<PAGE>
- ------------------------------------------------------------------------------
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
-----------------------
INTERLEAF, INC.
(Name of Registrant as Specified in Its Charter)
INTERLEAF, INC.
(Name of Person(s) Filing Proxy Statement)
------------------------
Payment of the filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
/ / $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:
4. Proposed maximum aggregate value of transaction:
/ / 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>
[INTERLEAF LOGO]
INTERLEAF, INC.
PROSPECT PLACE
9 HILLSIDE AVENUE
WALTHAM, MASSACHUSETTS 02154
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NO.: (617) 290-0710
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD AUGUST 17, 1995
The Annual Meeting of Shareholders (the "Annual Meeting") of Interleaf,
Inc. (the "Company") will be held at the Westin Hotel, 70 Third Avenue,
Waltham, Massachusetts, on Thursday, August 17, 1995 at 8:30 a.m., local
time, to consider and act upon the following matters:
1. To elect two (2) Class II directors to serve for the ensuing three years.
2. To ratify and approve an amendment to the Company's 1993 Stock Option Plan
to increase the number of shares of the Company's Common Stock available for
issuance from 750,000 to 1,500,000, as described in the Proxy Statement.
3. To ratify the selection of Ernst & Young LLP as the Company's independent
auditors for the 1996 fiscal year.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on June 23, 1995 will be
entitled to vote at the Annual Meeting or any adjournment thereof. The stock
transfer books of the Company will remain open.
By Order of the Board of Directors,
John K. Hyvnar, Clerk
Waltham, Massachusetts
July 1, 1995
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN
ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF
THE PROXY IS MAILED IN THE UNITED STATES.
2
<PAGE>
INTERLEAF, INC.
PROSPECT PLACE
9 HILLSIDE AVENUE
WALTHAM, MASSACHUSETTS 02154
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AUGUST 17, 1995
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Interleaf, Inc. (the "Company") for
use at the Annual Meeting of Shareholders to be held on Thursday, August 17,
1995 and at any adjournment of that meeting (the "Annual Meeting"). All proxies
will be voted in accordance with the shareholders' instructions, and if no
choice is specified, the proxies will be voted in favor of the matters set
forth in the accompanying Notice of Annual Meeting. Any proxy may be revoked
by a shareholder at any time before its exercise by delivery of written
revocation, or a subsequently dated proxy to the Clerk of the Company, or by
voting in person at the Annual Meeting.
The Board of Directors has fixed June 23, 1995 as the record date for
determining shareholders who are entitled to vote at the Annual Meeting. At
the close of business on June 23, 1995 there were outstanding and entitled to
vote 14,457,009 shares of common stock of the Company, $.01 par value per
share ("Common Stock") and 1,728,573 shares of the Company's Senior Series B
Convertible Preferred Stock, $.10 par value per share ("Preferred Stock"). At
the Annual Meeting each share of the Common Stock is entitled to one vote;
each share of the Preferred Stock is entitled to 1.34375 votes, and therefore
the total number of votes eligible to be cast at the Annual Meeting is
16,779,778.
The Company's Annual Report for the fiscal year ended March 31,
1995 is being mailed to the shareholders with the accompanying Notice of
Annual Meeting and this Proxy Statement on or about July 1, 1995.
3
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information, as of June 15, 1995,
with respect to all of the beneficial ownership of the Company's voting shares
by (i) each person known by the Company to own beneficially more than five
percent (5%) of the outstanding shares of any voting class, (ii) each current
director, (iii) each named executive listed under "Executive Compensation,"
and (iv) all current directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
CLASS OF STOCK
COMMON STOCK PREFERRED STOCK % OF TOTAL VOTING
DIRECTORS, OFFICERS AND NO. OF SHARES % OF CLASS NO. OF SHARES % OF CLASS CAPITAL STOCK
5% SHAREHOLDERS BENEFICIALLY OWNED OUTSTANDING BENEFICIALLY OWNED OUTSTANDING OUTSTANDING(1)
<S> <C> <C> <C> <C> <C>
Advent International Corporation - (2) - 1,241,242(3) 71.81% 9.94%
101 Federal Street
Boston, MA 02110
Compagnie Financiere du Scribe - (4) - 428,572 24.79% 3.43%
73, Rue du Faubourg
Saint Honore, Paris, France
Frederick B. Bamber 33,491(5) * - - *
David A. Boucher 426,644(6) 2.93% - - 2.53%
Andre Harari 10,000(7) * 428,572(8) 24.79% 3.43%
Clinton P. Harris 16,000(9) * - (12) - *
George D. Potter, Jr. 116,662(10) * - - *
Patrick J. Sansonetti 31,900(11) * - (12) - *
Ed Koepfler 25,000 * - - *
Richard P. Delio 103,692(13) * - - *
Frederick J. Egan 129,000(14) * - - *
Paul English 67,188(15) * - - *
Bob Maher 10,833(16) * - - *
Mark K. Ruport(17) - - - - -
Peter Cittadini(18) - - - - -
All current directors and executive
officers as a group (13 persons) 970,410(19) 6.53% 428,572(20) 24.79% 11.29%
- ------------------------------
<FN>
* Less than 1%.
- Indicates zero.
(1) Determined by using a conversion ratio of 1.34375 for the Preferred Stock.
(2) Does not include 16,000 shares of Common Stock listed as beneficially
owned by Mr. Clinton P. Harris, and 31,900 shares of Common Stock listed
as beneficially owned by Mr. Patrick J. Sansonetti, both of whom serve as
Sr. Vice Presidents of Advent International Corporation.
(3) Represents 1,241,242 shares of Senior Series B Convertible Preferred Stock
("Preferred Stock") held by various limited partnerships of which Advent
International Corporation is either the general partner or a general
partner in limited partnerships which are the general partners in such
various limited partnerships ("Advent"). The Company has relied on
information contained in a Schedule 13D, filed on October 18, 1989 by
Advent, in providing this information.
(4) Does not include 10,000 shares of Common Stock listed as beneficially
owned by Mr. Andre Harari. Mr. Harari is the controlling shareholder,
Chairman of the Board of Directors, and Chief Executive Officer of
Compagnie Financiere du Scribe.
(5) Includes 28,000 shares of Common Stock issuable upon exercise of certain
options, which options are currently exercisable or become exercisable
within a 60-day period after June 15, 1995.
(6) Includes 10,000 shares held by the spouse of Mr. Boucher, as to which
Mr. Boucher disclaims all beneficial ownership. Also includes 94,800
shares of Common Stock issuable upon exercise of certain options, which
options are all currently exercisable.
(7) Represents 10,000 shares of Common Stock issuable upon exercise of certain
options, all of which are currently exercisable.
(8) Represents 428,572 shares of Preferred Stock listed as beneficially owned
by Compagnie Financiere du Scribe, a French corporation of which
Andre Harari, a director of the Company, is Chairman of the Board of
Directors, Chief Executive Officer and controlling shareholder.
4
<PAGE>
(9) Includes 10,000 shares of Common Stock issuable upon exercise of certain
options, which are currently exercisable, and 2,000 shares of Common Stock
held by trustees of trusts established for the benefit of Mr. Harris' wife
and children, as to all of which shares Mr. Harris disclaims beneficial
ownership.
(10) Includes 10,000 shares of Common Stock issuable upon exercise of an option
granted, which options are currently exercisable.
(11) Includes 28,000 shares of Common Stock issuable upon exercise of certain
options, which options are currently exercisable.
5
<PAGE>
(12) Does not include 1,241,242 shares of Preferred Stock listed as
beneficially owned by Advent International Corporation, a corporation
in which he serves as Sr. Vice President.
(13) Includes 97,500 shares of Common Stock issuable upon exercise of certain
options, which options are currently exercisable or become exercisable
within a 60-day period after June 15, 1995.
(14) Includes 67,500 shares of Common Stock issuable upon exercise of certain
options, which options are currently exercisable or become exercisable
within a 60-day period after June 15, 1995.
(15) Includes 62,250 shares of Common Stock issuable upon exercise of certain
options, which options are currently exercisable or become exercisable
within a 60-day period after June 15, 1995.
(16) Represents 10,833 shares of Common Stock issuable upon exercise of
certain options, which options are currently exercisable or become
exercisable within a 60-day period after June 15, 1995.
(17) Mr. Ruport resigned from all positions with the Company, effective
July 25, 1994.
(18) Mr. Cittadini resigned from all positions with the Company, effective
September 30, 1994.
(19) Includes an aggregate of 418,883 shares issuable upon exercise of options
held by 6 directors and 6 executive officers, which options are currently
exercisable or become exercisable within the 60-day period after June 15,
1995.
(20) Represents 428,572 shares of Preferred Stock listed as beneficially owned
by Compagnie Financiere du Scribe, a French corporation of which
Andre Harari, a director of the Company, is Chairman of the Board of
Directors, Chief Executive Officer and controlling shareholder. Does not
include 1,241,242 shares of Preferred Stock listed as beneficially
owned by Advent International Corporation, a corporation in which
Patrick J. Sansonetti and Clinton P. Harris serve as Sr. Vice Presidents.
</TABLE>
VOTES REQUIRED
A plurality of votes cast by the holders of the Preferred and
Common Stock is required for the election of directors. The affirmative vote
of the holders of a majority of the shares of Common and Preferred Stock
represented and entitled to vote at the Annual Meeting is required for the
approval of the amendment to the Company's 1993 Incentive Stock Option Plan.
The affirmative vote of the holders of a majority of the shares of Common and
Preferred Stock represented and voting at the Annual Meeting is required for
the ratification of the selection by the Board of Directors of Ernst & Young
LLP as the Company's independent accountants for the current 1996 fiscal
year.
Shares of Common and Preferred Stock represented in person or by proxy
at the Annual Meeting (including shares which abstain from or do not vote
with respect to one or more of the matters presented at the Annual Meeting)
will be tabulated by the inspector of the election. The First National Bank
of Boston (the "Bank of Boston") was appointed inspector for the Annual
Meeting and will determine whether or not a quorum is present for a
particular matter(s). The Bank of Boston will treat abstentions as shares
that are present and entitled to vote for purposes of determining the number
of shares that are present and entitled to vote with respect to any
particular matter, but will not count abstentions as a vote in favor of such
matter. Accordingly, an abstention from voting on a matter by a shareholder
present in person or represented by proxy at the Annual Meeting with respect
to any matter requiring a majority of the shares represented and entitled to
vote has the same legal effect as a vote "against" the matter even though the
shareholder or interested parties analyzing the results of the voting may
interpret such vote differently. If a broker holding stock in "street name"
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to the matter.
1. ELECTION OF DIRECTORS
The Company has a classified Board of Directors presently consisting
of two (2) Class I, two (2) Class II, and three (3) Class III directors.
At each annual meeting of shareholders, a class of directors is elected for
a full term of three years to succeed those directors whose terms are
expiring. The Preferred Shareholders, as a separate class, elect the director
designated herein as the Preferred Class I Director.
At the Annual Meeting, two (2) Class II directors will be elected to
hold office until the 1998 annual meeting of shareholders and until their
respective successors are duly elected and qualified. All nominees have
indicated their willingness to serve if elected; however, if an individual
should be unable to serve, the proxies may be voted for a substitute nominee
or nominees designated by management.
The persons named in the enclosed proxy will vote to elect as directors
the Class II nominees named below, unless authority to vote for any or all of
the directors is withheld by marking the proxy to that effect.
6
<PAGE>
The following table sets forth the name and age of each nominee for
election as a Class II director (each of whom is currently a director) and
each of the Class I and Class III directors, the positions and offices held
by him with the Company, his principal occupation and business experience
during the past five years, the names of other publicly held companies of
which he serves as a director, if any, and the year of the commencement of
his term as a director of the Company.
NOMINEES FOR THE TERMS EXPIRING IN 1998
(CLASS II DIRECTORS)
Andre Harari
Age 52; Chairman of the Board of Directors and Chief Executive Officer of
Compagnie Financiere du Scribe, a French venture capital firm, since
January 1975. Director of the Company since 1991.
George D. Potter, Jr.
Age 58; President of Quality Systems International, Inc., a developer of
quality assurance software, since October 1993 to present; Independent
business consultant September 1991 to October 1993; Sr. Vice President of
Sales and Marketing, Gescan International, Inc., a data retrieval software
company from January 1990 to September 1991; Sr. Vice President of Sales
Operations of the Company from April 1989 to December 1990; Vice President of
Marketing of the Company, February 1983 to March 1989. Director of the
Company since 1983.
DIRECTORS WHOSE TERMS EXPIRE IN 1996
(CLASS III DIRECTORS)
David A. Boucher
Age 44; General Partner of Applied Technology Partners, L.P., a venture
capital limited partnership, since January 1993; Chairman of the Board of
Directors of the Company since October 1989; Chief Executive Officer of the
Company from October 1989 to July 1992; Chief Executive Officer and President
from 1981 to October 1989. Director of the Company since 1981. Director of
Viewlogic, Inc., and Wang Laboratories, Inc.
Frederick B. Bamber
Age 52; General Partner of Applied Technology Partners, L.P., a venture capital
limited partnership, since January 1982. Director of the Company since 1984.
Ed Koepfler
Age 46; President and Chief Executive Officer of the Company since November
1994; from January 1992 to November 1994, Vice President for North American
Operations of System Software Associates, Inc. ("SSA"), a developer of
manufacturing software, and from 1989 to December 1991, Vice President of
Operations of SSA. Director of the Company since November 1994.
DIRECTORS WHOSE TERMS EXPIRE IN 1997
(CLASS I DIRECTORS)
Patrick J. Sansonetti
Age 51; Sr. Vice President of Advent International Corporation, a venture
capital company, since December 1987. Director of the Company since 1983.
Director of Cognex Corp.
PREFERRED CLASS I DIRECTOR
Clinton P. Harris
Age 48; Sr. Vice President of Advent International Corporation, a venture
capital company, since December 1984. Director of the Company since 1990.
7
<PAGE>
BOARD AND COMMITTEE MEETINGS
The Company has a standing Audit Committee of the Board of Directors,
which provides the opportunity for direct contact between the Company's
independent auditors and the Board of Directors. The Audit Committee reviews
the overall scope and specific plans of the annual audit by the Company's
independent auditors and the adequacy of the Company's internal controls, and
considers and recommends the selection of the Company's independent auditors.
The Audit Committee met five (5) times during fiscal 1995. The current Audit
Committee members are Messrs. Bamber (Chairman), Harris, and Potter.
The Company also has a standing Compensation Committee of the Board of
Directors, which provides recommendations to the Board of Directors regarding
compensation programs of the Company and administers the Company's 1983, 1993
and 1994 Stock Option Plans and 1987 Employee Stock Purchase Plan. The
Compensation Committee met six (6) times during fiscal 1995. The current
members of the Compensation Committee are Messrs. Bamber, Harari, and Harris
(Chairman).
The Company has no nominating committee.
The Board of Directors met six (6) times during fiscal 1995. Each current
director attended at least 75% of the aggregate number of the meetings of the
Board of Directors and of all committees of the Board of Directors on which he
served.
There are no family relationships between or among any directors or
officers of the Company. Under the terms of the Certificate of Vote
Establishing the Preferred Stock, the holders of the Preferred Stock have the
right, as a single class, to elect one director, herein designated the
Preferred Class I Director. At the time of such establishment in September,
1989, a current director of the Company, Patrick J. Sansonetti, was so
designated. Daniel Harari and Clinton P. Harris were elected by the Board
of Directors as directors of the Company pursuant to arrangements arising
out of the Company's private placement of the Preferred Stock in
September, 1989. In May, 1991, Daniel Harari resigned as a director of the
Company. Subsequently, the Board of Directors elected Mr. Andre Harari a
Class II director of the Company, succeeding to the position previously held
Daniel Harari. Mr. Andre Harari is a current nominee for election as a
Director.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
While Mr. David Boucher served as the Company's Chief Executive Officer,
the Company and Mr. Boucher entered into an agreement that in the event
Mr. Boucher should resign from his employment with the Company, he would be
available on an exclusive consulting basis to the Company for a period of
18 months during which time his monthly compensation would equal that of his
1992 compensation of $30,750 per month. Additionally, in such event, certain
outstanding unvested stock options, approximately 30,000 shares, would
continue to vest over said 18 month period. In July 1992, Mr. Boucher resigned
as Chief Executive Officer and thereafter received compensation as a consultant
until January 31, 1994, totalling $553,500. Mr. Boucher shall have until
June 30, 1996 to exercise options covering 42,800 shares at per share exercise
price of $3.13. Mr. Boucher is currently Chairman of the Company's Board of
Directors, and since January 1993 a general partner in Applied Technology
Partners, L.P. Mr. Frederick Bamber, a Company director, is also a general
partner in Applied Technology Partners, L.P. In July 1994, upon the resignation
of the Company's then President and Chief Executive Officer, Mark K. Ruport,
and to assist the Company in its restructuring, Mr. Boucher was selected by
the Company's Board of Directors to oversee the restructuring and the search
for a new President and Chief Executive Officer, ultimately resulting in the
appointment of Ed Koepfler, as the Company's President and Chief Executive
Officer in November 1994. For his services, Mr. Boucher received cash
compensation of approximately $37,000, and was granted an option of 50,000
shares, at an exercise price of $2.75 per share, the Company's then current
market price. In addition, the exercise period for his existing options was
extended an additional 18 months to June 30, 1996.
8
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the summary of compensation received by the
Chief Executive Officer and other Named Executive Officers along with their
principal positions, for services rendered with respect to fiscal 1995, 1994,
and 1993:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATON LONG TERM
COMPENSATION
- ---------------------------------------------------------------------------------------------------------------------
AWARDS
- ---------------------------------------------------------------------------------------------------------------------
NAME AND YEAR SALARY(1)($) BONUS(2)($) SECURITIES UNDERLYING
PRINCIPAL POSITION* OPTIONS (#)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ed Koepfler,(3)
President and Chief Executive Officer 1995 $120,000 $50,000 350,000
- ----------------------------------------------------------------------------------------------------------------------
1994 - - -
- ----------------------------------------------------------------------------------------------------------------------
1993 - - -
- ----------------------------------------------------------------------------------------------------------------------
Richard P. Delio,(4)
Senior Vice President of Finance and
Administration and Chief Financial Officer 1995 $194,615 $70,000 180,000
- -------------------------------------------------------------------------------------------------------------
1994 - - -
- -------------------------------------------------------------------------------------------------------------
1993 - - -
- -------------------------------------------------------------------------------------------------------------
Frederick J. Egan,
Vice President, Asia/Pacific/Japan 1995 $163,462 - 70,000
- -------------------------------------------------------------------------------------------------------------
1994 $160,000 $160,000 -
- -------------------------------------------------------------------------------------------------------------
1993 $129,731 $80,752 -
- -------------------------------------------------------------------------------------------------------------
Paul English,
Sr. Vice President, Product Management 1995 $174,615 $25,000 134,000
- -------------------------------------------------------------------------------------------------------------
1994 $109,115 $25,000 47,000(5)
- -------------------------------------------------------------------------------------------------------------
1993 $91,646 $17,000 15,000(5)
- -------------------------------------------------------------------------------------------------------------
Bob Maher,
Vice President, Technology 1995 $111,807 $25,000 30,000
- -------------------------------------------------------------------------------------------------------------
1994 - - -
- -------------------------------------------------------------------------------------------------------------
1993 - - -
- -------------------------------------------------------------------------------------------------------------
Mark K. Ruport,(6)
formerly President and
Chief Executive Officer 1995 $346,152 - 30,000
- -------------------------------------------------------------------------------------------------------------
1994 $250,000 $49,810 30,000
- -------------------------------------------------------------------------------------------------------------
1993 $250,000 $87,500 25,000
- -------------------------------------------------------------------------------------------------------------
Peter Cittadini,(7)
formerly Sr. VP Worldwide Operations 1995 $227,811 - 20,000
- -------------------------------------------------------------------------------------------------------------
1994 $150,000 $73,444 20,000
- -------------------------------------------------------------------------------------------------------------
1993 $150,000 $293,303 -
- -------------------------------------------------------------------------------------------------------------
<FN>
* No restricted stock awards have ever been made by the Company to the Chief
Executive Officer and the other Named Executive Officers.
- Indicates zero.
(1) Salary includes amounts deferred pursuant to the Interleaf, Inc. 401(k)
Savings Plan.
(2) Amounts shown, except for those relating to Messrs. Cittadini and Egan, are
the awards made under the Company's corporate bonus program, which amounts
are earned and accrued during the fiscal years indicated and paid subsequent
to the end of each fiscal year. Amounts shown for Messrs. Cittadini and Egan
are comprised of sales commissions based on revenue and a cash bonus for
meeting his sales goal, or part thereof, with respect to each fiscal year.
(3) Mr. Koepfler joined the Company and was elected President and Chief
Executive Officer in November 1994.
(4) Mr. Delio resigned from all positions with the Company, effective
June 6, 1995.
(5) Mr. English's options were cancelled in fiscal 1995 and reissued in the
Company's 1995 repricing program.
9
<PAGE>
(6) Mr. Ruport resigned from all positions with the Company, effective
July 25, 1994.
(7) Mr. Cittadini resigned from all positions with the Company, effective
September 30, 1994.
</TABLE>
10
<PAGE>
The following table sets forth certain information with respect to the
grant of incentive and non-qualified stock options for the Chief Executive
Officer and its other Named Executive Officers in fiscal 1995:
<TABLE>
<CAPTION>
OPTION GRANTS TABLE
OPTIONS GRANTED IN FISCAL YEAR 1995
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION TERM(3)
NAME NUMBER OF SECURITIES PERCENT OF TOTAL OPTIONS EXERCISE OF EXPIRATION 5% ($) 10% ($)
UNDERLYING OPTIONS GRANTED TO EMPLOYEES IN BASE PRICE DATE
GRANTED (#)(1) FISCAL YEAR(2) ($/SHARE)
<S> <C> <C> <C> <C> <C> <C>
Ed Koepfler 350,000 15.09% $3.75 10/27/2004 $826,875 $2,086,875
Richard P. Delio 180,000 7.76% $2.75 4/1/2004 $311,850 $747,050
Frederick J. Egan 70,000 3.02% $2.75 8/2/2004 $121,275 $306,075
Paul English 5,000 0.22% $2.75 4/2/2002 $8,163 $21,863
10,000 0.43% $2.75 9/3/2002 $17,325 $43,725
2,000 0.09% $2.75 4/8/2002 $3,465 $8,745
7,000 0.30% $2.75 4/8/2003 $12,127 $30,608
40,000 1.72% $2.75 2/28/2004 $69,300 $174,900
70,000 3.02% $2.75 8/3/2004 $121,275 $306,075
Bob Maher 30,000 1.29% $2.75 4/14/2004 $51,975 $131,175
Mark K. Ruport(4) 30,000 1.29% $6.25 - - -
Peter Cittadini(4) 20,000 .86% $6.25 - - -
<FN>
- - Indicates zero.
(1) All options granted to the Named Executive Officers provided above are
exercisable in two to four equal annual installments, commencing one
year after the date of grant. The Company's 1983, 1993 and 1994 Stock
Option Plans ("Stock Option Plans") provide that the exercise price of
each option must be at least 100% of the fair market value of the
Company's Common Stock on the date the option is granted. The exercise
price may be paid in cash. Pursuant to the terms of the Plans, the
options held by all employees, including the above-mentioned
executives, become exercisable in full upon a "change in control." See,
"Severance and Change in Control."
(2) During the fiscal year ended March 31, 1995, the Company granted options
under its Stock Option Plans to its employees to purchase a total of
2,319,000 shares of Common Stock and cancelled options to purchase
1,696,000 shares of Common Stock. These options include 1,043,000 shares
that were cancelled and reissued under the Company's repricing program.
(3) The dollar amounts under these columns are the result of calculations
at the 5% and 10% appreciation rates set by the Securities and Exchange
Commission and, therefore, are not intended to forecast possible future
appreciation, if any, in the price of the Common Stock.
(4) Due to Named Executive's resignation in fiscal 1995, all options
granted in fiscal 1995 have been forfeited.
</TABLE>
11
<PAGE>
The following table sets forth certain information on option exercises in
fiscal 1995 for the Company's Chief Executive Officer and its other Named
Executive Officers during fiscal 1995 and the value of such executive
officers' in-the-money unexercised options as of March 31, 1995:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES AND FISCAL 1995 YEAR-END OPTION VALUE
AGGREGATED OPTION EXERCISES IN 1995 AND FY-END OPTION VALUES
NAME SHARES ACQUIRED VALUE REALIZED ($) NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE
ON EXERCISE (#) OPTIONS AT FY1995-END (#) MONEY OPTIONS AT FY1995-END
($)(1)
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Ed Koepfler - - -/350,000 -/$393,750
Richard P. Delio(2) - - 25,000/155,000 $53,125/$329,375
Frederick J. Egan - - 61,500/81,500 $108,269/$166,994
Paul English - - 34,250/102,750 $70,881/$218,344
Bob Maher - - -/30,000 -/$63,750
Mark K. Ruport(3) - - -/- -/-
Peter Cittadini(4) - - -/- -/-
<FN>
- - Indicates zero.
(1) Market value of shares covered by in-the-money options on
March 31, 1995, or $4.875 per share, less the option exercise price.
Options are in-the-money if the market value of the shares covered
thereby is greater than the option exercise price.
(2) Mr. Delio resigned from all positions with the Company, effective
June 6, 1995.
(3) Mr. Ruport resigned from all positions with the Company, effective
July 25, 1994.
(4) Mr. Cittadini resigned from all positions with the Company,
effective September 30, 1994.
</TABLE>
COMPENSATION COMMITTEE REPORT ON REPRICING
On August 3, 1994, the Compensation Committee met to determine the need
to reprice the Company's outstanding stock options for certain key
employees and officers. Because of the $8.2 million loss for the quarter
ended June 30, 1994, the Company's stock price dropped from a trading range
of $6-$8 per share, to a trading range of $2-$3 per share. As a result, all
options granted in the last five years to employees were significantly
underwater. The Committee also reviewed the planned corporate
reorganization and restructuring that was expected to be announced by
September 7, 1994. As part of this restructuring and reorganization, the
Company was expected to incur a $7.1 million charge to earnings to cover
expected lay-offs of approximately 150 employees and the consolidation of
19 sales offices worldwide. As part of the reorganization, the Company also
planned to revamp its senior management team, having previously accepted
the resignation of Mark K. Ruport, the Company's President and Peter
Cittadini, its Sr. Vice President for Worldwide Operations.
Given this environment, the Committee recognized the need to incent
and retain certain key employees and officers. The Committee adopted a
repricing program whereby outstanding options would be repriced at $2.75 per
share, the closing market price on August 3, 1994, for certain employees
and officers which it believed were important to the future success of the
Company. Because of the critical need to retain these individuals, the
vesting period was not restarted.
None of the employees and officers, including former President,
Mark K. Ruport and former Sr. Vice President for Worldwide Operations,
Peter Cittadini, who departed or were scheduled to depart were eligible to
have their options repriced. Of the Named Executive Officers, Richard P.
Delio, Frederick J. Egan, and Paul English, who were selected by the Board
of Directors to implement the Company's reorganization and restructuring,
had their options repriced. The Company's current President, Ed Koepfler,
joined the Company in November 1994 and did not participate in the
repricing program.
COMPENSATION COMMITTEE: ANDRE HARARI FREDERICK B. BAMBER CLINTON P. HARRIS
12
<PAGE>
The following table sets forth certain information concerning all
repricing of options held by an executive officer of the Company during the
last ten completed fiscal years:
<TABLE>
<CAPTION>
TEN-YEAR OPTION REPRICINGS
Length of
Original Option
Number of Term
Securities Remaining at
Underlying Market Price of Exercise Price New Date of
Options Stock at Time at Time of Exercise Repricing
Name Date Repriced (#) of Repricing ($) Repricing ($) Price ($) (Years)
<S> <C> <C> <C> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND CURRENT OFFICERS
Richard P. Delio, Sr. VP 8/3/94 100,000 $2.75 $7.00 $2.75 9.7
of Finance and Administration 8/3/94 15,000 $2.75 $6.75 $2.75 9.7
and Chief Financial Officer
Paul English, Sr. VP of Product 11/2/90 1,500 $3.13 $6.63 $3.13 9.4
Management 11/2/90 1,000 $3.13 $8.38 $3.13 8.4
8/3/94 5,000 $2.75 $10.63 $2.75 7.7
8/3/94 10,000 $2.75 $9.88 $2.75 8.1
8/3/94 7,000 $2.75 $8.25 $2.75 8.7
8/3/94 40,000 $2.75 $7.00 $2.75 9.6
Bob Maher, VP of Technology 8/3/94 25,000 $2.75 $7.25 $2.75 9.7
Frederick J. Egan, 10/31/88 7,500 $7.38 $19.38 $7.38 9.4
VP of Asia/Pacific/Japan 11/2/90 25,000 $3.13 $5.13 $3.13 9.8
11/2/90 25,000 $3.13 $8.13 $3.13 8.6
11/2/90 10,000 $3.13 $8.38 $3.13 8.4
11/2/90 7,500 $3.13 $7.38 $3.13 7.4
11/2/90 5,000 $3.13 $4.50 $3.13 5
8/3/94 10,000 $2.75 $6.75 $2.75 9.7
Stephen J. Hill, VP of Europe 8/3/94 8,000 $2.75 $6.75 $2.75 9
8/3/94 2,000 $2.75 $6.75 $2.75 9.7
John K. Hyvnar, 10/31/88 2,000 $7.38 $16.13 $7.38 8.8
General Counsel and Clerk 10/31/88 1,500 $7.38 $15.63 $7.38 9.6
11/2/90 1,500 $3.13 $7.38 $3.13 7.6
11/2/90 17,000 $3.13 $7.75 $3.13 8.8
11/2/90 2,000 $3.13 $7.38 $3.13 6.8
11/2/90 5,000 $3.13 $3.38 $3.13 10
8/3/94 8,000 $2.75 $8.25 $2.75 8.7
8/3/94 6,000 $2.75 $6.75 $2.75 9.7
FORMER EXECUTIVE OFFICERS
William W. Barnes, 10/31/88 6,000 $7.38 $14.63 $7.38 8.5
VP of Human Resources 11/2/90 5,000 $3.13 $7.75 $3.13 8.8
11/2/90 2,000 $3.13 $8.38 $3.13 8.4
11/2/90 6,000 $3.13 $7.38 $3.13 6.5
Lawrence S. Bohn, Sr. 10/31/88 3,000 $7.38 $16.50 $7.38 8.7
VP of Marketing and Business 11/2/90 5,000 $3.13 $6.63 $3.13 9.4
Development 11/2/90 2,000 $3.13 $8.38 $3.13 8.4
11/2/90 10,000 $3.13 $8.38 $3.13 8.1
11/2/90 3,000 $3.13 $7.38 $3.13 6.7
8/3/94 20,000 $2.75 $10.63 $2.75 7.7
8/3/94 7,000 $2.75 $4.50 $2.75 1.7
8/3/94 10,000 $2.75 $9.00 $2.75 8.8
8/3/94 10,000 $2.75 $6.75 $2.75 9.7
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
TEN-YEAR OPTION REPRICINGS
Length of
Original Option
Number of Term
Securities Remaining at
Underlying Market Price of Exercise Price New Date of
Options Stock at Time at Time of Exercise Repricing
Name Date Repriced (#) of Repricing ($) Repricing ($) Price ($) (Years)
<S> <C> <C> <C> <C> <C> <C>
David A. Boucher, President 3/20/89 40,000 $8.38 $14.63 $8.38 8.1
and Chief Executive Officer 11/2/90 44,800 $3.13 $8.38 $3.13 6.5
David J. Collard, Sr. VP of
Finance and Administration
and Chief Financial Officer 11/2/90 75,000 $3.13 $7.75 $3.13 8.8
David L. Cross, Treasurer 10/31/88 10,000 $7.38 $10.13 $7.38 9.8
11/2/90 10,000 $3.13 $7.38 $3.13 7.8
Stephen J. Cummings, VP of 11/2/90 5,000 $3.13 $8.13 $3.13 8.6
International Operations 11/2/90 5,000 $3.13 $8.38 $3.13 8.4
11/2/90 2,400 $3.13 $8.13 $3.13 5.8
11/2/90 1,500 $3.13 $4.50 $3.13 5.5
11/2/90 1,500 $3.13 $4.50 $3.13 5.1
11/2/90 3,000 $3.13 $4.00 $3.13 4.1
M. David Downs, 10/31/88 2,000 $7.38 $16.13 $7.38 8.8
VP of Manufacturing 10/31/88 5,000 $7.38 $10.13 $7.38 9.8
Harry A. George, 3/20/89 30,000 $8.38 $14.63 $8.38 8.1
VP of Finance
Edward Mallen, 10/31/88 3,000 $7.38 $14.63 $7.38 8.5
VP of U.S. Sales 11/2/90 20,000 $3.13 $7.38 $3.13 8
11/2/90 3,000 $3.13 $7.38 $3.13 6.5
Michael Mark, VP of Systems
Integration 3/20/89 4,000 $8.38 $14.63 $8.38 8.1
Stephen D. Pelletier, 10/31/88 30,000 $7.38 $12.38 $7.38 9.7
VP of Engineering 11/2/90 30,000 $3.13 $6.63 $3.13 9.4
11/2/90 30,000 $3.13 $7.38 $3.13 7.7
George D. Potter, Jr.,
Sr. VP of Sales Operations 3/20/89 30,000 $8.38 $14.63 $8.38 8.1
Mark K. Ruport, President
and Chief Executive Officer 11/2/90 75,000 $3.13 $5.38 $3.13 9.5
Steven M. Schwartz, 10/31/88 6,000 $7.38 $14.63 $7.38 8.5
VP of Marketing 10/31/88 6,000 $7.38 $10.13 $7.38 9.8
Andrew J Van Abs, 10/31/88 10,000 $7.38 $13.50 $7.38 9.1
VP of Engineering - 11/2/90 7,500 $3.13 $6.63 $3.13 9.4
Peripherals Technology 11/2/90 5,000 $3.13 $7.75 $3.13 8.8
11/2/90 5,000 $3.13 $7.38 $3.13 8
11/2/90 10,000 $3.13 $7.38 $3.13 7.1
George R. Vaughn, Controller 10/31/88 6,000 $7.38 $14.63 $7.38 8.5
Robert K. Weiler, President
and Chief Operating Officer 11/2/90 125,000 $3.13 $6.75 $3.13 8.9
Haviland Wright, Sr. VP and
Chief Scientist 8/3/94 60,000 $2.75 $6.75 $2.75 9
8/3/94 7,500 $2.75 $6.75 $2.75 9.7
</TABLE>
14
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of
Directors during fiscal 1995 were Andre Harari, Clinton P. Harris and
Frederick B. Bamber, none of whom is or has ever been an officer or
employee of the Company or any of its subsidiaries. No member of the
Compensation Committee is a party to any relationship required to be
disclosed under Item 402 or Item 404 of Regulation S-K promulgated by the
Securities and Exchange Commission. See "Certain Relationships and Related
Transactions," above.
COMPENSATION COMMITTEE REPORT
The Company's executive compensation program is developed and approved
by the Compensation Committee. The Committee's philosophy is to reward
executives based upon the achievement of corporate and individual
performance goals as well as to provide long-term incentives for the
achievement of future financial and strategic goals. Commencing in fiscal
1995, the Company's then President and Chief Executive Officer, Mark K.
Ruport, could earn up to 50% of his compensation based exclusively upon the
achievement of corporate goals. Approximately 25% to 50% of the Company's
other executive officers' total compensation opportunity was based upon the
achievement of corporate and individual performance goals, except for
executives whose salaries are highly leveraged based on profitability for a
particular business unit. Of the Named Executive Officers, Peter Cittadini,
the Company's then Sr. Vice President of Worldwide Operations, and
Frederick Egan, Vice President, Asia/Pacific/Japan, had their compensation
based on this latter criterion.
The Company's executive compensation program for fiscal 1995
originally consisted of the following three elements: (1) base salary; (2)
incentive compensation in the form of commissions and annual cash bonuses
earned under the Company's corporate bonus program; and (3) long-term
equity-based incentive compensation in the form of stock options granted
pursuant to the Company's 1993 Stock Option Plan.
1. BASE SALARY
Base salaries for the Company's executive officers, including the
Company's then President, Mark K. Ruport, were determined by taking into
account a combination of the following three factors: (a) salaries
generally paid for similar positions in comparable software companies, (b)
the particular skills of the executive, and (c) the past performance of the
executive with the Company.
2. INCENTIVE COMPENSATION
In April 1994, the Compensation Committee established Interleaf's
corporate bonus program ("1995 Bonus Program"). Under the 1995 Bonus
Program, each then executive, with the exception of Messrs. Cittadini and
Ruport, could receive between 25% to 50% of his base salary if certain
targeted (i) corporate revenue and (ii) corporate net income goals were
achieved ("Goals") in fiscal 1995, along with certain individual
performance goals established by Mr. Ruport, with the approval of the
Compensation Committee. Under the 1995 Bonus Program, however, no bonuses
were to be paid to Mr. Ruport, the Company's President and Chief Executive
Officer, if the Company achieved less than 70% of these Goals; if the
Company achieved 70% of its Goals, 12.5% of his base salary would be paid;
and at 90% of Goals, 35% of his base salary would be paid. Finally, if 100%
of Goals were achieved, Mr. Ruport would receive a bonus equal to 50% of
his base salary. This formula has been in effect for the Company's last
four fiscal years.
3. LONG-TERM INCENTIVES
The Company awards options primarily to executives and key employees.
Under the Company's 1993 Stock Option Plan, stock options are awarded an
executive to incent the executive to focus on the Company's long-term
success as measured by the Company's stock price. Since options for
executives vest annually over a 4 to 5 year period, executives are
encouraged to focus on the long-term success of the Company. In April 1994,
Mr. Ruport, the Company's then President, was awarded an option grant
covering 30,000 shares of the Company's Common Stock at an exercise price
of $6.25 per share, the then fair market price of the Company's Common
Stock.
In the first quarter of fiscal 1995, ended June 30, 1994, the Company
recorded a loss of approximately $8.2 million and the full Board of
Directors determined that the Company's senior management organization
needed to be reorganized. Upon mutual agreement, the Company's then
President and Chief Executive Officer, Mark K. Ruport, resigned effective
July 25, 1994. Mr. Ruport received one year of severance totalling $350,000
payable over
15
<PAGE>
26 equal installments. The Compensation Committee believed this to be fair
and reasonable in light of Mr. Ruport's position, his term of five years
with the Company, and his dedicated efforts. Mr. Ruport also forfeited all
options, in which he was not vested as of his termination date, July 25,
1994.
In November 1994, the Company's Board of Directors elected Mr. Ed
Koepfler as President and Chief Executive Officer. Pursuant to Mr.
Koepfler's employment agreement with the Company, he received a base salary
of $300,000, with a guaranteed bonus of $50,000 for fiscal 1995. The
Compensation Committee based this salary on consultations with outside
executive placement firms, and given Mr. Koepfler's past experience and
performance as a senior executive in the software industry. In addition,
Mr. Koepfler was awarded an option grant of 350,000 shares, vesting over
four years, at an exercise price of $3.75 per share, the then current
market price. This option was granted to significantly tie Mr. Koepfler's
compensation to the long term success of the Company, and was within the
range of options being offered by other software companies for newly
recruited CEO's for companies similarly situated to Interleaf.
In fiscal 1995, the bonuses awarded to the current executive officers
were awarded based on their contribution to the Company's restructuring
program. With the exception of Paul English, the Company's Sr. Vice
President of Product Management, none of these individuals served in their
respective positions in fiscal 1994, the previous year.
Finally, for fiscal 1995, the Committee has reviewed the implications
of Section 162(m) of the Internal Revenue Code and the proposed regulations
thereunder. Section 162(m) disallows for federal tax purposes the
deductibility of compensation to the Company's President or any Named
Executive Officer to the extent compensation to the executive exceeds $1
million in a year. The Compensation Committee believes that the Company's
compensation for each executive in the foreseeable future would not exceed
this limitation. Therefore, it has no present intention of formally
qualifying any compensation paid to its executive officers for
deductibility under Section 162(m) of the Internal Revenue Code, but may
consider doing so in the future when the proposed regulations become final
if it appears that the limitations are likely to be exceeded.
COMPENSATION COMMITTEE: ANDRE HARARI FREDERICK B. BAMBER CLINTON P. HARRIS
STOCK PERFORMANCE GRAPH
The following graph compares the Company's cumulative
shareholder return with that of a broad market index (NASDAQ Stock Market
Index for U.S. and Foreign Companies) and a published industry index (NASDAQ
Computer and Data Processing Services Stocks). Each of these indexes is
calculated assuming that $100 was invested on March 31, 1990. The lines
represent monthly index levels derived from the changes in the daily market
capitalization, which are calculated based on daily closing stock prices,
quarterly shares outstanding and quarterly dividend reinvestments. The broad
market index and industry index are weighted on the basis of market
capitalization.
16
<PAGE>
[GRAPH]
17
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR
3/30/90 3/28/91 3/31/92 3/31/93 3/31/94 3/31/95
<S> <C> <C> <C> <C> <C> <C>
Interleaf, Inc. 100 108.16 179.59 153.06 110.20 79.59
NASDAQ Stock Market
(U.S. & Foreign) 100 113.56 145.12 166.55 179.63 198.36
NASDAQ Computer and Data
Processing Services Stocks 100 134.19 198.61 221.56 227.02 308.83
</TABLE>
SEVERANCE PLAN AND CHANGE OF CONTROL
Executive officers and all other officers of the Company are covered
by the Company's Officer Severance Benefit Plan (the "Severance Plan").
Adopted by the Board of Directors effective March 13, 1989, the Severance
Plan provides that if any officer, vice president or more senior officer
loses his employment with the Company, or has his responsibilities
significantly diminished, during a one year period after a "change in
control of the Company," such individual will be entitled to receive an
amount equal to his then total annual compensation. For purposes of the
Severance Plan, a "change in control" occurs if (a) an individual by
himself or in affiliation with others shall acquire, directly or
indirectly, 25% or more of the the combined voting power of Company's
outstanding securities, or causes the replacement of a majority of the
incumbent Board of Directors of the Company, (b) the Company is merged or
reorganized into or with another entity, resulting in previous shareholders
of the Company holding less than 80% of the combined voting power of the
outstanding securities of the resulting entity, or (c) the Company is
liquidated or substantially all of its assets are sold.
In addition, under the Company's 1983, 1993 and 1994 Stock Option
Plans, all options held by all employees, including Named Executive
Officers, become exercisable in full upon a "change in control."
On April 13, 1994, Richard P. Delio was elected the Company's Sr. Vice
President of Finance and Administration and Chief Financial Officer.
Pursuant to Mr. Delio's employment agreement, in the event that Mr. Delio is
terminated without cause or resigns due to a diminution of responsibility, he
shall receive severance equal to his first year's salary, or approximately
$300,000. In addition, all options granted to him shall continue vesting for
an additional year. In June 1995, upon mutual agreement between the Company
and Mr. Delio, Mr. Delio resigned from all positions with the Company, and
will receive for a period of 12 months, severance equal to approximately
$300,000. In July 1994, upon mutual agreement between the Company and Mr.
Mark Ruport, the Company's then President and Chief Executive Officer, Mr.
Ruport resigned from all positions with the Company, and received severance
equal to one year of compensation, approximately $350,000. In September 1994,
upon mutual agreement between the Company and Mr. Peter Cittadini, the
Company's then Senior Vice President of Worldwide Operations, Mr. Cittadini
resigned from the Company, and received severance equal to approximately
$185,833. In
18
<PAGE>
November 1994, Mr. Ed Koepfler was elected the Company's President
and Chief Executive Officer. Pursuant to Mr. Koepfler's employment
agreement with the Company, in the event that Mr. Koepfler is terminated
without cause, he shall receive severance equal to his annual base salary
of $300,000.
DIRECTORS' COMPENSATION
CASH COMPENSATION. Nonemployee directors of the Company receive
$1,000 for each Board of Directors and Audit Committee meeting attended. In
addition, each nonemployee director receives a retainer fee of $6,000 per
year, payable in four equal quarterly payments. Board members are also
reimbursed for reasonable out-of-pocket expenses.
COMPANY'S 1989 AND 1993 DIRECTOR STOCK OPTION PLANS. On March 20,
1989, the Board of Directors of the Company adopted the 1989 Director Stock
Option Plan (the "1989 Director Stock Option Plan"), which was ratified by
the shareholders at the Special Meeting in Lieu of An Annual Meeting held
in August 1989. To replace the 1989 Director Stock Option Plan, on
September 8, 1993, the Board adopted the 1993 Director Stock Option Plan
("1993 Director Stock Option Plan"), which was ratified at the Annual
Meeting of Shareholders held in August 1994.
Under the 1989 Director Stock Option Plan, each then nonemployee
director of the Company was granted a non-statutory stock option to
purchase 12,000 shares of Common Stock on March 20, 1989, the date the 1989
Director Stock Option Plan was adopted by the Board of Directors at a per
share exercise price of $8.38. Each such option is exercisable on a
cumulative basis in equal annual installments over a three-year period
beginning one year after the date of grant. At the end of the three year
period, each such director receives an option grant of 3,000 shares on each
succeeding March 20, at the then fair market value on such date in which he
will be fully vested at such time.
Only two of six (6) current nonemployee directors, Messrs. Sansonetti
and Bamber, participate in the 1989 Director Stock Option Plan. Under the
1989 Director Stock Option Plan, each holds an option to purchase 12,000
shares at an exercise price of $8.38 per share, and an option to purchase
3,000 shares at an exercise price of $8.75 per share.
Under the 1993 Director Stock Option Plan, each current nonemployee
director of the Company was granted a non-statutory option to purchase
5,000 shares of Common Stock on September 9, 1993 at an exercise price of
$6.65 per share, the average last reported sale price per share during the
period of September 9, 1993 through September 30, 1993, inclusive. Such
options became exercisable in full on August 4, 1994. Each person who
becomes a director of the Company and is not an employee of the Company
will be granted, as of the first date of his or her election as a director,
a non-statutory option to purchase 5,000 shares of Common Stock at the then
fair market value of the Common Stock. Each such option will be exercisable
one year after the date of grant. In addition, each nonemployee director
will be automatically granted, on April 1 of each year, a non-statutory
option to purchase 5,000 shares of Common Stock at the fair market value of
the stock on April 1. Such option will be fully exercisable one year after
the date of grant.
Under the 1993 Director Stock Option Plan, each current nonemployee
director, with the exception of Mr. Boucher, has three options of 5,000
shares each to purchase shares of the Company's Common Stock at exercise
prices of $6.65, $7.13, and $4.87, respectively.
19
<PAGE>
2. RATIFICATION AND APPROVAL OF AMENDMENT TO
THE COMPANY'S 1993 STOCK OPTION PLAN
Under the Company's 1993 Stock Option Plan (the "1993 Stock Option
Plan"), the Company is currently authorized to grant options to purchase up
to an aggregate of 750,000 shares of Common Stock, of which 10,000 shares
of Common Stock remain available for future grants as of June 1, 1995. Any
options to purchase shares of Common Stock issued pursuant to the 1993
Stock Option Plan which are cancelled shall be available for future grants
under such plan.
To ensure that the Company may continue to attract and retain key
employees, on April 27, 1995, the Board of Directors adopted, subject to
the approval of the Company's shareholders at the Annual Meeting, an
amendment to the 1993 Stock Option Plan increasing the total number of
shares available for issuance under the 1993 Stock Option Plan from 750,000
to 1,500,000 shares (subject to adjustment for any dividend, stock split or
other relevant changes in the Company's capitalization).
The following is a summary of certain provisions of the 1993 Stock
Option Plan.
ELIGIBILITY
All employees (including executive officers) of the Company are
eligible to receive incentive stock options and non-statutory stock
options. Consultants and advisors to the Company are only eligible to
receive non-statutory stock options. As of June 15, 1995, approximately 650
employees (including 5 executive officers) were eligible for selection to
receive stock options under the 1993 Stock Option Plan.
ADMINISTRATION; OPTION TERMS
The 1993 Stock Option Plan is administered by the Compensation
Committee of the Board of Directors, which designates the optionees, number
of shares, exercise price, date of grant and other terms of each option.
The exercise price may not be less than 100% of the fair market value of
the Common Stock for both non-statutory and for incentive stock options.
Under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), no incentive stock option granted under the 1993 Stock Option Plan
can, together with any other incentive stock option granted under any other
plan of the Company, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate fair market
value (determined as of the date of grant) of more than $100,000 and no
incentive stock option can have a term exceeding ten years. Payment of the
option price may be made in cash, shares of Common Stock or a combination
thereof.
While the Company may grant options which are exercisable at different
times or within different periods, it is anticipated that options granted
generally will be exercisable on a cumulative basis in three equal annual
installments (generally four or five equal annual installments in the case
of executive officers). Options are nontransferable other than by the laws
of descent and distribution and are exercisable, during the optionee's
lifetime, only by him or her. The Compensation Committee will determine the
length of time an optionee may exercise his option following the
termination of employment of the optionee (which may not exceed three
months in the case of incentive stock options) or upon the optionee's death
or disability (which may not exceed one year in the case of incentive stock
options). In the event of a "Change of Control" of the Company, as defined
in the 1993 Stock Option Plan, all outstanding options will immediately
become exercisable in full.
The last reported sale price for the Common Stock as reported by
NASDAQ on the National Market System on June 15, 1995 was $6.37 per share.
CANCELLATION AND GRANT OF NEW OPTIONS
The Compensation Committee, with the consent of the affected option
holder, may at any time cancel any or all outstanding options under the
1993 Stock Option Plan and grant in substitution therefor new options under
the 1993 Stock Option Plan covering the same or different numbers of shares
of Common Stock. Such new options shall have an exercise price of not less
than 100% of the fair market value on the date of the new grant in the case
of both non-statutory and incentive stock options. The Company anticipates
that in most cases the option price in effect under any such new grant will
be less than the option price which would have been payable under the
cancelled options since the new grant is likely to arise in situations
where the exercise price of existing options exceed the market price and
new options are granted at lower prices to restore incentive to recipients
of such options.
20
<PAGE>
AMENDMENT AND TERMINATION
The Board of Directors may at any time amend or terminate the 1993
Stock Option Plan except that no amendment may be made without the approval
of the Company's stockholders if such amendment would (i) materially
increase the benefits accruing to participants under the 1993 Stock Option
Plan, (ii) materially increase the number of shares which may be issued
under the 1993 Stock Option Plan or (iii) materially modify the
requirements as to eligibility for participation under the 1993 Stock
Option Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the federal income tax treatment of
incentive stock options and non-statutory stock options.
NON-STATUTORY OPTIONS. No taxable income is recognized by the optionee
upon the grant of a non-statutory stock option. The optionee must recognize
as ordinary income in the year in which the option is exercised the amount
by which the fair market value of the purchased shares on the date of
exercise exceeds the option price. The Company will be entitled to a
business expense deduction equal to the amount of ordinary income
recognized by the optionee. Any additional gain or loss recognized upon the
subsequent disposition of the purchased shares will be a capital gain or
loss, and will be a long-term gain or loss if the shares are held for more
than one year from the date of exercise.
INCENTIVE STOCK OPTIONS. No taxable income will be recognized by the
optionee upon the grant or exercise of an incentive stock option and no
corresponding business expense deduction will be available to the Company.
Generally, if an optionee holds shares acquired upon the exercise of
incentive stock options for at least two years from the grant of the option
and for at least one year from the date of transfer of the purchased shares
to him or her, any gain recognized by the optionee on a subsequent sale of
the shares will be treated as long-term capital gain. The gain recognized
upon the sale of the stock is the difference between the option price and
the sale price of the stock. The net federal income tax effect on the
holder of an incentive stock option is to defer, until the stock is sold,
taxation of any increase in the stock's value from the time of grant to the
time of exercise.
If the optionee disposes of the shares prior to the expiration of the
statutory holding periods described above, he or she will recognize taxable
income at ordinary income tax rates in an amount equal to the lesser of (i)
the value of the shares on the date of exercise, less the option price, or
(ii) the amount realized on the date of sale, less the option price and the
Company will receive a corresponding business expense deduction. The amount
by which the proceeds of sale exceed the fair market value of the shares on
the date of exercise will be treated as long-term capital gain if the
shares are held for more than one year prior to the sale and as short-term
capital gain if the shares are held for a shorter period. In the case of a
sale where a loss, if sustained, would have been recognized, the amount of
the optionee's income, and the amount of the Company's corresponding
expense deduction, will not exceed the difference between the sale price
and the adjusted basis of the shares.
For the purposes of the "alternative minimum tax" applicable to
individuals, an incentive stock option is treated as if it were a
non-statutory stock option. Thus, in the year of option exercise, an
optionee must generally include in his or her alternative minimum taxable
income the difference between the exercise price and the fair market value
of the stock on the date of exercise, and in the year of sale any
additional gain or loss is included in alternative minimum taxable income.
INFORMATION ABOUT PARTICIPATION
Because the selection of optionees and the number of shares to be
covered by options will be made from time to time in the future by the
Compensation Committee of the Board of Directors, it is not possible to
determine the benefits or amounts that will be received by executive
officers named under the caption "Executive Compensation" above, all
current executive officers as a group or all employees, including all
current officers who are not executive officers, as a group. For
information concerning recent grants to executive officers of stock options
under the Company's 1993 Stock Option Plan, see the table captioned "Option
Grants Table" above.
21
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the proposed increase in the
number of shares available for issuance in the 1993 Stock Option Plan is in
the best interests of the Company and its shareholders, and accordingly
recommends a vote FOR the proposal.
3. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
Subject to ratification by the shareholders, the Board of Directors,
on the recommendation of the Audit Committee, has selected the firm of
Ernst & Young LLP as the Company's independent auditors for the current
fiscal year, ending March 31, 1996. Ernst & Young LLP has served as the
Company's independent auditors since 1981.
Although shareholder approval of the Board of Directors' selection of
Ernst & Young LLP is not required by law, the Board of Directors believes
it is advisable to give shareholders an opportunity to ratify this
selection. If this proposal is not approved at the Annual Meeting, the
Board of Directors will reconsider its selection of Ernst & Young LLP.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting. They will have the opportunity to make a statement if they
desire to do so and will also be available to respond to appropriate
questions from shareholders.
OTHER MATTERS
Management does not know of any other matters which may come before
the Annual Meeting. However, if any other matters are properly presented to
the meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise act, in accordance with their judgment on such
matters.
This solicitation has been made by the Company. All costs of
solicitation of proxies will be borne by the Company. In addition to
solicitations by mail, the Company's directors, officers and other
employees, without additional remuneration, may solicit proxies by
telephone, telegraph and personal interviews. Brokers, custodians and
fiduciaries will be requested to forward proxy soliciting material to the
owners of stock held in their names, and the Company will reimburse them
for their out-of-pocket expenses in this connection.
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 1996 Annual
Meeting of Shareholders must be received by the Company at its principal
office in Waltham, Massachusetts, by no later than April 1, 1996 for
inclusion in the proxy statement for that meeting.
By Order of the Board of Directors,
John K. Hyvnar, Clerk
July 1, 1995
THE BOARD OF DIRECTORS HOPES THAT SHAREHOLDERS WILL ATTEND THE ANNUAL
MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE.
YOUR PROMPT RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING
AND WILL BE APPRECIATED. SHAREHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR
SHARES PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
22
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M74031-004
23
<PAGE>
INTERLEAF, INC.
Proxy for the Annual Meeting of Shareholders to be held August 17, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned, revoking all prior proxies, hereby appoint(s) Ed Koepfler,
G. Gordon M. Large, and John K. Hyvnar, and each of them, with full power of
substitution, as proxies to represent and vote as designated herein, all shares
of capital stock of Interleaf, Inc. (the "Company") which the undersigned
would be entitled to vote if personally present at the Annual Meeting of
Shareholders of the Company to be held at the Westin Hotel, 70 Third Avenue,
Waltham, Massachusetts on Thursday, August 17, 1995 at 8:30 a.m., local time,
and at any adjournment thereof.
The proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is given, this proxy
will be voted for all proposals. Attendance of the undersigned at the meeting
or at any adjournment thereof will not be deemed to revoke this proxy unless
the undersigned shall revoke this proxy in writing.
NEW ADDRESS:_______________________________________
___________________________________________________
___________________________________________________
___________________________________________________
(Front)
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
1. To elect the following two nominees as Class II
directors (except as marked below):
Nominees: Andre Harari and George D. Potter, Jr.
/X/ FOR /X/ WITHHOLD
nominees from nominees
For, except vote(s) withheld from the following
nominees:
/X/ ____________________________________________
2. To ratify and approve an FOR AGAINST ABSTAIN
amendment to the Company's
1993 Stock Option Plan to /X/ /X/ /X/
increase the number of shares
available for issuance by
750,000 shares.
- ------------------------------------------------------------------------------
3. To ratify the appointment of FOR AGAINST ABSTAIN
Ernst & Young LLP as the
Company's independent auditors /X/ /X/ /X/
for the 1996 fiscal year.
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment thereof.
CHECK HERE FOR CHECK HERE IF
ADDRESS CHANGE /X/ YOU PLAN TO ATTEND /X/
THE MEETING
Signature _______________________________ Date _______________________
Signature _______________________________ Date _______________________
(Reverse)
