<PAGE> 1
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
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Bitstream, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
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:
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<PAGE> 2
BITSTREAM INC.
215 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 9, 1998, 10:00 A.M.
NOTICE IS HEREBY GIVEN to the stockholders of BITSTREAM INC., a Delaware
corporation (the "Company"), that the Annual Meeting of Stockholders (the
"Meeting") will be held at the Royal Sonesta Hotel, 5 Cambridge Parkway,
Cambridge, Massachusetts 02142 at 10:00 a.m., Eastern Daylight Time, on June 9,
1998 for the following purposes:
1. To elect a board of four (4) directors to serve until the next
Annual Meeting of Stockholders or until their respective successors are
elected and qualified;
2. To approve and ratify an amendment to the Company's 1997 Stock Plan
to increase the number of shares of Class A Common Stock reserved under
such Plan by 500,000 shares;
3. To ratify the action of the Board of Directors in appointing Arthur
Andersen LLP as auditors for the Company for the fiscal year ending
December 31, 1998; and
4. To transact such other and further business as may properly come
before the Meeting or any postponement or adjournment thereof.
Only stockholders of record at the close of business on April 17, 1998 are
entitled to notice of and to vote at the Meeting or any adjournment thereof. The
stock transfer books of the Company will not be closed.
A copy of the Company's Annual Report for the fiscal year ended December
31, 1997 accompanies this notice.
By Order of the Board of Directors,
/s/ CHARLES YING
----------------------------
CHARLES YING
Chairman of the Board
May 6, 1998
RETURN OF PROXIES
A proxy and self-addressed envelope are enclosed for your use. Whether or
not you plan to attend the meeting, the Board of Directors of the Company
requests that you execute and return your proxy in the enclosed envelope in
order that your shares will be represented at the meeting.
<PAGE> 3
BITSTREAM INC.
215 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142
PROXY STATEMENT
The enclosed proxy ("Proxy") is solicited by the Board of Directors (the
"Board") of Bitstream Inc., a Delaware corporation (the "Company"), for use at
the Company's Annual Meeting of Stockholders (the "Meeting") to be held at the
Royal Sonesta Hotel, 5 Cambridge Parkway, Cambridge, Massachusetts 02142 on June
9, 1998, at 10:00 a.m., Eastern Daylight Time. Any stockholder giving a Proxy
has the power to revoke it at any time before it is voted by executing another
Proxy bearing a later date or by giving written notice of revocation to the
Company addressed to the Secretary prior to the Meeting or by oral or written
notice at the Meeting.
The mailing address of the Company's principal executive office is 215
First Street, Cambridge, Massachusetts 02142, Telephone No. (617) 497-6222. The
approximate date on which this Proxy Statement and form of Proxy are first being
sent or given to stockholders is May 6, 1998.
SOLICITATION OF PROXIES
The persons named as proxies are Charles Ying, Chairman of the Board and
Chief Executive Officer of the Company, Wendy Darland, Vice President, Finance
and Administration, Treasurer and Chief Financial Officer of the Company, and
Anna M. Chagnon, Vice President and General Counsel and Secretary of the
Company. The stock represented at the Meeting by the enclosed Proxy will be
voted in the manner specified by the stockholder executing the same. In the
absence of specification, the shares of stock will be voted FOR (i) the election
of each of the four persons nominated by the Board to serve as directors, (ii)
the approval and ratification of the adoption of the amendment to the 1997 Stock
Plan (the "1997 Plan") to increase the number of shares of Class A Common Stock
reserved under such Plan by 500,000 shares, and (iii) the ratification of the
action of the Board of Directors in appointing Arthur Andersen LLP as auditors
for the Company for the fiscal year ending December 31, 1998, and in the
discretion of the proxies on other business which may properly come before the
Meeting. The cost of preparing, assembling and mailing the Proxy, this Proxy
Statement and the other material enclosed will be borne by the Company. In
addition to the solicitation of proxies by use of the mails, officers and
employees of the Company may solicit proxies by telephone, telegram or other
means of communication. The Company will request brokerage houses, banking
institutions, and other custodians, nominees and fiduciaries, with respect to
shares held of record in their names or in the names of their nominees, to
forward the proxy material to the beneficial owners of such shares of stock and
will reimburse them for their reasonable expenses in forwarding the proxy
material.
SHARES OUTSTANDING AND VOTING RIGHTS
Only holders of shares of Class A Common Stock, $0.01 par value ("Class A
Shares" or "Class A Common Stock"), of record as at the close of business on
April 17, 1998 (the "Record Date") are entitled to vote at the Meeting, or any
adjournment thereof. On the Record Date, there were issued and outstanding
6,617,342 Class A Shares. Each Class A Share is entitled to one vote on all
matters to be voted upon. The presence in person or by properly executed proxy
of the holders of a majority of the outstanding shares of Class A Common Stock
entitled to vote at the Meeting is necessary to constitute a quorum. Directors
are elected by a majority of the votes present in person or by proxy at the
Meeting and voting on such proposal. The affirmative vote of a majority of the
votes present in person or by proxy at the Meeting is required for the approval
of the amendment to the 1997 Plan and the ratification of the appointment of the
auditors.
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Stockholders of the Company vote at the Meeting by casting ballots (in
person or by proxy) which are tabulated by a person who is appointed by the
Board before the Meeting to serve as the inspector of election at the Meeting
and who has executed and verified an oath of office. For purposes of determining
the number of votes cast with respect to a particular matter, only those cast
"For" or "Against" are included. Abstentions and broker non-votes are counted
only for purposes of determining whether a quorum is present at the Meeting.
The stock transfer books of the Company will not be closed. Stockholders
who do not expect to attend the Meeting, but wish to have their shares of stock
voted at the Meeting, are urged to complete, sign, date and return the enclosed
Proxy as promptly as possible.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
Four directors of the Company are to be elected to serve until the next
annual meeting of stockholders of the Company or until the election and
qualification of their respective successors. Each of the nominees named below
currently serves as a director of the Company. The persons named in the
accompanying Proxy intend to vote (unless authority to vote for directors is
withheld in such Proxy) all duly executed Proxies unrevoked at the time of the
exercise thereof for the election to the Board of all of the nominees named
below, each of whom consented to be named herein and to serve as a director if
elected at the Meeting. In the event that any nominee should become unavailable
prior to the Meeting, the Proxy will be voted for a substitute nominee
designated by the Board if a substitute nominee is designated. Listed below is
certain information with respect to each current nominee for election as a
director. For information concerning the number of shares of Class A Common
Stock beneficially owned by each nominee, see "Principal Stockholders."
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR EACH OF THE NOMINEES
LISTED BELOW.
NOMINEES FOR DIRECTORS
The Company's directors and their ages as of April 17, 1998 are as follows:
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
Charles Ying(1)(2)............. 51 Chairman of the Board, Chief Executive
Officer and Director
George B. Beitzel(2)........... 69 Director
Amos Kaminski(1)(2)............ 68 Director
David G. Lubrano(1)(2)......... 67 Director
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(1) Member of Executive Committee.
(2) Member of the Compensation Committee and Audit Committee.
Charles Ying has been Chief Executive Officer of the Company since May 1997
and Chairman of the Board of Directors since April 1997. From January 1992 to
January 1996, Mr. Ying served as Chief Executive Officer of Information
International Inc., a corporation engaged in the business of designing,
manufacturing and marketing computer-based systems that automate document
production and publishing. Mr. Ying also serves as a member of the Board of
Directors of NodeWarrior Networks Inc., an Internet Service Provider located in
Los Angeles, California. Mr. Ying holds a B.S. and M.S. in Electrical
Engineering from Massachusetts Institute of Technology.
George B. Beitzel has been a director of the Company since April 1989. Mr.
Beitzel retired in 1987 from International Business Machines Corporation where
he had been a Senior Vice President and a director.
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Mr. Beitzel currently serves on the board of directors of: Bankers Trust New
York Corporation, Caliber System, Inc., Computer Task Group, Inc., Datalogix
International, Inc., FlightSafety International, Inc., Phillips Petroleum
Company, Rohm & Haas Co., TIG Holdings, Inc. and Xillix Technologies
Corporation.
Amos Kaminski has been a director of the Company since 1985 and was
Chairman of the Board from 1991 through 1996. Mr. Kaminski founded Interfid
Ltd., a private investment advisory firm, in 1984 and has served as its
President and on its Board of Directors since its formation. Mr. Kaminski is
also the founder, President and Chairman of the Board of Directors of AFA Asset
Services, Inc., a private real estate asset management company.
David G. Lubrano has been a director of the Company since 1987. Mr. Lubrano
retired in 1985 from Apollo Computer Inc., a corporation engaged in
manufacturing workstations, which he co-founded and where he had been a Senior
Vice President of Finance and Administration, Chief Financial Officer and a
director.
The Company's By-laws provide that the Board will be elected at the annual
meeting of the stockholders, or at a special meeting of the stockholders in lieu
thereof, and that all directors shall hold office until the next annual meeting
of stockholders, or next special meeting of the stockholders in lieu thereof, or
until their successors are chosen and qualified.
BOARD COMMITTEES
The Board has an Audit Committee, a Compensation Committee and an Executive
Committee. The Audit Committee reviews the Company's accounting practices,
internal accounting controls and financial results and oversees the engagement
of the Company's independent auditors. The Compensation Committee establishes
salaries, incentives and other forms of compensation for directors, officers and
other employees of the Company. The Compensation Committee also administers the
Company's benefit plans and administers the issuance of stock options and other
awards under the 1997 Plan to all Company employees and directors, including the
members of such committee. The Executive Committee oversees the management of
the business and affairs of the Company, including mergers and acquisitions,
corporate governance and nominations, and evaluation of strategic business
opportunities. In the fiscal year ended December 31, 1997, Messrs. Beitzel,
Lubrano and Kaminski served as members of both the Audit Committee and the
Compensation Committee, and Messrs. Ying, Kaminski and Lubrano served on the
Executive Committee. Mr. Lubrano serves as the Chairman of the Audit Committee,
Mr. Beitzel serves as the Chairman of the Compensation Committee and Mr.
Kaminski serves as Chairman of the Executive Committee.
During the fiscal year ended December 31, 1997, the full Board met six
times and acted by unanimous written consent five times. The Audit Committee,
the Compensation Committee and the Executive Committee did not meet during the
fiscal year ended December 31, 1997. All incumbent directors attended at least
75% of the aggregate number of the meetings of the Board.
DIRECTOR COMPENSATION
For the fiscal year ended December 31, 1997, each director who was not an
employee of the Company received $14,000 in cash compensation for service as a
director.
On March 10, 1997, the Board, pursuant to the 1997 Plan, awarded warrants
to purchase 20,000 Class A Shares to each of Messrs. Beitzel, Kaminski and
Lubrano and incentive stock options ("ISOs") and non-qualified options ("NQSOs")
to purchase 40,485 Class A Shares and 4,515 Class A Shares, respectively, to Mr.
C. Raymond Boelig, former President, Chief Executive Officer and Chairman of the
Board of Directors of the Company. Each of such warrants and options have an
exercise price equal to the fair market value of the Class A Common Stock on the
date granted and one-half of such warrants and options will vest on the first
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anniversary of the date of the grant and the remainder will vest on the second
anniversary of the date of the grant.
On August 5, 1997, the Board, pursuant to the 1997 Plan, awarded ISOs to
purchase 150,000 shares of Class A Shares to Mr. Charles Ying in connection with
Mr. Ying's election as Chief Executive Officer of the Company on May 19, 1997.
Such options have an exercise price equal to the fair market value of the Class
A Common Stock on the date granted and one-third of such options will vest on
the first anniversary of the date of the grant, one-third of such options will
vest on the second anniversary of the date of the grant and the remainder will
vest on the third anniversary of the date of the grant.
On January 23, 1998, the Board, pursuant to the 1997 Plan, awarded
non-qualified options to purchase 50,000 Class A Shares to each of Messrs.
Beitzel, Kaminski and Lubrano. Each of such options have an exercise price equal
to the fair market value of the Class A Common Stock on the date granted and
one-third of such options will vest on each of the first, second and third
anniversaries of the date of the grant.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Company at the
direction of the Board has prepared the following report for inclusion in this
Proxy Statement. The Committee is comprised of Messrs. Beitzel, Kaminski and
Lubrano, three non-employee directors who are "disinterested persons" within the
meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Committee has the responsibility for all compensation
matters concerning the Company's executive officers.
The Company's executive compensation program is intended to attract and
retain highly-qualified senior managers by providing compensation opportunities
that reflect the Company's business results and the individual executive's
performance. The Committee believes that these compensation opportunities will
motivate management's efforts by ensuring that the rewards received by Company
executives are consistent with the achievement of the Company's business
objectives and with the value added by management to the stockholders' interests
in the Company. The program provides for base salaries that reflect such factors
as level of responsibility, internal fairness and external competitiveness, and
annual incentive bonus awards that are payable in cash for the achievement of
target levels of sales and earnings, strategic acquisitions and other
initiatives, introduction of innovative products and services, and the
achievement of and progress toward other significant annual financial and
operational objectives as determined by the Committee. In general, the cash
compensation of the Company's executive officers approximates the average of
compensation paid to executives of appropriate comparator companies who occupy
positions of similar responsibilities. The program also provides long-term
incentive opportunities in the form of stock options that strengthen the
mutuality of economic interest between management and the Company's stockholders
and encourage management continuity.
The following is a discussion of each element of the Company's executive
compensation program, including a description of the decisions and actions taken
by the Committee with respect to the 1997 fiscal year compensation for the Chief
Executive Officer (the "CEO") and all executive officers as a group.
MANAGEMENT COMPENSATION PROGRAM
Compensation of the Company's executive officers in the fiscal year ended
December 31, 1997 (as reflected in the tables that follow with respect to the
Named Executive Officers) consisted of the following elements: base salary,
annual incentive bonus and the opportunity for stock option grants under the
1996 and 1997 Stock Plans. Total annual cash compensation for each executive
officer varies each year based on the Company's achievement of its annual
objectives and the individual's performance. Stock options to purchase
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<PAGE> 7
805,164 shares were granted to executive officers under the 1996 and 1997 Stock
Plans during the 1997 fiscal year. In addition, stock options that were
previously granted to certain executive officers and employees under the 1994
Stock Plan continue to be outstanding and unexercised. The potential value of
previously granted long-term stock options varies based upon the fair market
value of the Company's stock.
With respect to determining the base salary of executive officers, the
Committee takes into consideration a variety of factors, including the
executive's level of responsibility and individual performance, the salaries of
similar positions in comparable companies and the financial and operational
performance of the Company in relation to its objectives and its competitive
standing. The Company reviews the results of various industry salary surveys to
ensure its understanding of competitive compensation levels and practices in the
marketplace. From time to time, the Committee utilizes the services of a
recognized, independent external consulting firm to determine marketplace
compensation values and practices, and to assess the reasonableness of the
overall compensation program.
The Company's annual incentive bonus to its executive officers (including
the Named Executive Officers) is based on the achievement of objective,
financial and operational performance targets and the discretion of the
Committee. These targets may include sales volume, net operating income,
accomplishment of certain strategic business initiatives, and other performance
objectives as may be determined annually. In determining individual incentive
bonus awards, the accountability of executive officers and their individual
contributions towards the attainment of these objectives are considered. In
determining specific awards for the most recent performance year, the Committee
placed considerable emphasis on the Company's sales growth, progress toward
achievement of earnings objectives, strategic acquisition activity and new
product development. The calculation of the Company's financial and operational
performance with respect to the determination of these incentive bonus awards is
made as soon as is practicable after the completion of the Company's fiscal
year.
In addition to cash compensation, the Committee and the Board believe that
providing executive officers with stock ownership opportunities aligns the
interests of the executives with other stockholders and encourages the
executives' long-term retention in the Company. The long-term incentive element
of the Company's management compensation program is therefore in the form of
stock option grants. During the 1997 fiscal year, the Company adopted and
stockholders approved the 1997 Stock Plan which provides the facility for the
granting of both ISOs (under Section 422 of the Internal Revenue Code) and
NQSOs.
On January 27, 1997, the Board awarded ISOs to purchase 33,334 Class A
Shares to Mr. Seguin pursuant to the 1996 Stock Plan at a price of $4.63 per
share. The exercise price of such ISOs equals the closing price of the Class A
Shares on the date of the grant.
On March 10, 1997, the Board granted options to purchase Class A Common
Stock under the Plan to each of Messrs. Boelig (40,485 ISOs and 4,515 NQSOs),
Collins (30,000 ISOs) and Seguin (30,000 ISOs), each of whom is a Named
Executive Officer. Such options have an exercise price equal to the fair market
value of the Class A Common Stock on the date they were granted, are exercisable
for ten years, and vest one-half on the first anniversary of the date of grant
and one half on the second anniversary.
In April 1997, the Company acquired Archetype, Inc. ("Archetype"), a
Delaware corporation primarily engaged in the business of developing and
marketing server-based information management computer software for the graphic
arts industry. Archetype's products include: MediaBank(TM), a digital asset
management product that allows for the cataloging, archiving, and management of
electronic images, text and documents; InterSep(TM) OPI and InterSep Output
Manager, advanced open prepress interface and print management products for
raster image processors and servers; and NuDoc(TM), an advanced document
composition technology. In connection with such acquisition, the Board granted
NQSOs to purchase 100,000 Class A Shares pursuant to the 1997 Stock Plan to each
of Ms. Robertson and Mr. Trevithick at a price of
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$3.94 per share. The exercise price of such ISOs equals the closing price of the
Class A Shares on the date of the grant. In addition, the Board granted NQSOs to
purchase 155,000 and 65,000, respectively, to each of Ms. Robertson and Mr.
Trevithick at a price of $0.90 per share in exchange for an equal number of
options granted to such individuals by Archetype.
On August 5, 1997, the Board granted ISOs to purchase 150,000 Class A
Shares pursuant to the 1997 Stock Plan to Mr. Ying at a price of $2.00 per
share. The exercise price of such ISOs equals the closing price of the Class A
Shares on the date of the grant.
The 1994 Stock Plan, 1996 Stock Plan and 1997 Stock Plan are intended to
create opportunities for executive officers and other key employees of the
Company to acquire a proprietary interest in the Company and thereby enhance
their efforts in the service of the Company and its stockholders. In addition,
the vesting provisions of such awards (which limit the exercisability of such
options for certain periods of time) encourage the continued service and
stability of the management team.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Charles Ying, Chairman of the Board and Chief Executive Officer of the
Company, is eligible to participate in the same executive compensation programs
in which other executive-level employees of the Company participate. His total
annual compensation for the 1997 fiscal year was determined by the Committee in
consideration of the same performance criteria used to establish pay levels for
all other executive-level employees. In particular, Mr. Ying's salary for the
year ended December 31, 1997 was at the rate of $150,000 per annum in
recognition of the Board's overall satisfaction with his performance and
contributions. The Committee has determined that his salary is below the median
salary of Chief Executive Officers in a selected group of comparable companies.
Compensation Committee
George B. Beitzel
Amos Kaminski
David G. Lubrano
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information concerning
compensation by the Company to each of its Chief Executive Officers (the "CEOs")
during the fiscal year ended December 31, 1997 and the four most highly
compensated executive officers other than the CEOs who were serving as executive
officers on December 31, 1997 (together with the CEOs, the "Named Executive
Officers") whose aggregate salary and bonus exceeded $100,000 for the fiscal
year ended December 31, 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------
----------------------------------------- SECURITIES ALL
OTHER UNDERLYING OTHER
NAME AND ANNUAL OPTIONS/ COMPEN-
PRINCIPAL POSITION YEAR(1) SALARY($) BONUS($)(2) COMPENSATION($) WARRANTS(#)(3) SATION($)(4)
- ------------------ ------- --------- ----------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles Ying.............. 1997 86,538 -- -- 150,000(5) --
Chief Executive 1996 -- -- -- -- --
Officer 1995 -- -- -- -- --
C. Raymond Boelig......... 1997(6) 180,000 60,000 18,549 45,000(7) 4,750
Former President and 1996(8) 196,923 50,000 -- -- 1,500
Chief Executive Officer 1995 172,692 50,000 -- 199,773(9) 1,500
John Collins.............. 1997 130,738 1,200 -- 30,000(10) 3,922
Vice President, 1996 124,233 30,000 -- -- 1,492
Engineering 1995(11) 114,584 25,000 -- 149,830(12) 2,451(13)
Susan Robertson........... 1997(14) 126,474 235,000 -- 255,000(15) 1,442
Vice President and 1996 -- -- -- -- --
General Manager, 1995 -- -- -- -- --
Archetype Applications
division
John L. Seguin............ 1997 164,473 -- -- 63,334(16) 4,653
Vice President and 1996 124,231 66,410 -- -- 1,500
General Manager, Type 1995(17) 105,000 30,428 -- 66,667(18) 1,072
and Technology division
Paul Trevithick........... 1997(19) 117,724 300,000 -- 165,000(20) --
Vice President, 1996 -- -- -- -- --
Marketing 1995 -- -- -- -- --
</TABLE>
- ---------------
(1) Effective December 31, 1995, the Company changed its fiscal year end of
September 30 to a calendar year end. The fiscal year ended December 31,
1996 commenced January 1, 1996. Because of the change in fiscal year, the
Company is presenting certain summary information concerning compensation
paid by the Company to the Named Executive Officers for the three months
ended December 31, 1995 in the footnotes below.
(2) For each of Messrs. Boelig and Collins, the bonus reflected in the 1995
fiscal year column above were for services rendered in the twelve months
ended September 30, 1994 and the bonus reflected during the three months
ended December 31, 1995 in the footnotes below were for services rendered
during the twelve months ended September 30, 1995.
(3) The Company did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive plan payouts during the
fiscal years ended September 30, 1995, December 31, 1996 and December 31,
1997.
(4) Represents matching contributions by the Company for the account of the
Named Executive Officer under the Company's 401(k) Plan.
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<PAGE> 10
(5) Represents options to purchase 150,000 shares of Class A Common Stock with
an exercise price of $2.00 per share, which was the fair market value of
the shares on the date of grant (August 5, 1997). These options expire on
August 5, 2007 and vest in three equal annual installments on the first,
second and third anniversaries of the date of grant.
(6) Includes an amount equal to Mr. Boelig's base compensation for 1997
($180,000) paid to Mr. Boelig on a pro rata basis from May 19, 1997 to
December 31, 1997 in consideration for the execution by Mr. Boelig of a
Separation Agreement and General Release with the Company on May 19, 1997.
(7) Represents options to purchase 45,000 shares of Class A Common Stock with
an exercise price of $4.94 per share, which was the fair market value of
the shares on the date of grant (May 19, 1997). These options expire on
August 17, 1999 and vest in two equal annual installments on the first and
second anniversaries of the date of grant.
(8) Mr. Boelig's salary for the 1996 fiscal year included his base salary of
$180,000 plus an additional amount to compensate him for voluntarily
accepting a reduction is his base salary during the month of September 1995
and the three months ended December 31, 1995. In the three months ended
December 31, 1995, Mr. Boelig received $30,777 in salary and a bonus of
$50,000.
(9) Represents options to purchase 110,000 shares of Class A Common Stock and a
warrant to purchase 89,773 shares of Class A Common Stock with an exercise
price of $0.90 per share, which was the fair market value of the shares at
the time of grant as determined by the Board. The options and warrants were
granted on November 30, 1994 pursuant to the Company's 1994 Stock Plan. The
options represented expire November 30, 2004 and are fully vested. The
warrants represented expire on November 30, 2001 and are fully vested.
(10) Represents options to purchase 30,000 shares of Class A Common Stock with
an exercise price of $4.94 per share, which was the fair market value of
the shares on the date of grant (March 10, 1997). These options expire on
March 10, 2007 and vest in two equal annual installments on the first and
second anniversaries of the date of grant.
(11) In the three months ended December 31, 1995, Mr. Collins received $25,000
in salary, a bonus of $25,000 and $1,450 of other compensation, $1,200 of
which was deferred compensation.
(12) Represents options to purchase 110,000 shares of Class A Common Stock and a
warrant to purchase 39,830 shares of Class A Common Stock with an exercise
price of $0.90 per share, which was the fair market value of the shares at
the time of grant as determined by the Board. The options and warrants were
granted on November 30, 1994 pursuant to the Company's 1994 Stock Plan. The
options represented expire November 30, 2004 and are fully vested. The
warrants represented expire on November 30, 2001 and are fully vested.
(13) Includes $1,200 of deferred compensation.
(14) In fiscal 1997, all bonus compensation was paid to Ms. Robertson in
connection with her employment agreement with the Company. See "Executive
Agreements."
(15) Includes options to purchase 100,000 shares of Class A Common Stock with an
exercise price of $3.94 per share, which was the fair market value of the
shares on the date of grant (April 28, 1997). These options expire on April
28, 2004 and vest in three equal annual installments on the first, second
and third anniversaries of the date of grant. Also includes options to
purchase 155,000 shares of Class A Common Stock at a price of $0.90 per
share which were issued on April 28, 1997 in exchange for an equal number
of options originally issued to Ms. Robertson by Archetype. These options
are fully vested.
(16) Includes options to purchase 33,334 shares of Class A Common Stock with an
exercise price of $4.94 per share, which was the fair market value of the
shares on the date of grant (January 27, 1997). These options expire on
January 27, 2007 and vest in three equal annual installments on the first,
second and
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<PAGE> 11
third anniversaries of the date of grant. Also includes options to purchase
30,000 shares of Class A Common Stock with an exercise price of $4.94 per
share, which was the fair market value of the shares on the date of grant
(March 10, 1997). These options expire on March 10, 2007 and vest in two
equal annual installments on the first and second anniversaries of the date
of grant.
(17) In the three months ended December 31, 1995, Mr. Seguin received $24,231 in
salary, a bonus of $11,772 and $360 of other compensation.
(18) Represents options to purchase Class A Common Stock with an exercise price
of $0.90 per share, which was the fair market value of the shares at the
time of grant as determined by the Board. The options were granted on
November 30, 1994 pursuant to the Company's 1994 Stock Plan. These options
expire on November 30, 2004 and are fully vested.
(19) In fiscal 1997, all bonus compensation was paid to Mr. Trevithick in
connection with his employment agreement with the Company. See "Executive
Agreements."
(20) Includes options to purchase 100,000 shares of Class A Common Stock with an
exercise price of $3.94 per share, which was the fair market value of the
shares on the date of grant (April 28, 1997). These options expire on April
28, 2004 and vest in three equal annual installments on the first, second
and third anniversaries of the date of grant. Also includes options to
purchase 65,000 shares of Class A Common Stock at a price of $0.90 per
share which were issued on April 28, 1997 in exchange for an equal number
of options originally issued to Mr. Trevithick by Archetype. These options
are fully vested.
All of the Company's Named Executive Officers, except Susan Robertson and
Paul Trevithick, are employed on an at will basis and, except for the
compensation arrangements discussed below with Ms. Robertson and Mr. Trevithick,
none of the Named Executive Officers is party to any employment agreements with
the Company. Each of the executive officers may also receive discretionary
bonuses as may be determined by the Compensation Committee.
OPTION AND WARRANT GRANTS
The following table shows all options granted to each of the Named
Executive Officers of the Company during the fiscal year ended December 31, 1997
and the potential value of stock price appreciation rates, 5% and 10%, over the
two, seven or ten year term of the options. The 5% and 10% rates of appreciation
are not intended to forecast future actual appreciation, if any, in the
Company's stock prices. The Company did not use an alternative present value
formula because the Company is not aware of any such formula that can determine
with reasonable accuracy the present value based on future unknown or volatile
factors.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM(5)
----------------------------------------- -------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTION/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTION/SARS EMPLOYEES IN BASE PRICE
NAME GRANTED(#) FISCAL YEAR ($/SH)(4) EXP. DATE 5%($)(17) 10%($)(17)
- ---- ------------ ------------ ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles Ying............ 150,000 11.4% $2.00 08/05/2007(1) 30,127 225,672
C. Raymond Boelig....... 4,515 * $4.94 03/10/2007(2) 2,240 16,778
40,485 3.1% $4.94 03/10/2007(3) 20,084 150,448
45,000 3.4% $4.94 08/17/1999(4) 4,296 26,390
John Collins............ 30,000 2.3% $4.94 03/10/2007(5) 14,883 111,482
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM(5)
----------------------------------------- -------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTION/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTION/SARS EMPLOYEES IN BASE PRICE
NAME GRANTED(#) FISCAL YEAR ($/SH)(4) EXP. DATE 5%($)(17) 10%($)(17)
- ---- ------------ ------------ ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Susan Robertson......... 5,000 * $0.90 01/31/2000(6) 452 3,385
2,500 * $0.90 01/31/2000(7) 251 1,881
7,500 * $0.90 01/31/2000(8) 678 5,078
36,000 2.7% $0.90 11/08/2001(9) 2,245 15,580
95,000 7.2% $0.90 10/20/2004(10) 5,924 41,114
9,000 * $0.90 01/15/2004(11) 561 3,895
100,000 7.6% $3.94 04/28/2004(12) 27,297 189,461
John L. Seguin.......... 33,334 2.5% $4.63 01/27/2007(13) 15,498 116,098
30,000 2.3% $4.94 03/10/2007(14) 14,883 111,482
Paul Trevithick......... 65,000 5.0% $0.90 10/20/2004(15) 4,053 28,131
100,000 7.6% $3.94 04/28/2004(16) 27,297 189,461
</TABLE>
- ---------------
(1) These options are first exercisable on August 5, 1998 at which time the
options will be 33% vested with options vesting in additional 33%
increments in two annual installments commencing on August 5, 1999.
(2) These options were first exercisable on March 10, 1998 at which time the
options were 50% vested with the remainder vesting on March 10, 1999. These
options were cancelled effective May 19, 1997 in connection with Mr.
Boelig's resignation as an officer and director of the Company.
(3) These options were first exercisable on March 10, 1998 at which time the
options were 50% vested with the remainder vesting on March 10, 1999. These
options were cancelled effective May 19, 1997 in connection with Mr.
Boelig's resignation as an officer and director of the Company.
(4) These options are first exercisable on May 19, 1998 at which time the
options will be 50% vested with the remainder vesting on May 19, 1999.
(5) These options were first exercisable on March 10, 1998 at which time the
options were 50% vested with the remainder vesting on March 10, 1999.
(6) These options were first exercisable on October 28, 1997 at which time the
options were 100% vested.
(7) These options were first exercisable on October 28, 1997 at which time the
options were 100% vested.
(8) These options were first exercisable on October 28, 1997 at which time the
options were 100% vested.
(9) These options were first exercisable on October 28, 1997 at which time the
options were 100% vested.
(10) These options were first exercisable on October 28, 1997 at which time the
options were 100% vested.
(11) These options were first exercisable on October 28, 1997 at which time the
options were 100% vested.
(12) These options are first exercisable on April 28, 1998 at which time the
options were 33% vested with options vesting in additional 33% increments
in two annual installments commencing on April 28, 1999.
(13) These options were first exercisable on January 27, 1998 at which time the
options were 33% vested with options vesting in additional 33% increments
in two annual installments commencing on January 27, 1999.
(14) These options were first exercisable on March 10, 1998 at which time the
options were 50% vested with the remainder vesting on March 10, 1999.
(15) These options were first exercisable on October 28, 1997 at which time the
options were 100% vested.
10
<PAGE> 13
(16) These options are first exercisable on April 28, 1998 at which time the
options were 33% vested with options vesting in additional 33% increments
in two annual installments commencing on April 28, 1999.
(17) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based upon assumed rates of share price appreciation set by the
Securities and Exchange Commission of five percent and ten percent
compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses associated
with the exercise. Actual gains, if any, are dependent on the performance
of the Common Stock and the date on which the option is exercised. There
can be no assurance that the amounts reflected will be achieved.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to the exercise of
options by the executive officers named in the Summary Compensation Table during
the last fiscal year and unexercised options held as of the end of the fiscal
year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(#) AT FY-END(2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles Ying........... -- -- -- 150,000 -- --
C. Raymond Boelig...... 12,300 28,905 97,700 45,000 $ 95,258 --
John Collins........... -- -- 110,000 30,000 $107,250 --
Susan Robertson........ -- -- 155,000 100,000 $151,125 --
John L. Seguin......... 10,000 38,500 90,001 30,000 $ 55,250 --
Paul Trevithick........ -- -- 65,000 100,000 $ 63,375 --
</TABLE>
- ---------------
(1) Value realized equals fair market value on the date of exercise, less the
exercise price, times the number of shares acquired, without deducting taxes
or commissions paid by employee.
(2) Value of unexercised options equals fair market value of the shares
underlying in-the-money options at December 31, 1997 ($1.875 per share),
less the exercise price, times the number of options outstanding.
EXECUTIVE AGREEMENTS
In April 1997, the Company acquired Archetype, Inc. ("Archetype"), a
Delaware corporation primarily engaged in the business of developing and
marketing server-based information management computer software for the graphic
arts industry. In connection with such acquisition, the Company entered into an
employment agreement with each of Susan Robertson, Archetype's Executive Vice
President and Chief Operating Officer, and Paul Trevithick, Archetype's
President and Chief Executive Officer. Each of these employment agreements is
described in greater detail below.
11
<PAGE> 14
EMPLOYMENT AGREEMENT WITH MS. ROBERTSON
In April 1997, the Company entered into an employment agreement with Ms.
Robertson, Vice President and General Manager of the Archetype Applications
division. Pursuant to the employment agreement, Ms. Robertson serves as Vice
President of the Company for a period of two years commencing on April 28, 1997.
In consideration of such employment, Bitstream agreed to pay Ms. Robertson an
annual base salary of $125,000, a $100,000 signing bonus on April 28, 1997, a
deferred bonus of $100,000 on July 17, 1997 and an annual performance bonus of
$50,000 per year for each of the 1997 and 1998 fiscal years so long as Ms.
Robertson has met certain performance criteria.
EMPLOYMENT AGREEMENT WITH MR. TREVITHICK
In April 1997, the Company entered into an employment agreement with Paul
Trevithick, Vice President, Marketing. Pursuant to the employment agreement, Mr.
Trevithick serves as Vice President of the Company for a period of two years
commencing on April 28, 1997. In consideration of such employment, Bitstream
agreed to pay Mr. Trevithick an annual base salary of $125,000, a $200,000
signing bonus on April 28, 1997, a deferred bonus of $100,000 on July 17, 1997
and an annual performance bonus of $50,000 per year for each of the 1997 and
1998 fiscal years so long as Mr. Trevithick has met certain performance criteria
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1997, Messrs. Beitzel, Kaminski
and Lubrano fulfilled all functions of the Compensation Committee with regard to
determining compensation of executive officers of the Company. For a description
of the relationship between Mr. Amos Kaminski, a member of the Board, Interfid
and certain significant principal stockholders of the Company, see "Certain
Transactions -- Interfid." Messrs. Beitzel, Kaminski and Lubrano, and a trust in
which Mr. Beitzel and his family members are the beneficiaries and in which Mr.
Beitzel's wife and children share voting power (the "Beitzel Family Trust"),
were among certain directors and principal stockholders who made loans to the
Company. See "Certain Transactions -- Bridge Loans."
12
<PAGE> 15
STOCK PERFORMANCE GRAPH
The line graph below compares the percentage change in cumulative total
stockholder return on the Class A Common Stock assuming an investment of $100 on
October 30, 1996, the date on which the Class A Common Stock was first publicly
traded, with the total cumulative return of the Total Return Index for the
Nasdaq Stock Market (US) and the Nasdaq Computer & Data Processing Services
Stock index for the period from October 31, 1996 to December 31, 1997. The Class
A Common Stock was sold in its initial public offering at a price of $6.00, and
the closing sales price of the Class A Common Stock on the Nasdaq National
Market on December 31, 1997 was $1.875.
COMPARISON OF 14 MONTH CUMULATIVE TOTAL RETURN*
AMONG BITSTREAM, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX
<TABLE>
<CAPTION>
NASDAQ NASDAQ
STOCK COMPUTER
MEASUREMENT PERIOD BITSTREAM MARKET & DATA
(FISCAL YEAR COVERED) INC. (U.S.) PROCESSING
<S> <C> <C> <C>
10/96 100 100 100
12/96 108 106 106
12/97 31 130 130
</TABLE>
- ---------------
* $100 invested on 10/31/96 in stock or index -- including reinvestment of
dividends, fiscal year ending December 31.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BRIDGE LOANS
On February 22, 1996, the Company entered into a Loan Agreement (the
"Bridge Loan Agreement") with certain parties (each a "Bridge Lender"), pursuant
to which the Company borrowed an aggregate amount of $600,000 (the "Bridge
Loan") from the Bridge Lenders. The Bridge Lenders were Messrs. Kaminski
($24,000 Bridge Loan), Lubrano ($18,000 Bridge Loan), Morton E. Goulder ($16,000
Bridge Loan), Beitzel ($11,500 Bridge Loan), The Beitzel Family Trust ($11,500
Bridge Loan), Gotthard Bank (Nassau Branch), acting for the account of certain
of its clients and their respective registered assigns ($281,000 Bridge Loan),
JHI Development Capital Limited ($155,000 Bridge Loan), and BancBoston Ventures,
Inc. ($83,000 Bridge Loan).
13
<PAGE> 16
In connection with the Bridge Loan Agreement, the Company executed a
promissory note in favor of each Bridge Lender, pursuant to which the Company
agreed to pay the principal amount borrowed from such Bridge Lender, plus simple
interest at twelve percent (12%) per annum thereon, on August 22, 1996. The
Company agreed to an interest rate of 12% on the Bridge Loans given the fact
that the Bridge Loans are unsecured and subordinate to the Company's senior
indebtedness. At the time the Bridge Loan Agreement was entered into, the
interest rate on the Company's senior secured indebtedness was 10.5% per annum.
On August 22, 1996, the Company entered into an amendment extending the maturity
date of the Bridge Loans to October 22, 1996, and on October 9, 1996, the
Company entered into a further amendment extending the maturity date of the
Bridge Loans to December 22, 1996. The Company used the proceeds of the Bridge
Loans for working capital.
The Company used a portion of the proceeds from its initial public offering
(the "IPO") of Class A Common Stock, which was completed in November 1996, to
repay all amounts due to the Bridge Lenders under the Bridge Loan Agreement. As
of December 31, 1996, the Company satisfied all of its repayment obligations
under the Bridge Loan Agreement.
INTERFID
Amos Kaminski, a member of the Board, is a director and the controlling
stockholder of Interfid. Interfid renders investment advisory services to
Premier Resources, Ltd., ("Premier"), a Bahamanian corporation. Premier serves
as an investment advisor to each of Privest I N.V. and Privest II N.V. and may
be deemed the beneficial owner of the Company's stock owned of record by such
entities. See "Principal Stockholders" and note 3 to the table contained
therein. Interfid has rendered investment advice to Premier in connection with
the investments by Privest I N.V. and Privest II N.V. in the Company.
HART AGREEMENT
Effective May 1, 1996, James D. Hart, former Vice President, Finance and
Administration, and Chief Financial Officer of the Company, entered into an
agreement with the Company pursuant to which he became a full-time employee of
the Company, on an at will basis, and Vice President, Finance and
Administration, Treasurer and Chief Financial Officer. Pursuant to such
agreement, Mr. Hart, among other things, received a $65,000 loan from the
Company. Such loan bears interest at the rate of 6.66% per annum, is payable
quarterly, and provides for payment of interest only until June 30, 1999. The
principal balance of such loan is payable in equal quarterly installments from
July 1, 1999 until June 30, 2006, at which time, such loan is due and payable in
full. In August 1997, Mr. Hart resigned as an officer of the Company. Pursuant
to a letter agreement dated August 26, 1997, Bitstream agreed to extend the
repayment terms for the principal balance of the loan such that the principal
balance of the Loan is payable in the following three installments: (a)
$21,667.00 on the date of execution of the letter agreement, (b) $21,667.00 on
or before August 31, 1998, and (c) $21,666.00 on or before August 31, 1999.
Interest on the outstanding principal balance of the Note continues to accrue at
the rate of 6.66% per annum and is payable in arrears on the last day of each
and every March, June, September and December until Mr. Hart's obligations are
paid in full.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of April 17, 1998,
with respect to the Common Stock of the Company owned or deemed beneficially
owned as determined under the rules of the Securities and Exchange Commission,
directly or indirectly, by each stockholder known to the Company to own
beneficially more than 5% of the Company's Common Stock, by each director, by
the executive officers named in the Summary Compensation Table included
elsewhere herein, and by all directors and executive officers of the
14
<PAGE> 17
Company and its subsidiaries as a group. In accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, a person is deemed to be the
beneficial owner, for purposes of this table, of any shares of Common Stock of
the Company if he or she has or shares voting power or investment power with
respect to such security or has the right to acquire beneficial ownership at any
time within 60 days of April 17, 1998. As used herein "voting power" is the
power to vote or direct the voting of shares, and "investment power" is the
power to dispose of or direct the disposition of shares. Except as indicated in
the notes following the table below, each person named has sole voting and
investment power with respect to the shares listed as being beneficially owned
by such person.
<TABLE>
<CAPTION>
PERCENT OF
COMMON
NAME AND ADDRESS(2) NUMBER(1) STOCK(1)
------------------- --------- ----------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS
Heartland Advisors Inc. ............................ 695,300 9.1%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Privest I N.V.(3)................................... 668,417 8.8%
c/o Caribbean Management Company
14, John B, Gorsiraweg
Curacao, Netherland Antilles
Privest II N.V.(3).................................. 665,244 8.7%
c/o Caribbean Management Company
14, John B, Gorsiraweg
Curacao, Netherland Antilles
JHI Development Capital Limited(4).................. 646,616 8.5%
St. James House
New St. James Place
St. Helier, Jersey JE4 8WH
Channel Islands
BancBoston Ventures, Inc.(5)........................ 382,608 5.0%
100 Federal Street
Boston, Massachusetts 02110
DIRECTORS AND EXECUTIVE OFFICERS
Charles Ying........................................ 35,292 *
C. Raymond Boelig(6)................................ 213,296 2.8%
John S. Collins(7).................................. 160,829 2.1%
George B. Beitzel(8)................................ 145,596 1.9%
29 King Street
Chippaqua, New York 10514
Amos Kaminski(9).................................... 182,950 2.4%
c/o Interfid Ltd.
150 E. 58th Street, 27th Floor
New York, New York 10155-2798
David G. Lubrano(10)................................ 154,042 2.0%
94 Otis Street
Hingham, Massachusetts 02043
Susan Robertson(11)................................. 190,100 2.5%
John L. Seguin(12).................................. 118,889 1.6%
Paul Trevithick(13)................................. 250,844 3.2%
All directors and executive officers as a
group (9 persons)(6)(7)(8)(9)(10)(11)(12)(13)..... 1,451,818 19.0%
</TABLE>
- ---------------
* Less than one percent
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Class A Common Stock shown as beneficially owned by them, subject to
community property laws where applicable. The information presented with
respect to
15
<PAGE> 18
the Principal Stockholders is based on reports of beneficial ownership on
Schedules 13D and 13G delivered to the Company pursuant to the Exchange Act
and such other information as may have been provided to the Company by any
such Principal Stockholder. In accordance with the rules of the Securities
and Exchange Commission, Class A Common Stock, subject to stock options or
warrants which are currently exercisable or which become exercisable within
60 days after April 17, 1998, are deemed outstanding for computing the
share ownership and percentage ownership of the person holding such options
or warrants, but are not deemed outstanding for computing the percentage
ownership of any other person. The inclusion herein of shares listed as
beneficially owned does not constitute an admission of beneficial
ownership.
(2) Unless otherwise indicated, the address of the officer listed is: c/o
Bitstream Inc., 215 First Street, Cambridge, MA 02142.
(3) Includes 14,443 shares and 14,443 shares issuable to Privest I N.V. and
Privest II N.V., respectively, upon the exercise of warrants. Premier may
be regarded as the beneficial owner of these shares because it serves as an
investment advisor to each of Privest I N.V. and Privest II N.V. and has at
times in the past been delegated, and may from time to time in the future
be delegated, the authority to vote or direct the vote or to dispose or
direct the disposition of these shares. Premier, a corporation established
under the laws of the Commonwealth of the Bahamas, has a principal place of
business at IBM House-East Bay Street, Nassau, Bahamas and is a wholly
owned subsidiary of Gesfid International Ltd., a corporation established
under the laws of the Commonwealth of the Bahamas, which is a wholly owned
subsidiary of Gesfid, S.A., a fiduciary corporation established under the
laws of Switzerland, which has a principal place of business at Via
Adamini, 10a, Lugano, Switzerland. Gesfid, S.A. is indirectly controlled by
Mr. Antonio Saladino, a citizen of Switzerland, who has a principal place
of business at Via Adamini, 10a, Lugano, Switzerland. Mr. Saladino may be
deemed to be the beneficial owner of the shares of the Company held by
Privest I N.V. and Privest II N.V. to the extent that Premier is delegated
the authority to vote or direct the vote or to dispose of such shares.
(4) Includes 14,234 shares issuable to JHI Development Capital Limited upon the
exercise of warrants. JHI Development Capital Limited is a wholly owned
subsidiary of James Hardie (Holdings) Limited, a Jersey registered company,
which has a principal place of business at St. James House, New St. James
Place, St. Helier, Jersey JE4 8WH, Channel Islands. James Hardie (Holdings)
Limited is indirectly owned by James Hardie Industries Limited, an
Australian publicly held company, which has a principal place of business
at 65 York Street, Sydney NSW 2000, Australia. James Hardie Industries
Limited may be deemed the beneficial owner of the shares of the Company
held by JHI Development Capital Limited.
(5) Includes 7,776 shares issuable to BancBoston Ventures, Inc. upon the
exercise of warrants. BancBoston Ventures, Inc. is an indirect subsidiary
of Bank of Boston Corporation, a Massachusetts holding company, which may
be deemed beneficial owner of any shares of the Company held by BancBoston
Ventures, Inc.
(6) Includes 89,773 shares and 132,500 shares issuable to Mr. Boelig upon the
exercise of warrants and options, respectively.
(7) Includes 39,830 shares and 120,000 shares issuable to Mr. Collins upon the
exercise of warrants and options, respectively, and 10,888 shares held by
Mr. and Mrs. Collins as joint tenants.
16
<PAGE> 19
(8) Includes 47,432 issuable to Mr. Beitzel upon the exercise of warrants. Also
includes 30,002 shares and 524 shares issuable upon the exercise of
warrants, all held of record by the Beitzel Family Trust. Since Mr. Beitzel
and his family are the beneficiaries of the Beitzel Family Trust and Mr.
Beitzel's wife and children share voting power therein, Mr. Beitzel may be
deemed beneficial owner of such shares.
(9) Includes 61,154 shares issuable to Mr. Kaminski upon the exercise of
warrants. Also includes 20,000 shares and 1,110 shares issuable upon the
exercise of warrants held of record by Interfid of which Mr. Kaminski is
President and a director and, therefore, Mr. Kaminski may be deemed to a
beneficial owner of such shares.
(10) Includes 60,687 shares issuable to Mr. Lubrano upon the exercise of
warrants.
(11) Includes 188,334 shares issuable to Ms. Robertson upon the exercise of
options.
(12) Includes 108,889 shares issuable to Mr. Seguin upon the exercise of
options.
(13) Includes 98,334 shares issuable to Mr. Trevithick upon the exercise of
options.
PROPOSAL NO. II -- THE 1997 STOCK PLAN
By unanimous written consent dated April 22, 1998, the Board, subject to
stockholder approval, adopted an amendment to the 1997 Plan, under which the
Company is authorized to grant incentive stock options, nonqualified stock
options and warrants to purchase up to 1,000,000 shares of Class A Common Stock,
to increase the number of shares of Class A Common Stock reserved under such
Plan by 500,000 shares.
As of April 17, 1998, 949,750 options to purchase Class A Shares have been
awarded out of the 1,000,000 available under the 1997 Stock Plan. Accordingly,
the Board determined that it was in the best interests of the Company and its
stockholders to adopt the amendment to the 1997 Plan to provide for the
availability of additional stock option grants.
The following summary of the 1997 Plan, is qualified in its entirety by the
specific language of the 1997 Plan.
GENERAL
The 1997 Plan provides for the grant of incentive stock options ("ISOs")
(within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code")), non-qualified stock options ("NQSOs") and warrants to
certain directors, officers and employees of the Company. The 1997 Plan further
provides for the grant of NQSOs and warrants to directors and agents of, and
consultants to, the Company, whether or not employees of the Company. The
purpose of the 1997 Plan is to attract and retain employees, agents, consultants
and directors. Options and warrants granted under the 1997 Plan may not be
exercisable for terms in excess of 10 years from the date of grant. In addition,
no options or warrants may be granted under the 1997 Plan later than 10 years
after the 1997 Plan's effective date. The exercise price of any NQSO or warrant
is fixed by the Board on the date it is granted and the exercise price of an ISO
shall be not less than the fair market value of the Class A Common Stock on the
date it is granted. The shares subject to and available under the 1997 Plan may
consist, in whole or in part, of authorized but unissued stock or treasury stock
not reserved for any other purpose. Any shares subject to an option or warrant
that terminates, expires or lapses for any reason, and any shares purchased
pursuant to an option or warrant and subsequently repurchased by the Company
pursuant to the terms of the option, shall again be available for grant under
the 1997 Plan.
If an option holder's employment with the Company ceases, for any reason
other than death or disability, all options held by him on the date his
employment ceases will terminate on the earlier of the option's
17
<PAGE> 20
expiration or, in the case of an ISO, 90 days after the date his employment
ceases, and in the case of an NQSO, as determined by the Board.
If an option holder dies or is disabled, his option may be exercised, to
the extent of the number of shares with respect to which he could have exercised
it on the date of his death, by his estate, personal representative or
beneficiary who acquires the option by will or by the laws of descent and
distribution, at any time prior to the earlier of the option's expiration and,
in the case of an ISO, 90 days after the occurrence of his death or 180 days
after the date of his disability, or in the case of a NQSO, as determined by the
Board. On the earlier of such dates, the option terminates.
No option is assignable or transferable by the option holder except by will
or by laws of descent and distribution, and during the lifetime of the option
holder the option may be exercisable only by him or her.
The number and price of shares of Class A Common Stock covered by each
option, the total number of shares that may be sold under the 1997 Plan, and the
maximum number of shares that may be sold, issued or transferred to an employee,
will be proportionately adjusted to reflect any stock dividend or stock split of
the Class A Common Stock or any recapitalization of the Company. Unless
otherwise determined by the Board, upon consummation of a consolidation or
merger of the Company into another entity, or a sale of all or substantially all
of the assets of the Company, all outstanding options and warrants will become
fully vested and immediately exercisable. In the event of a distribution or
liquidation of the Company, each outstanding option or warrant shall terminate.
The Board may at any time terminate the 1997 Plan or make such modification
or amendment thereof as it deems advisable; provided, however, (i) the Board may
not, without the approval of the stockholders, increase the maximum number of
shares for which options or warrants may be granted or change the designation of
the class of persons eligible to receive options or warrants under the 1997
Plan, and (ii) any such modification or amendment of the 1997 Plan shall be
approved by a majority of the stockholders of the Company to the extent that
such stockholder approval is necessary to comply with applicable provisions of
the Code, rules promulgated pursuant to Section 16 of the Exchange Act,
applicable state law, or applicable National Association of Securities Dealers
or exchange listing requirements. Termination or any modification or amendment
of the 1997 Plan shall not, without an option holders consent, affect his or her
rights under any option or warrant theretofore granted to such option holder.
18
<PAGE> 21
The specific benefits or amounts which have been or which will be received
by directors, officers and employees under the 1997 Plan, to the extent
determinable on April 17, 1998, are as follows:
1997 PLAN BENEFITS
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE($)(1) NUMBER OF SHARES
- ----------------- ------------------ ----------------
<S> <C> <C>
Charles Ying............................................... 562,500 300,000
C. Raymond Boelig.......................................... 84,375 45,000
John Collins............................................... 56,250 30,000
Susan Robertson............................................ 478,125 255,000
John L. Seguin............................................. 56,250 30,000
Paul Trevithick............................................ 309,375 165,000
Executive Group............................................ 1,659,375 885,000
Non-Executive Director Group............................... 252,000 252,000
Non-Executive Officer Employee Group....................... 680,625 363,000
</TABLE>
- ---------------
(1) Dollar value of options equals fair market value of the shares underlying
the options at December 31, 1997 ($1.875 per share) times the number of
options outstanding.
The 1997 Plan is administered by the Board which will determine, in its
discretion, among other things, the recipients of grants, whether a grant will
consist of ISOs, NQSOs or warrants or a combination thereof, and the number of
shares of Class A Common Stock to be subject to such options or warrants. In
accordance with the discretion granted to the Board under the terms of the 1997
Plan, the Board may delegate its power, duties and responsibilities under the
1997 Plan to the Compensation Committee. See "Board Committees."
LIMITATIONS
The 1997 Plan contains certain limitations applicable only to ISOs granted
thereunder. To the extent that the aggregate fair market value, as of the date
of grant, of the shares to which ISOs become exercisable for the first time by
an option holder during the calendar year exceeds $100,000, the ISO will be
treated as a NQSO. In addition, if an option holder owns more than 10% of the
total combined voting power of all classes of the Company's stock or any
subsidiary of the Company at the time the individual is granted an ISO, the
exercise price per share cannot be less than 110% of the fair market value per
share of Class A Common Stock.
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the 1997 Plan may be either ISOs or NQSOs. ISOs are
those that are intended to be treated as "incentive stock options" within the
meaning of Section 422 of the Code. Under the Code as currently in effect, and
under Treasury Regulations specifying that an option does not have a readily
ascertainable fair market value unless it meets certain conditions not met here,
the grant of either an ISO or a NQSO under the 1997 Plan is not taxed at the
time of grant.
When a NQSO or warrant is exercised, the excess of the fair market value of
the shares received over the exercise price is taxable as ordinary income to the
option holder. Special rules may apply to exercises by officers and directors.
The holder of an ISO generally will not be taxed when the option is
exercised and, provided the Class A Common Stock received upon exercise is not
disposed of within one year of receipt of the shares upon exercise or two years
of the date on which the option or warrant is granted, the gain on the
subsequent disposition will receive long-term capital gains treatment.
19
<PAGE> 22
For a NQSO, or warrant, the Company generally will be entitled to a
deduction at the same time and in the same amount that the option holder or
warrant recognizes ordinary income, to the extent that such income is considered
reasonable compensation under the Code. For an ISO, the Company will not be
entitled to a deduction upon the exercise of the option. However, if an ISO
holder disposes of the stock within the holding periods described above, he may
recognize ordinary income and the Company generally would be entitled to a
deduction in an equivalent amount.
THE BOARD RECOMMENDS A VOTE FOR PROPOSAL NO. 2.
PROPOSAL NO. 3 -- RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors of the Company has appointed Arthur Andersen LLP as
auditors of the Company for the fiscal year ending December 31, 1998 and has
further directed that management submit the selection of auditors for
ratification by the stockholders. Arthur Andersen LLP were the Company's
auditors for the fiscal year ended December 31, 1997.
Representatives of Arthur Andersen LLP are expected to be present at the
meeting, with the opportunity to make a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO RATIFY
THE CHOICE OF ARTHUR ANDERSEN LLP AS THE COMPANY'S AUDITORS.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors, executive officers and stockholders who own more than 10% of the
outstanding common stock of the Company to file with the Securities and Exchange
Commission and NASDAQ reports of ownership and changes in ownership of voting
securities of the Company and to furnish copies of such reports to the Company.
Based solely on a review of the copies of such forms received by it, and on
written representations from certain reporting persons, the Company believes
that with respect to the fiscal year ended December 31, 1997, all Section 16(a)
filing requirements applicable to its directors, officers and ten-percent
shareholders were complied with, except for the following:
(a) John L. Seguin, Vice President and General Manger of the Company's
Type and Technology division, failed to report on his Form 4, Statement of
Changes in Beneficial Ownership for February 1997, an option exercise which
occurred on February 14, 1997. Mr. Seguin reported this transaction late on
his February 1997 Form 4 when this ommission was brought to his attention.
(b) Geoffrey Greve, Vice President, Product Development, failed to
report on his Form 4, Statement of Changes in Beneficial Ownership for
February 1997, an option exercise which occurred on February 14, 1997. Mr.
Greve reported this transaction on his Form 5, Annual Statement of Changes
in Beneficial Ownership, for the fiscal year ended December 31, 1997 when
the omission was brought to his attention.
The Company is not aware of any other late filings pursuant to Section
16(a) of the Exchange Act.
20
<PAGE> 23
PROPOSALS OF SECURITY HOLDERS
Proposals of security holders intended to be presented at the next Annual
Meeting of Stockholders of the Company to be held during 1999 must be received
by the Company before January 8, 1999 for inclusion in the Company's proxy and
proxy statement relating to said meeting. The Company has received no proposals
from stockholders for consideration at the Annual Meeting of Stockholders to be
held on June 9, 1998.
OTHER MATTERS
The management of the Company knows of no business other than that referred
to in the foregoing Notice of Annual Meeting of Stockholders and Proxy Statement
which may come before the Meeting. Should any other matters come before the
Meeting, it is the intention of the persons named in the accompanying Proxy to
vote such Proxy in accordance with their judgment on such matters.
The Company's Annual Report, which includes the Company's audited financial
statements for the fiscal year ended December 31, 1997, is being mailed
concurrently herewith to all of the Company's stockholders of record.
FORM 10-K AVAILABLE
THE ANNUAL REPORT OF THE COMPANY FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K, WHICH INCLUDES CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES FOR THE COMPANY AND ITS SUBSIDIARIES, IS AVAILABLE
TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO THE VICE PRESIDENT AND
GENERAL COUNSEL OF THE COMPANY AT 215 FIRST STREET, CAMBRIDGE, MASSACHUSETTS
02142.
By Order of the Board of Directors
/s/ ANNA M. CHAGNON
ANNA M. CHAGNON
Secretary
21
<PAGE> 24
BITSTREAM INC.
215 First Street, Cambridge, Massachusetts 02142
ANNUAL MEETING OF STOCKHOLDERS - JUNE 9, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P
The undersigned hereby appoints Charles Ying, Wendy Darland and Anna
R Chagnon, or any of them, proxies of the undersigned with full power of
substitution, to vote all the shares of Class A Common Stock, $0.01
O par value ("Class A Common Stock") of Bitstream Inc. (the "Company")
held of record by the undersigned on April 17, 1997, at the Company's
X Annual Meeting of Stockholders to be held June 9, 1998 and at any
adjournment thereof.
Y
-----------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
-----------
DETACH HERE
Please mark
[X] votes as in
this example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED BY THE
UNDERSIGNED STOCKHOLDER. IF NO CHOICE IS SPECIFIED BY THE STOCKHOLDER, THIS
PROXY WILL BE VOTED "FOR" ITEMS (1), (2) AND (3), AND IN THE PROXIES'
DISCRETION ON ANY OTHER MATTERS COMING BEFORE THE MEETING.
1. Election of Directors
Nominees: George B. Beitzel, Amos Kaminski,
David G. Lubrano and Charles Ying
FOR WITHHELD
[ ] [ ]
MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE BELOW
[ ] ---------------------------------------------
For all nominees except as noted above
-22-
<PAGE> 25
FOR AGAINST ABSTAIN
2. Amendment to 1997 Stock Plan. [ ] [ ] [ ]
To approve and ratify an amendment to the Company's
1997 Stock Plan to increase the number of shares of
Class A Common Stock reserved under such plan by
500,000.
FOR AGAINST ABSTAIN
3. Ratification of Auditors. [ ] [ ] [ ]
To ratify the action of the Board of Directors in
appointing Arthur Andersen LLP as auditors for the
Company for the fiscal year ending December 31,
1998.
4. In their discretion, the proxies are authorized to
vote upon such matters as may properly come before
the meeting or any postponement or adjournment
thereof.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
upon or act with respect to such stock and hereby ratifies and confirms all
the said attorneys, agents, proxies, their substitutes or any of them may
lawfully do by virtue hereof.
Please date, sign and return this proxy card in the enclosed envelope. No
postage required if mailed in the United States.
Please date this Proxy and sign your name exactly as it appears hereon. When
there is more than one owner, each should sign. When signing as an attorney,
administrator, executor, guardian, or trustee, please add your title as
such. If executed by a corporation, this Proxy should be signed by a duly
authorized officer. If a partnership, please sign in partnership name by
authorized persons.
Signature ___________ Date _________ Signature ___________ Date _________
-23-
