<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by the Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission only (as permitted by Rule
14a-(c)(2)
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PHOENIX TECHNOLOGIES LTD.
(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/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (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>
[LOGO]
January 18, 1996
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Phoenix Technologies Ltd. to be held on Thursday, February 29, 1996, at San Jose
Hyatt Hotel, 1740 North First Street, San Jose, California, commencing at 10:00
a.m., California time. The Board of Directors looks forward to greeting
personally those stockholders able to attend.
The Board of Directors has given careful consideration to the proposals
described in the attached Notice and Proxy Statement and recommends a vote FOR
each of them. It is important that your shares be represented at the meeting
whether or not you plan to attend. Accordingly, please take a moment now and
sign, date and mail the enclosed proxy in the envelope provided.
Following the completion of the formal portion of the meeting, we will give
you a financial report and general comments on the Company's affairs. We shall
then be pleased to answer stockholders' questions with respect to the Company
and its operations.
On behalf of Phoenix's board of directors and its management team, I would
like to express our appreciation for your ongoing support of our efforts.
Cordially,
JACK KAY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
PHOENIX TECHNOLOGIES LTD.
2770 DE LA CRUZ BOULEVARD
SANTA CLARA, CALIFORNIA 95050
(408) 654-9000
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 29, 1996
---------------------
Notice is hereby given that the Annual Meeting of Stockholders of Phoenix
Technologies Ltd. (the "Company" or "Phoenix") will be held at the San Jose
Hyatt Hotel, 1740 North First Street, San Jose, California 95112, on February
29, 1996, at 10:00 a.m., California time, to consider and act upon the following
matters:
1. To elect two Class 3 Directors to the Board of Directors of the Company;
2. To approve the Amended and Restated 1991 Employee Stock Purchase Plan,
which includes a 150,000 share increase to the number of shares reserved
for issuance thereunder;
3. To approve an amendment to the Company's 1994 Equity Incentive Plan to
increase the number of shares reserved for issuance thereunder by
500,000 shares;
4. To approve an amendment to the Amended and Restated Certificate of
Incorporation to increase the number of shares of Common Stock, par
value $.001, authorized by 20,000,000 shares;
5. To ratify the selection by the Board of Directors of Ernst & Young as
the Company's independent public accountants for the current fiscal
year; and
6. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Stockholders of record at the close of business on January 11, 1996 will be
entitled to vote at the meeting or any adjournments thereof.
All stockholders are cordially invited to attend the meeting.
SCOTT C. NEELY, SECRETARY
January 18, 1996
<PAGE>
PROXY STATEMENT
PHOENIX TECHNOLOGIES LTD.
2770 DE LA CRUZ BOULEVARD
SANTA CLARA, CALIFORNIA 95050
------------------------
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 29, 1996
---------------------
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Phoenix Technologies Ltd. (the "Company" or "Phoenix") of
proxies for use at the Annual Meeting of Stockholders of the Company (the
"Meeting") to be held on February 29, 1996, at the San Jose Hyatt Hotel, 1740
North First Street, San Jose, California, commencing at 10:00 a.m., California
time, and at any adjournments thereof. All proxies will be voted in accordance
with the instructions contained therein, and, if no choice is specified, the
proxies will be voted in favor of the nominees and the proposals set forth in
the accompanying Notice of Meeting and this Proxy Statement.
The Company's Annual Report for the fiscal year ended September 30, 1995 is
first being mailed to stockholders with the mailing of this Notice, Proxy
Statement and form of Proxy on or about January 18, 1996.
VOTING
The only class of voting securities entitled to be voted at the Meeting is
the Company's Common Stock, par value $.001 per share ("Common Stock"). Each
share of Common Stock is entitled to one vote. The Board of Directors has fixed
January 11, 1996 as the record date for determining stockholders who are
entitled to notice of and to vote at the Meeting. At the close of business on
January 11, 1996, there were outstanding and entitled to vote 14,130,416 shares
of Common Stock held by 335 stockholders of record. The holders of a majority of
these shares of Common Stock issued and outstanding and entitled to vote at the
Meeting (i.e., 7,065,209 shares) will constitute a quorum for the Meeting. If a
quorum is present, the affirmative vote of the holders of a plurality of the
shares of Common Stock present or represented at the Meeting is required for the
election of two Class 3 Directors, the affirmative vote of a majority of all
outstanding shares of Common Stock entitled to vote is required for approval of
Proposal No. 4, and the affirmative vote of the holders of a majority of the
shares of Common Stock present or represented at the Meeting and voting on the
matter is required for approval of Proposal Nos. 2, 3 and 5. Abstentions and
broker non-votes each are included in determining the number of shares present
and voting at the Meeting. Abstentions are counted in tabulations of the votes
cast on proposals, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved, and this will have the same
effect as negative votes with regard to Proposal No. 4.
COST OF SOLICITING PROXIES
The cost of soliciting proxies will be borne by the Company. Following the
original mailing of the proxies and other soliciting materials, employees or
other agents of the Company may solicit proxies by mail, telephone, telegraph or
personal interviews. The Company will request brokers, custodians, nominees and
other record holders to forward copies of the proxy and other soliciting
material to persons for whom they hold shares of Common Stock of the Company,
and to request authority for the exercise of proxies; in such cases, the
Company, upon request of the record holders, will reimburse such holders for
their reasonable expenses.
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REVOCABILITY OF PROXIES
Any person signing a proxy in the form accompanying this Proxy Statement has
the power to revoke it prior to the Meeting or at the Meeting prior to the vote
pursuant to the proxy. Any proxy may be revoked by a stockholder at any time
before it is exercised by giving written notice to that effect to the Secretary
of the Company, by submitting a subsequent proxy or by attending the Meeting and
voting in person. Please note, however, that if a stockholder's shares are held
of record by a broker, bank or other nominee and that stockholder wishes to vote
at the Meeting, the stockholder must bring to the Meeting a letter from the
broker, bank or other nominee confirming that stockholder's beneficial ownership
of the shares.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The Board of Directors of the Company has nominated Charles Federman and
Jack Kay as Class 3 Directors (the "Nominees"). Messrs. Federman and Kay are
presently Class 3 Directors of the Company. The Company expects each of the
Nominees to be available to serve as a Director. If, however, either of the
Nominees is unable or declines to serve for any reason, proxies will be voted
(in the absence of any contrary specification by a stockholder) for the election
of a substitute nominee selected by the proxy holders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR MESSRS. FEDERMAN AND KAY
The Company has a classified Board of Directors consisting of two Class 1
Directors (Mr. Finch and Mr. Morris), two Class 2 Directors (Mr. Fisher and Mr.
Hansche) and two Class 3 Directors (Mr. Federman and Mr. Kay). In September
1995, the Board voted to increase the number of Directors from five to six in
connection with Mr. Kay's appointment to the Board. The Class 1, 2 and 3
Directors are scheduled to serve until the Annual Meetings of Stockholders to be
held in 1997, 1998 and 1996, respectively, and until their respective successors
are elected and qualified. At each Annual Meeting of Stockholders, Directors
will be elected for a full term of three years to succeed those whose terms are
expiring. Thus, if Messrs. Federman and Kay are elected, they will serve until
the Annual Meeting of Stockholders in 1999.
Certain information with respect to the Directors of the Company is set
forth below. The directors whose names are followed by an asterisk are members
of the Audit Committee and the Compensation Committee.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITIONS AND CURRENT OFFICES WITH THE COMPANY
- - ------------------------ --- ----------- -------------------------------------------------------
<S> <C> <C> <C>
Charles Federman* 39 1991 Director
Lawrence G. Finch* 61 1988 Director
Ronald D. Fisher 48 1990 Director; Chairman
Lance E. Hansche 48 1986 Director; Strategic Advisor
Jack Kay 49 1995 Director; President and Chief Executive Officer
Anthony P. Morris* 49 1993 Director
</TABLE>
Since January 1987, Mr. Federman has been a Partner of Broadview Associates,
L.P., an investment banking firm. Mr. Federman is a director of Logic Works,
Inc. and MathSoft, Inc.
Since January 1989, Mr. Finch has been a general partner of Sigma Partners,
a venture capital partnership. From 1987 to 1988 he was an advisor to Sigma
Partners. From March 1984 to November 1987, Mr. Finch was President and Chief
Executive Officer of Paradise Systems, Inc., a video technology company. Mr.
Finch is a director of STAC Electronics and Global Village Communication.
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Mr. Fisher has served as Chairman since June 1994. From January 1990 when he
joined the Company until October 1995, he held the additional title of Chief
Executive Officer. Mr. Fisher is also a director of Microtouch Systems, Inc.,
Black Box Corporation, Micom Communications, Inc. and Kolvox Communications,
Inc.
Mr. Hansche has been employed by the Company since 1982 and has served as a
Strategic Advisor on a part-time non-officer basis since September 1993. He
served as Senior Vice President, Corporate Strategy of the Company from February
1992 until September 1993. From February 1990 to February 1992, Mr. Hansche was
Senior Vice President, Computer Division and Business Development of the
Company.
Mr. Kay was appointed President and Chief Executive Officer effective
October 1, 1995. He joined the Company as Vice President of Worldwide Sales in
May 1990. In January 1992, he was appointed Senior Vice President and Chief
Operating Officer. In June 1994, he was promoted to President and Chief
Operating Officer.
Since 1987 Mr. Morris has been a principal with Morris & Associates, a
management consulting and financial advisory firm which he founded. He is also
an investor in a number of private technology companies.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held a total of five meetings during the fiscal year
ended September 30, 1995. During fiscal 1995, each Director attended at least
seventy-five percent of the aggregate number of meetings of the Board of
Directors held during the year and the total number of meetings held by all
committees of the Board of Directors on which he served during the fiscal year.
The Company's Board committees are an Audit Committee and a Compensation
Committee. The Company does not have a standing nominating committee of the
Board of Directors or a committee performing similar functions.
The Audit Committee, composed of Messrs. Finch, Morris and Federman, held
three meetings during fiscal 1995. The Audit Committee's functions include
making recommendations to the Board of Directors relative to the appointment of
independent public accountants, conferring with the Company's independent public
accountants regarding the scope and the results of the audit of the Company's
books and accounts and reporting the same to the Board of Directors, and
establishing and monitoring policy relative to non-audit services provided by
the independent public accountants.
During fiscal 1995, the Compensation Committee, composed of Messrs. Finch,
Morris and Federman, met twice and took additional action by written consent.
The Compensation Committee's functions include making grants under, and the
administration of, stock option and other employee equity and bonus plans, and
setting the compensation of executive officers and other key employees.
PROPOSAL NO. 2
APPROVAL OF AMENDED AND RESTATED 1991 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors adopted the 1991 Employee Stock Purchase Plan (the
"ESPP") in 1991 and stockholders approved the ESPP in February 1992. Under the
ESPP as originally adopted, 500,000 shares of the Company's Common Stock
(subject to adjustment for any dividend, stock split or other relevant changes
in the Company's capitalization) were reserved for issuance. A total of 382,063
shares have been issued under the ESPP from its inception through November 30,
1995, the end of the most recent offering period. In December 1995, the Board of
Directors amended the ESPP to increase the shares reserved by 150,000 and to
make a number of clarifications (indicated below) so as to improve the
administration of the ESPP. None of these clarifications are intended to
increase the benefits available under the ESPP.
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The Company believes the ESPP is important in its efforts to attract and
retain employees in a competitive environment and to create opportunities for
employees to share in a commonality of interests with stockholders of the
Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE AMENDED AND RESTATED 1991 EMPLOYEE STOCK PURCHASE PLAN.
SUMMARY. The following is a summary of the ESPP as amended and restated.
The ESPP permits eligible employees to purchase shares of the Company's
Common Stock at a price equal to the lower of 85% of the closing price of
Phoenix Common Stock as reported on the Nasdaq National Market on the first or
last day of each offering period. Offering periods may be of any duration up to
the maximum period permitted for an employee stock purchase plan intended to
meet the qualifications of Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). To date, offering periods under the ESPP have been of six
months duration starting each June 1 and December 1 and there is no plan to
change that duration. (The original ESPP provided for a specific number of
offering periods with specified beginning and ending dates.) All employees of
Phoenix or its subsidiaries who are normally employed for 20 or more hours per
week and more than five months in a calendar year are eligible to participate in
the ESPP. An employee may elect to have up to 10% deducted from his or her
eligible compensation, which is cash compensation received as base salary,
commissions, and overtime or shift premiums. (The original ESPP provided a
formula to determine eligible compensation based on the whether an employee was
salaried or paid by the hour, full- or part-time, and paid weekly or bi-weekly.)
An employee may decrease but not increase his or her payroll deduction once
during an offering period and may increase the rate of deduction effective at
the beginning of any later offering period. The amended and restated ESPP has
eliminated the obligation of the Company to pay 4% interest on participant
contributions refunded as a result of a participant's withdrawal from the ESPP.
The ESPP is administered by the Compensation Committee of the Board of
Directors.
FEDERAL INCOME TAX CONSEQUENCES. The ESPP is intended to qualify as an
"employee stock purchase plan" as defined in Section 423 of the Code, which
provides that a participant will not realize any federal income tax consequence
when the participant joins the plan or receives shares of the Company's Common
Stock at the end of an offering period. The participant must, however, recognize
income or loss on the difference between the sale price and the purchase price
of the shares. If the participant has owned the shares for more than one year
and more than two years from the beginning of the Offering Period in which the
shares were purchased (the "Related Offering Period"), the participant will (a)
recognize no gain if the market price on the date of sale equals the purchase
price for the shares, (b) recognize a capital loss if the market price on the
date of sale is less than the purchase price for the shares, or (c) if the
market price on the date of sale is greater than the purchase price for the
shares, recognize ordinary income in an amount equal to the lesser of (i) the
excess of the market price of the shares on the first day of the Related
Offering Period over the purchase price or (ii) the excess of the proceeds
received on the sale of the shares over the purchase price. In the case of (c)
above, if there is any additional gain, it will be treated as capital gain. If
the participant sells the shares before holding them for more than one year or
before the second anniversary of the beginning of the Related Offering Period,
the participant must recognize ordinary income to the extent of the lesser of
(a) the excess of the market price on the last day of the Related Offering
Period over the purchase price or (b) the excess of the proceeds received on the
sale of the shares over the purchase price. The Company generally is entitled to
a tax deduction only with respect to the ordinary income recognized by the
participant if the one- and/or two-year holding period requirements are not met.
The ESPP is not qualified under Section 401(a) of the Code.
Over the eight offering periods since the inception of the ESPP (i.e.,
through the offering period ended November 30, 1995), a total of 382,063 shares
had been issued under the ESPP. During this same period, none of the Company's
current executive officers (four persons) and none of the Named
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Executive Officers (as defined in the Summary Compensation Table below) had
participated in the ESPP. During the same period, all employees other than the
current executive officers had been granted options to purchase and had
purchased an aggregate of 382,063 shares under the ESPP.
PROPOSAL NO. 3
AMENDMENT OF THE 1994 EQUITY INCENTIVE PLAN
In August 1994, the Company's Board of Directors adopted the 1994 Equity
Incentive Plan (the "Plan") under which 500,000 shares of the Company's Common
Stock were reserved for issuance. That reserve was increased to 1,000,000 shares
in December 1994. The Plan was approved by stockholders in February 1995. In
September 1995, the Board approved an amendment to the Plan to increase the
number of shares reserved for issuance thereunder by 500,000, subject to
stockholder approval. Accordingly the stockholders of the Company are being
asked to approve this amendment at the Annual Meeting. The Plan is summarized
below.
The Board adopted the Plan for two primary purposes: to provide sufficient
long-term incentives to attract key new executives in connection with the
Company's relocation to California; and to provide a continuing benefit program
for attracting and retaining employees, directors, consultants and independent
contractors important to the future of the Company. The Board believes that
stock incentive programs, such as the Plan, are commonly employed by companies
in the software industry as an important element of a total compensation
program. Each executive officer and director of the Company is eligible to
receive awards of stock under the Plan and, accordingly, has a personal interest
in this Proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE AMENDMENT OF THE 1994 EQUITY INCENTIVE PLAN.
The following is a summary of the Plan.
BACKGROUND. The Plan permits the Company to grant incentive stock options
("ISOs") and nonqualified stock options ("NQSOs") as well as restricted stock
and stock bonus awards. The Plan is structured to allow a disinterested
committee of the Board that administers the Plan broad discretion in granting
employees equity incentives in order to assist the Company in attracting,
retaining and motivating the best available talent for the successful conduct of
its business. If awarded, certain of these rights could result in the
recognition of compensation expenses to the Company for financial reporting
purposes.
PURPOSE. The purpose of the Plan is to provide additional compensation and
incentive to eligible employees, officers, directors, advisors and consultants
whose present and potential contributions are important to the continued success
of the Company, to afford such persons an opportunity to acquire a proprietary
interest in the Company and to enable the Company to continue to enlist and
retain the best available talent for the successful conduct of its business.
SHARES SUBJECT TO THE PLAN. An aggregate of 1,500,000 shares of the
Company's Common Stock has been reserved by the Company's Board for issuance
under the Plan (including the 500,000 shares for which stockholder approval is
being sought at this meeting), plus all shares authorized for issuance, but not
issued or subject to outstanding options, under the 1992 Plan as of November 30,
1994. Also, if any option granted under either any of the Company's four other
employee stock option plans or the Company's directors' stock option plan
expires or terminates for any reason without being exercised in whole or in
part, the shares released from such option will become available for issuance
under, and will roll into the share reserve for, the Plan. If any option granted
pursuant to the Plan expires or terminates for any reason without being
exercised in whole or in part, the shares released from such option will again
become available for grant and purchase under the Plan. No more
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<PAGE>
than 200,000 of the total shares reserved under the Plan will be available for
grants of options to non-employee directors of the Company. During the term of
the Plan, no other person may receive awards under the plan covering more than
400,000 shares in the aggregate.
IMPACT ON OTHER OPTION PLANS. No additional options have been or will be
granted under any of the Company's other option plans after November 1994.
However, those prior plans will continue in existence for purposes of
administering options already outstanding under those plans.
ELIGIBILITY. Employees, officers, consultants, directors who are also
employees, and advisors of the Company and its subsidiaries and affiliates whom
the Board deems to have the potential to contribute to the future success of the
Company will be eligible to receive any of the different types of awards under
the Plan. Directors who are not employees of the Company will be entitled to
receive only NQSOs under the Plan. As of November 30, 1995, approximately 365
persons were eligible to participate in the Plan.
ADMINISTRATION. The Plan may be administered by the Board or a committee of
the Board appointed by the Board (in either case, the "Committee"). The Board
has appointed the Compensation Committee, currently comprised of Messrs.
Federman, Finch and Morris, to administer the Plan. Subject to the terms of the
Plan, the Committee determines the persons who are to receive awards (other than
directors who are not employees), the number of shares subject to each such
award and the terms and conditions of such awards. Directors who are not
employees are eligible for option grants under the Plan only as follows: an
option for 10,000 shares upon initial election to the Board and an option for
7,000 shares on each anniversary thereafter. The Committee also has the
authority to construe and interpret any of the provisions of the Plan or any
awards granted thereunder.
STOCK OPTIONS. The Plan permits the granting of options that are intended
to qualify either as ISOs or NQSOs (as determined by the Committee). The option
exercise price for each share covered by an option may not be less than 85% of
the fair market value of a share of Common Stock on the date of grant of such
option; provided that options granted to non-employee directors will be at fair
market value. However, in the case of an ISO, the price shall be no less than
100% of the fair market value of a share of Common Stock at the time such option
is granted; and in the case of an ISO granted to a ten percent stockholder, the
exercise price will be no less than 110% of the fair market value of the Common
Stock on the date of grant. Options granted to persons other than non-employee
directors may be made exercisable in installments, and the exercisability of
options may be accelerated by the Committee. Generally, options granted to
non-employee directors are subject to fixed vesting schedules: for the initial
grant, the option vests 25% on the first anniversary of the grant date with the
balance vesting in 12 equal quarterly installments over the following three
years; for additional grants, options vest over 16 quarters starting after the
date of grant.
RESTRICTED STOCK AWARDS. The Committee may grant participants restricted
stock awards to purchase stock either in addition to, or in tandem with, other
awards under the Plan, under such terms, conditions and restrictions as the
Committee may determine. Generally, the restricted stock will be earned upon the
attainment of certain individual and/or corporate performance objectives as
determined by the Committee. The purchase price for such awards must be no less
than 85% of the fair market value of the Company's Common Stock on the date of
the award. Directors who are not employees are not eligible for these awards.
For any performance period, no person may be granted an award of restricted
stock in excess of 30% of the shares reserved under the Plan. There have been no
grants of restricted stock awards since the Plan's inception.
STOCK BONUS AWARDS. The Committee may grant stock bonus awards under the
Plan. Such awards will be based on individual and/or corporate performance
factors or upon such other criteria as the Committee may deem appropriate.
Performance factors may vary from participant to participant, group to group,
and period to period but are based on the attainment of certain operational
and/or financial performance goals for a specified performance period or
periods. Such awards shall be granted for no cash consideration. Stock bonus
awards will be payable in cash or Common Stock.
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<PAGE>
Directors who are not employees are not eligible for these awards. For any
performance period, no person may be granted an award of restricted stock in
excess of 30% of the shares reserved under the Plan. There have been no grants
of stock bonus awards since the Plan's inception.
AMENDMENT AND TERMINATION. The Board may amend, alter or discontinue the
Plan at any time, provided that such amendment, alteration or discontinuation
shall not adversely affect any award then outstanding under the Plan, without
the participant's consent. In addition, to the extent necessary to comply with
Rule 16b-3 under the Securities Exchange Act of 1934 or Section 422 of the Code,
or any other applicable law or regulation, the Company may obtain stockholder
approval of any amendment to the Plan as may be required. In the event of a
merger, consolidation, liquidation or sale of the Company in a transaction in
which the Company is not to be the surviving entity, the Board has the right to
accelerate vesting of all options so that they become exercisable within the
30-day period preceding the merger, consolidation, liquidation or sale. In the
event of a Change of Control of the Company, all options granted to non-employee
Directors become fully exercisable. A Change of Control is deemed to have
occurred (a) if any person acquires beneficial ownership of Company securities
representing 50% or more of the combined voting power of the Company, (b) if the
persons who were directors at June 1, 1994 (namely, Messrs. Federman, Finch,
Fisher, Hansche and Morris), plus any person elected or appointed by a majority
of such directors except in connection with an actual or threatened election
contest, cease to be a majority of the Board, (c) if the Company's stockholders
approve a merger or consolidation of the Company with any other entity except
(i) a merger or consolidation in which the Company's stock would thereafter
represent 80% or more of the combined voting power of the surviving entity after
the merger or consolidation or (ii) a recapitalization in which no person
acquires more than 30% of the combined voting securities, or (d) if the
Company's stockholders approve a complete liquidation of the Company or a sale
of all or substantially all of the Company's assets.
CERTAIN UNITED STATES FEDERAL INCOME TAX INFORMATION
The following is a general summary of the U.S. federal income tax
consequences associated with participation in the Plan.
INCENTIVE STOCK OPTIONS. The optionee will recognize no income upon grant
of an ISO and incur no tax on its exercise (unless the optionee is subject to
the alternative minimum tax). If the optionee holds the stock acquired upon
exercise of an ISO (the "ISO Shares") for one year after the date the option was
exercised and for two years after the date the option was granted, the optionee
generally will realize long-term capital gain or loss (rather than ordinary
income or loss) upon disposition of the ISO Shares. This gain or loss will be
equal to the difference between the amount realized upon such disposition and
the amount paid for the ISO Shares.
If the optionee disposes of ISO Shares prior to the expiration of either
required holding period (a "disqualifying disposition"), the gain realized upon
such disposition, up to the difference between the fair market value of the ISO
Shares on the date of exercise (or, if less, the amount realized on a sale of
such shares) and the option exercise price, will be treated as ordinary income.
Any additional gain will be long-term or short-term capital gain, depending upon
the amount of time the ISO Shares were held by the optionee.
ALTERNATIVE MINIMUM TAX. The difference between the exercise price and fair
market value of the ISO shares on the date of exercise is an adjustment to
income for purposes of the alternative minimum tax ("AMT"). The AMT (imposed to
the extent it exceeds the taxpayer's regular tax) is currently 26% of an
individual taxpayer's alternative minimum taxable income (28% in the case of
alternative minimum taxable income in excess of $175,000). Alternative minimum
taxable income is determined by adjusting regular taxable income for certain
items, increasing that income by certain tax preference items and reducing this
amount by the applicable exemption amount ($45,000 in the case of a joint
return, subject to reduction under certain circumstances). If a disqualifying
disposition of the ISO Shares occurs in the same calendar year as exercise of
the ISO, there is no AMT adjustment
7
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with respect to those ISO Shares. Also, upon a sale of ISO Shares that is not a
disqualifying disposition, alternative minimum taxable income is reduced in the
year of sale by the excess of the fair market value of the ISO Shares at
exercise over the amount paid for the ISO Shares.
NONQUALIFIED STOCK OPTIONS. An optionee will not recognize any taxable
income at the time an NQSO is granted. However, upon exercise of an NQSO the
optionee will include in income as compensation an amount equal to the
difference between the fair market value of the shares on the date of exercise
(in most cases) and the optionee's purchase price. The included amount will be
treated as ordinary income by the optionee and may be subject to income tax and
FICA withholding by the Company (either by payment in cash or withholding out of
the optionee's salary). The Omnibus Budget Reconciliation Act of 1993 has
increased the required flat federal withholding rate to 28% effective with
respect to taxable years beginning after December 31, 1993. Upon resale of the
shares by the optionee, any subsequent appreciation or depreciation in the value
of the shares will be treated as a capital gain or loss.
TAX TREATMENT OF THE COMPANY. The Company will be entitled to a deduction
in connection with the exercise of an NQSO by a domestic optionee to the extent
that the optionee recognizes ordinary income. The Company will be entitled to a
deduction in connection with the disposition of ISO Shares only to the extent
that the optionee recognizes ordinary income on a disqualifying disposition of
the ISO Shares.
RESTRICTED STOCK AWARDS. Restricted stock awards will generally be subject
to the tax consequences discussed above for NQSOs.
STOCK BONUS AWARDS. A recipient generally will not recognize any taxable
income in connection with the grant of a stock bonus award. However, unless an
election under Section 83(b) of the Code is timely filed, the recipient will
generally recognize at the time the award vests ordinary income in an amount
equal to the fair market value of the award (computed with reference to the
Common Stock of the Company) at the time of vesting. If the recipient is an
employee, any amount included in income will be subject to income tax and FICA
withholding by the Company. As a general rule, the Company will be entitled to a
tax deduction in the amount and at the time the recipient recognizes ordinary
income with respect to the stock bonus award.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993. The Omnibus Budget
Reconciliation Act of 1993 provides that the maximum tax rate applicable to
ordinary income is 39.6%. Long-term capital gain will be taxed at a maximum rate
of 28%. For this purpose, in order to receive long-term capital gain treatment,
the stock must be held for more than one year. Capital gains will continue to be
offset by capital losses and up to $3,000 of capital losses may be offset
annually against ordinary income. The Omnibus Budget Reconciliation Act of 1993
also increased the AMT to 26% (28% for alternative minimum taxable income in
excess of $175,000) of an individual taxpayer's alternative minimum taxable
income, effective with respect to taxable years beginning after December 31,
1992.
ERISA INFORMATION. The Company believes that the Plan is not subject to any
of the provisions of the Employee Retirement Income Security Act of 1974, as
amended.
FUTURE OPTION GRANTS UNDER THE PLAN
Because the Committee has discretion to determine the persons who are to
receive awards and the allocation of any awards (other than with respect to
directors who are not employees) under the Plan, awards that will be granted in
the future to eligible persons under the Plan cannot be determined at this time
and the Committee could change such allocations at any time with respect to
future grants, without amendment of the Plan and without approval by the Board
of Directors or the stockholders of the Company.
8
<PAGE>
From the Plan's inception through November 30, 1995, a total of 1,131,300
options had been granted. During this same period, the following Named Executive
Officers (as defined in the Summary Compensation Table below) had been granted
options under the Plan to purchase the following number of shares of Common
Stock: Mr. Fisher, 75,000 shares; Mr. Kay, 200,000 shares; Mr. Riopel, 85,000
shares; and Dr. Winters, 75,000 shares. During that same time period, the
Company's current executive officers, as a group (four persons), had been
granted options to purchase an aggregate of 435,000 shares under the Plan.
During the same period, all employees and consultants other than the current
executive officers had been granted options to purchase an aggregate of 696,300
shares under the Plan.
PROPOSAL NO. 4
AMENDMENT TO CERTIFICATE OF INCORPORATION
In November 1995, the Board authorized an amendment to the Company's Amended
and Restated Certificate of Incorporation to increase the total number of shares
of Common Stock authorized for issuance from 20,000,000 to 40,000,000. At
December 15, 1995, 14,021,227 shares of Common Stock were issued and outstanding
and 3,490,369 shares were reserved for issuance upon exercise of outstanding
options and for future grant under employee option and stock purchase plans.
Thus, as of that date, the Company had approximately 2,488,404 shares of Common
Stock otherwise available for issuance. On December 18, 1995, the Company
announced that it will sell to Intel Corporation 894,971 shares of Common Stock
and a warrant to purchase 1,073,965 shares of Common Stock in early calendar
1996. The sale of these securities to Intel will reduce the number of shares of
Common Stock not otherwise reserved for issuance to 519,468. The Company also
has 500,000 shares of Preferred Stock authorized under its Certificate of
Incorporation. There are no shares of Preferred Stock outstanding and the
Company is not seeking to change the number of authorized shares of Preferred
Stock.
The proposed increase in the number of authorized shares of Common Stock
from 20,000,000 to 40,000,000 would result in additional shares being available
for issuance from time to time for corporate purposes (such as possible stock
splits, stock dividends, acquisitions of companies or assets, sales of stock or
securities convertible into stock and issuances pursuant to stock options or
other employee benefit plans). Except as set forth above, the Company currently
has no specific plans, arrangements or understandings with respect to the
issuance of these additional shares. The Company believes that the availability
of the additional shares will provide it with the flexibility to meet business
needs as they arise, to take advantage of favorable opportunities and to respond
to a changing corporate environment. If the stockholders approve the amendment,
the Company will file a Certificate of Amendment of its Amended and Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware reflecting the increase in authorized shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION.
9
<PAGE>
PROPOSAL NO. 5
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, on the recommendation of its Audit Committee in
November 1995, has selected the firm of Ernst & Young LLP as the Company's
independent public accountants for the current fiscal year and is asking
stockholders to ratify this selection. Coopers & Lybrand, L.L.P. served as the
Company's independent public accountants since 1988 and their report is included
with the financial statements for the fiscal year ended September 30, 1995.
Management and the Audit Committee believe that periodic changes to the outside
auditing firm for the Company helps maintain the independence of the advice
received as to the strength of the Company's internal controls, the accuracy of
the Company's financial statements and the adequacy of the Company's reserves.
No report of Coopers & Lybrand on the financial statements of the Company for
either of the past two years contained an adverse opinion or a disclaimer of
opinion, or was qualified or modified as to uncertainty, audit scope or
accounting principles. During the Company's two most recent fiscal years, there
were no disagreements with Coopers & Lybrand on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which disagreements, if not resolved to the satisfaction of that
accounting firm, would have caused it to make reference to the subject matter of
the disagreements in connection with its report.
Representatives of Ernst & Young are expected to be present at the Meeting.
They will have the opportunity to make a statement if they desire to do so and
will also be expected to be available to respond to appropriate questions from
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION
OF THE SELECTION OF ERNST & YOUNG
10
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of November 30, 1995 with
respect to the Common Stock owned beneficially by (i) any person who is known to
the Company to be the beneficial owner of more than five percent of its Common
Stock, (ii) each Director of the Company, (iii) each Named Executive Officer as
defined in the Summary Compensation Table below, and (iv) all current Directors
and executive officers of the Company as a group. Except as otherwise indicated
in the footnotes to the table, the beneficial owners listed have sole voting and
investment power (subject to community property laws where applicable) as to all
of the shares beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- - ----------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
Neil J. Colvin (1)..................................................... 1,217,229 8.7%
P. O. Box 445
Franklin, MA 02038
Ronald D. Fisher (2)................................................... 616,300 4.2%
Lawrence G. Finch (3).................................................. 385,027 2.7%
Jack Kay (4)........................................................... 324,999 2.3%
Lance E. Hansche (5)................................................... 157,638 1.1%
Charles Federman (6)................................................... 40,376 *
Anthony P. Morris (7).................................................. 18,897 *
Robert J. Riopel....................................................... 1,000 *
Gayn B. Winters........................................................ 0 N/A
All current directors and executive
officers as a group (8 persons) (8)................................... 1,513,108 10.2%
</TABLE>
- - ------------------------------
* Ownership is less than 1%
(1) Based on the most recent amendment dated February 1, 1995 to Mr. Colvin's
Schedule 13G delivered to the Company. Includes 22,069 shares held in a
foundation trust of which Mr. Colvin and his wife are co-trustees and share
voting and dispositive power. Excludes 152,080 shares of Common Stock held
in the name of Mr. Colvin's wife with respect to which Mr. Colvin has no
voting or investment power and disclaims beneficial ownership.
(2) Is comprised of: 19,000 shares owned by Mr. Fisher; 590,000 shares with
respect to which Mr. Fisher had the right to acquire beneficial ownership at
or within 60 days after November 30, 1995, through the exercise of options;
3,300 shares held in the name of Mr. Fisher's spouse; 2,000 shares held in
the name of Mr. Fisher's son; and 2,000 shares held in the name of Mr.
Fisher's daughter. Mr. Fisher has no voting or investment power and
disclaims beneficial ownership with respect to the shares owned by his wife,
son and daughter.
(3) Is comprised of the following: 60,000 shares owned by Mr. Finch; 265,814 and
19,900 shares owned by Sigma Partners and Sigma Associates, respectively;
and 39,314 shares with respect to which Mr. Finch had the right to acquire
beneficial ownership within 60 days after November 30, 1995, through the
exercise of options. Mr. Finch is a general partner of Sigma Partners and
Sigma Associates and shares voting and investment power with respect to the
shares owned by those partnerships. Mr. Finch disclaims economic interest in
the shares owned by Sigma Partners and Sigma Associates.
(4) Represents shares with respect to which Mr. Kay had the right to acquire
beneficial ownership at or within 60 days after November 30, 1995, through
the exercise of options.
(5) Represents shares with respect to which Mr. Hansche had the right to acquire
beneficial ownership at or within 60 days after November 30, 1995, through
the exercise of options.
(6) Is comprised of 18,000 shares owned by Mr. Federman, 1,000 shares held in
trust for his son, and 20,500 shares with respect to which Mr. Federman had
the right to acquire beneficial ownership at or within 60 days after
November 30, 1995, through the exercise of options.
11
<PAGE>
(7) Is comprised of 5,000 shares owned by Mr. Morris, 5,000 shares held in a
custodial account for his minor daughters and 7,626 shares with respect to
which Mr. Morris had the right to acquire beneficial ownership at or within
60 days after November 30, 1995, through the exercise of options.
(8) Includes 1,219,633 shares with respect to which all current directors and
executive officers of the Company as a group had the right to acquire
beneficial ownership at or within 60 days after November 30, 1995, through
the exercise of options and warrants. See Notes (2), (3), (4), (5), (6), and
(7) above.
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation for the Chief
Executive Officer and the other persons who were executive officers as of
September 30, 1995 (the "Named Executive Officers") for each of the last three
fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
----------------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#)
- - --------------------------------------- --------- -------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Ronald D. Fisher ...................... 1995 $ 243,750 $ 124,000 -- 0
Chairman and 1994 225,000 95,000(2) -- 135,000
Chief Executive Officer (1) 1993 225,000 21,500 -- 0
Jack Kay .............................. 1995 $ 175,000 $ 97,000 -- 0
President and 1994 161,449 0 -- 420,000
Chief Operating Officer (3) 1993 155,000 15,500 -- 0
Robert J. Riopel ...................... 1995 $ 71,111(4) $ 23,556(4) -- 85,000
Vice President, Finance, Chief
Financial Officer and Treasurer
Gayn B. Winters ....................... 1995 $ 24,242(5) $ 8,206(5) -- 75,000
Vice President, Engineering
and Chief Technology Officer
</TABLE>
- - ------------------------------
(1) Mr. Fisher's position as of October 1, 1995 is Chairman.
(2) Represents payment made in fiscal 1995 pursuant to a special cash bonus for
Mr. Fisher in recognition of his successful efforts to negotiate and
implement the sale of the Publishing and Printer Software Divisions of the
Company.
(3) Mr. Kay's position as of October 1, 1995 is President and Chief Executive
Officer.
(4) Mr. Riopel joined the Company on February 28, 1995. Fiscal 1995 bonus was
guaranteed and paid on a prorated basis.
(5) Dr. Winters joined the Company on August 7, 1995. Bonus during first year
of employment is guaranteed.
12
<PAGE>
STOCK OPTIONS
The following table contains information regarding the grant of stock
options under the Plan in fiscal 1995 to the Named Executive Officers:
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- - --------------------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM (3)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------------
NAME GRANTED (1) FISCAL YEAR ($/SHARE) (2) DATE 5% ($) 10% ($)
- - -------------------------- ----------- ------------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Riopel.......... 85,000 18.6% $ 7.50 2/28/05 $ 400,920 $ 1,016,011
Gayn B. Winters........... 75,000 16.4% $ 10.75 8/7/05 $ 507,046 $ 1,284,955
</TABLE>
- - ------------------------------
(1) The options granted to Mr. Riopel and options covering 50,000 of the shares
granted to Dr. Winters vest over a four-year period. Options covering the
other 25,000 shares granted to Dr. Winters vest on the seventh anniversary
of the grant date of those options, but will vest earlier in the event Dr.
Winters achieves certain goals to be established for each of the first
three years of his employment with the Company.
(2) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date, or through a
cashless exercise involving a same-day sale of all or part of the purchased
shares.
(3) These columns reflect the potential realizable value of each grant assuming
the market value of the Company's stock appreciates at 5% and 10% annually
from the date of grant over the term of the option. There is no assurance
that the actual stock price appreciation over the 10-year option term will
be at the assumed 5% or 10% levels or at any other level. Unless the market
price of the stock does in fact appreciate over the option term, no value
will be realized from the option grants.
The following table contains, with respect to the Named Executive Officers,
information regarding the exercise of stock options during the fiscal year, the
number of vested and unvested options held as of the end of fiscal 1995 and the
value of the unexercised options which have exercise prices per share less than
the closing price of the Company's Common Stock on the last day of fiscal 1995:
AGGREGATED OPTION EXERCISES IN FISCAL 1995
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE
UNDERLYING UNEXERCISED MONEY OPTIONS AT FY
OPTIONS AT FY END (#)(2) END ($)(3)
SHARES ACQUIRED VALUE -------------------------- ----------------------------
NAME ON EXERCISE (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ----------------------- --------------- ------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ronald D. Fisher....... 40,000 $ 287,134 590,000 25,000 $ 5,823,850 $ 190,625
Jack Kay............... 30,750 $ 216,221 292,032 307,968 $ 2,360,556 $ 2,325,348
Robert J. Riopel....... 0 $ 0 0 85,000 $ 0 $ 435,625
Gayn B. Winters........ 0 $ 0 0 75,000 $ 0 $ 140,625
</TABLE>
- - ------------------------------
(1) These amounts represent the fair market value of the shares underlying the
stock options on the date of exercise less the stock option exercise price.
(2) These options were granted on various dates during fiscal years 1991
through 1995.
(3) These amounts represent the difference between the exercise price of the
stock options and the closing price of Phoenix Common Stock on September
30, 1995 for all options held by each Named Executive Officer. The stock
option exercise prices ranged from $2.38 to $10.75 per share.
13
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The role of the Compensation
Committee is to set the salaries and other compensation of the executive
officers and certain other key employees of Phoenix, and to make grants under,
and to administer, the stock option and other employee equity and bonus plans.
The members of the Compensation Committee are Charles Federman, Lawrence G.
Finch and Anthony P. Morris. Each of these persons is a "disinterested" director
within the meaning of Section 16 of the Securities Exchange Act of 1934, as
amended, and an "outside director" within the meaning of Section 162(m) of the
Code.
GENERAL COMPENSATION PHILOSOPHY
The Company's compensation philosophy is that cash compensation for
executive officers should vary with the performance of the Company and any
long-term incentive should be closely aligned with the interest of the
stockholders.
Cash compensation for the executive officers named in the Summary
Compensation Table below consists of the following components:
- Base salary
- An incentive bonus that was directly related to earnings per share.
The long-term incentive for executive officers is realized through the
granting of stock options. The stock option program directly links a portion of
compensation to the interests of stockholders by providing an incentive to
maximize stockholder value. 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.
The Committee believes that the compensation of the CEO and the Company's
other executive officers should be based to a substantial extent on the
Company's performance. Consistent with this philosophy, a designated portion of
the compensation of each executive is contingent upon corporate performance and
adjusted where appropriate, based on an executive's performance against personal
performance objectives. Each executive officer's performance for the past fiscal
year and objectives for the current year are reviewed, together with the
executive's responsibility level and the Company's fiscal performance versus
objectives and potential performance targets for the current year. When
establishing salaries, bonus levels and stock option awards for executive
officers, the Committee considers: (1) the Company's financial performance
during the past year, (2) the individual's performance during the past year, and
(3) the salaries of executive officers in similar positions of companies of
comparable size and other companies within the computer software industry. The
companies whose executive officer salaries were considered in determining
compensation for the Company's executive officers were not intended to correlate
with the companies included in the indices used by the Company in preparing its
stock performance graph. With respect to executive officers other than the CEO,
the Committee places considerable weight upon the recommendations of the CEO.
The method for determining compensation varies from case to case based on a
discretionary and subjective determination of what is appropriate at the time.
Generally, no one factor is given greater consideration in determining
compensation than the other factors referred to above.
Generally the base salary for the executive officers does not change from
year-to-year, except as related to a change in responsibilities or to achieve
equity within a peer group. The Compensation Committee determines the incentive
bonus and criteria for earning all or a portion of the incentive bonus. In
making this determination, the Compensation Committee considers the
recommendations of management.
COMPENSATION OF EXECUTIVE OFFICERS DURING FISCAL 1995
SALARY: Effective January 1, 1995, Mr. Fisher's base salary was increased
from $225,000 to $250,000 per year, based on a comparison with salaries paid to
chief executive officers in similar
14
<PAGE>
companies in the industry and in light of the fact that Mr. Fisher had not
received any base salary increase since joining the Company in 1990, despite
improved financial performance. The salaries for all other executive officers
remained at the same levels as established in the prior year or as established
in fiscal 1995 for new executive officers.
CASH INCENTIVE BONUSES: In prior fiscal years, the Company employed a
cash-based incentive bonus intended to motivate and reward executives by making
a portion of cash compensation directly dependent upon corporate earnings per
share. The bonus targets for executive officers are based on individual
compensation plans. The Committee determines the amount targeted for the CEO and
the CEO recommends to the Committee the bonus targets for the remainder of the
executive officers. The amount of the bonus earned has historically been tied to
the Company's earnings per share, before recurring charges. Specific financial
and business objectives established under the bonus program are confidential
commercial and business information and, as such, need not be disclosed pursuant
to instruction 2 to Item 402(k) of Regulation S-K.
As a percent of total cash compensation (percentage determined by dividing
the target bonus by the sum of base salary and target bonus), fiscal 1995 target
bonuses for the Named Executive Officers, who were all of the executive officers
who earned incentive bonuses with respect to fiscal 1995, ranged from 19% to
55%, with an average of 47%.
STOCK OPTIONS GRANTED TO EXECUTIVE OFFICERS IN FISCAL 1995
The Board periodically reviews the number of vested and unvested options
held by each executive officer and makes stock option grants to executive
officers to provide greater incentives to those officers to continue their
employment with the Company and to strive to increase the value of the Company's
Common Stock. Stock options typically have been granted to an executive officer
when the executive first joins the Company, in connection with a significant
change in responsibilities and, occasionally to achieve equity within a peer
group. When making stock option grants for executive officers, the Board
considers the Company's performance during the past year, the responsibility
level and performance of the executive officer, prior option grants to the
executive officer, the level of vested and unvested options, and industry and
competitive conditions. Stock option grants generally become exercisable over a
four year period. Options generally have exercise prices equal to the fair
market value of the Company's Common Stock on the date of grant.
During fiscal 1995, the only executive officers to receive option grants
were Messrs. Riopel and Winters. Such grants were made in connection with their
hiring. Mr. Riopel was granted options covering 85,000 shares vesting over a
four-year period. Dr. Winters was awarded options covering 75,000 shares, 50,000
of which vest over a four-year period and 25,000 of which vest on the seventh
anniversary of their grant or earlier on the achievement of performance goals to
be established. The number of shares covered by the grants was based on the
Committee's discretionary and subjective determination after considering
industry and competitive conditions.
FISCAL 1995 CEO COMPENSATION
Compensation for the CEO is determined through a process similar to that
discussed above for executive officers in general.
As indicated above, the Company's compensation program is leveraged towards
achieving corporate and business goals and objectives. This pay-for-performance
program is most clearly exemplified in the compensation of the Company's Chief
Executive Officer.
In setting compensation levels for the Chief Executive Officer, the
Compensation Committee reviewed competitive information reflecting the relevant
compensation data at the time of Mr. Fisher's employment by the Company in
January 1990. As a result, the Company increased Mr. Fisher's annual base salary
to $250,000 effective January 1, 1995.
15
<PAGE>
CHANGES TO TAX LAW -- LIMITS ON EXECUTIVE COMPENSATION
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Code. Section 162(m) limits deductions for certain executive compensation in
excess of $1 million. Certain types of compensation are deductible only if
performance criteria are specified in detail, and payments are contingent on
stockholder approval of the compensation arrangement. The Company believes that
it is in the best interests of its stockholders to structure its compensation
plans to achieve maximum deductibility under Section 162(m) with minimal
sacrifices in flexibility and corporate objectives. To that end, the Company's
1994 Equity Incentive Plan has been drafted to ensure continued deductibility
under Section 162(m). With respect to non-equity compensation arrangements, the
Committee has reviewed the terms of those arrangements most likely to be subject
to Section 162(m) and believes that at this time no changes are necessary. The
Committee will continue to monitor this situation and will take appropriate
action if and when it is warranted. Since corporate objectives may not always be
consistent with the requirements for full deductibility, it is conceivable that
the Company may enter into compensation arrangements in the future under which
payments are not deductible under Section 162(m); deductibility will not be the
sole factor used by the Committee in ascertaining appropriate levels or modes of
compensation.
COMPENSATION COMMITTEE
Charles Federman
Lawrence G. Finch
Anthony P. Morris
TRANSACTIONS WITH MANAGEMENT
RONALD D. FISHER: In fiscal 1995, the Compensation Committee amended the
employment agreement between Mr. Fisher to increase his annual base salary to
$250,000 and to provide that, if Mr. Fisher's employment is terminated by the
Company for any reason other than cause, the Company will give him 18 months'
notice of termination. The Company has given Mr. Fisher that notice. For the
first 12 months of this notice period, the Company will make semi-monthly salary
payments to Mr. Fisher at his then annual base salary (i.e., $250,000). The
Company will make further salary payments to Mr. Fisher for the remaining six
months of the notice period if he has not found other employment or has found
other employment but at an annual base salary less than the amount paid Mr.
Fisher during the first 12 months of the notice period. The amount of the
semi-monthly salary payments during this six month period will be at an annual
rate equal to the lesser of (a) the base salary paid by the Company during the
first 12 months of the notice period or (b) such amount minus his annual base
salary at his new job. The Company will also continue to provide Mr. Fisher with
standard health benefits until the earlier to occur of the end of the 18 month
notice period or until Mr. Fisher starts new employment. If following a change
of control, Mr. Fisher is given notice of termination for any reason other than
cause, the remaining 25,000 unvested options granted Mr. Fisher in August 1994
will become fully vested.
JACK KAY: In June 1994, the Company entered into an employment agreement
with Mr. Kay in connection with his promotion to President and Chief Operating
Officer. Under that agreement, Mr. Kay is entitled to: an annual base salary of
$175,000; an annual incentive bonus of at least $105,000 based on the
achievement of objectives established by the Board of Directors; options
covering 400,000 shares; certain loans in connection with his relocation from
Massachusetts to California; and certain severance payments (including
acceleration of vesting of the 400,000 options) in the event of termination
other than for cause. In September 1995, certain provisions of this arrangement
were modified in connection with Mr. Kay's promotion to Chief Executive Officer:
the annual base salary was increased to $225,000; the annual incentive bonus was
increased to a minimum of 50% of his annual base salary, subject to the
achievement of objectives established by the
16
<PAGE>
Board of Directors; up to $10,000 per year is to be provided for tax planning
assistance; and the commitment to make loans in connection with his relocation
was replaced with a commitment to provide Mr. Kay $25,000 in each of fiscal 1996
through 1999 for relocation and travel assistance.
LANCE E. HANSCHE: As of September 30, 1995, the Company had an outstanding
loan to Lance E. Hansche, a director and employee of the Company, in the
aggregate amount of $48,325, comprised of $48,200 in principal and $125 in
accrued interest. The loan bears interest at a rate of 10% per annum and the
largest aggregate amount outstanding under the note during fiscal 1995 was
$78,200. All principal and interest under the loan was paid in full in November
1995.
Mr. Hansche has an employment arrangement with the Company, pursuant to
which he provides the Company with strategic advice on product direction and
markets. Under the arrangement, the Company pays Mr. Hansche $1,500 per day for
each day he provides services to the Company, and he has agreed to work a
minimum of 60 days per year. During fiscal 1994, the Company paid Mr. Hansche
$120,750 as an employee.
During fiscal 1994, the Company entered into an agreement with Foundation
Designs Inc. ("Foundation") for the development of certain technology and for
the provision of ongoing consulting services. During fiscal 1995, the Company
incurred obligations to pay Foundation $74,050 in consulting fees. Mr. Hansche
is a Director of the Company and a principal of Foundation. Neil Colvin, a
founder and former director of the Company and a holder of more than 5% of the
Company's outstanding stock, is also a principal of Foundation.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of the
Company's Common Stock ("10% Stockholders") to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership of the Company's
Common Stock and other equity securities on a Form 3 and reports of changes in
such ownership on a Form 4 or Form 5. Officers, directors and 10% stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during, and with respect to, its most recent
fiscal year and written representations that no other reports were required, if
any, the filing requirements of Section 16(a) applicable to its officers,
directors and 10% Stockholders were satisfied, except that the Form 3 for Dr.
Winters was filed 21 days late.
COMPENSATION OF DIRECTORS
Starting in October 1994, non-employee Directors are paid a fee of $1,500
for each meeting of the Board of Directors or Board committee they attend; prior
to October 1994, Directors were not paid any fees for attending meetings.
Directors are also reimbursed for out-of-pocket expenses for attending meetings
of the Board of Directors or any committee of the Board of Directors. Morris &
Associates has a consulting agreement with the Company under which consulting
fees were paid in fiscal 1995 and Broadview Associates, L.P. had certain
investment banking and appraisal agreements with the Company under which fees
were paid in fiscal 1995 (see "Compensation Committee Interlocks and Insider
Participation"). Mr. Hansche is an employee of the Company and is a principal in
a business which provided development services to the Company in fiscal 1995.
Directors are entitled to receive options under the Company's 1994 Equity
Incentive Plan. During fiscal 1995 the Company granted stock options for 7,000
shares to each of Messrs. Federman, Finch and Morris with exercise prices equal
to the fair market value of the Company's Common Stock on the date of grant.
17
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of
Directors during fiscal 1995 were Messrs. Federman, Finch, and Morris, all of
whom are non-employee directors.
The Company entered into a month-to-month consulting agreement with Morris &
Associates in July 1993. Under that agreement, the Company pays Morris &
Associates $6,000 per month. Anthony P. Morris is a Director of the Company and
a principal of Morris & Associates. During fiscal 1995 the Company paid $73,800
in consulting fees to Morris & Associates. Such fees represented more than 5% of
the consolidated revenue for Morris & Associates for its last fiscal year.
From time-to-time the Company retains the services of Broadview Associates,
L.P. ("Broadview") to investigate and evaluate potential acquisitions, to assist
in the sale of portions of the Company's business, and to advise the Company on
general business matters. In fiscal 1995, the Company engaged Broadview to
assist it in its development of long-term growth strategies which may include
identifying possible acquisition candidates. Under the engagement letter, the
Company agrees to pay Broadview a retainer of $5,000 per month and to pay
certain fees upon the successful completion of any such acquisition. During
fiscal 1995, fees paid to Broadview for services rendered during fiscal 1995
were not material. Charles Federman is a Director of the Company and Managing
Director of Broadview.
COMPANY STOCK PRICE PERFORMANCE
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company from September 30, 1990 to September 30, 1995 with
the cumulative total return on the Standard and Poor's 500 and the Standard and
Poor's Computer Software and Services market indices over the same period,
assuming the investment of $100 in the Company's Common Stock and in each of the
indices on September 30, 1990 and the reinvestment of all dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG PHOENIX TECHNOLOGIES LTD., THE STANDARD & POOR'S 500 INDEX
AND THE STANDARD & POOR'S COMPUTER SOFTWARE & SERVICES INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PHOENIX TECHNOLOGIES LTD S & P 500 S & P COMPUTER SOFTWARE & SERVICES
<S> <C> <C> <C>
9/90 100 100 100
9/91 328 131 154
9/92 217 146 190
9/93 189 165 252
9/94 250 171 299
9/95 561 221 436
</TABLE>
18
<PAGE>
OTHER MATTERS
Management does not know of any other matters that may come before the
Meeting. However, if any other matters are properly presented to the Meeting, it
is the intention of the persons named in the accompanying proxy to vote, or
otherwise act, in accordance with their judgment on such matters.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1997 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Santa Clara, California, not later than September 13, 1996 for inclusion in
the proxy statement for that meeting.
By Order of the Board of Directors,
SCOTT C. NEELY, SECRETARY
January 18, 1996
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE
APPRECIATED.
19
<PAGE>
PHOENIX TECHNOLOGIES LTD.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Robert J.
Riopel and Scott C. Neely, and each of them, with power of substitution, as
proxies to represent and vote as designated herein all shares of stock of
Phoenix Technologies Ltd. (the "Company") which the undersigned would be
entitled to vote if personally present at the Annual Meeting of Stockholders of
the Company to be held on February 29, 1996 at the San Jose Hyatt Hotel, 1740
North First Street, San Jose, California, at 10:00 a.m., California time, and at
any and all adjournments thereof.
The proxy when properly executed and returned, will be voted in the manner
directed herein by the undersigned stockholder. If no direction is given, this
proxy will be voted for Election of Messrs. Federman and Kay and for Proposals
2, 3, 4 and 5. In their discretion, the proxies are also authorized to vote upon
such other matters as may properly come before the meeting or any adjournment
thereof.
(Continued, and to be signed on the reverse side)
<PAGE>
1. TO ELECT CHARLES FEDERMAN AND JACK KAY TO THE BOARD OF DIRECTORS AS CLASS 3
DIRECTORS.
<TABLE>
<S> <C> <C>
/ / FOR BOTH / / WITHHOLD (INSTRUCTION: To withhold authority to vote for any individual nominee,
NOMINEES EXCEPT AUTHORITY FOR BOTH write that nominee's name on the space provided below.)
AS NOTED TO THE NOMINEES
RIGHT
</TABLE>
2. TO APPROVE THE AMENDED AND RESTATED 1991 EMPLOYEE STOCK PURCHASE PLAN.
/ / FOR / / AGAINST / / ABSTAIN
3. TO APPROVE AN AMENDMENT TO THE 1994 EQUITY INCENTIVE PLAN.
/ / FOR / / AGAINST / / ABSTAIN
4. TO APPROVE AN AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION.
/ / FOR / / AGAINST / / ABSTAIN
5. TO RATIFY THE SELECTION OF ERNST & YOUNG AS INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE CURRENT FISCAL YEAR.
/ / FOR / / AGAINST / / ABSTAIN
Please sign exactly as name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators,
trustees, guardians, attorneys and
corporate officers should add their
titles.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS
PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
DATED __________________________________,
1996.
_________________________________________
(SIGNATURE)
_________________________________________
(SIGNATURE)
