<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE
ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the Commission
[X] Definitive proxy statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
INTERNATIONAL MICROCOMPUTER SOFTWARE, 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:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
---------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
---------------------------------------------------------------------
(3) Filing party:
---------------------------------------------------------------------
(4) Date filed:
---------------------------------------------------------------------
<PAGE> 2
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
----------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 14, 1997
----------------------------
To the Shareholders:
The Annual Meeting of Shareholders of International Microcomputer
Software, Inc. (the "Company") will be held at the Wyndham Garden Hotel, 1010
Northgate Drive, San Rafael, California 94903 on Friday, March 14, 1997, at 9:00
a.m. for the following purposes:
1. To elect six directors to hold office until the next annual meeting
of shareholders and until their successors are elected.
2. To approve an amendment to the Company's 1993 Employee Incentive
Plan to increase the number of shares of Common Stock reserved for issuance
thereunder by 300,000 shares, from 1,125,000 shares to 1,425,000 shares.
3. To transact such other business as properly may come before the
meeting and any adjournments and postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this notice.
Only shareholders of record at the close of business on January 31,
1997 are entitled to notice of, and to vote at, the meeting and any adjournments
and postponements thereof.
You are cordially invited to attend the meeting in person.
By Order of the Board of Directors
Geoffrey B. Koblick,
Chairman of the Board, Secretary
San Rafael, California
17 February, 1997
================================================================================
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN
AND RETURN THE ACCOMPANYING PROXY CARD AS SOON AS POSSIBLE IN THE
ENCLOSED POSTAGE PREPAID ENVELOPE. THANK YOU FOR ACTING PROMPTLY.
================================================================================
<PAGE> 3
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
1895 E. FRANCISCO BOULEVARD
SAN RAFAEL, CALIFORNIA 94901
(415) 257-3000
----------------------------
ANNUAL MEETING OF SHAREHOLDERS
PROXY STATEMENT
----------------------------
MARCH 14, 1997
To the Shareholders:
The enclosed proxy is solicited on behalf of the Board of Directors
(the "Board") of International Microcomputer Software, Inc., a California
corporation (the "Company"), for use at the Company's annual meeting of
shareholders and any adjournments and postponements (the "Annual Meeting") to be
held at 9:00 a.m. on March 14, 1997, at the Wyndham Garden Hotel, 1010 Northgate
Drive, San Rafael, California 94903. Only shareholders of record on the close of
business on Friday, January 31, 1997 (the "Record Date") are entitled to notice
of, and to vote at, the Annual Meeting. On the Record Date, the Company had
4,976,278 shares of Common Stock, no par value ("Common Stock"), outstanding and
entitled to vote. A majority of the shares outstanding on the Record Date will
constitute a quorum for the transaction of business. This Proxy Statement and
the accompanying form of proxy were first mailed to shareholders on or about
February 17, 1997.
Except as expressly indicated otherwise, all share and per share
information in this Proxy Statement reflects a three-for-two split of the Common
Stock implemented by means of a dividend distributed on January 24, 1997 to
Common Stock holders of record on December 26, 1996 (the "Split").
VOTING RIGHTS AND SOLICITATION OF PROXIES
Holders of Common Stock are entitled to one vote for each share of
Common Stock held, except that in the election of directors each shareholder has
cumulative voting rights as described below. The authorized number of directors
of the Company currently is six. For the election of directors, any shareholder
may exercise cumulative voting rights, which enable the shareholder to cast a
number of votes equal to the number of shares held multiplied by the number of
directors to be elected by the class of stock held. All such votes may be cast
for a single nominee or may be distributed among any or all of the nominees.
Proxies cannot be voted for a greater number of persons than the number of
nominees named. In order to be entitled to cumulate votes, a shareholder must
give notice at the Annual Meeting, prior to voting, of the shareholder's
intention to do so. In addition, no shareholder will be entitled to cumulate
votes for a candidate unless that candidate's name has been placed in nomination
before the voting. If one shareholder gives such a notice, all shareholders may
cumulate their votes. In such an event, the proxy holder may allocate among the
Board of Directors' nominees the votes required by proxies in the proxy holder's
sole discretion. Shareholders are requested, by means of the accompanying proxy,
to grant discretionary authority to the proxy holders to cumulate votes.
In the event that a broker indicates on a proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as voting with respect to that matter.
1
<PAGE> 4
Directors will be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote on the election of directors. Proposal No. 2 requires for
approval the affirmative vote of a majority of shares of Common Stock present in
person or represented by proxy at the Annual Meeting and entitled to vote on the
proposal. The aggregate number of votes entitled to be cast by all shareholders
present in person or represented by proxy at the Annual Meeting, whether those
shareholders vote "for," "against," "abstain" or give no instructions, will be
counted for purposes of determining the minimum number of affirmative votes
required to approve Proposal No. 2, and the total number of shares cast "for"
Proposal No. 2 or giving no instructions will be counted for purposes of
determining whether sufficient affirmative votes have been cast. An abstention
from voting on a matter by a shareholder present in person or represented by
proxy at the Annual Meeting has the same effect as a vote "against" the matter.
Any proxy which is returned using the form of proxy enclosed and which is not
marked as to a particular item will be voted "for" the election of directors and
"for" the other proposals described in this Proxy Statement, and as the proxy
holders deem advisable on other matters that may come before the meeting, as the
case may be, with respect to the item not marked.
If sufficient votes in favor of the proposals are not received by the
date of the Annual Meeting, the persons named as proxies may propose one or more
adjournments of the Annual Meeting to permit further solicitations of proxies.
Any such adjournment would require the affirmative vote of the majority of the
outstanding shares present in person or represented by proxy at the Annual
Meeting.
The cost of preparing, assembling, printing and mailing the Proxy
Statement, the Notice of Annual Meeting of Shareholders and the enclosed form of
proxy, as well as the cost of soliciting proxies relating to the Annual Meeting,
will be borne by the Company. Following the original mailing of the proxies and
other soliciting materials, the Company will request that the brokers,
custodians, nominees and other record holders forward copies of the proxy and
other soliciting materials to persons for whom they hold shares of Common Stock
and request authority for the exercise of proxies. In such cases, the Company,
upon the request of the record holders, will reimburse such holders for their
reasonable expenses. The original solicitation of proxies by mail may be
supplemented by telephone, telegram and personal solicitation by directors,
officers and employees of the Company.
REVOCABILITY OF PROXIES
Any shareholder giving a proxy in the form accompanying this Proxy
Statement has the power to revoke the proxy before its use. A proxy can be
revoked (i) by an instrument of revocation delivered before the Annual Meeting
to the Secretary of the Company at the Company's principal executive offices,
(ii) by a duly executed proxy bearing a later date or time than the date or time
of the proxy being revoked, or (iii) by voting in person at the Annual Meeting.
Please note, however, that if a shareholder's shares are held of record by a
broker, bank or other nominee and that shareholder wishes to vote at the Annual
Meeting, the shareholder must bring to the Annual Meeting a letter from the
broker, bank or other nominee confirming that shareholder's beneficial ownership
of the shares. Attendance at the Annual Meeting will not by itself revoke a
proxy.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
NOMINEES
Six directors are to be elected to the Board at the Annual Meeting to
serve until the next annual meeting and until their respective successors are
elected and qualified or until the death, resignation, or removal of the
director. Each of the nominees is currently a director of the Company. If any
nominee is
2
<PAGE> 5
unable or unwilling to serve as a director, the proxies may be voted for such
substitute nominee as the proxy holder may determine. The Board has no reason to
believe that any of the persons named below will be unable or unwilling to serve
as a director if elected. Proxies received will be voted "FOR" the election of
the nominees named below unless the proxy is marked in such a manner as to
withhold authority so to vote.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION
OF EACH OF THE NOMINATED DIRECTORS.
The names of the nominees and certain information about them are set
forth below:
<TABLE>
<CAPTION>
PRINCIPAL DIRECTOR
NAME AGE OCCUPATION SINCE
---- --- ---------- -----
<S> <C> <C> <C>
Charles Federman 39 Managing Director of Broadview Associates 1996
Earl S. Hamlin 57 Private Investor 1995
Geoffrey B. Koblick 42 Chairman of the Board of Directors, General Counsel and
Secretary of the Company 1982
Gordon K. Landies 40 Executive Vice President of Domestic Sales of Mindscape 1995
Robert Mayer 42 Vice President of the Company 1985
Martin Sacks 36 President and Chief Executive Officer of the Company 1988
</TABLE>
Mr. Federman became a director in May 1996. Mr. Federman is Chairman
of the Executive Committee and a Managing Director of Broadview Associates, an
information and technology mergers and acquisitions firm. Mr. Federman holds a
Bachelor of Science degree from the University of Pennsylvania, Wharton School
of Business.
Mr. Hamlin became a director in 1995. Mr. Hamlin is a private
investor. From 1989 to 1994, he was a portfolio manager at Volpe, Welte &
Company, an investment banking firm. From 1973 to 1989, he was employed at
Hambrecht & Quist, where he held several positions, including financial analyst.
He has been a director of 800 Software, a distributor of personal computer
software and hardware, and is currently a director of Data Storage Systems, Inc.
and National Employment Wire Service, Inc., which are both private companies.
Mr. Koblick has been the Chairman of the Board of Directors and
Secretary of the Company since its inception and served as the Company's
President from its inception through September 15, 1987, and from July 1, 1988
to June 30, 1990. From 1981 to 1982, Mr. Koblick was legal counsel at MicroPro
International Corporation (which later changed its name to WordStar
International Incorporated). Between 1979 and 1981, he practiced law in San
Francisco with Gunheim & Yturbide.
Mr. Landies became a director in 1995. Mr. Landies has held several
managerial positions with Mindscape (formerly known as The Software Toolworks)
since 1989, most recently as Executive Vice President of Domestic Sales. Between
1984 and 1989, Mr. Landies was the President and founder of
3
<PAGE> 6
Design Software. Prior to founding Design Software, he was employed by several
firms in various financial management capacities.
Mr. Mayer has served as the Company's Vice President of Sales since
1990 and as a director since 1985. Prior to 1990 he served as Vice President of
Operations. Before joining the Company, Mr. Mayer worked at Gundlach Bundschu
Winery in Sonoma from 1980 to 1983, where he was the assistant wine maker and
oversaw day-to-day operations.
Mr. Sacks has been a director of the Company since 1988 and the
Company's President and Chief Executive Officer since June 30, 1990. He was the
founder of Milan Systems America, Inc. which was acquired by the Company in
1988. From 1979 to 1983, Mr. Sacks served as a consultant for Arthur Young &
Company. Mr. Sacks also founded a software training company in 1984 and received
a Bachelor of Commerce and a Bachelor of Accounting degree from the University
of Witwatersrand, South Africa in 1981, and is a qualified chartered accountant
(South Africa).
All directors hold office until the next annual meeting of
shareholders and until their successors are elected and qualified.
BOARD MEETINGS
During the last full fiscal year ended June 30, 1996 ("fiscal 1996"),
the Board held five meetings, including telephone conference meetings. Each
nominee who was a director during fiscal 1996 attended more than 75% of the
number of Board meetings and the total number of meetings held by all committees
on which such director served that were held during fiscal 1996 during the time
such person was a director. The Board does not have a nominating committee or
any committee performing such function, and there are no specific procedures for
shareholders to follow to submit nominee recommendations.
DIRECTOR COMPENSATION
Non-employee directors employed by the Company currently receive $500
for each meeting attended. Directors are also eligible to participate in the
Company's incentive plans. Officers serve at the pleasure of the Board of
Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board (the "Committee") makes all
decisions involving the compensation of executive officers of the Company.
During fiscal 1996, the Committee consisted of Earl S. Hamlin and Geoffrey B.
Koblick. In December 1996, Charles Federman replaced Mr. Koblick as a member of
the Committee, and Mr. Landies was also added as a member of the Committee.
4
<PAGE> 7
REPORT OF THE COMPENSATION COMMITTEE
This Report of the Compensation Committee is required by the SEC and
shall not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act, or under the Exchange Act, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed soliciting material or filed under such acts.
To the Board of Directors
Final decisions regarding executive compensation and stock option
grants to executives are made by the Compensation Committee of the Board of
Directors (the "Committee"). As of the date of this Proxy Statement, the
Committee is composed of three independent non-employee directors, neither of
whom have any interlocking relationships as defined by the SEC.
GENERAL COMPENSATION POLICY
The Committee acts on behalf of the Board to establish the general
compensation policy of the Company for all employees of the Company. The
Committee typically reviews base salary levels and target bonuses for the Chief
Executive Officer ("CEO") and other executive officers and employees of the
Company at or about the beginning of each fiscal year. The Committee administers
the Company's incentive and equity plans, including the 1993 Equity Incentive
Plan (the "Plan").
The Committee's philosophy in compensating executive officers,
including the CEO, is to relate compensation to corporate performance.
Consistent with this philosophy, the incentive component of the compensation of
the executive officers of the Company is contingent on corporate profits and
sales performance. Long-term equity incentives for executive officers are
effected through the granting of stock options under the Plan. Stock options
generally have value for the executive only if the price of the Company's stock
increases above the fair market value on the grant date and the executive
remains in the Company's employ for the period required for the shares to vest
or, where vesting of options is subject to the attainment of certain performance
objectives, if the specified performance objectives are attained.
The base salaries, incentive compensation and stock option grants of
the executive officers are determined in part by the Committee informally
reviewing data on prevailing compensation practices in technology companies with
whom the Company competes for executive talent and by their evaluating such
information in connection with the Company's corporate goals. To this end, the
Committee attempted to compare the compensation of the Company's executive
officers with the compensation practices of comparable companies to determine
base salary, target bonuses and target total cash compensation. In addition to
their base salaries, the Company's executive officers, including the CEO, are
entitled to participate in the Plan.
In preparing the performance graph for this Proxy Statement, the
Company used the Hambrecht & Quist Computer Software Index as its published line
of business index. The compensation practices of most of the companies in the
Hambrecht & Quist Computer Software Index were not reviewed by the Company when
the Committee reviewed the compensation information described above because such
companies were determined not to be competitive with the Company for executive
talent.
5
<PAGE> 8
FISCAL 1996 EXECUTIVE COMPENSATION
Base Compensation. The Committee reviewed the recommendations and
performance and market data outlined above and established a base salary level
for each executive officer, including the CEO.
Incentive Compensation. Cash bonuses are awarded only if the Company
meets predetermined objectives set by the Board at the beginning of the year.
For fiscal 1996, the objectives used by the Company as the basis for incentive
compensation for the CEO and the other executives were based 75% on profits and
25% on sales performance. The target amount of bonus and the actual amount of
bonus are determined by the Committee, in its discretion.
Stock Options. In fiscal 1996 stock options were granted to certain
executive officers as incentives for them to become employees or to aid in the
retention of executive officers and to align their interests with those of the
stockholders. Generally, for current executive officers, the stock option grants
were smaller than the grants made by comparable technology companies. Stock
options typically have been granted to executive officers when the executive
first joins the Company, in connection with a significant change in
responsibilities and, occasionally, to achieve equity within a peer group. The
Committee may, however, grant additional stock options to executives for other
reasons. The number of shares subject to each stock option granted is within the
discretion of the Committee and is based on anticipated future contribution and
ability to impact corporate and/or business unit results, past performance or
consistency within the executive's peer group. In fiscal 1996, the Committee
considered these factors, as well as the number of unvested options held by such
executive officers as of the date of grant. In the discretion of the Committee,
executive officers may also be granted stock options under the Plan to provide
greater incentives to continue their employment with the Company and to strive
to increase the value of the Common Stock. The stock options generally become
exercisable over a five-year period and, in certain instances, sooner based on
the attainment of certain objectives and are granted at a price that is equal to
the fair market value of the Common Stock on the date of grant.
For fiscal 1997 the Committee will be considering whether to grant
future options under the Plan to executive officers based on the factors
described above, with particular attention to the Company-wide management
objectives and the executive officers' success in obtaining specific individual
financial and operational objectives established or to be established for fiscal
1997 to the Company's profit expectations and to the number of unvested options
currently held by the executive officers.
Company Performance and CEO Compensation. Because Mr. Sacks was
responsible for the Company obtaining a significant portion of its objectives
for fiscal 1996, the Committee exercised its discretion and recommended, in
February 1996, that Mr. Sacks should be granted a stock option to purchase
75,000 shares of the Common Stock. These objectives included satisfactorily
managing the Company's overall corporate business plan, such as meeting the
Company's profitability projections and the Company's sales targets, and
significantly strengthening the Company's market position. In granting the stock
option to Mr. Sacks, the Committee reviewed Mr. Sacks' prior outstanding option
grants and the number of options that remained unexercisable, and the number of
shares Mr. Sacks already owned. The Committee believes that this grant was
appropriate because it gives proper incentives to Mr. Sacks for fiscal 1997 and
takes account of his prior significant stock holdings. The Committee also
reviewed the compensation practices of the comparable companies in recommending
this grant to Mr. Sacks.
6
<PAGE> 9
Compliance with Section 162(m) of the Internal Revenue Code of 1986.
The Company intends to comply with the requirements of Section 162(m) of the
Internal Revenue Code of 1986 for fiscal 1997. The Plan is already in compliance
with Section 162(m) by limiting stock awards to named executive officers. The
Company does not expect cash compensation for any employee in 1997 to be in
excess of $1,000,000 or consequently affected by the requirements of Section
162(m).
COMPENSATION COMMITTEE
Earl Hamlin
Geoffrey B. Koblick
7
<PAGE> 10
COMPANY STOCK PRICE PERFORMANCE
The stock price performance graph below is required by the SEC and
shall not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act, or under the Exchange Act, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed soliciting material or filed under such acts.
The graph below compares the cumulative total stockholder return on
the Common Stock of the Company from June 30, 1991 to June 30, 1996 with the
cumulative total return on The Nasdaq (US only) Stock Market and the Hambrecht &
Quist Computer Software Index (assuming the investment of $100 in the Company's
Common Stock and in each of the indexes on June 30, 1991, and reinvestment of
all dividends). Unless otherwise specified, all dates refer to the last day of
each month presented.
<TABLE>
<CAPTION>
Cumulative Total Return
--------------------------------------------------------------------
6/91 6/92 6/93 6/94 6/95 6/96
<S> <C> <C> <C> <C> <C> <C>
IMSI 100 75 500 725 843 1331
NASDAQ STOCK MARKET-US 100 120 151 153 204 261
H&Q COMPUTER SOFTWARE 100 134 176 191 300 387
</TABLE>
PROPOSAL NO. 2 - APPROVAL OF AMENDMENTS TO 1993
EMPLOYEE INCENTIVE PLAN
GENERAL
Shareholders are being asked to approve an amendment to the Company's
1993 Employee Incentive Plan (the "Plan") to increase the number of shares of
Common Stock reserved for issuance thereunder by 300,000 shares, from 1,125,000
shares to 1,425,000 shares. The Board of Directors of the Company approved the
proposed amendment described above on December 18, 1996, subject to shareholder
approval. The Board believes that adding shares to the Plan is in the best
interests of the Company because it will permit the Company to attract and
retain key employees by providing them with appropriate equity incentives. If a
quorum is present, the affirmative vote of the holders of a majority of the
shares of Common Stock present or represented at the Annual Meeting is required
for approval of the amendment to the Plan.
The Plan was approved by the Board in June 1993 and approved by the
Company's shareholders in April 1994. In April 1995, the shareholders approved
amendments (previously approved by the Board) to the Plan increasing the number
of shares reserved for issuance thereunder from 450,000 shares to 675,000 shares
and making certain other amendments to the Plan, and in January 1996, the
shareholders approved amendments (previously approved by the Board) to the Plan
increasing the number of shares reserved for issuance thereunder from 675,000
shares to 1,125,000 shares. The Plan provides for awards of stock options,
restricted stock, and stock purchase rights, and authorizes profit sharing
awards. As of September 30, 1996, approximately 150 employees and directors of
the Company were eligible to receive awards under the Plan. As of September 30,
1996, approximately 213,000 shares were available for future options and other
awards under the Plan and all other stock plans of the Company, and on January
2, 1997, the closing price of the Common Stock was $14.25 (not giving effect to
the Split). No options or other awards have been granted from the proposed
additional 300,000 share pool under the Plan. Employees, directors and officers
of the Company have an interest in the approval
8
<PAGE> 11
of the proposed amendments to the Plan by virtue of their eligibility to receive
awards under the Plan. The Company will provide, without charge, to each person
to whom a proxy statement is delivered, upon request of such person and by first
class mail within one business day of receipt of such request, a copy of the
Plan. Any such request should be directed as follows: Secretary, International
Microcomputer Software, Inc., 1895 East Francisco Blvd., San Rafael, CA 94901;
telephone number (415) 257-3000.
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR APPROVAL OF THE PLAN.
SUMMARY OF THE PLAN
Administration. The Plan is administered by the Board, but the Board
may delegate administration to a committee (in either case, the
"Administrator"). The Administrator acts as the manager of the Plan, and as such
has the power, subject to the terms and restrictions set forth in the Plan, to
select the persons ("Participants") to receive options granted pursuant to the
Plan ("Options") or other awards under the Plan (collectively, "Awards"), to fix
the number of shares that each Participant may acquire, to set the terms and
conditions of each Award (including any vesting or exercisability provisions or
limitations regarding any Award and/or the shares of Common Stock relating
thereto, and the waiver, amendment, extension or acceleration of any such
provisions or limitations), to reduce the exercise price of any Award to the
then current fair market value if the fair market value of the Common Stock
covered by such Award shall have declined since the date the Award was granted,
and to determine all other matters relating to the Plan, subject to applicable
law. Determinations made by the Administrator are final and binding on all
parties. The Administrator may delegate nondiscretionary administrative duties
to such employees of the Company as it deems proper. The Plan at present is
administered by the Board.
ERISA, Internal Revenue Code. The Plan is not subject to the Employee
Retirement Income Security Act of 1974 ("ERISA") and is not qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Eligibility. Every person who at the date on which an Award was
granted to the person (the "Grant Date") is a full-time employee of the Company
or any Affiliate is eligible to receive Awards (including options that are
intended to be incentive stock options ("ISOs") within the meaning of the Code).
Every person who at the Grant Date is a consultant to the Company or any
Affiliate, or any person who is a director of the Company, but not a full-time
employee, is eligible to receive non-qualified options ("NQOs") but is not
eligible to receive ISOs. The term "Affiliate" means a "parent corporation" or a
"subsidiary corporation" as defined in the applicable provisions of the Code.
Securities Subject to the Plan. The total number of shares that are
reserved and available for issuance pursuant to the exercise of Awards under the
Plan, as proposed to be amended, is 1,425,000 shares of Common Stock. The shares
covered by the portion of any grant that expires unexercised under the Plan will
become available again for grants under the Plan. The number of shares reserved
for issuance under the Plan is subject to adjustment in accordance with the
provisions for adjustment in the Plan.
9
<PAGE> 12
Granting of Options. No Options may be granted under the Plan after 10
years from the date the Board initially adopted the Plan. Unless an earlier
expiration date is specified by the Administrator at the Grant Date, an NQO
generally expires 10 years and two days from its Grant Date, and an ISO expires
10 years from its Grant Date, except that an ISO granted to any ten percent
shareholder expires five years from its Grant Date. The exercise price of an NQO
is determined by the Administrator. The exercise price of an ISO shall be
determined in accordance with the applicable provisions of the Code and is at
best equal to the fair market value of the stock covered by the ISO at the Grant
Date.
Each Award will be evidenced by a written agreement (in the case of
Options, referred to as the "Option Agreement", and in the case of other Awards,
referred to as the "Award Agreement"), in a form satisfactory to the Company,
executed by the Company and the Participant to whom the Award is granted.
Provisions of Award Agreements need not be the same for each Participant. Awards
may, in the sole discretion of the Administrator, be exercisable entirely at the
Grant Date or at such times and in such amounts as the Administrator may
specify. No Award is assignable or otherwise transferable by the Participant
except by will or by the laws of descent and distribution. During the life of
the Participant, an Option is exercisable only by the Participant or the
Participant's guardian or legal representative.
Unless the Administrator determines otherwise, the aggregate value of
all shares covered by any ISOs granted to a Participant with respect to stock in
the Company or any Affiliate that first become exercisable during any one
calendar year may not exceed $100,000. For this purpose, value is the fair
market value of the shares covered by the ISOs when the ISOs were granted. If
the Administrator grants Options that would otherwise be ISOs in excess of this
$100,000 limit, the Options that exceed the limit, determined in order of grant,
will be treated for tax purposes as NQOs.
Changes in Capital Structure. Subject to the provisions described in
the next two sections, if the stock of the Company is changed by reason of a
stock split, reverse stock split, stock dividend, or recapitalization, or
converted into or exchanged for other securities as a result of a merger,
consolidation or reorganization, the Administrator may make appropriate
adjustments in (a) the number and class of shares of stock subject to the Plan
and each outstanding Award, and (b) the exercise price of each outstanding
Award.
Corporate Transactions. New option rights may be substituted for
Awards granted, or the Company's obligations as to outstanding Awards may be
assumed by an employer corporation other than the Company, or an affiliate
thereof, in connection with any merger, consolidation, acquisition, separation,
reorganization, dissolution, liquidation, sale or like occurrence in which the
Company is involved and which the Administrator determines, in its absolute
discretion, would materially alter the structure of the Company or its
ownership. Notwithstanding the foregoing, if such an event occurs and if such
employer corporation, or an affiliate thereof, does not substitute new option
rights for, and substantially equivalent to, outstanding Awards, or assume the
outstanding Awards, or if there is no employer corporation, or if the
Administrator determines, in its sole discretion, that outstanding Awards should
not then continue to be outstanding, the Administrator may upon ten days' prior
written notice to Participants, in its absolute discretion, (a) shorten the
period during which Awards, are exercisable (provided they remain exercisable to
the extent otherwise exercisable, for at least ten days after the date the
notice is given), or (b) cancel Awards upon payment to the Participant in cash
with respect to each Award to the extent then exercisable, of an amount which,
in the absolute discretion of the Administrator, is determined to be equivalent
to any excess of the fair market value (at the effective time of such event) of
the consideration that the Participant would have received if the Award had been
exercised before the effective time, over the exercise price of the Awards. If,
however, there is a successor corporation and replacement Awards are not
granted, or existing Awards are not assumed by the successor corporation, all
outstanding Awards shall become exercisable before the consummation of the
transaction such that the Participants have not less than ten days to exercise
their Awards and become
10
<PAGE> 13
shareholders of record entitled to receive the consideration paid to the other
shareholders of the Company. The actions described above may be taken without
any regard to any resultant tax consequences to the Participant. Notwithstanding
any other provision of the Plan, except where prohibited by the terms of a state
securities law permit or qualification with respect to the grant of an Award or
the issuance of Common Stock upon the exercise of an Award, the Administrator
may, in particular Award Agreements or thereafter, provide for the accelerated
vesting of an Award upon any event which the Administrator determines, in its
discretion, constitutes a "change in control" of the Company as defined in the
Plan. Except as expressly provided in any Award Agreement, in the event of a
"change in control," any Options outstanding immediately before the change in
control and not then exercisable and vested become fully exercisable and vested
immediately before the change in control; provided that the Administrator may in
its discretion decide that a change in control does not alter the exercisability
or vesting of outstanding Options. In this context, certain actions described
above may result in "parachute payments" under the Code for certain
Participants.
Payment of Exercise Price. Except as described below, payment in full,
in cash, must be made for all stock purchased at the time a written notice of
exercise is given to the Company. Proceeds of any such payment will constitute
general funds of the Company. At the time an Award is granted or before it is
exercised, the Administrator, in the exercise of its absolute discretion, may
authorize any one or more of the following additional methods of payment: (a)
acceptance of the Participant's full recourse promissory note for some or all of
the aggregate exercise price of the shares being acquired, with such terms as
the Administrator approves; (b) delivery by the Participant of Common Stock or
other securities of the Company already owned by the Participant; (c) surrender,
sale or withholding from the shares issuable upon exercise of the Award of a
number of shares with a fair market value equal to the aggregate exercise price
of the shares being acquired; or (d) any other property, so long as such
property constitutes valid consideration under applicable law.
Termination of Employment. Any Award or portion thereof that has not
vested on or before the date on which a Participant ceases, for any reason, with
or without cause, to be an employee or director of, or a consultant to, the
Company or an Affiliate ("Employment Termination"), expires upon the date of
Employment Termination. An Award or portion thereof that has vested as of the
date of Employment Termination, to the extent the Award has not then expired or
been exercised, is exercisable for a period of (a) three months, or (b) in the
case of Participants subject to Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), if the Company and the Participant so
agree, seven months following the date of the Participant's sale, if any, of
Common Stock within the meaning of Rule 16b-3 promulgated pursuant to the
Exchange Act, within six months before the date of Employment Termination. If,
however, Employment Termination is due to the permanent disability or death of
the Participant, then the Participant, the Participant's personal representative
or any other person who acquires Award rights from the Participant by will or
the applicable laws of descent and distribution, may, within 12 months after the
date of Employment Termination, exercise such Award rights to the extent they
were exercisable on the date of Employment Termination. The Administrator may,
with the consent of the Participant, modify any of the periods described above
in an Award Agreement or thereafter.
Tax Compensation Rights. In connection with the grant of any Award
(the "Associated Award"), the Administrator may grant the Participant the right
(the "Tax Compensation Right") to receive from the Company an amount (the "Tax
Compensation Amount") in cash which will not exceed an amount equal to the then
existing maximum statutory federal income tax rate (including any surtax or
similar charge or assessment) for corporations multiplied by the amount of
compensation expense deductible by the Company for federal income tax purposes
as a result of exercise of the Associated Award. The Administrator may also, in
its discretion, loan to the Participant an amount equal to the Tax Compensation
Amount.
11
<PAGE> 14
Withholding and Employment Taxes. At the time of exercise of an Award,
the Participant must remit to the Company in cash all applicable federal and
state withholding and employment taxes. The Administrator may, in the exercise
of the Administrator's sole discretion, permit a Participant to pay some or all
of such taxes by means of a promissory note on such terms as the Administrator
deems appropriate. If and to the extent authorized and approved by the
Administrator in its sole discretion, a Participant may elect, by means of a
form of election to be prescribed by the Administrator, to have shares which are
acquired upon exercise of an Award withheld by the Company or tender other
shares of Common Stock or other securities of the Company owned by the
Participant to the Company at the time the amount of such taxes is determined in
order to pay the amount of such tax obligations. Unless the Administrator
otherwise determines, the Participant must pay to the Company in cash, promptly
when the amount of such obligations becomes determinable, all applicable federal
and state withholding taxes resulting from the lapse of restrictions imposed on
exercise of an Award, from a transfer or other disposition of shares acquired
upon exercise of an Award, or otherwise related to the Award or the shares
acquired upon exercise of the Award.
Amendment, Suspension or Termination of the Plan. The Board may at any
time amend, alter, suspend or discontinue the Plan without shareholder approval,
except as required by applicable law; provided, however, that no amendment,
alteration, suspension or discontinuation shall be made that would impair the
rights of any Participant under any Award previously granted, without the
Participant's consent, except to conform the Plan and Awards granted under the
Plan to the requirements of federal or other tax laws or the requirements of
Rule 16b-3.
Liability and Indemnification of Administrator. No member of the group
constituting the Administrator will be liable for any act or omission on such
member's own part, including but not limited to the exercise of any power or
discretion given to such member under the Plan, except for those acts or
omissions resulting from such member's own gross negligence or willful
misconduct. The Company will indemnify each present or future member of the
group constituting the Administrator against, and each member of the group
constituting the Administrator shall be entitled without further act on his or
her part to indemnity from the Company for, all expenses (including the amount
of judgments and the amount of approved settlements made with a view to the
curtailment of costs of litigation, other than amounts paid to the Company
itself) reasonably incurred by such person in connection with or arising out of
any action, suit or proceeding to the full extent permitted by law and by the
Articles of Incorporation and Bylaws of the Company.
Restricted Stock. Participants awarded Restricted Stock must, within
certain time periods specified in the Plan, pay to the Company, if required by
applicable law, an amount equal to the par value of the Stock subject to the
Award. Subject to the provisions of the Plan and the Award Agreement, during a
period set by the Administrator, commencing with, and not exceeding 10 years
from, the date of such award (the "Restriction Period"), the Participant may not
sell, assign, transfer, pledge or otherwise encumber shares of Restricted Stock.
Within these limits, the Administrator may in its discretion provide for the
lapse of such restrictions in installments and may accelerate or waive such
restrictions, in whole or in part, based on service, performance or such other
factors or criteria as the Administrator may determine. Unless otherwise
determined by the Administrator, cash dividends with respect to shares of
Restricted Stock will be automatically reinvested in additional Restricted
Stock, and dividends payable in Stock shall be paid in the form of Restricted
Stock. Except to the extent otherwise provided in the Award Agreement and as
described above under "Restrictions," upon a Participant's Employment
Termination during the Restriction Period, all shares still subject to
restriction will be forfeited by the Participant.
12
<PAGE> 15
Stock Purchase Rights. The Administrator may grant Stock Purchase
Rights which enable the recipients to purchase Common Stock at a price
determined by the Administrator. Stock Purchase Rights will be exercisable for a
period determined by the Administrator not exceeding 30 days from the date of
grant. The Administrator, however, may provide that, if required under Rule
16b-3, Stock Purchase Rights granted to persons subject to Section 16(b) of the
Exchange Act will not become exercisable until six months and one day after the
grant date and will then be exercisable for 10 trading days at the purchase
price specified by the Administrator as described in the preceding paragraph.
The Administrator, in its discretion, may provide for rights of repurchase of
shares acquired upon exercise of Stock Purchase Rights, including without
limitation at the original purchase price of such shares, upon the Employment
Termination of a Participant.
Profit Sharing. After completion of a particular fiscal year of the
Company (or other fiscal period established by the Administrator) and delivery
to the Company of its financial statements for that fiscal period, the Company
may in its discretion allocate a percentage of the net income of the Company for
that fiscal period for possible distribution to the Company's employees (any
such amount for a particular fiscal period referred to as a "Profit Sharing
Amount"). The Administrator shall have complete discretion to allocate some or
all of a Profit Sharing Amount to qualifying employees of the Company, and to
determine the allocation of any Profit Sharing Amount among particular
qualifying employees. To qualify, an employee must have been a regular,
permanent employee of the Company for the full fiscal year to which the Profit
Sharing Amount relates or, if a shorter fiscal period is utilized, for the past
four full consecutive fiscal quarters, including the fiscal period to which the
Profit Sharing Amount relates; for example, if the Company's fiscal year ends on
June 30, and the Profit Sharing Amount relates to that fiscal year, an employee
must have been a full-time regular employee from July 1 through June 30.
The Administrator may allocate some or all of the Profit Sharing
Amount in cash to eligible employees, in such amounts as the Administrator may
in its discretion determine (the amount allocated to a particular employee
referred to as the "Employee's Allocation"). An eligible employee may elect to
request distributions of the Employee's Allocation in cash or to have a portion
of the Employee's Allocation take the form of shares of Stock or (if the
Administrator so approves) discounted stock options, or a combination thereof,
by making a written election at such times, and by means of such written
documentation, as the Administrator may prescribe; provided, however, that the
Company shall be under no obligation to deliver shares of Stock, and delivery of
such shares shall be in the discretion of the Company.
The Company may, in lieu of distributing some or all of an Employee's
Allocation in cash, distribute some or all of an Employee's Allocation by
issuing shares of Common Stock. Such shares may either be authorized but
unissued shares, shares reacquired in private transactions, or shares purchased
by the Company in open market purchase transactions. The purchase price for such
shares will be paid from (and credited against) an Employee's Allocation. The
purchase price for any such shares will be their fair market value on the date
of issuance (or, if they are acquired by the Company, then the purchase price
paid by the Company).
A person or entity selected by the Administrator will hold the
certificates representing any shares allocated to an employee pursuant to such
documentation as is satisfactory to the Administrator. All shares held by any
such person or entity shall at all times remain subject to the claims of the
Company's general creditors. If such person or entity is the record owner of
such shares, then the person or entity shall vote any shares of Common Stock
included in an Employee's Allocation held pursuant to such documentation in
accordance with the instructions of the employee. At any time after allocated
shares have vested (pursuant to the provisions described below), an employee
shall be entitled to receive a certificate representing the vested shares.
13
<PAGE> 16
Unless the Administrator determines otherwise in a particular case,
any award of cash or shares under the profit sharing provisions of the Plan will
be subject to a five-year vesting period. Twenty percent of the Employee's
Allocation for any fiscal year shall vest immediately, and the balance shall
vest ratably and equally over five years on each anniversary of the fiscal year
of the profit-sharing. No employee shall have any right to receive any cash
portion of an Employee's Allocation, or transfer or make any other disposition
of Stock, that has not vested. Upon the Employment Termination of an employee,
the employee shall have no further rights with respect to any unvested portion
of the Employee's Allocation, and any shares of Stock which have not vested may
be redeemed at the option of the Company, without payment of any consideration,
by notice from the Company to the record holder of such shares.
Retirement. Upon retirement of an employee, all outstanding shares
included in the Employee's Allocation held by the Company for that employee's
account shall be considered fully vested and distributed to the retiring
employee. For purposes of this section, "retirement" shall mean voluntary
termination by the employee of the employee's employment with the Company or an
affiliate after the employee has reached age 60.
Offset and Withholding. In the event that any amounts are due to the
Company from a participating employee, regardless of the source of the
obligation, an Employee's Allocation may be applied by the Company towards
satisfaction of such other obligations.
No Vested Rights; Company Discretion. Without limiting any other
provision in this Plan giving the Company or the Administrator the flexibility
to administer and interpret the Plan, all benefits, Awards, and provisions of
this Section 10 may be changed, modified, terminated or canceled, at any time
without notice, with or without any reason, by the Company; and no employee,
officer or director of the Company shall have any right to receive any amounts
under the profit sharing provisions of the Plan otherwise than in the absolute
discretion of the Company.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences
associated with participation in the plan is based on current provisions of the
Code and administrative and judicial interpretations thereof. It does not
describe applicable state, local, or foreign tax considerations, nor does it
discuss any estate or gift tax considerations. The applicable rules are complex
and may vary depending upon a participant's individual circumstances. The
following description is thus necessarily general and does not address all of
the potential federal and other income tax consequences to every participant of
the Amended Plan or transactions thereunder. Moreover, comprehensive Treasury
regulations covering certain of the issues described below have been proposed
but have not yet been adopted.
Incentive Stock Options
Option, Exercise, Alternative Minimum Tax. A Participant will not have
taxable income upon the grant or exercise of an ISO. However, the "Option
Spread" (the amount by which the fair market value of the Common Stock acquired
upon exercise of the Option (the "Option Shares") on the relevant measurement
date exceeds the exercise price) is includable in the Participant's "alternative
minimum taxable income" in determining the Participant's liability for the
"alternative minimum tax." The maximum alternative minimum tax rate applicable
to individuals is now 28%. The Option Spread generally is measured for this
purpose on the day the Option is exercised; however, if both (i) the Option
Shares are subject to a "substantial risk of forfeiture" (including a right of
repurchase in favor of the Company and perhaps, in the case of certain officers,
limitations on the resale of such shares imposed by
14
<PAGE> 17
Section 16(b) of the Exchange Act) and (ii) the Participant does not make an
election under Section 83(b) of the Code with respect to such shares within 30
days after the purchase date (a "Section 83(b) Election"), then the Option
Spread should be measured, and should be includable in alternative minimum
taxable income, on the date the risk of forfeiture lapses. (For purposes of the
alternative minimum tax, the fair market value of Option Shares acquired under
an ISO is determined by ignoring any restriction which by its terms may some day
lapse.) The Company receives no income tax deduction upon grant or exercise of
an ISO but is entitled to a deduction equal to the ordinary income taxable to
the Participant upon a Disqualifying Disposition.
In general, an ISO must be exercised within three months of Employment
Termination to retain the federal income tax treatment described above. In the
case of a Participant who is permanently and totally disabled, as defined in the
Code, or who dies while owning an Option, this three-month period is extended to
12 months. The Plan allows the Company to extend this three-month in the case of
certain Participants who are subject to Section 16(b) of the Exchange Act. Any
such extension may be treated as the grant of a new Option to the Participant,
which must meet the requirements for ISO status on the date of the agreement; in
all events, if an Option is exercised more than three months after Employment
Termination, it will, except in the cases of a permanently and totally disabled
or deceased Participant, not qualify as an ISO.
Sale of Option Shares; Disqualifying Dispositions. A Participant
generally will be entitled to long-term capital gain treatment upon sale (other
than to the Company) or other disposition of Option Shares held longer than two
years from the grant date and one year from the date the Participant receives
the shares. If the Option Shares are sold or disposed of (including by gift, but
not including certain tax-free exchanges) before both of these holding periods
have expired (a "Disqualifying Disposition"), the Option Spread (but generally
not more than the amount of gain if the Disqualifying Disposition is a sale) is
taxable as ordinary income. For this purpose, the Option Spread is measured at
the Exercise Date unless the Option Shares were subject to a substantial risk of
forfeiture upon purchase and the Participant did not file a Section 83(b)
Election, in which event the Option Spread is measured at the date the
restriction lapsed. If gain on a Disqualifying Disposition exceeds the amount
treated as ordinary income, the excess is capital gain, which will be long-term
if the Option Shares were held for more than one year. The holding period for
Option Shares commences with the Option exercise date unless the shares are
subject to a substantial risk of forfeiture and no Section 83(b) Election is
filed, in which event the holding period commences with the date the risk
lapsed. A sale of Common Stock to the Company, including use of Common Stock to
pay withholding or withheld by the Company upon exercise of an ISO, will
constitute a redemption of such Common Stock and may be taxable as a dividend
unless certain tests in the Code are met.
Non-Qualified Stock Options
Option; Exercise; Tax Consequences to the Company. A Participant does
not have taxable income upon the grant of an NQO. Federal income tax
consequences upon exercise will depend upon whether the Option Shares thereby
acquired are subject to a substantial risk of forfeiture, described above. If
the Option Shares are not subject to a substantial risk of forfeiture (or if
they are subject to such a risk and the Participant files a Section 83(b)
Election with respect to the shares), the Participant will have ordinary income
at the time of exercise measured by the Option Spread on the Exercise Date. The
Participant's tax basis in the Option Shares will be their fair market value on
the date of exercise, and the holding period for purposes of determining whether
capital gain or loss upon sale is long-term or short-term also will begin with
the day after transfer. If the Option Shares are restricted and no Section 83(b)
Election is filed, the Participant will not be taxable upon exercise, but
instead will have ordinary income on the date the restrictions lapse, in an
amount equal to the Option Spread on the date of lapse. The Participant's
holding period begins with the date of lapse.
15
<PAGE> 18
In either case, the amount of ordinary income recognized by a
Participant who is an employee constitutes "supplemental wages" subject to
withholding of federal income and employment taxes by the Company, and the
Company receives a corresponding income tax deduction.
Sale of Option Shares. Upon sale other than to the Company of Option
Shares acquired under an NQO, a Participant generally will recognize capital
gain or loss to the extent of the difference between the sale price and the
Participant's tax basis in the shares, which will be "long-term" gain or loss if
the shares are held more than one year. A sale of shares to the Company will
constitute a redemption of such shares, which may be taxable as a dividend.
Tender of Stock to Satisfy Withholding Obligation. If a Participant
tenders Common Stock in satisfaction of an income tax withholding obligation
described above, the surrendered shares will be treated as redeemed by the
Company at their then fair market value. The amount of the withholding
obligation thus satisfied may be taxable to the participant as a dividend unless
the redemption meets certain tests set forth in the Code. If Shares acquired
pursuant to exercise of an ISO are tendered, the redemption may also be a
disqualifying disposition of those shares. Participants should consult with
their personal tax advisors before tendering Common Stock in satisfaction of a
withholding obligation.
Deductibility of Interest. Interest paid on indebtedness incurred to
purchase Option Shares should constitute "investment interest" deductible for
income tax purposes only against "net investment income." Investment income
includes most interest and dividend income, but does not include earned income
(e.g., wages) or income from "passive activities" of a participant. Interest
paid on indebtedness incurred to satisfy a withholding obligation generally will
be nondeductible "personal" ---- interest.
Parachute Payments. In certain corporate transactions, such as a
merger in which the Company is not the surviving corporation, the Plan permits
the Administrator to cancel outstanding options and pay to Participants an
amount equal to the difference between the fair market value of the shares
issuable upon exercise of the option and the exercise price of the option (such
difference referred to as the "spread"). Under certain circumstances, the amount
of the spread could be, or be part of, an "excess parachute payment" under
Section 280G of the Code. If the spread is an excess parachute payment, the
Participant would incur tax liability equal to 20% of the amount deemed to be an
"excess parachute payment." Similarly, the value of the acceleration of
outstanding options pursuant to a "Change in Control" may also be regarded as an
excess parachute payment. The Company is not entitled to a deduction for any
excess parachute payments, even if the Company would otherwise have been
entitled to a deduction for such payments.
Tax Compensation Rights. Tax compensation rights will constitute
ordinary wage income, subject to income and employment tax withholding, when
paid to the Participant other than as proceeds of a loan.
Profit Sharing Plan Awards
Profit sharing amounts paid in cash will constitute ordinary wage
income, subject to income and employment tax withholding, to the Participant on
the date paid. Profit sharing amounts paid in shares constitute ordinary wage
income, subject to income and employment tax withholding, to the Participant on
the date transferred to the Participant if they either are not subject to a
substantial risk of forfeiture, described above, on that date or if they are
subject to such a risk and the Participant files a Section 83(b) Election with
respect to the shares. The amount of such income is the fair market value of the
shares on the date of transfer, determined without regard to any restriction
that by its terms may some day lapse. If the shares are subject to a substantial
risk of forfeiture and the Participant does not make a Section
16
<PAGE> 19
83(b) Election with respect to them, the Participant will have ordinary wage
income, subject to income and employment tax withholding, on the date the risk
of forfeiture lapses, in the amount of the fair market value of the shares on
that date, again determined without regard to any additional restriction that by
its terms may someday lapse.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of January 2, 1997, the ownership
of the Company's Common Stock by (i) each person who is known by the Company to
own of record or beneficially more than five percent of the Company's Common
Stock, (ii) each director or nominee, (iii) each other executive officer (of
which there are none) named in the Summary Compensation Table below, and (iv)
all directors and executive officers as a group. Except as otherwise indicated,
the shareholders listed in the table have sole voting and dispositive power with
respect to the shares indicated, subject to community property laws where
applicable. The business address of Messrs. Hamlin, Koblick, Landies, Mayer and
Sacks is 1895 E. Francisco Boulevard, San Rafael, California 94901. The business
address of Mr. Federman is One Bridge Plaza, Fort Lee, New Jersey 07024. The
business address of Tudor Investment Corporation is One Liberty Plaza, 51st
floor, New York, NY 10006.
<TABLE>
<CAPTION>
NAME AND ADDRESS
OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED (1) PERCENTAGE OF CLASS(1)
- ------------------- ----------------------------- ----------------------
<S> <C> <C>
Charles Federman(2) 61,125 1.3%
Geoffrey Koblick(3) 503,538 10.0%
Robert Mayer(4) 485,363 9.7%
Martin Sacks(5) 560,744 11.2%
Earl Hamlin(6) 39,132 0.8%
Gordon Landies(7) 112,150 2.3%
Tudor Investment Corporation (8) 198,375 4.0%
All directors and executive officers as a group (7 persons) 1,960,777 39.0%
</TABLE>
- -----------------
* Less than one percent.
(1) Assumes that the person has exercised, to the extent exercisable on or
before 60 days from the date of the table, all options and warrants to
purchase Common Stock held by such person and that no other person has
exercised any outstanding options. Includes, with respect to the category
of all officers and directors as a group, 547,158 shares subject to options
so exercisable held by all officers and directors as a group.
(2) Includes 37,500 shares issuable upon the exercise of options held by Mr.
Federman.
(3) Includes 131,250 shares issuable upon the exercise of stock options held by
Mr. Koblick.
(4) Includes 125,136 shares issuable upon the exercise of stock options held by
Mr. Mayer.
(5) Includes 163,272 shares issuable upon the exercise of stock options held by
Mr. Sacks.
(6) Includes 22,500 shares issuable upon the exercise of stock options held by
Mr. Hamlin.
(7) Includes 67,500 shares issuable upon the exercise of stock options held by
Mr. Landies.
(8) Based solely on a Schedule 13D filed on October 1, 1996.
17
<PAGE> 20
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded, earned or
paid for services rendered in all capacities to the Company and its subsidiaries
during each of the fiscal years ended June 30, 1996, 1995 and 1994 to (i) any
individual who served as the Company's chief executive officer during fiscal
1996, and (ii) the Company's two other executive officers other than the Chief
Executive Officer who were serving as executive officers at the end of fiscal
1996 whose compensation exceeded $100,000 for fiscal 1996 (collectively, "Named
Persons"). No person for whom disclosure would otherwise have been required was
an executive officer during part of fiscal 1996 but was not an executive officer
at the end of fiscal 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
-------------------------------------- -----------------------------------------------
Other Annual Stock All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
- --------------------------- ---- ------ ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
($) ($) ($)(1) ($)(1)
Martin Sacks 1996 182,000 5,178 5,412 50,000 --
President and Chief 1995 166,375 28,609 5,324 75,000 --
Executive Officer 1994 160,000 -- 4,300 -- --
Geoff Koblick 1996 111,665 3,178 5,412 35,000
Chairman of the Board 1995 94,997 229 5,324 52,500
and General Counsel 1994 47,833 9,005 4,404 --
Robert Mayer 1996 120,000 6,728 5,412 15,000 --
Vice President 1995 120,229 12,790 5,324 15,000 --
1994 121,005 -- 4,300 -- --
Mark H. Cosmez II 1996 110,001 -- -- -- --
Vice President of Finance 1995 100,834 -- -- 22,500 --
Chief Financial Officer(2) 1994 -- -- -- -- --
</TABLE>
- ----------------
(1) Consists of medical insurance premiums paid by the Company.
(2) No longer is an employee of the Company.
There are no employment agreements between the Company and any of the
named executive officers.
18
<PAGE> 21
OPTION GRANTS IN FISCAL 1996
The following table sets forth further information regarding
individual grants of options to acquire the Company's Common Stock during fiscal
1996 to each Named Person.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------------------------
% of Total Options Granted Exercise or
Name Options Granted to Employees In Fiscal Year Base Price ($/Shr) Expiration Date
- ---- --------------- --------------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Martin Sacks 75,000 15.8% 4.17 2/12/06
Geoff Koblick 52,500 11.0% 4.17 2/12/06
Robert Mayer 22,500 4.7% 4.17 2/12/06
</TABLE>
The following table sets forth information with respect to the options
exercised during fiscal 1996 by the Name Persons during fiscal 1996, including
the aggregate value of gains on the date of exercise. In addition, this table
includes the number of shares covered by both exercisable and non-exercisable
stock options as of June 30, 1996. Also reported are the values for
"in-the-money" options which represent the positive spread between the exercise
price of any such existing stock options and the year-end price of the Common
Stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options/SARs In-The-Money Options
At June 30, 1996 At June 30, 1996 ($)
Name Exercise (#) Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Martin Sacks 0 0 163,272/75,000(1) $668,494/$131,250(2)
Geoffrey Koblick 0 0 78,750/52,500(1) $282,188/$91,875(2)
Robert Mayer 0 0 102,636/22,500(1) $491,865/$39,375(2)
</TABLE>
- --------------------
(1) These options, which have a five-year vesting period, become exercisable
over time based on continuous employment with the Company and in certain
cases are subject to various performance criteria or vest in full upon
acquisition of the Company.
(2) Based on the difference between the market price of the Common Stock at
June 30, 1996 ($8.875 per share, not giving effect to the Split) and the
aggregate exercise prices of options shown in the table.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Option Grants in Fiscal 1996."
19
<PAGE> 22
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the Commission initial
reports of ownership and reports of changes in ownership of the Company's Common
Stock and other equity securities of the Company. Officers, directors and
greater than ten percent shareholders are required by the Commission's
regulations to furnish the Company with copies of all Section 16(a) forms they
filed. To the Company's knowledge, based on review of the copies of such reports
furnished to the Company, during the last fiscal year all Section 16(a) filing
requirements applicable to the Company's officers, directors, and greater than
ten percent beneficial owners were complied with.
ANNUAL REPORT TO SHAREHOLDERS
The Company's Annual Report to Shareholders for the year ended June
30, 1996, containing the audited consolidated balance sheets at June 30, 1995
and 1996 and the related consolidated statements of operations, consolidated
statements of shareholders' equity, and consolidated statements of cash flows
for each of the three years ended June 30, 1996, is being mailed with this Proxy
Statement to shareholders entitled to notice of the Annual Meeting.
SHAREHOLDER PROPOSALS
The Company will, in the future proxy statements of the Board, include
shareholder proposals complying with the applicable rules of the Securities and
Exchange Commission, any applicable state laws, and the Company's charter
documents. Accordingly, in order for a proposal by a shareholder to be included
in the proxy statement of the Board relating to the annual meeting of
shareholders following completion of the fiscal year ending June 30, 1997, the
proposal must be received in writing by the Secretary of the Company no later
than November 30, 1997.
OTHER MATTERS
The Board knows of no other matters that will be presented at the
Annual Meeting. If however, any matter is properly presented at the Annual
Meeting, the proxy solicited hereby will be voted in accordance with the
judgment of the proxy holders. Representatives of the Company's independent
auditors, Deloitte & Touche LLP, are expected to be present at the Annual
Meeting with the opportunity to make a statement if they so desire to do so, and
are expected to be available to respond to appropriate questions.
By Order of the Board of Directors,
Geoffrey B. Koblick,
Chairman of the Board, Secretary
San Rafael, California
20
<PAGE> 23
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
March 14, 1997
The undersigned hereby appoints Martin Sacks and Geoffrey B. Koblick, or either
of them, each with full power of substitution, to represent the undersigned at
the Annual Meeting of Shareholders of International Microcomputer Software, Inc.
("IMSI") to be held at 9:00 a.m. P.D.T., on March 14, 1997, at the Wyndham
Garden Hotel, 1010 Northgate Drive, San Rafael, California, and at any
adjournments or postponements thereof, and to vote the number of shares the
undersigned would be entitled to vote if personally present at the meeting on
the following matters:
1. ELECTION OF DIRECTORS.
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (except as indicated to vote for all nominees
to the contrary below) listed below
Nominees: Charles Federman, Earl S. Hamlin, Geoffrey B. Koblick, Gordon K.
Landies, Robert Mayer and Martin Sacks
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below:
---------------------------------------------------------
2. APPROVAL OF AMENDMENT TO 1993 EMPLOYEE INCENTIVE PLAN TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK (AND OPTIONS THEREFOR) RESERVED AND
AUTHORIZED FOR ISSUANCE UNDER THE PLAN BY 300,000 SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. THE TRANSACTION OF SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS OF THE MEETING.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF
ALL NOMINEES AND FOR PROPOSAL NO. 2.
<PAGE> 24
THIS PROXY WILL BE VOTED AS DIRECTED ABOVE. WHEN NO CHOICE IS
INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE FIVE NOMINEES FOR
ELECTION TO THE BOARD OF DIRECTORS AND FOR PROPOSAL NO. 2. In their discretion,
the proxy holders are authorized to vote upon such other business as may
properly come before the meeting or any adjournments or postponements thereof to
the extent authorized by Rule 14a-4(c) promulgated under the Securities Exchange
Act of 1934, as amended.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF IMSI.
Dated: _____________, 1997
- --------------------------
- --------------------------
Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares of stock stand of record in the names of two or more persons or in the
name of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the proxy. If shares of stock are held of record by a
corporation, the proxy should be executed by the president or vice president and
the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute the above proxy for a deceased shareholder should give
their full title. Please date the proxy.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
<PAGE> 25
APPENDIX A
1993 Employee Incentive Plan incorporated by this reference from Exhibit
4.1 of Form S-8 filed August 11, 1993.
