SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, For Use of the
[_] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
HOWTEK, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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>
HOWTEK, INC.
21 Park Avenue
Hudson, NH 03051
August 20, 1999
Dear Fellow Stockholders:
You are cordially invited to attend our Annual Meeting of Stockholders to
be held on Tuesday, September 28, 1999, at 11:30 a.m. in the offices of Tenzer
Greenblatt LLP, 14th Floor, 405 Lexington Avenue, New York, NY 10174.
The Notice of Annual Meeting and Proxy Statement that follow describe the
business to be conducted at the meeting.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. After reading the enclosed Notice of
Annual Meeting and Proxy Statement, I urge you to complete, sign, date and
return your proxy card in the envelope provided. If the address on the
accompanying material is incorrect, please advise our Transfer Agent,
Continental Stock Transfer & Trust Company, in writing, at 2 Broadway, New York,
New York 10004.
Your vote is important. We will appreciate a prompt return of your signed
proxy card and hope to see you at the meeting.
Cordially,
Robert Howard
Chairman of the Board of Directors
<PAGE>
HOWTEK, INC.
21 Park Avenue
Hudson, New Hampshire 03051
-------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 28, 1999
------------------------
To The Stockholders of HOWTEK, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Howtek, Inc. (the "Company") will be held on Tuesday, September 28,
1999, at 11:30 A.M. at the offices of Tenzer Greenblatt LLP, 14th Floor, 405
Lexington Avenue, New York, NY 10174 for the following purposes:
1. To elect six directors to serve on the Company's Board of Directors for a
term of one year and until their respective successors have been duly
elected and qualified;
2. To amend the Howtek, Inc. 1993 Stock Option Plan to increase the number of
shares authorized for issuance under the Plan from 1,000,000 shares of
Common Stock, par value, $0.01 per share, to 1,625,000 shares of Common
Stock (the "1993 Plan Proposal");
3. To consider and vote upon a proposal to amend the Company's Certificate of
Incorporation to authorize the Board of Directors of the Company to issue
Preferred Stock ("Amendment to Certificate Proposal");
4. To ratify the selection of BDO Seidman, LLP as the Company's independent
auditors for the fiscal year ended December 31, 1999; and
5. To transact such other business as may properly come before the Annual
Meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on July 30, 1999, are
entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof.
- --------------------------------------------------------------------------------
IT IS IMPORTANT THAT PROXY CARDS BE RETURNED PROMPTLY. IF YOU DO NOT EXPECT TO
BE PRESENT AT THE MEETING, PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. THE PROXY
MAY BE REVOKED AT ANY TIME PRIOR TO EXERCISE, AND IF YOU ARE PRESENT AT THE
MEETING YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND EXERCISE THE
RIGHT TO VOTE YOUR SHARES PERSONALLY.
- --------------------------------------------------------------------------------
By Order of the Board of Directors,
Connie Webster, Secretary
August 20, 1999
<PAGE>
HOWTEK, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 28, 1999
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of HOWTEK, INC. (the "Company") for use at the
Annual Meeting of Stockholders to be held on Tuesday, September 28, 1999,
including any adjournment or adjournments thereof, for the purposes set forth in
the accompanying Notice of Meeting. Management intends to mail this proxy
statement and the accompanying form of proxy to stockholders on or about August
20, 1999. The costs of soliciting proxies will be borne by the Company. It is
estimated that said costs will be nominal.
Proxies in the accompanying form, duly executed and returned to the
management of the Company and not revoked, will be voted at the Annual Meeting.
Any proxy given pursuant to such solicitation may be revoked by the stockholder
at any time prior to the voting of the proxy by a subsequently dated proxy, by
written notification to the Secretary of the Company, or by personally
withdrawing the proxy at the meeting and voting in person.
VOTING SECURITIES
Only holders of the Company's common stock, par value $.01 per share, (the
"Common Stock") at the close of business on July 30, 1999, (the "Record Date")
are entitled to receive notice of and to vote at the Annual Meeting. As of the
Record Date, the Company had 12,824,206 shares of Common Stock outstanding. Each
share of Common Stock is entitled to one vote on all matters. No other class of
securities will be entitled to vote at the Annual Meeting. There are no
cumulative voting rights.
The six nominees receiving the greatest number of votes cast by the holders
of the Company's shares of Common Stock entitled to vote at the meeting will be
elected directors of the Company.
The affirmative vote of a majority of the votes cast at the meeting is
necessary for the ratification of the selection of independent auditors.
The affirmative vote of a majority of the votes cast at the meeting is
necessary to approve the increase in the shares authorized for issuance under
the 1993 Stock Option Plan.
The affirmative vote of a majority of the issued and outstanding Common
Stock is required to approve the Amendment to Certificate Proposal.
Shares represented by executed proxies received by the Company will be
counted for purposes of establishing a quorum, regardless of how or whether such
shares are voted on any specific proposal.
Votes cast in person or by proxy at the meeting will be tabulated by the
inspector of elections appointed for the meeting. In accordance with Delaware
law, abstentions and "broker non-votes" (i.e. proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owner or other persons entitled to vote shares as to a matter with respect to
which the brokers or nominees do not have discretionary power to vote) will be
treated as present for purposes of determining the presence of a quorum. For
purposes of
1
<PAGE>
determining approval of a matter presented at the meeting, abstentions will be
deemed present and entitled to vote and will, therefore, have the same legal
effect as a vote "against" a matter presented at the meeting. Broker non-votes
will be deemed not entitled to vote on the subject matter as to which the
non-vote is indicated and will, therefore, have no legal effect on the vote on
that particular matter. However, since approval of the Amendment to Certificate
Proposal requires the affirmative vote of a majority of the outstanding shares
of Common Stock a broker non-vote will have the same practical effort as a vote
"against" this proposal.
The address of the principal executive offices of the Company is 21 Park
Avenue, Hudson, New Hampshire 03051, Telephone No. (603) 882-5200.
Proxies which are executed but which do not contain any specific
instructions will be voted in favor of the proposals contained herein.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the Common
Stock owned on July 30, 1999, by (i) each person who is known to the Company to
own beneficially more than 5% of the outstanding shares of the Company's Common
Stock, (ii) each executive officer named in the Summary Compensation Table,
(iii) each director and nominee director of the Company, and (iv) all current
executive officers and directors as a group.
<TABLE>
<CAPTION>
Number of
Shares
Name and Address of Beneficially Percentage
Beneficial Owner(1) Owned (1) (2) of Class
- ------------------- ------------- --------
<S> <C> <C>
Robert Howard .............................................. 2,001,982 (3) 15.60%
303 East 57th Street
New York, New York 10022
Donald Chapman ............................................. 1,180,000 (4) 9.20%
8650 South Ocean Drive
Jenson Beach, FL 34957
Dr. Lawrence Howard ........................................ 826,962 6.45%
660 Madison Avenue
New York, NY 10021
W. Scott Parr .............................................. 99,327 (5) *
Sheila Horwitz ............................................. 54,000 (6) *
Richard Lehman ............................................. 47,628 (7) *
Nat Rothenberg ............................................. 45,500 (8) *
Harvey Teich ............................................... 45,000 (9) *
Ivan Gati .................................................. 40,000 (10) *
Kit Howard ................................................. 7,000 *
All current executive officers and
directors as a group (11 persons) .......................... 2,362,437(3) & (5) through (10) 17.96%
</TABLE>
- ----------
* Less than one percent.
2
<PAGE>
1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from July 30, 1999, upon the
exercise of options, warrants or rights; through the conversion of a
security; pursuant to the power to revoke a trust, discretionary account or
similar arrangement; or pursuant to the automatic termination of a trust,
discretionary account or similar arrangement. Each beneficial owner's
percentage ownership is determined by assuming that the options or other
rights to acquire beneficial ownership as described above, that are held by
such person (but not those held by any other person) and which are
exercisable within 60 days from July 30, 1999, have been exercised.
2) Unless otherwise noted, the Company believes that the persons referred to
in the table have sole voting and investment power with respect to all
shares reflected as beneficially owned by them.
3) Does not include 7,000 shares owned by Mr. Howard's wife of which he
disclaims beneficial ownership. Also includes options to purchase 10,000
shares of the Company's Common stock at $1.72 per share.
4) Includes 15,000 shares owned by Mr. Chapman's wife and 150,000 owned by a
revocable trust.
5) Includes 11,000 shares owned by Mr. Parr's wife. Also includes options to
purchase 69,077 shares of the Company's Common Stock at $1.13 per share and
2,250 shares at $1.00 per share.
6) Includes options to purchase 10,000 shares of the Company's Common Stock at
$1.72 per share, and 25,000 shares at $1.50 per share.
7) Includes 2,000 shares owned by Mr. Lehman's wife. Also includes options to
purchase 20,500 of the Company's Common Stock at $1.72 per share, 16,376
shares at $1.13 per share and 2,752 shares at $1.00 per share.
8) Includes options to purchase 20,000 of the Company's Common Stock at $1.72
per share, and 25,000 shares at $1.50 per share.
9) Includes options to purchase 20,000 of the Company's Common Stock at $1.72
per share, and 25,000 shares at $1.50 per share.
10) Includes options to purchase 15,000 of the Company's Common Stock at $1.72
per share, and 25,000 shares at $1.50 per share.
3
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The proxies granted by stockholders will be voted individually at the
Annual Meeting for the election of the persons listed below as directors of the
Company, to serve until the next annual meeting of stockholders and until their
successors are duly elected and qualified. In the event any of the nominees
listed below shall be unable to serve, it is intended that the proxy will be
voted for such other nominees as are designated by the Board of Directors. Each
of the persons named has indicated to the Board of Directors of the Company that
he or she will be available as a candidate. Mr. Nat Rothenberg, whose term
expires at this Annual Meeting, has decided to retire and to not stand for
re-election. Director Name Age Position Since
<TABLE>
<CAPTION>
Director
Name Age Position Since
- ---- --- -------- -----
<S> <C> <C> <C>
Robert Howard............ 77 Chairman of the Board, and Director 1984
W. Scott Parr............ 48 President, Chief Executive Officer
and Director 1998
Ivan Gati................ 52 Director 1989
Sheila Horwitz........... 63 Director 1996
Kit Howard............... 57 Director 1999
Harvey Teich............. 80 Director, Chairman Audit Committee 1988
</TABLE>
All persons listed above are currently serving a term of office as
directors which continues until the next annual meeting of stockholders.
Robert Howard, the founder and Chairman of the Board of Directors of the
Company, was the inventor of the first impact dot matrix printer. Mr. Howard was
Chief Executive Officer of the Company from its establishment in 1984 until
December of 1993. He was the founder, and from 1969 to April 1980 he served as
President and Chairman of the Board, of Centronics Data Computer Corp.
("Centronics"), a manufacturer of a variety of computer printers. He resigned
from Centronics' Board of Directors in 1983. From April 1980 until 1983, Mr.
Howard was principally engaged in the management of his investments. Commencing
in mid-1982, Mr. Howard, doing business as R.H. Research, developed the ink jet
technology upon which the Company was initially based. Mr. Howard contributed
this technology, without compensation, to the Company. Until September 8, 1998,
Mr. Howard served as Chairman of the Board of Presstek, Inc. ("Presstek"), a
public company which has developed proprietary imaging and consumables
technologies for the printing and graphic arts industries. He currently serves
as Chairman Emeritus and a Director of Presstek. In February 1994 Mr. Howard
entered into a settlement agreement in the form of a consent decree with the
Securities and Exchange Commission (the "Commission") in connection with the
Commission's investigation covering trading in the Company's Common Stock by an
acquaintance of Mr. Howard and a business associate of such acquaintance. Mr.
Howard, without admitting or denying the Commission's allegations of securities
laws violations, agreed to pay a fine and to the entry of a permanent injunction
against future violations of Section 10(b) and Rule 10b-5 of the Securities
Exchange Action of 1934. In addition, in December of 1997, in connection with a
Commission investigation into trading of the Securities of Presstek, Mr. Howard,
without admitting or denying the Commission's allegations of securities laws
violations, agreed to pay a civil penalty of $2,700,000 and to the entry of a
final judgment enjoining him future violations of Section 10(b) and 13(a) and
Rules 10b-5, 12b-20, 13a-1 and 13a-20 of the Exchange Act.
W. Scott Parr joined the Company in January 1998, as President and Chief
Executive Officer. He was appointed to the Company's Board of Directors on
February 4, 1998. Prior to joining Howtek, Mr. Parr served as Divisional
Director and a member of the Board of Directors of SABi International Ventures,
Inc., responsible for restructuring and upgrading certain US companies owned by
foreign and venture investors. From 1995 to 1997, Mr. Parr was Chief Executive
Officer, General Counsel and Director of Allied Logic Corporation, a start-up
4
<PAGE>
venture specializing in proprietary molding and manufacturing technologies. From
1990 to 1995 Mr. Parr was General Counsel and a Director of LaserMaster
Technologies, Inc. (now VirtualFund.Com, Inc.).
Ivan Gati has served as Chairman of Turner Management, Inc. since 1983.
Turner Management, Inc. is a vertically integrated real estate investment
company with offices located in New York, Texas and Tennessee, and whose
subsidiary companies provide property management and finance services. Mr. Gati
is a member of the Board of Directors of Universal Automation Systems, Inc.
Sheila Horwitz is a Senior Vice President of Schroder & Co., Inc., a broker
dealer firm. She has an extensive background in the securities brokerage
industry, having worked at her current firm, formerly known as Wertheim,
Schroder & Co., since 1990. Previously Ms. Horwitz worked for Oppenheimer & Co.
from 1988 to 1990, and for L. F. Rothschild & Co. from 1978 to 1988, in similar
capacities.
Kit Howard holds a Bachelor of Science Degree from New York University. She
has worked in the financial community as a stockbroker from 1980 until 1986.
Since then she has assisted Robert Howard, her husband and Chairman of the
Company, in his various business enterprises.
Harvey Teich is a self-employed practicing certified public accountant. On
January 1, 1992, the accounting firm of Merman & Teich, where Mr. Teich had been
a principal for the previous seventeen years, ceased to operate as a
partnership. He is a member of the New York State Society for Certified Public
Accountants.
BOARD OF DIRECTOR MEETINGS AND COMMITTEES
During the last fiscal year, the Board of Directors held two meetings, the
Stock Option Committee of the Board of Directors held five meetings, the
Directors Incentive Plan Committee held one meeting and the Audit Committee held
one meeting. The Company does not have standing nominating or compensation
committees of the Board of Directors, or committees performing similar
functions.
All Board of Director and Board of Director committee meetings were
attended by all directors with the exception of Mr. Rothenberg who attended one
of the two Board of Director meetings.
The members of the Stock Option Committee during the last fiscal year
consisted of Ivan Gati and Sheila Horwitz and currently consists of the same
persons. The function of the Stock Option committee is to administer the
Company's 1993 Stock Option Plan. The Committee consists of not fewer than two
directors who are appointed by and serve at the pleasure of the Board of
Directors. Members of the Committee are not eligible to have participated in the
Plan during the prior twelve months or to be currently participating in the Plan
while serving as members.
The Directors Incentive Plan Committee consists of one member, Robert
Howard, who serves as Chairman. The purpose of this Committee is to administer
the Company's Directors Incentive Plan pursuant to which the Directors are
eligible to receive grants of stock options for shares of Company Common Stock
as compensation for serving on the Board of Directors.
The members of the Audit Committee during the last fiscal year consisted of
Harvey Teich, Chairman, Ivan Gati and Nat Rothenberg and currently consists of
the same persons. Mr. Rothenberg is retiring at the end of his term and will not
be seeking re-election. The Audit Committee provides an independent review and
advisory function for the independent auditors, the Board and the Company's
management with regard to financial reporting, internal controls and corporate
integrity.
5
<PAGE>
PROPOSAL 2
AMENDMENT OF THE AMENDED AND RESTATED
1993 STOCK OPTION PLAN
TO INCREASE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE
The Company's Board of Directors recommends that the 1993 Stock Option Plan
(the "Plan) be amended to increase the number of shares of Common Stock that are
authorized to be issued pursuant to the exercise of options granted under the
1993 from 1,000,000 shares to 1,625,000 shares. As of June 30, 1999, there were
options to purchase 887,340 shares of the Company's Common Stock outstanding
under the Plan at exercise prices ranging from $0.81 per share to $1.81 per
share; of that amount, the officers of the Company hold options to acquire
440,809 shares and the employees hold the remainder of the outstanding options.
Options granted under the Plan have been exercised for 35,800 shares.
The Board of Directors recommends this action in order to continue to
provide a source of stock to attract and compensate talented personnel. The
Board of Directors believes that stock options promote growth and provide a
meaningful incentive to employees of successful companies, particularly in an
increasingly competitive labor market.
Summary
The Plan was adopted by the Company's Board of Directors on November 9,
1993, and approved by the Company's stockholders on May 25, 1994. It provides
for the granting of "incentive stock options" ("Incentive Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and non-qualified stock options ("Non-Qualified Options") to purchase
shares of Common Stock. The Plan authorizes the granting of options for shares
of the Company's Common Stock to executives, key employees, directors and
consultants of the Company. The Plan is administered by the Stock Option
Committee, which has sole discretion and authority, consistent with the
provisions of the Plan, to determine which eligible participants will receive
options, the time when options will be granted, the terms of options granted and
the number of shares subject to options granted under the Plan.
The exercise price of Incentive Options must be not less than the fair
market value of a share of Common Stock on the date the option is granted (110%
with respect to optionees who own more than 10% of the combined voting power of
all classes of the Company's stock). Non-Qualified Options shall have such
exercise price as determined by the Stock Option Committee. The Stock Option
Committee has the authority to determine the time or times at which options
granted under the Plan become exercisable, provided that options expire no later
than ten years from the date of grant (five years with respect to holders of
Incentive Options who own more than 10% of the combined voting power of all
classes of the Company's stock).
Options granted under the Plan are nontransferable, other than upon death
by will and the laws of descent and distribution, and generally may be exercised
only by an employee while employed by the Company, as all vested and unvested
options granted under the Plan generally terminate with respect to such employee
upon the employee's termination of employment for any reason other than death or
disability. However, an employee who voluntary terminates employment with the
consent of the Company or is terminated by the Company without cause has 3
months from termination to exercise all options that had vested on the date of
termination. Moreover, in the event that an employee's employment is terminated
by reason of death or disability, the employee or the employee's legal
representative will be entitled to exercise those options that were vested as of
the date of termination of employment, for a period of one year from the date of
such termination of employment.
6
<PAGE>
Change of Control. In the event the Company enters into an agreement to
dispose of all or substantially all of the assets or stock of the Company, each
option granted pursuant to the Plan shall immediately become exercisable in full
upon the happening of any of the following events: (i) the first purchase of
shares of Common Stock pursuant to a tender offer or exchange offer (other than
an offer by the Company) for all, or any part of, the outstanding shares of
Common Stock, (ii) the approval of the stockholders of the Company of an
agreement of merger pursuant to which the Company will not survive as an
independent, publicly-owned corporation, or a consolidation, or a sale, exchange
or other disposition of all or substantially all of the Company's assets, or
(iii) the change in control of the Company. For these purposes "change in
control" shall mean any transaction which results in a person or group of
persons (other than the officers, directors, and holders of more than 20% of the
voting capital stock of the Company as of the date of adoption of the Plan)
acquiring beneficial ownership of more than 20% of the voting capital stock of
the Company, as calculated pursuant to Rule 13d-3 under the Securities Exchange
Act of 1934, as amended.
Tax Aspects of the 1999 Stock Option Plan Under the U.S. Internal Revenue
Code. The following is a summary of the principal Federal income tax
consequences of option grants under the 1999 Plan. It does not describe all
Federal tax consequences under the Plan, nor does it describe state or local tax
consequences.
Incentive Options. Under the Code, an employee will not realize taxable
income by reason of the grant or the exercise of an Incentive Option. If an
employee exercises an Incentive Option and does not dispose of the shares until
the later of (a) two years from the date the option was granted or (b) one year
from the date the shares were transferred to the employee, the entire gain, if
any, realized upon disposition of such shares will be taxable to the employee as
long-term capital gain, and the Company will not be entitled to any deduction.
If an employee disposes of the shares within such one-year or two-year period in
a manner so as to violate the holding period requirements (a "disqualifying
disposition"), the employee generally will realize ordinary income in the year
of disposition, and, provided the Company complies with applicable withholding
requirements, the Company will receive a corresponding deduction in an amount
equal to the excess of (1) the lesser of (x) the amount, if any, realized on the
disposition and (y) the fair market value of the shares on the date the option
was exercised over (2) the option price. Any additional gain realized on the
disposition of the shares acquired upon exercise of the option will be long-term
or short-term capital gain and any loss will be long-term or short-term capital
loss depending upon the holding period for such shares. The employee will be
considered to have disposed of his shares if he sells, exchanges, makes a gift
of or transfers legal title to the shares (except by pledge or by transfer on
death). If the disposition of shares is by gift and violates the holding period
requirements, the amount of the employee's ordinary income (and the Company's
deduction) is equal to the fair market value of the shares on the date of
exercise less the option price. If the disposition is by sale or exchange, the
employee's tax basis will equal the amount paid for the shares plus any ordinary
income realized as a result of the disqualifying distribution. The exercise of
an Incentive Option may subject the employee to the alternative minimum tax.
Special rules apply if an employee surrenders shares of Common Stock in
payment of the exercise price of his Incentive Option. An Incentive Option that
is exercised by an employee more than three months after an employee's
employment terminates will be treated as a Non-Qualified Option for Federal
income tax purposes. In the case of an employee who is disabled, the three-month
period is extended to one year and in the case of an employee who dies, the
three-month employment rule does not apply.
Non-Qualified Options. There are no Federal income tax consequences to
either the optionee or the Company on the grant of a Non-Qualified Option. On
the exercise of a Non-Qualified Option, the optionee has taxable ordinary income
equal to the excess of the fair market value of the Common Stock received on the
exercise date over the option price of the shares.
7
<PAGE>
The optionee's tax basis for the shares acquired upon exercise of a
Non-Qualified Option is increased by the amount of such taxable income. The
Company will be entitled to a Federal income tax deduction in an amount equal to
such excess, provided the Company complies with applicable withholding rules.
Upon the sale of the shares acquired by exercise of a Non-Qualified Option, the
optionee will realize long-term or short-term capital gain or loss depending
upon his or her holding period for such shares. Special rules apply if an
optionee surrenders shares of Common Stock in payment of the exercise price of a
Non-Qualified Option.
Parachute Payments. The exercise of any portion of any option that is
accelerated due to the occurrence of a change of control may cause a portion of
the payments with respect to such accelerated options to be treated as
"parachute payments" as defined in the Code. Any such parachute payments may be
non-deductible to the Company, in whole or in part, and may subject the
recipient to a non-deductible 20% federal excise tax on all or portion of such
payments (in addition to other taxes ordinarily payable).
The following table sets forth certain information regarding options to
purchase Common Stock issued (net of cancelled options) since the inception of
the Plan to each of the Company's executive officers who are names in the
Summary Compensation Table (the "Named Executives") who participated in the
Plan, all current executive officers as a group, all current directors who are
not executive officers as a group and all employees, including employees who are
not executive officers, who participated in the Plan as a group. No associate of
any director or officer has received options under the Plan. The closing stock
price on August 10, 1999 was $0.81.
- --------------------------------------------------------------------------------
NUMBER OF SECURITES
UNDERLYING OPTIONS
-------------------
W. Scott Parr 275,181
- --------------------------------------------------------------------------------
David Bothwell 36,585
- --------------------------------------------------------------------------------
David Myers 26,562
- --------------------------------------------------------------------------------
Richard Lehman 55,628
- --------------------------------------------------------------------------------
All current executive officers as a group (5 persons) 493,956
- --------------------------------------------------------------------------------
Non-employee directors as a group (5 person) 10,000
- --------------------------------------------------------------------------------
All non-executive officer employees as a group (38 persons) 446,531
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Effect on Common Stockholders
An increase of 625,000 shares of Common Stock available for grant under the
Plan will result in additional potential dilution of the Company's outstanding
Common Stock. As of July 30,1999, 12,824,206 shares of Common Stock were
outstanding.
Vote Required
To approve the increase in the number of shares of Common Stock that are
authorized to be issued pursuant to the exercise of options granted under the
Pan from 1,000,000 shares to 1,625,000 shares, the affirmative vote of a
majority of the shares of Common Stock, entitled to vote and cast at the Annual
Meeting is required.
A copy of the Plan, as amended to include the increase in authorized stock
pursuant to this proposal, is set forth in Exhibit A attached.
Recommendation
THE BOARD BELIEVES THAT THE PROPOSED AMENDMENT TO THE COMPANY'S 1993 STOCK
OPTION PLAN IS IN THE BEST INTEREST OF THE COMPANY AND UNANIMOUSLY RECOMMENDS A
VOTE FOR ITS APPROVAL.
8
<PAGE>
PROPOSAL 3
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE
OF INCORPORATION TO AUTHORIZE A CLASS OF PREFERRED STOCK
The Board of Directors has adopted a resolution unanimously approving and
recommending to the Company's stockholder's for their approval of an amendment
to the Certificate of Incorporation of the Company which would authorize the
issuance of 1,000,000 shares of Preferred Stock. Listed on Exhibit B hereto and
incorporated herein by reference is the complete text of the proposed additional
language to be substituted in its entirety in lieu of Article FOURTH.
The proposed amendment will authorize the issuance of 1,000,000 shares of
Preferred Stock, par value $0.01 per share ("Preferred Stock"). The Company
currently has no authorized stock other than Common Stock. Upon adoption of the
amendment, the Board of Directors will, without further action by the
stockholders, unless otherwise required by law or any applicable stock exchange
rules, be authorized to issue up to 1,000,000 shares of Preferred Stock at such
times, for such purposes and for such consideration as it may determine.
The authorized shares of Preferred Stock that would be available for
issuance if the proposed amendment is approved, could be issued for any proper
corporate purpose by the Board at any time without further stockholder approval,
subject to applicable law and to the rules of the NASDAQ Stock Market, Inc.
("NASDAQ") that apply to the Company as a result of the quotation of the
Company's Common Stock on the NASDAQ Small Cap Market or of any securities
exchange on which the Company's securities may then be quoted so long as the
Company's Common Stock is so quoted. Except as described above, further
authorization from the Company's stockholders will not be solicited prior to the
issuance of Preferred Stock.
Although it has no present plans or commitments to issue any shares of
Preferred Stock, management believes that the availability of such a security
may prove useful in connection with financing the capital needs of the Company,
possible future acquisitions and mergers, employee incentive or compensation
plans, or other purposes. The authorization will enable the Company to act
promptly if appropriate circumstances arise which require the issuance of such
shares.
The proposed amendment would authorize the Board of Directors to provide
for the issuance, from time to time, of Preferred Stock in one or more series
and to fix the terms of each series. Each series of Preferred Stock could, as
determined by the Board of Directors at the time of issuance, rank, in respect
of dividends and liquidation, senior to the Common Stock.
In establishing the terms of a series of Preferred Stock, the Board of
Directors would be authorized to set, among other things, the number of shares,
the dividend rate and preferences, the cumulative or non-cumulative nature of
dividends, the redemption provisions, the sinking fund provisions, the
conversion rights, the amounts payable, and preferences, in the event of the
voluntary or involuntary liquidation of the Company, and the voting rights in
addition to those required by law. Such terms could include provisions
prohibiting the payment of Common Stock dividends or purchases by the Company of
Common Stock in the event dividends or sinking fund payments on the Preferred
Stock were in arrears. In the event of liquidation, the holders of Preferred
Stock of each series might be entitled to receive an amount specified for such
series by the Board of Directors before any payment could be made to the holders
of Common Stock.
The authorization of new shares of Preferred Stock will not, by itself,
have any effect on the rights of the holders of
9
<PAGE>
shares of Common Stock. Nonetheless, the issuance of one or more series of
Preferred Stock could affect the holders of shares of the Common Stock in a
number of respects, including the following: (a) if voting rights are granted to
any newly issued series of Preferred Stock, the voting power of the Common Stock
will be diluted, (b) the issuance of Preferred Stock may result in a dilution of
earnings per share of the Common Stock, (c) dividends payable on any newly
issued series of Preferred Stock will reduce the amount of funds available for
payment of dividends on the Common Stock, (d) future amendments to the
Certificate of Incorporation affecting the Preferred Stock may require approval
by the separate vote of the holders of the Preferred Stock or in some cases the
holders of shares of one or more series of Preferred Stock (in addition to the
approval of the holders of shares of the Common Stock) before action can be
taken by the Company, and (e) make more difficult or discourage an attempt to
obtain control of the Company by means of a merger, tender offer, proxy consent
or otherwise.
The Board of Directors has unanimously determined that the proposed
amendment to Article FOURTH of the Company's Certificate of Incorporation is in
the best interest of the Company and its stockholders. The Board of Directors
therefore recommends a vote FOR adoption of the proposed amendment to Article
FOURTH to add the class of Preferred Stock. The affirmative vote of the holders
of at least a majority of the issued and outstanding shares of the Company's
Common Stock entitled to vote at the Annual Meeting is required for the
amendment to Article FOURTH to be effective.
Effect on Common Stockholders
The creation of up to 1,000,000 shares of Preferred Stock will result in
additional potential dilution of the Company's outstanding Common Stock. As of
July 30, 12,824,206 shares of Common Stock were outstanding.
Vote Required
To approve the Amendment to Certificate Proposal, the affirmative vote of a
majority of the outstanding shares of Common Stock, entitled to vote at the
Annual Meeting is required.
Recommendation
THE BOARD BELIEVES THAT THE PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION IS IN THE BEST INTEREST OF THE COMPANY AND UNANIMOUSLY
RECOMMENDS A VOTE FOR ITS APPROVAL.
10
<PAGE>
EXECUTIVE OFFICERS
Name Age Position
- ---- --- --------
W. Scott Parr 48 President, Chief Executive Officer, Director
Annette L. Heroux 42 Chief Financial Officer
Richard F. Lehman 61 Vice President, Engineering
Joseph E. Manseau 42 Vice President Sales and Marketing
Kenneth C. Scism 46 Vice President, Medical Business
Annette L. Heroux joined the Company in October, 1987. She has served in
various financial management capacities and was named Controller in October 1998
and Chief Financial Officer in July 1999. Prior to joining the Company, Ms.
Heroux worked from 1980 to 1987 for Laurier, Inc. where she served in various
financial and managerial capacities.
Richard F. Lehman joined the Company in July 1990, as Director of Scanner
Engineering. In December 1993, he was appointed Vice President of Scanner
Engineering and in October 1996, he was named Vice President of Engineering.
Prior to joining the Company, Mr. Lehman was employed by Xerox Corporation for
23 years where he served in various engineering and managerial capacities.
Joseph E. Manseau joined the Company in August 1998 as Regional Sales
Manager and was promoted to Vice President Sales and Marketing on April 1, 1999.
Prior to joining the Company Mr. Manseau worked from 1997 to 1998 for
Escher-Grad Tech., Inc. where he was responsible for implementing the sales and
marketing strategy for its large format image setters. From 1981 to 1997 he
worked for AGFA and Compugraphic, currently divisions of Bayer Corporation, in
various marketing and sales capacities.
Kenneth C. Scism joined the Company in June 1999 as Vice President of
Medical Business. Prior to joining the Company, Mr. Scism served as Vice
President Commercial Medical Sales for META Solutions, Inc. from 1997 to 1999,
where he was responsible for implementing a channel distribution strategy for
digital medical imaging and information systems in the United States. From 1985
to 1997, Mr. Scism worked in various sales and business development capacities
for the Health Imaging Division of the Eastman Kodak Company.
11
<PAGE>
EXECUTIVE COMPENSATION
The following table provides information on the compensation provided by
the Company during fiscal years 1998, 1997 and 1996 to the persons serving as
the Company's Chief Executive Officer during fiscal 1998 and the Company's most
highly compensated executive officers, serving at the end of the 1998 fiscal
year. Included in this list are only those executive officers whose total annual
salary and bonus exceeded $100,000 during the 1998 fiscal year.
SUMMARY COMPENSATION TABLE
Securities
Underlying
Name and Principal Position Year Salary($) Options(#)
- --------------------------- ---- --------- ----------
W. Scott Parr
Chief Executive Officer .............. 1998 131,502 275,181
1997 - 0 - - 0 -
1996 - 0 - - 0 -
David Bothwell(1)
Chief Executive Officer .............. 1998 17,395 - 0 -
1997 83,210 - 0 -
1996 151,303 61,585(2)
David Myers (3)
Vice President, Sales ................ 1998 143,323 26,562
1997 - 0 - - 0 -
1996 - 0 - - 0 -
Richard Lehman
Vice President, Engineering .......... 1998 101,976 19,128
1997 113,698 5,000
1996 102,082 26,500(2)(4)
- ----------
1) Resigned on January 20, 1998.
2) Represents options to purchase Common Stock which had been granted in
previous years pursuant to the 1993 Stock Option Plan and which were
relinquished by the optionee and canceled by the Company in exchange for an
equal number of new options granted in 1996 and exercisable at $1.72 per
share.
3) Mr. Myers ceased employment with the Company on April 30, 1999.
4) Includes options to purchase 8,000 shares of Common Stock granted in 1996.
Mr. Lehman subsequently exchanged these options in 1996, along with options
to purchase 18,500 shares of Common Stock granted in prior years, for an
equal number of new options with an exercise price of $1.72 per share. See
note 2 above.
12
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Potential
---------------------------- Realizable Value at
Number of Percent of Assumed Annual
Securities Total Options Rates of Stock
underlying Granted to Exercise of Price Appreciation
Options Employees Base Price Expiration for Option Term
Name Granted in Fiscal Year ($/Sh) Date 5%($) 10%($)
- ---- ------- -------------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
W. Scott Parr 275,181 1.13 05/12/2008 409,397 540,403
1,125 1.00 09/11/2008 1,485 1,980
1,125 41 1.00 12/23/2008 1,485 1,980
David Myers 25,000 1.13 05/12/2008 37,500 49,500
1,562 4 1.00 12/23/2008 2,062 2,749
Richard Lehman 16,376 1.13 05/12/2008 24,564 32,424
1,376 1.00 09/11/2008 1,816 2,422
1,376 3 1.00 12/23/2008 1,816 2,422
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information on an aggregated basis regarding
each exercise of stock options during the Company's last completed fiscal year
by each of the named executive officers and the fiscal year-end value of
unexercised options.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the Money
Options at Options at
FY-End (#) FY-End($) (1)
Shares ------------ -------------
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized Unexercisable Unexercisable
- ---- ------------ -------- ------------- -------------
<S> <C> <C> <C> <C>
W. Scott Parr (2) 0 0 3,375/271,806 703/33,976
David Myers (2) 0 0 1,562/25,000 391/3,125
Richard Lehman (2) 0 0 41,628/4,000 2,735/0
</TABLE>
- ----------
(1) Based upon the closing price of the Common Stock on December 31, 1998, of
$1.25 per share.
(2) Options granted pursuant to the Company's 1993 Stock Option Plan, as
amended.
13
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
There is no Compensation Committee or other committee of the Company's
Board of Directors performing similar functions. The person who performed the
equivalent function in 1998 was Robert Howard, Chairman of the Board under the
direction of the Board of Directors. Scott Parr, the Company's Chief Executive
Officer and a director, participated in discussions with Mr. Howard during the
1998 fiscal year in his capacity as an executive officer in connection with
executive officer compensation.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
There is no Compensation Committee of the Board of Directors or other
committee of the Board of Directors performing an equivalent function. As noted
above, executive compensation in 1998 was determined by the Company's Chairman,
Robert Howard, in consultation with Scott Parr, the Company's Chief Executive
Officer. There is no formal compensation policy for either the Chief Executive
Officer or the other executive officers of the Company. Executive compensation
is based generally on performance and the Company's resources, but not on
specific objective criteria.
Compensation for executive officers consists of a combination of salary and
stock options. In 1998 the Company recorded a loss of $3,372,323 on revenues of
$5,323,601 as compared to a loss of $832,072 in 1997 on revenues of $7,874,813.
During 1998 there were no increases in salaries to executive officers.
In April of 1998, a 10% percent salary reduction was implemented for Named
Executive Officers which was maintained until April of 1999.
Robert Howard, Chairman Ivan Gati Nat Rothenberg Kit Howard
Sheila Horwitz W. Scott Parr Harvey Teich
14
<PAGE>
Limitation on Company's Deductions. As a result of Section 162(m) of the
Code, the Company's deduction for certain awards under the 1993 Plan may be
limited to the extent that the Chief Executive Officer or other executive
officer whose compensation is required to be reported in the summary
compensation table receives compensation (other than performance-based
compensation) in excess of $1.0 million a year.
PERFORMANCE GRAPH
The following chart sets forth a line graph comparing the performance of
the Company's Common Stock, over the past five years. This graph assumes the
investment of $100 on December 31, 1993, in the Company's Common Stock, and
compares the performance with the NASDAQ Composite Index and the NASDAQ Computer
Manufacturer Index. Measurement points are at December 31 for each respective
year.
On July 13, 1995, the Company's Common Stock ceased trading on the American
Stock Exchange and commenced trading on the NASDAQ National Market. The Company
started trading on the NASDAQ Small Cap Market on July 15, 1998.
Those companies which compete with the Company in its principal market,
image scanning, are either small subsidiaries or divisions of large United
States corporations or are foreign companies which are either not quoted on a
stock exchange or for which data is difficult to obtain. For this reason a more
generic index of NASDAQ technology stocks has been adopted. The Company pays no
dividends. The NASDAQ Composite Index and the NASDAQ Computer Manufacturer Index
reflect a cumulative total return based upon the reinvestment of dividends of
the stocks included in those indices. The historical information set forth below
is not necessarily indicative of future performance.
STOCK PERFORMANCE GRAPH
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
NASDAQ
Computer
YEAR NASDAQ Manufacturer
ENDED HOWTEK Index Index
----- ------ ----- ------------
12/31/93 $100.00 $100.00 $100.00
12/31/94 $135.19 $ 97.75 $109.82
12/31/95 $101.85 $138.24 $172.98
12/31/96 $ 26.86 $170.04 $232.27
12/31/97 $ 21.30 $208.65 $281.02
12/31/98 $ 18.52 $292.80 $610.28
15
<PAGE>
RELATED TRANSACTIONS
The Company has a Convertible Revolving Credit Promissory Note ("the
Convertible Note") and Revolving Loan and Security Agreement (the "Loan
Agreement") with Mr. Robert Howard, Chairman of the Board of Directors of the
Company, under which Mr. Howard has agreed to advance funds, or to provide
guarantees of advances made by third parties in an amount up to $3,000,000.
Outstanding advances are collateralized by substantially all of the assets of
the Company and bear interest at prime interest rate plus 2%. The Convertible
Note entitles Mr. Howard to convert outstanding advances into shares of the
Company's common stock at any time based on the outstanding closing market price
of the Company's common stock at the time each advance is made.
As of June 30, 1999, the Company had $3,000,000 million available for
future borrowings under the Loan Agreement.
In the third quarter of 1998, the Company borrowed, (i) $565,000 from Mr.
Robert Howard, the Company's Chairman, and (ii) $200,000 from Dr. Lawrence
Howard, the son of Mr. Robert Howard, pursuant to Secured Demand Notes and
Security Agreements (the "Notes"). Principal on the Notes are due and payable in
full, together with interest accrued and any penalties provided for, on demand.
Under the terms of the Notes the Company agreed to pay interest at the lower
rate of (a) 12% per annum, compounded monthly or (b) the maximum rate permitted
by applicable law. The Notes currently bear interest at 12%. Payment of the
Notes is secured by a security interest in certain assets of the Company. In
February 1999, the Company repaid $65,000 to Mr. Robert Howard. As of June 30,
1999, the Company owed (i) $500,000 to Mr. Robert Howard, and (ii) $200,000 to
Dr. Lawrence Howard.
In February 1984, the Company entered into a lease of its Hudson, New
Hampshire facility with Mr. Howard, at an annual rent of $78,500, plus taxes and
operating expenses. The Company continues to renew this lease each year at the
same rent and the current lease term expires on September 30, 2000.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BDO Seidman, LLP has audited and reported upon the financial statements of
the Company for the fiscal year ended December 31, 1998, and has been selected
by the Board of Directors to examine and report upon the financial statements of
the Company for the fiscal year ending December 31, 1999. The Board of Directors
recommends to the stockholders that they ratify this selection. BDO Seidman, LLP
has no direct or indirect interest in the Company or any affiliate of the
Company. A representative of BDO Seidman, LLP is expected to be present at the
Annual Meeting with the opportunity to make a statement, if such person desires
to do so, and is expected to be available to respond to appropriate questions.
DEADLINE FOR SUBMISSION OF
STOCKHOLDER PROPOSALS
Stockholders who wish to present proposals appropriate for consideration at
the Company's Annual Meeting of Stockholders to be held in 2000, must submit the
proposals in proper form to the Company at its address set forth on the first
page of this proxy statement not later than April 21, 2000, in order for the
proposals to be considered for inclusion in the Company's proxy statement and
form of proxy relating to such Annual Meeting.
16
<PAGE>
OTHER INFORMATION
Proxies for the Annual Meeting will be solicited by mail and through
brokerage institutions and all expenses involved, including printing and
postage, will be paid by the Company.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1998, IS BEING FURNISHED HEREWITH TO EACH STOCKHOLDER OF RECORD AS OF THE
CLOSE OF BUSINESS ON JULY 30, 1999. ADDITIONAL COPIES OF THE ANNUAL REPORT WILL
BE PROVIDED FOR A NOMINAL CHARGE UPON WRITTEN REQUEST TO:
HOWTEK, INC.
21 PARK AVENUE
HUDSON, NEW HAMPSHIRE 03051
ATTENTION: MS. CONNIE WEBSTER
IN ADDITION, COPIES OF ANY EXHIBITS TO THE ANNUAL REPORT WILL BE PROVIDED FOR A
NOMINAL CHARGE TO STOCKHOLDERS WHO MAKE A WRITTEN REQUEST TO THE COMPANY AT THE
ABOVE ADDRESS.
The Board of Directors is aware of no other matters, except for those
incident to the conduct of the Annual Meeting, that are to be presented to
stockholders for formal action at the Annual Meeting. If, however, any other
matters properly come before the Annual Meeting or any adjournments thereof, it
is the intention of the persons named in the proxy to vote the proxy in
accordance with their judgment.
By order of the Board of
Directors,
ROBERT HOWARD
Chairman of the Board of Directors
August 20, 1999
17
<PAGE>
EXHIBIT A
HOWTEK, INC. 1993 STOCK OPTION PLAN
1. Purpose:
The purpose of this Plan, which shall be known as the "Howtek, Inc. 1993
Stock Option Plan" (the "Plan") is to permit HOWTEK, INC. (the "Company") and
its Subsidiaries, to attract and retain the best available talent and encourage
the highest level of performance in order to continue to serve the best
interests of the Company and its shareholders. By affording key personnel the
opportunity to acquire proprietary interests in the Company and by providing
them incentives to put forth maximum efforts for the success of the business,
the Plan is expected to contribute to the attainment of those objectives.
Options under the Plan may be granted in the form of incentive stock options
("Incentive Options") as provided in Section 422 of the Internal Revenue Code of
1986, as amended, (the "Code"), or in the form of non-qualifying stock options
("Non-Qualifying Options"). Unless otherwise indicated, references in the Plan
to "options" include Incentive Options or Non-Qualifying Options).
The word "Subsidiary" or "Subsidiaries," as used herein, shall mean any
corporation, a majority of the voting stock of which is owned directly or
indirectly by the Company.
2. Participants:
All employees of the Company and its Subsidiaries, as well as non-employees
who perform critical functions for the Company and its Subsidiaries, are
eligible to participate in the Plan and shall be selected by the Stock Option
Committee (the "Stock Option Committee") of the Company's Board of Directors
(the "Board"). Employees who are also directors of the Company will not become
eligible to participate in the Plan until September 22, 1994.
3. Administration:
The Plan shall be administered in accordance with the provisions of Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended. As
currently promulgated that regulation provides for plan administration by
formula awards as defined by the regulation and by the Board, if each member is
a disinterested person, or, at their discretion, by the Stock Option Committee,
which shall be appointed by the Board and which shall consist of not less than
two members of the Board, each of whom is a disinterested person and who shall
serve at the pleasure of the Board. A disinterested person is defined as a
director, who is not during the one year prior to service as an administrator of
the Plan, or during such service, granted or awarded equity securities pursuant
to the Plan or any other plan of the Company or its Subsidiaries, except as
provided in the regulation. Vacancies occurring in the membership of the Stock
Option Committee shall be filled by appointment by the Board.
The Board or the Stock Option Committee, as the case may be, is authorized,
subject to the provisions of the Plan from time to time, to establish such rules
and regulations and to appoint such agents as they deem appropriate for carrying
out the provisions and purposes of the Plan. The interpretation and construction
by the Stock Option Committee of any provisions of, and the determination of any
questions arising under, the Plan, any such rule or regulation, or any agreement
granting options under the Plan, shall be final and conclusive and binding on
all persons interested in the Plan.
A majority of the Stock Option Committee shall constitute a quorum, and the
acts of a majority of the Stock Option Committee present at a meeting at which a
quorum is present, or acts approved in writing by all of its members, shall be
acts of the Stock Option Committee.
18
<PAGE>
4. Shares Subject to the Plan:
Subject to the Plan, options may be granted under the Plan for shares of
the Company's common stock, $.01 par value ("Common Stock"), and may be made
available from either authorized and unissued shares or issued shares, whether
held in the treasury of the Company or otherwise. The total amount of Common
Stock which may be delivered upon exercise of options granted under the Plan
shall not exceed 1,625,000 shares. Such number of shares is subject to
adjustment in accordance with the provisions of Paragraph 12 hereof. In the
event that any option granted under the Plan shall terminate, expire or, with
the consent of the optionee, be cancelled as to any shares of Common Stock,
without having been exercised in full, new options may be granted covering such
shares.
5. Award of Options:
Non-Qualifying Options under the Plan may be granted to any person, other
than directors of the Company (until September 22, 1994 when Company directors
will become eligible to receive Non-Qualifying Option grants), including but not
limited to employees, independent agents, consultants and attorneys, who the
Board or the Stock Option Committee, as the case may be, believes has
contributed, or will contribute to the success of the Company or any of its
Subsidiaries. Incentive Options under the Plan may be awarded only to persons
who, at the time such Incentive Options are granted, are employees of the
Company or any of its Subsidiaries (other than such employee of the Company or
such Subsidiary that is also a director of the Company, provided that on or
after September 22, 1994 employee/directors will become eligible to receive
Incentive Option grants), including any such employees who may be directors and
shareholders thereof. In determining the persons to whom options shall be
granted and the number of shares covered by each option, the Board or the Stock
Option Committee, as the case may be, may take into account the nature of the
services rendered by the respective persons, his or her present and potential
contribution to the success of the Company or any of its Subsidiaries and such
other factors as the Board or the Stock Option Committee, as the case may be, in
their sole discretion, shall deem relevant. Any option granted hereunder shall
be evidenced by a stock option agreement authorized by the Board or the Stock
Option Committee, as the case may be, and executed by duly authorized officers
of the Company (the "Stock Option Agreement"). The date on which an option shall
be granted shall be the date of the Board's or the Stock Option Committee's
authorization of such grant or such later date as may be determined by the Board
or the Stock Option Committee, as the case may be, at the time such grant is
authorized (the "Date of Grant"). Anything herein to the contrary
notwithstanding:
(i) The Company may not, in the aggregate, grant Incentive Options that are
first exercisable by any optionee during any calendar year (under all such plans
of the optionee's employer corporation and its "parent" and "subsidiary"
corporations, as those terms are defined in Section 424 of the Code) to the
extent that the aggregate fair market value of the underlying stock (determined
at the time the Incentive Option is granted) exceeds $100,000.
(ii) The purchase price of each share for which a Non-qualifying Option is
granted shall be within the discretion of the Board or the Stock Option
Committee, as the case may be, provided however, that such purchase price may
not be less than the par value of the Common Stock. The purchase price of each
share for which an Incentive Option is granted under the Plan (the "Incentive
Option Shares") shall not be less than the amount which the Board or the Stock
Option Committee, as the case may be, determines, in good faith, at the time
such Incentive Option is granted, constitutes 100% (110%, in the case of an
Incentive Option granted to an employee who, immediately before the Date of
Grant, owns more than ten percent of the total combined voting power of all
classes of stock of the Company) of the then fair market value of such Incentive
Option Shares.
Subject to authorization by the Board or the Stock Option Committee, and
only if provided in the Stock Option Agreement, a participant who exercises an
option by delivering already owned stock, may receive a new
19
<PAGE>
option at the market price on the date of said exchange, for the same number of
shares as were delivered to exercise the option.
6. Term of Plan:
The Plan shall terminate ten years from the earlier of the date of adoption
of the Plan or the date the Plan is approved by the shareholders of the Company.
No option may be granted after such termination. Termination of the Plan,
however, shall not affect the rights of optionees under options theretofore
granted to them, and all unexpired options shall continue in force and operation
after termination of the Plan except as they may lapse or terminate by their own
terms and conditions.
7. Term of Options:
The period during which any option granted hereunder may be exercised shall
be determined in each case by the Board or the Stock Option Committee, as the
case may be; however, anything herein to the contrary notwithstanding, options
granted hereunder shall only be exercisable during a period not to exceed ten
years from the Date of Grant (except that in the case of an Incentive Option
granted to an employee who owns, immediately before the Date of Grant, more than
ten percent of the total combined voting power of all classes of stock of the
Company, such options shall only be exercisable during a period not to exceed
five years from the Date of Grant). Each option shall be subject to such other
conditions regarding its exercise or non-exercise as the Board or the Stock
Option Committee, as the case may be, may determine.
8. Exercise of Options:
Subject to the provisions of the Plan and unless otherwise provided in the
Stock Option Agreement between the Company and the participant, options granted
under the Plan shall become exercisable as determined by the Board or the Stock
Option Committee. In its discretion, the Board or the Stock Option Committee
may, in any case or cases, prescribe that options granted under the Plan become
exercisable in installments or provide that an option may be exercisable in full
immediately upon the date of its grant. Notwithstanding the preceding sentence,
unless otherwise provided by the Stock Option Committee, each option granted
pursuant to the Plan shall immediately become exercisable in full upon the
happening of any of the following events: (i) the first purchase of shares of
Common Stock pursuant to a tender offer or exchange offer (other than an offer
by the Company) for all, or any part of, the outstanding shares of Common Stock,
(ii) the approval of the stockholders of the Company of an agreement of merger
pursuant to which the Company will not survive as an independent, publicly-owned
corporation, or a consolidation, or a sale, exchange or other disposition of all
or substantially all of the Company's assets, or (iii) the change in control of
the Company. For these purposes "change in control" shall mean any transaction
which results in a person or group of persons (other than the officers,
directors, and holders of more than 20% of the voting capital stock of the
Company as of the date of adoption of the Plan) acquiring beneficial ownership
of more than 20% of the voting capital stock of the Company, as calculated
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
9. Purchase of Option by Company:
Any option at any time granted under the Plan may contain a provision to
the effect that the optionee (or any person entitled to act under Paragraph 10
hereof) may, at any time at which the fair market value is in excess of the
exercise price and prior to exercising the option, in whole or in part, request
that the Company purchase all or any portion of the option as shall then be
exercisable at a price equal to the difference between (i) an amount equal to
the option price multiplied by the number of shares subject to that portion of
the option in respect of which such request shall be made and (ii) an amount
equal to such number of shares multiplied by the fair market value of the
Company's Common Stock (within the meaning of Section 422 of the Code and the
treasury regulations promulgated thereunder) on the date of purchase. The
Company shall have no obligation to make any purchase
20
<PAGE>
pursuant to such request, but if it elects to do so, such portion of the option
as to which the request is made shall be surrendered to the Company. The
purchase price for the portion of the option to be so surrendered shall be paid
by the Company, at the election of the Board or the Stock Option Committee,
either in cash or in shares of Common Stock (valued as of the date and in the
manner provided in clause (ii) above), or in any combination of cash and Common
Stock, which may consist, in whole or in part, of shares or authorized but
unissued Common Stock or shares of Common Stock held in the Company's treasury.
No fractional share of Common Stock shall be issued or transferred and any
fractional share shall be disregarded. Shares covered by that portion of any
option purchased by the Company pursuant hereto and surrendered to the Company
shall not be available for the granting of further options under the Plan. All
determinations to be made by the Company hereunder shall be made by the Board or
the Stock Option Committee, as the case may be.
10. Termination of Employment:
Except as otherwise set forth below, no option or any portion thereof
granted to an employee under the Plan shall be exercisable by such optionee at
any time following the termination of employment. If the employment of an
optionee-employee terminates other than by the Company for cause or by such
optionee without the consent of the Company, then such option may be exercised
by such optionee within three months after termination, but only to the extent
it was exercisable at the date of such termination. In the event that the
employment of an optionee-employee is terminated by reason of death (or if death
occurs within three months after termination of such optionee's employment other
than by the Company for cause or by such optionee without the consent of the
Company), any option granted under the Plan shall be exercisable by such
optionee's executor or administrator or by his or her distributee to whom the
option may have been transferred by will or by the laws of descent and
distribution within one year after such death, but only to the extent that it
was exercisable at the date of the termination of such optionee's employment.
Whether any leave of absence shall constitute termination of employment for
the purposes of any option granted under the Plan shall be determined in each
case by the Board or the Stock Option Committee, as the case may be, in its sole
discretion.
11. Payment for Shares:
Except as otherwise provided herein, each Stock Option Agreement shall
provide that payment for shares of Common Stock purchased upon the exercise of
an option (or any portion thereof) granted hereunder shall be made in full at
the time of such exercise, in cash, Common Stock, the exchange of exercisable
options or by such other means as is authorized by the Board or the Stock Option
Committee.
It shall be a condition to the obligation of the Company to issue or
transfer shares of Common Stock upon the exercise of an option, that the
optionee pay to the Company, upon its demand, such amount as may be requested by
the Company for the purposes of satisfying its liability to withhold federal,
state or local income or other taxes incurred by reason of the exercise of such
option or the transfer of such shares upon such exercise or the purchase of such
option by the Company pursuant to Section 9 hereof.
12. Adjustments Upon Changes in Capitalization:
The total number of shares of Common Stock which may be purchased upon the
exercise of options granted under the Plan shall be appropriately adjusted by
the Board or the Stock Option Committee, as the case may be, for any increase or
decrease in the number of outstanding shares of Common Stock resulting from a
stock dividend, subdivision, combination or reclassification of shares or any
other change in the corporate structure or shares of the Company. In the event
of the dissolution or liquidation of the Company or upon any merger or
consolidation thereof, the Board or the Stock Option Committee, as the case may
be, may make such adjustment with respect to options or take such other action
as it deems necessary or appropriate to reflect or in anticipation of
21
<PAGE>
such dissolution, liquidation, merger or consolidation including, without
limitation, the substitution of new options or the termination of existing
options.
13. Non-Transferability of Options:
No option granted to an optionee under the Plan shall be transferred by
such optionee except by will or the laws of descent and distribution or, in the
case of Non-Qualifying options, as otherwise permitted by the Stock Option
Committee. No transfer of an option by the optionee by will or by the laws of
descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with the written notice thereof and a copy of
the will and such other evidence as the Company may deem necessary to establish
the validity of the transfer and the acceptance by the transferee or transferees
of the terms and conditions of such option. During the lifetime of the optionee,
the option may be exercised only by the optionee, except in the case of
Non-Qualifying Options as otherwise permitted by the Stock Option Committee.
14. Amendment, Modification and Termination of the Plan:
The Board or the Stock Option Committee, as the case may be, may terminate,
and at any time and from time to time, in any respect, amend or modify the Plan;
provided, however, that no such action of the Board, or the Stock Option
Committee, as the case may be, without approval of shareholders, may (a)
increase the total amount of Common Stock which is available for the grant of
options under the Plan except as permitted by law or regulation; (b) permit
Incentive Options to be granted with exercise prices at less than the fair
market value; (c) permit adjustment or reductions in the price at which shares
may be purchased under the Plan, except in each case as permitted by the
provisions of Paragraph 12 above; provided that the restrictions imposed by this
clause shall in no way limit the power to grant more than one option to any
employee; (d) permit the maximum option period provided in Paragraph 7 to be
extended; or (e) affect the status or eligibility of the Plan pursuant to
Regulation 16b-3 of the Securities Exchange Act of 1934 or Section 422 of the
Code. No amendment, modification or termination of the Plan shall in any manner
adversely affect any option theretofore granted under the Plan without the
consent of the optionee; but it shall be conclusively presumed that any
adjustment for changes as provided in Paragraph 12 does not adversely affect any
such right.
15. Finality of Determinations:
Each determination, interpretation, or other action made or taken by the
Board or the Stock Option Committee, as the case may be, pursuant to the
provisions of the Plan, shall be final and shall be binding and conclusive for
all purposes and upon all persons.
16. Employment:
Nothing in the Plan or in any Stock Option Agreement under the Plan shall
confer on any person the right to become an employee of the Company or any of
its Subsidiaries or on any employee any right to continue in the employ of the
Company or any of its Subsidiaries or affect in any way the right of the Company
or any of its Subsidiaries to terminate his employment at any time.
17. Additional Provisions:
Anything herein to the contrary notwithstanding, the Board or the Stock
Option Committee, as the case may be, may, in their sole discretion, impose more
restrictive conditions on the exercise of an option granted pursuant to the
Plan; however, any and all such conditions shall be specified in the Stock
Option Agreement limiting and defining such option.
18. Effective Date of Plan:
The Plan was adopted by the Board of Directors on November 9, 1993.
22
<PAGE>
EXHIBIT B
Proposed Amendment
to Article FOURTH of the Certificate of Incorporation
of Howtek, Inc.
FOURTH: The total number of shares of capital stock which the Company shall
have authority to issue is Twenty-Six Million (26,000,000) shares, of which
Twenty-Five Million (25,000,000) shares shall be Common Stock, par value $.01
per share, and One Million (1,000,000) shares shall be Preferred Stock, par
value $.01 per share.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors of the Company is hereby expressly authorized to provide,
by resolution or resolutions duly adopted by it prior to issuance, for the
creation of each such series and to fix the designation and the powers,
preferences, rights, qualifications, limitations and restrictions relating to
the shares of each such series. The authority of the Board of Directors with
respect to each series of Preferred Stock shall include, but not be limited to,
determining the following:
the designation of the series and the number of shares to constitute
such series (which number may be increased or decreased from time to time
unless otherwise provided by the Board of Directors);
the dividend rate (or method of determining such rate), any conditions
on which and times at which dividends are payable, the preference or
relation which such dividends shall bear to the dividends payable on any
other class or classes or of any other series of capital stock including
the Preferred Stock, and whether such dividends shall be cumulative or
non-cumulative;
whether the series will be redeemable (at the option of the Company or
the holders of such shares or both, or upon the happening of a specified
event) and, if so, the redemption prices and the conditions and times upon
which redemption may take place and whether for cash, property or rights,
including securities of the company or another corporation;
whether the shares of such series shall be subject to the operation of
a retirement or sinking fund and, if so, the extent to and manner in which
any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relating to the operation thereof;
the conversion or exchange rights (at the option of the Company or the
holders of such shares or both, or upon the happening of a specified
event), if any, including the conversion or exchange times, prices, rates,
adjustments and other terms of conversion or exchange;
whether the shares of such series shall have voting rights in addition
to any voting rights provided as a matter of law and, if so, the terms of
such voting rights, which may be general or limited;
the conditions or restrictions, if any, upon the creation of
indebtedness of the Company or upon the issue or reissue or sale of any
additional stock, including additional shares of such series or of any
other series of Preferred Stock or of any other class;
23
<PAGE>
the rights of the holders upon voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company or upon any
dissolution of the assets of the Company (including preferences over the
Common Stock or other class or classes or series of capital stock including
the Preferred Stock);
the preemptive rights, if any, to subscribe to additional issues of
stock or securities of the Company;
the limitations and restrictions, if any, to be effective while any
shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or
other acquisition by the Company of, the Common Stock or shares of stock of
any other class or any other series of Preferred Stock; and
such other special rights and privileges, if any, for the benefit of
the holders of the Preferred Stock, as shall not be inconsistent with the
provisions of the Certificate of Incorporation, as amended, or applicable
law.
All shares of Preferred Stock of the same series shall be identical in all
respects, except that shares of any one series issued at different times may
differ as to dates, if any, from which dividends thereon may accumulate. All
shares of Preferred Stock redeemed, purchased or otherwise acquired by the
Company (including share surrendered for conversion) shall be cancelled and
thereupon restored to the status of authorized but unissued shares of Preferred
Stock undesignated as to series.
Except as otherwise may be required by law, and except as otherwise may be
provided in the Certificate of Incorporation, as amended, or in the resolution
of the Board of Directors of the Company creating any series of Preferred Stock,
the Common Stock shall have the exclusive right to vote for the election of
directors and for all other purposes, each holder of the Common Stock being
entitled to one vote for each share thereof held.
24
