<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
MicroTouch Systems, 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
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[_] 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.
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(4) Date Filed:
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Notes:
<PAGE>
Dear Fellow Shareholder:
You are cordially invited to attend the MicroTouch Annual Meeting of
Shareholders (the "Annual Meeting") to be held at 10:00 a.m. on Thursday, June
25, 1998 at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
One Financial Center, Boston, Massachusetts 02111.
You will be asked at the meeting to elect two directors, to amend the 1992
Equity Incentive Plan, and to ratify the selection of Arthur Andersen LLP as
MicroTouch's independent auditors for 1998.
As set forth in the accompanying Proxy Statement, which you are urged to read,
your Board of Directors recommends that you vote "FOR" the proposals.
At the Annual Meeting management will be available for a discussion period to
answer your questions, and we welcome your comments. Representatives from Arthur
Andersen will also be available to answer questions.
The Board of Directors appreciates and encourages shareholder participation in
MicroTouch's affairs. Whether or not you plan to attend the Annual Meeting, it
is important that your shares be represented. Accordingly, we request that you
sign, date and mail the enclosed proxy in the envelope provided at your earliest
convenience.
Thank you for your cooperation.
Very truly yours,
D. Westervelt Davis
President, Chief Executive Officer and
Director
<PAGE>
NOTICE OF May 15, 1998
ANNUAL MEETING
OF SHAREHOLDERS To the Shareholders:
The Annual Meeting of Shareholders of MicroTouch Systems,
Inc. will be held on June 25, 1998 at the offices of Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial
Center, Boston Massachusetts, at 10:00 a.m., for the
following purposes:
(1) To elect two Class III directors.
(2) To amend the 1992 Equity Incentive Plan.
(3) To approve Arthur Andersen LLP as independent
auditors of the Corporation for fiscal 1998.
(4) To transact such other business as may properly
come before the meeting or any adjournment thereof.
Shareholders of record at the close of business on May 12,
1998 are entitled to vote at the meeting.
Diane Burak
Clerk
<PAGE>
MICROTOUCH SYSTEMS, INC.
300 GRIFFIN PARK
METHUEN, MASSACHUSETTS 01844
TELEPHONE (978) 659-9000
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 25, 1998.
The accompanying proxy is solicited by the Board of Directors, and all the
expenses of the solicitation will be borne by the Corporation. No costs of
solicitation have been incurred to date. The solicitation will be by mail, and
may also be made personally and by telephone by a presently indeterminable
number of officers and employees of the Corporation or by an independent
organization on behalf of the Corporation.
The annual report to shareholders was sent to shareholders with this proxy
statement and accompanying proxy on or about May 15, 1998.
VOTING
The Corporation has only one class of shares outstanding. The Board of
Directors has fixed the close of business on May 12, 1998 as the record date for
determination of shareholders entitled to notice of and to vote at the Annual
Meeting of Shareholders on June 25, 1998 (the "Annual Meeting"). As of March
20, 1998 there were outstanding 7,811,248 shares of common stock of $0.01 par
value per share (the "Common Stock"), each such share being entitled to one
vote. At any time prior to the Annual Meeting, a shareholder may revoke his or
her proxy by filing a proxy bearing a later date with the Clerk of the
Corporation. If a shareholder attends the Annual Meeting, such shareholder may
revoke his or her proxy at that time and vote in person. Proxies will be voted
as directed by the shareholder. Unless otherwise directed, proxies will be
voted for the election of the nominees for Class III director listed below, for
the amendments of the 1992 Equity Incentive Plan and for the approval of Arthur
Andersen LLP ("Arthur Andersen") as the independent auditors of the Corporation.
A majority in interest of all stock issued, outstanding and entitled to vote at
the Annual Meeting, represented at the Annual Meeting, in person or by proxy,
constitutes a quorum for the transaction of business. Signed but unmarked
proxies will be counted as favorable votes; pursuant to Massachusetts law,
broker non-votes and proxies marked as abstentions will be counted as shares
present for the purpose of determining the presence of a quorum but broker non-
votes will not be counted as votes properly cast and will not affect the outcome
of the voting. Proxies marked as abstentions will be counted as votes properly
cast and, accordingly, will have the effect of a negative vote. The favorable
vote of a plurality of the shares represented at the meeting is required for the
election of the directors. The favorable vote of a majority of the shares
represented at the meeting is required for the amendment of the 1992 Equity
Incentive Plan and the ratification of Arthur Andersen. Pursuant to the
Corporation's By-Laws, no business may be transacted at the meeting other than
the business specified in the notice of the meeting and business properly
brought before the meeting at the direction of the Board of Directors, the
Chairman of the Board or the President.
1
<PAGE>
PROPOSAL I - NOMINATION AND ELECTION OF DIRECTORS
The Corporation's Board of Directors is divided into three classes. The Board
is currently comprised of two Class I directors, two Class II directors and one
Class III director. At each Annual Meeting of Shareholders, a class of
directors is elected for a three-year term to succeed the directors of the same
class whose terms are then expiring. The terms of the current Class III
director, Class I directors and Class II directors, respectively, will expire
upon the election and qualification of directors at the Annual Meeting of
Shareholders held in 1998, 1999 and 2000. At this Annual Meeting, an additional
Class III director has been nominated for election, increasing the total number
of Class III directors to two.
Pursuant to the provisions of the By-Laws of the Corporation, two Class III
directors are to be elected at the Annual Meeting. The nominees for Class III
members of the Board of Directors are James D. Logan, who currently serves as a
Class III director, and Peter Brumme. A person elected as director to a specific
class will serve until the expiration of such director's three-year term, and in
each case until the particular director's successor has been elected and
qualified. The board recommends a vote FOR the nominees.
If for any reason either nominee should not be a candidate for election at the
time of the Annual Meeting, the proxies may be voted, in the discretion of those
named as proxies, for a substitute nominee or nominees.
Following are summaries of the background and business experience and
descriptions of the principal occupations of the Directors and the nominees for
election to the Board of Directors.
James D. Logan Age: 45 (Nominee for re-election as a Class III Director)
- --------------------
Mr. Logan founded MicroTouch in 1983. He has served as Chairman of the Board
since April 1992. In April 1996, he stepped down as President and Chief
Executive Officer, roles he had held since 1983 and 1992, respectively, to
pursue other business interests. He continues to serve as Chairman of the Board.
Prior to founding the Corporation, he was employed by Chemical Banking
Corporation from 1979 to 1981. Mr. Logan received an M.B.A. from the Amos Tuck
School of Business Administration at Dartmouth College, where he was an Edward
Tuck Scholar, and a B.A. from Hamilton College.
D. Westervelt Davis Age: 50
- -------------------------
Since April 1996, Mr. Davis has served as President and Chief Executive Officer
of the Corporation and has been a director of the Corporation (Class I) since
1991. Previously, Mr. Davis was the President of Lasertron, a Division of Oak
Industries, a manufacturer of semiconductor components for fiber optic
communications, from November 1994 to March 1996. From April 1992 to November
1994 Mr. Davis was a principal with Rand Griffin, a strategy consulting firm.
From April 1989 to April 1992 Mr. Davis was President and Chief Executive
Officer of Autographix, a privately held software developer and system
integrator for the presentation graphics market. On November 3, 1993 Autographix
filed a petition of
2
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bankruptcy. From January 1984 to September 1988 Mr. Davis was President of
General Scanning, at the time a privately held manufacturer of laser scanners
and oscillographic recorders. Mr. Davis received an M.B.A. from the Harvard
Graduate School of Business Administration and a B.S.E. from Princeton
University.
Ronald Fisher Age: 50
- -------------------
Mr. Fisher has been a director of the Corporation (Class II) since 1991. Mr.
Fisher has been Vice Chairman of SOFTBANK Holdings, Inc., a global technology
infrastructure provider, since October 1995. Mr. Fisher was President, Chief
Executive Officer and a member of the Board of Directors of Phoenix
Technologies, Ltd., a developer and marketer of system software products for
personal computers and printers, from January 1990 to February 1996; and he
continues to serve as Chairman of Phoenix Technologies, Ltd. From 1984 to 1990
he was the Chief Operating Officer and then President and Chief Executive
Officer of Interactive Systems Corp., a software corporation. Mr. Fisher is
also a director of Segue Software and SOFTBANK Corporation, both publicly held
companies. Mr. Fisher received an M.B.A. from Columbia University and a
Bachelor of Commerce from the University of Witwatersrand, South Africa.
Edward J. Stewart, III Age: 52
- ----------------------------
Mr. Stewart has been a director of the Corporation (Class II) since 1983. Mr.
Stewart has been General Partner of Kestrel Venture Management, a venture
capital firm, and its predecessor, and a series of affiliated venture capital
partnerships since September 1983. Mr. Stewart is a director of nine privately
held companies. Mr. Stewart received an M.B.A. from the Harvard Graduate School
of Business Administration and a B.S. from Yale University.
Frank Manning Age: 49
- -------------------
Mr. Manning has been a director of the Corporation (Class I) since 1993. He is
President, Chief Executive Officer and Chairman of the Board of Zoom
Telephonics, Inc., a publicly held manufacturer of computer modems and other
data communication products which he co-founded in 1977. Mr. Manning received
his B.S., M.S., and Ph.D. in Electrical Engineering from the Massachusetts
Institute of Technology, where he was a National Science Foundation fellow.
Peter Brumme Age: 48 (Nominee for election as a Class III Director)
- ------------------
Mr. Brumme is a candidate for election to the Board of Directors of the
Corporation (Class III). Since January 1997 Mr. Brumme has been the Chief
Operating Officer of SilverStream Software, Inc. From March 1993 to January 1997
Mr. Brumme was the Chief Operating Officer of Watermark Software, Inc., a
privately held provider of Windows-based imaging software. From January 1992 to
March 1993 Mr. Brumme was the Chief Operating Officer of Software Developer's
Company, a privately held provider of software development tools. From May 1990
to December 1991 Mr. Brumme was the Senior Vice President, Sales and Marketing
of Microcom, Inc., a leading manufacturer of protocol modems, dial-up network
management systems, internetworking bridges/router and communications/utilities
software. Prior to that Mr. Brumme held various Sales/Marketing related
positions with progressive levels of responsibility. Mr. Brumme received a
Master of Science from Cornell University and a B.S. in Applied Mathematics from
MIT.
3
<PAGE>
Five meetings of the Board of Directors were held during 1997. The Board has
two committees: Compensation, which met once during 1997; and Audit, which met
twice during 1997. The Corporation does not have a nominating committee. Each
incumbent director had an attendance record of 100% at meetings, including
meetings of committees on which he served.
The Audit Committee, currently consisting of Messrs. Stewart and Manning,
nominates the Corporation's independent auditing firm, reviews the scope of the
audit and approves in advance reviews by the independent auditors, their
activities and recommendations regarding internal control, and meets with the
independent auditors and management, each of whom had direct and open access to
the Audit Committee. The Compensation Committee, which consists of Messrs.
Fisher and Stewart, determines the compensation of officers other than employee
directors (as to whom the Committee makes recommendations to the Board of
Directors which then determines their compensation). See "Compensation
Committee Report to Shareholders" below.
For serving the Corporation as directors, directors receive a fee of $750 for
each board or committee meeting attended. Additionally, upon election to the
Board of Directors, each new non-employee director shall receive options to
purchase 10,000 shares of Common Stock. Immediately following the Annual
Shareholders' Meeting each year, each non-employee director shall automatically
receive options to purchase 5,000 shares of Common Stock. The options have a
term of 10 years and are priced at the last sale price of the Corporation's
Common Stock for the day previous to the date of the grant.
Compensation Committee Interlocks and Insider Participation
Messrs. Fisher and Stewart, each an outside director, are the members of the
Corporation's Compensation Committee. Neither member of the Compensation
Committee has at any time been an officer or employee of the Corporation or any
of its subsidiaries. No executive officer of the Corporation served as a member
of the compensation committee or board of directors of any other entity which
has an executive officer serving as a member of the Corporation's Board of
Directors or Compensation Committee.
SECURITY OWNERSHIP
Except as set forth below, no person or group, to the knowledge of the
Corporation, owns five percent or more of the Common Stock.
The following table sets forth information as of March 20, 1998 with respect to
the amount of Common Stock held by each director, named Executive Officer, (as
defined below) holder of 5% or more of the Corporation's Common Stock and all
directors and executive officers as a group (in each case, the beneficial owner
of the shares shown has sole voting and sole investment power):
4
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME COMMON SHARES BENEFICIALLY TOTAL COMMON
- ---- OWNED SHARES OWNED
-------------------------- -------------
<S> <C> <C>
INVESCO Inc. 637,200 8.2%
1315 Peachtree St. NE
Atlanta, GA 30309
Schroder Capital Management International 473,540 6.1%
787 Seventh Avenue - 34th Floor
New York, NY 10019
State of Wisconsin Investment Board 450,000 5.8%
P.O. Box 7842
Madison, WI 53707
James D. Logan (1) 270,589 3.4%
Peter Brumme ---- ----
D. Westervelt Davis (2) 139,501 1.8%
Ronald D. Fisher (3) 29,166 0.4%
Frank Manning (4) 23,333 0.3%
Edward J. Stewart, III (5) 25,166 0.3%
Joel M. Blenner (6) 26,321 0.3%
Geoffrey P. Clear (7) 72,501 0.9%
Robert J. Senior (8) 37,320 0.5%
Jeffrey Shaw (9) 11,250 0.1%
Directors and Executive Officers as a group
11 individuals (includes options to acquire 711,638 8.7%
395,000 shares which vest prior to 5/20/98)
</TABLE>
(1) Consists of 230,589 shares owned directly by Mr. Logan and options to
acquire 40,000 shares which vest prior to 5/20/98.
(2) Consists of 7,000 shares owned directly by Mr. Davis and options to acquire
132,501 shares which vest prior to 5/20/98.
(3) Consists of options to acquire 29,166 shares which vest prior to 5/20/98.
(4) Consists of options to acquire 23,333 shares which vest prior to 5/20/98.
(5) Consists of 16,000 shares owned directly by Mr. Stewart and options to
acquire 9,166 shares which vest prior to 5/20/98. Mr. Stewart disclaims
beneficial ownership of an additional 5,000 shares owned by family members.
(6) Consists of 1,320 shares owned directly by Mr. Blenner and options to
acquire 25,001 shares which vest prior to 5/20/98.
(7) Consists of 1,833 shares owned directly by Mr. Clear and options to acquire
70,668 shares which vest prior to 5/20/98.
(8) Consists of 3,320 shares owned directly by Mr. Senior and options to
acquire 34,000 shares which vest prior to 5/20/98.
(9) Consists of options to acquire 11,250 shares which vest prior to 5/20/98.
5
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE'S REPORT TO SHAREHOLDERS
The executive compensation program for the Corporation is administered by the
Compensation Committee of the Board of Directors (the "Committee") which is
composed of the individuals listed below, who are outside, non-employee
directors of the Corporation with responsibility for all compensation matters
for the Corporation's senior management other than employee directors, as to
whom the Committee makes recommendations to the Board of Directors, which then
determines their compensation.
The program has been designed to enable the Corporation to attract, motivate and
retain senior management by providing a competitive total compensation package
based on performance. It provides for competitive base salaries, which reflect
individual performance; annual variable performance incentive opportunities,
which are payable in cash for the achievement of performance goals established
by the Committee; and long-term, stock-based incentive opportunities, which
strengthen the mutuality of interests between senior management and the
Corporation's shareholders. The annual performance incentive opportunities and
long-term incentive opportunities established by the Committee are intended to
be competitive with competitor incentive compensation opportunities based on
surveys conducted by independent compensation consulting firms.
In designing and administering the individual elements of the executive
compensation program, the Committee strives to balance short and long-term
incentive objectives and to employ prudent judgment in establishing performance
criteria, evaluating performance and determining actual incentive payments.
Following is a discussion of each of the elements of the executive compensation
program along with a description of the decisions and actions taken by the
Committee with regard to 1997 compensation and specific discussion of the
decisions regarding the Chief Executive Officer's ("CEO's") compensation.
ANNUAL COMPENSATION
Annual total cash compensation for senior management consists of base salary and
the annual variable performance incentive earned under the Corporation's Key
Executive Bonus Plan. Total annual cash compensation varies each year based on
achievement of Corporation performance goals established by the Committee under
the annual incentive plan and changes in base salary.
Payment of the annual variable performance incentive award for the Executive
Officers appearing in the tabular disclosure which follows is based on
achievement of various goals, both financial and strategic. For 1997, the
Committee determined that bonus awards would be calculated as percentages of
base salary, and based upon the achievement of an operating income target for
the Executive Officers, except the CEO, whose award is discussed separately
below, and the Vice-President - Sales, whose award is also based on a sales
level target. To the extent that these targets were exceeded bonus awards would
increase commensurately. Having determined that management exceeded the
operating income target and the sales target, the
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Committee then set the bonus payment accordingly. The bonuses awarded are listed
in the Summary Compensation Table which follows.
LONG-TERM COMPENSATION
The long-term incentive program for senior management consists of awards granted
under the 1992 Equity Incentive Plan (the "Plan"), which is administered by the
Compensation Committee. The Plan provides for awards of stock options, stock
appreciation rights, restricted stock and performance shares. To date, only
stock options have been granted under the Plan. During 1997, in recognition of
the completed objectives noted above, the following stock option grants were
awarded to three of the four most highly compensated officers of the
Corporation, other than the CEO: 1) to Joel M. Blenner, Vice President - Sales,
9,000 shares; 2) to Geoffrey P. Clear, Vice President-Finance & Administration,
8,000 shares; and 3) to Robert J. Senior, Vice President and General Manager-
European Operations, 8,000 shares. Mr. Jeffrey Shaw joined the Corporation as
Vice-President of Quality and Operations in January, 1997. He was awarded a
stock option grant of 45,000 shares as an incentive at that time.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Mr. Davis' base salary was determined by comparing salaries of executives of
similar companies based on the Company's internal benchmarking survey
activities. Mr. Davis also participates in the Key Executive Bonus Plan and the
1992 Equity Incentive Plan, as discussed above. However, Mr. Davis' award is
tied to long-range performance targets for the Corporation's Business Products
Division as well as the current year operating income target. As a result of
the failure to meet revenue goals in the Business Products Division, Mr. Davis
received no bonus for 1997. However, in recognition of the operating income
target achieved for the Corporation, Mr. Davis received a stock option grant of
50,000 shares.
The Compensation and Stock Option tables which follow in this proxy statement,
and accompanying narrative and footnotes, reflect the decisions covered by the
above discussion.
By the Compensation Committee,
Ronald Fisher
Edward J. Stewart III
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The following table shows, for the fiscal years indicated, the annual
compensation paid by the Corporation, together with long-term and other
compensation, for the current Chief Executive Officer and the next four most
highly compensated executive officers in 1997 (the "Named Executive Officers")
of the Corporation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- AWARDS
-------------
Securities
Underlying
Year Salary Bonus (1) Options
--------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
D. Westervelt Davis 1997 $200,000 -0- 50,000
President, Chief Executive 1996 $142,308 $ 85,125 200,000
Officer and Director (2)
Geoffrey P. Clear 1997 $138,308 $ 54,000 8,000
Vice President - Finance & 1996 $129,508 $ 47,775 4,000
Administration, Chief Financial 1995 $120,000 $ 30,000 9,000
Officer and Treasurer
Robert J. Senior 1997 $152,137 $107,941 8,000
Vice President & General Manager 1996 $129,049 $ 48,507 4,000
- European Operations 1995 $141,724 $ 15,680 3,000
Joel M. Blenner 1997 $146,969 $ 88,562 9,000
Vice President -Sales (3) 1996 $115,385 $ 55,925 45,000
Jeffrey Shaw 1997 $135,577 $ 55,000 45,000
Vice President - Quality and
Operations (4)
</TABLE>
_______________________
(1) Reflects amounts awarded for performance in the respective fiscal year,
even though the compensation may not have actually been paid until a later
date.
(2) Mr. Davis became President and Chief Executive Officer in April, 1996. He
continues to serve as a Director (Class I) of the Corporation.
(3) Mr. Blenner became Vice President - Sales in March, 1996.
(4) Mr. Shaw became Vice President - Quality and Operations in January, 1997.
8
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EXECUTIVE OFFICERS
The current executive officers of the Corporation who are not also directors are
listed below. Each such person's term of office extends until the meeting of the
Board of Directors following the Annual Meeting and until his successor is
elected and qualified.
Mr. Geoffrey Clear (Age: 48) has been Vice President - Finance & Administration,
Chief Financial Officer and Treasurer of the Company since February 1992. He was
Vice President - Finance and Administration at T Cell Sciences, Inc., a
biotechnology company, from April 1986 until February 1992. Previously he served
as Division Controller for the Organic Chemicals Division of W.R. Grace & Co., a
manufacturer of specialty chemicals, from March 1982 to April 1986. Mr. Clear is
a Certified Public Accountant and a member of the Financial Executives
Institute. Mr. Clear received an M.B.A. from the Amos Tuck School of Business
Administration at Dartmouth College, where he was an Edward Tuck Scholar, and a
B.A. from Dartmouth College.
Mr. Robert Senior (Age: 41) has been Vice President and General
Manager -European Operations since January 1995. Before that, he was Vice
President -Sales from March 1993 until December 1994. He was General Manager of
the Company's U.K. subsidiary from January 1991 until March 1993. Previously, he
served as National Sales Manager (U.K.) for Poqet Computer, a U.S. manufacturer
of hand-held personal computers and as Business Development Manager for NCR
Ltd., the U.K. subsidiary of the U.S. - based computer equipment manufacturer.
Mr. Senior received a B. Ed. in Physics from Exeter University.
Mr. Joel Blenner (Age: 54) has been Vice President - Sales since March 1996.
Previously he was Senior Vice President - Sales for Digital Products
Corporation, a privately held manufacturer of print servers. Prior to that, he
was Vice President - Sales at Network Communications Corporation, a privately
held manufacturer of network management equipment and Vice President - Sales at
Corporate Software, Inc., a public company selling software and providing
related services. Mr. Blenner holds a BA degree in Psychology from Southern
Connecticut State University.
Mr. Jeffrey Shaw (Age: 51) has been Vice President - Quality and Operations
since January 1997. Previously he was Vice President - Operations for ACT
Manufacturing, Inc., a contract manufacturing company. Prior to that, he was
Vice President - Operations at Xyplex, Inc., and PictureTel Corporation, as well
as Vice President of Global Support Operations at Octocom Systems. Mr. Shaw
began his career as an engineer with Western Electric. Mr. Shaw holds a MS in
Metallurgy and Materials from Lehigh University and a BS in Electrical
Engineering from Worcester Polytechnic Institute.
Ms. Janet Muto (Age: 41) has been Vice President - Marketing since April 1997.
Previously she was Worldwide Marketing Director of Hewlett Packard's $2 billion
Workstation Division. Prior roles at Hewlett Packard included Worldwide Sales
and Support Manager, Workstations Systems Division; Commercial Market
Development Manager, Entry Systems Division; Workstation Systems Group and
District Sales Manager. Prior to that, Ms. Muto held sales and marketing
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<PAGE>
positions at Apollo Computer and Prime Computer. Ms. Muto earned an MBA in
Marketing and Management from Babson College and a BA in Political Science from
Trinity College.
Mr. Bernie Geaghan (Age: 50) has been Vice President - Research and Development
since May 1995. Before that he was Vice President - Engineering from March 1990
to April 1995. From January 1989 until February 1990, he was Vice
President -Engineering at Transition Technology, Inc., a manufacturer of
industrial control equipment. From May 1987 until January 1989 he was a Senior
Department Manager at Data General Corporation, a manufacturer of minicomputers.
Previously, he was employed as Vice President of Engineering at Visual
Technology, Inc., a manufacturer of video terminals, and as an engineering
manager at Digital Equipment Corporation. Mr. Geaghan received a B.S. in
Electrical Engineering from the University of Maine.
There are no family relationships between any of the Corporation's directors,
executive officers or people nominated to become directors or executive officers
of the Corporation.
10
<PAGE>
The following table contains information concerning the grant of stock options
to Named Executive Officers during the last fiscal year.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------------------------------------------------------------
Number of Percentage of
Securities Total Options
Underlying Granted to Market Price
Options Employees in Exercise as of Expiration Grant Date
Name Granted (1) 1997 Price Grant Date Date Present Value (2)
- ---- ------------ ------------ -------- ------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
D. Westervelt Davis 50,000 15.3% $19.75 $19.75 3/31/07 $484,000
Geoffrey P. Clear 8,000 2.5% $19.75 $19.75 3/31/07 $ 78,000
Robert J. Senior 8,000 2.5% $19.75 $19.75 3/31/07 $ 78,000
Joel M. Blenner 9,000 2.8% $19.75 $19.75 3/31/07 $ 89,000
Jeffrey Shaw 45,000 13.8% $23.25 $23.25 1/13/07 $513,000
</TABLE>
(1) Options granted become exercisable in equal annual installments over 4
years.
(2) Based on the Black-Scholes option pricing model adapted for use in valuing
stock options. The actual value, if any, that an executive may realize will
depend on the excess of the stock price over the exercise price on the date
the option is exercised and there is no assurance the value realized by an
executive will be at or near the value estimated by the Black-Scholes
model. The estimated values under that model are based on arbitrary
assumptions as to variables such as interest rates (a weighted average of
6.3%) and stock price volatility (.61). Amounts indicated are not intended
to be a forecast of possible future appreciation, if any, in the price of
the Corporation's Common Stock.
11
<PAGE>
The following table sets forth information with respect to the Named Executive
Officers concerning option exercises during the last fiscal year and unexercised
options held as of the end of the last fiscal year.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
-----------------------------------------------------------------------------------------------------------
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Value Options Held at In-the Money Options at
on Exercise Realized December 31, 1997 December 31, 1997 (1)
----------- --------- ---------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
D. Westervelt Davis 0 0 65,000 207,500 $203,000 $160,000
Geoffrey P. Clear -0- -0- 63,000 20,000 $814,000 $ 32,000
Robert J. Senior -0- -0- 25,000 19,000 $222,000 $ 61,000
Joel M. Blenner -0- -0- 11,250 42,750 $ 14,000 $ 42,000
Jeffrey Shaw -0- -0- -0- 45,000 $ 0 $ 0
</TABLE>
(1) Based on the difference between the closing price of the Corporation's
Common Stock as reported on the Nasdaq Stock Market as of 12/31/97 ($15.75)
and the exercise price of the respective options. Dollar values rounded to
the nearest thousand.
12
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The comparative stock performance graph below compares the cumulative
shareholder return on the Common Stock of the Corporation for the period from
January 1, 1993 through the fiscal year ended December 31, 1997 with the
cumulative total return for (i) the NASDAQ Market Value Index for the NASDAQ
Stock Market (the "NASDAQ Market Index"), and (ii) a group consisting of
publicly-traded U.S. companies in the Corporation's industry (based on Standard
Industrial Classification Code Number 3577, "Computer Peripheral Equipment")
(the "Peer Group Index") for the same period, assuming the investment of $100 in
the Corporation's Common Stock, the NASDAQ Market Index and the Peer Group Index
on January 1, 1993 and reinvestment of all dividends. Measurement points are on
January 1, 1993 and the last trading day of the Corporation's fiscal years ended
December 31, 1993, 1994, 1995, 1996 and 1997. On November 1, 1994 the
Corporation's stock was split two-for-one.
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
- -------------------------------FISCAL YEAR ENDING--------------------------------
COMPANY 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
MICROTOUCH SYSTEMS INC 100 98.21 642.86 173.21 342.86 225.00
INDUSTRY INDEX 100 127.72 147.00 234.64 293.68 299.09
BROAD MARKET 100 119.95 125.94 163.35 202.99 248.30
</TABLE>
13
<PAGE>
PROPOSAL II - AMENDMENTS TO THE 1992 EQUITY INCENTIVE PLAN
General
The Company's 1992 Equity Incentive Plan (the "Equity Plan") was originally
adopted by the Board of Directors and approved by the shareholders of the
Company in April 1992 and amended in June 1997. The purpose of the Equity Plan
is to attract and retain key employees and consultants of the Company and its
affiliates. The Equity Plan provides for the grant of stock options (incentive
and nonstatutory), stock appreciation rights, performance shares and restricted
stock (together the "Awards") to employees and consultants of the Company and
its affiliates ("Eligible Persons").
Currently, Awards may be made under the Equity Plan for up to a total of
2,375,000 shares of Common Stock, subject to adjustment for stock splits and
similar capital changes.
All of the Company's employees are eligible to participate in the Equity Plan.
As of March 20, 1998 options to purchase an aggregate of 3,074,000 shares of
Common Stock had been granted. Of these, options to purchase 760,000 shares had
been canceled, 867,000 had been exercised and options to purchase 1,447,000
shares remained outstanding, leaving only 61,000 shares available for new Awards
under the Equity Plan. No stock appreciation rights, performance shares,
restricted stock or other stock-based awards have been granted under the Equity
Plan. The closing price of the Company's Common Stock on March 20, 1998, as
reported by the Nasdaq Stock Market, was $17.125 per share.
Administration and Eligibility
Awards are made by the Compensation Committee which has been designated by the
Board of Directors to administer the Equity Plan. The Compensation Committee
may delegate to one or more officers the power to make awards under the Equity
Plan to persons other than officers of the Company who are subject to the
reporting requirements of Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act").
Awards under the Equity Plan are granted at the discretion of the Compensation
Committee, which determines the recipients and establishes the terms and
conditions of each award, including the exercise price, the form of payments of
the exercise price, the number of shares subject to options or other equity
rights and the time at which such options become exercisable. Currently, the
exercise price of any incentive stock option granted under the Equity Plan may
not be less than the fair market value of the Common Stock on the date of grant
and the exercise price of any nonstatutory stock option may not be less than 50%
of the fair market value of the Common Stock on the date of grant.
Proposed Amendments to the 1992 Equity Incentive Plan
The Board of Directors has voted, subject to approval of the stockholders, to
(i) increase the number of shares of Common Stock that may be subject to Awards
under the Equity Plan by 375,000 (the "Additional Shares") to an aggregate of
2,750,000, subject to adjustment for stock splits and similar capital changes
and (ii) to limit the number of shares of Common Stock which
14
<PAGE>
may be covered by Awards to any one individual in any year to 500,000 shares.
The proposed amendment, increasing the shares authorized under the Equity Plan,
is intended to ensure that a sufficient number of shares of Common Stock are
available to be issued to Eligible Persons and that Awards will be equitable.
Employees with technical skills have been and will continue to be critical to
the Corporation's success. Such employees frequently have other employment
opportunities, particularly in the geographic region where the Corporation is
located, offering compensation packages with substantial equity components. The
Corporation's philosophy has been to grant options broadly throughout the
organization. The Corporation believes that this broad-based approach to equity
compensation has been a key factor in the successful hiring and retention of
technical personnel. The proposed increase in the number of shares available
for grant is necessary to continue to hire and retain technically skilled
employees to maintain growth both domestically and internationally.
The amendment limiting the number of shares of Common Stock which may be covered
by Awards to any one individual in any year to 500,000 shares is intended to
ensure that compensation attributable to the stock options granted to the
Corporation's highest paid executive officers will not be subject to the
$1,000,000 limitation on the Corporation's income tax deduction for executive
compensation imposed by Section 162(m) of the Internal Revenue Code of 1986, as
amended. Although the Corporation has not typically granted stock options that
approach these limits, such limits will give the Corporation the flexibility to
grant such Awards, should the Compensation Committee determine that it would be
in the best interest of the Corporation to do so, without adversely affecting
the Corporation's tax deduction for compensation.
Federal Income Tax Consequences Relating to Stock Options
Incentive Stock Options. An optionee does not realize taxable income upon the
- -----------------------
grant or exercise of an incentive stock option ("ISO") under the Equity Plan.
If the optionee acquires shares of Common Stock through the exercise of an ISO
and holds the shares for at least two years from the date of the grant and at
least one year from the date of exercise, then (a) upon sale of such shares, any
amount realized in excess of the option price (the amount paid for the shares)
is taxed to the optionee as mid-term or long-term capital gain and any loss
sustained will be a mid-term or long-term capital loss, and (b) the Corporation
is not entitled to a deduction for Federal income tax purposes. The exercise of
ISOs gives rise to an adjustment in computing alternative minimum taxable income
that may result in alternative minimum tax liability for the optionee.
If the optionee acquires shares of Common Stock through the exercise of an ISO
and disposes of the shares before the expiration of the two-year and one-year
holding periods described above (a "disqualifying disposition"), then (a) the
optionee realizes ordinary income in the year of disposition in an amount equal
to the excess (if any) of the fair market value of the shares at exercise (or,
if less, the amount realized on a sale of such shares) over the option price
thereof, and (b) the Corporation is entitled to deduct such amount for Federal
income tax purposes. Any further gain realized is taxed as a short-term, mid-
term or long-term capital gain and the
15
<PAGE>
Company is not entitled to deduct such amount. A disqualifying disposition in
the year of exercise will generally avoid the alternative minimum tax
consequences of the exercise of an ISO.
Nonstatutory Stock Options An optionee does not realize taxable income upon the
- --------------------------
grant of a nonstatutory option. Upon the exercise of a nonstatutory option, the
optionee realizes ordinary income in the amount equal to the difference between
the option price and the fair market value of the shares on the date of the
exercise, and the Corporation receives a tax deduction for the same amount.
When the stock is sold, gain or loss after the date of the exercise is treated
as either short-term, mid-term or long-term capital gain depending on how long
the stock was held an the Corporation is not entitled to any further deduction.
Vote Required
The affirmative vote by the holders of a majority of the Common Stock present or
represented, and entitled to vote at the Annual Meeting is required to approve
the amendments to the Equity Plan. Broker non-votes will not be counted as
present or represented for this purpose. Abstentions will be counted as present
and entitled to vote and, accordingly, will have the effect of a negative vote.
The Board of Directors recommends a vote FOR approving the amendments to the
Equity Plan.
16
<PAGE>
PROPOSAL III - APPROVAL OF INDEPENDENT AUDITORS
Subject to the ratification by the shareholders at the Annual Meeting, the Board
of Directors of the Corporation, on recommendation of the Audit Committee, has
appointed the firm of Arthur Andersen LLP, certified public accountants, as the
independent auditors to audit the financial statements of the Corporation for
the current fiscal year. The Board may appoint a new accounting firm at any time
if it believes that such a change would be in the best interests of the
Corporation and its shareholders.
Arthur Andersen LLP has been the Corporation's auditors for the last seven
years. Representatives of Arthur Andersen LLP will be present at the Annual
Meeting with the opportunity to respond to appropriate questions and to make a
statement if they desire to do so.
The Board of Directors recommends a vote FOR ratifying the selection of Arthur
Andersen LLP as independent auditors of the Corporation for 1998.
"SECTION 16(a) BENEFICAL OWNERSHIP REPORTING COMPLIANCE"
The Corporation's executive officers and directors are required, under Section
16(a) of the Securities Exchange Act of 1934, as amended, to file reports of
ownership and changes in ownership of securities of the Corporation with the
Securities and Exchange Commission. Copies of those reports must also be
furnished to the Corporation.
Based solely on a review of (i) Forms 3 and 4, and amendments thereto,
furnished to the Corporation during 1997, (ii) Forms 5 relating to the fiscal
year ended December 31, 1997, and amendments thereto, furnished to the
Corporation, and (iii) written representations that no Form 5 was required, the
Corporation believes that, during 1997, the executive officers and directors of
the Corporation complied with all applicable Section 16(a) filing requirements.
CERTAIN TRANSACTIONS
On September 25, 1997, Mr. Peter Brumme, a nominee for election as a Class III
Director of the Corporation, received an option to purchase 5,000 shares of
Common Stock as consideration for consulting services. The option exercise
price was $26.50 per share and the option vests in its entirety on September 25,
2003.
OTHER MATTERS
Management does not know of any matters to be presented at the Annual Meeting
other than the matters described in this Proxy Statement. If, however, other
business is properly presented to the meeting, the proxy holders named in the
accompanying form of Proxy will vote the Proxy in accordance with their best
judgment. Shareholder proposals intended to be presented to the Corporation's
1999 Annual Meeting must be received by the Corporation not later than January
15, 1999 for inclusion in the Corporation's Proxy Statement and form of Proxy
relating to such meeting.
17
<PAGE>
For the Board of Directors
D. Westervelt Davis
18
<PAGE>
IMPORTANT Whether you own one share or many, you are urged to sign and
return promptly the enclosed proxy in the postage paid envelope
provided.
19
<PAGE>
MICROTOUCH SYSTEMS, INC.
1992 Equity Incentive Plan, as Amended
--------------------------------------
Section 1. Purpose
-------
The purpose of the MicroTouch Systems, Inc. 1992 Equity Incentive Plan, as
amended, (the "Plan") is to attract and retain key employees and consultants to
provide an incentive for them to assist the Company to achieve long-range
performance goals and to enable them to participate in the long-term growth of
the Company.
Section 2. Definitions
-----------
"Affiliate" means any business entity in which the Company owns directly or
indirectly 50% or more of the total combined voting power or has a significant
financial interest as determined by the Committee.
"Award" means any Option, Stock Appreciation Right, Performance Share or
Restricted Stock awarded under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Committee" means a committee of not less than three members of the Board
appointed by the Board to administer the Plan, provided that if and when the
Company is subject to Rule 16b-3 under the Securities Exchange Act of 1934, or
any successor provision ("Rule 16b-3"), each member of the Committee shall be a
non-employee director within the meaning of Rule 16b-3 and an "outside director"
or the equivalent within the meaning of Section 162(m) of the Code..
"Common Stock" or "Stock" means the Common Stock, $.01 par value per share, of
the Company.
"Company" means MicroTouch Systems, Inc.
"Designated Beneficiary" means the beneficiary designated by a Participant, in
a manner determined by the Committee, to receive amounts due or exercise rights
of the Participant in the event of the Participant's death. In the absence of
an effective
<PAGE>
designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
"Fair Market Value" means, with respect to Common Stock or any other property,
the fair market value of such property as determined by the Committee in good
faith or in the manner established by the Committee from time to time.
"Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 which is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 which is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
"Participant" means a person selected by the Committee to receive an Award
under the Plan.
"Performance Cycle" or "Cycle" means the period of time selected by the
Committee during which performance is measured for the purpose of determining
the extent to which an award of Performance Shares has been earned.
"Performance Shares" mean shares of Common Stock which may be earned by the
achievement of performance goals awarded to a Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the Securities
Exchange Act of 1934 or any successor provision.
"Restricted Period" means the period of time selected by the Committee during
which an award of Restricted Stock may be forfeited to the Company.
"Restricted Stock" means shares of Common Stock subject to forfeiture awarded
to a Participant under Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
value of shares of Common Stock over the exercise price awarded to a Participant
under Section 7.
Section 3. Administration
--------------
2
<PAGE>
The Plan shall be administered by the Committee. The Committee shall have
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The
Committee's decisions shall be final and binding. To the extent permitted by
applicable law, the Committee may delegate to one or more executive officers of
the Company the power to make Awards to Participants who are not Reporting
Persons and all determinations under the Plan with respect thereto, provided
that the Committee shall fix the maximum amount of such Awards for the Group and
a maximum for any one Participant.
Section 4. Eligibility
-----------
All employees (including part-time employees), and in the case of Awards other
than Incentive Stock Options, consultants of the Company or any Affiliate
capable of contributing significantly to the successful performance of the
Company, other than a person who has irrevocable elected not to be eligible, are
eligible to be Participants in the Plan.
Section 5. Stock Available for Awards
--------------------------
(a) Subject to adjustment under subsection (b) below, Awards may be made under
the Plan for up to 2,750,000 shares of Common Stock. If any Award in respect of
shares of Common Stock expires or is terminated unexercised or is forfeited for
any reason or settled in a manner that results in fewer shares outstanding than
were initially awarded, the shares subject to such Award or so surrendered, as
the case may be, to the extent of such expiration, termination, forfeiture or
decrease, shall again be available for award under the Plan, subject, however,
in the case of Incentive Stock Options, to any limitation required under the
Code. Common Stock issued through the assumption or substitution of outstanding
grants from an acquired company shall not reduce the shares available for Awards
under the Plan. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
(b) In the event that the Committee determines that any stock dividend,
extraordinary cash dividend, creation of a class of equity securities,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock at a price substantially below fair market value, or other similar
transaction affects the Common Stock at a price substantially below fair market
value, or other similar transaction affects the Common Stock such that an
adjustment is required in order to preserve the benefits or potential benefits
intended to be made available under the Plan, then the Committee, subject, in
the case of Incentive Stock Options, to any
3
<PAGE>
limitation required under the Code, shall equitably adjust any or all of (i) the
number and kind of shares in respect of which Awards may be made under the Plan,
(ii) the number and kind of shares subject to outstanding Awards, and (iii) the
award, exercise or conversion price with respect to any of the foregoing, and if
considered appropriate, the Committee may make provision for a cash payment with
respect to an outstanding Award, provided that the number of shares subject to
any Award shall always be a whole number.
(c) The maximum number of shares of Common Stock subject to Options that may
be granted to any Participant in the aggregate in any calendar year shall not
exceed 500,000 shares, subject to adjustment under subsection (b) above.
Section 6. Stock Options
(a) General.
-------
(i) Subject to the provisions of the Plan, the Committee may award
Incentive Stock Options and Nonstatutory Stock Options, and determine the number
of shares to be covered by each Option, the option price therefore and the
conditions and limitations applicable to the exercise of the Option. The terms
and conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code, or any successor provision, and any regulations
thereunder. See subsection (b) below.
(ii) The Committee shall establish the option price at the time each
Option is awarded. In the case of Incentive Stock Options, such price shall not
be less than 100% of the Fair Market Value of the Common Stock on the date of
award. In the case of Nonstatutory Stock Options granted at a time when the
Company is subject to Rule 16b-3, such price shall not be less than 50% of the
Fair Market Value of the Common Stock on the date of the award.
(iii) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Committee may specify in the applicable Award or
thereafter. The Committee may impose such conditions with respect to the
exercise of Options, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
(iv) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefore is received by the company.
Such payment may be made in whole or in part in case or, to the extent permitted
by the Committee at or after the award of the Option, by delivery of shares of
Common Stock owned by the optionee, valued at their Fair Market Value on the
date of delivery, or such other lawful consideration as the Committee may
determine.
4
<PAGE>
(b) Incentive Stock Options.
-----------------------
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(i) All Incentive Stock Options granted under the Plan shall, at the
time of grant, be specifically designated as such in the option agreement
covering such Incentive Stock Options. The Option exercise period shall not
exceed ten years from the date of grant.
(ii) If any employee to whom an Incentive Stock Option is to be granted
under the Plan is, at the time of the grant of such option, the owner of stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company (after taking into account the attribution of stock
ownership rule of Section 424(b) and of the Code), then the following special
provisions shall be applicable to the Incentive Stock Option granted to such
individual:
(x) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the Fair Market Value
of one share of Common Stock at the time of grant: and
(y) The option exercise period shall not exceed five years from the
date of grant.
(iii) For so long as the Code shall so provide, options granted to any
employee under the Plan (and any other incentive stock option plans of the
Company) which are intended to constitute Incentive Stock Options shall not
constitute Incentive Stock Options to the extent that such options, in the
aggregate, become exercisable for the first time in any one calendar year for
shares of Common Stock with an aggregate Fair Market Value (determined as of the
respective date or dates of grant) of more than $100,000.
(iv) No Incentive Stock Option many be exercised unless, at the time of
such exercise, the Participant is, and has been continuously since the date of
grant of his or her option, employed by the Company, except that:
(x) an Incentive Stock Option may be exercised within the period of
three months after the date the Participant ceases to be an employee of the
Company (or within such lesser period as may be specified in the applicable
option agreement), provided, that the agreement with respect to such Option
may designate a longer exercise period and that the exercise after such
three-
5
<PAGE>
month period shall be treated as the exercise of a Nonstatutory Stock
Option under the Plan;
(y) if the Participant dies while in the employ of the Company, or
within three months after the Participant ceases to be such an employee,
the Incentive Stock Option may be exercised by the Participant's Designated
Beneficiary within the period of one year after the date of death (or
within such lesser period as may be specified in the applicable Option
agreement); and
(z) if the Participant becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provision thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised within
the period of one year after the date of death (or within such lesser
period as may be specified in the Option agreement).
For all purposes of the Plan and any Option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
Section 7. Stock Appreciation Rights
-------------------------
(a) Subject to the provisions of the Plan, the Committee may award SARs in
tandem with an Option (at or after the award of the Option), or alone and
unrelated to an Option. SARs in tandem with an Option shall terminate to the
extent that the related Option is exercised, and the related Option shall
terminate to the extent that the tandem SARs are exercised. SARs granted in
tandem with Options shall have an exercise price of not less than the exercise
price of the related Option. SARs granted at a time when the Company is subject
to Rule 16b-3 shall have an exercise price of not less than 50% of the Fair
Market Value of the Common Stock on the date of award, or in the case of the
SARs grated in tandem with Options, the exercise price of the SAR shall not be
less than the exercise price of the related Option.
(b) An SAR related to an Option which can only be exercised during limited
periods following a change in control of the Company may entitle the Participant
to receive an amount based upon the highest price paid or offered for Common
Stock in any transaction relating to the change in control or paid during the
thirty-day period immediately preceding the occurrence of the change in control
in any transaction reported in any stock market in which the Common Stock is
usually traded.
6
<PAGE>
Section 8. Performance Shares
------------------
(a) Subject to the provisions of the Plan, the Committee may award Performance
Shares and determine the number of such shares for each Performance Cycle and
the duration of each Performance Cycle. There may be more than one Performance
Cycle in existence at any one time, and the duration of Performance Cycles may
differ from each other. The payment value of Performance Shares shall be equal
to the Fair Market Value of the Common Stock on the date the Performance Shares
are earned or, in the discretion of the Committee, on the date the Committee
determines that the Performance Shares have been earned.
(b) The Committee shall establish performance goals for each Cycle, for the
purpose of determining the extent to which Performance Shares awarded for such
Cycle are earned, on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time select. During any Cycle, the
Committee may adjust the performance goals for such Cycle as it deems equitable
in recognition of unusual or non-recurring events affecting the Company, changes
in applicable tax laws or accounting principles, or such other factors as the
Committee may determine.
(c) As soon as practicable after the end of a Performance Cycle, the Committee
shall determine the number of Performance Shares which have been earned on the
basis of performance in relation to the established performance goals. The
payment values of earned Performance Shares shall be distributed to the
Participator, if the Participant has died, to the Participant's Designated
Beneficiary, as soon as practicable thereafter. The Committee shall determine,
at or after the time of award, whether payment values will be settled in whole
or in part in cash or other property, including Common Stock or Awards.
Section 9. Restricted Stock
----------------
(a) Subject to the provisions of the Plan, the Committee may award shares of
Restricted Stock and determine the duration of the Restricted Period during
which, and the conditions under which, the shares may be forfeited to the
Company and the other terms and conditions of such Awards. Shares of Restricted
Stock shall be issued for no cash consideration or such minimum consideration as
may be required by applicable law.
(b) Shares of Restricted Stock may not be sold, assigned, transferred, pledged
or otherwise encumbered, except as permitted by the Committee, during the
Restricted Period. Shares of Restricted Stock shall be evidenced in such manner
as the Committee may determine. Any certificates issued in respect of shares of
Restricted Stock shall be registered in the name of the Participant and unless
7
<PAGE>
otherwise determined by the Committee, deposited by the Participant, together
with a stock power endorsed in blank, with the Company. At the expiration of
the Restricted Period, the Company shall deliver such certificates to the
Participant or if the Participant has died, to the Participant's Designated
Beneficiary.
Section 10. General Provisions Applicable to Awards
---------------------------------------
(a) Applicability of Rule 16b-3. Those provisions of the Plan which make an
---------------------------
express reference to Rule 16b-3 shall apply to the Company only at such time as
the Company's Common Stock is registered under the Securities Exchange Act of
1934, or any successor provision, and then only to Reporting Persons.
(b) Limitation on Transferability. Options shall not be transferable by the
-----------------------------
recipient other than by will or the laws of descent and distribution and are
exercisable during such person's lifetime only by such person or by such
person's guardian or legal representative; provided that the Committee may, in
its discretion, waive such restrictions in any case.
(c) Documentation. Each Award under the Plan shall be evidenced by a writing
-------------
delivered to the Participant specifying the terms and conditions thereof and
containing such other terms and conditions not inconsistent with the provisions
of the Plan as the Committee considers necessary or advisable to achieve the
purposes of the Plan or comply with applicable tax and regulatory laws and
accounting principles.
(d) Committee Discretion. Each type of Award may be made alone, in addition
--------------------
to or in relation to any other type of Award. the terms of each type of Award
need not be identical, and the Committee need not treat Participants uniformly.
Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of award or at any time thereafter.
(e) Settlement. The Committee shall determine whether Awards are settled in
----------
whole or in part in cash, Common Stock, other securities of the Company, Awards
or other property. The Committee may permit a Participant to defer all or any
portion of a payment under the Plan, including the crediting of interest on
deferred amounts denominated in cash and dividend equivalents on amounts
denominated in Common Stock.
8
<PAGE>
(f) Dividends and Cash Awards. In the discretion of the Committee, any Award
-------------------------
under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest, and (ii)
cash payments in lieu of or in addition to an Award.
(g) Termination of Employment. The Committee shall determine the effect on an
-------------------------
Award of the disability, death, retirement or other termination of employment of
a Participant and the extent to which, and the period during which, the
Participant's legal representative, guardian or Designated Beneficiary may
receive payment of an Award or exercise rights thereunder.
(h) Change in Control. In order to preserve a Participant's rights under an
-----------------
Award in the event of a change in control of the Company, the Committee in its
discretion may, at the time an Award is made or at any time thereafter, take one
or more of the following actions: (i) provide for the acceleration of any time
period relating to the exercise or realization of the Award, (ii) provide for
the purchase of the Award upon the Participant's request for an amount of cash
or other property that could have been received upon the exercise or realization
of the Award had the Award been currently exercisable or payable, (iii) adjust
the terms of the Award in a manner determined by the Committee to reflect the
change in control, (iv) cause the Award to be assumed, or new rights substituted
therefore, by another entity, or (v) make such other provision as the Committee
may consider equitable and in the best interest of the Company.
(i) Withholding. The Participant shall pay to the Company, or make provision
-----------
satisfactory to the Committee for payment of, any taxes required by law to be
withheld in respect of Awards under the Plan no later than the date of the event
creating the tax liability. In the Committee's discretion, such tax obligations
may be paid in whole or in part in shares of Common Stock, including shares
retained from the Award creating the tax obligation, valued at their Fair Market
Value on the date of delivery. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant.
(j) Foreign Nationals. Awards may be made to Participants who are foreign
-----------------
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee considers necessary
or advisable to achieve the purposes of the Plan or comply with applicable laws.
(k) Amendment of Award. The Committee may amend, modify or terminate any
------------------
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
9
<PAGE>
Participant's consent to such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
Section 11. Miscellaneous
-------------
(a) No Right To Employment. No person shall have any claim or right to be
----------------------
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to continued employment. The Company expressly reserves
the right at any time to dismiss a Participant free from any liability or claim
under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Shareholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
shareholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Stock at the time
of the Award except as otherwise provided in the applicable Award.
(c) Effective Date. Subject to the approval of the shareholders of the
--------------
Company, the Plan shall be effective on January 1, 1992. Prior to such
approval, Awards may be made under the Plan expressly subject to such approval.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or
-----------------
any portion thereof at any time, provided that no amendment shall be made
without shareholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirement. Prior to any such approval, Awards
may be made under the Plan expressly subject to such approval.
(e) Governing Law. The provisions of the Plan shall be governed by and
-------------
interpreted in accordance with the laws of the Commonwealth of Massachusetts.
10
<PAGE>
Dear Shareholder:
Please take note of the important information enclosed with this Proxy.
There are a number of issues related to the operation of the Corporation
that require your immediate attention.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on the proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy in the enclosed
postage- paid envelope.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
MicroTouch Systems, Inc.
<PAGE>
MICROTOUCH SYSTEMS, INC.
(THE "CORPORATION")
The undersigned, revoking previous proxies relating to the shares subject
hereto, hereby acknowledges receipt of the Notice and Proxy Statement dated
P May 15, 1998 in connection with the Corporation's 1998 Annual Meeting of
R Shareholders to be held at 10:00 a.m. on June 25, 1998 at the offices of
O Mintz, Levin, Cohn, Ferris, Glovsky, Popeo, P.C., One Financial Center,
X Boston, Massachusetts and hereby appoints Geoffrey P. Clear and John Collins,
Y and each of them (with full power to act alone), the attorneys and proxies of
the undersigned, with power of substitution to each, to vote all shares of
the Common Stock of the Corporation which the undersigned is entitled to vote
at said Annual Meeting of Shareholders, and at any adjournment thereof, with
all the powers the undersigned would have if personally present. Without
limiting the general authorization hereby given, said proxies are, and each
of them is, instructed to vote or act as follows on the proposals set forth
in said Proxy Statement. In addition, in their discretion, the proxies are
authorized to vote upon such other matters as may properly come before said
Annual Meeting. SIGNED BUT UNMARKED PROXIES WILL BE VOTED IN FAVOR OF EACH
PROPOSAL.
Election of two Class III Directors (or, if one or both of the
nominees are not available for election, the shares represented hereby
will be voted for such substitutes as the Board of Directors may
designate).
Nominees:
James D. Logan
Peter E. Brumme
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
<PAGE>
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE
THIS PROXY, WHEN EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF
NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES FOR CLASS III DIRECTOR AND FOR PROPOSALS 2 AND 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
<TABLE>
<S> <C> <C>
1. Election of Directors 2. Amendments to the 1992 FOR AGAINST ABSTAIN
(see reverse) Equity Incentive Plan [ ] [ ] [ ]
FOR WITHHELD 3. Approval of Independent FOR AGAINST ABSTAIN
Auditors (Arthur Andersen LLP) [ ] [ ] [ ]
[ ] [ ]
</TABLE>
[ ]
-----------------------------------------
For the nominees except as noted above
MARK HERE FOR
ADDRESS CHANGE [ ]
AND NOTE AT LEFT
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE CORPORATION.
Please sign as name appears hereon.
Joint owners should each sign. When
signing as attorney, executor,
administrator, officer, trustee, or
guardian, please give full title as such.
Signature: Date: Signature: Date:
----------------- -------- ---------------- --------
