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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
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Section 240.l4a-11(c) or Section 240.l4a-12
Micrografx, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Not Applicable
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14-6(i)(2) or Item 22(a)(2) of
Schedule 14A
[ ] Fee computed on table below per Exchange Act Rules 14a-6(1) (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 amount on which the filing
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:
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MICROGRAFX, INC.
505 MILLENNIUM DRIVE
ALLEN, TEXAS 75013
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 4, 1999
To the Shareholders of
Micrografx, Inc.:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders of
Micrografx, Inc. (the "Company") will be held at the on the 4th day of November,
1999, at 10:00 a.m. (local time) at Micrografx headquarters located at 505
Millennium Drive, Allen, Texas 75013 for the following purposes:
1. The election of five (5) directors to hold office until the next
annual election of directors by shareholders or until their respective
successors shall have been duly elected and shall have qualified;
2. A proposal to approve an amendment to the Micrografx, Inc. 1995
Incentive and Nonstatutory Stock Option Plan to increase the number of
shares to be granted by an additional 600,000.
3. The ratification of the appointment by the Board of Directors of
Ernst & Young L.L.P. as independent public accountants for the Company for
the fiscal year ending June 30, 2000;
4. The transacting of any and all other business that may properly come
before the meeting or any adjournment(s) thereof.
The Board of Directors has fixed the close of business on September 10,
1999, as the record date (the "Record Date") for the determination of
shareholders entitled to receive notice of, and to vote at, such meeting or any
adjournments thereof. Only shareholders of record at the close of business on
the Record Date are entitled to receive notice of and to vote at such meeting.
The stock transfer books will be available for inspection at the meeting.
You are cordially invited to the meeting; however, regardless of
whether you expect to attend the meeting in person, you are urged to promptly
sign, date and mail the enclosed form of proxy so that you shares of stock may
be represented and voted at the meeting. Your proxy will be returned to you if
you should be present at the meeting and should request such return in the
manner provided for revocation of proxies on the initial page of the enclosed
Proxy Statement.
By Order of the Board of Directors
Douglas M. Richard
President
October 7, 1999
<PAGE> 3
MICROGRAFX, INC.
505 MILLENNIUM DRIVE
ALLEN, TEXAS 75013
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 4, 1999
SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying proxy is solicited by the Board of Directors of
Micrografx, Inc., a Texas corporation (the "Company" or "Micrografx"), to be
voted at the 1999 Annual Meeting of Shareholders of Micrografx to be held on
NOVEMBER 4, 1999 (the "Annual Meeting"), at the time and place, and for the
purposes, set forth in the accompanying Notice of Annual Meeting, and at any
adjournment(s) of that meeting. WHEN PROXIES IN THE ACCOMPANYING FORM ARE
PROPERLY EXECUTED AND RECEIVED, THE SHARES REPRESENTED THEREBY WILL BE VOTED AT
THE ANNUAL MEETING IN ACCORDANCE WITH THE DIRECTIONS NOTED THEREON; IF NO
DIRECTION IS INDICATED, SUCH SHARES WILL BE VOTED FOR THE ELECTION OF THE
DIRECTORS NAMED HEREIN AND IN FAVOR OF THE OTHER PROPOSALS SET FORTH IN THE
NOTICE OF ANNUAL MEETING, AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO
ANY OTHER MATTER THAT IS PROPERLY BROUGHT BEFORE THE MEETING.
Each shareholder of the Company giving a proxy has the unconditional
right to revoke his proxy at any time prior to its exercise either in person at
the Annual Meeting or by giving written notice to the Company addressed as
follows: 505 Millennium Drive, Allen, Texas 75013, Attention: Chairman of the
Board. No revocation by written notice shall be effective unless and until such
notice has been received by the Chairman of the Board of the Company prior to
the day of the Annual Meeting or by the inspector(s) of elections at the Annual
Meeting.
The principal executive offices of the Company are located at 505
Millennium Drive, Allen, Texas 75013.
This Proxy Statement and accompanying form of proxy are being mailed to
the Company's shareholders on or about October 13, 1999. The Company's Annual
Report to Shareholders covering the Company's fiscal year ended June 30, 1999,
is being mailed to shareholders together with this Proxy Statement but does not
form any part of the materials for solicitation of proxies.
In addition to the solicitation of proxies by use of the mail and
through this Proxy Statement, directors, officers and regular employees of the
Company may solicit the return of proxies, either by mail, personal contact,
telephone, telecopy or telegraph. Officers and employees of the Company will not
be additionally compensated for their solicitation efforts but will be
reimbursed for any out-of-pocket expenses incurred. The Company has also
retained Corporate Investor Communications, Inc. to assist the Company in the
solicitation of proxies from shareholders and will pay such firm a fee of $3,750
for its services and will reimburse such firm for any of its out-of-pocket
expenses. Brokerage houses and other custodians, nominees and fiduciaries will
be requested, in connection with shares registered in their names, to forward
solicitation materials to the beneficial owners of such shares.
All costs of preparing, printing, assembling and mailing the Notice of
Annual Meeting, this Proxy Statement, the enclosed form of proxy and any
additional materials, as well as the cost of forwarding solicitation materials
to the beneficial owners of stock and all other costs of solicitation, will be
borne by the Company.
PURPOSES OF THE MEETING
At the Annual Meeting, the Company's shareholders will be asked to consider and
act upon the following matters:
1. The election of five (5) directors to hold office until the next
annual election of directors by shareholders or until their respective
successors shall have been duly elected and shall have qualified;
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2. A proposal to approve an amendment to the Micrografx, Inc. 1995
Incentive and Nonstatutory Stock Option Plan to increase the number of
shares available to be granted by an additional 600,000 shares.
3 The ratification of the appointment by the Board of Directors of
Ernst & Young L.L.P. as independent public accountants for the company for
the fiscal year ending June 30, 2000;
4. The transacting of any and all other business that may properly come
before the meeting or any adjournment(s) thereof.
QUORUM AND VOTING
The identity of shareholders entitled to receive notice of and to vote
at the Annual Meeting and the number of votes allotted to each shareholder were
determined as of the close of business on September 10, 1999 (the "Record
Date"). On the Record Date, there were issued and outstanding 12,124,998 shares
of common stock, par value $.01 per share (the "Common Stock").
Each shareholder as of the Record Date will be entitled to one vote per
share of Common Stock held on each matter acted upon at the meeting. Neither the
Articles of Incorporation nor the Bylaws of the Company provide for cumulative
voting rights. The presence, in person or by proxy, of the holders of at least a
majority of the issued and outstanding shares of Common Stock is necessary to
constitute a quorum to transact business at the Annual Meeting. Abstentions may
be specified on all matters proposed, other than the election of directors.
Abstentions and broker non-votes will be considered present at the meeting and
will be counted towards determining whether a quorum is present. A broker
non-vote occurs where a registered broker holding customer securities in street
name has not received voting instructions from the beneficial owner regarding
any "non-routine" matter as so designated by that broker's self-regulatory
organization.
Assuming the presence of a quorum, (i) the affirmative vote of the
holders of a plurality of the shares of Common Stock represented at the meeting
is required for the election of the directors; and (ii) the affirmative vote of
the holders of at least a majority of the issued and outstanding shares of
Common Stock represented in person or by proxy at the Annual Meeting and
entitled to vote is required for the approval of all other matters. Abstentions
on a particular matter (other than the election of directors) will not be
counted as votes cast in the affirmative and will therefore have the same effect
as a vote against a particular matter because each proposal (other than the
election of directors) requires the affirmative vote of a majority of the shares
present in person or represented by proxy at the meeting entitled to vote. With
regard to the election of directors, votes may be cast in favor of or withheld
from each nominee; votes that are withheld will be excluded entirely from the
vote and will have no effect. Broker non-votes will have no impact on the
outcome of the voting on the election of directors or any other proposal.
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ELECTION OF DIRECTORS
(ITEM 1)
The Bylaws of the Company provide that the Board of Directors shall be
composed of not less than five but not more than nine directors. Unless
otherwise directed in the enclosed proxy, it is the intention of the persons
named in such proxy to nominate and to vote the shares represented by such proxy
for the election of the following named nominees for the offices of directors of
the Company to hold office until the next annual meeting of shareholders or
until their respective successors shall have been duly elected and shall have
qualified. Each of the nominees is presently a director of the Company.
<TABLE>
<CAPTION>
SERVED AS PRESENT OFFICE(S)
NOMINEE AGE DIRECTOR SINCE HELD IN MICROGRAFX
- ------- --- -------------- ------------------
<S> <C> <C> <C>
Russell E. Hogg 70 1997 Chairman of the Board
Sunnygables, 2 Salsbury Place of Directors
South Nyack, NY 10960
Douglas M. Richard 40 1998 Chief Executive Officer,
505 Millennium Drive President and Director
Richardson, TX 75081
Seymour Merrin 64 1990 Director
560 Los Nidos Drive
Santa Fe, NM 87501
Robert Kamerschen 60 1993 Director
204 Parade Hill Road
New Canaan, CT 06840
Avery More 45 1999 Director
6523 Waggoner Drive
Dallas, TX 75230
</TABLE>
The following is a brief account of the business experience, during the
past five years, of each nominee for director of the Company.
Russell E. Hogg is the Chairman and CEO of Hogg International
Associates, a global financial service company whose clients draw upon global
expertise in the areas of finance, strategic marketing and "back room"
operations, located in Nyack, NY. Mr. Hogg joined the Board of Directors and was
elected to the position of Chairman of the Board in May, 1997. In the past, he
served as a consultant to the National Academy of Sciences sub-committee which
evaluated and documented the shortcomings within the Internal Revenue Service
telecommunications and processing modernization project and as a board member
for several major corporations. Mr. Hogg is the Chairman of the Institute for
International Sports, sponsor in 1993 of the inaugural World Scholar-Athlete
Games. From 1980 to 1989, Mr. Hogg was the Chief Executive Officer for
MasterCard.
Douglas M. Richard has served as the Chief Executive Officer of the
Company since February 1997 and has served as a director since 1998. Mr. Richard
serves on the advisory board of the Micrografx Chili for Children(TM)
Foundation. In April 1996 Micrografx acquired Visual Software, Inc., a company
Mr. Richard founded and since that time, Mr. Richard has taken an aggressive
position in redefining the strategy and vision of Micrografx. In addition to
founding Visual Software, Mr. Richard founded ITAL computers in 1985, which was
recognized as the largest CAD systems integrator in California at that time.
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Seymour Merrin has been a director of the Company since February 1990.
Since 1988, he has served as president of Merrin Information Services, Inc., an
information service that provides information and consulting to retail computer
software businesses.
Robert Kamerschen has been a director of the Company since April 1993.
In September 1999, Mr. Kamerschen was appointed Chairman and CEO of DIMAC
Marketing Corporation, a direct marketing service company, one of the largest
producers of custom pressure sensitive labels. He previously served as the
Chairman of the Board and Chief Executive Officer of ADVO, Inc., a company
principally involved in direct mail advertising, for a highly successful ten
year leadership tenure ending in June 1999. He is also a director of IMS Health,
Inc., R. H. Donnelley, Inc., Tandy Corporation, CoolSavings.com.Inc., and
TravelCLICK.com.
Avery More was elected to the board on February 12, 1999. He has a
20-year history in the information technology industry. He currently is the
managing director of Eureka Ventures, a venture capital and merchant banking
company specializing in information technology companies. He also serves as the
Chairman and Chief Executive Officer of PC Service Source, a NASDAQ-traded
company, which is 24 percent owned by Eureka Ventures. Prior to launching Eureka
Ventures, More was President and Chief Executive Officer of CompuCom Systems,
Inc. Before joining CompuCom, More served on the board of directors and as
executive vice president of Computer Craft, Inc.
Eugene P. Beard has served as a director of the Company since July
1993. Mr. Beard has stated his intent not to stand for re-election to the Board,
including its committees, and, therefore, his term of service as a director will
end effective with the election of the slate of directors proposed herein. Mr.
Beard served the interests of the Company and its Shareholders with great
integrity and his efforts are greatly appreciated. He has served as a director
(since 1982) and as Vice Chairman, Finance and Operations (since September 1995)
of The Interpublic Group of Companies, Inc., an organization of global
advertising and marketing communications companies, with which he has been
associated since 1980.
As of June 30, 1999, (i) there were no family relationships between any
of the officers and directors of the Company and (ii) there were no agreements
whereby any shareholder or group of shareholders is entitled to representation
on the Board of Directors of the Company.
The Board of Directors does not contemplate that any of the nominees
for director named above will refuse or be unable to accept election as a
director of the Company, or be unable to serve as director of the Company.
Should any of them become unavailable for nomination or election or refuse to be
nominated or to accept election as a director of the Company, then the persons
named in the enclosed form of proxy intend to vote the shares represented in
each proxy for the election of such other person or persons as may be nominated
or designated by management, unless they are directed in the proxy to do
otherwise.
The Board of Directors has a standing Audit Committee heretofore
chaired by Eugene P. Beard. During the fiscal year ended June 30, 1999, the
Audit Committee was composed of Messrs. Beard, Robert Kamerschen and Russell E.
Hogg. The Audit Committee is responsible for consulting with the independent
public accountants for the Company with regard to the adequacy of internal
controls and the plan of audit, as well as reviewing the audit report and
management letter and matters concerning financial reporting, accounting and
audit procedures and policies generally. The Audit Committee held 4 meetings
during the fiscal year ended June 30, 1999. No member of the Audit Committee
attended fewer than 100% of the meetings. For the ensuing year, the Committee
will be comprised of Messrs. More, Kamerschen and Hogg, with Mr. More having
been elected as Chairman of the Committee.
The Board of Directors has a standing Executive Compensation and Stock
Option Committee chaired by Robert Kamerschen. During the fiscal year ended June
30, 1999, the Stock Option Committee was composed of Messrs. Eugene P. Beard,
Russell Hogg, and Robert Kamerschen. The Committee is responsible for reviewing
and determining matters of executive compensation and administering the
Company's Incentive and Nonstatutory Stock Option Plan (the "Stock Option
Plan"). (For information on the Compensation Committee see "Report of
Compensation Committee and Stock Option Committee on Executive Compensation.")
The Committee held 7 meetings during the fiscal year ended June 30, 1999. No
member of the Committee attended fewer than 100% of the meetings. For the
ensuing year, the Committee will be comprised of Messrs. Kamerschen, Chairman,
More, and Hogg.
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The Board of Directors has a standing Nominating Committee, chaired by
Mr. Hogg. During the fiscal year ended June 30, 1999, the Nominating Committee
was composed of Messrs. Hogg, Beard and Kamerschen. The Nominating Committee is
responsible for selection for nomination of candidates to serve on the Company's
Board of Directors. In recommending candidates to the Board, the Nominating
Committee seeks persons of proven judgment and experience. The Nominating
Committee held one meeting during the year ended June 30, 1999. No member of the
Nominating Committee attended fewer than 100% of the meetings. For the ensuing
year, the Nominating Committee will be composed of Messrs. Hogg (Chairman) and
Kamerschen.
The Board of Directors held 7 meetings during the fiscal year ended
June 30, 1999. Various matters were approved during the last fiscal year by
unanimous written consent of the Board of Directors. During the fiscal year
ended June 30, 1999, no director attended fewer than 100% of the aggregate of
(i) the total number of meetings of the Board of Directors and (ii) the total
number of meetings held by all committees of the Board of Directors on which
each director served.
During the fiscal year ended June 30, 1999, each director who is not an
employee of the Company (currently four persons) received an annual retainer of
$20,000 and a fee of $10,000 for attending all board and committee meetings held
during the year. In addition, each committee chairperson received an annual fee
of $3,000. All directors are reimbursed for travel and other expenses incurred
in attending such meetings. In connection with his election as Chairman of the
Board in May, 1997, the Company agreed to pay Mr. Hogg the following additional
compensation for serving as Chairman: (i) during each year of service in such
capacity, a consulting fee of $1,500 per each day of work on Company business,
with a maximum cap of $50,000 for the year; (ii) a grant of non-statutory stock
options covering 30,000 shares with an exercise price of $6.00 per share,
granted as of Mr. Hogg's election in June 1997, pursuant to the Company's Option
Plan, vesting ratably over a period of four years from the date of grant and
(iii) additional non-statutory stock option grants, each covering 5,000 shares,
in each of the years 1998 and 1999, vesting over a period of four (4) years from
the date of grant.
All directors, with the exception of Mr. Richard, are eligible to
participate in the Company's 1995 Director Option Plan (the "1995 Director
Plan"). The 1995 Director Plan provides that on each October 1, after the
completion of one year of service, each eligible director will be entitled to
receive an option for 10,000 shares of Common Stock at an exercise price equal
to the fair market value of the Common Stock on the date of grant. Each option
granted under the 1995 Director Plan becomes exercisable at the rate of 25% per
year commencing on the first anniversary of the date of grant. During the fiscal
year ended June 30, 1999, each eligible director (Messrs. Hogg, Beard,
Kamerschen and Merrin) received a grant of options covering 10,000 shares of
Common Stock with an exercise price of $9.00 per share, representing the closing
price of the Company's stock as of October 1, 1998, pursuant to the terms of the
1995 Director Plan.
The shareholders at the 1997 Annual Meeting approved a proposal to
grant non-employee directors the ability to substitute non-statutory options for
cash fees that reduced the cash cost to the Company associated with compensation
of its non-employee directors. The proposal provided that such options (unlike
the annual grants) would not expire upon termination of a non-employee
director's board service, but would continue in effect for a term of five years
from the date of grant. The plan requires that each non-employee director must
make a semi-annual irrevocable election prior to April 1 and October 1 (the
"Option Election Dates") of each year to participate in this feature for the six
month period following each Option Election Date. Options granted in lieu of
cash fees are granted at the rate of $2.00 in option value (using present value
of the grant at date of grant under the Black-Scholes option pricing model) for
each $1.00 of cash director's fees which would otherwise be paid, and have an
exercise price equal to the fair market value of the Company's Common Stock on
the Option Election Date of each semi-annual period in question, exercisable in
increments of 25% per year for a term of five years. During fiscal year 1999,
under the stock-in-lieu of compensation provisions, Mr. Kamerschen received
options to purchase 4, 597 shares with an exercise price of $11.3750. The
amendment also provided for immediate vesting of all unexercisable options
granted under the 1995 Director Plan upon the occurrence of certain events
resulting in a change in control of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is or has been an officer or
employee of the Company or any of its subsidiaries or had any relationship
requiring disclosure pursuant to Item 404 of SEC Regulation S-K. No member of
the Compensation Committee served on the compensation committee, or as a
director, of another corporation, one of whose
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directors or executive officers served on the Compensation Committee of or whose
executive officers served on the Company's Board of Directors.
SECTION 16(a) COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "SEC"). Officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on its review of
the copies of such forms received by it, or written representations from certain
reporting persons that no Forms 5 were required for those persons, the Company
believes that, during the fiscal year ended June 30, 1999, all filing
requirements applicable to its officers, directors, and greater than ten-percent
beneficial owners were complied with.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" EACH OF THE INDIVIDUALS NOMINATED FOR ELECTION AS A DIRECTOR.
PROPOSAL TO AMEND THE MICROGRAFX 1995 INCENTIVE AND
NONSTATUTORY STOCK OPTION PLAN
(ITEM 2)
GENERAL
For several years, the Company has utilized stock options as a key part
of its overall compensation program for executive officers and other employees
of the Company. The Board of Directors and the Executive Compensation and Stock
Option Committee believe it is important to have equity-based incentives
available to retain and attract quality personnel for the Company. See "Board of
Directors and Committees--Report of the Compensation and Stock Option Committee
on Executive Compensation." Accordingly, the Board of Directors has approved,
subject to shareholder approval, a proposal to amend the Company's 1995
Incentive and Nonstatutory Stock Option Plan (the "Option Plan") to increase the
number of shares of the Company's Common Stock available for issuance under the
Option Plan from 3,100,000 to 3,700,000 shares. The Board of Directors increased
the number of available shares under the Option Plan because as of September 1,
1999, only 610,993 shares of Common Stock remained available for grant under the
plan.
If approved by the shareholders at the annual meeting, the first
sentence of Section II of the Option Plan will be amended to provide as follows:
"The aggregate number of Shares as to which Options may be granted from
time to time shall be three million seven hundred thousand (3,700,000)
Shares; provided, however, that unless the Plan is administered by a
Committee comprised of Disinterested Persons, or by the Board of
Directors comprised of a majority of Disinterested Persons, the maximum
number of Shares as to which Options may be granted in any calendar
year to a director who is also an employee shall not exceed 33% of the
aggregate number of Shares with respect to which grants may be made
under the Plan."
The remaining language of Section II will not be changed and the only
effect of the amendment will be to increase the number of shares of Common Stock
authorized and reserved for issuance upon the exercise of stock options granted
pursuant to the Option Plan.
The amendment is necessary in order to cover future grants of options
to purchase shares of Common Stock to officers and other employees. The
amendment will provide the Company with the ability to issue additional options
and will enable the Company to continue the purposes of the Option Plan by
providing additional incentives to attract and retain qualified and competent
employees, upon whose judgment the success of the Company is largely dependent.
This would be in keeping with the Company's overall compensation philosophy,
which attempts to place equity in the hands of Company employees in an effort to
further instill shareholder considerations and values in the actions of such
employees and officers.
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The Company intends to register the 600,000 additional shares of Common
Stock issuable under this amendment under the Securities Act, assuming the
stockholders approve the proposal to increase the number of available shares.
Shares purchased pursuant to the Option Plan after the effective date of such
registration could immediately be sold on the open market subject, in the case
of affiliates (as defined in Rule 144 under the Act), to compliance with the
provisions of Rule 144 other than the holding period requirement.
Since it is the Company's policy to grant options to all employees
under the Option Plan at the time such employee joins the Company and to grant
options to other employees from time to time as determined by the Executive
Compensation and Stock Option Committee (the "Stock Option Committee") in its
discretion, it is not possible at this time to indicate the number, names or
positions of employees who will receive options or the number of shares for
which options will be granted to any employee under the Option Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE AMENDMENT OF THE MICROGRAFX, INC. 1995 INCENTIVE AND
NON-STATUTORY STOCK OPTION PLAN.
DESCRIPTION OF THE COMPANY'S STOCK OPTION PLAN
A summary of the principal provisions of the Option Plan is set forth
below:
Purposes. The Option Plan provides for the issuance of incentive stock
options and nonstatutory stock options to key employees of the Company,
including employees who also serve as officers or directors of the Company, and
currently provides for the reservation of 3,100,000 shares of Common Stock for
issuance upon exercise of options granted under the Option Plan (a cumulative
total of 3,700,000 shares if the proposed amendment is approved). The purpose of
the Option Plan is to attract and retain key employees and provide additional
incentive for key employees to promote the success of the Company.
Terms and Conditions of Options. The Option Plan provides that the
exercise price for each incentive stock option granted under the Option Plan may
not be less than the fair market value of the Common Stock on the date of the
grant, unless the optionee owns greater than 10% of the total combined voting
power of all classes of capital stock of the Company, in which case the exercise
price may not be less than 110% of the fair market value of the Common Stock on
the date of the grant. The exercise price for each nonstatutory stock option may
be any price determined by the Board of Directors but, pursuant to the policy
adopted by the Board of Directors, shall not be less than 85% of the fair market
value of the shares of Common Stock on the date of the option grant. The
exercise price is payable upon exercise of an option and in such form as
determined by the Board of Directors or the Stock Option Committee, if the Board
has delegated its authority to such Committee.
Options granted under the Option Plan are exercisable in such amounts,
at such intervals and upon such terms as the Board of Directors or the Stock
Option Committee, if the Board has delegated its authority to such Committee,
shall provide in such option, subject to certain limitations defined in the
Option Plan. In general, each option will terminate not more than 10 years from
the date of grant, or such earlier time as specified in the applicable stock
option agreement, except that if the option is intended as an incentive stock
option, such option shall terminate not more than five years from the date of
grant.
The Board of Directors, or the Stock Option Committee appointed by the
Board of Directors, has authority to administer and interpret the Option Plan
and has authority to select which employees are eligible employees and which of
the eligible employees should receive options, and determines at the time the
option is granted the number of shares granted under each option, the purchase
price, the option period and the other terms and conditions relating to the
grant. The Option Plan is administered by the Stock Option Committee of the
Board of Directors of the Company.
If a participant's employment is terminated for any reason other than
death, a permanent and total disability or cause (as defined), then that
participant's right to exercise any previously granted option terminates 30 days
after such termination. If a participant's employment is terminated due to a
permanent and total disability, then that participant may exercise all rights
that have accrued to him under the Option Plan as of the date of the disability
within a period of 90 days
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after the date of such disability or such earlier date as prescribed in the
applicable stock option agreement. If a participant dies, then such
participant's survivors or legal representatives may exercise the rights that
have accrued to such participant as of the date of death within a period of 90
days after the date of death or such earlier date as prescribed in the
applicable stock option agreement. If a participant's employment is terminated
for cause, then the participant's right to exercise any previously granted
option is also terminated as of the last date of employment. Shares subject to
an option that expires or is terminated will again be available for grant under
the Option Plan.
No participant shall have any rights as a shareholder unless and until
his option has been exercised and shares have been issued to or registered in
the Company's share register in the name of the participant.
An option shall not be transferable by a participant other than by will
or by laws of descent and distribution. During a participant's lifetime, an
option may be exercised only by the participant. No option or stock appreciation
right may be assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise) nor be subject to execution, attachment or similar process.
To prevent dilution of the rights of a holder granted under the Option
Plan, the Option Plan provides for adjustment of the number of shares upon which
options may be granted, of the number of shares subject to outstanding options
and of the exercise price in the event of any merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, exchange of
shares of Common Stock or other change in capital structure of the Company. The
Option Plan also confers authority on the Board of Directors to cancel,
effective upon written notice, all outstanding options that remain unexercised
in the event of any such transaction. The Option Plan further provides that all
outstanding options that remain unexercised shall terminate and become null and
void upon the dissolution or liquidation of the Company or the sale, lease,
exchange or other disposition of all or substantially all of the property and
assets of the Company. The Option Plan permits the Board to accelerate the date
on which any options may be exercised.
Stock Appreciation Rights. The Option Plan provides that stock
appreciation rights (a "SAR") may be granted to a participant with respect to an
option. A SAR that is granted with respect to an incentive stock option must be
granted at the same time as the respective incentive stock option.
A SAR is an obligation on the part of the Company to pay to a
participant an amount in cash equal to the Spread as of the date the SAR is
exercised, subject to any taxes which are required to be withheld by the
Company. The "Spread" is the amount equal to the product of (a) the excess of
(i) the fair market value per share over (ii) the option price per share of the
option, multiplied by (b) the number of shares with respect to which the SAR is
exercised. With respect to an incentive stock option, the Spread shall in no
event exceed the amount permitted to be treated as the Spread under the
applicable Treasury Regulations or other legal authority with respect to
incentive stock options. A SAR may be exercised at such times and to the extent
that the option to which it relates may be exercised.
If SARs are granted and become subject to exercise, there will be a
charge to the Company's income to reflect the difference between the fair market
value of the stock subject to the related option and the exercise price of each
option.
Amendments. The Option Plan may be amended by (i) the shareholders of
the Company or (ii) the Board of Directors so long as all such amendments are
approved by the shareholders except shareholder approval is not required for
certain non-material amendments. The Board of Directors' authority to amend the
Option Plan may not be delegated to a committee. No amendment shall affect any
previously granted option or previously executed stock option agreement unless
such amendment so expressly provides and the affected participant consents in
writing.
Termination. The Option Plan will terminate by its terms in May 2004.
The Option Plan may be terminated sooner by vote of the shareholders, provided
that any such termination will not affect any option outstanding at the date of
such termination.
Federal Income Tax Consequences. The grant of an option or SAR will not
be a taxable event to the recipient optionee. Upon the exercise of a
nonstatutory stock option, an optionee will recognize ordinary income at the
time of exercise equal to the excess of the then fair market value of the shares
of Common Stock received over the exercise price. An optionee who exercises a
SAR will recognize ordinary income equal to the cash received. The taxable
income recognized upon exercise of a nonstatutory stock option or a SAR will be
treated as compensation income subject to
8
<PAGE> 11
withholding, and the Company will be entitled to deduct an amount equal to the
ordinary income an optionee recognizes as a compensation expense.
When Common Stock received upon exercise of a nonstatutory stock option
subsequently is sold or exchanged in a taxable transaction, the holder thereof
generally will recognize a capital gain (or loss) in the amount by which the
amount realized exceeds (or is less than) the fair market value of the Common
Stock on the date of exercise; the character of such gain or loss as long or
short-term capital gain or loss will depend upon the holding period of the
shares following exercise.
Neither the grant nor exercise of an incentive stock option will be
taxable to the optionee, and the Company will not be entitled to any deductions
with respect thereto. However, to qualify for this favorable tax treatment of
incentive stock options, the optionee may not dispose of the shares of Common
Stock acquired upon the exercise of an incentive stock option until after the
later of two years following the date of grant or one year following the date of
exercise of the incentive stock option. Upon any subsequent taxable disposition
of shares of Common Stock received upon exercise of a qualifying incentive stock
option, the optionee generally will recognize long or short-term capital gain or
loss measured by the difference between the amount realized and the exercise
price of the option.
If an option does not qualify for favorable incentive stock option
treatment as described above because of a failure to satisfy the holding period
requirements, the optionee will recognize ordinary income in the year of the
disqualifying disposition equal to the excess of the lower of (i) the amount
realized or (ii) the excess of the fair market value of the Common Stock at the
time of exercise over the exercise price, and the Company will be entitled to a
deduction of that amount in that year, if the amount realized exceeds the fair
market value of the Common Stock on the date the incentive stock option was
exercised, the excess will be taxable as long or short-term capital gain,
depending on the optionee's holding period for the transferred shares.
Notwithstanding the favorable tax treatment of incentive stock options
for regular tax purposes, as described above, for alternative minimum tax
purposes, an incentive stock option is treated in the same manner as a
nonstatutory stock option. Accordingly, an optionee who is subject to the
alternative minimum tax must include in alternative minimum taxable income, for
the year in which an incentive stock option is exercised, the excess of the fair
market value of the shares of Common Stock received over the exercise price.
PROPOSAL TO RATIFY APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
(ITEM 3)
The Board of Directors has appointed Ernst & Young L.L.P., independent
public accountants, to be the principal independent auditors of the Company and
to audit its consolidated financial statements for the fiscal year ending June
30, 2000. Ernst & Young has reported on the Company's consolidated financial
statements. Representatives will be present at the Annual Meeting with the
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions from shareholders.
Although shareholder ratification is not required for the selection of
Ernst and Young L.L.P. since the Board of Directors has the responsibility for
the selection of the Company's independent auditors, and such ratification will
not obligate the Company to continue the services of such firm, the Board of
Directors is submitting the selection for ratification with a view towards
soliciting the shareholders' opinion thereon, which may be taken into
consideration in future deliberations. If the appointment is not ratified, the
Board must then determine whether to appoint other auditors before the end of
the current fiscal year, and in such case, shareholders' opinions would be taken
into consideration.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE RATIFICATION OF ERNST AND YOUNG AS INDEPENDENT PUBLIC
ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING JUNE 30, 2000.
9
<PAGE> 12
PRINCIPAL SHAREHOLDERS AND
STOCK OWNERSHIP OF MANAGEMENT
The following table and notes thereto set forth certain information with respect
to beneficial ownership of the Company's Common Stock as of June 30, 1999 by (i)
each person known by the Company to own beneficially more than 5% of the
presently outstanding Common Stock, (ii) each director and nominee for director
of the Company, (iii) each of the Company's current and former executive
officers named in the Summary Compensation Table and (iv) the present directors
and executive officers of the Company as a group:
<TABLE>
<CAPTION>
Common Stock Percent of
Beneficially Outstanding
Name Owned Common Stock(1)
- ------------------------------ ------------ ---------------
<S> <C> <C>
The Lake Fund 1,966,000 17.7%
Gilder, Gagnon, Howe & Company 1,092,000 9.81%
Douglas M. Richard 136,756 (2) 1.27%
Russell E. Hogg 18,750 (3) *
Eugene P. Beard 73,634 (4) *
Robert Kamerschen 41,284 (5) *
Seymour Merrin 6,625 (6) *
Avery More * *
Robert Gutekunst (resigned 6/14/99) 9,445 (7) *
Kenneth Carraher 38,980 (8)* *
Frank Childers 18,750 (9) *
R. Edwin Pearce 81,399 (10) *
Grant Wickes 7,114 (11) *
All executive officers and directors as a group
(13 persons) 509,452 (12) 4.4%
</TABLE>
* Represents less than 1% of the outstanding Common Stock.
(1) Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to the shares of Common Stock
shown as beneficially owned by them. Beneficial ownership as reported in
the above table has been determined in accordance with Rule 13d-3 of the
Exchange Act. The percentages are based upon 12,124,998 shares outstanding
as of September 10, 1999, except for certain parties who hold presently
exercisable options to purchase shares. The percentages for those parties
who hold options that are presently exercisable or exercisable within 60
days of June 30, 1999, are based upon the sum of 12,124,998 shares plus the
number of shares subject to options that are presently exercisable or
exercisable within 60 days of June 30, 1999, held by each of them
respectively, as indicated in the following notes.
10
<PAGE> 13
(2) Consists of 66,422 held directly (20,000 of which are restricted stock with
a restriction that expires on 11/26/99) and 70,334 shares subject to stock
options that are presently exercisable or that are exercisable within the
next 60 days. Does not include 3,290 shares held by Mr. Richard's spouse,
concerning which she has sole voting and investment power.
(3) Consists of 18,750 shares subject to stock options that are presently
exercisable or that are exercisable within the next 60 days.
(4) Consists of 69,186 shares held by Westport Asset Fund of which Mr. Beard is
a director and 4,448 shares subject to stock options that are presently
exercisable or that are exercisable within the next 60 days.
(5) Consists of 18,000 shares held directly by Mr. Kamerschen and 23,284 shares
subject to stock options that are presently exercisable or that are
exercisable within the next 60 days.
(6) Consists of 1,500 shares held directly by Mr. Merrin and 5,125 shares
subject to stock options that are presently exercisable or that are
exercisable within the next 60 days.
(7) Consists of 9,445 shares held directly by Mr. Gutekunst who resigned
effective June 14, 1999.
(8) Consists of 18,980 shares held directly by Mr. Carraher and 20,000 shares
subject to stock options that are presently exercisable or that are
exercisable within the next 60 days.
(9) Consists of 18,750 shares subject to stock options that are presently
exercisable or that are exercisable within the next 60 days.
(10) Consists of 24,731 shares held directly by Mr. Pearce and 56,668 shares
subject to stock options that are presently exercisable or that are
exercisable within the next 60 days.
(11) Consists of 2,613 shares held directly by Mr. Wickes and 4,501 shares
subject to stock options that are presently exercisable or that are
exercisable within the next 60 days.
(12) Includes 293,985 shares subject to stock options that are presently
exercisable or that are exercisable within the next 60 days.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the
compensation of the Company's Chief Executive Officer and each of the four other
most highly compensation executive officers (and a former executive officer for
whom disclosure would have been required but for the fact he was not serving as
such at the end of the most recently completed fiscal year), during fiscal years
ended June 30, 1999 and 1998 and 1997.
11
<PAGE> 14
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- ----------------------- --------
OTHER
NAME AND YEAR ANNUAL RESTRICTED OPTIONS/ ALL OTHER
PRINCIPAL ENDING SALARY BONUS COMP. STOCK SARS LTIP COMPENSATION
POSITION 6/30 ($)(1) ($) ($) (#)(2) (#)(2) ($) ($)
- ---------------------- -------- -------- -------- -------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Doug Richard 1999 $250,000 $ 78,338 -- -- 43,300 -- $ 4,142
Chief Executive 1998 217,398 11,131 -- -- 80,000 -- 3,211
Officer 1997 163,577 39,706 $ 28,303(4) 20,000 23,000 -- 1,059
-------- -------- -------- -------- -------- -------- -------- --------
Bob Gutekunst 1999 $179,390 $ 40,436 -- -- 16,800 -- $ 4,459
Former Chief 1998 141,635 4,540 -- 7,500 50,000 -- 3,651
Technological 1997 130,000 9,130 -- -- 14,000 -- 1,065
Officer
-------- -------- -------- -------- -------- -------- -------- --------
Kenneth Carraher 1999 $129,231 $ 49,244 -- -- 8,000 -- $ 4,025
Executive VP 1998 107,962 30,162 -- -- 68,469 -- 3,437
Development 1997 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Frank Childers 1999 $151,390 $ 61,593 -- -- 80,600 -- $ 1,566
Executive VP Global 1998 -- -- -- -- -- -- --
Sales and Marketing 1997 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
R. Edwin Pearce 1999 $154,615 $ 36,838 -- -- 13,915 -- $ 4,052
EVP Corporate Dev. 1998 145,000 4,866 -- -- 40,000 -- 3,743
and General Counsel 1997 145,000 15,108 -- -- 65,000 -- 1,718
-------- -------- -------- -------- -------- -------- -------- --------
Grant Wickes 1999 $152,010 $ 75,009 -- 6,000 13,915 -- $ 4,739
Vice President 1998 138,500 16,488 -- -- 25,000 -- 4,110
1997 137,577 27,306 -- -- 14,000 -- 3,883
-------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
(1) Includes amounts of base salary deferred at the election of the executive
pursuant to the Company's 401(k) Savings Plan, a defined contribution plan.
(2) The Stock Option Plan authorizes the issuance of SARs but no SARs were
issued by the Company as of June 30, 1999.
(3) All Other Compensation includes company contributions in fiscal 1999 in the
following amounts to match amounts deferred pursuant to the Company's 401(k)
Savings Plan: Mr. Richard $4,142, Mr. Gutekunst $4,459, Mr. Carraher
$4,025, Mr. Childers $1,566, Mr. Pearce $4,052, Mr. Wickes $4,739.
(4) Represents $28,303 of reimbursed relocation allowance.
GRANTS OF OPTIONS
The following table sets forth details regarding stock options granted to the
named executive officers listed in the Summary Compensation Table during the
fiscal year 1999. In addition, there are shown the "option spreads" that would
exist for the respective options granted based upon assumed rates of annual
compound stock appreciation of 5% and 10% from the date the options were granted
over the full option term. The Company granted no SARs in fiscal year 1999.
12
<PAGE> 15
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENT OF
TOTAL POTENTIAL REALIZABLE
OPTIONS/ EXERCISE VALUE AT ASSUMED ANNUAL
OPTIONS/ SARS OR RATES OF STOCK PRICE
SARS GRANTED TO BASE APPRECIATION FOR OPTION
GRANTED(1) EMPLOYEES IN PRICE EXPIRATION TERM(2)
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ----------- --------- ----------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Doug Richard 43,000 5.0860% $ 8.75 11/05/08 $ 238,272 $ 603,829
Bob Gutekunst 16,800 1.9733% $ 8.75 11/05/08 $ 92,448 $ 234,280
Ken Carraher 8,000 0.9397% $ 8.75 11/05/08 $ 44,023 $ 111,562
Frank Childers 75,000 8.8095% $ 11.00 08/27/08 $ 518,838 $1,314,838
5,600 0.6578% $ 8.75 11/05/08 $ 30,816 $ 78,093
R. Edwin Pearce 13,915 1.6344% $ 8.75 11/05/08 $ 76,572 $ 194,048
Grant Wickes 13,915 1.6344% $ 8.75 11/05/08 $ 76,572 $ 194,048
</TABLE>
All of the options granted to executives were granted under the Company's 1995
Incentive and Nonstatutory Stock Option Plan.
(1) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent upon the future
performance of the Company's Common Stock, overall market conditions and the
executive's continued employment with the Company. The amounts represented
in this table may not necessarily be achieved.
(2) Options vest generally in increments of 25% annually. The options have a
term of five years, unless they are exercised or expire upon certain
circumstances set forth in the Stock Option Plan, including retirement,
termination in the event of a change in control, death or disability.
EXERCISES OF OPTIONS
The following table sets forth information with respect to the named
executive officers concerning the exercise of options during fiscal year 1999,
and unexercised options held as of June 30, 1999. No SARs were exercised by the
named executive officers during fiscal 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Number of Unexercised in-the-money
Shares options/SARs options/SARs
Acquired at FY-end(#) at FY-end($)
on Value exercisable/ exercisable/
Name Exercise(#) Realized($) unexercisable unexercisable(1)
- --------------- ----------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
Doug Richard 0 0 70,334/115,966 $66,626/$28,780
Bob Gutekunst 19,007 $ 143,742 40,811/56,564 $2,949/$8,846
Kenneth Carraher 0 0 28,980/47,489 $0/$0
Frank Childers 0 0 0/80,600 $0/$0
R. Edwin Pearce 0 0 56,668/62,247 $59,606/$29,802
Grant Wickes 35,979 $ 237,828 4,501/40,247 $3,325/$13,296
</TABLE>
(1) Values are stated based upon the closing price of $6.3130 per share of the
Company's common stock on the NASDAQ/NMS on June 30, 1999, the last trading
day of fiscal 1999.
13
<PAGE> 16
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL PROVISIONS
The Company has entered into agreements providing for contractually
determined severance and other benefits and compensation with John Carradine,
Frank Childers, Ken Carraher, R. Edwin Pearce, Douglas Richard, Katie Rohlman,
Grant D. Wickes, and Darryl Worsham, which agreements provide for severance to
such individuals equal to six (6) months base salary in the event of their
severance from the Company without cause, except for Mr. Richard, who is
entitled to receive twelve (12) months base salary in the event of his
severance. These Agreements expire two years after the date of a Change in
Control with the exception of Ms. Rohlman and Mr. Worsham which expire one (1)
year after the date of a Change in Control, and require the Company to pay such
officers, if their employment is terminated by (i) the Company without cause or
(ii) such officer, as a result of a reduction in his respective base salary,
potential earnings under a performance based bonus plan, any material employee
benefit, or in the nature or scope of his respective duties, a sum equal to (i)
one and one-half times Mr. Richard's highest base annual salary with the Company
and (ii) one times Ms. Rohlman's and Messrs. Carradine's, Childers', Pearce's,
Wickes', and Worsham's highest base annual salary with the Company.
Additionally, in the event such officer's employment with the Company is
terminated under the circumstances described above following a Change in
Control, they would also be entitled to the continuation of medical, dental,
disability and life insurance benefits for a period of twelve (12) months and
the acceleration and/or immediate vesting of all stock options and restricted
stock awards then outstanding.
COMPENSATION OF DIRECTORS
For information on compensation paid to directors of the Company during
Fiscal Year 1999, see Item 1 "Election of Directors."
CERTAIN TRANSACTIONS
The Company entered into a severance agreement with John Dearborn,
former Executive Vice President Sales and Marketing, whereby he resigned his
positions with the Company effective July 31, 1998. Under the terms of the
severance agreement, Mr. Dearborn will be paid the sum of $127,500, representing
his base salary through April 30, 1999. The vesting schedule of outstanding
stock options covering 112,000 shares owned by Mr. Dearborn were accelerated.
The agreement further provided an extension of the expiration dates so that
these options would expire unless exercised by September 14, 1998 and November
14, 1998. As a further consideration of the severance agreement, Mr. Dearborn
agreed to not compete with or solicit for hire employees of the Company for a
period of two (2) years, nor to hire employees of the Company for a one (1) year
period
Larry Morris resigned his position as Chief Financial Officer of the
Company effective August 28, 1998. In connection with his resignation, the
vesting schedule of 41,666 stock options was accelerated, and Mr. Morris was
granted the right to exercise options for 110,000 shares of stock (including the
accelerated options) divided into three exercise periods of 60, 90 and 120 days
after resignation.
The Company entered into an agreement with Jeffrey Lewis, former
Managing Director Australia, whereby he resigned his position with the Company
effective September 1, 1998. Mr. Lewis will be paid the sum of $69,000,
representing six months base salary. In connection with execution of the
agreement, Mr. Lewis agreed to not compete with nor solicit for hire employees
of the Company for a period of two (2) years, nor to hire employees of the
Company for a one (1) year period. Under the terms of the severance agreement,
Mr. Lewis became eligible to receive his base salary though March 1, 1999, and
may thereafter provide continued transitional assistance to the Company on terms
mutually agreed, including compensation.
The Company entered into a severance agreement with Robert E.
Gutekunst, former Chief Technological Officer, whereby he resigned his positions
with the Company effective June 7, 1999. Under the terms of the severance
agreement, Mr. Gutekunst will be paid the sum of $85,000.00, representing his
base salary through December 7, 1999. All vested, exercisable stock options in
the amount of 40,811 owned by Mr. Gutekunst shall continue to be exercisable and
10,867 outstanding options shall continue to vest until November 15, 1999, when
all of such options will expire. As a further consideration of the severance
agreement, Mr. Gutekunst agreed to not compete with nor solicit for hire
employees of the Company for a period of two (2) years, nor to hire employees of
the Company for a one (1) year period.
14
<PAGE> 17
REPORT OF EXECUTIVE COMPENSATION AND STOCK OPTION COMMITTEE
The Executive Compensation and Stock Option Committee of the Board of
Directors (the "Committee") is composed of certain of the Company's non-employee
directors, Messrs. Eugene P. Beard, Russell E. Hogg, Robert Kamerschen, and for
the ensuing year, Avery More. The Committee is responsible for setting the
salary of the President and Chief Executive Officer of the Company, recommending
to the full Board compensation arrangements for the President and Chief
Executive Officer and advising the President and Chief Executive officer on
compensation for other key executives. All recommendations relating to awards of
stock options and restricted stock to the Company's executive officers are
approved by the Committee, and are reviewed by the Board of Directors.
COMPENSATION POLICIES
The Company's executive compensation policies, endorsed by the
Committee, are designed to provide competitive levels of compensation that
integrate pay with the Company's performance goals, reward above-average
corporate performance, recognize individual initiative and achievements, and
assist the Company in attracting and retaining qualified executives. The
orientation of executive compensation policies toward Company and divisional
performance has been accomplished by the utilization of various performance
criteria.
Compensation is individually set for each executive officer from among
a set of components. The primary components of compensation currently being
utilized are salary, performance bonuses, stock option grants and, in a limited
number of cases, restricted stock grants. In determining compensation for each
executive officer and the Chief Executive Officer, the Committee does not
attribute a specific basis for each component, but rather the Committee's
determination focuses on the total compensation package. The Committee believes
that stock ownership by management and stock-based compensation arrangements are
beneficial in aligning management's and shareholders' interests in the
enhancement of shareholder value. Therefore, the Company has utilized
stock-based compensation arrangements in the Company's compensation packages for
most of its executive officers.
The Company also has adopted certain broad-based employee benefit plans
in which executive officers are eligible to participate. In addition, the
Company has entered into employment and/or change in control agreements with
various key executives. See "Employment Contracts and Change in Control
Provisions" for certain named executive officers as described in this proxy
statement.
The Committee has not yet had to consider the possible effect on the
Company's compensation policies of the treatment, under the federal Revenue
Reconciliation Act of 1993, of annual compensation exceeding $1 million paid to
any individual executive officer as no individual executive officer received
annual compensation exceeding $1 million in fiscal year 1999.
RELATIONSHIP OF COMPANY PERFORMANCE TO EXECUTIVE COMPENSATION
Compensation paid to the Company's named executive officers in fiscal
year 1999, as reflected in the Summary Compensation Table, consisted primarily
of base salary, performance bonuses, and stock option grants.
The Company utilizes a periodic competitive pay analyses of software
companies compiled by an independent nationally recognized compensation and
benefits consulting firm (the "Independent Consultant"), as well as measurements
of both corporate and individual performance in setting combined compensation
for its executive officers. The software companies compiled by the independent
consultant include some, but not all of the companies contained in the Media
General Peer Group SIC Code 7372 Index, (see "Stock Performance Graph"). The
Company utilized the competitive pay analysis to determine combined compensation
levels for its executive officers. The Committee believes that the compensation
paid to the Company's executive officers and Chief Executive Officer falls
within the median of the companies represented in the competitive pay analysis
utilized. The amount of the performance bonus earned by some executive officers
is based on measures of corporate performance, such as target versus actual
consolidated quarterly earnings, annual sales and pre-tax income of the business
unit for which the executive officer responsible. Subjective considerations of
individual performance are also considered in establishing base salaries and, to
various extents, performance bonuses, including the executive officer's
initiative and contribution to overall corporate performance, the
15
<PAGE> 18
executive officer's managerial performance and the executive officer's
successful accomplishment of any special projects. In determining the number of
stock option grants to make to the executive officers (other than the Company's
Chief Executive Officer), the Committee takes into account the number of stock
options and restricted stock awards presently held by each individual, as well
as the exercise price of such stock options.
Individual performance and experience, as well as the Company's
operating performance and the attainment of financial and strategic objectives
had an important effect on compensation earned for fiscal year 1999 by several
of the Company's named executive officers under their performance bonus plans.
Under these plans, if various goals were not satisfied, no performance bonus
would be payable. If various goals were satisfied, performance criteria would
then determine the amount of the bonus earned. When corporate goals are
satisfied, performance bonuses were earned by the Company's executive officers.
The amount of any performance bonus earned is equivalent to the number of
performance goals satisfied, such that the more goals that are satisfied by an
executive officer, the larger the performance bonus earned. The Committee
subjectively determined that various criteria for fiscal year 1999 satisfied the
goals (described above) established for certain key executive officers and
bonuses were thus paid to these executive officers.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Richard receives an annual salary and is eligible to receive a
performance bonus. The Committee's general approach in setting Mr. Richard's
annual compensation is to set compensation levels in accordance with the
policies set forth in this report. Specifically, the Committee's objective is to
correlate Mr. Richard's compensation with the performance of the Company, while
seeking to keep his compensation competitive with that provided by comparable
companies.
EXECUTIVE COMPENSATION AND STOCK OPTION COMMITTEE:
Russell E. Hogg
Robert Kamerschen
Eugene Beard
STOCK PERFORMANCE GRAPH
The graph below compares the five-year cumulative return of the
Company's Common Stock with the Media General Peer Group SIC Code 7372 Index
(prepackaged Software Companies) and the NASDAQ-NMS Index from July 1, 1994
through June 30, 1999.
16
<PAGE> 19
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG MICROGRAFX, INC.,
NASDAQ MARKET INDEX AND SIC CODE INDEX
[GRAPH]
<TABLE>
<CAPTION>
June 1994 June 1995 June 1996 June 1997 June 1998 June 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Micrografx $ 100.00 $ 128.85 $ 225.00 $ 111.54 $ 219.23 93.27
Industry Index $ 100.00 $ 170.08 $ 229.11 $ 310.37 $ 462.68 $ 662.85
Broad Market $ 100.00 $ 117.28 $ 147.84 $ 177.85 $ 235.75 $ 330.37
</TABLE>
(Assumes $100 invested on July 1, 1994 and that dividends are reinvested.)
<PAGE> 20
OTHER BUSINESS
Management knows of no business other than that previously disclosed
herein that will be brought before the meeting. If, however, any other matters
are properly presented, it is the intention of the persons named in the
accompanying form of proxy, if authorized to do so by the proxy, to vote the
shares covered by such proxy as in their discretion they may deem advisable.
PROPOSALS OF SHAREHOLDERS
All proposals of shareholders intended to be presented at the next
Annual Meeting of Shareholders of Micrografx must be received by Micrografx at
its principal executive offices on or before June 1, 2000, for inclusion in the
Company's Proxy Statement relating to that meeting.
GENERAL
The information contained in this Proxy Statement in the sections entitled
"Report of Compensation Committee and Stock Option Committee on Executive
Compensation" and "Stock Performance Graph" shall not be deemed incorporated by
reference by any general statement incorporating by reference any information
contained in this Proxy Statement into any filing under the Securities Act of
1933, as amended (the "1933 Act") or the Securities Exchange Act of 1945 (the
"Exchange Act"), except to the extent that the Company specifically incorporates
by reference the information contained in such sections, and shall not otherwise
be deemed filed under the 1933 Act or the Exchange Act.
By Order of the Board of Directors
Douglas M. Richard
President
Date: October 7, 1999
Allen Texas
17
<PAGE> 21
PROXY PROXY
MICROGRAFX, INC.
1303 E. ARAPAHO ROAD
RICHARDSON, TEXAS 75081
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Russell E. Hogg and Douglas M. Richard, and each
of them, as proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and vote, as designated below, all of the shares of
the common stock of Micrografx, Inc. (the "Company"), held of record by the
undersigned on September 10, 1999, at the Annual Meeting of Shareholders of the
Company to be held on~November 4, 1999, and any adjournment(s) thereof.
1. PROPOSAL TO ELECT AS DIRECTORS OF THE COMPANY THE FOLLOWING PERSONS TO
HOLD OFFICE UNTIL THE NEXT ANNUAL ELECTION OF DIRECTORS BY SHAREHOLDERS
OR UNTIL THEIR SUCCESSORS HAVE BEEN DULY ELECTED AND QUALIFIED.
<TABLE>
<S> <C> <C>
Avery More Robert Kamerschen Douglas Richard
Russell E. Hogg Seymour Merrin
</TABLE>
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
(To be dated and signed on reverse side.)
<PAGE> 22
MICROGRAFX, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
1. Election of Directors (see reverse) FOR WITHHOLD ALL EXCEPT
[ ] [ ] [ ]
- ------------------------------------------------
(Except Nominee(s) written above)
2. Proposal to approve and adopt the amendments FOR AGAINST ABSTAIN
to the Micrografx, Inc. 1995 Incentive and [ ] [ ] [ ]
Nonstatutory Stock Option Plan.
3. Proposal to ratify the appointment by the FOR AGAINST ABSTAIN
Board of Directors of Ernst & Young LLP as [ ] [ ] [ ]
independent public accountants for the
Company for the fiscal year ending June 30,
2000.
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Dated: 1999
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Signature, If Held Jointly
Please execute this proxy as your name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING
THE ENCLOSED ENVELOPE.
This proxy, when properly executed and dated, will be voted in the manner
directed herein by the undersigned shareholder(s). IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES UNDER PROPOSAL 1, FOR
PROPOSALS 2 AND 3, AND THE PROXIES WILL USE THEIR DISCRETION WITH RESPECT TO ANY
MATTERS REFERRED TO IN PROPOSAL 4.
