<PAGE>
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
[_] Preliminary Information Statement [_] Confidential, for Use of the
Commission Only (as permitted
by Rule 14c-5(d)(2))
[X] Definitive Information Statement
Silicon Gaming, Inc.
--------------------------------------------
(Name of Registrant As Specified In Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
INFORMATION STATEMENT PURSUANT TO SECTION 14(f)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
REPORT OF CHANGE IN MAJORITY OF DIRECTORS
October 29, 1999
Silicon Gaming, Inc. ("Silicon Gaming" or the "Company") is sending this
Information Statement to you and each of Silicon Gaming's other stockholders
in accordance with the requirements of Section 14(f) and Rule 14f-1 of the
Securities Exchange Act of 1934.
No vote by the Company's shareholders is required in response to this
Information Statement. Proxies are not being solicited. You are not required
to take any action.
At the close of business on October 15, 1999, there were 14,588,571 shares
of the Company's Common Stock issued and outstanding. The Company's Common
Stock is the only class of its securities outstanding entitled to vote for the
election of directors of the Company at a stockholders meeting if one were to
be held. Each share of the Common Stock entitles its record holder to one
vote.
This Information Statement is being sent to the stockholders of Silicon
Gaming on or about October 20, 1999.
INTRODUCTION
The Company anticipates that on or about November 12, 1999, the
transactions contemplated by the Restructuring Agreement (the "Restructuring")
discussed below under "Restructuring Agreement" will be completed and the
Board of Directors of the Company will be reconstituted and fixed at 3
directors. Effective as of the closing of the transactions, it is anticipated
that Mr. William Hart, Mr. Kevin R. Harvey and Mr. Thomas J. Volpe will resign
as directors of the Company and that Mr. Rob Reis and Mr. Stanford Springel
will be appointed as new directors to fill the vacancies created by the
resignations. Mr. Andrew Pascal, a current director of the Company, will
remain a director after the closing. The closing will not occur and the new
directors will not begin their term until after the expiration of the ten-day
period beginning on the later of the date of the filing of this Information
Statement with the Securities and Exchange Commission pursuant to Rule 14f-1
or the date of mailing of this Information Statement to the Company's
stockholders.
Please read this Information Statement carefully. It describes the terms of
the Restructuring Agreement and contains certain biographical and other
information about the executive officers and directors of the Company,
including those who will be officers and directors following the closing of
the Restructuring.
RESTRUCTURING AGREEMENT
The Company anticipates that on or about November 5, 1999, it will enter
into a Restructuring Agreement (the "Restructuring Agreement") with the
holders (the "Holders") of $47.25 million of the Company's outstanding Senior
Discount Notes (the "Notes"). Under the Restructuring Agreement,
$39.75 million of the Notes and any interest accrued but unpaid on those
Notes, will be cancelled in exchange for shares of the Company's Series D
Convertible Preferred Stock. The Series D Preferred Stock will be convertible
into 57% of the outstanding common stock of the Company calculated as of the
date of the closing of the Restructuring Agreement and subject to the
satisfaction of certain gaming laws and restrictions. The terms of the
remaining $7.5 million of outstanding Notes will be modified to reduce the
interest rate from 12.5% to 10% per annum (effective July 15, 1999) and to
provide for interest to be payable in kind, at the Company's option and
subject to certain coverage ratio tests, for up to the first five (5) years
following the effective date of the Restructuring, at which time the Notes
would mature. Any interest on the remaining $7.5 million of outstanding Notes
accrued but unpaid through July 15, 1999, will be canceled.
<PAGE>
The Restructuring Agreement also outlines an additional investment by the
Holders of the Notes of up to $5.0 million in the form of senior secured notes
(the "New Notes"). The New Notes will bear cash interest at the rate of 10%
per annum, and in-kind interest at the rate of 3% per annum, and will mature
in 5 years. The New Notes will be issuable in tranches, with the first $2.0
million issued on the closing date of the restructuring. The remaining $3.0
million of New Notes will be issued upon the achievement of certain financial
and operating hurdles. As a part of the Restructuring, the Company currently
intends to issue to existing shareholders out-of-the-money warrants to
purchase an aggregate of 15% of the total outstanding shares of common stock
of the Company. The warrants would not be exercisable for the first 12 months
and would expire after 4 years.
As part of the Restructuring, the Company will allocate 38% of its equity
as of the closing date of the Restructuring Agreement to be issued as
incentive compensation to employees. The Company's current equity holders,
including all holders of options, warrants and convertible preferred stock,
will own approximately 5% of the outstanding fully-diluted equity of the
Company upon the closing of the Restructuring.
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information regarding the current directors, including
information furnished by them as to principal occupations, certain other
directorships held by them, any arrangements pursuant to which they were
selected as directors or nominees and their ages as of October 15, 1999.
<TABLE>
<CAPTION>
Name Age Occupation
---- --- ----------
<C> <C> <S>
President and Chief Executive Officer, Silicon
Andrew S. Pascal........ 33 Gaming, Inc.
William Hart............ 58 General Partner, Technology Partners
Kevin R. Harvey......... 34 General Partner, Benchmark Capital Management
Thomas J. Volpe......... 63 Sr. Vice President, Financial Operations,
Interpublic Group of Companies
</TABLE>
The following is a brief summary of the background of each director of
Silicon Gaming.
Andrew S. Pascal was elected President and Chief Executive Officer of the
Company in February 1999. Previously Mr. Pascal had served as Executive Vice
President Marketing and Game Development of the Company since October 1994. He
has over 10 years of gaming industry experience with an emphasis in slot
marketing, slot merchandising and slot operations. He joined SGI in October
1994 from Mirage Resorts, Incorporated, where he worked from June 1985 to
October 1994. Mr. Pascal held the position of Director of Slot Operations and
Marketing at The Mirage Hotel and Casino ("The Mirage"). Mr. Pascal also
served on The Mirage's eight-member Operating Committee, which set operating
policy and established the strategic direction for The Mirage and its
employees, from September 1992 to October 1994. Prior to the opening of The
Mirage, Mr. Pascal served as the Director of Slot Marketing for the Golden
Nugget Casino-Hotel.
William Hart has served as a director of the Company since May 1994 and
will resign as of the date of the closing of the Restructuring Agreement.
Kevin R. Harvey has served as a director of the Company since August 1995
and will resign as of the date of the closing of the Restructuring Agreement.
Thomas J. Volpe has served as a director of the Company since March 1997
and will resign as of the date of the closing of the Restructuring Agreement.
2
<PAGE>
BOARD OF DIRECTORS FOLLOWING THE CLOSING OF THE RESTRUCTURING AGREEMENT
The following persons will constitute the Company's board of directors
following the closing of the Restructuring Agreement:
<TABLE>
<CAPTION>
Name and Address of
Designee Age Occupation
------------------- --- ----------
<S> <C> <C>
Andrew Pascal........... 33 President and Chief Executive Officer, Silicon Gaming, Inc.
Rob Reis................ 45 Independent Consultant
Stanford Springel....... 52 Chief Executive Officer of Omega Environmental, Inc.
</TABLE>
Rob Reis is expected to be appointed to the board of directors of the
Company effective as of the closing of the Restructuring Agreement. He is
currently engaged as an independent consultant with the Company for strategic
business advice. From 1997 to 1998, he served as a director of the Texas
Instruments Innovation Center. In 1987 Mr. Reis founded Savi Technology, Inc.,
and from 1987 to 1997 served as its President and Chief Executive Officer. In
1983, Mr. Reis founded Finial Technology, Inc. and from 1983 to 1987 served as
its President and Chief Executive Officer.
Stanford Springel is expected to be appointed to the board of directors of
the Company effective as of the closing of the Restructuring Agreement. Mr.
Springel is a specialist in company turn-arounds. Since 1991, Mr. Springel has
acted as an independent consultant serving in a variety of executive roles
providing domestic and international turnaround management services to
financially distressed companies, including (i) Omega Environmental, Inc., an
environmental services company currently in Chapter 11 where, since June 1997,
Mr. Springel has served as Chief Executive Officer, (ii) Interlogic Trace,
Inc., ("Interlogic"), a nationwide provider of computer maintenance and repair
services where, from February 1995 to December 1995, Mr. Springel served as
Interim Chief Operating Officer and Interim President, (iii) Riedel
Environmental Technologies, Inc. ("Riedel"), an environmental remediation and
services company where, from January 1994 to March 1996, Mr. Springel served
as Interim Chief Executive Officer and President and, for a period of time, as
a member of the board of directors, and (iv) Ter Meulen Post, a Dutch retail
catalogue company where, during 1993, Mr. Springel served as Chief Operating
Officer. Both Interlogic and Riedel were in Chapter 11 during Mr. Springel's
association with those companies. Since December 1995, Mr. Springel has served
on the board of directors of Pinebrook Capital.
3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of October 15, 1999 the beneficial
ownership of the voting securities of Silicon Gaming by each person known to
Silicon Gaming to be the beneficial owner of more than 5% of any class of its
voting securities as well as the beneficial ownership of equity securities of
Silicon Gaming by each of its directors, its named executive officers and its
directors and officers as a group. To Silicon Gaming's knowledge, each person
named has the sole voting and investment power with respect to the securities
listed as owned by him or it.
<TABLE>
<CAPTION>
Shares of Common
Stock
Beneficially
Owned(1)
--------------------
Five Percent Shareholders, Directors and Executive Percentage
Officers Number Ownership
-------------------------------------------------- --------- ----------
<S> <C> <C>
DDJ Capital Management, LLC(2)....................... 1,066,460 7.01%
141 Linden Street, Suite 4
Wellesley, MA 02482-7910
FMR Corp.(3)......................................... 893,500 6.12
82 Devonshire Street
Boston, MA 02109
William Hart(4)...................................... 697,624 4.79
Andrew S. Pascal..................................... 646,665 4.31
Kevin R. Harvey(5)................................... 620,181 4.26
Paul D. Mathews...................................... 256,665 1.73
Betsy B. Sutter...................................... 225,200 1.52
Thomas J. Volpe(6)................................... 148,054 1.05
All directors and current executive officers as a
group
(8 persons)(7)...................................... 2,950,617 18.65
</TABLE>
- --------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by that
person that are currently exercisable or will become exercisable within 60
days after October 15, 1999 are deemed outstanding, while such shares are
not deemed outstanding for purposes of computing percentage ownership of
any other person. In general, options granted under the 1994 Stock Option
Plan are fully exercisable from the date of grant, subject to the
Company's right to repurchase any unvested shares at the original exercise
price upon termination of employment. The information set forth in this
table does not include among shares beneficially owned or outstanding
shares of Common Stock issuable upon conversion of Nonvoting Redeemable
Convertible Preferred Stock (the "Nonvoting Preferred"), which is
convertible only upon 75 days' prior notice to the Company. Unless
otherwise indicated in the footnotes below, the persons and entities named
in the table have sole voting and investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable.
(2) Based on information provided in Schedule 13D as filed 7/26/99 by DDJ
Capital Management, LLC ("DDJ"). All of the 1,066,460 shares are held by B
III Capital Partners, L.P. ("B III"). DDJ Capital III, LLC, an affiliate
of DDJ, is the general partner of, and DDJ is the investment manager for,
B III. Includes 625,000 shares issuable upon exercise of currently
exercisable warrants.
(3) Based on information provided in Schedule 13G as filed 2/1/99 by FMR Corp.
(4) Includes 591,768 shares held by Technology Partners Fund V, L.P., of which
TPW Management V, L.P. ("TPW") is the general partner, and 24,002 shares
held by TPW. Mr. Hart is the Managing Partner of TPW. Mr. Hart disclaims
beneficial ownership of these shares except to the extent of his
proportionate interest therein. Includes 22,499 shares subject to options
exercisable within 60 days after October 15, 1999. Excludes 290,118 shares
of Common Stock issuable upon conversion of Nonvoting Preferred. Assuming
conversion of all outstanding shares of Nonvoting Preferred, Technology
Partners Fund V, L.P. would be the beneficial owner of 6.78% of the
Company's outstanding Common Stock.
4
<PAGE>
(5) Includes 520,400 shares held by Benchmark Capital Partners, L.P., and
60,600 shares held by Benchmark Founders' Fund, L.P. Mr. Harvey is a
member of Benchmark Capital Management LLC ("BCM"), the general partner of
each of these entities. Mr. Harvey disclaims beneficial ownership of these
shares except to the extent of his proportionate interest therein.
Includes 22,499 shares subject to options exercisable within 60 days after
October 15, 1999. Excludes 450,987 shares of Common Stock issuable upon
conversion of Nonvoting Preferred. Assuming conversion of all outstanding
shares of Nonvoting Preferred, BCM would be the beneficial owner of 7.35%
of the Company's outstanding Common Stock.
(6) Includes 133,333 shares held by Interpublic Benefit Protection Trust, of
which Mr. Volpe is a trustee
(7) Includes 1,277,813 shares issuable upon exercise of stock options that are
currently exercisable or will become exercisable within 60 days after
October 15, 1999. Includes one executive officer who was appointed in
February 1999 and one who was appointed in June 1999. Also includes
591,768 shares held by Technology Partners Fund V, L.P. and 24,002 shares
held by TPW, of which Mr. Hart, the Managing Partner of TPW, the general
partner of Technology Partners Fund V, L.P., disclaims beneficial
ownership except to the extent of his proportionate interest therein;
520,400 shares and 60,600 shares beneficially owned by BCM, of which Mr.
Harvey, a member of BCM, disclaims beneficial ownership except to the
extent of his proportionate interest therein; and 133,333 shares held by
Interpublic Benefit Protection Trust, of which Mr. Volpe is a trustee.
Excludes 290,118 shares and 450,987 shares, respectively, of Nonvoting
Preferred beneficially owned by Technology Partners Fund V, L.P. and BCM.
Assuming conversion of all outstanding shares of Nonvoting Preferred, the
Company's executive officers and directors as a group would be deemed to
be the beneficial owner of 23.32% of the Company's outstanding Common
Stock.
LEGAL PROCEEDINGS
There are no material proceedings to which any director, officer or
affiliate of the Company, any owner of record or beneficially of more than
five percent of any class of voting securities of the Company, or any
associate of any such director, officer, affiliate of the Company, or security
holder is a party adverse to the Company or any of its subsidiaries or has a
material interest adverse to the Company or any of its subsidiaries.
BOARD COMMITTEES AND MEETINGS
During fiscal year 1998, the Board of Directors held 10 meetings and acted
by unanimous written consent on 2 occasions. The Board of Directors has an
Audit Committee and a Compensation Committee. During fiscal 1998, the Audit
Committee consisted of Messrs. Fell and Volpe through May 26, 1998, and
Messrs. Hart and Volpe from May 27, 1998 through the end of the fiscal year.
The Audit Committee 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 two meetings during the last
fiscal year. The Compensation Committee for the 1998 fiscal year consisted of
Messrs. Harvey and Morse through August 18, 1998, and Messrs. Hart and Havey
from August 19, 1998 through the end of the fiscal year. The Compensation
Committee is primarily responsible for reviewing and approving the Company's
general compensation policies and setting compensation levels for the
Company's executive officers, and for administering the Company's stock option
plans and the Employee Stock Purchase Plan. The Compensation Committee acted
by unanimous written consent on three occasions during the last fiscal year.
The Company has no standing Nominating Committee. Nominations for election
of Rob Reis and Stanford Springel were made by a majority of the Board of
Directors of the Company. During fiscal year 1998, no director attended fewer
than 75% of the meetings of the Board of Directors and Committees of the Board
on which such director served.
5
<PAGE>
DIRECTORS' COMPENSATION
Non-employee directors receive no cash compensation for attending meetings
of the Board or Board Committees. Non-employee directors are reimbursed for
out-of-pocket expenses in connection with attendance at meetings of the Board
or Board Committees. Non-employee directors receive automatic option grants
under the 1996 Outside Directors Stock Option Plan (the "Directors Plan"). As
of the date of this Information Statement, there were 3 non-employee directors
eligible to participate in the Directors Plan. Under the Directors Plan, each
non-employee Board member who (i) was a non-employee director prior to the
effective date of the Company's initial public offering ("Effective Date") or
(ii) first became a non-employee director after the Effective Date received a
non- statutory option to purchase 15,000 shares of Common Stock (unless such
member was previously an employee of the Company). On the date of each annual
shareholders' meeting each individual re-elected as a non-employee director at
such meeting is automatically granted a non-statutory option to purchase 5,000
shares of Common Stock. A total of 200,000 shares were initially reserved for
issuance under the Directors Plan. The exercise price per share of Common
Stock subject to each automatic option grant is equal to one hundred percent
(100%) of the fair market value per share on the automatic grant date. The
options have a maximum term of 10 years, measured from the grant date, subject
to earlier termination upon cessation of service as a director.
Options granted under the Directors Plan are exercisable according to the
vested ratio of shares. The initial automatic grant for 15,000 shares and each
subsequent annual 5,000-share automatic grant made to each non-employee Board
member vests in a series of 36 equal monthly installments beginning one month
after the grant date, provided the Board member continues in Board service
through each such vesting date. Notwithstanding the foregoing, options granted
under the Directors Plan shall automatically vest upon the occurrence of
certain corporate transactions, including certain mergers or changes in
control of the Company or the sale of all or substantially all of the
Company's assets.
Pursuant to the 1998 Annual Meeting, Messrs. Piemont, Volpe, Hart, Harvey
and Morse each received automatic grants of options to purchase 5,000 shares
of Common Stock on May 26, 1998 at an exercise price of $9.375 per share.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and each of the other four most highly compensated
executive officers whose compensation for the fiscal year ended December 31,
1998 exceeded $100,000 for services rendered in all capacities to the Company
during the last three fiscal years (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Shares
Underlying
Name and Principal Fiscal Options All Other
Position Year Salary(1) Bonus Granted Compensation(2)
------------------ ------ --------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Donald J. Massaro(3).... 1998 $253,108 -- -- $2,126
Former Chairman of the
Board, President 1997 $250,000 $37,250 45,000 $1,771
and Chief Executive
Officer 1996 $250,000 $15,000 -- --
David S. Morse(4)....... 1998 $ 64,919 -- 155,000(5) --
Chairman of the Board
and Acting -- -- -- -- --
Chief Executive Officer -- -- -- -- $1,728
Andrew S. Pascal(6)..... 1998 $191,338 $ 2,300 130,000(7) $ 380
Executive Vice
President-- 1997 $162,500 $35,003 30,000 332
Marketing and Game
Development 1996 $135,129 $15,000 100,000 324
Betsy B. Sutter......... 1998 $121,870 $15,000 150,400(8) $ 319
Vice President--Human
Resources(9) 1997 $ 82,385 -- 25,200 $ 198
Paul D. Mathews......... 1998 $125,000 $ 6,375 163,336(10) $ 270
Vice President--
Business Development 1997 $110,417 -- 40,000 $ 262
and Government Affairs 1996 $ 89,583 $15,000 33,332 $ 216
Thomas E. Carlson(11)... 1998 $172,508 -- 63,333(7) $ 653
Former Vice President-- 1997 $148,333 $25,157 30,000 $ 627
Chief Financial Officer 1996 $128,115 $15,000 33,333 $ 571
Paul Kurth(12).......... 1998 $126,871 $ 3,633 166,668(13) $3,112
Former Vice President--
Operations 1997 $136,667 -- 45,000 $3,826
1996 $120,000 $15,000 -- $2,160
</TABLE>
- --------
(1) Salary includes any compensation deferred under Company's 401(k) plan.
(2) Represents life insurance premiums paid by the Company for the benefit of
the Named Executive Officer.
(3) Mr. Massaro resigned from the Company in August 1998. Salary includes
amounts paid to Mr. Massaro in connection with his separation from the
Company.
(4) Mr. Morse was elected Chairman of the Board in August 1998 and served as
Acting Chief Executive Officer from August 1998 to February 1999. He
resigned from the Company's Board of Directors in May 1999.
(5) Represents options to purchase 5,000 shares granted to Mr. Morse in his
capacity as a director and options to purchase 75,000 shares granted to
him as Acting Chief Executive Officer, which shares were repriced in
December 1998.
(6) Mr. Pascal currently serves as President and Chief Executive Officer of
the Company, to which he was elected in February 1999.
7
<PAGE>
(7) Represents options granted in prior years and repriced in September 1998.
(8) Represents options to purchase 25,200 shares granted in prior years and
repriced in January 1998 and in September 1998; options to purchase
50,000 shares granted in 1998 and repriced in September 1998.
(9) Ms. Sutter was hired in March, 1997.
(10) Represents options to purchase 40,000 shares granted in prior years and
repriced in January 1998 and in September 1998; options to purchase
16,666 shares granted in a prior year and repriced in September 1998;
options to purchase 33,335 shares granted in 1998, repriced in September
1998 and subsequently cancelled in October 1998.
(11) Mr. Carlson resigned from the Company in March 1999.
(12) Mr. Kurth resigned from the Company in October 1998.
(13) Represents options to purchase 45,000 shares granted in prior years and
repriced in January 1998 and in September 1998; options to purchase
38,334 shares granted in 1998 and repriced in September 1998.
8
<PAGE>
STOCK OPTION GRANTS
The following table sets forth further information regarding individual
grants of options for the Company's Common Stock during the year ended
December 31, 1998 for each Named Executive Officer. Such grants were made
pursuant to the Company's 1994 Stock Option Plan and 1997 Non-Qualified Stock
Option Plan. In accordance with the rules of the Securities and Exchange
Commission ("SEC"), the table sets forth the hypothetical gains or "option
spreads" that would exist for the options at the end of their respective ten-
year terms based on assumed annualized rates of compound stock price
appreciation of 5% and 10% from the dates the options were granted to the end
of the respective option terms. Actual gains, if any, are dependent on the
future performance of the Company's Common Stock and overall market
conditions. There can be no assurance that the potential realizable values
shown in this table will be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Number of % of Total Stock Price
Shares Options Appreciation for
Underlying Granted to Exercise Option Term(4)
Options Employees Price Expiration ----------------
Name Granted(1)(2) in 1998 Per Share(3) Date 5% 10%
---- ------------- ---------- ------------ ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Donald J. Massaro....... 0 0 -- --
David S. Morse.......... 5,000 .1493 $9.375 5/26/08 $ 27,313 68,058
75,000 2.2402 $6.00 8/19/08 $270,240 677,816
75,000(5) 2.2402 $1.875 8/19/08 $ 84,450 211,817
Andrew S. Pascal........ 100,000(6) 2.9870 $4.00 10/9/06 $182,395 439,644
30,000(6) .8961 $4.00 4/16/07 $ 59,909 144,692
Betsy B. Sutter......... 200(7) .0060 $9.125 12/10/07 $ 999 2,458
200(6) .0060 $4.00 12/10/07 $ 438 1,077
25,000(7) .7467 $9.125 3/19/07 $112,557 271,243
25,000(6) .7467 $4.00 3/19/07 $ 49,340 118,901
50,000 1.4935 $7.00 7/28/08 $208,550 522,188
50,000(8) 1.4935 $4.00 7/28/08 $119,171 298,393
Paul D. Mathews......... 40,000(7) 1.1947 $9.125 4/16/07 $182,223 440,104
40,000(6) 1.1947 $4.00 4/16/07 $ 79,878 192,922
33,335 .9957 $7.00 7/28/08 $139,040 348,142
33,335(8)(9) .9957 $4.00 7/28/08 $ 79,451 198,939
16,666(6) .4978 $4.00 5/28/06 $ 29,034 68,422
Thomas E. Carlson....... 33,333(6) .9956 $4.00 5/28/06 $ 58,070 136,849
30,000(6) .8961 $4.00 4/16/07 $ 59,909 144,692
Paul Kurth.............. 45,000(7) 1.3441 $9.125 4/16/08 $205,000 495,117
45,000(6) 1.3441 $4.00 4/16/07 $ 89,863 217,038
38,334 1.145 $7.00 7/28/08 $159,891 400,351
38,334(8) 1.145 $4.00 7/28/08 $ 91,366 228,772
</TABLE>
- --------
(1) Options granted in 1998 were granted under the 1994 Stock Option Plan, the
1996 Outside Director's Stock Option Plan and the 1997 Non-Qualified Stock
Option Plan. The Board of Directors has discretion, subject to plan
limits, to modify the terms of outstanding options.
(2) With the exception of the options for 5,000 shares that were granted to
Mr. Morse under the 1996 Outside Directors' Plan which provides that
options become exercisable upon vesting, each option is fully exercisable
from the time of grant, subject to the Company's right to repurchase any
unvested shares at the original exercise price in the event of the
optionee's termination. Shares vest at the rate of 1/4 of the shares after
one year and then 1/48 of the total number of shares each month
thereafter. Each option expires ten years from the date of grant. Under
the 1997 Outside Directors' Plan, shares vest monthly over 36 months.
9
<PAGE>
(3) The per-share exercise price of options granted represents the fair market
value of the underlying shares of Common Stock on the dates the respective
options were granted as reported on the Nasdaq Stock Market.
(4) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of stock price appreciation are provided pursuant to the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future Common Stock price.
(5) Represents repricing in December 1998 of option granted in 1998.
(6) Represents repricing in September 1998 of options granted prior to 1998.
(7) Represents repricing in January 1998 of options granted prior to 1998.
(8) Represents repricing in September 1998 of options granted in 1998.
(9) Option cancelled in October 1998 by agreement between Mr. Mathews and the
Board of Directors.
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the exercise
of options by the named Executive Officers during 1998 and unexercised stock
options held by each of the Named Executive Officers as of December 31, 1998:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at December 31, 1998 at December 31, 1998(1)
---------------------------- ----------------------------
Exercisable(2) Unexercisable Exercisable(2) Unexercisable
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Donald J.
Massaro.......... 45,000 0 0 0
David S. Morse.... 90,693 9,307 0 0
Andrew S. Pascal.. 130,000 0 0 0
Betsy B. Sutter... 75,200 0 0 0
Paul D. Mathews... 56,666 0 0 0
Thomas E.
Carlson.......... 63,333 0 0 0
Paul Kurth........ 0 0 0 0
</TABLE>
- --------
(1) Market value of underlying securities at year end ($1.375) minus the
exercise price.
(2) With certain exceptions, all options are fully exercisable, subject to the
Company's right to repurchase any unvested shares at the original exercise
price in the event of the optionee's termination.
EMPLOYMENT, SEVERANCE AND CHANGE OF CONTROL AGREEMENTS
In May 1995, the Company entered into an employment agreement with Donald
J. Massaro pursuant to which Mr. Massaro was employed as the Company's
President and Chief Executive Officer. The agreement entitled Mr. Massaro to a
salary of $20,833.33 per month. Under the agreement, Mr. Massaro agreed to
serve on the Board of Directors while serving as Chief Executive Officer and
to resign from the Board at such time as his employment was terminated.
In October 1996, Mr. Massaro was appointed Chairman of the Board of
Directors. The agreement also provided for loans to Mr. Massaro from the
Company for living expenses. Mr. Massaro resigned from the Company in August
1998. At the time of Mr. Massaro's resignation from the Company in August
1998, $150,000 in principal was outstanding. In connection with Mr. Massaro's
departure, the loan and interest thereon was forgiven. Upon Mr. Massaro's
resignation from the company in August 1998, Mr. Morse was re-elected Chairman
of the Board and Acting Chief Executive Officer. Mr. Morse's compensation was
fixed by contract at a rate of $175,000 per year to be paid monthly until a
new chief Executive Officer was appointed. In February 1999 the Board
appointed Mr. Andrew Pascal President and Chief Executive Officer.
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<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, officers and ten percent beneficial owners to file reports of
ownership and changes in ownership with the SEC. Directors, officers and
greater than ten percent beneficial owners are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Form 5s were
required for such persons, the Company believes that each of its directors,
officers and greater than ten percent beneficial owners during the fiscal year
ended December 31, 1998 have complied with all filing requirements applicable
to such person.
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