<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
INTERLEAF, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS OF
INTERLEAF, INC.
TO BE HELD AUGUST 24, 1998
The Annual Meeting of Stockholders (the "Annual Meeting") of Interleaf, Inc.
(the "Company") will be held on Monday, August 24, 1998, at 10:00 a.m., local
time, at the offices of the Company located at 62 Fourth Avenue, Waltham,
Massachusetts, for the following purposes:
1. To elect one Class II director, to hold office until the 2001 Annual
Meeting of Stockholders and until his successor is elected and qualified.
2. To consider and act upon a proposal to amend the Company's 1993
Director Stock Option Plan.
3. To consider and act upon a proposal to adopt a new 1998 Employee
Stock Purchase Plan.
4. To ratify the selection of PricewaterhouseCoopers L.L.P. as the
Company's independent auditors for the 1999 fiscal year.
5. To consider and act upon any other business as may properly come
before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on June 29, 1998, as
the record date for determining the stockholders entitled to notice of, and to
vote at, the Annual Meeting or any adjournment thereof.
By Order of the Board of Directors,
[LOGO]
Craig Newfield, Clerk
Waltham, Massachusetts
July 28, 1997
YOUR VOTE IS IMPORTANT
TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO VOTE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE-PAID
ENVELOPE ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR PROXY, THE PROXY
MAY BE REVOKED AT ANY TIME PRIOR TO EXERCISE BY FILING WITH THE CLERK OF THE
COMPANY A WRITTEN REVOCATION, BY EXECUTING A PROXY WITH A LATER DATE, OR BY
ATTENDING AND VOTING AT THE MEETING.
<PAGE>
INTERLEAF, INC.
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 24, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Interleaf, Inc., a Massachusetts
corporation with its principal executive offices at 62 Fourth Avenue, Waltham,
Massachusetts 02451 (the "Company"), for use at the 1998 Annual Meeting of
Stockholders to be held on Monday, August 24, 1998, and at any adjournment
thereof (the "Annual Meeting").
The enclosed proxy relating to the Annual Meeting is solicited on behalf of
the Board of Directors of the Company and the cost of solicitation of proxies
will be borne by the Company. Certain of the Company's officers and other
employees of the Company may solicit proxies by correspondence, telephone,
telegraph and personal interviews, without extra compensation. The Company may
also pay to banks, brokers, nominees, and other fiduciaries their reasonable
expenses incurred in forwarding proxy materials to their principals. It is
expected that the Notice of Annual Meeting, Proxy Statement and Proxy Card will
be mailed to stockholders of the Company on or about July 28, 1998.
Only stockholders of record at the close of business on June 29, 1998 (the
"Record Date") will be entitled to receive notice of, and to vote at, the Annual
Meeting. As of the Record Date, there were outstanding and entitled to vote
18,507,993 shares of Common Stock of the Company, $.01 par value per share
("Common Stock"), 861,911 shares of the Company's Senior Series B Convertible
Preferred Stock, $.10 par value per share ("Series B Stock"), and 1,010,348
shares of the Company's Series C Convertible Preferred Stock, $0.10 par value
per share ("Series C Stock"). The Series B and Series C Stock are together
referred herein as the "Voting Preferred Stock". Each share of (i) Common Stock
is entitled to one vote per share, (ii) Series B Stock is entitled to 1.34375
votes per share, and (iii) Series C Stock is entitled to two votes per share.
Therefore, the total number of votes eligible to be cast on the matters proposed
herein for consideration at the Annual Meeting is 21,686,882. The 6% Convertible
Preferred Stock, $.10 par value per share ("Series D Stock"), will not have any
voting rights on the matters to be submitted to stockholders at the Annual
Meeting.
The enclosed proxy, if executed and returned, will be voted in accordance
with the stockholder's instructions or, if no choice is specified, the proxies
will be voted in favor of the matters set forth in the accompanying Notice of
Annual Meeting. If any other matters shall properly come before the Annual
Meeting, the enclosed proxy will be voted by the proxies in accordance with
their best judgment. The proxy may be revoked by a stockholder at any time prior
to its exercise by filing with the Clerk of the Company a written revocation, by
executing a subsequently dated proxy, or by attending in person and voting at
the Annual Meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company has a classified Board of Directors presently consisting of
three Class I, two Class II, and two Class III directors. At each annual meeting
of stockholders, a class of directors is elected for a full term of three years
to succeed those directors whose terms are expiring. Under the Company's
Articles of Organization, as amended, the holders of Series B Stock, voting as a
separate class, are entitled to elect one director, which position is presently
held by Ms. Marcia Hooper.
<PAGE>
One of the Class II directors, Mr. George Potter, Jr., has indicated that he
does not intend to stand for re-election. Accordingly, at the Annual Meeting,
one Class II director will be elected to serve for a term of three years, until
the 2001 Annual Meeting of Stockholders, and until his successor is duly elected
and qualified. Mr. Jaime W. Ellertson has been nominated by the Board of
Directors for election as the Class II director. Mr. Ellertson has indicated his
willingness to serve if elected. If he is for any reason unavailable to serve,
proxies may be voted for such other person as the Board of Directors may
designate.
INFORMATION ON NOMINEE AND DIRECTORS
Set forth below is certain biographical information with respect to the
nominee, including the year in which the nominee's term would expire, if
elected, and with respect to each of the Class I and Class III directors whose
terms will continue after the Annual Meeting. The nominee for the Class II
director is indicated by an asterisk.
<TABLE>
<CAPTION>
YEAR TERM
EXPIRES, IF
DIRECTOR ELECTED, AND
NAME AGE POSITION SINCE CLASS
- ------------------------------------- --- ------------------------------------- ----------- ------------------
<S> <C> <C> <C> <C>
*Jaime W. Ellertson.................. 41 President and Chief Executive Officer 1997 2001-Class II
Frederick B. Bamber.................. 55 Director 1984 1999-Class III
David A Boucher...................... 47 Director 1981 1999-Class III
Marcia J. Hooper..................... 44 Director 1997 2000-Class I
Rory J. Cowan........................ 44 Director 1997 2000-Class I
John A. Lopiano...................... 59 Director 1998 2000-Class I
</TABLE>
JAIME W. ELLERTSON has served as President and Chief Executive Officer and a
Director of the Company since January 1997. From July 1996 to January 1997, he
served as Chairman of Purview Technologies, Inc., an internet monitoring,
management and analysis company. Mr. Ellertson was President and Chief Executive
Officer of Tartan, Inc., a developer of compilers, from January 1996 to June
1996. From July 1990 to December 1996, he served as President and Chief
Executive Officer of Openware Technologies, a developer of software and provider
of services.
FREDERICK B. BAMBER has served as a director of the Company since 1984.
Since January 1982, Mr. Bamber has served as a managing director of Applied
Technology, a venture capital firm. Mr. Bamber also serves as a director of
Information Storage Devices.
DAVID A. BOUCHER has served as a director of the Company since 1981. Mr.
Boucher was President of the Company from 1981 to October 1989, Chief Executive
Officer from October 1989 to July 1992, and Chairman of the Board of Directors
from October 1989 to March 1997. Since January 1993, he has served as a managing
director of Applied Technology, a venture capital firm. Mr. Boucher also serves
as a director of Pervasive Software, Inc. and Wang Laboratories.
MARCIA J. HOOPER has served as a director of the Company since January 1997.
Since May 1996, Ms. Hooper has served as a Vice President of Advent
International Corporation, a venture capital company. From January 1994 to April
1997, she served as the general partner of Viking Capital/Claybrook Capital, a
venture capital company. From January 1988 to December 1993, Ms. Hooper served
as a general
2
<PAGE>
partner of Ampersand Ventures, a venture capital company. Ms. Hooper also serves
as a director of Wang Laboratories, Inc. and Polymedica Corporation.
RORY J. COWAN has served as a director of the Company since July 1996, and
Chairman of the Board of Directors of the Company since March 1997. Since
December 1997, Mr. Cowan has served as President and Chief Executive Officer of
LioNBRIDGE Technologies, Inc., an information technology services firm
specializing in the localization of software for the software industry. Mr.
Cowan served as Chairman and Chief Executive Officer of Stream International,
Inc., a software and services provider, from May 1995 to December 1996. He was
an Executive Vice President of R.R. Donnelley & Sons, a provider of commercial
print and print related services, from January 1991 to December 1996. Mr. Cowan
also serves as a director of NewsEdge, Inc.
JOHN A. LOPIANO has served as a director of the Company since March 1998.
Since 1995, Mr. Lopiano has served as Senior Vice President of Xerox Corporation
and President of the Xerox Corporation Production Systems Group. He was
President of the Xerox Corporation Printing Systems Division from 1992 to 1994.
From 1965 to 1990, Mr. Lopiano held various positions with IBM Corporation. Mr.
Lopiano also serves as a Trustee of Rochester Institute of Technology and as a
Member of the Government Relations Committee and is Chairman of the Education
Committee at such institution.
INFORMATION ON EXECUTIVE OFFICERS
Set forth below are the name and age of each of the Company's executive
officers, other than Mr. Ellertson, all positions and offices with the Company
held by that executive officer, the term of office, principal occupation and
business experience during the past five years, and the names of other publicly
held companies of which such person serves as a director, if any.
GARY PHILLIPS, 38, joined the Company as Vice President, Sales in June 1997.
From June 1996 to June 1997, Mr. Phillips was Vice President, Sales at BBN
Planet, where he was responsible for Internet solutions sales. From June 1993 to
June 1994, Mr. Phillips held the position of Vice President of Sales and
Marketing for Application Systems Group, a start-up software & systems
integration company. From 1984 to June 1993, Mr. Phillips held several sales
management positions, most recently as Director of Sales for U.S. Operations at
Wang Laboratories, a computer manufacturer, software applications developer and
services provider. From 1981 to 1984, Mr. Phillips was a sales consultant for
NCR Corporation.
CHRISTOPHER MCKEE, 39, joined the Company in May 1997 as Vice President of
Europe, Middle East and Africa. From 1991 to May 1997, Mr. McKee held various
management positions at Inference Corporation, a provider of knowledge
management software and services, including Senior Vice President, International
Operations (April 1995 to May 1997) and Vice President for Northern Europe
(February 1994 to April 1995).
JOHN PAVLOV, 42, joined Interleaf as Vice President of Engineering in August
1997. From January 1997 to August 1997, Mr. Pavlov was Vice President of
Distributed Systems at Putnam Investments, an investment advisory firm. From
March 1996 through January 1997, Mr. Pavlov was Vice President of Development at
The Dodge Group, Inc., where he developed and maintained client/server financial
applications and introduced object-oriented techniques. In April 1991, Mr.
Pavlov founded OpenSoftWorks, which was later acquired by FlexiInternational,
where he served as Vice President of Software Engineering through March 1996.
3
<PAGE>
MICHAEL L. TORTO, 36, joined the Company as Vice President, Marketing in
April 1997. From April 1996 to April 1997, Mr. Torto was Chief Operating Officer
at Ontos, Inc., an object database and object middleware technology company.
From December 1995 to April 1996, Mr. Torto served as Director of Marketing for
Intersolv's data access products division. From November 1994 to December 1995,
Mr. Torto was Vice President of TechGnosis, Inc., a European-based software
company in the database middleware market. From October 1991 to December 1994,
Mr. Torto was Director of Product Marketing at Trinzic Corp., a manufacturer of
client server software.
PETER J. RICE, 45, joined the Company as Vice President of Finance and
Administration, Chief Financial Officer ("CFO") and Treasurer in February 1998.
From July 1995 to February 1998, Mr. Rice was Vice President, CFO and Treasurer
for Media 100 Inc., a worldwide leader in digital video and multimedia software.
From July 1990 to July 1995, Mr. Rice was Vice President, Corporate Controller
and chief accounting officer of MA/Com, Inc. Prior thereto, Mr. Rice held senior
finance and strategic planning positions with Apollo Computer, Inc., and Atex,
Inc. He is a certified public accountant who began his career with Coopers &
Lybrand.
CRAIG NEWFIELD, 38, joined the Company as Vice President, General Counsel
and Clerk in October 1997. From April 1996 through September 1997, Mr. Newfield
served as General Counsel and Secretary of OneWave, Inc., a start-up internet
software product and services vendor. From February 1993 to April 1996, Mr.
Newfield served as in-house counsel for Marcam Corporation, a business
application (ERP) software products and services vendor. From 1987 to 1993, Mr.
Newfield was employed as an associate at two different Boston-area law firms.
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors held seven meetings during fiscal 1998. 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
or she served.
The Company has a standing Audit Committee of the Board of Directors, which
during the last fiscal year was composed of George Potter, a director not
standing for re-election, and Marcia Hooper. Mr. Lopiano is expected to be
appointed to serve on the Audit Committee. The Audit Committee reviews the
overall scope of and specific plans for 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 four times during fiscal 1998.
The Company also has a standing Compensation Committee of the Board of
Directors, which is currently composed of Rory Cowan and Frederick Bamber. The
Compensation Committee provides recommendations to the Board of Directors
regarding compensation programs of the Company and administers the Company's
1993 and 1994 Stock Option Plans and 1987 Employee Stock Purchase Plan. The
Compensation Committee met five times during fiscal 1998.
The Company has no nominating or other standing committee.
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
The following table sets forth certain information, as of June 29, 1998,
with respect to the beneficial ownership of the Company's voting shares by (i)
each director and nominee for director, (ii) each executive officer named in the
Summary Compensation Table under "Executive Compensation" below (the "Named
4
<PAGE>
Executive Officers"), (ii) all current directors and executive officers of the
Company as a group, and (iv) each person known by the Company to beneficially
own more than five (5%) percent of the outstanding shares of any voting class.
This information is based upon information received from or on behalf of the
individuals named therein or based on Schedule 13D and Schedule 13G filings they
have made with the Securities and Exchange Commission. Unless otherwise
indicated, each stockholder referred to herein has the sole voting and
investment power over the shares listed.
<TABLE>
<CAPTION>
CLASS OF STOCK
------------------------------------------------------------------------------------------
COMMON STOCK SERIES C STOCK
--------------------------- SERIES B STOCK -----------------------------
NO. OF ------------------------------ NO. OF
SHARES NO. OF SHARES SHARES
DIRECTORS, OFFICERS AND BENEFICIALLY % OF CLASS BENEFICIALLY % OF CLASS BENEFICIALLY % OF CLASS
5% STOCKHOLDERS OWNED(1) OUTSTANDING OWNED OUTSTANDING OWNED OUTSTANDING
- --------------------------------- ------------ ------------- ------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS AND OFFICERS
Frederick B. Bamber.............. 33,100(4) * -- -- -- --
David A. Boucher................. 201,844(5) 1.1% -- -- -- --
George D. Potter, Jr............. 115,662(6) * -- -- -- --
Rory J. Cowan.................... 70,000(7) * -- -- -- --
Marcia J. Hooper................. 5,000(8) * -- -- -- --
John A. Lopiano.................. 3,000 * -- -- -- --
Jaime W. Ellertson............... 205,975(9) 1.1% -- -- -- --
Gary Phillips.................... 37,500(10) * -- -- -- --
Christopher McKee................ 37,500(11) * -- -- -- --
John Pavlov...................... -- * -- -- -- --
Michael Torto.................... 52,213(12) * -- -- -- --
Peter J. Rice.................... 6,000 * -- -- -- --
Craig Newfield................... -- * -- -- -- --
Robert R. Langer................. --(13) * -- -- -- --
All current directors and
executive officers as a group
(13 persons)................... 767,794(14) 3.9% -- -- -- --
5% STOCKHOLDERS
U.S. Trust Company
of New York.................... 997,600(15) 5.39% -- -- -- --
114 West 47th Street
New York NY 10036-1532
GeoCapital LLC................... 2,031,200 10.98% -- -- -- --
767 Fifth Avenue, 45th Floor
New York, NY 10153-4590
Advent International
Corporation.................... -- -- 861,911(16) 100% -- --
101 Federal Street
Boston, MA 02110
Linder Investment Series Trust... -- -- -- -- 1,010,348(17) 100%
7711 Carendolet Ave,
Suite 700
St. Louis, MO 63105
SIL Nominees Ltd................. -- -- -- -- -- --
Leonardo, L.P.................... -- -- -- -- -- --
Olympus Securities, Ltd.......... -- -- -- -- -- --
The Tail Wind Fund Ltd........... -- -- -- -- -- --
Deere Park Capital Mgmt., Inc.... -- -- -- -- -- --
Lakeshore International Ltd...... -- -- -- -- -- --
Bruce Newberg.................... -- -- -- -- -- --
Ramius Fund, Ltd................. -- -- -- -- -- --
Nelson Partners.................. -- -- -- -- -- --
Cappello Capital Corp............ -- -- -- -- -- --
<CAPTION>
SERIES D STOCK
------------------------------ % OF TOTAL
NO. OF SHARES VOTING
DIRECTORS, OFFICERS AND BENEFICIALLY % OF CLASS CAPITAL STOCK
5% STOCKHOLDERS OWNED OUTSTANDING OUTSTANDING (2)(3)
- --------------------------------- --------------- ------------- -------------------
<S> <C> <C> <C>
DIRECTORS AND OFFICERS
Frederick B. Bamber.............. -- -- *
David A. Boucher................. -- -- *
George D. Potter, Jr............. -- -- *
Rory J. Cowan.................... -- -- *
Marcia J. Hooper................. -- -- *
John A. Lopiano.................. -- -- *
Jaime W. Ellertson............... -- -- *
Gary Phillips.................... -- -- *
Christopher McKee................ -- -- *
John Pavlov...................... -- -- *
Michael Torto.................... -- -- *
Peter J. Rice.................... -- -- *
Craig Newfield................... -- -- *
Robert R. Langer................. -- -- *
All current directors and
executive officers as a group
(13 persons)................... -- -- 3.4%
5% STOCKHOLDERS
U.S. Trust Company
of New York.................... -- -- 4.60%
114 West 47th Street
New York NY 10036-1532
GeoCapital LLC................... -- -- 9.37%
767 Fifth Avenue, 45th Floor
New York, NY 10153-4590
Advent International
Corporation.................... -- -- 5.34%
101 Federal Street
Boston, MA 02110
Linder Investment Series Trust... -- -- 9.32%
7711 Carendolet Ave,
Suite 700
St. Louis, MO 63105
SIL Nominees Ltd................. 1,500 20.10% --
Leonardo, L.P.................... 950(18) 12.73% --
Olympus Securities, Ltd.......... 550(19) 7.37% --
The Tail Wind Fund Ltd........... 500 6.70% --
Deere Park Capital Mgmt., Inc.... 500 6.70% --
Lakeshore International Ltd...... 500 6.70% --
Bruce Newberg.................... 500(20) 6.70% --
Ramius Fund, Ltd................. 500(21) 6.70% --
Nelson Partners.................. 450(22) 6.03% --
Cappello Capital Corp............ 863(23) 11.56% --
</TABLE>
- ------------------------
* Indicates less than 1%
(1) Does not include shares of Common Stock beneficially owned by virtue of
right to convert shares of Preferred Stock listed in other columns. In
addition, none of the beneficial ownership or option
5
<PAGE>
numbers in this Proxy Statement include any shares which may be purchasable
under the Company's 1987 Employee Stock Purchase Plan.
(2) Each share of Series B Stock has 1.34375 votes per share and is convertible
into that number of shares of Common Stock. Each share of Series C stock has
two votes per share but is convertible into four shares of Common Stock. The
percentage of total voting power of Series C Stock is calculated on the
basis of two votes per share.
(3) Each share of Series D Stock may be converted into a number of shares of
Common Stock which depends on the trading prices of the Common Stock during
the 22 trading day period prior to the date of conversion. As of June 29,
1998, each Series D holder had the right to convert not more than 60% of his
or her Series D Stock into Common Stock. If each holder of Series D Stock
had converted all shares possible on June 29, 1998 based upon the conversion
price formula as of that date, then approximately 2.9 million shares of
Common Stock in the aggregate would have been issuable. As of June 29, 1998,
the total number of shares of Common Stock which had actually been issued
upon conversion of Series D Stock was 67,323 shares. The number of shares of
Common Stock issuable upon conversion of the Series D Stock which is
convertible within 60 days after June 29, 1998 depends upon the trading
prices of the Common Stock during such 60-day period, and is not presently
determinable. The Series D Stock has no voting power, except (i) as to
whether a consolidation or merger of the Company or a sale of all or
substantially all of its assets will constitute a liquidation or winding-up
of the Company for purposes of determining if such stock is entitled to its
liquidation preference, or (ii) as provided by law. The Series D shares have
no right to vote on any Proposal contained herein.
(4) Includes 25,000 shares of Common Stock issuable pursuant to options which
are exercisable within 60 days after June 29, 1998.
(5) Includes 5,000 shares of Common Stock issuable pursuant to options which
are exercisable within 60 days after June 29, 1998.
(6) Includes 10,000 shares of Common Stock issuable pursuant to options which
are exercisable within 60 days after June 29, 1998.
(7) Includes 60,000 shares of Common Stock issuable pursuant to options which
are exercisable within 60 days after June 29, 1998.
(8) Includes 5,000 shares of Common Stock issuable pursuant to options which
are exercisable within 60 days after June 29, 1998. Does not include 861,911
shares of Series B Stock listed as beneficially owned by Advent
International Corporation, in which Ms. Hooper serves as Vice President.
(9) Includes 181,250 shares of Common Stock issuable pursuant to options which
are exercisable within 60 days after June 29, 1998.
(10) Includes 37,500 shares of Common Stock issuable pursuant to options which
are exercisable within 60 days after June 29, 1998.
(11) Includes 37,500 shares of Common Stock issuable pursuant to options which
are exercisable within 60 days after June 29, 1998.
(12) Includes 50,000 shares of Common Stock issuable pursuant to options which
are exercisable within 60 days after June 29, 1998.
6
<PAGE>
(13) Mr. Langer resigned from all positions with the Company effective as of
March 31, 1998.
(14) Includes an aggregate of 465,450 shares issuable upon exercise of options
held by five directors and four executive officers which are exercisable
within 60 days after June 29, 1998. Does not include any Series B Stock
beneficially owned by Advent International Corporation, of which Ms. Marcia
Hooper (a director of the Company) serves as Vice President.
(15) U.S. Trust Company of New York has shared voting power over this amount.
(16) Represents shares of Series B Stock beneficially held by various limited
partnerships of which Advent International Corporation is either the general
partner or a general partner of the general partner ("Advent"). These shares
are currently convertible into an aggregate of 1,158,193 shares of Common
Stock.
(17) Represents shares of Series C Stock beneficially held by Lindner Investment
Series Trust on behalf of the Lindner Growth Fund (505,174 shares) and the
Lindner Dividend Fund (505,174 shares), each of which is a registered
investment company, for both of which Ryback Management Corporation serves
as investment advisor. Each share of Series C Stock is convertible into four
shares of Common Stock at any time (or an aggregate of 4,041,392 shares of
Common Stock). Upon conversion into Common Stock, each such stockholder
shall be entitled to one vote for each share of Common Stock.
(18) Does not include 1,150 shares of Series D Stock held of record by other
investment funds which are advised by investment advisors which have
officers in common with Leonardo L.P.'s advisor.
(19) Does not include 450 shares of Series D Stock held of record by Nelson
Partners, an officer of which also serves as a director of Olympus
Securities.
(20) Mr. Newberg serves as trustee of the Bruce Newberg Trust, which holds 500
shares of Series D Stock.
(21) Does not include 1,900 shares of Series D Stock held of record by other
investment funds which are advised by investment advisors which have
officers in common with Ramius Fund. Ltd.'s advisor.
(22) Does not include 550 shares held of record by Olympus Securities, Ltd., a
director of which also serves as an officer of Nelson Partners.
(23) Includes warrants to purchase 763 shares of Series D Stock issued to
Cappello Capital Corp., which acted as the placement agent of the Series D
Stock. These warrants are immediately exercisable, and have been assigned to
principals of the placement agent and their family members. Also includes 50
shares held of record by Linda Cappello and 50 shares held of record by
Gerald Cappello, officers in Cappello Capital Corp. Does not include 200
shares held of record by Laredo Capital Partners in which Lawrence K.
Fleischman, an officer of Cappello Capital Corp., is a partner, and 100
shares held of record by NY-DBL Diamond Group, in which Mr. Fleischman also
serves as partner.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation during
the last three fiscal years of (i) the Chief Executive Officer of the Company,
and (ii) the executive officers of the Company, other than the Chief Executive
Officer, who were serving as executive officers during or at the end of the last
fiscal year, whose annual salary and bonus, if any, exceeded $100,000 for
services in all capacities to the Company during the last fiscal year and
certain other executive officers (all of the officers listed in the table being
hereafter collectively referred to as the "Named Executive Officers").
7
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------------ AWARDS
NAME AND PRINCIPAL (1) (2) OTHER ANNUAL SECURITIES UNDERLYING
POSITION YEAR SALARY($) BONUS($) COMPENSATION ($) OPTIONS(#)
- -------------------------------------- --------- ----------- ----------- ---------------- -------------------------
<S> <C> <C> <C> <C> <C>
Jaime W. Ellertson(4)................. 1998 $ 300,000 $ 50,769 -- --
President and Chief Executive 1997 91,923 12,692 -- 725,000
Officer 1996 -- -- -- --
Gary Phillips......................... 1998 $ 122,885 $ 63,347 -- 150,000
Vice President, Sales 1997 -- -- -- --
1996 -- -- -- --
Christopher McKee..................... 1998 $ 139,033 $ 85,727 $ 25,450(5) 150,000
Vice President, Europe, Middle East 1997 -- -- --
and Africa 1996 -- --
John A. Pavlov........................ 1998 $ 85,000 $ 24,723 -- 130,000
Vice President, Engineering 1997 -- -- -- --
1996 -- -- -- --
Michael Torto......................... 1998 $ 158,654 $ 57,250 -- 200,000
Vice President, Marketing 1997 -- -- -- --
1996 -- -- -- --
Peter J. Rice(6)...................... 1998 $ 58,384 $ 35,510 -- 225,000
Vice President, CFO and Treasurer 1997 -- -- -- --
1996 -- -- -- --
Craig Newfield........................ 1998 $ 50,353 $ 15,000 -- 125,000
Vice President, General Counsel and 1997 -- -- -- --
Clerk 1996 -- -- -- --
Robert Langer(7)...................... 1998 $ 174,100 $ 24,287 -- --
Formerly Vice President, CFO and 1997 50,400 -- 6,000 -- 50,000
Treasurer 1996 -- -- --
<CAPTION>
NAME AND PRINCIPAL OTHER (3)
POSITION COMPENSATION
- -------------------------------------- ---------------
<S> <C>
Jaime W. Ellertson(4)................. $ 9,307
President and Chief Executive 2,334
Officer --
Gary Phillips......................... $ 7,782
Vice President, Sales --
--
Christopher McKee..................... $ 3,298
Vice President, Europe, Middle East --
and Africa --
John A. Pavlov........................ $ 6,062
Vice President, Engineering --
--
Michael Torto......................... $ 9,049
Vice President, Marketing --
--
Peter J. Rice(6)...................... $ 1,533
Vice President, CFO and Treasurer --
--
Craig Newfield........................ $ 4,686
Vice President, General Counsel and --
Clerk --
Robert Langer(7)...................... $ 889
Formerly Vice President, CFO and 869
Treasurer --
</TABLE>
- ------------------------
(1) Salary includes amounts deferred pursuant to the Company's 401(k) Savings
Plan, and amounts withheld pursuant to the Company's Employee Stock Purchase
Plan.
(2) Amounts shown are awards made under the Company's corporate bonus program,
which amounts are earned and accrued during the fiscal years indicated and
may be paid subsequent to the end of each fiscal year.
(3) Amounts shown are Company contributions under employee benefit plans
(medical, dental, life insurance, accidental death and disability insurance
and long-term disability insurance).
(4) Mr. Ellertson joined the Company and was elected President, Chief Executive
Officer, and a Director in January 1997. The salary amount for fiscal 1997
includes $40,752 relating to travel and relocation expenses reimbursed in
connection with his employment agreement with the Company.
(5) Represents payments received for automobile expense allowance.
(6) Bonus amount includes $30,000 paid to Mr. Rice in connection with his
employment by the Company.
(7) Mr. Langer resigned as Vice President, Chief Financial Officer and Treasurer
of the Company as of March 31, 1998. The salary amount reflected for fiscal
1998 includes a salary reduction from
8
<PAGE>
January 1, 1998 through March 31, 1998 to reflect Mr. Langer's reduced
responsibilities during this time period, and the bonus amount includes a
payment of $20,950 made to Mr. Langer in exchange for the cancellation of
his vested stock options.
The following table sets forth certain information with respect to the grant
of stock options to the Named Executive Officers during fiscal 1998:
OPTIONS GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------ POTENTIAL REALIZABLE
NUMBER OF PERCENT OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE OR PRICE APPRECIATION
OPTIONS EMPLOYEES BASE PRICE EXPIRATION FOR OPTION TERM(3)
NAME GRANTED(#)(1) IN FISCAL YEAR(2) ($/SHARE) DATE 5% ($) 10% ($)
- ----------------------------------------- ------------- ----------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jaime W. Ellertson....................... -- -- -- -- -- --
Gary Phillips............................ 150,000 6.57% 1.25 6/4/07 117,918 298,827
Christopher McKee........................ 150,000 6.57% 1.19 5/27/07 111,975 283,766
John A. Pavlov........................... 130,000 5.70% 2.75 10/15/07 224,830 569,763
Michael Torto............................ 200,000 8.76% 0.938 4/29/07 117,981 298,986
Peter J. Rice (4)........................ 225,000 9.86% 3.125 2/23/08 442,192 1,120,600
Craig Newfield........................... 125,000 5.48% 2.75 10/15/07 216,183 547,849
Robert Langer (5)........................ -- -- -- -- -- --
</TABLE>
- ------------------------
(1) All option grants described above become vested in four equal annual
installments, commencing one year after the date of grant. The Company's
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. Pursuant to
the terms of the Stock Option 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, 1998, the Company granted options
under its Stock Option Plans to its employees to purchase a total of
approximately 2,282,000 shares of Common Stock and canceled options to
purchase approximately 942,000 shares of Common Stock.
(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, are not intended to forecast future appreciation, if any, in the price
of the Company's Common Stock.
(4) Granted pursuant to the 1998 Key Man Stock Option Plan and Agreement, of
which Mr. Rice is the only participant, and which provides 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. This option
becomes exercisable in full upon a change in control. See "Severance and
Change in Control."
(5) Mr. Langer resigned from all positions with the Company effective as of
March 31, 1998.
9
<PAGE>
The following table sets forth, for each of the Named Executive Officers,
the number of stock options exercised during fiscal 1998, the value realized
upon exercise, the total number of unexercised options held at March 31, 1998,
and the aggregate value of in the money options held at fiscal year end.
AGGREGATED OPTION EXERCISES IN FY 1998 AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- --------------------------- --------------- ----------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Jaime W. Ellertson......... -- -- 181,250 / 543,750 $249,763 / 740,288
Gary Phillips.............. -- -- 37,500 / 112,500 82,050 / 246,150
Christopher McKee.......... -- -- 37,500 / 112,500 84,413 / 253,238
John A. Pavlov............. -- -- 0 / 130,000 0 / 89,440
Michael Torto.............. -- -- 50,000 / 150,000 125,000 / 375,000
Peter J. Rice.............. -- -- 0 / 225,000 0 / 70,425
Craig Newfield............. -- -- 0 / 125,000 0 / 86,000
Robert Langer (2).......... -- -- 50,000 / 0 71,900 / 0
</TABLE>
- ------------------------
(1) Based upon the $3.438 closing price of the Company's Common Stock on March
31, 1998 on the Nasdaq National Market, minus the applicable option exercise
price.
(2) Mr. Langer resigned from all positions with the Company effective as of
March 31, 1998. Pursuant to an agreement entered into in connection with the
termination of his employment, Mr. Langer agreed to cancel a vested option
to purchase 50,000 shares upon payment to him of $20,950.
EMPLOYMENT AGREEMENTS
The Company entered into letter agreements with each of the currently
employed Named Executive Officers in connection with their hiring. These
agreements generally provide for base salary, an annual bonus based on
achievement of certain objectives, and other fringe benefits. The letter
agreement with Mr. Ellertson provides for a base salary of $300,000, a bonus
upon the achievement of certain revenue and cash objectives, the award of
options to purchase 725,000 shares of Common Stock (subject to certain terms and
conditions contained therein), and severance pay equal to one year's base salary
for termination without cause. In May, 1998, Mr. Ellertson's letter agreement
was amended to reduce his base salary from $300,000 to $275,000 and increase his
potential cash bonus from $75,000 to $125,000. In addition, Mr. Ellertson's
agreement, as amended, provides that he shall be entitled to severance pay equal
to one year of his base salary plus his annual bonus as pro-rated to the date of
termination. The agreements with each of the other Named Executive Officers,
other than Mr. Torto and Mr. Pavlov, provide that the officer is eligible to
receive six months' notice or severance pay if terminated by the Company without
cause.
SEVERANCE PLAN UPON 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 in 1989, the Severance Plan provides that if any
vice president or more senior officer or the General Counsel, Controller or
Treasurer 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," that officer will be entitled to receive an amount equal to his
then total annual compensation. For purposes of the Severance
10
<PAGE>
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 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 stockholders 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, all options held by all employees, including Named Executive
Officers, become exercisable in full upon a "change in control."
Mr. Langer joined the Company in January 1997 as its Vice President and
Chief Financial Officer, and resigned from all positions in the Company
effective March 31, 1998. From January through March 1998, Mr. Langer's salary
was reduced to reflect his reduced responsibilities during the transition. In
June 1997 Mr. Langer agreed to cancel a vested stock option to purchase 50,000
shares upon the payment by the Company of $20,950.
COMPENSATION OF DIRECTORS
Through November 1997, nonemployee directors of the Company received $1,000
for each Board of Directors and Audit Committee meeting attended. In addition,
each nonemployee director received an annual stipend of $6,000 per year, payable
in four equal quarterly payments. Effective December 1, 1997, each nonemployee
director's meeting fee was reduced from $1,000 to $500 for each meeting or
series of meetings attended in person or via telephone on a given day, and the
annual stipend was reduced from $6,000 to of $5,000, all payable within 30 days
following the Company's fiscal year end, but the number of stock options which
he or she might receive was increased. For a description of the stock options
received by directors, see Proposal No. 2, relating to the amendment of the 1993
Director Stock Option Plan. Members of the Board of Directors are also
reimbursed for reasonable out-of-pocket expenses.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions regarding executive compensation are made by the Compensation
Committee of the Board of Directors, which is composed of Rory J. Cowan and
Frederick B. Bamber. Mr. Cowan served for two months as the Company's interim
President from November 15, 1996 to January 24, 1997, for which he received a
salary of $18,000. Except for Mr. Cowan's services as interim President, neither
Mr. Cowan nor Mr. Bamber is or has ever been an officer or employee of the
Company or any of its subsidiaries.
REPORT ON REPRICING OF OPTIONS
On June 20, 1997, the members of the Compensation Committee met to determine
the need to reprice the Company's outstanding stock options for employees and
officers. The Company's stock price had dropped from a trading range of $6-$8
during 1995 - 1996 to a trading range of $1.00 - $1.50 per share in June 1997,
reflecting the continued decline in Company revenues and a $29.6 million loss
for fiscal 1997. As a result, all options granted in the preceding two years to
employees and officers, including options which had been repriced in September
1996, were at an exercise price significantly above the Company's then current
stock price, and had lost any value as a retention tool. The Compensation
Committee also reviewed the effect on morale of the prior corporate
reorganizations and layoffs, and the employment of a new management team which
had started with the hiring of Messrs. Ellertson, Torto, Phillips and Langer.
The Compensation Committee was also aware of the current strong job market in
high technology, and feared significant voluntary departures of key employees.
11
<PAGE>
Given the foregoing factors, the Compensation Committee recognized the need
to provide incentives to retain its employees and officers, and to attract
additional senior managers to stabilize the Company. The Committee therefore
adopted a repricing program, whereby outstanding options held by employees and
officers would be eligible to be repriced at $1.25 per share, the closing market
price on the Nasdaq National Market on June 20, 1997. The vesting period for
these repriced options was not restarted in connection with this repricing.
However, the Company did require that no repriced option be exercised prior to
June 20, 1998 and that the option holder had to be employed with the Company on
that date in order to exercise his repriced option. Mr. Jaime Ellertson, the
Company's President had an option repriced under this program.
COMPENSATION COMMITTEE
Frederick B. Bamber and Rory J. Cowan
The following table summarizes all repricings of options held by any
executive officer of the Company during the last ten fiscal years.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF MARKET EXERCISE
SECURITIES PRICE OF PRICE
UNDERLYING STOCK AT AT TIME NEW
OPTIONS TIME OF OF EXERCISE
NAME DATE REPRICED (#) REPRICING ($) REPRICING ($) PRICE ($)
- -------------------------------------------- --------- ------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND CURRENT
OFFICERS
Jaime W. Ellertson, President & CEO......... 6/20/97 725,000 $ 1.25 $ 2.06 $ 1.25
FORMER EXECUTIVE OFFICERS
Mark H. Cieplik, Vice President, Americas... 4/27/95 110,000 $ 2.56 $ 5.50 $ 2.56
Stephen J. Hill, Vice President, Europe..... 8/3/94 8,000 $ 2.75 $ 6.75 $ 2.75
8/3/94 2,000 $ 2.75 $ 6.75 $ 2.75
4/27/95 85,000 $ 2.56 $ 5.50 $ 2.56
John K. Hyvnar, General Counsel and Clerk... 10/31/88 2,000 $ 7.38 $ 16.13 $ 7.38
10/31/88 1,500 $ 7.38 $ 15.63 $ 7.38
11/2/90 1,500 $ 3.13 $ 7.38 $ 3.13
11/2/90 17,000 $ 3.13 $ 7.75 $ 3.13
11/2/90 2,000 $ 3.13 $ 7.38 $ 3.13
11/2/90 5,000 $ 3.13 $ 3.38 $ 3.13
4/8/93 8,000 $ 2.56 $ 8.25 $ 2.56
4/14/94 6,000 $ 2.56 $ 6.75 $ 2.56
8/3/94 8,000 $ 2.75 $ 8.25 $ 2.75
8/3/94 6,000 $ 2.75 $ 6.75 $ 2.75
1/23/96 5,000 $ 2.56 $ 7.37 $ 2.56
5/3/96 15,000 $ 2.56 $ 8.25 $ 2.56
William W. Barnes, VP of Human Resources.... 10/31/88 6,000 $ 7.38 $ 14.63 $ 7.38
11/2/90 5,000 $ 3.13 $ 7.75 $ 3.13
11/2/90 2,000 $ 3.13 $ 8.38 $ 3.13
11/2/90 6,000 $ 3.13 $ 7.38 $ 3.13
<CAPTION>
LENGTH OF
ORIGINAL
OPTION TERM
REMAINING AT
DATE
OF REPRICING
NAME (YEARS)
- -------------------------------------------- -----------------
<S> <C>
NAMED EXECUTIVE OFFICERS AND CURRENT
OFFICERS
Jaime W. Ellertson, President & CEO......... 9.6
FORMER EXECUTIVE OFFICERS
Mark H. Cieplik, Vice President, Americas... 8.4
Stephen J. Hill, Vice President, Europe..... 9
9.7
8.4
John K. Hyvnar, General Counsel and Clerk... 8.8
9.6
7.6
8.8
6.8
10
9.4
9.4
8.7
9.7
9.7
9.5
William W. Barnes, VP of Human Resources.... 8.5
8.8
8.4
6.5
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF MARKET EXERCISE
SECURITIES PRICE OF PRICE
UNDERLYING STOCK AT AT TIME NEW
OPTIONS TIME OF OF EXERCISE
NAME DATE REPRICED (#) REPRICING ($) REPRICING ($) PRICE ($)
- -------------------------------------------- --------- ------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Lawrence S. Bohn, Sr. VP of Marketing and
Business Development...................... 10/31/88 3,000 $ 7.38 $ 16.50 $ 7.38
11/2/90 5,000 $ 3.13 $ 6.63 $ 3.13
11/2/90 2,000 $ 3.13 $ 8.38 $ 3.13
11/2/90 10,000 $ 3.13 $ 8.38 $ 3.13
11/2/90 3,000 $ 3.13 $ 7.38 $ 3.13
8/3/94 20,000 $ 2.75 $ 10.63 $ 2.75
8/3/94 7,000 $ 2.75 $ 4.50 $ 2.75
8/3/94 10,000 $ 2.75 $ 9.00 $ 2.75
8/3/94 10,000 $ 2.75 $ 6.75 $ 2.75
David A. Boucher, President and Chief
Executive Officer......................... 3/20/89 40,000 $ 8.38 $ 14.63 $ 8.38
11/2/90 44,800 $ 3.13 $ 8.38 $ 3.13
David J. Collard, Sr. VP of Finance and
Administration and Chief Financial
Officer................................... 11/2/90 75,000 $ 3.13 $ 7.75 $ 3.13
David L. Cross, Treasurer................... 10/31/88 10,000 $ 7.38 $ 10.13 $ 7.38
11/2/90 10,000 $ 3.13 $ 7.38 $ 3.13
Stephen J. Cummings, VP of International
Operations................................ 11/2/90 5,000 $ 3.13 $ 8.13 $ 3.13
11/2/90 5,000 $ 3.13 $ 8.38 $ 3.13
11/2/90 2,400 $ 3.13 $ 8.13 $ 3.13
11/2/90 1,500 $ 3.13 $ 4.50 $ 3.13
11/2/90 1,500 $ 3.13 $ 4.50 $ 3.13
11/2/90 3,000 $ 3.13 $ 4.00 $ 3.13
Richard P. Delio, Sr. VP of Finance and
Administration and Chief Financial
Officer................................... 8/3/94 100,000 $ 2.75 $ 7.00 $ 2.75
8/3/94 15,000 $ 2.75 $ 6.75 $ 2.75
M. David Downs, VP of Manufacturing......... 10/31/88 2,000 $ 7.38 $ 16.13 $ 7.38
10/31/88 5,000 $ 7.38 $ 10.13 $ 7.38
Stanley C. Douglas, Sr. VP, Software
Operations................................ 2/6/96 100,000 $ 2.56 $ 7.37 $ 2.56
Frederick J. Egan, VP of
Asia/Pacific/Japan........................ 10/31/88 7,500 $ 7.38 $ 19.38 $ 7.38
11/2/90 25,000 $ 3.13 $ 5.13 $ 3.13
11/2/90 25,000 $ 3.13 $ 8.13 $ 3.13
11/2/90 10,000 $ 3.13 $ 8.38 $ 3.13
11/2/90 7,500 $ 3.13 $ 7.38 $ 3.13
11/2/90 5,000 $ 3.13 $ 4.50 $ 3.13
8/3/94 10,000 $ 2.75 $ 6.75 $ 2.75
Paul English, Sr. VP of Product
Management................................ 11/2/90 1,500 $ 3.13 $ 6.63 $ 3.13
11/2/90 1,000 $ 3.13 $ 8.38 $ 3.13
8/3/94 5,000 $ 2.75 $ 10.63 $ 2.75
8/3/94 10,000 $ 2.75 $ 9.88 $ 2.75
8/3/94 7,000 $ 2.75 $ 8.25 $ 2.75
8/3/94 40,000 $ 2.75 $ 7.00 $ 2.75
Harry A. George, VP of Finance.............. 3/20/89 30,000 $ 8.38 $ 14.63 $ 8.38
Ed Koepfler, President and Chief Executive
Officer................................... 10/27/94 325,000 $ 2.56 $ 3.75 $ 2.56
10/27/95 75,000 $ 2.56 $ 5.37 $ 2.56
G. Gordon M. Large, Executive Vice President
and Chief Financial Officer............... 6/5/95 225,000 $ 2.56 $ 6.00 $ 2.56
<CAPTION>
LENGTH OF
ORIGINAL
OPTION TERM
REMAINING AT
DATE
OF REPRICING
NAME (YEARS)
- -------------------------------------------- -----------------
<S> <C>
Lawrence S. Bohn, Sr. VP of Marketing and
Business Development...................... 8.7
9.4
8.4
8.1
6.7
7.7
1.7
8.8
9.7
David A. Boucher, President and Chief
Executive Officer......................... 8.1
6.5
David J. Collard, Sr. VP of Finance and
Administration and Chief Financial
Officer................................... 8.8
David L. Cross, Treasurer................... 9.8
7.8
Stephen J. Cummings, VP of International
Operations................................ 8.6
8.4
5.8
5.5
5.1
4.1
Richard P. Delio, Sr. VP of Finance and
Administration and Chief Financial
Officer................................... 9.7
9.7
M. David Downs, VP of Manufacturing......... 8.8
9.8
Stanley C. Douglas, Sr. VP, Software
Operations................................ 8.5
Frederick J. Egan, VP of
Asia/Pacific/Japan........................ 9.4
9.8
8.6
8.4
7.4
5
9.7
Paul English, Sr. VP of Product
Management................................ 9.4
8.4
7.7
8.1
8.7
9.6
Harry A. George, VP of Finance.............. 8.1
Ed Koepfler, President and Chief Executive
Officer................................... 8.2
9.2
G. Gordon M. Large, Executive Vice President
and Chief Financial Officer............... 8.7
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF MARKET EXERCISE
SECURITIES PRICE OF PRICE
UNDERLYING STOCK AT AT TIME NEW
OPTIONS TIME OF OF EXERCISE
NAME DATE REPRICED (#) REPRICING ($) REPRICING ($) PRICE ($)
- -------------------------------------------- --------- ------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Robert T. Maher, Vice President,
Engineering............................... 8/3/94 25,000 $ 2.75 $ 7.25 $ 2.75
4/22/95 70,000 $ 2.56 $ 5.50 $ 2.56
Edward Mallen, Vice President of U.S.
Sales..................................... 10/31/88 3,000 $ 7.38 $ 14.63 $ 7.38
11/2/90 20,000 $ 3.13 $ 7.38 $ 3.13
11/2/90 3,000 $ 3.13 $ 7.38 $ 3.13
Michael Mark, VP of Systems Integration..... 3/20/89 4,000 $ 8.38 $ 14.63 $ 8.38
Stephen D. Pelletier, VP of Engineering..... 10/31/88 30,000 $ 7.38 $ 12.38 $ 7.38
11/2/90 30,000 $ 3.13 $ 6.63 $ 3.13
11/2/90 30,000 $ 3.13 $ 7.38 $ 3.13
George D. Potter, Jr., Sr. VP of Sales
Operations................................ 3/20/89 30,000 $ 8.38 $ 14.63 $ 8.38
Mark K. Ruport, President and Chief
Executive Officer......................... 11/2/90 75,000 $ 3.13 $ 5.38 $ 3.13
Steven M. Schwartz, VP of Marketing......... 10/31/88 6,000 $ 7.38 $ 14.63 $ 7.38
10/31/88 6,000 $ 7.38 $ 10.13 $ 7.38
Andrew J Van Abs, VP of Engineering
Peripherals Technology.................... 10/31/88 10,000 $ 7.38 $ 13.50 $ 7.38
11/2/90 7,500 $ 3.13 $ 6.63 $ 3.13
11/2/90 5,000 $ 3.13 $ 7.75 $ 3.13
11/2/90 5,000 $ 3.13 $ 7.38 $ 3.13
11/2/90 10,000 $ 3.13 $ 7.38 $ 3.13
George R. Vaughn, Controller................ 10/31/88 6,000 $ 7.38 $ 14.63 $ 7.38
Robert K. Weiler, President and Chief
Operating Officer......................... 11/2/90 125,000 $ 3.13 $ 6.75 $ 3.13
Haviland Wright, Sr. VP and Chief
Scientist................................. 8/3/94 60,000 $ 2.75 $ 6.75 $ 2.75
8/3/94 7,500 $ 2.75 $ 6.75 $ 2.75
<CAPTION>
LENGTH OF
ORIGINAL
OPTION TERM
REMAINING AT
DATE
OF REPRICING
NAME (YEARS)
- -------------------------------------------- -----------------
<S> <C>
Robert T. Maher, Vice President,
Engineering............................... 9.7
9.5
Edward Mallen, Vice President of U.S.
Sales..................................... 8.5
8
6.5
Michael Mark, VP of Systems Integration..... 8.1
Stephen D. Pelletier, VP of Engineering..... 9.7
9.4
7.7
George D. Potter, Jr., Sr. VP of Sales
Operations................................ 8.1
Mark K. Ruport, President and Chief
Executive Officer......................... 9.5
Steven M. Schwartz, VP of Marketing......... 8.5
9.8
Andrew J Van Abs, VP of Engineering
Peripherals Technology.................... 9.1
9.4
8.8
8
7.1
George R. Vaughn, Controller................ 8.5
Robert K. Weiler, President and Chief
Operating Officer......................... 8.9
Haviland Wright, Sr. VP and Chief
Scientist................................. 9
9.7
</TABLE>
COMPENSATION COMMITTEE REPORT
During fiscal 1998, the Compensation Committee's philosophy was to base
executive salaries on salaries offered to executives in comparably sized
software companies. In addition, the Compensation Committee believed that
targeted bonuses should equal approximately 30-40% of the executive's
compensation and that stock options should be used to align executives with the
long-term interests of the stockholders. Given the Company's declining revenues,
the Compensation Committee believed that cash should be preserved if possible,
and relatively large stock option grants would be required to be granted to
attract and retain qualified executives by providing significant potential for
earnings should the Company perform well.
The Company began fiscal 1998 in transition. Mr. Ellertson, who joined the
Company in January 1997, had to hire an entirely new senior management staff
during fiscal 1998. Mr. Ellertson received an annual salary of $300,000 through
fiscal 1998, with the grant of an option to purchase 725,000 shares at an
exercise price of $2.06 per share, the Company's closing price on the date of
his election. The large option grant was given to Mr. Ellertson to attract him
to join the Company, given the competitive environment for high technology
executives, and to highly incent him to maximize stockholder value. Mr.
Ellertson also was given the potential to earn a cash bonus of up to $75,000 if
certain quarterly and annually goals were met. These goals were based on the
Company achieving targeted earnings, product revenue, total revenue, and cash
position. The remaining members of the senior management team received a similar
opportunity
14
<PAGE>
based on the same targets. The Compensation Committee believed that all senior
managers would be aligned in maximizing the Company's value.
During fiscal 1998, the Company reported four consecutive profitable
quarters, and the Company's cash position improved. In September 1997, the
Company obtained $6.8 million in financing from the sale of the Series D Stock.
On the other hand, overall Company revenues have continued to decline. In the
first quarter of fiscal 1999, the Compensation Committee reviewed Mr.
Ellertson's performance, and commissioned an independent study of CEO
compensation in comparable companies. Based on the Company's performance, the
Compensation Committee determined that Mr. Ellertson should be awarded a cash
bonus of approximately $63,500 for the first five quarters of his tenure
(January 1997 through March 1998). This reflected the substantially positive
performance in terms of profitability and cash position, but some disappointment
with revenues. Based on the compensation study, the Compensation Committee
believed that Mr. Ellertson's cash compensation should consist of a greater
proportion of bonus as compared to salary. Accordingly, Mr. Ellertson's salary
was reduced commencing July 1, 1998 to $275,000, and his potential cash bonus
was increased to $125,000.
The Compensation Committee recognizes the current need to preserve cash, and
will seek to attract and retain executives and employees by using stock option
grants. In fiscal 1999, the Compensation Committee expects that option grants
will be awarded in larger amounts to the Company's executives and employees.
For fiscal 1998, 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 any Named Executive Officer to the extent compensation to the
executive exceeds $1 million in a year. With the exception of Mr. Ellertson, the
Compensation Committee believes that the Company's compensation for each
executive in the foreseeable future would not exceed this limitation. In Mr.
Ellertson's case, the Committee reviewed the possible adverse tax consequences,
but determined that the benefits of hiring Mr. Ellertson far outweighed the tax
consequences. 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:
Frederick B. Bamber and Rory J. Cowan
15
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the yearly change in the Company's cumulative
total stockholder return with the cumulative total return 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) for the
last five fiscal years. The performance graph assumes the investment of $100 on
March 31, 1993. 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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET NASDAQ COMPUTER AND
<S> <C> <C> <C>
Interleaf, Data Processing Services
Inc. (U.S. & Foreign) Stocks
3/31/93 $100 $100 $100
3/31/94 $72 $108 $102
3/31/95 $52 $120 $138
3/31/96 $95 $163 $196
3/31/97 $17 $181 $214
3/31/98 $37 $275 $374
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR END
------------------------
<S> <C> <C> <C> <C>
3/31/93 3/31/94 3/31/95 3/31/96
----------- ----------- ----------- -----------
Interleaf, Inc....................................................... 100 72 52 95
NASDAQ Stock Market (U.S. & Foreign)................................. 100 108 120 163
NASDAQ Computer and Data Processing Services Stocks.................. 100 102 138 196
<CAPTION>
<S> <C> <C>
3/31/97 3/31/98
----------- -----------
Interleaf, Inc....................................................... 17 37
NASDAQ Stock Market (U.S. & Foreign)................................. 181 275
NASDAQ Computer and Data Processing Services Stocks.................. 214 374
</TABLE>
16
<PAGE>
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO 1993 DIRECTOR STOCK OPTION PLAN
On December 26, 1997, the Company's Board of Directors adopted a proposal to
amend the 1993 Director Stock Option Plan (the "Director Plan") in certain
respects, subject to stockholder ratification. The amendments (a) increased the
number of shares available for grant under the Director Plan, (b) increased the
number of shares automatically granted to new directors, (c) increased the
number of shares automatically granted to each director annually, (d) made a one
time grant of 15,000 shares to each non-employee director as of December 26,
1997, and (e) made certain more technical amendments. For the reasons discussed
below, the Board of Directors determined that these amendments were appropriate
and in the Company's best interests.
DESCRIPTION OF DIRECTOR PLAN
The Director Plan was adopted by the Board of Directors on September 8, 1993
and approved by stockholders in August 1994.
Under the Director Plan, prior to its December 1997 amendment, each
nonemployee director of the Company was granted a non-qualified 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). Those options became
exercisable in full on August 4, 1994. The Director Plan further provides that
each person who becomes a nonemployee director of the Company will be granted,
as of the date of his or her election as a director, a non-qualified option to
purchase 5,000 shares of Common Stock at the then fair market value of the
Common Stock. Each option becomes exercisable one year after the date of grant.
In addition, the Director Plan provides that each nonemployee director is
automatically granted a non-qualified option to purchase 5,000 shares of Common
Stock on April 1 of each year (the "April Renewal Options"), at the fair market
value of the stock on that date. Those options become fully exercisable one year
after the date of grant.
REASONS FOR AMENDMENT
In December 1997, the Board of Directors reviewed the Director Plan and
noted several deficiencies. First, the Board noted a trend among software and
high technology companies towards equity compensation for board members, and
away from cash compensation. Consistent with that trend, as of December 1, 1997
the Board voted to reduce the amount of cash compensation to be paid to the
Company's directors. Second, the Board noted that, due to the continued decline
in the market price of the Company's Common Stock, the stock options previously
granted under the Director Plan had no value, since the exercise price of the
options was substantially in excess of the then market price. Third, the Board
noted that as of the end of December 1997, there were not sufficient shares
available to cover the April Renewal Options due to be automatically granted on
April 1, 1998 (the "1998 Renewal Options"). Finally, the directors recognized
that the number of options granted to date was insufficient to compensate the
current directors for their expected future efforts, particularly in view of
their reduced cash compensation and the low stock price.
The Board of Directors also recognized certain technical difficulties with
the Director Plan. First, the Board noted that if the 1998 Renewal Options were
granted on schedule, it would potentially cause an accounting compensation
charge to the Company if the stock price increased between the April 1, 1998
17
<PAGE>
grant date and the August 1998 date of stockholder approval of an increase in
the Director Plan limits. In response to this issue, (i) the Board of Directors
amended the Director Plan to delay the grant of the 1998 Renewal Options until
after stockholder approval of an increase in the number of shares under the
Director Plan was obtained at the Annual Meeting, and (ii) each director holding
options with an exercise price in excess of $6.00 per share voluntarily agreed
to cancel those options. Second, the Board recognized that in order to comply
with Rule 16b-3 under the Securities Exchange Act of 1934 as in effect at the
time the Director Plan was originally adopted, the Director Plan requires
stockholder approval of certain types of amendments. However, Rule 16b-3 was
amended in 1996 to eliminate the requirement for a stockholder vote to adopt or
amend such a plan, and the Board determined that it would be appropriate to
amend the Director Plan to reflect Rule 16b-3 as it currently exists or may be
amended in the future.
AMENDMENTS TO DIRECTOR PLAN
In order to continue to attract and retain qualified persons to serve on the
Company's Board of Directors, the Board believes that the Company needs to
provide adequate and appropriate compensation, in the form of both cash and
stock options. In light of the perceived shortcomings with the Director Plan
described above, on December 26, 1997, the Board of Directors amended the
Director Plan, subject to stockholder approval, as follows:
1. To increase the number of shares authorized for issuance under the Director
Plan from 150,000 shares to 325,000 shares, allowing for the issuance of an
additional 175,000 shares of Common Stock.
2. To increase the number of options to purchase shares automatically granted
to new nonemployee directors from options to purchase 5,000 shares to
options to purchase 25,000 shares, and to increase the number of April
Renewal Options to each director who has served on the Board for at least
one year from options to purchase 5,000 shares to options to purchase 7,500
shares. Each option will vest in full on the later of one year after the day
of grant or the last day of his or her current term of office as a director.
3. To provide that the 1998 Renewal Options to purchase 7,500 shares of Common
Stock which would otherwise be automatically granted to directors on April
1, 1998 be granted on the first trading day following the Annual Meeting,
with full vesting on March 31, 1999, and permit the Board of Directors to
adjust the number of shares subject to the 1998 Renewal Options as the Board
may deem reasonable to offset any reduction in value of the options as
actually granted due to the delay in issuance of the 1998 Renewal Options.
4. To provide that each nonemployee director on December 26, 1997 be granted an
option to purchase 15,000 shares of Common Stock, which shall vest in full
one year from the date of grant.
5. To provide that no option granted to any director shall vest or be
exercisable in whole or in part until at least six months from the date of
grant.
6. To provide that the Board of Directors may from time to time amend or modify
the Director Plan in any respect, except that any amendment which, under
applicable laws and regulations (including without limitation Rule 16b-3),
requires stockholder approval shall not become effective until such approval
is obtained.
In all cases, the options will have an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant.
18
<PAGE>
OPTIONS GRANTED UNDER DIRECTOR PLAN
The following table summarizes the stock options granted to and held by each
current member of the Board of Directors under the Director Plan and under a
predecessor 1989 plan which are currently exercisable or which become
exercisable within 60 days after June 29, 1998:
<TABLE>
<CAPTION>
GRANT NO. OF EXERCISE
DIRECTOR * DATE SHARES PRICE SHARES VESTED
- ---------------------------------------------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C>
DAVID A. BOUCHER.............................. 4/1/97 5,000 $ 1.56 5,000
12/26/97 15,000 3.35 0
--------- ------
TOTAL 20,000 5,000
FREDERICK B. BAMBER........................... 3/20/89 12,000 8.38 12,000
3/2/92 3,000 8.75 3,000
4/1/95 5,000 4.87 5,000
4/1/97 5,000 1.56 5,000
12/26/97 15,000 3.35 0
--------- ------
TOTAL 40,000 25,000
GEORGE D. POTTER, JR.......................... 4/1/95 5,000 4.87 5,000
4/1/97 5,000 1.56 5,000
12/26/97 15,000 3.35 0
--------- ------
TOTAL 25,000 10,000
MARCIA J. HOOPER.............................. 1/24/97 5,000 2.36 5,000
4/1/97 5,000 1.56 5,000
12/26/97 15,000 3.35 0
--------- ------
TOTAL 25,000 10,000
RORY J. COWAN................................. 4/1/97 5,000 1.56 5,000
8/6/97 5,000 4.25 5,000
12/26/97 15,000 3.35 0
--------- ------
TOTAL 25,000 10,000
JOHN A. LOPIANO............................... 2/19/98 25,000 3.20 0
--------- ------
TOTAL 25,000 0
TOTAL FOR ALL DIRECTORS....................... 160,000 60,000
</TABLE>
- ------------------------
* Does not include options to purchase 35,000 shares which were voluntarily
canceled by Messrs. Boucher (5,000 shares), Bamber (15,000 shares) and
Potter (15,000 shares) on February 12, 1998.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
PROPOSAL NO. 2.
19
<PAGE>
PROPOSAL NO. 3
APPROVAL OF INTERLEAF, INC. 1998 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
As of June 15, 1998, the Board of Directors of the Company adopted, subject
to stockholder approval, a new 1998 Employee Stock Purchase Plan (the "1998
Stock Plan"). The 1998 Stock Plan will provide eligible employees with an
opportunity to purchase shares of the Company's Common Stock at a discount from
market price through regular payroll deductions.
At the present time, all of the Company's employees are eligible to
participate in the Company's 1987 Employee Stock Purchase Plan (the "1987
Plan"), which is due to expire in November, 1998. The Board of Directors
believes that the 1987 Plan provided a valuable incentive and employee benefit
for the Company's employees, because it encouraged investment in the Company's
Common Stock and enabled employees to purchase the Company's Common Stock at a
discount from the market price and without incurring brokerage costs. The Board
of Directors determined that it would be in the best interests of the Company
for the Company to continue to offer a similar benefit and incentive and,
therefore has adopted the 1998 Stock Plan, subject to stockholder approval at
the Annual Meeting.
The 1998 Stock Plan is intended to qualify as an "employee stock purchase
plan" as defined in Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code"). The following description of the 1998 Stock Plan is qualified in
its entirety by reference to the text of the 1998 Stock Plan which is attached
as Exhibit A to this Proxy Statement.
DESCRIPTION OF THE 1998 STOCK PLAN
The 1998 Stock Plan will provide an opportunity for employees of the Company
and certain subsidiaries to become stockholders of the Company through the
purchase of its Common Stock at a discount from the market price and without
incurring brokerage costs.
STOCK AVAILABLE UNDER THE PLAN
The number of shares reserved for issuance under the 1998 Stock Plan is
2,500,000 shares of Common Stock. The 1998 Stock Plan is divided into ten
separate six month offering periods described below (each an "Offering Period"),
and the maximum number of shares of Common Stock available for issuance in any
single Offering Period is 250,000 shares. (The number of shares which may be
issued under the 1998 Stock Plan and in any Offering Period is subject to
adjustment for reorganization, recapitalization, merger, consolidation,
reclassification, stock dividend, stock split, reverse stock split or
combination of shares.)
OFFERING PERIODS
The ten Offering Periods commence on the first business day of each November
and May, commencing November 2, 1998, and end on the last business day of each
sixth month thereafter (April and October, respectively). On the first day of
each Offering Period (the "Offering Date"), the Company will grant to each
participant in the 1998 Stock Plan an option to purchase on the last day of the
Offering Period (the "Exercise Date") the number of full shares of Common Stock
of the Company which the participant's payroll deductions during the Offering
Period will purchase at the option price described below, subject to
20
<PAGE>
certain limitations. The option exercise price will be the lesser of (i) 85% of
the fair market value of the Common Stock on the Offering Date, or (ii) 85% of
the fair market value of the Common Stock on the Exercise Date.
ELIGIBILITY
Each person who is an employee of the Company or a subsidiary on the
applicable Offering Date is eligible to participate, including each of the
executive officers of the Company. In order to be considered an "employee" for
the purpose of becoming a participant in the 1998 Stock Plan, a person must be
customarily employed by the Company or a participating subsidiary for more than
20 hours per week and for more than five months in a calendar year.
PAYROLL DEDUCTIONS
Each participant in the 1998 Stock Plan may elect on the Offering Date to
have deductions made from his or her compensation at the rate of between l% and
10% of total compensation, in increments of 1%. Participants may not invest more
than $5,000 in any six month Offering Period and no employee may purchase stock
under all employee stock purchase plans of the Company having a fair market
value of more than $25,000 for any calendar year. Participants may change their
rate of deduction, or withdraw from the 1998 Stock Plan at any time prior to the
end of an Offering Period. Upon withdrawal, withheld compensation will be
refunded with interest. An eligible employee who has withdrawn may participate
in any subsequent Offering Period.
If the number of shares purchasable with participant withholdings exceeds
the 250,000 share maximum for any Offering Period, the shares available will be
allocated among participants on a basis determined by the Compensation Committee
to be practicable and equitable.
TERMINATION
The termination of a participant's employment with the Company or any
participating subsidiary for any reason, including retirement but excluding
death or disability, will be treated in the same manner as if the participant
had withdrawn from the 1998 Stock Plan. All funds withheld will be returned to
the participant with interest.
If a participant becomes disabled or dies, the participant or his or her
beneficiary will have the right to elect either (i) to withdraw all of the funds
withheld to date or (ii) exercise the participant's option and on the Exercise
Date purchase such number of shares of Common Stock as the withheld funds at the
date of disability or death will purchase at the applicable option exercise
price.
OTHER
The shares of Common Stock to be issued under the 1998 Stock Plan may be
from authorized but unissued shares, treasury shares or any other proper source.
Shares of Common Stock may be purchased in the participant's name alone, or
jointly with one other person with rights of survivorship. Participants may not
transfer or assign any of their rights under the 1998 Stock Plan. Participants
in the 1998 Stock Plan will have no rights as stockholders with respect to any
shares until the day on which shares of Common Stock are actually purchased and
issued. All amounts withheld by the Company under the 1998 Stock Plan may be
used by the Company for any corporate purpose and the Company shall not be
obligated to segregate such payroll deductions.
21
<PAGE>
ADMINISTRATION
The 1998 Stock Plan is administered by the Compensation Committee. Subject
to conditions set forth in the 1998 Stock Plan and the Code, the Compensation
Committee acts as manager of the 1998 Stock Plan and is authorized to make rules
governing the operation of the 1998 Stock Plan, to interpret the provisions of
the 1998 Stock Plan and to select the participants. Such rules may include,
without limitation, restrictions on the frequency of changes in withholding
levels.
FEDERAL INCOME TAX CONSEQUENCES
Under an "employee stock purchase plan," qualified under Section 423 of the
Code, an employee does not have to pay any federal income tax when he or she
joins the plan or when he or she receives the stock. The employee is, however,
required to pay federal income taxes on the difference, if any, between the
price at which he or she sells the stock purchased under the plan and the price
which he or she paid for it.
If an employee who purchases shares under the 1998 Stock Plan has owned the
shares for more than one year and disposes of them at least two years after the
applicable Offering Date, he or she will be taxed as follows: If the market
price of the shares on the date they are sold is equal to or less than the price
paid for the shares under the 1998 Stock Plan, the employee will incur a
long--term capital loss in the amount equal to the price paid over the sale
price. If the sale price is higher than the actual price paid under the 1998
Stock Plan, the employee will have to recognize ordinary income in an amount
equal to the lesser of (a) the market price of the shares on the applicable
Offering Date over the price paid or (b) the excess of the sale price over the
price paid. Further gain, if any, is treated as a long--term capital gain.
If the employee sells the shares before he or she has owned them for more
than one year or before the expiration of a two--year period commencing on the
Offering Date, the employee will have to recognize ordinary income equal to the
difference between the actual purchase price and the market price of the shares
on the Exercise Date, and the Company will receive a tax deduction for the same
amount. The employee will recognize a capital gain or loss (long or short term,
depending upon the period he or she had owned the shares) for the difference
between the actual sale price and the fair market value on the date of purchase.
The amount which that participant elects to have deducted from base pay for
the purchase of shares under the 1998 Stock Plan constitutes compensation and
will be included in the participant's gross income for federal income tax
purposes. When interest is paid on monies returned under the Stock Plan, that
interest will be treated as compensation and included in the participant's gross
income for federal income tax purposes, and the Company will be entitled to a
corresponding deduction.
The foregoing summary is general and does not apply to dispositions other
than sales (such as gifts) that may occur, and does not constitute tax advice to
any Company employee or other person.
The Company believes that the 1998 Stock Plan is not subject to the
provisions of the Employee Retirement Income Security Act of 1974.
ACCOUNTING ISSUES
The Financial Accounting Standards Board ("FASB") has announced that it is
considering whether or not companies with Section 423-type employee stock
purchase plans may be required to make a charge to earnings for financial
reporting purposes if the stock is purchasable at 85% of the lower of the stock
price on the first and last date of the option period. The Board of Directors
may determine to modify or terminate the 1998 Stock Plan depending upon any
standard ultimately adopted by the FASB.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL NO. 3.
22
<PAGE>
PROPOSAL NO. 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP has served as the Company's independent
auditors since 1981, and served in such capacity for the 1998 fiscal year.
At the end of fiscal 1998, the Audit Committee recommended to the Board of
Directors, and the Board of Directors approved, the selection of the firm of
PricewaterhouseCoopers L.L.P. as the Company's independent auditors for the 1999
fiscal year, effective July 1, 1998. Accordingly, PricewaterhouseCoopers, L.L.P.
was appointed as the Company's independent auditors for the 1999 fiscal year.
Although stockholder approval of the Board of Directors' selection of
PricewaterhouseCoopers, L.L.P. is not required by law, the Board of Directors
believes it is advisable to give stockholders 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 PricewaterhouseCoopers L.L.P.
The change from Ernst & Young LLP to PricewaterhouseCoopers, L.L.P. was not
due to any dispute between the Company and Ernst & Young LLP. The reports of
Ernst & Young LLP on the consolidated financial statements of the Company at
March 31, 1997 and March 31, 1998, and for the three years ended March 31, 1998
contain no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principle. In connection
with Ernst & Young's audits of the Company for the two most recent fiscal years
and through June 30, 1998, there have been no disagreements with Ernst & Young
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of Ernst & Young LLP would have caused Ernst & Young LLP to
make reference thereto in their report on the financial statements for such
years. See the Company's Current Report on Form 8-K filed with the Securities
and Exchange Commission on July 13, 1998.
Representatives of Ernst & Young LLP and PricewaterhouseCoopers L.L.P. 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 stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL NO. 4.
OTHER MATTERS
VOTING PROCEDURES
The votes of stockholders present in person or represented by proxy, and
entitled to vote 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 elections appointed by the
Company. BankBoston, N.A. ("BankBoston") was appointed inspector for the Annual
Meeting and will determine whether or not a quorum is present for a particular
matter. A quorum being present, a plurality of votes cast by the stockholders
present in person or by proxy at the Annual Meeting and entitled to vote thereon
is required for the election of the one Class II Director. The affirmative vote
of shares holding a majority of the shares present in person or by proxy and
entitled to vote at the Annual Meeting is required for the approval of Proposal
Nos. 2, 3 and 4.
Abstentions will be treated as shares that are present and entitled to vote,
but will not count as votes in favor of any matter. Accordingly, an abstention
from voting on Proposal Nos. 2, 3 or 4 has the same legal effect as a vote
"against" the matter, even though the stockholder abstaining may intend a
different interpretation. Shares held of record by brokers who do not return a
signed and dated proxy will not be
23
<PAGE>
considered present at the meeting, will not be counted towards a quorum and will
not be voted on Proposal Nos. 2 and 3. Shares held of record by brokers who
return a signed and dated proxy but who do not vote on either of Proposal Nos. 2
and 3 will count towards the quorum, but will count neither for nor against the
Proposal not voted.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who own
more than 10% of the Company's Common Stock, to file reports of ownership and
changes of ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission and The Nasdaq Stock Market, Inc., and to furnish the Company with
copies of such forms.
Based solely on the Company's review of the copies of the forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5 with respect to the Company's most recent
fiscal year, the Company believes that all of its current executive officers,
directors and greater than 10% stockholders complied with all Section 16(a)
filing requirements applicable to them during the Company's fiscal year ended
March 31, 1998.
STOCKHOLDER PROPOSALS
Proposals which stockholders intend to present at the Company's 1999 Annual
Meeting of Stockholders pursuant to Rule 14a-8 promulgated under the Securities
Exchange Act of 1934, as amended, must be received by the Company at its
principal office in Waltham, Massachusetts, no later than March 30, 1999 for
inclusion in the proxy statement for that meeting. If a proponent fails to
notify the Company by June 13, 1999 of a non-Rule 14a-8 shareholder proposal
which it intends to submit at the Company's 1999 Annual Meeting of Stockholders,
the proxy solicited by the Board of Directors with respect to such meeting may
grant discretionary authority to the proxies named therein to vote with respect
to such matter.
OTHER PROPOSED ACTION
The Board of Directors knows of no other business to come before the Annual
Meeting. However, if any other business should properly be presented to the
Annual Meeting, the proxies will be voted in accordance with the judgment of the
person or persons holding the proxies.
INCORPORATION BY REFERENCE
To the extent that this Proxy Statement has been or will be specifically
incorporated by reference into any filing by the Company under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, the
sections of the Proxy Statement entitled "Compensation Committee Report on
Executive Compensation" and "Performance Graph" shall not be deemed to be so
incorporated, unless specifically otherwise provided in any such filing.
ANNUAL REPORT AND FORM 10-K
ADDITIONAL COPIES OF THE ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR
ENDED MARCH 31, 1998 AND COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED MARCH 31, 1998 AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ARE AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST
ADDRESSED TO: INVESTOR RELATIONS, INTERLEAF, INC., 62 FOURTH AVENUE, WALTHAM,
MASSACHUSETTS 02451.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, STOCKHOLDERS ARE
URGED TO FILL IN, SIGN AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE ENCLOSED
ENVELOPE.
24
<PAGE>
EXHIBIT A
INTERLEAF, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The purpose of the Interleaf, Inc. 1998 Employee Stock Purchase Plan ("the
Plan") is to provide eligible employees of Interleaf, Inc. (the "Company") and
its Subsidiaries (as defined in Section 11) with opportunities to purchase
shares of the Company's common stock, $.01 par value (the "Common Stock"). The
Plan is intended to constitute an "employee stock purchase plan" within the
meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), and shall be interpreted in accordance with that intent.
1. ADMINISTRATION. The Plan will be administered by the Company's full Board
of Directors (the "Board") or by a committee appointed by the Board for such
purpose (the full Board of Directors in so administering the Plan or any
committee so appointed is hereafter referred to as the "Committee"). The
Committee has authority to make rules and regulations for the administration of
the Plan (including regulations applicable to a particular individual
participant, group of participants or situation), and its interpretations and
decisions with regard thereto shall be final and conclusive. No member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted hereunder. The Committee may
delegate its authority to the Company's President with respect to deadlines and
administrative matters.
2. OFFERINGS. The Company will make ten (10) successive six month offerings
to eligible employees to purchase Common Stock under the Plan ( each an
"Offering"). Offerings will begin on the first business day occurring on or
after each November 1 and May 1 and will end on the last business day of the
sixth month thereafter (the following April 30 and October 31, respectively).
The first Offering will begin on November 2, 1998, and the final Offering shall
end on October 31, 2003. An aggregate of Two Million, Five Hundred Thousand
(2,500,000) shares have been authorized for issuance pursuant to the Plan. The
maximum number of shares which may be issued in each Offering is Two Hundred
Fifty Thousand (250,000) shares. If in any Offering period less than 250,000
shares are issued, those unissued shares shall not be available for issuance in
any subsequent Offering and shall cease to be reserved for issuance under the
Plan.
3. ELIGIBILITY. All employees of the Company (including employees who are
also directors of the Company) and all employees of each Subsidiary are eligible
to participate in any one or more of the Offerings under the Plan, provided that
as of the first day of the applicable Offering (the "Offering Date") the
employee is customarily employed by the Company or a Subsidiary for more than
twenty (20) hours a week.
4. PARTICIPATION. An employee eligible on any Offering Date may participate
in such Offering by submitting an enrollment form to his appropriate payroll
location at least ten (10) business days before the Offering Date (or by such
other deadline as shall be established or approved by the Committee for that
Offering). The form will (a) state the amount to be deducted from his or her
Compensation (as defined in Section 11) per pay period, (b) authorize the
purchase of Common Stock for him or her in each Offering in accordance with the
terms of the Plan and (c) specify the exact name or names in which shares of
Common Stock purchased for him or her are to be issued pursuant to Section 10.
An employee who does not enroll in accordance with these procedures will be
deemed to have waived his or her right to participate. Unless an employee files
a new enrollment form or withdraws from the Plan, his or her deductions and
purchases will continue at the same amount of Compensation for future Offerings,
provided s/he remains eligible.
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Notwithstanding the foregoing, participation in the Plan will neither be
permitted nor be denied contrary to the requirements of the Code.
5. EMPLOYEE CONTRIBUTIONS. Each eligible employee may authorize payroll
deductions at a rate of between one percent (1%) and ten percent (10%), in
increments of exactly 1%, of his or her Compensation for each pay period,
provided that the total amount withheld by any employee during any Offering
shall not exceed $5,000 (or such greater amount as may be determined from time
to time by the Committee). The Company will maintain book accounts showing the
amount of payroll deductions made by each participating employee for each
Offering. Except as specifically provided in this Plan, no interest will accrue
or be paid on Compensation withheld.
6. DEDUCTION CHANGES. An employee may increase or decrease his or her
Compensation withholding at any time during any Offering, by giving notice in
accordance with such administrative procedures and notice period requirements as
the Committee may establish or approve. An employee may increase or decrease his
or her Compensation withholding with respect to the next Offering (subject to
the limitations of Section 5) by filing a new enrollment form at least ten (10)
business days before the next Offering Date (or by such other deadline as shall
be established or approved by the Committee for the Offering).
7. WITHDRAWAL. An employee may withdraw from participation in the Plan at
any time by delivering a written notice of withdrawal to his or her appropriate
payroll location. The employee's withdrawal will be effective as of the next
business day. Following an employee's withdrawal, the Company will promptly
refund to him his or her entire account balance under the Plan (after payment
for any Common Stock purchased before the effective date of withdrawal). Partial
withdrawals are not permitted. The employee may not begin participation again
during the remainder of that Offering, but may enroll in a subsequent Offering
in accordance with Section 4.
8. GRANT OF OPTIONS. On each Offering Date, the Company will grant to each
eligible employee who is then a participant in the Plan an option ("Option") to
purchase on the last day of such Offering (the "Exercise Date"), at the Option
Price hereinafter provided for, such number of whole shares of Common Stock
reserved for the purposes of the Plan as does not exceed twice (A) the lesser of
(i) $5,000, or (ii) ten percent (10%) of such employee's projected Compensation
for the period of the Offering, divided by (B) eighty five percent (85%) of the
Fair Market Value of the Common Stock (as defined in Section 11) on the Offering
Date. The purchase price for each share purchased under such Option (the "Option
Price") will be the Fair Market Value of the Common Stock on the Offering Date
or on the Exercise Date, whichever is less, times 85%.
Notwithstanding the foregoing, no employee may be granted an option
hereunder if such employee, immediately after the option was granted, would be
treated as owning stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any
Parent or Subsidiary (as defined in Section 11). For purposes of the preceding
sentence, the attribution rules of Section 424(d) of the Code shall apply in
determining the stock ownership of an employee, and all stock which the employee
has a contractual right to purchase shall be treated as stock owned by the
employee. In addition, no employee may be granted an Option which permits his
rights to purchase stock under the Plan, and any other employee stock purchase
plan of the Company and its Parents and Subsidiaries, to accrue at a rate which
exceeds $25,000 of the fair market value of such stock (determined on the option
grant date or dates) for each calendar year in which the Option is outstanding
at any time. The purpose of the limitation in the preceding sentence is to
comply with Section 423(b)(8) of the Code.
9. EXERCISE OF OPTION AND PURCHASE OF SHARES. Each employee who continues to
be a participant in the Plan on the Exercise Date shall be deemed to have
exercised his Option on such date and shall acquire
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from the Company such number of whole shares of Common Stock reserved for the
purpose of the Plan as his accumulated payroll deductions on such date will
purchase at the Option Price, subject to any other limitations contained in the
Plan. Any balance remaining in an employee's account at the end of an Offering
will be refunded to the employee promptly, together with ninety days' interest
on the amount of such balance at the short term applicable federal rate in
effect at the Offering Date, or such other rate of interest as the Committee may
establish or approve (the "Interest Rate") for the Offering Period then ended.
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
or in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, and such certificates will be delivered a soon a
practicable under the circumstances.
11. DEFINITIONS. The term "Compensation" means the amount of base pay, prior
to salary reduction pursuant to either Section 125 or 401(k) of the Code,
including commissions, overtime, cash incentive and cash bonus awards which are
actually paid during the Offering Period, but excluding allowances and
reimbursements for expenses such as relocation allowances or travel expenses,
income or gains on the exercise of Company stock options, and similar items.
The term "Fair Market Value of the Common Stock" means (i) if the Common
Stock is admitted to trading on a national securities exchange or the Nasdaq
National Market on the date the Option is granted, not less than the closing
price reported for the Common Stock on such exchange or system for such date or,
if no sales were reported for such date, for the last date preceding such date
for which a sale was reported, or (ii) if the Common Stock is not admitted to
trading on any exchange or the Nasdaq National Market, but is admitted to
quotation on the National SmallCap Market or is quoted on the over the counter
market on the date the Option is granted, then not less than the average of the
highest bid and lowest asked prices of the Common Stock on the Nasdaq SmallCap
Market or the over the counter market reported for such date, or if in either
case the applicable market is not open for trading on that date, then on the
last date preceding on which the applicable market was open. In each case, Fair
Market Value shall be determined by the Committee in good faith.
The term "Subsidiary" means a "subsidiary corporation" with respect to the
Company, as defined in Section 424(f) of the Code.
12. RIGHTS ON RETIREMENT, DEATH, OR OTHER TERMINATION OF EMPLOYMENT. If a
participating employee's employment terminates for any reason before the
Exercise Date for any Offering, no further payroll deduction will be taken from
any pay due and owing to the employee after that date and the balance in his
account will be paid to him or her, or in the case of his or her death to his or
her designated beneficiary, as if he or she had withdrawn from the Plan under
Section 7. An employee will be deemed to have terminated employment for this
purpose if the corporation that employs him or her, having been a Subsidiary,
ceases to be a Subsidiary, or if the employee is transferred to any corporation
other than the Company or a Subsidiary.
13. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
employee nor the deduction of amounts from his pay shall constitute such
employee a holder of the shares of Common Stock covered by an Option under the
Plan until such shares have been purchased by and issued to him.
14. RIGHTS NOT TRANSFERABLE. Rights under the Plan are not transferable by a
participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
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15. APPLICATION OF FUNDS. All funds received or held by the Company under
the Plan may be combined with other corporate funds and may be used for any
corporate purpose.
16. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a dividend
in Common Stock, the number of shares approved for the Plan, and the share
limitation set forth in Section 8, shall be increased proportionately, and such
other adjustment shall be made as may be deemed equitable by the Committee. In
the event of any other change affecting the Common Stock, such adjustment shall
be made as may be deemed equitable by the Committee to give proper effect to
such event.
17. AMENDMENT OF THE PLAN. The Board of Directors may at any time, and from
time to time, amend the Plan in any respect, except to the extent that any
amendment requires stockholder approval: (a) under Section 423 of the Code
because (i) it increases the number of shares approved for issuance under the
Plan, (ii) it changes the designation of the corporations or class of
corporations whose employees are eligible to receive Options under the Plan, or
(iii) otherwise; or (b) in order to be eligible for exemption under any rule
under Section 16 of the Securities Exchange Act of 1934; then in either case
such amendment shall be subject to stockholder approval within the time period
and in the manner required by such law or regulation.
18. INSUFFICIENT SHARES. If the total number of shares of Common Stock that
would otherwise be purchased on any Exercise Date exceeds the maximum number of
shares permitted to be issued in that Offering, the shares then available shall
be apportioned among participants in proportion to the amount of withheld
Compensation accumulated on behalf of each participant as of the Exercise Date
that would otherwise be used to purchase Common Stock on such Exercise Date. Any
Compensation withheld from a participant which is not applied to the purchase of
Common Stock shall be refunded, together with ninety days' interest at the
Interest Rate.
19. TERMINATION OF THE PLAN. The Plan may be terminated at any time by the
Board of Directors. Upon termination of the Plan, all amounts in the accounts of
participating employees shall be promptly refunded, together with interest at
the Interest Rate for a number of days equal to one-half the number of days
during the Option period during which amounts were withheld.
20. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and deliver
Common Stock under the Plan is subject to listing of such shares on the
principal public trading market on which the Company's Common Stock is then
listed and to obtaining of all governmental approvals required in connection
with the authorization, issuance, or sale of such stock. The Plan shall be
governed by Massachusetts law except to the extent that such law is preempted by
federal law.
21. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option from
authorized but unissued Common Stock, from shares held in the treasury of the
Company, or from any other proper source.
22. TAX WITHHOLDING. Participation in the Plan is subject to any required
tax withholding on income of the participant in connection with the Plan. Each
employee agrees, by entering the Plan, that the Company and its Subsidiaries
shall have the right to deduct any such taxes from any payment of any kind
otherwise due to the employee, including shares issuable under the Plan.
23. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by entering the
Plan, to give the Company prompt notice of any disposition of shares purchased
under the Plan where such disposition occurs within two years after the date of
grant of the Option pursuant to which such shares were purchased.
24. EFFECTIVE DATE AND APPROVAL OF STOCKHOLDERS. The Plan shall take effect
on November 1, 1998, subject to approval by the holders of a majority of the
shares of stock of the Company present or represented and entitled to vote at a
meeting of stockholders, which approval must occur within twelve (12) months
before or after the adoption of the Plan by the Board.
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DETACH HERE
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PROXY
INTERLEAF, INC.
Proxy for the Annual Meeting of Shareholders to be held August 24, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY
The undersigned, revoking all prior proxies, hereby appoint(s) Jaime W.
Ellertson and Peter J. Rice and Craig Newfield, 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 Interleaf, Inc., 62
Fourth Avenue, Waltham, Massachusetts on Monday, August 24, 1998 at 10:00
a.m., local time, and at any adjournment thereof.
This 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.
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
<PAGE>
DETACH HERE
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/x/ Please Mark votes as in this example.
1. To elect the following nominee as Class II Director (must be marked below):
NOMINEE: Jaime W. Ellertson
FOR WITHHOLD
/ / / /
Mark here if you plan to attend the meeting. / /
Mark here for address change and note below. / /
2. To approve amendments to the Company's 1993 FOR AGAINST ABSTAIN
Director Stock Option Plan, as adopted by the / / / / / /
Board of Directors on June 15, 1998.
3. To adopt the Interleaf, Inc. 1998 Employee FOR AGAINST ABSTAIN
Stock Purchase Plan, as approved by the Board / / / / / /
of Directors on June 15, 1998.
4. To ratify the appointment of Pricewaterhouse- FOR AGAINST ABSTAIN
Coopers L.L.P. as the Company's independent / / / / / /
auditors for the 1999 fiscal year.
At their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment thereof.
Signature Date
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Signature Date
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