<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
EDMARK CORPORATION
- --------------------------------------------------------------------------------
(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/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE> 2
[LOGO] EDMARK
6727 185th Ave. NE o P.O. Box 97021
Redmond, WA 98073-9721
206.556.8400 o 800.426.0856
September 8, 1995
Dear Shareholder,
The Board of Directors and Management of Edmark Corporation cordially invite
you to attend the Annual Meeting of Shareholders. The meeting will be held on
Thursday, October 19, 1995, at 2:00 p.m. at the Woodmark Hotel (Lake Washington
Room), 1200 Carillon Point, Kirkland, Washington. Directions are included on
the front inside cover of this Proxy Statement.
In addition to electing directors and ratifying the Company's appointment of
auditors, you will be asked to vote upon amendents to the Company's stock
option plan, to approve the 1995 stock option plan for nonemployee directors
and to amend the Company's Articles of Incorporation to increase the authorized
capital stock of the Company. There will also be a report on the progress of
the Company and an opportunity to ask questions of general interest to you as a
Shareholder. Your copy of the Annual Report for the 1995 fiscal year is
enclosed.
YOUR VOTE IS VERY IMPORTANT. Therefore, whether or not you plan to attend the
meeting in person, please sign and return the enclosed proxy in the envelope
provided. If you attend the meeting and desire to vote in person, you may do
so even though you have previously sent a Proxy.
You are also invited to join us for a special reception immediately following
the annual meeting in celebration of Edmark's 25th anniversary. We hope you
will be able to join us. We look forward to seeing you.
Sincerely,
/s/ Sally G. Narodick
Sally G. Narodick
Chief Executive Officer
PLEASE NOTE THE LOCATION FOR THE ANNUAL MEETING.
DIRECTIONS ON NEXT PAGE.
<PAGE> 3
DIRECTIONS TO THE WOODMARK HOTEL
[MAP]
From Sea-Tac International Airport or Portland: Take I-5 north to Highway 405.
Continue north to Highway 520. Take Highway 520 west toward Seattle, Exit 14.
Merge right onto 108th Avenue. Turn left onto Northup Way. Turn right onto
Lake Washington Boulevard N.E. From Lake Washington Boulevard N.E., continue to
second stoplight (Lakeview Drive). Turn left into Carillon Point. Continue down
the double drive. The hotel is on the right.
From Bellevue: Take Bellevue Way north. Continue onto Lake Washington Boulevard
N.E. From Lake Washington Boulevard N.E., continue to second stoplight
(Lakeview Drive). Turn left into Carillon Point. Continue down the double
drive. The hotel is on the right.
From Seattle: Take Highway 520 east to Kirkland, exit Highway 908 east. Turn
north onto Lake Washington Boulevard N.E. From Lake Washington Boulevard N.E.,
continue to second stoplight (Lakeview Drive). Turn left into Carillon Point.
Continue down the double drive. The hotel is on the right.
Two hours of free parking are available in the parking lot in the Carillon
Point complex.
<PAGE> 4
[LOGO] EDMARK
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, OCTOBER 19, 1995
TO THE SHAREHOLDERS OF
EDMARK CORPORATION:
Notice is hereby given that the Annual Meeting of Shareholders of Edmark
Corporation (the "Company") will be held on Thursday, October 19, 1995, at 2:00
p.m. at the Woodmark Hotel, 1200 Carillon Point, Kirkland, Washington, for the
following purposes:
1. To elect nine directors to hold office until the next annual
meeting of shareholders and until their successors are duly
elected and qualified;
2. To approve amendments to the Company's stock option plan
generally expanding the group of eligible employees and
increasing the number of shares available for options under
the plan;
3. To approve the Edmark Corporation 1995 Stock Option Plan for
Non-employee Directors;
4. To approve an amendment to the Articles of Incorporation to
increase the authorized number of shares of Common Stock, no
par value, from 10,000,000 shares to 30,000,000 shares;
5. To ratify the appointment of independent auditors for the
Company; and
6. To transact any other business which may properly come before
the meeting or any adjournment thereof.
Holders of Common Stock at the close of business on August 31, 1995 are
entitled to notice of, and to vote at, the meeting. Shareholders are cordially
invited to attend the meeting in person.
By Order of the Board of Directors,
/s/ PAUL N. BIALEK
Paul N. Bialek
Secretary
EDMARK CORPORATION
6727 - 185th Avenue N.E.
Redmond, Washington 98052
September 8, 1995
IMPORTANT: Please fill in, date, sign and return the enclosed Proxy in
the postage-paid envelope to ensure that your shares are
represented at the meeting. If you attend the meeting, you
may vote in person, if you wish to do so, even though you have
previously sent in your Proxy.
Proxy Statement-1
<PAGE> 5
[LOGO] EDMARK
EDMARK CORPORATION
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited by the Board of Directors of the Company for
use at the Annual Meeting of Shareholders to be held on October 19, 1995, and
at any adjournment or adjournments thereof (the "Annual Meeting"). The Company
first mailed this Proxy Statement to Shareholders on or about September 8,
1995. The information in this Proxy Statement reflects a three-for-two
stock split effected on August 3, 1995.
RECORD DATE AND OUTSTANDING SHARES
Only Shareholders of record on the books of the Company at the close of
business on August 31, 1995, will be entitled to notice of, and to vote at, the
Annual Meeting. On that date there were issued and outstanding 6,528,368 shares
of Common Stock.
SOLICITATION AND REVOCABILITY OF PROXIES
Proxies may be solicited by officers, directors and regular supervisory
employees of the Company, none of whom will receive any additional compensation
for their services. Solicitation of proxies may be made personally or by mail,
telephone, telecopy or messenger. All costs of solicitation of proxies will be
paid by the Company.
Any Shareholder granting a proxy has the power to revoke it at any time before
it is exercised. A proxy may be revoked either by (i) filing with the Secretary
of the Company prior to the Annual Meeting, at the Company's executive offices,
either a written revocation or duly executed proxy bearing a later date, or
(ii) attending the Annual Meeting and voting in person, regardless of whether a
proxy has previously been given. Attendance at the Annual Meeting will not
revoke a shareholder's proxy unless the shareholder votes in person.
QUORUM AND VOTING
Under Washington law and the Company's Articles of Incorporation, a quorum
consisting of a majority of the shares eligible to vote must be represented in
person or by proxy to elect directors and to transact any other business that
may properly come before the meeting. Generally, action on any matter, other
than the election of directors, is approved if the votes cast in favor of the
action exceed the votes cast against it. Abstention from voting or nonvoting
by brokers will have no effect since such actions do not represent votes cast
by Shareholders. In any election of directors, the nominees elected are the
nine individuals receiving the greatest number of votes cast by the shares
entitled to vote. Any action other than a vote for a nominee will have the
effect of voting against the nominee.
If the accompanying Proxy is properly executed and returned, the shares
represented thereby will be voted in accordance with the instructions given.
In the absence of instructions to the contrary, the shares will be voted in
accordance with the Board of Directors' recommendations. The Company is not
aware, as of the date hereof, of any matters to be voted upon at the Annual
Meeting other than those stated in the Proxy Statement and the accompanying
Notice of Annual Meeting of Shareholders.
Proxy Statement-2
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 31, 1995, certain information with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to own beneficially more than 5% of the Common
Stock, (ii) each of the Company's directors, (iii) certain of the Company's
executive officers, and (iv) all directors and executive officers as a group.
Except as otherwise noted, the named beneficial owner has sole voting and
investment power.
<TABLE>
<CAPTION>
Shares Percentage
Beneficially of
Name Owned Class
---- ------------ ----------
<S> <C> <C>
Kleiner Perkins Caufield & Byers (1) ....... 847,020 12.9%
2750 Sand Hill Road
Menlo Park, CA 94025
Frances M. Conley (2) ...................... 684,000 10.4%
Roanoke Investors' Limited Partnership
c/o Roanoke Capital, Ltd.
1111 Third Avenue, Suite 2220
Seattle, WA 98101
Richard S. Thorp (3) ....................... 383,562 5.8%
c/o Supertronix, Inc.
14624 - 4th South
Seattle, WA 98168
Sally G. Narodick (4) ...................... 227,221 3.3%
Timothy Mott (5)............................ 68,377 1.0%
Donna G. Stanger (6) ....................... 64,125 1.0%
W. Hunter Simpson (7) ...................... 36,860 *
Harvey N. Gillis (8) ....................... 27,500 *
Daniel P. Vetras (9) ....................... 17,250 *
Paul N. Bialek (10) ........................ 11,625 *
Allen D. Glenn (11) ........................ 7,631 *
Allan Epstein (12) ......................... 6,562 *
Douglas J. Mackenzie........................ 0 *
All directors and executive officers
as a group (13 persons) (13) ............. 2,414,982 34.6%
</TABLE>
- ------------------
* Less than 1%.
(1) Includes 734,366 shares of Common Stock held by Kleiner Perkins
Caufield & Byers VI, L.P. and 112,654 shares of Common Stock held by
KPCB VI Founders Fund, L.P. The general partner of both Kleiner
Perkins Caufield & Byers VI, L.P. and KPCB VI Founders Fund, L.P. is
KPCB VI Associates, L.P.
Proxy Statement-3
<PAGE> 7
(2) All of these shares are held of record by Roanoke Investors' Limited
Partnership ("Roanoke"). Ms. Conley, a director of the Company, is a
shareholder, director and principal of Roanoke Capital, Ltd.,
("Roanoke Capital") the general partner of Roanoke. The only other
shareholder, director and principal of Roanoke Capital is Gerald R.
Conley, Ms. Conley's husband. Ms. Conley disclaims beneficial
ownership of the shares that exceed her pro rata interest in Roanoke
Capital.
(3) Includes 500 shares held by Mr. Thorp's wife. Mr. Thorp disclaims
beneficial ownership of those shares.
(4) Includes 217,500 shares issuable upon exercise of options exercisable
within 60 days of August 31, 1995.
(5) All of these shares are held of record by Ironwood Capital
("Ironwood"). Mr. Mott, a director of the Company, is a general
partner of Ironwood. Mr. Mott disclaims beneficial ownership of the
shares that exceed his pro rata interest in Ironwood.
(6) Includes 3,000 shares held by Ms. Stanger's children. Ms. Stanger
disclaims beneficial ownership of those shares. Also includes 58,125
shares issuable upon exercise of options exercisable within 60 days
of August 31, 1995.
(7) Includes 3,000 shares held by Mr. Simpson's wife. Mr. Simpson
disclaims beneficial ownership of those shares. Also includes 12,500
shares issuable upon exercise of options exercisable within 60 days of
August 31, 1995.
(8) Includes 1,250 shares issuable upon exercise of options exercisable
within 60 days of August 31, 1995.
(9) Represents 17,250 shares issuable upon exercise of options exercisable
within 60 days of August 31, 1995.
(10) Represents 11,625 shares issuable upon exercise of options exercisable
within 60 days of August 31, 1995.
(11) Includes 5,531 shares issuable upon exercise of options exercisable
within 60 days of August 31, 1995.
(12) Represents 6,562 shares issuable upon exercise of options exercisable
within 60 days of August 31, 1995.
(13) Includes 361,093 shares issuable upon exercise of options exercisable
within 60 days of August 31, 1995.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely on its review of copies of reports made pursuant to Section 16(a)
of the Securities Exchange Act of 1934, as amended (the "Securities Exchange
Act"), and written representations that no other reports were required, the
Company believes that during the fiscal year ended June 30, 1995, all Section
16(a) filing requirements applicable to its officers, directors and 10 percent
shareholders were satisfied except that one report, covering one transaction,
was filed late by Richard Thorp, a director of the Company.
Proxy Statement-4
<PAGE> 8
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Sally G. Narodick 50 Chief Executive Officer and Chairman
Paul N. Bialek 35 Vice President - Finance and Administration,
Chief Financial Officer, Treasurer and Secretary
John R. Moore 45 Vice President - Operations
Donna G. Stanger 52 Vice President - Product Development
Daniel P. Vetras 36 Vice President - Consumer Sales
</TABLE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Mr. Bialek has been Vice President - Finance and Adminstration and Chief
Financial Officer since March 1995. From September 1993 to March 1995 he served
as the Company's Director of Finance and Administration. Mr Bialek has also
been the Company's Treasurer since September 1993, and Secretary since March
1994. For the eleven years prior to joining the Company in September 1993, he
was with KPMG Peat Marwick LLP, an international public accounting firm. He has
a bachelor's degree in business administration from Seattle University and is a
Certified Public Accountant.
Mr. Moore has been Vice President - Operations of the Company since June 1991.
He has been with the Company since 1978 and has worked in all phases of the
production, assembly and shipping segments of the Company's business.
Ms. Stanger has been Vice President - Product Development of the Company since
November 1991. Prior to that she spent eight years at Sunburst Communications,
an educational software publisher, where she managed a product development team
focusing on the kindergarten through fifth grade market. She has a master's
degree in education from the University of Minnesota, a bachelor's degree in
education from Florida State University and 20 years of teaching experience.
Mr. Vetras has been Vice President - Consumer Sales of the Company since October
1993. From 1992 to July 1993, he was director for North American sales at
Traveling Software, Inc., and from 1985 to 1992, he was with Lotus Development
Corporation in a variety of sales management positions. He has a bachelor's
degree in political science from American International College.
There are no family relationships among the executive officers of the Company.
The executive officers serve at the discretion the Board of Directors.
Proxy Statement-5
<PAGE> 9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the compensation
paid or accrued for the fiscal years ended June 30, 1995, 1994, and 1993, to
the Company's Chairman and Chief Executive Officer and the other executive
officers of the Company who received compensation of at least $100,000 for
services rendered to the Company in all capacities during the 1995 fiscal year
(the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------- ALL OTHER
FISCAL ----------------------- SHARES UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS (#) ($)(2)
- --------------------------- ------ --------- ----------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Sally G. Narodick .................... 1995 $200,000 $100,000 37,500 $4,800
Chairman and Chief Executive 1994 $135,000 -0- 15,000 $4,800
Officer 1993 $114,000 -0- -0- $4,800
Paul N. Bialek (3) ................... 1995 $ 86,875 $ 43,438 30,000 -0-
Vice President - Finance and 1994 $ 51,917 $ 7,500 37,500 -0-
Administration, Chief Financial
Officer, Treasurer and Secretary
Donna G. Stanger ..................... 1995 $150,000 $ 75,000 52,500 -0-
Vice President - Product 1994 $110,000 $ 30,000 67,500 -0-
Development 1993 $ 80,000 -0- -0- -0-
Daniel P. Vetras (4) ................. 1995 $ 94,167 $ 47,084 -0- -0-
Vice President - Consumer Sales 1994 $ 55,487 $ 16,385 67,500 -0-
</TABLE>
- ------------------
(1) The Compensation Committee of the Company's Board of Directors adopts
a Management Incentive Award Program for certain key employees each
year. That program establishes several performance targets and a cash
bonus pool based on a percentage of the aggregate officer base
salaries. All the Named Executive Officers were eligible for bonuses
under that program.
(2) All Other Compensation consists of an automobile allowance.
(3) Mr. Bialek joined the Company in September 1993.
(4) Mr. Vetras joined the Company in October 1993.
Proxy Statement-6
<PAGE> 10
OPTION GRANTS IN FISCAL YEAR 1995
The following table sets forth certain information with respect to stock
options granted during the 1995 fiscal year to the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF ANNUAL RATES OF STOCK
TOTAL OPTIONS PRICE APPRECIATION FOR
GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE 0% ($) 5% ($) 10% ($)
- ---- -------------- ------------ ---------- ---------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sally G. Narodick .. 37,500 7.8% $19.33 5/19/05 $0 $455,870 $1,155,264
Paul N. Bialek ..... 7,500 1.6% $ 6.83 10/18/04 $0 $ 32,215 $ 81,639
22,500 4.7% $14.67 3/17/05 $0 $207,582 $ 526,055
Donna G. Stanger ... 52,500 10.9% $ 6.50 7/1/04 $0 $214,610 $ 543,865
</TABLE>
- ------------------
(1) The options listed were granted under the Company's Stock Option Plan.
The exercise price of each option is equal to the fair market value of
the underlying Common Stock on the date of grant as determined by the
Compensation Committee of the Company's Board of Directors and vest
ratably over four years from the date of grant. To the extent not
already vested, the options generally become fully vested and
exercisable upon a change in control of the Company. The options have
ten year terms.
(2) Amounts represent hypothetical gains that could be acheived for the
respective options if exercised at the end of the option term. The
assumed 5% and 10% rate of stock price appreciation are mandated by
the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of the future common
stock price.
OPTION EXERCISES IN FISCAL YEAR 1995 AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information concerning option exercises
by the Named Executive Officers during the 1995 fiscal year. In addition, the
table includes the number of shares covered by both exercisable and
unexercisable stock options as of June 30, 1995. Also reported are the values
for "in-the-money" options, which values represent the positive spread between
the exercise prices of those existing stock options and the fair market value
of the Company's Common Stock as of June 30, 1995.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR END (#) FISCAL YEAR END ($)(1)
ACQUIRED ON DOLLAR VALUE -------------------------- --------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sally G. Narodick ..... -0- N/A 205,312 57,188 $5,078,594 $ 697,031
Paul N. Bialek ........ -0- N/A 9,375 58,125 $ 190,625 $ 995,625
Donna G. Stanger ...... -0- N/A 67,500 120,000 $1,562,188 $2,454,063
Daniel P. Vetras ...... 9,000 $58,500 7,875 50,625 $ 161,438 $1,037,813
</TABLE>
- ------------------
(1) These values represent the number of shares subject to in-the-money
options multiplied by the difference between the closing bid price of
the Company's Common Stock on June 30, 1995 ($26.83 per share), and
the exercise price.
Proxy Statement-7
<PAGE> 11
COMPENSATION COMMITTEE REPORT ON EXECUTIVE OFFICER COMPENSATION
The Compensation Committee is comprised of four nonemployee directors. The
Committee is responsible for recommending to the Board of Directors
compensation levels for the Chief Executive Officer, and for reviewing and
approving compensation recommendations made by the Chief Executive Officer for
all other officers, including the Vice Presidents named in the Summary
Compensation Table.
Compensation Policy. The Company's overall compensation policy is to provide
competitive and incentive based compensation keyed to both individual and
Company performance. In carrying out this policy, the Committee considers
current corporate performance, the potential for future performance gains,
whether Shareholder value has been or will be enhanced, and competitive market
conditions for executives. Those factors are evaluated and considered for each
officer on an annual basis, including consideration of the contribution made by
each officer over the prior fiscal year. The Company's compensation package
for its officers includes both short-term and long-term features in the form of
base salary, variable compensation keyed to Company performance and stock
options which are granted periodically at the discretion of the Committee.
Base salary and variable compensation award targets for executive officers are
determined at the beginning of the fiscal year, and individual variable
compensation awards are made after the fiscal year based on performance for the
prior year.
Base Salary is targeted within the competitive range for executives in similar
positions at local, regional and national software companies having similar
revenues and number of employees. The Committee also considers the
compensation levels paid by direct competitors in the early childhood and
educational software fields, including some of the companies listed in
Hambrecht & Quist's Technology Index referenced in the Performance Graph on
page 10. Salaries for all officers are reviewed by the Committee at least
annually and, for officers other than the Chief Executive Officer, may be
increased or decreased at that time based on recommendations made by the Chief
Executive Officer and on the Committee's assessment of how the respective
individual contributes to the Company, as well as increases in competitive pay
levels reflected in local, regional and national salary survey information
reviewed by the Committee. In determining how the officer contributes to the
Company, the Committee considers current corporate performance, including
timely development of quality software products, market reception to new
products, sales growth, market position and brand identity for quality
educational products. The Committee also considers the potential for future
performance gains. The Committee has neither set targets related to these
factors nor has it attributed any specific weight to them for purposes of
determining base salaries.
Variable Compensation Keyed to Company Performance for officers is intended to
reflect the Company's belief that management's contribution to short-term and
long-term Company performance comes, in part, from providing a form of "at risk
cash incentive award" based on the achievement of pre-established financial
targets relative to the Company's budget. Accordingly, a Management Incentive
Award Program is adopted each year by the Committee, subject to approval by the
Board of Directors. That Program establishes several performance targets and a
cash bonus pool based on a percentage of the aggregate officer base salaries.
The Committee believes that the Management Incentive Award Program provides an
appropriate link between Company performance and compensation incentives paid
to officers. Since the performance targets are based on budgeted financial
performance, the Program also serves to measure the achievement of corporate
goals, such as the Company's progress on its strategic plan, timely development
and market reception of new products, sales growth and profitability. The
Committee has not attributed any specific weight to these factors.
Proxy Statement-8
<PAGE> 12
Generally, awards are made under the Program only if the Company's performance
targets are achieved. The specific amount of an individual award is dependent
upon the officer's relative performance during the prior fiscal year. The
Committee does not independently measure performance of officers, but relies on
allocation recommendations from the Chief Executive Officer, including her
assessment of the officer's individual contribution toward meeting the
performance targets. For the past fiscal year, the performance targets were
met. The bonus amounts for all officers ranged from $33,000 to $100,000. A
bonus in the amount of $47,084 was also made to the Vice President-Consumer
Sales under an incentive compensation arrangement dependent on actual sales in
relation to pre-established quarterly sales goals.
Stock Options. Under the Company's Stock Option Plan, the Company has reserved
for issuance a maximum of 1,575,000 shares of Common Stock. Compensation
Committee members are not eligible to receive options under the Plan. Subject
to the terms of the Plan, the Committee determines the terms and conditions of
options granted under the Plan, including the exercise price. The exercise
price of nonqualified stock options may not be less than the fair market value
per share of common stock on the date of grant, as determined by the Committee.
It has been the practice of the Committee to grant options with an exercise
price equal to the closing bid price of the Company's Common Stock as reported
on Nasdaq as of the date of grant. Therefore, stock options will only have
value to recipients if value is created for Shareholders through increases in
the Company's stock price. It has been the practice of the Committee to grant
stock options which vest ratably over a four year period from the date of
grant. Option awards for officers other than the Chief Executive Officer are
based on recommendations made by the Chief Executive Officer and on the
Committee's assessment of how the respective individual contributes to the
Company. The factors considered in this assessment are identical to those set
forth in the base salary paragraph above. The Committee has not attributed any
specific weight to these factors. The Committee also reviews prior option
grants in determining current awards under the Plan. The Committee believes
that stock options provide an incentive for officers and allow the Company to
attract and retain management.
As of July 14, 1995, the Company had outstanding options, to purchase an
aggregate of 1,067,962 shares of Common Stock under the Plan at a weighted
average exercise price of $7.22 per share, 435,187 of which were exercisable
within 60 days of July 14, 1995. Options to purchase 134,438 shares under the
Plan had been exercised as of July 14, 1995.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The increase in Mrs. Narodick's compensation for the 1995 fiscal year was based
on her significant contributions during the prior year to the Company's
progress on its strategic plan, including timely and continued development of
quality software products, market reception to new products, sales growth,
establishment of market position and brand identity for quality educational
products, and improvement in corporate administration. The foregoing factors,
which reflect both individual performance and the overall performance of the
Company, are not specifically weighted, but are considered as a whole and
applied to the Chief Executive Officer along with consideration of the
competitive mean for direct competitors in the early childhood and educational
software fields.
The Committee believes the Company has an appropriate mix of short-term and
long-term incentives to attract high quality executive officers and to reward
them for continued, loyal service to the Company.
July 14, 1995 COMPENSATION COMMITTEE
W. Hunter Simpson (Chair)
Frances M. Conley
Harvey N. Gillis
Douglas J. Mackenzie
Proxy Statement-9
<PAGE> 13
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total return to Shareholders on the
Common Stock of the Company with the cumulative total return of the H & Q
Technology Index and the Nasdaq Stock Market-U.S. Index during the last five
years ended June 30, 1995.
Jun-90 Jun-91 Jun-92 Jun-93 Jun-94 Jun-95
------ ------ ------ ------ ------ ------
Edmark Corp. 100 93.32 204.41 524.35 382.15 1435.30
H&Q Technology 100 100.60 114.31 139.66 141.70 237.29
Nasdaq Stock
Market-U.S. 100 105.89 127.17 159.89 161.50 215.33
Assumes $100 invested on June 30, 1990 in Common Stock, the H & Q Technology
Index and the Nasdaq Stock Market-U.S. Index, with all dividends reinvested.
Stock price performance shown above for the Common Stock is historical and not
necessarily indicative of future price performance. Information before November
1991, when the Company's Common Stock was accepted for listing on Nasdaq, is
based on quotations from the National Quotation Bureau's Pink Sheets as
published in the Journal American, Bellevue, Washington.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
All nine nominees for election to the Board of Directors are members of the
current Board of Directors.
The Board of Directors has unanimously approved the nominees, who upon
election, will hold office for a term of one year and until their successors
are duly elected and qualified. Unless otherwise instructed, it is the
intention of the persons named in the accompanying Proxy to vote the shares
represented by properly executed proxies for the nine nominees of the Board of
Directors named on the following pages. Although the Board of Directors
anticipates that all of the nominees will be available to serve as directors of
the Company, should any one or more of them not accept the nomination, or
otherwise be unwilling or unable to serve, it is intended that the proxies will
be voted for the election of a substitute nominee or nominees designated by the
Board of Directors.
Proxy Statement-10
<PAGE> 14
The names of the Board's nominees for directors of the Company are as follows:
<TABLE>
<CAPTION>
Director Principal Occupation and Business
Name and Age Since Experience for the Past Five Years
- ------------ -------- ----------------------------------------------------------------------------------
<S> <C> <C>
Frances M. Conley 1992 Ms. Conley is a shareholder, director and principal of Roanoke Capital, Ltd.,
Age 52 the general partner of Roanoke Investors' Limited Partnership, a venture capital
limited partnership. She has a master's degree in business administration from
the Harvard Graduate School of Business Administration and a master's degree and
a bachelor's degree in music from Emmanuel College. Ms. Conley serves as a
director of Data I/O Corporation.
Allan Epstin 1992 Mr. Epstein is President and Chief Executive Officer of Orthopedic Systems,
Age 44 Inc., a developer and manufacturer of orthopedic soft goods, operating room
equipment and diagnostic instruments. From 1988 to 1991, he was President
and Chief Executive Officer of Accolade, Inc., a developer and publisher of
entertainment software for computers and video games. He has a bachelor's
degree in industrial engineering from Cornell University.
Harvey N. Gillis 1990 Mr. Gillis is Senior Vice President of Finance and Administration and Chief
Age 49 Financial Officer for Advanced Technology Laboratories, Inc., a developer,
manufacturer and distributor of diagnostic medical ultrasound systems. From
1991 to 1992, he served as Senior Vice President of Finance and Administration
and Chief Financial Officer for NeoPath, Inc., a medical technology company.
Prior to 1991, he served as Chief Operating Manager for Samuel Stroum
Enterprises, a private investment firm. He has a master's degree in business
administration, finance & systems analysis, and a master's degree in operations
research from Stanford University and a bachelor's degree in chemical engineering
from Carnegie-Mellon University. Mr. Gillis serves as a director of Digital
Systems International, Inc.
Dr. Allen D. Glenn 1990 Dr. Glenn has been Dean of the College of Education and Professor of Curriculum
Age 53 and Instruction at the University of Washington since 1989. Prior to that, he
served for 18 years on the faculty and administration of the University of
Minnesota before joining the faculty of the University of Washington. He has
a Ph.D. and a master's degree in education from the University of Michigan, a
master's degree in political science from Kansas State Teachers College and a
bachelor's degree in political science and history from Ottawa University.
</TABLE>
Proxy Statement-11
<PAGE> 15
<TABLE>
<S> <C> <C>
Douglas J. Mackenzie 1994 Mr. Mackenzie has been with Kleiner Perkins Caufield & Byers, a venture capital
Age 35 partnership, for over five years and most recently as a general partner. He has
a master's degree in business administration from the Harvard Graduate School
of Business Administration and holds a bachelor's degree in economics and a
master's degree in industrial engineering from Stanford University. Mr. Mackenzie
serves on the boards of directors of several private technology-based companies.
Timothy Mott 1994 Mr. Mott is a general partner of Ironwood Capital, a venture capital partnership.
Age 50 Mr. Mott was Chairman of the Board of Directors of Macromedia, Inc., from 1992
to 1995 and was Chief Executive Officer of Macromedia, Inc., (and its predecessor
corporations, MacroMind and MacroMind/Paracomp) from 1990 to 1992. Mr. Mott was
a co-founder of Electronic Arts, Inc., an entertainment software company, where
he was employed from 1982 to 1990 in a variety of capacities, including Senior
Vice President of Business Development and Managing Director of Electronic Arts
(UK) Limited. He has a bachelor's degree in computer science from Manchester
University. Mr. Mott serves as a director of Electronic Arts.
Sally G. Narodick 1989 Mrs. Narodick has been Chairman and Chief Executive Officer of the Company
Age 50 since April 1989. Immediately prior to joining the Company, she was co-founder
of Narodick, Ross & Associates, a financial and marketing consulting company
specializing in emerging businesses. Prior to 1987, she was a Senior Vice
President with Seafirst Corporation, a commercial banking institution, serving
as Corporate Controller and as District Manager in charge of business and
personal banking. She has a master's degree in teaching from Columbia University,
a master's degree in business administration from New York University and a
bachelor's degree from Boston University. Mrs. Narodick serves on the board
of trustees of Lakeside School and serves as chair of its Education Committee
and on its Technology Committee. Mrs. Narodick serves on the boards of directors
of Penwest Corporation and Washington Energy Corporation.
</TABLE>
Proxy Statement-12
<PAGE> 16
<TABLE>
<S> <C> <C>
W. Hunter Simpson 1989 Since 1986, Mr. Simpson has been a Special Limited Partner in Trinus Partners, an
Age 67 early stage financing and business development company. He has a bachelor's degree
in business administration from the University of Washington. Mr. Simpson serves on
the Boards of Directors of Itron Corporation and Data I/O Corporation. He has also
served on the Board of Regents of the University of Washington.
Richard S. Thorp 1988 Mr. Thorp has been President of Shannon Industrial, Inc., an electronics distribution
Age 61 business, and President of Supertronix, Inc., a retail electronics component
supplier for over five years.
</TABLE>
Proxy Statement-13
<PAGE> 17
INFORMATION ON COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
Directors hold office until the next Annual Meeting of Shareholders of the
Company or until their successors have been elected and qualified.
The Board of Directors of the Company held a total of six meetings during the
fiscal year ended June 30, 1995. The Board has an Audit Committee, a
Compensation Committee, and a Nominating Committee. The Audit Committee met
two times, the Compensation Committee met three times, and the Nominating
Committee met one time during the fiscal year ended June 30, 1995. During the
last fiscal year each current director attended at least 75% of the aggregate
of all meetings of the Board of Directors and all meetings of committees to
which he or she was assigned.
The Audit Committee generally selects the Company's independent auditors,
subject to ratification by Shareholders, and considers related scope and fee
arrangements. Current members of the Audit Committee are Harvey N. Gillis
(Chair), Allan Epstein, Dr. Allen Glenn and Richard S. Thorp. The Compensation
Committee generally recommends the framework for establishing officer
compensation and reviews and recommends officer salary levels and variable
compensation awards. That committee also administers the Company's Stock Option
Plan. Current members of the Compensation Committee are W. Hunter Simpson
(Chair), Frances M. Conley, Harvey N. Gillis and Douglas J. Mackenzie. The
Nominating Committee is primarily responsible for recommending candidates for
the Board of Directors to be elected by Shareholders of the Company. Current
members of the Nominating Committee are Harvey N. Gillis (Chair), Allan
Epstein, Sally G. Narodick, W. Hunter Simpson and Timothy Mott. The Nominating
Committee will consider nominees recommended by Shareholders. Suggestions may
be submitted to the Secretary of the Company.
COMPENSATION OF DIRECTORS
The Company has not paid cash fees to directors of the Company for their
services as directors. Beginning in the 1996 fiscal year, non-employee
directors will be paid a fee of $500 for each Board meeting and for each
Committee meeting attended. Employee directors will not be paid any fees for
those services. All directors are entitled to reimbursement for expenses
incurred in traveling to and from Board and Committee meetings.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES FOR DIRECTOR.
PROPOSAL NO. 2: AMENDMENT OF THE COMPANY'S STOCK OPTION PLAN
STOCK OPTION PLAN
General. The Company's Stock Option Plan was approved and adopted by the
Company's Board of Directors and Shareholders on September 1, 1988 and November
21, 1988, respectively. The Company has reserved for issuance a maximum of
1,575,000 shares of Common Stock under the Option Plan. The Option Plan permits
the granting of incentive stock options ("ISOs") or nonqualified stock options
at the discretion of the Compensation Committee of the Board of Directors to
eligible key employees, managers or officers of the Company or any subsidiary
of the Company. Options granted under the Option Plan are not transferable and
are granted for a period of 10 years. To the extent not already exercisable,
the options generally become exercisable pursuant to the terms of the Option
Plan upon the sale of the Company or upon the sale of substantially all of its
assets. The Option Plan is administered by the Compensation Committee. While
serving on the Compensation Committee, members are not eligible to receive any
options. Subject to the
Proxy Statement-14
<PAGE> 18
terms of the Option Plan, the Compensation Committee determines the terms and
conditions of options granted under the Option Plan, including the exercise
price. The exercise price for options granted under the Option Plan may not be
less than the per share fair market value at the date of grant. The term of any
ISO granted to a person who owns more than 10 percent of the outstanding Common
Stock of the Company may not exceed five years and the exercise price must be
not less than 110% of the fair market value per share of the Common Stock at
the date of grant. Unless otherwise provided by the Compensation Committee,
the Option Plan provides for options to vest 30%, 65% and 100% on the first,
second and third anniversaries of the date of the grant, respectively. It has
been the recent practice of the Compensation Committee to grant stock options
that vest ratably over a four-year period from the date of grant.
Federal Income Tax Consequences. This summary of federal income tax
consequences addresses the tax consequences of both ISOs and nonqualified
options.
Holders of ISOs do not recognize income upon the grant or exercise of an ISO.
Upon exercise, however, the difference between the purchase price of shares
subject to an ISO and the fair market value of such shares at the date of
exercise of the ISO will be treated as an item of tax preference for the
purpose of calculation of the alternative minimum tax. The holder will
recognize capital gain or loss upon a subsequent sale or other disposition of
shares acquired by exercise of an ISO. An optionee's tax basis in shares issued
on exercise of an ISO for which the option price is paid in cash will be equal
to the cash paid. If the option price is paid by surrendering previously held
shares, the tax basis will generally be the basis of those shares. The maximum
rate on ordinary income is generally 39.6% in 1993 and thereafter. Long-term
capital gains are taxed at a 28% maximum rate. Beginning January 1,1993, the
maximum alternative minimum tax was increased to 28% and the exemption amount
($45,000 for joint returns, $33,750 for single returns and $22,500 for married
taxpayers filing seperately) was reduced 25 cents for each $1.00 by which
alternative minimum taxable income exceeds $150,000 for joint returns ($112,500
for single returns and $75,000 for married taxpayers filing seperately). For
taxable years beginning after 1986, the portion of a taxpayer's minimum taxable
income attributable to certain items of tax preference (including the spread
upon the exercise of an ISO) can be credited against the taxpyer's regular
liability in later years to the extent that liability exceeds the alternative
minimum tax.
The federal income tax treatment of nonqualified options differs significantly
from the treatment of ISOs. Holders of nonqualified options will recognize no
taxable income upon the grant of those options. Upon exercise of a
nonqualified option, however, an optionee must recognize taxable ordinary
income equal to the difference between the fair market value of the shares on
the date of exercise and the amount the optionee pays for the shares. When an
optionee subsequently sells shares of shock acquired under a nonqualified
option, an amount equal to the difference between the amount realized upon the
sale and the optionee's basis for the shares will generally be realized as
capital gain or loss. The optionee's basis in the shares will be equal to the
amount paid plus the amount of taxable ordinary income realized on exercise of
the option. If otherwise deductible as compensation, the Company will receive a
deduction at the same time and in the same amount as the optionee recognizes
ordinary taxable income on account of any option.
Proxy Statement-15
<PAGE> 19
Proposed Amendments. On July 14, 1995, the Board of Directors of the Company
adopted, subject to Shareholder approval, an amendment to the Option Plan to
increase the number of shares available under the Option Plan from 1,575,000 to
1,950,000 by reserving an additional 375,000 shares of Common Stock for
issuance pursuant to options granted under the Option Plan. In addition, the
Board of Directors voted to expand the group of employees eligible for awards
under the Option Plan to include any employee of the Company. As such,
recipients of options will not need to be designated as "key" employees or
be categorized as managers or officers of the Company in order to
participate in the Option Plan.
These amendments to the Plan are prompted by the Company's continued growth and
desire to provide equity-based compensation to a broader group of employees who
may contribute to the day-to-day operations of the Company. The Board of
Directors also believes that the additional options would promote the
interests of the Company and its Shareholders by assisting the Company in
attracting, retaining and stimulating the performance of officers, managers and
selected employees. The closing bid price of the Company's Common Stock on
August , 1995 was $ per share. It has been the recent practice of
the Compensation Commitee to use the closing bid price as the measure of the
fair market value of the Company's Common Stock for Option Plan purposes.
The proposed amendments to the Company's Stock Option Plan may be summarized as
follows:
Section 2.g. of the Option Plan would be amended to change the
definition of "Employee" to mean any person employed by the
Company or its present or future subsidiaries.
The first Paragraph of Section 3 of the Option Plan
would be amended to increase the number of shares available
for options under the Plan from 1,575,000 to 1,950,000.
The Option Plan has been restated and is set forth as Exhibit A to the Proxy
Statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE AMENDMENTS TO THE
OPTION PLAN.
PROPOSAL NO 3: TO APPROVE THE EDMARK CORPORATION 1995 STOCK OPTION
PLAN FOR NON-EMPLOYEE DIRECTORS
The 1995 Non-Employee Directors' Stock Option Plan (the "Plan") was adopted by
the Company's Board of Directors on August , 1995, subject to approval by
the Shareholders. If Shareholder approval is obtained, the Plan will become
effective on the date of the Annual Meeting.
The principal features of the Plan are summarized below. The summary is
qualified in its entirety by the full text of the Plan, which is set forth as
Exhibit B to the Proxy Statement.
Proxy Statement-16
<PAGE> 20
GENERAL
The purposes of the Plan are to promote the long-term success of the Company by
creating a long-term mutuality of interests between the non-employee directors
and the Shareholders, to provide an additional inducement for
the non-employee directors to remain with the Company and to provide a means
through which the Company may attract able persons to serve as directors of the
Company.
The aggregate number of shares which may be issued, and as to which stock
options may be granted, under the Plan is 120,000 shares of the Company's
Common Stock, subject to proportionate adjustment in the event of stock splits
and similar events. If any stock option granted under the Plan is canceled by
mutual consent or terminates or expires for any reason without having been
exercised in full, the number of shares subject to the stock option will again
be available for purposes of the Plan.
ADMINISTRATION
The Plan is required to be administered by a Committee appointed by the Board
of Directors and consisting of not less than two members of the Board. The
Board has appointed the Compensation Committee as the committee to
administer the Plan.
The Compensation Committee has the power to interpret the Plan and to
prescribe rules, regulations and procedures in connection with the operation of
the Plan. All questions of interpretation and application of the Plan, or as
to stock options granted under the Plan, are subject to the determination of
the Compensation Committee, which will be final and binding.
Notwithstanding the discretion to administer the Plan granted to the
Compensation Committee, the selection of the directors to whom stock options
are to be granted, the timing of stock option grants, the number of shares
subject to any stock option, the exercise price of any stock option, the
periods during which any stock option may be exercised and the term of any
stock option are as set forth in the Plan. The Compensation Committee has no
discretion as to these matters.
The grant of each stock option will be confirmed by a stock option agreement
between the Company and the grantee.
STOCK OPTIONS
On the third business day following the day of each Annual Meeting of
Shareholders in the years 1995 through 2004, each person who is then a member
of the Board of Directors of the Company and who is not then an employee of the
Company or any of its subsidiaries will be granted a "nonstatutory stock
option" to purchase 2,000 shares of the Company's Common Stock. A nonstatutory
stock option is a stock option which does not qualify under Section 422 or 423
of the Internal Revenue Code of 1986 (the "Code"). If the number of shares
remaining available for the grant of stock options under the Plan on one of
such days is not sufficient for each non-employee director to be granted an
option for 2,000 shares, then each non-employee director will be granted an
option for a number of whole shares equal to the number of shares then
remaining available under the Plan divided by the number of non-employee
directors, disregarding any fraction of a share.
The option price for each stock option will be the fair market value of the
Company's Common Stock on the date the stock option is granted. Fair market
value, for this purpose, will generally be the mean between the highest and
lowest sale price per share of the Common Stock as reported on the Nasdaq
Proxy Statement-17
<PAGE> 21
National Market on the date of grant.
No stock option may be exercised during the first six months of its term except
in the event of the death of the optionee or unless the exercise date of the
stock option has been accelerated upon the occurrence of one or more of the
events described under "Acceleration of Options in Certain Events" below. No
stock option may be exercised after the expiration of ten years from the date
of grant. A stock option to the extent exercisable at any time may be
exercised in whole or in part.
If an optionee's service as a director terminates for any reason other than
resignation, removal for cause or death, any outstanding stock option will be
exercisable (but only if exercisable by the director immediately prior to
ceasing to be a director) at any time prior to the expiration date of the stock
option or within three years after the optionee ceases to be a director,
whichever is the shorter period. If a director resigns or is removed from
office for cause, any outstanding stock option which is not exercisable will
terminate and any outstanding stock option which is exercisable must be
exercised prior to the expiration date of the stock option or within three
months after the optionee ceases to be a director, whichever is the shorter
period. Following the death of an optionee during service as a director, any
outstanding stock option held by the optionee at the time of death (whether or
not exercisable by the optionee immediately prior to death) will be exercisable
by the person entitled to do so under the Will of the optionee, or, if the
optionee shall fail to make testamentary disposition of the stock option or
shall die intestate, by the legal representative of the optionee, at any time
prior to the expiration date of the stock option or within three years after
the date of death of the optionee, whichever is the shorter period.
The option price for each stock option will be payable in full in cash at the
time of exercise; however, in lieu of cash the person exercising the stock
option may pay the option price in whole or in part by delivering to the
Company previously owned shares of the Company's Common Stock having a fair
market value on the date of exercise of the stock option equal to the option
price for the shares being purchased, except that any portion of the option
price representing a fraction of a share must be paid in cash and no shares of
Common Stock which have been held less than six months may be delivered in
payment of the option price. The Company will cooperate with any person
exercising a stock option who participates in a cashless exercise program of a
broker or other agent under which all or part of the shares received upon
exercise of the stock option are sold through the broker or other agent or
under which the broker or other agent makes a loan to such person.
No stock option granted under the Plan is transferable other than by Will or by
the laws of descent and distribution, and a stock option may be exercised
during an optionee's lifetime only by the optionee or the optionee's guardian
or legal representative. These restrictions on transferability will not,
however, apply to the extent the restrictions are not at any time required for
the grant of stock options under the Plan to qualify for the exemption under
Rule 16b-3 under the Securities Exchange Act.
Subject to the foregoing and the other provisions of the Plan, any stock
options granted under the Plan may be subject to such restrictions and other
terms and conditions, if any, as shall be determined, in its discretion, by the
Committee and set forth in the stock option agreement.
Proxy Statement-18
<PAGE> 22
ACCELERATION OF OPTIONS IN CERTAIN EVENTS
The Plan provides that all outstanding stock options granted under the Plan
will become immediately and fully exercisable upon the occurrence of one or
more events described in Section 6 of the Plan ("Section 6 Events"). A Section
6 Event is deemed to have occurred, with certain exceptions, when
(i) the Company acquires actual knowledge that any person (other than the
Company, a subsidiary or any employee benefit plan sponsored by the
Company) has acquired beneficial ownership, directly or indirectly, of
securities representing 30% or more of the voting power of the
Company,
(ii) a tender offer is made to acquire securities of the Company entitling
the holders thereof to 30% or more of the voting power of the Company,
(iii) a solicitation subject to Rule 14a-11 under the Securities Exchange
Act (or any successor Rule) relating to the election or removal of 50%
or more of the Board or any class of the Board is made by any person
other than the Company or less than 51% of the members of the Board
are Continuing Directors (as defined below), or
(iv) the shareholders of the Company shall approve a merger, consolidation,
share exchange, division or sale or other disposition of assets of the
Corporation as a result of which the shareholders of the Company
immediately prior to the transaction will not hold, directly or
indirectly, immediately following the transaction a majority of the
voting power of (1) in the case of a merger or consolidation, the
surviving or resulting corporation, (2) in the case of a share
exchange, the acquiring corporation or (3) in the case of a division
or sale or other disposition of assets, each surviving, resulting or
acquiring corporation which, immediately following the transaction,
holds more than 10% of the consolidated assets of the Company
immediately prior to the transaction.
A "Continuing Director" means a director of the Company who either (i) was a
director of the Company on the effective date of the Plan or (ii) is an
individual whose election, or nomination for election, as a director of the
Company was approved by a vote of at least two-thirds of the directors then
still in office who were Continuing Directors (other than an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of directors of the Company which
would be subject to Rule 14a-11 under the Securities Exchange Act (or any
successor Rule).
POSSIBLE ANTI-TAKEOVER EFFECT
The provisions of the Plan providing for the acceleration of the exercise date
of stock options upon the occurrence of a Section 6 Event may be considered as
having an anti-takeover effect.
MISCELLANEOUS
The Board of Directors may amend or terminate the Plan at any time, provided
that no such termination will terminate any outstanding stock option and
provided further that no amendment of the Plan may (i) be made without
stockholder approval if stockholder approval of the amendment is at the time
required under Rule 16b-3 (or any successor Rule) or by the rules of the Nasdaq
National Market or any stock exchange on which the Company's Common Stock may
then be listed, (ii) amend more than once every six months the provisions of
the Plan relating to the selection of the directors to whom stock options are
to be granted, the timing of stock option grants, the number of shares subject
to any stock option, the exercise price of any stock option, the periods during
which any stock option may be exercised and the
Proxy Statement-19
<PAGE> 23
term of any stock option other than to comport with changes in the Code or the
rules and regulations thereunder or (iii) otherwise amend the Plan in any
manner that would cause stock options under the plan not to qualify for the
exemption provided by Rule 16b-3 (or any successor Rule). No amendment or
termination of the Plan may, without the written consent of the holder of a
stock option theretofore granted under the Plan, adversely affect the rights of
the holder with respect to the stock option.
Notwithstanding the preceding paragraph, the Board of Directors has the power
to amend the Plan in any manner deemed necessary or advisable for stock options
granted under the Plan to qualify for the exemption provided by Rule 16b-3 (or
any successor Rule), and any such amendment will, to the extent deemed
necessary or advisable by the Board, be applicable to any outstanding stock
options theretofore granted under the Plan.
SECTION 16(b) UNDER THE SECURITIES EXCHANGE ACT
Directors of the Company are subject to Section 16(b) of the Securites
Exchange Act. Under Release 34-28869, Rule 16b-6 and Rule 16b-3 of the
Securities and Exchange Commission presently applicable to the Plan,
(i) the grant of a stock option to a director under the Plan is not
considered a purchase of the Company's Common Stock for Section 16(b)
purposes,
(ii) the delivery to the Company of shares of previously owned Common Stock
by a director in payment of the option price upon exercise of a stock
option granted under the Plan is not considered a sale of the shares
delivered for Section 16(b) purposes, and
(iii) the acquisition of shares of the Company's Common Stock by a director
upon exercise of a stock option granted under the Plan is not
considered a purchase for Section 16(b) purposes unless these shares
acquired upon exercise are disposed of within six months of the date
of grant; except that a purchase for Section 16(b) purposes is
considered to be involved upon exercise of a stock option granted
under the Plan if on the date of exercise the fair market value of the
shares acquired is less than the option price paid for the shares.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal Federal income tax
consequences of the grant and exercise of nonstatutory stock options under
present law.
A director does not recognize any taxable income for Federal income tax
purposes upon receipt of a nonstatutory stock option.
Upon the exercise of a nonstatutory stock option with cash, the amount by which
the fair market value of the shares received, determined as of the date of
exercise, exceeds the option price is generally treated as compensation
received in the year of exercise.
If the option price is paid in whole or in part in shares of the Company's
Common Stock, no income, gain or loss is recognized on the receipt of shares
equal in value on the date of exercise to the shares delivered in payment of
the option price. The fair market value of the remainder of the shares
received upon exercise, determined as of the date of exercise, less the amount
of cash, if any, paid upon exercise, is generally treated as compensation
received on the date of exercise.
Proxy Statement-20
<PAGE> 24
Directors are subject to a special Federal income tax rule upon the exercise of
a nonstatutory stock option (i) if the exercise is within six months of the
date of grant or (ii) in the event the fair market value of the shares acquired
is less than the option price on the date of exercise. In these situations,
unless an election provided for in Section 83(b) of the Code is made to be
taxed as of the date of exercise, the amount taxable as provided above is
determined instead as of the date of expiration of the period following
exercise during which the sale of the shares received could subject the
director to liability under Section 16(b) of the Securities Exchange Act. The
"fair market value" of shares, as used in this discussion of Federal income tax
consequences, is determined without regard to the fact that the director is a
person subject to Section 16(b).
In each instance that an amount is treated as compensation received, the
Company generally is entitled to a corresponding deduction in the same amount
for compensation paid.
The acceleration of the exercise date of a stock option or the exercise of a
stock option following the occurrence of a Section 6 Event, in certain
circumstances, may result in (i) a 20% Federal excise tax (in addition to
Federal income tax) to the optionee on certain amounts associated with the
stock option and (ii) the loss of the compensation deduction which would
otherwise be allowable to the Company.
PROPOSAL NO 4: AMENDMENT TO THE ARTICLES OF INCORPORATION
TO INCREASE THE AUTHORIZED CAPITAL STOCK OF THE COMPANY
On July 14, 1995, the Board of Directors adopted a resolution proposing that
the Company's Articles of Incorporation be amended to increase the aggregate
number of shares of Common Stock that the Company is authorized to issue from
10,000,000 to 30,000,000 shares. The proposal amendment is contained in the
following resolution that is to be acted upon by the Shareholders:
Resolved, that the second paragraph of Article IV of the Company's Articles of
incorporation is hereby amended to read in its entirety as follows:
ARTICLE IV
The aggregate number of shares which the corporation shall have
the authority to issue is 30,000,000 shares of no par common stock.
The Board of Directors considers the proposed amendment to be in the best
interests of the Company. At the present time, there are 6,528,368 shares of
Common Stock outstanding. Approval of the amendment would allow the Company to
have a larger number of shares available for use in future situations including
stock dividends, stock splits, acquisitions and other corporate purposes.
The affirmative vote of the holders of a majority of the Company's Common Stock
outstanding and entitled to vote is required for the adoption of the Proposed
amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL.
Proxy Statement-21
<PAGE> 25
PROPOSAL NO 5: RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors, acting upon the recommendation of the Audit Committee,
has appointed KPMG Peat Marwick LLP ("KPMG") as auditors of the Company for the
fiscal year ending June 30, 1996. KPMG has audited the accounts of the Company
since 1987. Representatives of KPMG are expected to attend the meeting and will
have the opportunity to make a statement and to respond to appropriate
questions from Shareholders. In the event Shareholders do not ratify the
appointment by a majority of the votes cast, represented in person or by proxy,
the selection of auditors will be reconsidered by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF KPMG AS AUDITORS
FOR THE COMPANY.
OTHER MATTERS
As of the date of this Proxy Statement, management knows of no other business
which will be presented for action at the meeting. If any other business
requiring a vote of the Shareholders should come before the meeting, the
persons designated as your proxies will vote or refrain from voting in
accordance with their best judgment.
Copies of the Company's Annual Report to Shareholders for the fiscal year ended
June 30, 1995, are being mailed to Shareholders together with this Proxy
Statement, the Proxy and the Notice of Annual Meeting of Shareholders.
Additional copies may be obtained from the Secretary of the Company, 6727 -
185th Avenue N.E., Redmond, Washington 98052.
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Proposals for Shareholder action which eligible Shareholders wish to have
included in the Company's Proxy Statement mailed to Shareholders in connection
with the Company's 1995 Annual Meeting must be received by the Company at its
offices on or before May , 1996.
By Order of the Board of Directors,
/s/ PAUL N. BIALEK
Paul N. Bialek
Secretary
Redmond, Washington
September 8, 1995
Proxy Statement-22
<PAGE> 26
EXHIBIT A
EDMARK CORPORATION*
STOCK OPTION PLAN
(RESTATED AS OF JULY 14, 1995)
1. Purpose of the Plan. The purpose of this Restated Stock Option
Plan is to provide for supplementary compensation for past services and an
incentive and reward to selected [eligible key] employees, managers and
--------
officers of the EDMARK CORPORATION ("Company") or any subsidiary of the
Company. The Company's goal is to attract and retain the best available
personnel for positions of substantial responsibility, provide additional
incentive to such selected employees, managers and officers and promote the
success of the Company's business.
2. Definitions. As used herein, the following definitions shall
apply:
a. "Plan" shall mean this Stock Option Plan for key
employees, managers and officers of the Company, as the same may be amended
from time to time.
b. "Board" shall mean the Board of Directors of the
Company.
c. "Taxable Year" shall mean the fiscal year of the
Company.
d. "Common Stock" shall mean the common stock of the
Company.
e. "Company" shall mean the EDMARK CORPORATION, a
Washington corporation.
f. "Committee" shall mean the Stock Option Committee
appointed by the Board in accordance with Section 4(a) of the Plan.
g. "Employee" shall mean any person (including any
person who may be an officer or director) employed by the Company or its
present or future subsidiaries [whom the Committee may determine to be a key
employee, key managerial personnel or key officer].
h. "Option" shall mean any stock option granted pursuant
to the Plan. An Option granted under this Plan shall be a Non-qualified Stock
Option unless it meets the qualifications for an Incentive Stock Option as
specified under the Plan and is so designated by the Committee.
i. "Incentive Stock Option" shall mean a Stock Option
conforming to the applicable provisions of Section 422A of the Internal Revenue
Code.
j. "Optioned Shares" shall mean stock subject to an
Option granted pursuant to this Plan.
- ---------
* Proposed changes have been underlined and proposed deleted language is
shown in brackets.
<PAGE> 27
k. "Participant" shall mean an Employee who receives a
Stock Option.
l. "Share" shall mean the Common Stock of the Company.
m. "Ten Percent Shareholder" shall mean any direct or
indirect owner of more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any then existing parent or
subsidiary of the Company.
n. "Net Income" shall mean the income before taxes of
the Company computed by its independent public accountant.
o. "Fair Market Value" shall be determined by the
Committee.
3. Stock Subject to Options. Except as otherwise provided in
Section 16, the maximum aggregate number of Shares which may be optioned and
sold pursuant to the Plan is 1,950,000 [1,050,000] Shares, which will be
---------
authorized, but unissued.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unissued Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
other Options under the Plan.
4. Administration of the Plan.
a. Appointment of Committee. The Plan shall be
administered by a stock option committee consisting of three or more members.
No member of the Committee is eligible to receive options while serving on the
Committee, and each member shall be a disinterested person within the meaning
of Rule 16b-3 of the Securities Exchange Act of 1934. Members of the Committee
shall be appointed by the Board and shall serve until their resignation or
removal. The Board may remove members, with or without cause, at any time, and
may also fill any vacancies.
b. Procedure. A majority of the entire Committee shall
constitute a quorum and the action of a majority of the members present at any
meeting at which a quorum is present shall be deemed the action of the
Committee. In addition, any decision or determination reduced to writing and
signed by all of the members of the Committee shall be fully as effective as if
it has been made by a majority vote at a meeting duly called and held. The
Committee may appoint a Secretary to keep minutes of its meetings and may make
such rules and regulations for the conduct of its business as it shall deem
advisable.
c. Powers of the Committee. Subject to the provisions
of the Plan, the Committee shall have authority:
2
<PAGE> 28
(1) To determine the fair market value of the Shares
covered by each Option, the Employees to whom and the time or times at
which Options shall be granted, and the number of Shares to be
represented by each Option;
(2) To interpret the Plan;
(3) To prescribe, amend and rescind rules and regulations
relating to the Plan;
(4) To determine the terms and provisions of each Option
granted under the Plan (which need not be identical), and with the
consent of the holder thereof, to modify or amend each Option;
(5) To determine whether the Option price is payable in
money or in stock of the Company;
(6) To authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option
previously granted by the Committee;
(7) To designate an Option as either an Incentive Stock
Option or a Non-qualified Stock Option.
(8) To make all other determinations deemed necessary or
advisable for the administration of the Plan.
d. Liability. No member of the Committee shall be
personally liable by reason of any contract or other instrument executed by him
or her or on his or her behalf or in his or her capacity as a member of the
Committee or for any mistake of judgment made in good faith, and the Company
shall indemnify and hold harmless each member of the Committee and each other
officer, employee, or director of the Company to whom any duty or power
relating to the administration or interpretation of the Plan has been
delegated, against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the
Committee) arising out of any act or omission to act in connection with the
Plan unless arising out of such person's own fraud or bad faith.
e. Effect of Committee's Decision. All decisions,
determinations and interpretations of the Committee shall be final and binding
on all Participants and any other holders of any Options granted under this
Plan.
5. Eligibility. Options may be granted only to Employees,
including Employees who are directors or officers of the Company. An Employee
who has been granted an Option award may, if he is otherwise eligible, be
granted additional Option awards.
3
<PAGE> 29
Notwithstanding any provision to the contrary, in this Section 5, no
Employee may be granted an Incentive Stock Option under this Plan if the
Employee, at the time the Incentive Stock Option is granted, owns stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or any then existing parent or subsidiary of
the Company unless at the time the Incentive Stock Option is granted the
Incentive Stock Option price is at least 110 percent of the fair market value
of the stock subject to the Incentive Stock Option and the Incentive Stock
Option by its terms is not exercisable after the expiration of five (5) years
from the date that the Incentive Stock Option is granted and the Incentive
Stock Option conforms to all other applicable provisions of Section 422A of the
Internal Revenue Code and Treasury Regulations thereunder.
6. Term of Plan. The Plan shall become effective upon its
adoption by the Board or its approval or ratification by vote of the holders of
a majority of the outstanding Shares entitled to vote on the adoption of the
Plan, whichever is earlier. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 15 of the Plan.
7. Term of Option. The term of each Option granted under the
Plan shall be determined by the Committee, however, it shall not exceed ten
(10) years from the date of grant or five (5) years from the date of grant for
a Ten Percent Shareholder in the case of an Incentive Stock Option.
8. Option Price. The Option price shall be the fair market value
of the Shares at the time the Option is granted; provided that the Option price
for shares to be issued pursuant to any Incentive Stock Option granted to a Ten
Percent Shareholder shall not be less than 110 percent of the fair market value
of the Shares at the time the Incentive Stock Option is granted.
9. Aggregate Value. The aggregate fair market value (determined
as of the time the Option is granted) of the stock with respect to which
Incentive Stock Options are exercisable for the first time by a Participant
during any calendar year (under this Plan, and all other incentive stock option
plans of the Company and any parent or subsidiary of the Company) shall not
exceed $100,000.
10. Vesting of Option. Options shall vest in accordance with the
following schedule (unless the Committee establishes another schedule):
<TABLE>
<CAPTION>
Years Following Percent of Option
Grant of Option Award Award Exercisable
--------------------- -----------------
<S> <C>
After Year 1 30
After Year 2 65
After Year 3 100
</TABLE>
The vested portion of an Option award shall be exercisable at any time
(but no later than the end of the option period determined pursuant to Section
7 above), subject,
4
<PAGE> 30
however, to all other terms of the Plan and of the Option granted to
Participant. An Option may not be exercised for fractional shares of the
Company.
In the event the Company or the shareholders of the Company enter into
an agreement to dispose of all or substantially all of the assets or Shares by
means of a sale, reorganization, liquidation, or otherwise, all Options shall
become immediately exercisable with respect to the full number of Shares
subject to those Options. All Options not exercised prior to consummation of
any such agreement shall terminate.
If a Participant dies or his or her employment is terminated due to
his or her permanent disability (as determined by the Committee) his or her
Optioned Shares shall become 100 percent vested, if not already so vested under
this Section.
11. Exercise of Option.
a. Procedure for Exercise. An Option shall be deemed to
be exercised when written notice of such exercise has been given to the Company
in accordance with the Option and full payment for the Shares with respect to
which the Option is exercised has been received by the Company. Until the
issuance of the stock certificates (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to Optioned Shares notwithstanding the
exercise of the Option. No adjustment will be made for a dividend or other
rights for which the record date is prior to the date of exercise of the Option
except as provided in Section 16 of the Plan.
Notwithstanding any provision to the contrary contained
herein, both Non-Qualified Stock Options and Incentive Stock Options may with
approval of the Committee be exercised by means of (i) an exchange of Shares
previously held by the Participant for the Optioned Shares, or (ii)
broker-assisted cashless exercise transactions involving brokers with which the
Company has a formal understanding regarding such transactions. In addition,
to the extent that the Options exercised are Non-Qualified Stock Options, a
Participant may with approval of the Committee satisfy his or her requirement
for federal income tax withholding by means of (i) delivery to the Company of
Shares previously held by the Participant with a Fair Market Value equal to the
withholding obligation, or (ii) allowing the Company to withhold Optioned
Shares with a Fair Market Value equal to the withholding obligation. Any
Participant subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended, who elects to exchange Shares to be issued upon exercise of the Option
for the Optioned Shares, or allows the Company to withhold Optioned Shares with
a Fair Market Value equal to the withholding obligation must do so either (i)
during the periods which begin on the third business day following the
Company's regular release of its quarterly and annual statements of sales and
earnings and ending on the 12th business day following such date, or (ii)
pursuant to an irrevocable election made by the Participant at least six months
in advance of the date the Option exercised becomes taxable. For purposes of
an exchange, a delivery, or withholding, Shares held by a Participant and
Optioned Shares shall be valued at their Fair Market Value as of the date of
delivery which
5
<PAGE> 31
value shall be credited on a dollar for dollar basis toward payment of the
Option price for the Optioned Shares or the associated tax withholding
obligation.
b. Time of Exercise; Effect of Termination. Unless
otherwise provided in the terms of an Option, it is the intent of this Plan
that an Option may be exercised by the Participant as provided in this Plan
only while an Employee of the Company except as set out below. If a
Participant's employment is terminated, the following rules control:
(1) If the Participant dies, the persons to whom the
Participant's rights have passed by will or the laws of descent and
distribution may exercise such rights, to the extent the Participant
could have done so immediately preceding his death. Any such Option
must be exercised within three (3) months of the Participant's death,
in the case of an Incentive Stock Option, and twelve (12) months of
the Participant's death, in the case of a Non-Qualified Option, but in
no event later than the end of the prescribed Option period.
(2) If the Participant's employment is terminated due to
his or her embezzlement or theft of Company funds, defraudation of the
Company, violation of Company rules, regulations or policies, or any
intentional act which harms the Company, such Option, to the extent
not exercised as of the date of termination, shall be terminated as of
that date.
(3) If the Participant's employment is terminated due to
his or her disability, as defined in Section 22(e)(3) of the Internal
Revenue Code, the Participant may exercise his or her Option, to the
extent exercisable as of the date of termination within twelve (12)
months after termination, but in no event later than the end of the
prescribed Option period.
(4) If the Participant's employment is terminated for any
reason other than those set forth in subparagraphs (1), (2) and (3)
above, the Participant may exercise his Option, to the extent
exercisable as of the date of his termination, within three (3) months
after termination in the case of Incentive Stock Options and within
one hundred (100) days after termination in the case of non-qualified
options, but in no event later than the end of the prescribed Option
period.
12. Options Not Transferable. Options under the Plan may not be
sold, pledged, assigned or transferred in any manner other than by will or the
laws of descent and distribution and may be exercised during the Participant's
lifetime only by the Participant.
13. Fiscal Year Amount Limitation. No Participant shall be granted
options to purchase more than 375,000 [250,000] shares of Company Common Stock
-------
in any Taxable Year.
14. Disposition of Incentive Option Shares. In order to receive
Incentive Stock Option tax treatment under Section 422A of the Internal Revenue
Code a Participant may not dispose of any Share received pursuant to an
Incentive Stock Option within two (2)
6
<PAGE> 32
years of the date of the granting of the Option or within one (1) year after
the transfer of such Share to such Participant.
15. Amendment or Termination of the Plan.
a. The Board may amend the Plan from time to time in
such respects as the Board deems advisable, except that no amendment may,
without further stockholder approval or ratification:
(1) Increase the total number of Shares which may be available
under Section 3 of the Plan (subject, however, to Section 18);
(2) Change the definition of eligibility in Section 5 of the
Plan;
(3) Change the term of Option stated in Section 7 of the Plan;
(4) Change the Option price established in Section 8 of the
Plan.
b. The Board, without further approval of the
stockholders, may at any time terminate the Plan.
c. No amendment or termination of the Plan shall
diminish or otherwise adversely affect the rights of a Participant with respect
to a previously granted Option.
16. Adjustments Upon Changes in Capitalization. The number and
kind of Shares of Company stock subject to an Option and the fiscal year amount
limitation set forth in Section 13, shall be appropriately adjusted along with
a corresponding adjustment in the Option price to reflect any stock dividend,
stock split, split-up or any combination or exchange of Shares, however
accomplished. An appropriate adjustment shall also be made with respect to the
aggregate number and kind of shares remaining available to be optioned and sold
under the Plan.
17. Agreement and Representations of Employee. As a condition to
the exercise of any portion of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of exercise that
the Shares are being purchased or acquired only for investment and without any
present intention to resell or distribute the Shares if, in the opinion of
counsel for the Company, such a representation is required under the Securities
Act of 1933 or any other applicable federal or state law, regulation or rule of
any governmental agency. Appropriate legends restricting the transfer of the
Shares, unless such Shares are registered under appropriate federal and state
securities laws or unless exemptions are available therefrom, will be placed on
Share certificates issued pursuant to this Plan.
18. Reservations of Shares of Common Stock. The Company, during
the term of this Plan, will at all times reserve and keep available, and will
seek or obtain from any
7
<PAGE> 33
regulatory body having jurisdiction any requisite authority in order to issue
and sell, such number of Shares as shall be sufficient to satisfy the
requirements of the Plan. Inability of the Company to obtain from any
regulatory body having jurisdiction the authority deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability with respect to the
non-issuance or sale of Shares as to which such requisite authority shall not
have been obtained.
19. General Limitations and Provisions. Nothing contained in the
Plan shall give any Employee the right to be retained in the employment of the
Company or affect the right of the Company to dismiss any Employee. The
adoption of the Plan shall not constitute a contract between the Company and
any Employee. Whether or not any Options are to be granted hereunder shall be
exclusively within the discretion of the Committee, and nothing contained
herein shall be construed as giving any Employee any right to participate
hereunder. No Option shall be considered as compensation under any other
employee benefit plan of the Company except as otherwise determined by the
Committee.
8
<PAGE> 34
EXHIBIT B
EDMARK CORPORATION
1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The purposes of the 1995 Non-Employee Directors' Stock Option Plan
(the "Plan") are to promote the long-term success of Edmark Corporation (the
"Company") by creating a long-term mutuality of interests between the
non-employee directors and shareholders of the Company, to provide an
additional inducement for Directors of the Company to remain with the Company
and to provide a means through which the Company may attract able persons to
serve as Directors.
SECTION 1
ADMINISTRATION
The Plan shall be administered by a Committee (the "Committee")
appointed by the Board of Directors of the Company (the "Board") and consisting
of not less than two members of the Board. The Committee shall keep records of
action taken at its meetings. A majority of the Committee shall constitute a
quorum at any meeting, and the acts of a majority of the members present at any
meeting at which a quorum is present, or acts approved in writing by all the
members of the Committee, shall be the acts of the Committee.
The Committee shall interpret the Plan and prescribe such rules,
regulations and procedures in connection with the operations of the Plan as it
shall deem to be necessary and advisable for the administration of the Plan
consistent with the purposes of the Plan. All questions of interpretation and
application of the Plan, or as to stock options granted under the Plan, shall
be subject to the determination of the Committee, which shall be final and
binding.
Notwithstanding the above, the selection of the Directors to whom
stock options are to be granted, the timing of such grants, the number of
shares subject to any stock option, the exercise price of any stock option, the
periods during which any stock option may be exercised and the term of any
stock option shall be as hereinafter provided, and the Committee shall have no
discretion as to such matters.
SECTION 2
SHARES AVAILABLE UNDER THE PLAN
The aggregate number of shares which may be issued and as to which
grants of stock options may be made under the Plan is 120,000 shares of the
Common Stock, no par value, of the Company (the "Common Stock"), subject to
adjustment and substitution as set forth in Section 5. If any stock option
granted under the Plan is canceled by mutual consent or terminates or expires
for any reason without having been exercised in full, the number of shares
subject thereto shall again be available for purposes of the Plan.
<PAGE> 35
SECTION 3
GRANT OF STOCK OPTIONS
On the third business day following the day of each annual meeting of
the shareholders of the Company, each person who is then a member of the Board
and who is not then an employee of the Company or any of its subsidiaries (a
"non-employee Director") shall automatically and without further action by the
Board or the Committee be granted a "nonstatutory stock option" (i.e., a stock
option which does not qualify under Sections 422 or 423 of the Internal Revenue
Code of 1986 (the "Code")) to purchase 2,000 shares of Common Stock, subject to
adjustment and substitution as set forth in Section 5. If the number of shares
then remaining available for the grant of stock options under the Plan is not
sufficient for each non-employee Director to be granted an option for 2,000
shares (or the number of adjusted or substituted shares pursuant to Section 5),
then each non-employee Director shall be granted an option for a number of
whole shares equal to the number of shares then remaining available divided by
the number of non-employee Directors, disregarding any fractions of a share.
SECTION 4
TERMS AND CONDITIONS OF STOCK OPTIONS
Stock options granted under the Plan shall be subject to the following
terms and conditions:
(A) The purchase price at which each stock option may be exercised
(the "option price") shall be one hundred percent (100%) of the fair market
value per share of the Common Stock covered by the stock option on the date of
grant, determined as provided in Section 4(G).
(B) The option price for each stock option shall be paid in full
upon exercise and shall be payable in cash in United States dollars (including
check, bank draft or money order); provided, however, that in lieu of such cash
the person exercising the stock option may pay the option price in whole or in
part by delivering to the Company shares of the Common Stock having a fair
market value on the date of exercise of the stock option, determined as
provided in Section 4(G), equal to the option price for the shares being
purchased; except that (i) any portion of the option price representing a
fraction of a share shall in any event be paid in cash and (ii) no shares of
the Common Stock which have been held for less than six months may be delivered
in payment of the option price of a stock option. Delivery of shares may also
be accomplished through the effective transfer to the Company of shares held by
a broker or other agent. The Company will also cooperate with any person
exercising a stock option who participates in a cashless exercise program of a
broker or other agent under which all or part of the shares received upon
exercise of the stock option are sold through the broker or other agent or
under which the broker or other agent make a loan to such person.
Notwithstanding the foregoing, the exercise of the stock option shall not be
deemed to occur and no shares of Common Stock will be issued by the Company
upon exercise of the stock option until the Company has received payment of the
option price in full. The date of exercise of a stock
2
<PAGE> 36
option shall be determined under procedures established by the Committee, and
as of the date of exercise the person exercising the stock option shall be
considered for all purposes to be the owner of the shares with respect to which
the stock option has been exercised. Payment of the option price with shares
shall not increase the number of shares of the Common Stock which may be issued
under the Plan as provided in Section 2.
(C) No stock option shall be exercisable during the first six
months of its term except in case of death as provided in Section 4(E) or in
case of a Section 6 Event as provided in Section 6. Subject to the preceding
sentence and subject to Section 4(E) which provides for earlier termination of
a stock option under certain circumstances, each stock option shall be
exercisable for ten years from the date of grant and not thereafter. A stock
option to the extent exercisable at any time may be exercised in whole or in
part.
(D) No stock option shall be transferable by the grantee otherwise
than by Will, or if the grantee dies intestate, by the laws of descent and
distribution of the state of domicile of the grantee at the time of death. All
stock options shall be exercisable during the lifetime of the grantee only by
the grantee or the grantee's guardian or legal representative. These
restrictions on transferability shall not apply to the extent they are not at
the time required for the Plan to continue to meet the requirements of Rule
16b-3 under the Securities Exchange Act of 1934 (the "1934 Act"), or any
successor Rule.
(E) If a grantee ceases to be a Director of the Company for any
reason, any outstanding stock options held by the grantee shall be exercisable
according to the following provisions:
(i) If a grantee ceases to be a Director of the Company
for any reason other than resignation, removal for cause or death, any
outstanding stock option held by the grantee shall be exercisable by
the grantee (but only if exercisable by the grantee immediately prior
to ceasing to be Director) at any time prior to the expiration date of
the stock option or within three years after the date the grantee
ceases to be a Director, whichever is the shorter period;
(ii) If during a grantee's term of office as a Director
the grantee resigns from the Board or is removed from office for
cause, any outstanding stock option held by the grantee which is not
exercisable by the grantee immediately prior to resignation or removal
shall terminate as of the date of resignation or removal, and any
outstanding stock option held by the grantee which is exercisable by
the grantee immediately prior to resignation or removal shall be
exercisable by the grantee at any time prior to the expiration date of
the stock option or within three months after the date of resignation
or removal of the grantee, whichever is the shorter period;
(iii) Following the death of a grantee during service as a
Director of the Company, any outstanding stock option held by the
grantee at the time of death (whether or not exercisable by the
grantee immediately prior to death) shall be exercisable by the person
entitled to do so under the Will of the grantee, or, if the grantee
shall fail to make testamentary disposition of the stock option or
shall
3
<PAGE> 37
die intestate, by the legal representative of the grantee at any time
prior to the expiration date of the stock option or within three years
after the date of death of the grantee, whichever is the shorter
period;
(iv) Following the death of a grantee after ceasing to be
a Director and during a period when a stock option is exercisable
under clause (ii) above, the stock option shall be exercisable by such
person entitled to do so under the Will of the grantee or by such
legal representative at any time prior to the expiration date of the
stock option or within one year after the date of death, whichever is
the shorter period; and
(v) Following the death of a grantee after ceasing to be
a Director and during a period when a stock option is exercisable
under clause (iii) above, the stock option shall be exercisable by
such person entitled to do so under the Will of the grantee or by such
legal representative at any time during the shorter of the following
two periods: (i) until the expiration date of the stock option or
(ii) until three years after the grantee ceased being a Director or
one year after the date of death of the grantee (whichever is longer).
A stock option held by a grantee who has ceased to be a Director of the Company
shall terminate upon the expiration of the applicable exercise period, if any,
specified in this Section 4(E).
(F) All stock options shall be confirmed by an agreement, or an
amendment thereto, which shall be executed on behalf of the Company by the
Committee or any authorized officer of the Company and by the grantee.
(G) Fair market value of the Common Stock shall be the mean
between the following prices, as applicable, for the date as of which fair
market value is to be determined as quoted in The Wall Street Journal (or in
such other reliable publication as the Committee, in its discretion, may
determine to rely upon): (i) the highest and lowest sales prices per share of
the Common Stock for such date on the Nasdaq National Market or any successor
system then in use ("Nasdaq"), (ii) if the Common Stock is listed on the New
York Stock Exchange (the "NYSE"), the highest and lowest sales prices per share
of the Common Stock as quoted in the NYSE-Composite Transactions listing for
such date, or (iii) if the Common Stock is not listed on Nasdaq or the NYSE,
the highest and lowest sales prices per share of the Common Stock for such date
on (or on any composite index including) the principal United States securities
exchange registered under the 1934 Act on which the Common Stock is listed. If
there are no such sale price quotations for the date as of which fair market
value is to be determined but there are such sale price quotations within a
reasonable period both before and after such date, then fair market value shall
be determined by taking a weighted average of the means between the highest and
lowest sales prices per share of the Common Stock as so quoted on the nearest
date before and the nearest date after the date as of which fair market value
is to be determined. The average should be weighted inversely by the
respective numbers of trading days between the selling dates and the date as of
which fair market value is to be determined. If there are no such sale price
quotations on or within a reasonable period both before and after the date as
of which fair market value is to be determined, then fair market value of the
Common Stock shall
4
<PAGE> 38
be the mean between the bona fide bid and asked prices per share of Common
Stock as so quoted for such date on Nasdaq, or if none, the weighted average of
the means between such bona fide bid and asked prices on the nearest trading
date before and the nearest trading date after the date as of which fair market
value is to be determined, if both such dates are within a reasonable period.
The average is to be determined in the manner described above in this Section
4(G). If the fair market value of the Common Stock cannot be determined on the
basis previously set forth in this Section 4(G) for the date as of which fair
market value is to be determined, the Committee shall in good faith determine
the fair market value of the Common Stock on such date. Fair market value
shall be determined without regard to any restriction other than a restriction
which, by its terms, will never lapse.
(H) The obligation of the Company to issue shares of the Common
Stock under the Plan shall be subject to: (i) the effectiveness of a
registration statement under the Securities Act of 1933, as amended, with
respect to such shares, if deemed necessary or appropriate by counsel for the
Company, (ii) the condition that the shares shall have been listed (or
authorized for listing upon official notice of issuance) upon Nasdaq or upon
each stock exchange, if any, on which the Common Stock may then be listed, and
(iii) all other applicable laws, regulations, rules and orders which may then
be in effect.
Subject to the foregoing provision of this Section 4 and the other
provisions of the Plan, any stock option granted under the Plan shall be
subject to such restrictions and other terms and conditions, if any, as shall
be determined, in its discretion, by the Committee and set forth in the
agreement referred to in Section 4(F), or an amendment thereto; except that in
no event shall the Committee or the Board have any power or authority which
would cause the Plan to fail to be a plan described in Rule 16b-3(c)(2)(ii), or
any successor Rule.
SECTION 5
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The number of shares of Common Stock subject to an Option shall be
appropriately adjusted along with a corresponding adjustment in the Option
Price to reflect any stock dividend, stock split, split-up or any combination
or exchange of shares, however accomplished. An appropriate adjustment shall
also be made with respect to the aggregate number and kind of shares remaining
available to be optioned and sold under the Plan.
No adjustment or substitution provided for in this Section 5
shall require the Company to issue or sell a fraction of a share or other
security. Accordingly, all fractional shares or other securities which result
from any such adjustment or substitution shall be eliminated and not carried
forward to any subsequent adjustment or substitution.
Except as provided in this Section 5, a grantee shall have no rights
by reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
5
<PAGE> 39
SECTION 6
ADDITIONAL RIGHTS IN CERTAIN EVENTS
(A) DEFINITIONS.
For purposes of this Section 6, the following terms shall have the
following meanings:
(1) The term "Person" shall be used as that term is used
in Sections 13(d) and 14(d) of the 1934 Act as in effect on the effective date
of the Plan.
(2) "Beneficial Ownership" shall be determined as
provided in Rule 13d-3 under the 1934 Act as in effect on the effective date of
the Plan.
(3) A specified percentage of "Voting Power" of a company
shall mean such number of the Voting Shares as shall enable the holders thereof
to cast such percentage of all the votes which could be cast in an annual
election of directors (without consideration of the rights of any class of
stock other than the common stock of the company to elect directors by a
separate class vote); and "Voting Shares" shall mean all securities of a
company entitling the holders thereof to vote in an annual election of
directors (without consideration of the rights of any class of stock other than
the common stock of the company to elect directors by a separate class vote).
(4) "Tender Offer" shall mean a tender offer or exchange
offer to acquire securities of the Company (other than such an offer made by
the Company or any Subsidiary), whether or not such offer is approved or
opposed by the Board.
(5) "Continuing Directors" shall mean a director of the
Company who either (a) was a director of the Company on the effective date of
the Plan, or (b) is an individual whose election, or nomination for election,
as a director of the Company was approved by a vote of at least two-thirds of
the directors then still in office who were Continuing Directors (other than an
individual whose initial assumption of office is in connection with an actual
or threatened election contest relating to the election of directors of the
Company which would be subject to Rule 14a-11 under the 1934 Act, or any
successor Rule).
(6) "Section 6 Event" shall mean the date upon which any
of the following events occurs:
(a) The Company acquires actual knowledge that any Person
other than the Company, a Subsidiary or any employee benefit plan(s)
sponsored by the Company or a Subsidiary had acquired the Beneficial
Ownership, directly or indirectly, of securities of the Company
entitling such Person to 30% or more of the Voting Power of the
Company; or
(b) A Tender Offer is made to acquire securities of the
Company entitling the holder thereof to 30% or more of the Voting
Power of the Company; or
6
<PAGE> 40
(c) A solicitation subject to Rule 14a-11 under the 1934
Act (or any successor Rule) relating to the election or removal of 50%
or more of the members of the Board or any class of the Board shall be
made by any person other than the Company or less than 51% of the
members of the Board shall be Continuing Directors; or
(d) The shareholders of the Company shall approve a
merger, consolidation, share exchange, division or sale or other
disposition of assets of the Company as a result of which the
shareholders of the Company immediately prior to such transaction
shall not hold, directly or indirectly, immediately following such
transaction a majority of the Voting Power: (i) in the case of a
merger or consolidation, the surviving or resulting corporation, (ii)
in the case of a share exchange, the acquiring corporation, or (iii)
in the case of a division or a sale or other disposition of assets,
each surviving, resulting or acquiring corporation which, immediately
following the transaction, holds more than 10% of the consolidated
assets of the Company immediately prior to the transaction; provided,
however, that (i) if securities beneficially owned by a grantee are
included in determining the Beneficial Ownership of a Person referred
to in paragraph 6(a), (ii) a grantee is required to be named pursuant
to Item 2 of the Schedule 14D-1 (or any similar successor filing
requirement) required to be filed by the bidder making a Tender Offer
referred to in paragraph 6(b), or (iii) if a grantee is a
"participant" as defined in Instruction 3 to Item 4 of Schedule 14A
under the 1934 Act (or any successor Rule) in a solicitation (other
than a solicitation by the Company) referred to in paragraph 6(c),
then no Section 6 Event with respect to such grantee shall be deemed
to have occurred by reason of such event.
(B) ACCELERATION OF THE EXERCISE DATE OF STOCK OPTIONS.
Notwithstanding any other provision contained in the Plan, in case any
"Section 6 Event" occurs all outstanding stock options (other than those held
by a person referred to in the proviso to Section 6(A)(6)) shall become
immediately and fully exercisable whether or not otherwise exercisable by their
terms.
SECTION 7
EFFECT OF THE PLAN ON THE RIGHTS OF COMPANY AND SHAREHOLDERS
Nothing in the Plan, in any stock option granted under the Plan, or in
any stock option agreement shall confer any right to any person to continue as
a Director of the Company or interfere in any way with the rights of the
shareholders of the Company or the Board of Directors to elect and remove
Directors.
SECTION 8
AMENDMENT AND TERMINATION
The right to amend the Plan at any time and from time to time and the
right to terminate the Plan at any time are hereby specifically reserved to the
Board; provided always that no such
7
<PAGE> 41
termination shall terminate any outstanding stock options granted under the
Plan; and provided further that no amendment of the Plan shall (i) be made
without shareholder approval if shareholder approval of the amendment is at the
time required for stock options under the Plan to qualify for the exemption
from Section 16(b) of the 1934 Act provided by Rule 16b-3, or any successor
Rule, or by the rules of Nasdaq or of any stock exchange on which the Common
Stock may then be listed, (ii) amend more than once every six months the
provision of the Plan relating to the selection of the Directors to whom stock
options are to be granted, the timing of such grants, the number of shares
subject to any stock option, the exercise price of any stock option, the
periods during which any stock option may be exercised and the term of any
stock option other than to comport with changes in the Code or the rules and
regulations thereunder, or (iii) otherwise amend the Plan in any manner that
would cause stock options under the Plan not to qualify for the exemption
provided by Rule 16b-3, or any successor Rule. No amendment or termination of
the Plan shall, without the written consent of the holder of a stock option
theretofore awarded under the Plan, adversely affect the rights of such holder
with respect thereto.
Notwithstanding anything contained in the preceding paragraph or any
other provision of the Plan or any stock option agreement, the Board shall have
the power to amend the Plan in any manner deemed necessary or advisable for
stock options granted under the Plan to qualify for the exemption provided by
Rule 16b-3 (or any successor rule relating to exemption from Section 16(b) of
the 1934 Act), and any such amendment shall, to the extent deemed necessary or
advisable by the Board, be applicable to any outstanding stock options
theretofore granted under the Plan notwithstanding any contrary provisions
contained in any stock option agreement. In the event of any such amendment to
the Plan, the holder of any stock option outstanding under the Plan shall, upon
request of the Committee and as a condition to the exercisability of such
option, execute a conforming amendment in the form prescribed by the Committee
to the stock option agreement referred to in Section 4(F) within such
reasonable time as the Committee shall specify in such request.
SECTION 9
EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective upon approval by the affirmative vote
of the holders of a majority of the Common Stock present in person or by proxy
and entitled to vote at a duly called and convened meeting of such holders. If
such approval is obtained at the Annual Meeting of Shareholders in 1995, the
Plan shall be effective on the date of that meeting, the first stock options
shall be granted on the third business day thereafter and the last stock
options granted under the Plan shall be granted on the third business day after
the Annual Meeting of Shareholders in 2004.
8
<PAGE> 42
[LOGO] EDMARK P R O X Y
P.O. BOX 97021
REDMOND, WA 98073-9721
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints S. Narodick and
P. Bialek or either of them, as Proxies, each with
the power to appoint her or his substitute, and
hereby authorizes them to represent and to vote, as
designated below, all the shares of Common Stock of
Edmark Corporation held of record by the undersigned
on August 31, 1995, at the Annual Meeting of
Shareholders to be held on October 19, 1995, or any
adjournment thereof.
1. ELECTION OF DIRECTORS. / / FOR all nominees liste below. (except as marked
to the contrary below)
/ / WITHHOLD AUTHORITY to vote for all nominees
listed below.
(INSTRUCTION: To withhold authority to vote for any
individual nominee, strike a line through the
nominee's name listed below.)
F. Conley, A. Epstein, H. Gillis, A. Glenn,
D. Mackenzie, T. Mott, S. Narodick, W. Simpson,
R. Thorp
2. STOCK OPTION PLAN. Increase the number of shares available for options
under the Plan and expand the group of eligible employees under the Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. NON-EMPLOYEE DIRECTOR'S STOCK-OPTION PLAN. Approve 1995 Non-Employee
Director's Stock-Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
4. INCREASE AUTHORIZED CAPITAL STOCK. Amend the Articles of Incorporation to
increase the authorized capital stock of the Company.
/ / FOR / / AGAINST / / ABSTAIN
5. INDEPENDENT AUDITORS. Ratify appointment of auditors.
/ / FOR / / AGAINST / / ABSTAIN
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting. (Continued and to be
signed on other side.)
<PAGE> 43
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 THROUGH 5 AND WILL BE VOTED IN ACCORDANCE WITH THE
DISCRETION OF THE PROXIES UPON ALL OTHER MATTERS WHICH MAY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF.
Please sign name as appears below. When shares are held by joint tenants, both
should sign. When signing as attorney,
Please mark, sign, date and executor, administrator, trustee or
return the Proxy card guardian, please give full title. If a
promptly, using the corporation, please sign full corporate
enclosed envelope. name by President or other authorized
officer. If a partnership, please sign
in partnership name by authorized person.
_________________________________________
Signature
_________________________________________
Signature, if held jointly
Dated: ____________________________, 1995
