<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
XIONICS DOCUMENT TECHNOLOGIES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
XIONICS DOCUMENT TECHNOLOGIES, INC.
70 BLANCHARD ROAD
BURLINGTON, MASSACHUSETTS 01803
October 9, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Xionics Document Technologies, Inc. (the "Company") to be held at 10:00 a.m.
on Monday, November 23, 1998, at the Company's offices at 70 Blanchard Road,
Burlington, Massachusetts 01803.
At the Annual Meeting, one person will be elected to the Board of
Directors. In addition, the Company will ask the stockholders to ratify the
selection of Arthur Andersen LLP as the Company's independent auditors, and to
approve the amendment of the Company's 1996 Stock Option Plan and the Company's
1996 Directors Stock Option Plan to reallocate shares between the two plans and
further to increase the number of shares available for grant under the 1996
Stock Option Plan. The Board of Directors recommends the approval of each of
these proposals. Such other business will be transacted as may properly come
before the Annual Meeting.
We hope you will be able to attend the Annual Meeting. Whether you plan to
do so or not, it is important that you vote your shares. Accordingly, please
complete, sign, date, and promptly return the enclosed proxy card in the return
envelope which has been provided for your convenience. This will ensure your
representation at the Annual Meeting.
Sincerely,
PETER J. SIMONE
President and
Chief Executive Officer
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE> 3
XIONICS DOCUMENT TECHNOLOGIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 23, 1998
To the Stockholders of Xionics Document Technologies, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Xionics
Document Technologies, Inc., a Delaware corporation (the "Company") will be held
on Monday, November 23, 1998 at the Company's offices at 70 Blanchard Road,
Burlington, Massachusetts 01803 at 10:00 a.m. for the following purposes:
1. To elect one member to the Board of Directors to serve for a term
ending in 2001 and until his successor is duly elected and qualified.
2. To consider and act upon a proposal to ratify the appointment of
Arthur Andersen LLP as independent auditors of the Company for the fiscal
year ending June 30, 1999.
3. To consider and act upon a proposal to approve the amendment of the
Company's 1996 Director Stock Option Plan and the Company's 1996 Stock
Option Plan to reallocate 334,000 shares currently available for issuance
under the 1996 Directors Stock Option Plan to the 1996 Stock Option Plan.
4. To consider and act upon a proposal to approve the amendment of the
Company's 1996 Stock Option Plan to increase the number of shares available
for issuance thereunder by an additional 500,000 shares of the Company's
Common Stock, over and above any shares reallocated to such Plan from the
1996 Directors Stock Option Plan.
5. To transact such other business as may properly be brought before
the Annual Meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on September 25,
1998 as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting and any adjournments thereof.
All stockholders are cordially invited to attend the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, you are requested to
complete, sign and return the enclosed proxy card as soon as possible. A
pre-addressed, postage-prepaid return envelope is enclosed for your convenience.
By order of the Board of Directors,
CAROLYN E. RAMM,
Secretary
October 9, 1998
<PAGE> 4
XIONICS DOCUMENT TECHNOLOGIES, INC.
70 BLANCHARD ROAD
BURLINGTON, MASSACHUSETTS 01803
(781) 229-7000
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Xionics Document Technologies, Inc. (the "Company"), a
Delaware corporation, of proxies in the accompanying form, to be used at the
Annual Meeting of Stockholders to be held at the Company's offices at 70
Blanchard Road, Burlington, Massachusetts 01803 at 10:00 a.m. on Monday,
November 23, 1998, and any adjournments thereof (the "Annual Meeting").
If the enclosed proxy is properly executed and returned, it will be voted
in the manner directed by the stockholder. If no instructions are specified with
respect to any particular matter to be acted upon, proxies will be voted in
favor thereof. Any person giving the enclosed form of proxy has the power to
revoke it by voting in person at the Annual Meeting, or by giving written notice
of revocation to the Secretary of the Company at any time before the proxy is
exercised.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of the Company's Common Stock, par value $0.01 (the "Common
Stock"), is necessary to constitute a quorum for the transaction of business.
The election of Directors will be decided by plurality vote. The affirmative
vote of the holders of at least a majority of the shares of the Common Stock
present in person or by proxy and entitled to vote at the Annual Meeting is
required to approve all other matters listed in the Notice of Annual Meeting.
Abstentions and broker non-votes are counted as present in determining whether
the quorum requirement is satisfied. Abstentions have the same effect as votes
against proposals presented to stockholders other than the election of
directors, while broker non-votes have no effect on the vote. A "broker
non-vote" occurs when a nominee holding shares for a beneficial owner votes on
one proposal, but does not vote on another proposal because the nominee does not
have discretionary voting power and has not received instructions from the
beneficial owner.
The record date for determining stockholders entitled to notice of and to
vote at the Annual Meeting has been fixed as the close of business on September
25, 1998. As of the close of business on that date, the Company had 12,175,097
shares of Common Stock outstanding and entitled to vote. Holders of Common Stock
are entitled to one vote per share on all matters to be voted upon by
stockholders.
The Company has retained Corporate Investor Communications, Inc. to assist
in the solicitation of proxies for the Annual Meeting and expects to pay
approximately $5,000 in connection with such proxy solicitation. In addition, it
is expected that solicitation may also be made by regular employees of the
Company (none of whom will receive any extra compensation for these activities).
Solicitation of proxies and arrangements for brokerage houses and their
custodians, nominees and fiduciaries to send proxies and proxy material to their
principals at the expense of the Company may be made by mail, telephone,
telegraph and in person.
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of September 25, 1998, certain
information with respect to the beneficial ownership of the Common Stock by: (i)
each person known by the Company to beneficially own more than 5% of the Common
Stock; (ii) each director of the Company; (iii) each executive officer named in
the Summary Compensation Table on page 7 hereof (the "Named Executive
Officers"); and (iv) all directors and executive officers of the Company as a
group. The Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole voting
and investment power with respect to such shares, except as noted below.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)(2)
--------------------
NAME AND ADDRESS** NUMBER PERCENT
- ------------------ --------- -------
<S> <C> <C>
Peter J. Simone............................................. 102,254(4) *
Edward B. Mallen............................................ 201,907(4) 1.6%
Rosemary E. Grande.......................................... 66,625(4) *
Frank P. Monaco............................................. 54,600(4) *
Gary S. Ambrosino........................................... 39,375(4) *
Robert E. Gilkes............................................ 114,800(4) *
Richard A. D'Amore(5)....................................... 964,641(4) 7.9%
Paul R. Low................................................. 26,250(4) *
David R. Skok(6)............................................ 579,324 4.8%
Thomas A. St. Germain....................................... 10,000(4) *
Hambro International Venture Fund II
404 Wyman Street, Suite 365
Waltham, MA 02154......................................... 781,977(3) 6.4%
Massachusetts Financial Services Co.
500 Boylston Street, Boston, MA 02116..................... 996,400 8.2%
Phoenix Technologies Ltd.................................... 1,048,881 8.6%
411 East Plumeria Drive, San Jose, CA 95134
Pioneering Management Corp.
60 State Street, Boston, MA 02109......................... 700,000 5.7%
All directors and executive officers as a group (14
persons)(5),(6)........................................... 2,285,484(4) 18.8%
</TABLE>
- ---------------
* Less than 1%
** Addresses are given for beneficial owners of more than 5% of the outstanding
Common Stock only.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to the shares. Shares of Common Stock subject to options
currently exercisable or exercisable within 60 days following September 25,
1998, are deemed outstanding for purposes of computing the share ownership
and percentage of the person holding such options, but are not deemed
outstanding for purposes of computing the percentage of any other person.
(2) The number of shares of Common Stock outstanding on September 25, 1998 was
12,175,097.
(3) Does not include 160,164 shares held by Hambro International Venture Fund
Offshore II, which is under common control, or 22,500 shares which Richard
A. D'Amore, general partner of Hambro International Venture Fund II, may
acquire upon the exercise of stock options granted to him by the Company.
(4) Includes shares of Common Stock subject to options which were exercisable as
of September 25, 1998 and within 60 days after September 25, 1998.
2
<PAGE> 6
(5) Includes 781,977 shares held by Hambro International Venture Fund II and
160,164 shares held by Hambro International Venture Fund Offshore II. Mr.
D'Amore is a general partner of Hambro International Venture Fund II and
Hambro International Venture Fund Offshore II and as such may be deemed to
beneficially own all such shares. Mr. D'Amore disclaims beneficial ownership
of all such shares held by Hambro International Venture Fund II and Hambro
International Venture Fund Offshore II.
(6) Includes 400,000 shares held by Monument Trust Company. Mr. Skok is
beneficiary under a trust agreement of which Monument Trust Company is the
trustee, and as such Mr. Skok may be deemed the beneficial owner of all
shares held by Monument Trust Company. Mr. Skok disclaims beneficial
ownership of all such shares.
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
The Company's Amended and Restated Certificate of Incorporation and By-laws
provide for the Company's business to be managed by or under the direction of a
Board of Directors. The number of directors is fixed from time to time by the
Board of Directors. The Board of Directors currently consists of five members,
classified into three classes as follows: David R. Skok constitutes a class with
a term expiring at the upcoming Annual Meeting (the "Class II Director"); Paul
R. Low and Richard A. D'Amore constitute a class with a term expiring at the
Annual Meeting of Stockholders in 1999 (the "Class III Directors"); and Peter J.
Simone and Thomas A. St. Germain constitute a class with a term expiring at the
Annual Meeting of Stockholders in 2000 (the "Class I Directors"). At each Annual
Meeting of Stockholders, directors are elected for a full term of three years to
succeed those directors whose terms are expiring.
The Company's current directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Paul R. Low............................... 65 Chairman of the Board of Directors
Peter J. Simone........................... 51 President, Chief Executive Officer and Director
Richard A. D'Amore........................ 45 Director
David R. Skok............................. 42 Director
Thomas A. St. Germain..................... 60 Director
</TABLE>
Dr. Low has served as a Director of the Company since October 1995 and as
Chairman of the Board of Directors since January 1998. Dr. Low has been
President and Chief Executive Officer of PRL Associates, a technology consulting
company, since June 1992. Previously, Dr. Low was Vice President and General
Manager of IBM Microelectronics, IBM's silicon design and fabrication division,
and a member of IBM's Management Board. Dr. Low is a director of Applied
Materials, Inc., Network Computing Devices, Inc., Solectron Corporation, Veeco
Instruments, Inc., and VLSI Technology, Inc.
Mr. Simone has served as a Director of the Company since December 1997, as
Chief Executive Officer of the Company since October 1997, and as President of
the Company since April 1997. He also served as Chief Operating Officer of the
Company from April 1997 until October 1997. Prior to joining the Company Mr.
Simone served as Group Vice President of Simplex Time Recorder Company, a
manufacturer and supplier of hardware and software based systems for workforce
management, building life safety, and security from December 1992 until December
1996. Mr. Simone is a director of Cymer Inc. and a director and member of the
Executive Council of the Massachusetts High Technology Council.
3
<PAGE> 7
Mr. D'Amore has served as a Director of the Company since June 1993. Mr.
D'Amore has been a general partner of North Bridge Venture Partners since 1992
and of Hambro International Venture Funds since 1982, both venture capital
investing firms. Mr. D'Amore is also a director of MathSoft, Inc., Solectron
Corporation and Veeco Instruments, Inc.
Mr. Skok has served as a Director of the Company since November 1995. Mr.
Skok has been Chairman of the Board of Directors of Silverstream Software, Inc.,
an Internet software company, since July, 1997, and served as its President and
Chief Executive Officer from June 1996 until July 1997. From January 1993 until
June 1996, he was President and Chief Executive Officer of Watermark Software,
Inc., an imaging software company. Mr. Skok is a former Chairman of the Board
and Chief Executive Officer of the Company.
Mr. St. Germain has served as a Director of the Company since March 1996.
Mr. St. Germain has been Vice President -- Financial Services of Vicor
Corporation, a power systems manufacturing company, since January 1998. He
served as Senior Vice President, Chief Financial Officer and Treasurer of Summa
Four, Inc., a telecommunications company, from May 1993 until August 1997.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
During the fiscal year ended June 30, 1998 there were eight meetings of the
Board of Directors, and its various committees met a total of three times. Mr.
Skok attended fewer than 75% of the meetings of the Board of Directors held
during fiscal 1998. (He served on no committees of the Board of Directors during
fiscal 1998.) With the exception of Mr. Skok, no director attended fewer than
75% of the total number of meetings of the Board of Directors and of committees
of the Board of Directors on which he served during fiscal 1998. From time to
time the Board of Directors and its committees acted by unanimous written
consent pursuant to Delaware law.
The Board of Directors has established an Audit Committee, a Compensation
Committee, and a Directors' Affairs Committee. The Audit Committee, which met
twice during fiscal 1998, reviews the Company's accounting practices, internal
accounting controls and financial results and oversees the engagement of the
Company's independent auditors. The members of the Audit Committee are Mr.
D'Amore and Dr. Low. The Compensation Committee, which met once during fiscal
1998, reviews and recommends to the Board of Directors the salaries, bonuses and
other forms of executive compensation for executive officers of the Company and
administers various compensation and benefit plans. The members of the
Compensation Committee are Mr. D'Amore and Mr. St. Germain. The Directors'
Affairs Committee, which did not meet during fiscal 1998, advises and makes
recommendations to the Board of Directors on all matters concerning directorship
and corporate governance practices, including the compensation of directors and
the selection of candidates as nominees for election as directors. The
Directors' Affairs Committee will consider stockholders' nominations for
director if the names of such stockholder nominees are submitted to the
Secretary of the Company at least 120 days before the anniversary of the date of
the Proxy Statement for the Company's last Annual Meeting of Stockholders, along
with a detailed statement of such nominees' qualifications. The members of the
Directors' Affairs Committee are Mr. Simone and Dr. Low.
BOARD COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Audit Committee or the Compensation Committee is
a past or current officer or employee of the Company. With the exception of Mr.
Simone, none of the members of the Directors' Affairs Committee is a past or
current officer or employee of the Company.
4
<PAGE> 8
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive meeting fees of
$2,000 for each Board of Directors meeting attended in person and $1,000 for
each committee meeting attended in person (other than committee meetings held on
the same day and at the same place as a Board of Directors meeting), and
reimbursement of reasonable travel expenses. In addition, each non-employee
director has been automatically granted on an annual basis an option to purchase
shares of the Company's Common Stock under the Company's 1996 Directors Stock
Option Plan (the "Directors Plan") at a price per share equal to the closing
price of the Company's Common Stock on the date of grant. The number of shares
covered by the automatic option grant under the Directors Plan has been
determined by the Compensation Committee annually; options to purchase 4,000
shares each were granted to the non-employee directors for the 1998 fiscal year.
To the extent that the stockholders approve the amendment of the Directors Plan
proposed in Notice Item 3 hereof, no further shares will be available for grant
under the Directors Plan. New non-employee directors joining the Board may
receive an option to purchase shares of the Company's Common Stock under the
Company's 1996 Stock Option Plan, with the number of shares determined by the
Compensation Committee in its discretion.
The Company has entered into a consulting agreement with Dr. Low dated as
of March 16, 1998, under which Dr. Low is retained to provide up to two days of
consulting services per month at a rate of $1,000 per day plus reimbursement of
reasonable travel expenses.
EXECUTIVE OFFICERS
The Company's current executive officers, who are not also directors, are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Frederick W. Ellis................... 42 Vice President -- Marketing
Brian F. Fitzgerald.................. 47 Vice President -- Engineering
Rosemary E. Grande................... 41 Chief Operating Officer
Robert L. Lentz...................... 48 Senior Vice President -- Finance and
Administration, Chief Financial Officer and
Treasurer
Edward B. Mallen..................... 49 Executive Vice President -- Sales and Marketing
Frank P. Monaco...................... 51 Senior Vice President -- Research and Development
and Chief Technology Officer
Carolyn E. Ramm...................... 43 Vice President, General Counsel and Secretary
Paul D. Thorn........................ 57 Vice President -- Operations
</TABLE>
Mr. Ellis has served as Vice President -- Marketing since October 1997. He
previously served as Vice President --Product Development from January 1997
until October 1997; as Senior Director of Product Development from November 1996
until January 1997; and as Senior Director of Multifunction Product Development
from June 1995 until November 1996. He served as Director of OEM Services at
Phoenix Technologies Ltd. ("Phoenix") from August 1994 until November 1994, and
in the same position at the Company from November 1994 until June 1995. He
served as Manager of OEM Projects at Phoenix from August 1992 until August 1994.
Mr. Fitzgerald has served as Vice President -- Engineering since joining
the Company in January 1998. Prior to joining the Company he served as Solution
Development Executive in the Global Solutions Group at IBM from September 1995
until January 1998, and as Director of Worldwide Field Applications and Design
Center Organization at IBM Microelectronics from January 1993 through August
1995.
Ms. Grande has served as Chief Operating Officer since October 1997. She
previously served as Senior Vice President -- Strategic Accounts from January
1997 until October 1997; as Vice President -- Product
5
<PAGE> 9
Development from July 1995 until January 1997; and as General Manager of the
Company's printer software division from November 1994 until June 1995. From
August 1993 until November 1994, Ms. Grande served as General Manager of the
Peripherals Division of Phoenix.
Mr. Lentz has served as Senior Vice President -- Finance and
Administration, Chief Financial Officer and Treasurer since joining the Company
in April 1998. Prior to joining the Company he served as Vice President of
Corporate Development for NewsEdge Corporation, a provider of business news and
current awareness solutions, from January 1998 until April 1998; as Senior Vice
President of Finance and Administration and Chief Financial Officer of
Individual, Inc., a predecessor of NewsEdge, from March 1996 until January 1998;
and as Senior Vice President -- Finance and Operations and Chief Financial
Officer at Teloquent Communications Corporation, a telecommunications software
company, from July 1993 until March 1996.
Mr. Mallen has served as Executive Vice President -- Sales and Marketing
since October 1997. He previously served as Vice President -- Worldwide Sales
from July 1995 until October 1997; as General Manager -- Imaging from November
1994 until June 1995; and as Vice President -- Imaging Sales from August 1993
until November 1994.
Mr. Monaco has served as Senior Vice President -- Research and Development
and Chief Technology Officer since October 1997. He previously served as Vice
President -- Research and Development from January 1996 until October 1997, and
as Vice President -- Engineering from November 1994 until January 1996. From
November 1988 until November 1994, Mr. Monaco served as Senior Director of
Engineering of the Peripherals Division of Phoenix.
Ms. Ramm has served as Vice President and General Counsel since November
1996, and as Secretary since April 1997. From March 1995 until November 1996 she
served as General Counsel, and from October 1994 through February 1995 she
served as outside counsel to the Company. Ms. Ramm served as in-house counsel to
Phoenix from July 1993 until July 1994.
Mr. Thorn has served as Vice President -- Operations since January 1997,
and as Director of Manufacturing of the Company from December 1994 until January
1997. From December 1993 until December 1994 he was Vice President of Data
Integration Company, an imaging hardware and software sales and consulting
company. From June 1990 until September 1993 he was a business manager for
Computervision Inc., a manufacturer of computer-assisted design systems.
6
<PAGE> 10
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information
regarding the Company's Chief Executive Officer and each of the four most highly
compensated other executive officers (the "Named Executive Officers") during the
fiscal years ended June 30, 1998, 1997 and 1996 except as otherwise indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
NUMBER OF
SHARES
UNDERLYING
FISCAL OTHER ANNUAL OPTIONS
NAME AND PRINCIPAL POSITION YEAR(1) SALARY (2) BONUS COMPENSATION (3) GRANTED(#)(4)
- --------------------------- ------- ---------- ------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Peter J. Simone(5)(8).................. 1998 $218,581 $ 9,900 $ 4,575 225,000(5)
President and Chief Executive Officer 1997 $ 52,500 -- -- 250,000(6)
Edward B. Mallen....................... 1998 $169,094 $22,250 $ 5,926 86,563(5)
Executive Vice President -- Sales 1997 $145,000 $44,000 $ 2,250 50,000(7)
and Marketing 1996 $125,000 $50,000 $ 4,800 --
Rosemary E. Grande..................... 1998 $167,492 $20,000 $ 8,268 87,000(5)
Chief Operating Officer 1997 $152,500 $40,000 $ 2,150 30,000(6)
1996 $118,750 $45,000 -- --
Frank P. Monaco(8)..................... 1998 $139,851 $15,500 $ 8,664 67,000(5)
Senior Vice President -- Research and 1997 $130,000 $33,000 $ 1,650 30,000(6)
Development and Chief Technical
Officer
Gary S. Ambrosino...................... 1998 $126,787 $18,000 $ 2,771 10,000
Vice President & General Manager, 1997 $130,000 $36,000 $ 958 --
Digital Document Products Division 1996 $124,500 $45,000 $ 3,600 100,000
Former Executive Officer:
Robert E. Gilkes (9)................. 1998 $113,846 $48,000 $64,736 --
1997 $240,000 $60,000 $ 3,000 --
1996 $240,000 $55,000 -- 300,000
</TABLE>
- ---------------
(1) Information regarding executive compensation for the Company's 1996 fiscal
year has been included, even though the Company was not a reporting company
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 at
any time during its 1996 fiscal year, because that information was
previously required to be provided in response to a filing requirement of
the Securities and Exchange Commission, i.e. the Company's Registration
Statement on Form S-1, made effective September 24, 1996.
(2) Includes amounts deferred during the Company's 1998, 1997 and 1996 fiscal
years under the Company's 401(k) plan.
(3) Includes matching contributions to the Company's 401(k) plan made by the
Company during its 1998, 1997 and 1996 fiscal years.
(4) The Company did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive plan payments during its
1998, 1997 or 1996 fiscal years.
(5) Includes new options granted in exchange for previously granted options
which were surrendered and cancelled, pursuant to a company-wide stock
option repricing which the Company carried out in
7
<PAGE> 11
February, 1998. Under the repricing, many employees' existing stock options,
including certain stock options held by the Named Executive Officers, were
exchanged for new stock options having a lower exercise price at an exchange
rate of 9 for 10 (i.e., 9 new stock options were granted for every 10
surrendered). See below at "Repricing of Options" for a detailed description
of the Named Executive Officers' repriced stock options.
(6) These options were surrendered and cancelled upon the issuance of the
repriced options described in footnote (5) above.
(7) The unexercised portion of these options were surrendered and cancelled upon
the issuance of the repriced options described in footnote (5) above.
(8) Information regarding Mr. Monaco's compensation for the Company's 1996
fiscal year has been omitted as that information was not previously required
to be provided in response to a filing requirement of the Securities and
Exchange Commission. Information regarding Mr. Simone's compensation for the
Company's 1996 fiscal year has been omitted as Mr. Simone was not employed
by the Company at any time during its 1996 fiscal year.
(9) Mr. Gilkes resigned as an executive officer of the Company in January 1998.
Amounts paid to him as severance benefits through the end of the 1998 fiscal
year are included in the "Other Annual Compensation" column.
Options granted to the Named Executive Officers during the fiscal year
ended June 30, 1998 are set forth in the following table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------ POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES OF
SHARES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (4)
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------------
NAME GRANTED(#)(1),(2) IN FISCAL 1998 ($/SHARE) DATE 5% 10%
- ---- ----------------- -------------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Simone...... 225,000(3) 14.5% $3.5625 2007 $504,098 $1,277,484
Edward B. Mallen..... 50,000 3.2% $3.5625 2008 $112,023 $ 283,885
36,563(3) 2.4% $3.5625 2006 $ 81,917 $ 207,594
Rosemary E. Grande... 60,000 3.9% $3.5625 2008 $134,426 $ 340,662
27,000(3) 1.7% $3.5625 2006 $ 60,492 $ 153,298
Frank P. Monaco...... 40,000 2.6% $3.5625 2008 $ 89,617 $ 227,108
27,000(3) 1.7% $3.5625 2006 $ 60,492 $ 153,298
Gary S. Ambrosino.... 10,000 0.6% $3.5625 2008 $ 22,404 $ 56,777
</TABLE>
- ---------------
(1) There were no stock appreciation rights granted or outstanding during fiscal
1998.
(2) All options vest and become exercisable in equal quarterly installments over
the four years from the original date of grant, which in each case is ten
years prior to the expiration date shown.
(3) Represents new options granted in exchange for previously granted options
which were surrendered and cancelled, pursuant to a company-wide stock
option repricing which the Company carried out in February, 1998. Under the
repricing, many employees' existing stock options, including certain stock
options held by the Named Executive Officers, were exchanged for new stock
options having a lower exercise price at an exchange rate of 9 for 10 (i.e.,
9 new stock options were granted for every 10 surrendered). See below at
"Repricing of Options" for a detailed description of the Named Executive
Officers' repriced stock options.
8
<PAGE> 12
(4) Represents the hypothetical gains that could be achieved for the options if
exercised at the end of the option terms. These gains are based on assumed
rates of stock price appreciation of 5% and 10% compounded annually from the
date the respective options were granted to their expiration dates. There
can be no assurance that the stock price will appreciate at the rates shown
in this table.
The following table sets forth certain information regarding the number of
shares of Common Stock received upon exercise of options during the last fiscal
year, the aggregate dollar value realized upon exercise and the total number of
unexercised options held by each of the Named Executive Officers as of June 30,
1998:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END(#) AT FISCAL YEAR-END(1)
ACQUIRED IN VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED (2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Simone............. -- -- 70,312 154,688 $ 96,679 $212,696
Edward B. Mallen............ -- -- 19,121 67,442 $ 26,291 $ 92,733
Rosemary E. Grande.......... 25,000 $295,000 53,875 73,125 $208,578 $100,547
Frank P. Monaco............. 10,000 $160,500 46,225 54,375 $176,539 $ 74,766
Gary S. Ambrosino........... -- -- 25,625 46,875 $107,422 $172,734
</TABLE>
- ---------------
(1) The value of unexercised in-the-money options at the end of the Company's
1998 fiscal year assumes a fair market value for the Company's Common Stock
of $4.938, the closing sale price per share of the Company's Common Stock as
reported in the Nasdaq National Market on June 30, 1998.
(2) The value realized on exercise represents the difference between the
exercise prices of the stock options and the closing price of the Company's
Common Stock on the Nasdaq National Market on the date of such exercise.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In March 1998 the Company entered into an employment agreement with its
President and Chief Executive Officer, Peter J. Simone, providing for certain
cash payments in the event of termination of his employment following a merger,
consolidation, sale or change in control of the Company, where a "change in
control" is defined as occurring when 50% or more of the voting equity in the
Company becomes beneficially owned by a single person, entity or affiliated
group of persons or entities. If, within eighteen months after such an event
involving the Company, Mr. Simone's employment is actually terminated (other
than for Cause or Disability, as defined in the employment agreement), he is not
the chief executive officer of the surviving entity and/or the surviving entity
is not a publicly traded corporation, or his responsibility, compensation or
benefits are materially reduced without his express consent, then Mr. Simone
will be entitled to receive six months' base salary together with reimbursement
of the cost of his group health and dental plan coverage. In addition, the
employment agreement provides that Mr. Simone's then unvested stock options
shall become fully vested upon the closing of any merger, consolidation,
business combination or other reorganization of the Company in which he is not
the chief executive officer of the surviving entity, and/or the surviving entity
is not a publicly traded corporation.
Except for Mr. Simone, as described above, none of the Company's Named
Executive Officers has an employment agreement with the Company. All of the
Named Executive Officers are parties to confidentiality
9
<PAGE> 13
and noncompetition agreements with the Company, whereby each is required to
disclose to the Company certain inventions, discoveries and developments, and to
assign his or her rights therein to the Company.
Robert E. Gilkes, the Company's former Chairman of the Board of Directors
and Chief Executive Officer, resigned as Chairman of the Board of Directors and
as a director of the Company and its subsidiaries on January 15, 1998. The
Company expects to provide him with severance pay and benefits through July 31,
1999, pursuant to a letter agreement whereunder he is also retained as a
consultant to the Board of Directors. In addition to severance compensation
received during fiscal 1998, Mr. Gilkes will receive an additional $81,000 in
severance compensation through July 31, 1999.
REPRICING OF OPTIONS
In February 1998 the Company carried out a company-wide stock option
repricing in which many of its employees' existing stock options, including
certain stock options held by the Company's executive officers, were exchanged
for new stock options having a lower exercise price at an exchange rate of 9 for
10 (i.e., 9 new stock options were granted for every 10 surrendered). The
Company's stock lost a large percentage of its market value in December 1997
after the Company announced preliminary financial results for the second quarter
of fiscal 1998. As a consequence of this price drop, the Company's stock price
stabilized at a level significantly below the exercise price of many of the
stock options held by the Company's employees under the Company's broad-based
stock option plans. Prior to the repricing in February 1998, the exercise price
of many employee stock options was in the $14.00 -- $15.00 range, whereas the
stock's market price was in the $3.00 -- $4.00 range. The Company believes that
this large disparity effectively destroyed the usefulness of its stock options
as a tool to retain and motivate its employees. The repricing was intended to
restore the usefulness of the Company's stock options for this purpose, in
keeping with the Company's compensation philosophy and in view of the intensely
competitive labor market in which the Company operates. The Company took
advantage of the repricing to reduce the number of stock options held by each
employee who participated in the repricing, including the Company's executive
officers, thus reducing the dilutive effect of its stock option plans on its
stockholders. The following table sets forth certain information regarding the
effect of the repricing on stock options held by the Company's executive
officers. The repricing described above is the only stock option repricing in
which the Company has ever engaged.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
NUMBER OF MARKET PRICE OF EXERCISE OPTION TERM
SECURITIES UNDERLYING STOCK AT PRICE REMAINING
DATE OF OPTIONS TIME OF AT TIME OF NEW EXERCISE AT DATE OF
NAME REPRICING REPRICED(1),(2) REPRICING REPRICING PRICE REPRICING
- ---- --------- --------------------- --------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Simone........... 2/27/98 225,000 $3.5625 $11.50 $3.5625 9 years, 2 months
President and Chief
Executive Officer
Edward B. Mallen.......... 2/27/98 36,563 $3.5625 $10.00 $3.5625 8 years, 5 months
Executive Vice
President -- Sales
and Marketing
Rosemary E. Grande........ 2/27/98 27,000 $3.5625 $14.25 $3.5625 8 years, 7 months
Chief Operating Officer
Frank P. Monaco........... 2/27/98 27,000 $3.5625 $14.25 $3.5625 8 years, 7 months
Sr. Vice President --
Research & Development
and Chief Technology
Officer
</TABLE>
10
<PAGE> 14
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
NUMBER OF MARKET PRICE OF EXERCISE OPTION TERM
SECURITIES UNDERLYING STOCK AT PRICE REMAINING
DATE OF OPTIONS TIME OF AT TIME OF NEW EXERCISE AT DATE OF
NAME REPRICING REPRICED(1),(2) REPRICING REPRICING PRICE REPRICING
- ---- --------- --------------------- --------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Gary S. Ambrosino......... -- -- -- -- -- --
Vice President & General
Manager, Digital
Document Products
Division
Frederick W. Ellis........ 2/27/98 18,000 $3.5625 $14.25 $3.5625 8 years, 7 months
Vice President -- 2/27/98 9,000 $3.5625 $ 6.50 $3.5625 8 years, 1 month
Marketing
Gerard T. Feeney.......... 2/27/98 18,000 $3.5625 $14.25 $3.5625 8 years, 7 months
Former Chief Financial
Officer
Carolyn E. Ramm........... 2/27/98 18,000 $3.5625 $14.25 $3.5625 8 years, 7 months
Vice President and
General Counsel
Paul D. Thorn............. 2/27/98 18,000 $3.5625 $14.25 $3.5625 8 years, 7 months
Vice President --
Operations
</TABLE>
- ---------------
(1) There were no stock appreciation rights granted, outstanding or repriced
during fiscal 1998.
(2) Reflects a 10% reduction in the number of shares underlying the previously
granted stock options that were surrendered in exchange for the repriced
options and subsequently cancelled.
11
<PAGE> 15
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company's executive officer compensation program consists of three
primary components: base salary, discretionary bonuses, and grants of stock
options. Each component is intended to further the Company's overall
compensation philosophy, and to achieve the compensation objectives of the
Company. The Company's compensation philosophy is that executive officer
compensation should further the Company's short- and long-term strategic goals
and values by aligning compensation with business objectives and individual
performance. Further, the compensation of executive officers should be closely
aligned with the interests of the Company's stockholders.
The Company's executive officer compensation program is based on the
following principles and objectives:
Competitive, Fair and Balanced Compensation. The Company is committed to
providing an executive officer compensation program that helps to attract and
retain highly qualified executive officers. To ensure that compensation is
competitive, the Company compares its compensation practices with the executive
officer compensation practices of other companies, both in the same geographical
area and in the high-technology industry generally. The Company also seeks to
balance the compensation paid to a particular individual and the compensation
paid to the other executive officers of the Company, and strives to achieve a
balance between the fixed and variable components and between the short- and
long-term components of each executive officer's compensation.
Corporate and Individual Performance. Executive officers are rewarded
based upon both corporate and individual performance. Corporate performance is
evaluated by reviewing the extent to which planned financial results, including
revenue and profit goals, are achieved and strategic and business plan goals are
met. Individual performance is evaluated by reviewing the achievement of
specified individual objectives and the degree to which the executive officer
contributed to the overall success of the Company and the management team. In
keeping with the philosophy that executive compensation should be closely
aligned with the interests of the stockholders, the Company weights the
Company's achievement of its financial and business goals more heavily than
performance against individual goals and objectives in determining the
compensation for each executive officer. In particular, with respect to the
payment of discretionary bonuses, achievement of corporate financial goals as to
revenue and profitability is a threshhold which must be met before the portion
of any bonus that relates to individual performance will be paid.
In evaluating each executive officer's performance, the Company generally
uses the following procedures. Prior to or shortly after the beginning of each
fiscal year, the Company prepares an annual plan setting its goals and
objectives for that fiscal year. The plan is reviewed with and ultimately
approved by the full Board of Directors. The Chief Executive Officer reports to
the Board of Directors from time to time throughout the year on the Company's
progress toward those goals and objectives. At or near the beginning of each
fiscal year, the Compensation Committee and the Chief Executive Officer review
the performance of each executive officer during the fiscal year just ended, and
the Compensation Committee determines the base and discretionary compensation
for each such officer for the new fiscal year based both on the executive
officer's individual performance during the preceding fiscal year and on the
Company's financial performance against its goals during the preceding fiscal
year. The Compensation Committee determines the amount of base and discretionary
compensation for the Chief Executive Officer, and takes management
recommendations into consideration in determining the amount of base and
discretionary compensation for each of the other executive officers. For fiscal
1998, 80% of discretionary compensation for each executive officer was tied to
achievement of the Company's business objectives, and 20% to individual
performance. Long-term compensa-
12
<PAGE> 16
tion in the form of grants of stock options is awarded when an executive officer
joins the Company, and occasionally thereafter to reflect promotion or other
special circumstances.
CHIEF EXECUTIVE OFFICER COMPENSATION FOR FISCAL 1998
The compensation for Peter J. Simone, the Company's Chief Executive
Officer, consisted at the outset of fiscal 1998 of a base salary of $210,000.00
and eligibility for a discretionary bonus of up to $60,000.00, although only
approximately one-sixth of that amount was paid. At that time, Mr. Simone was
President and Chief Operating Officer of the Company. Mr. Simone's base salary
was increased to $240,000 per year as of January 1, 1998 to reflect his
promotion to Chief Executive Officer late in calender 1997. However, the target
amount of his bonus remained the same for fiscal 1998 as for fiscal 1997,
reflecting the philosophy of the Compensation Committee that the compensation of
senior executives should be closely tied to corporate performance including
financial results.
Richard A. D'Amore Thomas A. St. Germain
13
<PAGE> 17
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on a
monthly basis on the Company's Common Stock for the period from September 26,
1996 (the date of the Company's initial public offering of its Common Stock)
through June 30, 1998 against the cumulative total returns on the Nasdaq
Composite Index and the Nasdaq Computer and Data Processing Services Index
during the same period. It should be noted that the Company has not paid any
dividends on Common Stock, and no dividends are included in the representation
of the Company's performance. The stock price performance on the graph below is
not necessarily indicative of future stock price performance.
[PERFORMANCE GRAPH]
Company Broad Index Select
30-Sep-96 100.00 100.00 100.00
31-Dec-96 83.33 105.23 110.89
31-Mar-97 84.17 99.57 104.24
30-Jun-97 98.33 117.54 126.86
30-Sep-97 115.83 137.39 150.25
31-Dec-97 25.77 127.99 132.23
31-Mar-98 35.83 149.62 165.22
30-Jun-98 32.92 154.43 181.48
The above graph assumes $100.00 invested on September 26, 1996, with all
dividends reinvested, in each of the Company's Common Stock, the Nasdaq
Composite Index and the Nasdaq Computer and Data Processing Services Index.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons owning more than 10% of the Company's Common
Stock, to file with the Securities and Exchange Commission (the "SEC") initial
reports of beneficial ownership and reports of changes in beneficial ownership
of the Common Stock and other equity securities of the Company. Officers,
directors, and beneficial owners of more than 10% of the Company's Common Stock
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
14
<PAGE> 18
To the Company's knowledge, based solely on review of the copies of such
reports furnished to it and written representations that no other reports were
required during the fiscal year ended June 30, 1998, all Section 16(a) filings
required to have been made by its officers, directors, and stockholders owning
more than 10% of the Company's Common Stock were made in compliance with Section
16(a) with the following exception: a Form 4 reporting the sale of 100,000
shares in November 1997 was filed late by David R. Skok.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Robert E. Gilkes, the Company's former Chairman of the Board of Directors
and Chief Executive Officer, resigned as Chairman of the Board of Directors and
as a director of the Company and its subsidiaries on January 15, 1998. The
Company expects to provide him with severance pay and benefits through July 31,
1999, pursuant to a letter agreement whereunder he is also retained as a
consultant to the Board of Directors.
ELECTION OF DIRECTOR
(NOTICE ITEM 1)
The Company's Amended and Restated Certificate of Incorporation and By-Laws
provide for a classified Board of Directors. The Board of Directors currently
consists of five members, divided into three classes as follows: David R. Skok
constitutes a class having a term that expires on the date of the Company's 1998
Annual Meeting of Stockholders (the "Class II Director"); Richard A. D'Amore and
Paul R. Low constitute a class having a term that expires on the date of the
Company's 1999 Annual Meeting of Stockholders (the "Class III Directors"); and
Peter J. Simone and Thomas A. St. Germain constitute a class having a term that
expires on the date of the Company's 2000 Annual Meeting of Stockholders (the
"Class I Directors"). At each Annual Meeting of Stockholders, directors are
elected for a full term of three years to succeed those directors whose terms
are expiring. The following nominee is proposed for reelection as a Class II
Director:
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY YEAR FIRST
OR PRINCIPAL OCCUPATION ELECTED A
NAME OF NOMINEE DURING PAST FIVE YEARS AGE DIRECTOR
- --------------- ------------------------- --- ----------
<S> <C> <C> <C>
David R. Skok........................ Director; Chairman of the Board of 42 1995
Silverstream Software, Inc., July
1997 -- present; President and CEO of
Silverstream, June 1996 -- July 1997;
President and CEO of Watermark Software,
Inc., January 1993 -- June 1996
</TABLE>
Unless authority to vote for the nominee named above is withheld, the
shares represented by the enclosed proxy will be voted FOR that nominee's
reelection as a director. In the event that such nominee shall become unable or
unwilling to serve, the shares represented by the enclosed proxy will be voted
for the election of such other person as the Board of Directors may recommend in
his place. The Board of Directors has no reason to believe that such nominee
will be unable or unwilling to serve.
A plurality of the shares voted at the Annual Meeting is required to
reelect the nominee as a director.
THE BOARD OF DIRECTORS RECOMMENDS THE REELECTION OF DAVID R. SKOK AS A
DIRECTOR, AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR
THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
15
<PAGE> 19
INDEPENDENT AUDITORS
(NOTICE ITEM 2)
The Board of Directors has appointed Arthur Andersen LLP, independent
public accountants, to audit the financial statements of the Company for the
fiscal year ending June 30, 1999. The Board proposes that the Stockholders
ratify and approve this appointment. Arthur Andersen LLP audited the Company's
financial statements for the fiscal year ended June 30, 1998. Representatives of
Arthur Andersen LLP are expected to be present at the Meeting, will have the
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
In the event that ratification of the appointment of Arthur Andersen LLP as
the independent auditors of the Company is not obtained at the Annual Meeting,
the Board of Directors will reconsider its appointment.
The affirmative vote of a majority of the shares present or represented and
entitled to vote at the Annual Meeting is required to ratify the appointment of
the independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO RATIFY AND APPROVE THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT AUDITORS, AND
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR THEREOF
UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
AMENDMENT OF THE COMPANY'S 1996 DIRECTORS STOCK OPTION PLAN
AND 1996 STOCK OPTION PLAN
(NOTICE ITEM 3)
The Company's 1996 Stock Option Plan (the "1996 Plan") was approved by the
Board of Directors on February 14, 1996 and was adopted by the Company's
stockholders on July 12, 1996. The 1996 Plan was amended by the Board of
Directors on October 10, 1997 to increase the total number of shares available
for awards under the 1996 Plan to 1,750,000, and such amendment was approved by
the Company's stockholders at the Annual Meeting of Stockholders held December
8, 1997. As of September 25, 1998, approximately 180 individuals were eligible
to participate in the 1996 Plan. As of September 25, 1998, 1,475,450 of the
1,750,000 shares reserved for issuance under the 1996 Plan were subject to
outstanding Stock Options at a weighted average exercise price of $3.54 per
share. The Company's 1996 Directors Stock Option Plan (the "Directors Plan") was
approved by the Board of Directors and the Company's stockholders on July 12,
1996. As of September 25, 1998, four individuals were eligible to participate in
the Directors Plan. As of September 25, 1998, 16,000 of the 350,000 shares
reserved for issuance under the Directors Plan were subject to outstanding
Director Stock Options at a weighted average exercise price of $3.50 per share.
On October 5, 1998 the Company's Board of Directors amended both the 1996
Plan and the Directors Plan (collectively, the "Plans"), subject to stockholder
approval, in order to reallocate the 334,000 shares previously available for
grant under the Directors Plan to the 1996 Plan. The effect of these amendments
is to increase the total number of shares of the Company's Common Stock
available for grant under the 1996 Plan by 334,000, from 1,750,000 to 2,084,000,
while simultaneously decreasing the number of shares available for grant under
the Directors Plan from 334,000 to 0. Stockholder approval of these amendments
is sought to meet requirements of the Nasdaq Stock Market, Inc. applicable to
companies with securities listed on the Nasdaq National Market and ensure that
the Company will be able to grant incentive stock options and receive applicable
tax deductions as provided in the Internal Revenue Code of 1986, as amended.
The Board of Directors believes that the proposed reallocation is in the
best interests of the Company for several reasons. First, increasing the overall
number of shares available for grant under the 1996 Plan is essential to the
Company's ability to continue to attract and retain outstanding employees in an
extremely
16
<PAGE> 20
competitive employment market, where qualified technical and engineering
personnel are in particularly short supply relative to high-technology
employers' needs for such personnel. Second, the reallocation of shares from the
Directors Plan to the 1996 Plan will give the Company increased flexibility to
use those shares for stock option grants without any new dilutive effect on the
stockholders at large, and without impairing its ability to attract and retain
qualified outside directors, as such directors may receive stock option grants
under the 1996 Plan. Third, the Board of Directors believes the ability to grant
stock options under the 1996 Plan is an important tool for aligning employee and
stockholder interests.
DESCRIPTION OF PLANS
The essential features of the 1996 Plan and the Directors Plan are as
follows.
1996 Stock Option Plan. The 1996 Plan provides for the grant or award of
stock options ("Stock Options") to purchase shares of Common Stock of the
Company. Stock Options granted under the 1996 Plan may be incentive stock
options or non-statutory options. The purpose of the 1996 Plan is to attract and
retain outstanding employees through the incentives of stock ownership. Any
employee of the Company (including officers), and any consultant to and any
director of the Company, is eligible to receive Stock Options under the 1996
Plan.
The 1996 Plan is administered by the Board of Directors. Subject to the
provisions of the 1996 Plan, the Board of Directors has the authority to
designate participants and to determine whether Stock Options granted are
incentive stock options or not, the number of shares to be covered by each Stock
Option, the price of the exercise of the Stock Option, the time at which Stock
Options are exercisable, the method of payment and any other terms and
conditions of the awards. All Stock Options are evidenced by Stock Option
Agreements between the Company and the participant.
While the Board of Directors determines the prices at which Stock Options
may be exercised under the 1996 Plan, the exercise price of an incentive Stock
Option under the 1996 Plan shall be at least 100% of the fair market value (as
determined under the terms of the 1996 Plan) (or 110% of the fair market value
if the grantee is deemed to own 10% or more of the outstanding voting stock of
the Company) of a share of Common Stock on the date of grant. Stock Options must
be exercised by the tenth anniversary of the date of grant, or if the grantee
owns 10% or more of the outstanding voting stock of the Company, by the fifth
anniversary of the date of grant. The market value of the Company's Common Stock
on September 25, 1998, as determined by the closing sale price per share of the
Company's Common Stock as reported in the Nasdaq National Market on that date,
was $3.50 per share.
The Board of Directors has the power to amend the 1996 Plan at any time as
it shall deem advisable. However, no amendment of the 1996 Plan that could
affect its status as a Qualified Plan under Section 422 of the Internal Revenue
Code or the qualification of the Company's securities for listing on the Nasdaq
Stock Market will become effective unless and until the Company's stockholders
have approved it.
1996 Directors Stock Option Plan. The Directors Plan provides for the
automatic grant of stock options ("Director Stock Options") to purchase shares
of Common Stock of the Company to non-employee directors of the Company once
annually, for so long as the non-employee director serves on the Board of
Directors and is not employed by the Company. Director Stock Options granted
under the Directors Plan must be non-statutory options. To the extent that the
stockholders approve the amendment of the Directors Plan proposed in Notice Item
3 hereof, no further shares will be available for grant under the Directors
Plan.
17
<PAGE> 21
TAX CONSEQUENCES OF PLAN PARTICIPATION
Options granted under the 1996 Plan may be either incentive stock options,
as defined in Section 422 of the Internal Revenue Code, or non-qualified stock
options, and options granted under the Directors Plan must be non-qualified
options.
Incentive Stock Options. Except as provided below with respect to the
alternative minimum tax, the optionee will not recognize any taxable income upon
the grant or exercise of an incentive stock option. In addition, if the optionee
holds the shares received pursuant to the exercise of the option for at least
one year after the date of exercise and for two years after the option is
granted, the optionee will recognize long-term capital gain or loss on the
disposition of the stock, measured by the difference between the option exercise
price and the amount received for such shares upon disposition.
In the event that the optionee disposes of the stock prior to the
expiration of the required holding periods (a "Disqualifying Disposition"), the
optionee generally will realize ordinary income to the extent of the lesser of
(i) the fair market value of the stock at the time of exercise over the exercise
price, or (ii) the amount received for the stock upon disposition over the
exercise price. The basis in the stock acquired upon exercise of the option will
equal the amount of income recognized by the optionee plus the option exercise
price. Upon eventual disposition of the stock, the optionee will recognize
long-term or short-term capital gain or loss, depending on the holding period of
the stock and the difference between the amount realized by the optionee upon
disposition of the stock and his basis in the stock.
For alternative minimum tax purposes, the excess of the fair market value
of the stock on the date of the exercise of the incentive stock option over the
exercise price of the option is included in alternative minimum taxable income.
If the alternative minimum tax does apply to the optionee, an alternative
minimum tax credit may reduce the regular tax upon eventual disposition of the
stock.
The Company will not be allowed a tax deduction upon the grant or exercise
of an incentive stock option. Upon a Disqualifying Disposition by the optionee
of shares acquired upon exercise of the incentive stock option, the Company will
be allowed a deduction in an amount equal to the ordinary income recognized by
the optionee.
The Internal Revenue Service will treat the payment of the exercise price
of an incentive stock option with already owned stock of the Company as two
transactions. First, there will be a tax-free exchange of the old shares for a
like amount of new shares under Section 1036 of the Code, with the new shares
retaining the basis and holding periods of the old shares. Second, there will be
the issuance of additional new shares having a value equal to the difference
between the aggregate fair market price of all of the new shares being acquired
and the aggregate option exercise price for those shares. Because the exercise
of an incentive stock option does not result in the recognition of income by the
optionee, this issuance will also be tax-free (unless the alternative minimum
tax applies, as described above). The optionee's basis in these additional
shares will be zero and the optionee's holding period for these shares will
commence on the date on which the shares are transferred. For purposes of the
holding periods which must be met for favorable incentive stock option tax
treatment to apply, the holding periods of previously acquired shares are
disregarded.
Non-Qualified Stock Options. As in the case of incentive stock options, no
income is recognized by the optionee on the grant of a non-qualified stock
option. On the exercise by an optionee of a non-qualified stock option,
generally the excess of the fair market value of the stock when the option is
exercised over the exercise price paid by the optionee will be (a) taxable to
the optionee as ordinary income and (b) generally deductible for income tax
purposes by the Company.
The Internal Revenue Service will treat the payment of the exercise price
of a non-qualified stock option with already owned stock of the Company as two
transactions. First, there will be a tax-free exchange of the
18
<PAGE> 22
old shares for a like amount of new shares under Section 1036 of the Code, with
the new shares retaining the basis and holding periods of the old shares.
Second, the issuance of additional new shares (representing the spread between
the fair market value of all the new shares and the option price) is taxable to
the employee as ordinary income under Section 83 of the Code, as is the case
with any non-qualified option. The new shares will have a basis equal to the
spread between the fair market value of the new shares and the option price.
The optionee's tax basis in his stock will equal his cost for the stock
plus the amount of ordinary income he had to recognize with respect to the
non-qualified stock option. Accordingly, upon a subsequent disposition of stock
acquired upon the exercise of a non-qualified option, the optionee will
recognize short-term or long-term capital gain or loss, depending upon the
holding period of the stock, equal to the difference between the amount realized
upon disposition of the stock by the optionee and his basis in the stock.
NEW PLAN BENEFITS
It cannot be determined whether any particular persons, including without
limitation the Named Executive Officers, will receive any future grants of stock
options under the 1996 Plan as amended. The following tables provide information
with respect to options granted since the beginning of the Company's fiscal 1998
under the 1996 Plan and the Directors Plan.
<TABLE>
<CAPTION>
DOLLAR NUMBER
NAME VALUE OF UNITS(1)
---- ------ -----------
<S> <C> <C>
Peter J. Simone............................................. -- --
Edward B. Mallen............................................ (2) 50,000 (3)
Rosemary E. Grande.......................................... (2) 60,000 (3)
Frank P. Monaco............................................. (2) 40,000 (3)
Gary S. Ambrosino........................................... (2) 10,000 (3)
All Executive Officers as a Group........................... (2) 405,000 (4)
All Directors as a Group (excluding Executive Officers)..... (2) 20,000 (5)
All Employees as a Group (excluding Executive Officers)..... (2) 147,500 (6)
</TABLE>
- ---------------
(1) In February 1998 the Company carried out a company-wide stock option
repricing in which many of its employees' existing stock options, including
certain stock options held by the Named Executive Officers, were exchanged
for new stock options having a lower exercise price at an exchange rate of 9
for 10 (i.e., 9 new stock options were granted for every 10 surrendered).
The new stock options granted pursuant to the exchange are not reflected in
this table.
(2) The dollar value of the options is equal to the difference between the fair
market value of the Company's Common Stock as of the date of exercise, and
the exercise price of the options. For the majority of options granted under
the 1996 Plan, the dollar value is not determinable because they have not
been exercised.
(3) Granted February 27, 1998, at an exercise price of $3.5625 per share, 100%
of the fair market value of the Common Stock at the date of grant.
(4) Options were granted at various times since July 1, 1997. Grant dates,
number of options granted, and exercise prices were as follows: February 27,
1998, options to acquire 280,000 shares at an exercise price of $3.5625 per
share; March 12, 1998, options to acquire 125,000 shares at an exercise
price of $3.6563 per share. In each case the exercise price was 100% of the
fair market value of the Company's Common Stock at the date of grant.
(5) Granted March 16, 1998, at an exercise price of $4.25 per share, 100% of the
fair market value of the Company's Common Stock at the date of grant.
19
<PAGE> 23
(6) Options were granted at various times since July 1, 1997. Grant dates,
number of options granted, and exercise prices were as follows: February 27,
1998, options to acquire 144,500 shares at an exercise price of $3.5625 per
share; October 31, 1998, options to acquire 3,000 shares at an exercise
price of $15.25 per share. In each case the exercise price was 100% of the
fair market value of the Company's Common Stock at the date of grant.
<TABLE>
<CAPTION>
DIRECTORS PLAN
-------------------
DOLLAR NUMBER
NAME VALUE OF UNITS
---- ------ --------
<S> <C> <C>
Peter J. Simone(3).......................................... -- --
Paul R. Low................................................. (1) 4,000(2)
Richard A. D'Amore.......................................... (1) 4,000(2)
David R. Skok............................................... (1) 4,000(2)
Thomas A. St. Germain....................................... (1) 4,000(2)
All Directors as a Group.................................... (1) 16,000(4)
</TABLE>
- ---------------
(1) The dollar value of the options is equal to the difference between the fair
market value of the Company's Common Stock as of the date of exercise, and
the exercise price of the options. The dollar value is not determinable for
options granted under the Directors Plan because none of them have been
exercised.
(2) Granted March 6, 1998, at an exercise price of $3.50 per share, 100% of the
fair market value of the Common Stock at the date of grant.
(3) As an employee of the Company, Mr. Simone was not eligible to receive a
grant of options under the Directors Plan in fiscal 1998.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE AMENDMENT OF THE
COMPANY'S 1996 DIRECTORS STOCK OPTION PLAN AND THE COMPANY'S 1996 STOCK OPTION
PLAN TO REALLOCATE 334,000 SHARES FROM THE DIRECTORS PLAN TO THE 1996 PLAN, AND
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR THEREOF
UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
FURTHER AMENDMENT OF THE COMPANY'S 1996 STOCK OPTION PLAN
(NOTICE ITEM 4)
On October 5, 1998, the Board of Directors further amended the Company's
1996 Stock Option Plan, subject to stockholder approval, to further increase the
number of shares available for grant under the 1996 Plan by an additional
500,000 shares over and above those being reallocated from the Directors Plan.
Giving effect to the reallocation of shares from the Directors Plan, the effect
of this amendment is to increase the number of shares available for grant under
the 1996 Plan from 2,084,000 to 2,584,000. (Should the stockholders not approve
the amendments described in Notice Item 3 above, the effect of this amendment
would be to increase the number of shares available for grant under the 1996
Plan from 1,750,000 to 2,250,000.) Stockholder approval of this amendment is
sought to meet requirements of the Nasdaq Stock Market, Inc. applicable to
companies with securities listed on the Nasdaq National Market and ensure that
the Company will be able to grant incentive stock options and receive applicable
tax deductions as provided in the Internal Revenue Code of 1986, as amended. The
Board of Directors believes that this increase is in the best interests of the
Company inasmuch as it will provide an adequate reserve of shares for issuance
under the 1996 Plan to meet the Company's anticipated needs over approximately
the next two years. The ability to grant stock options under the 1996 Plan is an
integral part of the Company's overall compensation program and essential to the
Company's ability to attract and retain qualified employees, particularly those
in technical
20
<PAGE> 24
and engineering fields, in an extremely competitive employment market where many
employers routinely offer stock options as part of such employees' compensation.
A description of the 1996 Plan is included above under Notice Item 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE AMENDMENT OF THE
COMPANY'S 1996 STOCK OPTION PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR
ISSUANCE UNDER THE 1996 PLAN BY 500,000 SHARES, OVER AND ABOVE ANY SHARES
REALLOCATED TO THE 1996 PLAN FROM THE 1996 DIRECTORS STOCK OPTION PLAN, AND
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR THEREOF
UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented
to the Annual Meeting. If any other business is properly brought before the
Annual Meeting, it is intended that proxies in the enclosed form will be voted
in respect thereof in accordance with the judgment of the persons voting the
proxies.
STOCKHOLDER PROPOSALS
To be considered for presentation at the Annual Meeting of Stockholders to
be held in 1999, stockholder proposals must be received, marked for the
attention of: Secretary, Xionics Document Technologies, Inc., 70 Blanchard Road,
Burlington, Massachusetts 01803, not later than June 9, 1999.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, YOU ARE URGED TO
FILL OUT, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE.
BY ORDER OF THE BOARD OF DIRECTORS
CAROLYN E. RAMM
Secretary
October 9, 1998
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<PAGE> 25
Dear Shareholder:
Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of the
Company that require your immediate attention and approval. These are discussed
in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy in the enclosed
postage paid envelope.
Your vote must be received prior to the Annual Meeting of Shareholders on
November 23, 1998.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Xionics Document Technologies, Inc.
<TABLE>
<S> <C>
XDT23A DETACH HERE
[X] PLEASE MARK
VOTES AS IN FOR AGAINST ABSTAIN
THIS EXAMPLE. 2. Ratification of the appointment of [ ] [ ] [ ]
Arthur Andersen LLP as independent
1. Election of Director. auditors of the Company.
NOMINEE: David R. Skok FOR AGAINST ABSTAIN
3. Approval of the amendment of the [ ] [ ] [ ]
FOR WITHHELD 1996 Director Stock Option Plan and
[ ] [ ] the 1996 Stock Option Plan to
MARK HERE [ ] reallocate 334,000 shares from the
FOR ADDRESS 1996 Directors Stock Option Plan to
[ ] ______________________________________ CHANGE AND the 1996 Stock Option Plan.
For all nominees except as noted above NOTE BELOW
FOR AGAINST ABSTAIN
4. Approval of the amendment of the [ ] [ ] [ ]
1996 Stock Option Plan to increase
the number of shares available for
issuance under such Plan by 500,000
shares, over and above any shares
reallocated to such Plan from the
1996 Director Stock Option Plan.
5. In their discretion, the proxies are authorized to vote upon
any other business that may properly come before the meeting
or at any adjournment(s) thereof.
PLEASE VOTE, DATE, SIGN AND RETURN PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign exactly as your name appears hereon. Joint owners
should each sign personally. Trustees, custodians, and other
fiduciaries should indicate the capacity in which they sign, and
where more than one name appears, a majority must sign. If the
shareholder is a corporation, the signature should be that of an
authorized officer who should indicate his or her title.
Signature: ___________________________________ Date: ___________ Signature: ___________________________________ Date: ___________
</TABLE>
<PAGE> 26
XDT23B DETACH HERE
PROXY
XIONICS DOCUMENT TECHNOLOGIES, INC.
70 BLANCHARD ROAD
BURLINGTON, MASSACHUSETTS 01803
ANNUAL MEETING OF STOCKHOLDERS - NOVEMBER 23, 1998
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Neil W. Townsend
and Carolyn E. Ramm as Proxies, with full power of substitution to each, to
vote for and on behalf of the undersigned at the 1998 Annual Meeting of
Stockholders of Xionics Document Technologies, Inc. to be held at the offices
of the Company, 70 Blanchard Road, Burlington, Massachusetts 01803, on Monday,
November 23, 1998, at 10:00 a.m., and at any adjounment or adjournments
thereof. The undersigned hereby directs the said proxies to vote in accordance
with their judgment on any matters which may properly come before the Annual
Meeting, all as indicated in the Notice of Annual Meeting, receipt of which is
hereby acknowledged, and to act on the following matters set forth in such
notice as specified by the undersigned.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
"FOR" PROPOSALS 1, 2, 3 AND 4.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
