company's performance
exceeds targets and proportionately smaller or no awards are made when the
Company does not meet targets.
STOCK OPTIONS
The Compensation Committee's policy is to grant stock options to the
Company's executives in amounts reflecting the Compensation Committee's
subjective evaluation of the executive's position, responsibilities, ability to
influence, and expected contributions to, the Company's overall performance.
Other factors considered by the Compensation Committee include consistency in
numbers of options granted to executives at similar levels in the Company, past
performance, the Surveys and the recommendations of Mr. Korybalski, without any
specific weight given to any of the factors listed above. In determining the
size of the individual grants, the Compensation Committee also considers the
amounts of options outstanding and previously granted both in the aggregate and
with respect to the optionee, the amount of options remaining available for
grant under the 1996 Stock Incentive Plan for Key Employees and the aggregate
amount of current awards, and for new officers, the amount necessary to attract
other executives to the Company. The Compensation Committee believes that
employee equity ownership provides significant additional motivation to
executives to maximize value for the Company's shareholders. Under the terms of
the 1996 Stock Incentive Plan for Key Employees, the Compensation Committee
grants stock options with an exercise price equal to the prevailing market
price. Such options will have value only if the Company's stock price increases.
Therefore, the Compensation Committee believes that stock options serve to align
the interest of executive officers closely with other shareholders because of
the direct benefit executives receive to improve stock performance.
Under the 1996 Stock Incentive Plan for Key Employees, the Compensation
Committee may grant options with a term of up to 10 years to provide a long-term
incentive, and to grant options that vest over a specified period to provide the
executive with an incentive to remain at the Company. The Compensation
Committee's policy is that certain new executives with the Company may be
provided with options to attract them to the Company. The Compensation
Committee's policy is to grant stock options when the executive first joins the
Company, in connection with a significant change in responsibilities, and,
occasionally, to achieve equity within a peer group. The Compensation Committee
in its discretion may, however, grant additional stock options to executives for
other reasons. In 1999, the Compensation Committee considered these factors, as
well as the number of options held by such executive officers as of the date of
grant that remained unvested. No option grants were made to executive officers
of the Company in 1999.
1999 CHIEF EXECUTIVE OFFICER COMPENSATION
In February 1999, the Committee established a base salary for Mr.
Korybalski for 1999. This base salary represented an increase over Mr.
Korybalski's 1998 base salary. The Compensation Committee also established a
target bonus for Mr. Korybalski under the 1999 bonus plan payable based on the
Company's achievement of objective measures of revenue growth and earnings (both
of which targets required improvement from 1998). The 1999 base salary level and
target bonus were based upon a number of factors, including (a) the Compensation
Committee's assessment of the 1998 performance of the Company and Mr.
Korybalski, (b) 1999 Company performance objectives and individual performance
objectives and responsibilities for Mr. Korybalski established in February 1999,
and (c) the market compensation data for similar companies listed in the
Surveys. The performance objectives for 1999 included satisfactorily managing
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<PAGE> 9
the Company's overall corporate business plan, such as meeting the Company's
profitability projections and the Company's sales targets, and strengthening the
Company's financial position.
The Compensation Committee has concluded that Mr. Korybalski's performance
in 1999 warrants the compensation for 1999 as reflected in the Summary
Compensation Table.
COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986.
The Company intends to comply with the requirements of Section 162(m) of
the Internal Revenue Code of 1986, as amended for 2000.
COMPENSATION COMMITTEE
Herbert S. Amster
Joseph F. Gloudeman
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information for each of the fiscal years
ended December 31, 1999, 1998 and 1997 concerning compensation of (i) all
individuals serving as the Company's Chief Executive Officer during the fiscal
year ended December 31, 1999, and (ii) all other executive officers of the
Company whose total annual salary and bonus exceeded $100,000 in fiscal 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
NAME AND --------------------- UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)(1)
------------------ ---- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Michael E. Korybalski..................... 1999 195,000 2,258 -- 3,028
Chief Executive Officer 1998 190,000 -- -- 6,144
1997 190,000 16,477 -- 4,112
Robert R. Ryan............................ 1999 190,000 2,133 -- 4,480
President and Chief 1998 185,000 -- 25,000 4,656
Operating Officer 1997 175,000 15,176 50,000 4,012
Michael Hoffmann.......................... 1999 149,000 1,882 -- --
Senior Vice President -- 1998 145,000 -- 50,000(2) --
Worldwide Sales & Service 1997 105,000 44,532 25,000 --
David Peralta............................. 1999 110,000 1,004 -- 1,966
Vice President, Treasurer 1998 100,000 -- 10,000 2,818
and Chief Financial Officer 1997 90,000 3,902 10,000 2,259
</TABLE>
- ---------------
(1) The amounts shown for fiscal 1999 include (i) $1,660, $4,000 and $1,650 for
Messrs. Korybalski, Ryan and Peralta, respectively, representing the
Company's contribution to the executive officer in 1999 under the Company's
401(k) Plan, and (ii) $1,368, $480 and $316 for Messrs. Korybalski, Ryan and
Peralta, respectively, representing life insurance premiums paid by the
Company in 1999 for life insurance policies.
(2) Includes 35,000 options that replaced options with higher exercise prices
granted to Dr. Hoffmann in prior years. None of Dr. Hoffmann's options may
be exercised unless the closing price of the Company's Common Shares is
$11.00 per share or more on the most recent business day during which the
Common Shares were traded.
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<PAGE> 10
Option Grants Table
During the fiscal year ended December 31, 1999, no option grants were made
to the executive officers of the Company named in the Summary Compensation Table
above.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended December 31, 1999 by each of the
executive officers named in the Summary Compensation Table above and the value
of unexercised options held by such persons as of December 31, 1999:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FY-END(#) AT FY-END($)
ACQUIRED ON VALUE ------------------------------ ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- ----------- ----------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Michael E. Korybalski... 0 0 0/0 --/--
Robert R. Ryan.......... 0 0 31,250/43,750 --/--
Michael Hoffmann........ 0 0 16,667/33,333 --/--
David Peralta........... 0 0 12,500/12,500 --/--
</TABLE>
- ---------------
(1) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1999 of $5.125 per share, minus the aggregate
exercise price.
Compensation of Directors
Each non-employee member of the Company's Board of Directors is paid $1,000
per month and reimbursed for out-of-pocket expenses incurred in attending Board
meetings. Each non-employee director is also eligible to receive annual stock
option awards for 5,000 shares of the Company's Common Stock under the Company's
Non-Employee Director Stock Option Plan (the "Director Stock Option Plan").
The Company's Board of Directors adopted the Director Stock Option Plan in
March 1996. The Director Stock Option Plan provides for the grant of
"nonqualified" options to purchase shares of Common Stock. In May 1999, all four
non-employee directors on the Company's Board of Directors were each granted an
option to purchase 5,000 shares of Common Stock of the Company at an exercise
price of $6.56 per share. These options become fully exercisable in May 2000,
one year from the date of grant, and expire in May 2004. Immediately following
each annual meeting of shareholders of the Company, each non-employee director
who has served as a director for at least six months will automatically be
granted an option to purchase 5,000 shares of Common Stock of the Company. Upon
appointment to the Board of Directors, each newly-appointed non-employee
director will receive an option to purchase 5,000 shares of Common Stock of the
Company. A total of 200,000 shares of Common Stock are currently reserved for
issuance under the Director Stock Option Plan.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
Michael E. Korybalski entered into an employment agreement with the Company
dated as of April 1, 1994, and amended as of March 1, 2000. The agreement
provides that Mr. Korybalski will serve as the Company's Chief Executive Officer
until March 31, 2003, at which point the employment agreement can be extended at
the option of the Company for an additional three-year term. Mr. Korybalski's
base salary under the agreement for 2000 is $195,000. Mr. Korybalski's
employment may be terminated by the Company with or without cause. Mr.
Korybalski's base salary is determined by the Board of Directors on an annual
basis. In the event the Board chooses to change his duties or directs him to
relocate and he resigns as a result, or if he is terminated without cause, Mr.
Korybalski would then be entitled to his base salary, bonus and benefits for a
period equal to the longer of the remaining term of the agreement or one year
from the date of his resignation or termination. In the event he is terminated
with cause, then he would be entitled to receive only such
8
<PAGE> 11
payments and/or benefits as would be provided to other employees of the Company
in accordance with the Company's employee policies and procedures. In the event
of a change of control, the agreement is automatically extended through a date
three years from the effective date of such change in control. In the event Mr.
Korybalski resigns or is terminated in connection with a change in control, then
the Company will pay severance benefits under the same formula as in the event
of termination without cause. During the term of the agreement, and for a period
of two years thereafter, Mr. Korybalski will be subject to noncompetition and
nonsolicitation restrictions.
The Company's President and Chief Operating Officer, Robert R. Ryan,
entered into an employment agreement with the Company dated as of April 1, 1994,
as amended March 1, 2000, pursuant to which he will serve in such capacities
until March 31, 2002, at which point the employment agreement can be extended at
the option of the Company for an additional two-year term. Dr. Ryan's base
salary under the agreement for 2000 is $190,000. Dr. Ryan's base salary is
determined by the Board of Directors on an annual basis. Dr. Ryan's employment
may be terminated by the Company with or without cause. In the event the Board
chooses to change his duties or directs him to relocate and he resigns as a
result, or if he is terminated without cause, Dr. Ryan would then be entitled to
his base salary, bonus and benefits for a period equal to the longer of the
remaining term of the agreement or one year from the date of his resignation or
termination. In the event he is terminated with cause, then he would be entitled
to receive only such payments and/or benefits as would be provided to other
employees of the Company in accordance with the Company's employee policies and
procedures. In the event of a change of control, the agreement is automatically
extended through a date two years from the effective date of such change in
control. In the event Dr. Ryan resigns or is terminated in connection with a
change in control, then the Company will pay severance benefits under the same
formula as in the event of termination without cause. During the term of the
agreement, and for a period of two years thereafter, Dr. Ryan will be subject to
noncompetition and nonsolicitation restrictions.
The Company's Vice President, Treasurer and Chief Financial Officer, David
Peralta, entered into an employment agreement with the Company dated as of March
1, 1997, as amended March 1, 2000, pursuant to which he will serve in such
capacities until March 31, 2001, at which point the employment agreement can be
extended at the option of the Company for an additional one-year term. Mr.
Peralta's base salary under the agreement for 2000 is $119,000. Mr. Peralta's
base salary is determined by the Board of Directors on an annual basis. Mr.
Peralta's employment may be terminated by the Company with or without cause. In
the event the Board directs him to relocate and he resigns as a result, or if he
is terminated without cause, Mr. Peralta would then be entitled to his base
salary, bonus and benefits for a period equal to the longer of the remaining
term of the agreement or six months from the date of his resignation or
termination. In the event he is terminated with cause, then he would be entitled
to receive only such payments and/or benefits as would be provided to other
employees of the Company in accordance with the Company's employee policies and
procedures. In the event of a change of control, the agreement is automatically
extended through a date one year from the effective date of such change in
control. In the event Mr. Peralta is terminated in connection with a change in
control, then the Company will pay severance benefits under the same formula as
in the event of termination without cause. During the term of the agreement, and
for a period of two years thereafter, Mr. Peralta will be subject to
noncompetition and nonsolicitation restrictions.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 1999, Mr. Amster and Dr.
Gloudeman served as the members of the Company's Compensation Committee. None of
the members of the Company's Compensation Committee was, during the fiscal year
ended December 31, 1999, an officer or employee of the Company.
9
<PAGE> 12
PERFORMANCE GRAPH
The following line graph compares for the period since the Company became a
reporting company pursuant to the Securities Exchange Act of 1934, as amended,
on May 14, 1996, through the fiscal year ended December 31, 1999: (i) the annual
cumulative total shareholder return (i.e., the change in share price plus the
cumulative amount of dividends, divided by the initial share price, expressed as
a percentage) on the Company's Common Shares, with (ii) the cumulative total
return of an industry peer group index of companies selected by the Company, and
(iii) the cumulative total return of the Nasdaq Stock Market -- U.S. Index. Each
index assumes dividend reinvestment and is weighted based on market
capitalization.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
5/14/96 Dec-96 Dec-97 Dec-98 Dec-99
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mechanical Dynamics, Inc. 100.00 126.14 60.80 75.00 46.59
- -------------------------------------------------------------------------------------------------------------------
Industry Peer Group 100.00 105.00 112.95 112.39 147.55
- -------------------------------------------------------------------------------------------------------------------
The Nasdaq Stock Market -- U.S 100.00 104.60 128.17 180.61 326.29
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
Stock and index prices scaled to 100
An industry peer group index of companies selected by the Company has been
reflected in the above Performance Graph, in order to provide a comparative
index of market performance for companies in fields similar to that of the
Company. The industry peer group is comprised solely of companies operating in
the CAD/CAM/CAE market, which are as follows: Analogy, Inc., Ansoft Corporation,
ANSYS, Inc., Autodesk, Inc., Dassault Systemes S.A., MSC.Software Corporation,
Parametric Technology Corporation, Structural Dynamics Research Corporation,
Tecnomatix Technologies Ltd., and Unigraphics Solutions Inc.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Executive officers, directors and greater than ten-percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) reports they file.
Based solely on review of the copies of such reports furnished to the
Company during or with respect to fiscal 1999, or written representations that
no Forms 5 were required, the Company believes that during the fiscal year ended
December 31, 1999 all applicable Section 16(a) filing requirements were complied
with by each of its executive officers, directors and greater than ten-percent
beneficial owners.
10
<PAGE> 13
II. APPOINTMENT OF COMPANY'S
INDEPENDENT AUDITORS
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP are the independent auditors for the Company and have
reported on the Company's financial statements in the Company's 1999 Annual
Report to Shareholders which accompanies this Proxy Statement.
The shareholders are being asked to ratify and approve the Board of
Directors' selection of Arthur Andersen LLP as the independent auditors of the
Company for the current fiscal year ending on December 31, 2000. The Board of
Directors recommends a vote FOR approval of the selection of Arthur Andersen LLP
as the independent auditors of the Company.
A representative of Arthur Andersen LLP is expected to be present at the
Annual Meeting of Shareholders and will be available to respond to appropriate
questions.
III. OTHER MATTERS
SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at the
Company's 2001 Annual Meeting of Shareholders must be received by the Company's
Secretary no later than December 31, 2000 to be considered for inclusion in the
Proxy Statement and Proxy relating to that meeting. Such proposals should be
sent by certified mail, return receipt requested and addressed to Mechanical
Dynamics, Inc., 2301 Commonwealth Blvd., Ann Arbor, Michigan 48105, Attention:
David Peralta, Chief Financial Officer.
The Company must receive notice of any proposals of shareholders that are
intended to be presented at the Company's 2001 Annual Meeting of Shareholders,
but that are not intended to be considered for inclusion in the Company's Proxy
Statement and Proxy related to that meeting, no later than February 20, 2001 to
be considered timely. Such proposals should be sent by certified mail, return
receipt requested and addressed to Mechanical Dynamics, Inc., 2301 Commonwealth
Blvd., Ann Arbor, Michigan 48105, Attention: David Peralta, Chief Financial
Officer. If the Company does not have notice of the matter by that date, the
Company's form of proxy in connection with that meeting may confer discretionary
authority to vote on that matter, and the persons named in the Company's form of
proxy will vote the shares represented by such proxies in accordance with their
best judgement.
OTHER BUSINESS
Neither the Company nor the members of its Board of Directors intend to
bring before the Annual Meeting any matters other than those set forth in the
Notice of Annual Meeting of Shareholders, and they have no present knowledge
that other matters will be presented for action at the Annual Meeting by others.
However, if other matters are properly presented to the meeting, the persons
named in the enclosed proxy intend to vote the shares represented thereby in
accordance with their best judgment.
11
<PAGE> 14
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The audited financial statements and the Company's "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in the
Company's Annual Report to Shareholders for the fiscal year ended December 31,
1999 are hereby specifically incorporated by reference into this Proxy
Statement.
By Order of the Board of Directors
/s/ Michael E. Korybalski
MICHAEL E. KORYBALSKI
Chief Executive Officer
Ann Arbor, Michigan
April 6, 2000
12
<PAGE> 15
PROXY MECHANICAL DYNAMICS, INC. PROXY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS OF MECHANICAL DYNAMICS, INC. TO BE HELD
MAY 11, 2000
The undersigned hereby appoints Michael E. Korybalski and Robert R. Ryan,
and each of them, with full power of substitution, as attorneys and proxies of
the undersigned, to vote all shares of Mechanical Dynamics, Inc. (the "Company")
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
of the Company to be held on Thursday, May 11, 2000, at 4:00 p.m., Eastern Time,
at the Holiday Inn North Campus, 3600 Plymouth Road, Ann Arbor, Michigan 48105
(or at any adjournment(s) thereof), as follows:
1. Election of Directors -- Nominees: Michael E. Korybalski, Mitchell I. Quain,
Robert R. Ryan
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY
(except as marked below to to vote for the nominees
the contrary) listed above
[ ] ABSTAIN
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
2. Proposal to ratify and approve Arthur Andersen LLP as the independent
auditors of the Company for the fiscal year ending December 31, 2000:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion with regard to such other business as may properly come
before the Annual Meeting (or any adjournment(s) thereof).
<PAGE> 16
This Proxy is solicited on behalf of the Board of Directors.
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned. If no direction is made, the shares represented by this
Proxy will be voted in favor of the nominees named in Proposal 1 and in favor of
Proposal 2.
<TABLE>
<S> <C>
Dated: , 2000
---------------------------------------------
Shareholder should sign here
</TABLE>
NOTE: PLEASE DATE THIS PROXY AND SIGN EXACTLY AS YOUR NAME APPEARS ON YOUR STOCK
CERTIFICATE. IF THE SHARES ARE REGISTERED IN MORE THAN ONE NAME, EACH JOINT
OWNER SHOULD SIGN. WHEN SIGNING AS ATTORNEY, ADMINISTRATOR, PERSONAL
REPRESENTATIVE, EXECUTOR, GUARDIAN OR TRUSTEE, ADD YOUR TITLE TO THE SIGNATURE.
PLEASE PROMPTLY DATE, SIGN AND MAIL THIS PROXY TO THE COMPANY.
