<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
[AMENDMENT NO.............]
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
STATE OF THE ART, INC.
................................................................................
(Name of Registrant as Specified in Its Charter)
................................................................................
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(2) or Item 22(a)(2)of
Schedule 14A.
[_] 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 by written 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>
SHAREHOLDER LETTER
To Our Stockholders:
1996 was a milestone year for State Of The Art. It was a year of many
significant accomplishments, including the release of MAS 90(R) For Windows(R)
and our new client/server application, Acuity Financials(TM). It was also an
important transition year that saw us move our applications to new computing
platforms like Windows 95(R)/Windows NT(R) and Microsoft(R) SQL Server(TM). 1996
was also another year of record revenues for the company, and at its conclusion,
State Of The Art was positioned for continued growth during 1997 and beyond.
MAS 90 FOR WINDOWS
For more than five years the company has been investing significant amounts in
research and development to bring new products to market; our intent was that
these investments would not only make a competitive difference within the
midrange market, but also launch the company into new and exciting growth
markets for the future. I am pleased to say we accomplished both of these goals
in 1996.
Our flagship MAS 90(R) product is now available for Windows, and it has taken
the middle market by storm. MAS 90 For Windows quickly established itself as the
industry leader, passing the milestone of 10,000 shipments within six months of
release. No other product of this kind has shipped so many units in such a short
time frame, causing industry watchers to call the MAS 90 For Windows launch the
most successful ever in this market segment.
Core accounting and distribution modules are available in GUI (Graphical User
Interface) versions, making MAS 90 For Windows a comprehensive accounting
solution for medium-sized companies. The product is based upon the solid
foundation of our DOS and UNIX(R) character-based modules, and includes all of
the features and functionality that some 70,000 MAS 90 users have grown to
depend upon. An easy upgrade path for our installed base makes the decision to
move up to the Windows product a simple and painless one.
ACUITY FINANCIALS AND THE CLIENT/SERVER MARKET
The acceptance of client/server computing has been building momentum in the
Fortune 5000 companies for some time now. Today's lower-cost Windows NT servers
have made the speed and scalability associated with client/server computing
available to a much wider range of companies, creating a new packaged accounting
software market segment that has been projected to generate revenues as high as
$2.5 billion by the year 2001.
In 1994, we made a strategic decision to develop a client/server product to meet
this demand. The October 1996 release of Acuity Financials was a high-water mark
in this development, and additional Acuity modules are scheduled for release in
1997.
BUSINESSWORKS
BusinessWorks(R) software continues to represent the best choice in entry-level
accounting systems for growing businesses. A next-generation version of
BusinessWorks, scheduled for 1998 release, will offer major enhancements over
previous versions. BusinessWorks has fantastic upgrade potential, as owners of
retail accounting packages like Peachtree(R) and QuickBooks(TM) (who number in
the hundreds of thousands) outgrow their software and seek the advanced
functionality that BusinessWorks provides.
SERVICE AND SUPPORT
We have improved our Customer Support services dramatically in the past six
months, and following the trend in the industry, we are now requiring that
customers purchase support plans or pay for individual support calls. We are
aggressively soliciting support plan subscribers through outbound telemarketing,
and are working with the reseller channel to bring their clients on board. We
will also derive some revenue in 1997 from our Acuity Professional Services
program, in which field representatives will provide installation and technical
services for Acuity resellers and end-users. In future periods, we anticipate
that support and services could comprise as high as 20% of revenues.
FORMS
State Of The Art Business Forms offers custom-printed forms, including checks,
invoices and tax forms, that are 100% compatible with our accounting systems.
The forms segment experienced the most rapid percentage of
Continued next page
<PAGE>
growth in 1996, and this will continue to be a very profitable, growing segment
of our business. We have improved our incentive programs for our resellers who
sell forms to their clients, which should generate steady increases in forms
revenues.
1996 FINANCIAL RESULTS
1996 was the eleventh continuous year of revenue growth for the company. In
1996, revenues increased 13 percent to $52,046,000, up from $46,118,000 in the
previous year. Net income totaled $2,892,000 or $0.25 per share compared to
$5,663,000 or $0.51 per share for 1995.
. Revenue results - Our revenues reflect our transition to the Windows and
client/server marketplace. One year ago, we were 100% DOS and UNIX. By the end
of Q4 1996, 40% of our revenue came from Windows products, and 5% from
client/server products.
. Earnings results - Our cash flow remained strong with earnings of $2.9
million. These earnings results reflect our increased expenditures in research
and development, and sales and marketing related to the successful launch of
MAS 90 For Windows and Acuity Financials. We have maintained one of the
strongest balance sheets of any company in our sector of the market.
LOOKING AHEAD
Windows NT is fast becoming the de facto standard operating system in the
enterprise mid-market. This development dictates adopting more powerful
platforms, and taking advantage of the industry's movement to NT. With the
launch of Acuity Financials in October, 1996, and the client/server edition of
MAS 90 for Windows NT, which will be launched in mid-1997, we are well-
positioned to increase our share of the exploding client/server market.
Looking forward, I see numerous opportunities for the company as we continue to
expand our product lines and release new products. Programs are in place to
build brand recognition for State Of The Art and our client/server products,
Acuity Financials and the client/server edition of MAS 90 for Windows NT. New
strategic alliances can widen our product distribution and accelerate growth. At
the same time, we are developing next-generation BusinessWorks products, and we
plan to elevate MAS 90 For Windows from leadership to dominance of the
traditional midrange market.
Our mission is to be the number one provider of accounting software to middle-
market companies. Our current product mix and strategic vision position us for
the future, and we feel that achieving the goals described above should
significantly enhance shareholder value.
In closing, I would like to note that this document not only summarizes our 1996
results, but also makes projections for the future. Included in this letter are
forward-looking statements concerning our future revenue and earnings which
involve risks and uncertainties. These risks and uncertainties could cause
actual results to differ materially from those projected. Thank you for your
continued support, and I look forward to updating you of our continued progress
in the months ahead.
Sincerely,
/s/ David W. Hanna
David W. Hanna
Chairman, CEO and President
<PAGE>
STATE OF THE ART, INC.
56 TECHNOLOGY
IRVINE, CALIFORNIA 92618
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
THURSDAY, MAY 29, 1997
----------------
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of State Of
The Art, Inc., a California corporation (the "Company"), will be held at the
Holiday Inn DFW Airport South, 4440 West Airport Freeway, Irving, Texas 75062,
on Thursday, May 29, 1997, at 10:00 a.m. central daylight-savings time, for
the following purposes:
(1) To elect members of the Board of Directors to serve until the next
annual meeting of shareholders;
(2) To approve the adoption of the State Of The Art, Inc., 1997 Employee
Stock Purchase Plan (recommended by the board of directors); and
(3) To transact such other business as may properly come before the
meeting or any adjournments and postponements thereof.
The board of directors has fixed the close of business on March 17, 1997, as
the record date for the determination of shareholders entitled to notice of
and to vote at the meeting. Only holders of the Company's common stock at the
close of business on the record date are entitled to vote at the meeting.
By Order of the Board of Directors,
James R. Eckstaedt,
Secretary
Irvine, California
April 4, 1997
YOUR VOTE IS IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. WHETHER YOU PLAN
TO ATTEND OR NOT, PLEASE PROMPTLY COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED
PROXY FORM IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES. RETURNING A SIGNED PROXY FORM WILL NOT PREVENT YOU FROM
VOTING IN PERSON AT THE ANNUAL MEETING, IF YOU SO DESIRE, BUT WILL HELP THE
COMPANY SECURE A QUORUM AND REDUCE THE EXPENSE OF ADDITIONAL PROXY
SOLICITATION.
<PAGE>
STATE OF THE ART, INC.
56 TECHNOLOGY
IRVINE, CALIFORNIA 92618
----------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
THURSDAY, MAY 29, 1997
----------------
PROXY STATEMENT
INTRODUCTION
This proxy statement is furnished to the shareholders of State Of The Art,
Inc., a California corporation (the "Company"), in connection with the
solicitation of proxy forms by and on behalf of the board of directors (the
"Board") of the Company. The proxy forms solicited hereby are to be voted at
the annual meeting of shareholders of the Company (the "Annual Meeting") to be
held on Thursday, May 29, 1997, at 10:00 a.m., central daylight savings time,
or at any and all adjournments and postponements thereof. The Annual Meeting
will be held at the Holiday Inn DFW Airport South, 4440 West Airport Freeway,
Irving, Texas 75062.
The executive offices of the Company are located at 56 Technology, Irvine,
California 92618-2301. The Company's main telephone number is 714-753-1222.
This proxy statement and the accompanying form of proxy will be mailed to
shareholders on or about April 4, 1997.
Please complete and sign the enclosed proxy form (the "Form"). The proxies
named on the Form will vote the shares represented by each properly executed
and unrevoked Form in accordance with the instructions given in the Form. If
you give no direction, the proxies will vote the shares represented by each
properly executed Form FOR management's nominees for the Board of Directors
and FOR the proposal to adopt the 1997 Employee Stock Purchase Plan.
Any one who properly completes, executes, and delivers a Form may revoke the
Form at any time prior to the Form's exercise, by filing, with the secretary
of the Company, an instrument revoking such Form or by the filing of a duly
executed Form bearing a later date. Any shareholder present at the Annual
Meeting, who has executed and delivered a Form, may withdraw the Form and vote
that shareholder's shares in person if that shareholder so desires.
The Company's management intends to solicit proxies primarily by mail. The
Company will make arrangements with brokerage houses and other custodians,
nominees, and fiduciaries to send Forms and proxy materials to the beneficial
owners of the Company's shares, and the Company will reimburse those
custodians, nominees, and fiduciaries for related expenses. Should it appear
desirable to do so in order to ensure adequate representation of shares at the
Annual Meeting, officers, agents, and employees of the Company may communicate
with shareholders, banks, brokerage houses, and others by telephone,
telegraph, or in person, to request that shareholders sign and deliver Forms
to the Company. The Company will bear all expenses incurred in connection with
this solicitation. The Company has no present plans to hire special employees
or paid solicitors to assist in obtaining proxies, but reserves the option of
doing so if the Company's management believes that it is necessary to obtain a
quorum of voting shares at the Annual Meeting.
Only holders of record of the Company's common stock, no par value, at the
close of business on March 17, 1997, are entitled to notice of, and to vote
at, the Annual Meeting. As of March 17, 1997, the Company has 11,276,597
shares of common stock issued and outstanding. Each share of common stock is
entitled to one vote at the Annual Meeting.
1
<PAGE>
In voting for Company directors at the Annual Meeting, each shareholder will
have the right to cumulate votes for any candidate or candidates whose name(s)
have been placed in nomination prior to voting, provided such shareholder has
given notice, at the Annual Meeting and prior to the voting for Directors, of
the shareholder's intention to cumulate votes. If any one shareholder has
given such notice, all shareholders may cumulate their votes. Management
presently intends to cumulate votes for all shares for which it holds Forms at
the Annual Meeting. If such cumulative voting rights are exercised, each share
will have the number of votes for Directors that equals the number of
Directors to be elected (five). Such votes may be cast for one nominee or
allocated among two or more nominees. In the event that the Board of Directors
deems it appropriate, votes represented by Forms may be cumulated and
distributed unequally among the five nominees identified herein in order to
ensure the election of the maximum number of such nominees. The five nominees
receiving the highest number of votes at the Annual Meeting will be elected.
The Inspector of Elections (the "Inspector"), which the Board has appointed,
will tabulate votes at the Annual Meeting, including those votes cast in
person. The Inspector will count abstentions from voting for purposes of
determining the existence of a quorum, but abstentions will have no effect in
the election of directors. In addition to the election of directors,
management intends to present one proposal, described below, requiring an
affirmative vote of the majority of the shares represented at the Annual
Meeting. With respect to that proposal, an abstention will have no effect. In
the event any other matter is brought before the Annual Meeting requiring the
affirmative vote of a majority or other proportion of the outstanding shares
or of the shares represented at the Annual Meeting, an abstention or broker
non-vote will have the same effect as a vote against the matter. Management is
not presently aware that any other matters will be voted upon at the Annual
Meeting. If a Form indicates that the proxies do not have discretionary
authority to vote on a matter, the shares relating to that Form will not be
considered as present and entitled to vote with respect to that matter, nor
will they be counted as votes for or against that matter.
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES
The shareholders elect directors at each annual meeting, and those elected
directors hold office until the next annual meeting of shareholders, or until
the directors' respective successors are elected and qualified. The bylaws of
the Company, as amended, fix the number of directors at five. The following
persons are nominees for election as directors of the Company, have each
consented to serve as a director if elected, and are presently serving as
directors of the Company: Mr. David W. Hanna, Mr. George Riviere, Ms. Susan L.
Rasinski, Mr. W. Frank King, and Mr. James H. Clement, Jr.
Management will vote Forms FOR the election of the above-named nominees,
unless the shareholder indicates that the proxies shall not vote that
shareholder's shares for all or any one of the nominees. If for any reason any
nominee should, prior to the Annual Meeting, become unavailable for election
as a director (an event that management does not now anticipate) the proxies
will vote shares for such substitute nominee, if any, as management may
recommend. In no event, however, shall the proxies vote shares for a greater
number of persons than the number of nominees named above.
2
<PAGE>
MANAGEMENT OF THE COMPANY
Set forth below is certain information with respect to the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<C> <C> <S>
David W. Hanna.............. 58 Chairman of the Board, Chief Executive
Officer, and
President
George Riviere.............. 45 Vice President, Midrange Products
Engineering and Director
Susan L. Rasinski........... 35 Director
W. Frank King............... 57 Director
James H. Clement, Jr. ...... 42 Director
James R. Eckstaedt.......... 42 Vice President, Finance, Chief Financial
Officer, and Secretary
Jeffrey E. Gold............. 49 Vice President, Development
James P. Moore.............. 32 Vice President, Customer Support
David R. Butler............. 41 Vice President, Sales
Gregory G. Davidson......... 35 Vice President, Client/Server Division
</TABLE>
Mr. Hanna has served as a director of the Company since 1985. He was
appointed Chairman of the Board and Chief Executive Officer of the Company in
November 1993, and in February 1994 he was also appointed as President. Since
June 1984 Mr. Hanna has been President of the David Hanna Company, a privately
held operational consulting firm based in Menlo Park, California, which he
founded. As a consultant, Mr. Hanna previously served as President of the
Company from May 1985 to August 1985, as the Company's Chief Executive Officer
from May 1985 to July 1986, and as the Company's Chairman of the Board from
May 1985 to September 1987. Also as a consultant, Mr. Hanna served from 1991
to 1992 as President of Ventura Software, Inc., a maker of desktop publishing
related software, in 1990 as President of Emulex Corporation, a computer
peripheral products company, in 1989 as President and Chief Executive Officer
of Xerox Desktop Software, the predecessor of Ventura Software, Inc., and in
1988 as President and Chief Executive Officer of NetFRAME, a maker of high
performance file servers. In 1987, Mr. Hanna was President and Chief Executive
Officer of Versatec, Inc., a manufacturer of electrostatic plotters.
Mr. Riviere joined the Company in October 1982 as its Vice President--
Development. He has been a director of the Company since 1983. In 1985, he was
appointed Vice President--Research and Development. Prior to his employment
with the Company, he was Vice President of Development with Application
Software Corp., a division of MAI Basic Four, Inc., a California-based
supplier of computer products and services, which position he had held since
1979. From 1974 to 1979 he was the Vice President of Development of
Interactive Computer Systems, Inc., a firm engaged in the development of
accounting software.
Ms. Rasinski has served as a director of the Company since 1989. Ms.
Rasinski is presently a managing partner at Eagle Creek Capital, an investment
management firm. From April, 1994, until September, 1996, Ms. Rasinski was a
principal at Robertson, Stephens & Company, a nationwide investment banking
firm focusing on emerging growth, a position she held since April 1994. From
November 1990 to April 1994, Ms. Rasinski served as the director of Corporate
Development at Resna Industries, Inc., a San Francisco-based environmental
services concern. From 1988 to 1990, Ms. Rasinski was an associate at
Robertson, Stephens & Company. Prior to attending Harvard Business School from
1986 to 1988, Ms. Rasinski was employed as a business analyst from 1984 to
1986 at the management consulting firm of McKinsey & Co.
Mr. King was elected to the Company's board of directors in 1992. Mr. King
is presently serving as President and Chief Executive Officer of PSW
Technologies, Inc. (formerly a division of Pencom, Inc.) a provider of
software-related engineering, development and support services. From 1988 to
1992, Mr. King served as Senior Vice President of Development for Lotus
Development Corporation, and from 1969 to 1988, Mr. King was employed with IBM
Corporation, serving in his last assignment with IBM as Vice President of
3
<PAGE>
Development, Entry Systems Division. Mr. King is also a director of Weitek
Corporation, Excaliber Technologies Corporation, Auspex Systems, Inc.,
Systemsoft Corporation and PSW Technologies.
Mr. Clement was elected to the Company's board of directors in 1994. He has
been a private investor and consultant since 1991, providing financial
consulting services to businesses. From 1989 to 1991 Mr. Clement served as a
consultant with Merit Energy Company, a manager of partnerships that acquire
producing oil and gas properties, and from 1984 to 1989 he was employed with
King Ranch, Inc., a multinational agribusiness and oil and gas exploration
company, serving as Vice President and Treasurer. Mr. Clement continues to
serve as a director of King Ranch and also served as managing director of King
Ranch in late 1994 and early 1995 until a permenent chief executive officer
was hired for the King Ranch.
Mr. Eckstaedt joined the Company in March, 1997 and replaces Joe R.
Armstrong, former CFO, who retired in March 1997. From July 1996 until joining
the Company, Mr. Eckstaedt was senior vice president and chief financial
officer at the Cerplex Group Inc., an outsourcing service for the computer
industry. From 1985 to 1996, Mr. Eckstaedt held various management positions,
including Vice President of Finance, Vice President and Treasurer with Western
Digital Corp., a leading manufacturer of data storage devices for computers.
He has held senior finance and auditing positions at Price Waterhouse,
Petrolane, Inc., and Tomy Corporation. Mr. Eckstaedt is a graduate of
Valparaiso University, and is a certified public accountant.
Mr. Gold joined the Company in December 1994 upon the completion of the
merger with Manzanita Software Systems. Mr. Gold was a co-founder of Manzanita
Software and served as its Chief Technical Officer and Chairman from 1990
through 1994. Mr. Gold served as President and Chief Executive Officer of
Manzanita Software from 1984 to 1990. From 1983 to 1984 Mr. Gold was the
director of Special Projects for ASK Computer, a manufacturer of minicomputer
and microcomputer based accounting software. Prior thereto, Mr. Gold founded
and served as President of MicroGold, Inc., a computer software company
focused on software development for Apple Computer systems. From 1971 to 1980,
Mr. Gold was employed with ESL Corporation, a defense contractor, as an
Engineering Department Manager responsible for the development of
sophisticated reconnaissance and direction finding systems.
Mr. Moore joined the Company in March, 1996. From 1993 until he joined the
Company, Mr. Moore served as director of Operations, and then as Senior
Director, Information Services and Facilities, for Delrina Corporation, a
developer and marketer of microcomputer software. From 1987 through 1993, he
served as National Customer Support and Service Manager for Lotus Development
Corporation, a business applications software developer and marketing firm, in
Toronto, Ontario, Canada. In 1986 and 1987, he was a programmer analyst for
Kakari Systems Limited in Edmonton, Alberta, Canada, and for the provincial
government of Quebec. Mr. Moore is a 1986 graduate of the University of
Alberta.
Mr. Butler joined the Company in April, 1996. From 1993 through his joining
the Company, Mr. Butler was the Director of Sales for the southern and western
United States for Lawson Software, a developer of high-end accounting
software. From 1991 through 1993, he was the Western United States Regional
Manager for Bachman Information Systems, Inc., a seller and implementer of
CASE software tools for the IBM AD/Cycle market. From 1990 through 1991, Mr.
Butler was the Southern California Branch Manager for VERSYSS, Inc., a
manufacturer of turnkey hardware and software solutions.
Mr. Davidson was named Vice President of Client/Server Engineering in
January of 1997. Previously he served as SOTA's Vice President of Development
for the Troy, Michigan, development center. In 1994 he founded Systems
Engineering Group ("SEG"), a client/server consulting firm, and served as its
president. Until 1994, Mr. Davidson was with Platinum Software Corporation,
where he served as Vice President of Platinum's Michigan development center
and as president of Platinum's financial systems division. Prior to his tenure
at Platinum, Mr. Davidson served as president of Systems Engineering
Associates ("SEA"), a custom software development firm that was acquired by
Platinum in 1992. Before founding SEA in 1989, Mr. Davidson provided contract
software engineering services to General Motors, Chrysler Corporation, and
other Detroit-area manufacturing and distribution clients.
4
<PAGE>
BOARD AND COMMITTEE MEETINGS
The Board of Directors held four meetings during the fiscal year ended
December 31, 1996. Each of the Directors attended at least 75% of the
aggregate number of meetings of the Board and each Board committee on which he
or she served. The Board of Directors has standing Executive, Audit, and
Compensation Committees, but does not have a Nominating Committee. In
practice, the entire Board performs the function of a Nominating Committee.
The Executive Committee was established in November 1993 and is empowered to
act for and on behalf of the Board of Directors and its committees, but may
not undertake actions reserved in the Bylaws to the Board itself, such as
filling vacancies on the Board and declaring certain dividends to
shareholders. Currently Mr. Hanna, Ms. Rasinski, and Mr. King are the members
of the Executive Committee. No meetings of the Executive Committee were held
in 1996.
The Audit Committee of the Board of Directors held four meetings during the
fiscal year ended December 31, 1996. The Committee's responsibility is to
review and act, or report to the Board of Directors, on various audit and
accounting matters, including management's plan for engaging the Company's
independent public accountants, the scope of the audit procedures, the nature
of the services to be performed by, and the fees to be paid to, the auditors,
and any changes in the Company's accounting standards. The Audit Committee is
composed of Ms. Rasinski and Mr. Clement, with Mr. Clement serving as Chair of
the Committee.
The Compensation Committee of the Board held three meetings during the
fiscal year ended December 31, 1996. The Committee is responsible for making
recommendations to the Board concerning such executive compensation
arrangements and plans as the Board deems appropriate, and the grant of stock
options to selected employees under the Company's stock plans. The
Compensation Committee is composed of Ms. Rasinski and Mr. King, with Ms.
Rasinski serving as Chair of the Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The following directors and officers of the Company failed to file on a
timely basis reports required by Section 16 of the Securities Exchange Act of
1934, during the Company's fiscal year ended December 31, 1996, based on the
Company's review of SEC Forms 3 and 4, and amendments to those forms:
<TABLE>
<CAPTION>
NUMBER OF TRANSACTIONS
NAME OF PERSON NUMBER OF LATE REPORTS REPORTED LATE
-------------- ---------------------- ----------------------
<S> <C> <C>
James H. Clement, Jr. ...... 1 1
</TABLE>
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information as to the Chief Executive
Officer, the four most highly compensated executive officers of the Company
for the last three fiscal years and officers that earned more than $100,000 in
1996 (the "Named Officers") who were not officers of the Company at December
31, 1996:
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION(1) AWARDS
----------------- ------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION(2)
------------------ ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
David W. Hanna(3)................................... 1996 $250,000 $137,000 -0- $ -0-
Chairman of the Board, President and 1995 250,000 75,000 100,000 -0-
Chief Executive Officer 1994 312,794 50,000 400,000 -0-
George Riviere(4)................................... 1996 146,875 55,625 50,000 2,707
Vice President--Midrange Products 1995 143,636 40,547 -0- 1,330
Engineering 1994 142,231 29,250 -0- 1,371
Joseph R. Armstrong(5).............................. 1996 134,375 62,375 25,000 5,595
Chief Financial Officer, Vice President-- 1995 132,615 75,000 -0- 3,309
Finance and Secretary 1994 109,346 65,000 100,000 2,207
J. Russell Olson(6)................................. 1996 68,939 -0- -0- 136,906
Vice President--Engineering 1995 152,027 32,500 -0- 2,236
1994 116,423 43,000 100,000 -0-
Jeffrey E. Gold(7).................................. 1996 125,275 39,375 -0- 5,765
Vice President--Development 1995 115,500 27,125 -0- 3,548
1994 113,050 30,000 50,000 5,307
Daniel M. Shapero(8)................................ 1996 118,822 48,490 15,000 131,715
Vice President--Client/Server Division 1995 71,058 41,700 50,000 -0-
1994 -0- -0- -0- -0-
</TABLE>
- --------
(1) Amounts shown include compensation deferred pursuant to Section 401(k) of
the Internal Revenue Code of 1986, as amended. No amounts of other annual
compensation were paid to the Named Officers in the fiscal years shown. In
addition, no grants of restricted stock and no payouts pursuant to long
term incentive plans, were made to the Named Officers in the fiscal years
shown.
(2) Where indicated, amounts shown include premiums paid by the Company on
term life insurance policies for the benefit of the Named Officers and
Company contributions pursuant to the Company's 401(k) Profit Sharing
Plan. Life insurance policies have no cash surrender value.
(3) Mr. Hanna was appointed Chairman and CEO on November 22, 1993. The amount
shown under "Salary" in 1994 includes $94,525 in consulting fees prior to
his entering into an employment agreement with the Company. On February
17, 1994, Mr. Hanna was appointed President and he and the Company entered
into an employment agreement, described below.
(4) The amounts shown under "All Other Compensation" for 1996, 1995 and 1994
represent $2,052, $675 and $716, respectively, in Company matching
contributions to the Company's 401(k) Plan, and premiums of $655, $655 and
$655, respectively, paid by the Company on term life insurance policies
for the benefit of Mr. Riviere.
6
<PAGE>
(5) The amounts shown under "All Other Compensation" for 1996, 1995 and 1994
represent $4,750, $2,464 and $1,366, respectively, in Company matching
contributions to the Company's 401(k) Plan, and premiums of $845, $845 and
$845, respectively, paid by the Company on term life insurance policies
for the benefit of Mr. Armstrong. Effective March 17, 1997, Mr. Armstrong
retired from the Company.
(6) Mr. Olson became an executive officer of the Company in April 1994. The
amounts shown under "All Other Compensation" for 1996 includes a payment
in the amount of $135,000 related to the departure of Mr. Olson from the
Company effective May 9, 1996. In addition to this payment, the Company
paid $1,906 and $2,236 in Company matching contributions to the Company's
401(k) Plan in 1996 and 1995, respectively.
(7) Mr. Gold became an executive officer of the Company in December 1994;
prior thereto Mr. Gold was an officer of Manzanita Software which merged
with State Of The Art in December 1994. The amounts shown under "All Other
Compensation" for 1996, 1995 and 1994 represent $4,670, $3,548 and $5,307,
respectively, in Company matching contributions to the Company's 401(k)
Plan. In addition, in 1996 the Company paid $1,095 for premiums on term
life insurance policies for the benefit of Mr. Gold.
(8) Mr. Shapero became an executive officer of the Company in September 1995.
The amount shown under "All Other Compensation" for 1996 includes a
payment in the amount of $131,715 related to the departure of Mr. Shapero
from the Company in January 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of
stock options made during the last completed fiscal year to the Named Officers
of the Company as specified below.
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS OPTIONS GRANTED EXERCISE
GRANTED TO EMPLOYEES IN PRICE(1) EXPIRATION (2) (2)
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ------- --------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
G. Riviere....... 50,000 10.26% $12.00 4/09/01 $165,769 $366,306
J.R. Armstrong... 25,000 5.13% $12.00 4/09/01 $ 82,884 $183,153
D.M. Shapero..... 15,000 3.08% $12.00 4/09/01 $ 49,731 $109,892
</TABLE>
- --------
(1) All grants were made at either market price or above market price at date
of grant.
(2) Represents potential realizable value at assumed annual rates of stock
price appreciation for option term.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to the Named
Officers concerning the exercise of options under the Company's 1990 and 1994
Stock Option Plans during the last fiscal year and unexercised options held as
of the end of the fiscal year.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NO. OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(2)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
D.W. Hanna.............. -0- $ -0- 433,333 66,667 $2,182,355 $261,394
G. Riviere.............. -0- -0- 8,333 41,667 3,125 15,625
J.R. Armstrong.......... 15,000 144,063 67,084 42,916 355,367 139,009
J. Russel Olson......... 100,000 1,121,875 -0- -0- -0- -0-
Jeffrey Gold............ -0- -0- 36,006 16,666 215,307 91,663
D.M. Shapero............ 6,250 23,125 8,750 50,000 11,875 121,875
</TABLE>
- --------
(1) Market value of the underlying securities on the date of exercise, minus
the exercise price.
(2) Market value of the underlying securities at year-end, minus the exercise
price.
7
<PAGE>
EMPLOYMENT AGREEMENTS:
The Company entered into an Employment Agreement with Mr. Hanna that became
effective February 17, 1994. The agreement may be terminated by the Company at
any time. The material features of the Agreement are summarized below, but
such description is subject to, and qualified in its entirety by, the complete
text of the Agreement. The Agreement provides for an annual base salary of
$250,000, with a bonus to be determined by mutual agreement between Mr. Hanna
and the Company. In January, 1997 Mr. Hanna's salary was adjusted to an annual
base salary of $325,000. Pursuant to the Agreement, Mr. Hanna was also granted
options under the Company's 1994 Incentive Stock Option, Nonqualified Stock
Option and Restricted Stock Purchase Plan to purchase an aggregate of 400,000
shares of the Company's Common Stock. With respect to 300,000 of such shares,
the option exercise price is the fair market value of the Common Stock on the
date of grant, and with respect to the remaining 100,000 shares the option
exercise price is 125% of such fair market value. Twenty-five percent of the
option shares were fully vested on the date of grant, and the remaining shares
vest pro rata on a monthly basis over 36 months commencing December 21, 1993.
Mr. Hanna's Employment Agreement provides that if Mr. Hanna's employment is
terminated by the Company without cause, or if such employment is terminated
by Mr. Hanna for good reason, the Company is required to pay him severance pay
equal to: (i) 12 months' base salary, plus (ii) a pro rata portion of bonuses
payable under the then effective bonus formula, using the actual financial
results through the date of termination (provided that if a bonus formula has
not been established for the year in which the termination occurs, the Company
will pay a pro rata portion of the prior year's bonus). For purposes of the
Agreement, "cause" is defined as the employee's willful breach of, habitual
neglect of, or continued incapacity to perform, duties in the course of
employment, and "good reason" is defined as any significant diminution of
position or responsibilities of the employee, substantial reduction in
facilities or perquisites provided to the employee, material reduction in
benefits unless such reduction is applicable to employees of the Company
generally, relocation of the employee to a location outside Southern
California, or material breach of the Agreement by the Company.
In addition, Mr. Hanna's Employment Agreement provides that if Mr. Hanna's
employment is terminated for any reason following a change of control, the
Company is required to pay him severance pay equal to: (i) 18 months' base
salary, plus (ii) the accrued bonuses, if any, payable through the date of
termination, plus (iii) an amount equal to the aggregate bonus for the
preceding year. In the event that Mr. Hanna's employment is terminated by the
Company without cause, or if such employment is terminated by Mr. Hanna for
good reason, or if such employment is terminated for any reason following a
change of control, then an additional number of the option shares granted
under the Agreement equal to the remaining balance of unvested shares or
100,000 shares, whichever is less, shall vest upon such termination.
The Company entered into an employment agreement with Mr. Olson that became
effective April 12, 1994, and was terminated by mutual agreement in June 1996.
Under the termination of the agreement Mr. Olson received one year's payment
of base salary, a moving allowance and accelerated stock vesting of all
remaining stock options granted during his employment with the Company.
On January 24, 1995, the Company entered into severance agreements with Mr.
Armstrong, Mr. Olson, Mr. Riviere, and Mr. Gold. The agreements remain in
effect for an initial period of one year. After January 24, 1996, unless the
Company or the employee provides a non-renewal notice to the other party, then
each agreement will automatically be extended by one month at the end of each
month, so that the remaining term of the agreement is one year from the date
of extension. Notwithstanding the foregoing, the agreements terminate on
January 24, 2000. The agreements provide the employee with an annual base
salary and an annual target bonus. If the employee is involuntarily terminated
other than for cause within 12 months following a change of control, then
pursuant to the agreement, the employee will be entitled to the following: (i)
12 months' base salary, (ii) a pro-rata portion of the target bonus for the
year, (iii) Company-paid insurance for one year and (iv) immediate vesting of
options held by the employee that would become exercisable if the employee
remained employed by the Company for a period of 36 months. The agreements
also provide that if the employee is involuntarily terminated prior to or in
the absence of a change of control within two years of the effective date of
the
8
<PAGE>
agreements, then the employee is entitled to receive the following: (i) 12
months' base salary, (ii) a pro-rata portion of the target bonus for the year
and (iii) Company-paid insurance for one year. Finally, if at any time the
employee voluntarily resigns or is terminated for cause, death, or disability,
then the employee shall not be entitled to receive any severance benefits
under the agreements. These agreements are the basis for new agreements
entered into with new officers or vice presidents of the Company. During 1995
and 1996 the Company entered into similar agreements with Mr. Shapero, Vice
President, Marketing, and Mr. Moore, Vice President, Customer Service and Mr.
Butler, Vice President, Sales. On December 30, 1996 Mr. Shapero's agreement
was terminated by mutual consent between the Company and Mr. Shapero as a
result of a reorganization of the Company's Client/Server Division. Mr.
Shapero received one year's base salary and a bonus payment under the
Company's Management Incentive Plan and accelerated vesting of 10,000 shares
of stock.
COMPENSATION COMMITTEE REPORT TO SHAREHOLDERS
The Compensation Committee of the Board of Directors (the "Committee")
establishes the compensation level for the Company's Chief Executive Officer
("CEO") and other executive officers based upon the Committee's discretion,
taking into account factors it deems appropriate, such as competitive factors,
attainment of established Company financial performance criteria and
individual performance goals and the implementation of key strategic programs
and products.
In making its compensation decisions for the Company's CEO and other
executive officers, the Committee establishes programs and goals designed to
motivate and retain management. The Committee's programs are based upon a
compensation mix of base salaries coupled with a bonus program. The Company
has implemented a formal Management Incentive Plan ("MIP") for executive
officers of the Company, which allows them participation in earning bonuses
based upon achievement of both Company and personal goals. Company performance
goals in 1996 were weighted evenly between achievement of growth in revenue,
control of operating expenses and attainment of profitability goals. The
Committee believes that revenue and profitability are crucial factors in
establishing the Company as a recognized leader within its industry and for
enhancing shareholder value. In addition to the Company's financial
performance, the Committee, along with recommendations and input from the CEO,
reviews and makes an evaluation in its discretion of the progress and
attainment of each executive officer's individual goals, including the
implementation of strategic plans and product development that can enhance
sales growth and competitive position in future periods. The allocation of
bonus achievement is split evenly between achievement of Company goals and
individual goals. The Committee at its discretion can adjust Company and/or
individual goals based upon unforeseen factors.
In 1996, the Company achieved record revenue volume resulting in a 13%
increase in revenue over the prior year. While profitability for the Company
in 1996 was less than in 1995 due to the anticipated launch and development
expense associated with MAS 90 for Windows and Acuity Financials, the
Committee weighted the years profitability goals to fourth quarter results. In
the Committee's determination, the Company achieved 75% of its financial goals
for the year. For the year ended December 31, 1996 David Hanna, the Company's
CEO was paid a bonus of $137,000, an increase of $62,000 or 82% over the bonus
paid to him in 1995. The bonus included a $25,000 payment associated with the
successful shipment of the two new product lines.
The Committee meets without the CEO present and employs its discretion in
evaluating his performance and reports on that evaluation to the Board. The
Committee's recommendations for the Company's other executive officers'
bonuses are determined in the Committee's discretion based upon a combination
of factors described above related to Company performance and individual
performance, along with information received from the CEO of the Company. The
bonus plan for each named executive officer is reviewed and approved by this
Committee. For the year ended December 31, 1996 the Committee determined on an
individual basis the percentage achievement that was attained for both
individual and Company performance goals for the year, and paid a bonus amount
consistent with the percentage achievement of goals.
The Company's policy is not to disclose target levels with respect to
specific quantitative or qualitative performance-related factors, or factors
considered to involve confidential business information, because their
disclosure would have an adverse effect on the Company.
9
<PAGE>
Qualification of compensation under Section 162(m) of the Internal Revenue
Code requires that compensation be "performance-based" and that the
shareholders of the Company approve the material terms of the compensation
plan. The Company can deduct compensation paid (or deemed paid) to each named
executive officer in the tax year concerned to the maximum amount of
$1,000,000 unless additional compensation qualifies for deductibility under
Section 162(m). Both the 1990 and 1994 Incentive Stock Option, Nonqualified
Stock Option and Restricted Stock Purchase Plans qualify for deductibility
under Section 162(m).
All amounts paid or accrued during fiscal 1996 under the above described
plans and programs are included in the tables above.
COMPENSATION COMMITTEE
Susan L. Rasinski W. Frank King
STOCK PRICE PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's Common Stock, based on its market price, with the
cumulative total return of companies on the Nasdaq Stock Market (U.S. common
stocks) and the Nasdaq Computer and Data Processing Stocks group, assuming
reinvestment of dividends, for the period beginning December 31, 1991 through
the Company's fiscal year ended December 31, 1996. This graph assumes that the
value of the investment in the Company's Common Stock and each of the
comparison groups was $100 on December 31, 1991.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
State Of The Art, Inc.... $100.00 $ 75.00 $ 73.69 $ 72.37 $103.94 $130.26
The NASDAQ Stock Market
(US).................... 100.00 116.38 133.59 130.59 184.67 227.16
NASDAQ Computer & Data
Processing.............. 100.00 107.59 113.87 138.24 210.53 259.99
</TABLE>
DIRECTORS FEES
The Company pays non-employee Directors an annual retainer of $5,000, plus
the amount of $1,000 per Board meeting attended, plus reimbursement for
reasonable expenses incurred in attending meetings. No additional fees are
paid for participation in committee meetings. Directors who are officers of
the Company receive no additional compensation for Board service. Therefore,
Mr. Hanna and Mr. Riviere received no additional compensation for Board
service in 1996.
10
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT, NOMINEES
AND PRINCIPAL SECURITY HOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1996 for (i) each
person known to the Company to be the beneficial owner of more than five
percent of the outstanding Common Stock, (ii) each Director and nominee, (iii)
each of the Named Officers, and (iv) all Directors and executive officers of
the Company as a group. Except as may be indicated in the footnotes to the
table, each such person has the sole voting and investment power with respect
to the shares owned, subject to applicable community property laws.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK PERCENTAGE
BENEFICIALLY OF CLASS
NAME POSITION WITH THE COMPANY OWNED OWNED(1)
---- ------------------------- ------------ ----------
<S> <C> <C> <C>
GeoCapital Corporation . -- 838,483(2) 7.4%
767 Fifth Avenue
New York, NY 10153
Nevis Capital 802,162 7.1%
Management.............
1119 Saint Paul Street
Baltimore, Maryland
21202
David W. Hanna.......... Chairman of the Board, Chief 560,811(3) 3.9%
Executive Officer and President
56 Technology
Irvine, CA 92618
George Riviere.......... Director and Vice President, 700,221(4) 6.2%
56 Technology Midrange Products Engineering
Irvine, CA 92618
Susan L. Rasinski....... Director 17,500(5) *
W. Frank King........... Director 31,500(6) *
James H. Clement, Jr. .. Director 108,277(7) *
Joseph R. Armstrong..... Vice President, Finance, Chief 111,789(8) *
Financial Officer, and Secretary
Jeffrey L. Gold......... Vice President, Development 471,125(9) 4.2%
Daniel M. Shapero....... Vice President, Client/Server Div 18,750(10) *
All Officers and --
Directors as a group
(10 persons)........... 2,046,099(11) 18.1%
</TABLE>
- --------
* Represents less than 1% of the outstanding shares.
(1) Percentages based on shares actually owned or which the individual
possesses a right to acquire within 60 days as of December 31, 1996.
(2) Four employees of GeoCapital Corporation, Seth Lieber, Jonathan Lieber,
Wilma J. Engel and Jeanne E. Flaherty individually own 2,000, 1,000, 500
and 500 shares, respectively, of the Common Stock, in addition to the
shares owned by GeoCapital Corporation.
(3) Includes 450,000 shares subject to options exercisable within 60 days of
December 31, 1996, granted to Mr. Hanna under the Company's stock plans.
Shares owned by Mr. Hanna are held by him as trustee of the David W.
Hanna Trust.
(4) Includes 10,417 shares subject to options exercisable within 60 days of
December 31, 1996, granted to Mr. Riviere under the Company's stock
plans.
(5) Includes 17,500 shares subject to options exercisable within 60 days of
December 31, 1996, granted to Ms. Rasinski under the Company's stock
plans.
(6) Includes 25,500 shares subject to options exercisable within 60 days of
December 31, 1996, granted to Mr. King under the Company's stock plans.
11
<PAGE>
(7) Includes 31,208 shares as to which Mr. Clement shares voting power as a
co-trustee of various family trusts and 10,000 shares subject to options
exercisable within 60 days of December 31, 1996, granted to Mr. Clement
under the Company's stock plans.
(8) Includes 110,000 shares subject to options exercisable within 60 days of
December 31, 1996, granted to Mr. Armstrong under the Company's stock
plans.
(9) Includes 38,784 shares subject to options exercisable within 60 days of
December 31, 1996, granted to Mr. Gold under the Company's stock plans.
(10) Includes 18,750 shares subject to options exercisable within 60 days of
December 31, 1996, granted to Mr. Shapero under the Company's stock
plans.
(11) Includes 698,660 shares subject to options exercisable within 60 days of
December 31, 1996.
TRANSACTIONS WITH RELATED PARTIES
Neither the Company nor any of its Directors, nominees, officers, or
beneficial owners of more than five percent of the outstanding Common Stock,
or any immediate family member of the foregoing, are, or during fiscal 1996 at
any time were, or are proposed to be, parties to, or have a direct or indirect
material interest in, any relationships or transactions, or series of related
transactions, described in Item 404 of Regulation S-K promulgated by the
Securities and Exchange Commission.
PROPOSAL 2
ADOPTION OF
THE COMPANY'S 1997 EMPLOYEE STOCK PURCHASE PLAN
The Company's management has developed and proposed, and the Company's board
of directors has approved, the Company's 1997 Employee Stock Purchase Plan
(the "Plan"). The purpose of the Plan is to attract, retain, and motivate
employees of the Company by providing them an equity participation in the
Company.
If approved by shareholders, the proposed Plan will become effective July 1,
1997, and up to 1,000,000 shares of Company capital stock will be used for the
Plan. The Plan will have a duration of twenty years, subject to earlier
termination by the Board of Directors.
The proposed Plan permits employees to purchase Company stock through
payroll deductions during consecutive annual offerings, beginning January 1,
1998. Eligible employees on each offering date may purchase stock one share at
a time through payroll deductions of up to 20% of compensation. The price an
employee pays is 85% of the market price on the first or last day of each
offering period, whichever day the market price of the Company's stock is
lower. Eligibility will be extended to all regular employees of the Company
and of its subsidiaries, as defined in the Plan.
For federal income tax purposes, an employee does not realize income at the
time of entry into the Plan or purchase of a share. If no disposition of the
stock is made within two years from the first day of the relevant offering
period, and one year from the date the share was transferred to the employee,
upon subsequent disposition of the stock, ordinary income will be realized to
the extent of the lesser of (1) 15% of the average market value on the first
day of the relevant offering period or (2) the amount by which the net
proceeds of sale exceeds the price paid. Any further gain is taxed at long-
term capital gains rates. No income tax deduction will be allowed the Company
for shares transferred to an employee, provided such shares are held for the
required periods described above.
12
<PAGE>
The new Plan will be administered by the Board of Directors of the Company
or a commitee appointed by the Board. The Plan may be amended by the Board of
Directors. The proceeds of the sale of stock under the Plan will constitute
general funds of the Corporation and may be used by it for any purpose. The
Plan provides for proportionate adjustments to reflect stock splits, stock
dividends, or other changes in the capital stock.
Management intends to purchase shares to be used for the Plan in the open
market.
The only consideration the Company will receive for grants under the Plan
are the services rendered for the Company or any subsidiary thereof by the
participants. As of March 3, 1997, the market value of a share of Common Stock
was $12.625 as reported by NASDAQ. As proposed, 1,000,000 shares of Common
Stock under the 1994 Plan would have an aggregate market value on such date of
$12,625,000.
VOTE REQUIRED; BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or represented by proxy at the Annual Meeting is
required to approve this proposal. The Board believes that adopting the Plan
is in the best interests of the Company, because adoption of the Plan will
enhance the ability of the Company to attract, motivate, and retain well
qualified officers and employees. THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE PLAN'S ADOPTION. Management will vote
proxy Forms that management solicited FOR approving the Plan's adoption,
unless a vote against the proposal is specifically indicated. An abstention,
broker non-vote or other failure to vote by a shareholder present or
represented at the Annual Meeting will have no effect.
INDEPENDENT AUDITORS
Pursuant to the recommendation of its Audit Committee, the Board of
Directors has appointed KPMG Peat Marwick LLP as independent auditors of the
Company for the fiscal year ending December 31, 1997. KPMG Peat Marwick LLP
has served as independent auditors for the Company since 1985. A
representative of KPMG Peat Marwick LLP will be available at the Annual
Meeting to respond to appropriate questions or make such statements as he or
she deems appropriate.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders are advised that any shareholder proposal intended for
consideration at the 1998 Annual Meeting must be received by the Company, at
the address set forth on the first page of this Proxy Statement, no later than
January 3, 1998, to be included in the proxy material for the 1998 Annual
Meeting. It is recommended that shareholders submitting proposals direct them
to the Secretary of the Company and utilize certified mail, return receipt
requested, in order to ensure timely delivery.
ANNUAL REPORT
THE COMPANY IS PROVIDING TO SHAREHOLDERS, TOGETHER WITH THIS PROXY
STATEMENT, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES BUT EXCLUDING EXHIBITS. UPON WRITTEN REQUEST, THE COMPANY WILL
FURNISH TO ANY SHAREHOLDER A COPY OF THE EXHIBITS TO SUCH ANNUAL REPORT ON
FORM 10-K. PLEASE DIRECT SUCH REQUESTS TO MATTHEW E. CAVANAUGH, ESQ., AT THE
COMPANY'S EXECUTIVE OFFICES, 56 TECHNOLOGY, IRVINE, CALIFORNIA 92618.
13
<PAGE>
OTHER MATTERS
The Board of Directors knows of no matter to come before the Annual Meeting
other than as specified herein. If other business should, however, be properly
brought before the Annual Meeting, the proxies voting the proxy Forms will
vote the shares represented in accordance with the proxies' best judgment.
THE SHAREHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN PROMPTLY THE
ACCOMPANYING PROXY FORM IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
James R. Eckstaedt,
Secretary
Irvine, California
April 3, 1997
14
<PAGE>
STATE OF THE ART, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Employee Stock Purchase Plan
of State of the Art, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock
of the Company. It is the intention of the Company to have the Plan qualify as
an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue
Code of 1986, as amended. The provisions of the Plan shall, accordingly, be
construed so as to extend and limit participation in a manner consistent with
the requirements of that section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock, no par value, of the
Company.
(d) "Company" shall mean State of the Art, Inc., a California corporation.
(e) "Compensation" shall mean all regular straight time gross earnings
excluding payments for overtime, shift premium, incentive compensation,
incentive payments, bonuses, commissions and other compensation.
(f) "Continuous Status As An Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period
of not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(g) "Contributions" shall mean all amounts credited to the account of a
participant pursuant to the Plan.
(h) "Designated Subsidiaries" shall mean the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as eligible
to participate in the Plan.
(i) "Employee" shall mean any person, including an officer, who is
customarily employed for at least twenty (20) hours per week and more than
five (5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "Exercise Date" shall mean the last day of each Offering Period of the
Plan.
(l) "Offering Date" shall mean the first business day of each Offering
Period of the Plan, except that in the case of an individual who becomes an
eligible Employee after the first business day of an Offering Period but prior
to the first business day of the last calendar quarter of such Offering
Period, the term "Offering Date" shall mean the first business day of the
calendar quarter coinciding with or next succeeding the day on which that
individual becomes an eligible Employee.
Options granted after the first business day of an Offering Period will be
subject to the same terms as the options granted on the first business day of
such Offering Period except that such options will have a different grant date
(and thus, potentially, a different exercise price) and, because they expire
at the same time as the options granted on the first business day of such
Offering Period, a shorter term.
(m) "Offering Period" shall mean a specific period of twelve (12) months.
1
<PAGE>
(n) "Plan" shall mean this Employee Stock Purchase Plan.
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of which not
less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or
acquired by the Company or a Subsidiary.
3. Eligibility.
(a) Any person who has been continuously employed as an Employee for three
(3) months as of the Offering Date of a given Offering Period shall be
eligible to participate in such Offering Period under the Plan, provided that
such person was not eligible to participate in such Offering Period as of any
prior Offering Date, and further, subject to the requirements of paragraph
5(a) of this Plan and the limitations imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee
shall be granted an option under the Plan (i) if, immediately after the grant,
such Employee (or any other person whose stock would be attributed to such
Employee pursuant to Section 424(d) of the Code) would own stock and/or hold
outstanding options to purchase stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of the
Company or of any subsidiary of the Company, or (ii) which permits the
Employee's rights to purchase stock under all employee stock purchase plans
(described in Section 423 of the Code) of the Company and its Subsidiaries to
accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair
market value of such stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by a series of Offering
Periods, with a new Offering Period commencing on January 1 of each year (or
at such other time or times as may be determined by the Board of Directors).
The Plan shall continue until terminated in accordance with paragraph 19
hereof. The Board of Directors of the Company shall have the power to change
the duration and/or the frequency of Offering Periods with respect to future
offerings without stockholder approval if such change is announced at least
fifteen (15) days prior to the scheduled beginning of the first Offering
Period to be affected.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by completing
a subscription agreement on the form provided by the Company and filing it
with the Company's Office of Human Resources prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given offering. The
subscription agreement shall set forth the percentage of the participant's
Compensation (which shall be not more than 20%) to be paid as Contributions
pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following the
Offering Date, and shall end on the last payroll paid on or prior to the
Exercise Date of the offering to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in
paragraph 10.
6. Method of Payment of Contributions.
(a) The participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not more than twenty percent
(20%) of such participant's Compensation on each such payday; provided that
the aggregate of such payroll deductions during the Offering Period shall not
exceed twenty percent (20%) of the participant's aggregate Compensation during
said Offering Period. All payroll deductions made by a participant shall be
credited to his or her account under the Plan. A participant may not make any
additional payments into such account.
(b) A participant may discontinue his or her participation in the Plan as
provided in paragraph 10, or, on one occasion only during any Offering Period,
may decrease, but may not increase, the rate of his or her
2
<PAGE>
Contributions during the Offering Period by completing and filing with the
Company a new subscription agreement within the ten (10) day period
immediately preceding the beginning of any calendar quarter during the
Offering Period. The change in rate shall be effective as of the beginning of
the calendar quarter following the date of filing of the new subscription
agreement.
(c) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and paragraph 3(b) herein, any participant's
payroll deductions may be decreased by the Company to 0%, at such time during
any Offering Period which is scheduled to end during the then-current calendar
year, that the aggregate of all of that Employee's payroll deductions related
to this Plan accumulated with respect to such Offering Period and any other
Offering Period ending within the same calendar year equal or exceed $21,250.
Payroll deductions shall recommence at the rate provided in such participant's
subscription agreement at the beginning of the first Offering Period which is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in paragraph 10.
7. Grant of Option.
(a) Effective on the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted, by the
Company, an option to purchase on the Exercise Date during such Offering
Period a number of shares of the Company's Common Stock determined by dividing
such Employee's Contributions accumulated prior to such Exercise Date and
retained in the Employee's account as of the Exercise Date by the lower of (i)
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the Offering Date, or (ii) eighty-five percent (85%) of the
fair market value of a share of the Company's Common Stock on the Exercise
Date; provided however, that the maximum number of shares an Employee may
purchase during each Offering Period shall be determined at the Offering Date
by dividing $25,000 by the fair market value of a share of the Company's
Common Stock on the Offering Date, and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof.
The fair market value of a share of the Company's Common Stock shall be
determined as provided in Section 7(b) herein.
(b) The option price per share of the shares offered in a given Offering
Period shall be the lower of: (i) 85% of the fair market value of a share of
the Common Stock of the Company on the Offering Date; or (ii) 85% of the e
fair market value of a share of the Common Stock of the Company on the
Exercise Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion based on the closing
price of the Common Stock for such date (or, in the event that the Common
Stock is not traded on such date, on the immediately preceding trading date),
as reported by the National Association of Securities Dealers Automated
Quotation (NASDAQ) National Market System.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in paragraph 10, that Employee's option for the purchase of shares
will be exercised automatically on the Exercise Date of the Offering Period,
and the maximum number of full shares subject to option will be purchased for
him or her at the applicable option price with the accumulated Contributions
in his or her account. the shares purchased upon exercise of an option
hereunder shall be deemed to be transferred to the participant on the Exercise
Date. During his lifetime, a participant's option to purchase shares hereunder
is exercisable only by him or her.
9. Delivery. As promptly as practicable after the Exercise Date of each
Offering Period, the Company shall arrange the delivery to each participant,
as appropriate, of a certificate representing the shares purchased upon
exercise of his or her option. Any cash remaining to the credit of a
participant's account under the Plan after a purchase by him or her or shares
at the termination of each Offering Period, or which is insufficient to
purchase a full share of Common Stock of the Company, shall be returned to
said participant.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all (but not less than all) of the
Contributions credited to his or her account under the Plan at any time prior
to the Exercise Date of the Offering Period by giving written notice to the
3
<PAGE>
Company. All of the participant's Contributions credited to his or her account
will be paid to him or her promptly after receipt of his or her notice of
withdrawal, and his or her option for the current period will be automatically
terminated, and no further Contributions for the purchase of shares will be
made during the Offering Period.
(b) Upon termination of the participant's Continuous Status as an Employee
prior to the Exercise Date of the Offering Period for any reason, including
retirement or death, the Contributions credited to his or her account will be
returned to her or her or, in the case of his or her death, to the person or
persons entitled thereto under paragraph 14, and his or her option under this
Plan will be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as an
Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be
deemed to have elected to withdraw from the Plan and the Contributions
credited to his or her account will be returned to him or her and his or her
option under this Plan will be terminated.
(d) A participant's withdrawal from an offering will not have any effect
upon his or her eligibility to participate in a succeeding offering or in any
similar plan w which may hereafter be adopted by the Company.
11. Interest. No interest shall accrue on the Contributions of a participant
in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock which shall
be made available for sale under the Plan shall be one million shares, subject
to adjustment upon changes in capitalization of the Company as provided in
paragraph 18. If the total number of shares which would otherwise be subject
to options granted pursuant to Section 7(a) hereof on the Offering Date of an
Offering Period exceeds the number of shares then available under the Plan
(after deduction of all shares for which options have been exercised or are
then outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant, among all then-current participants, in
as uniform a manner as shall be practicable and as it shall determine to be
equitable. Any amounts remaining in an Employee's account not applied to the
purchase of stock pursuant to this Section 12 shall be refunded on or promptly
after the Exercise Date. In such event, the Company shall give written notice
of such reduction of the number of shares subject to the option to each
Employee affected thereby and shall similarly reduce the rate of
Contributions, if necessary.
(b) The participant will have no interest or voting right in shares covered
by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant
and his or her spouse.
13. Administration. The Board, or a committee named by the Board, shall
supervise and administer the Plan and shall have full power to adopt, amend
and rescind any rules deemed desirable and appropriate for the administration
of the Plan and not inconsistent with the Plan, to construe and interpret the
Plan, and to make all other determinations necessary or advisable for the
administration of the Plan. The composition of the committee shall be in
accordance with the requirements to obtain or retain any available exemption
from the operation of Section 16(b) of the Exchange Act, pursuant to Rule 16b-
3 promulgated thereunder.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of the
Offering Period but prior to delivery to him or her of such shares and cash.
In addition, a participant may file a written designation of a beneficiary who
is to receive any cash from the participant's account under the Plan in the
event of such participant's death prior to the Exercise Date of the Offering
Period. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be
effective.
4
<PAGE>
(b) Such designation of beneficiary may be changed by the participant (and
his or her spouse, if any) at any time by appropriate written notice. In the
event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares and/or cash
to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. Transferability. Neither Contributions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in paragraph 14 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with paragraph 10.
16. Use of Funds. All Contributions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
17. Reports. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be given to participating Employees
promptly following the relevant Exercise Date, which statements will set forth
the amounts of Contributions, the per share purchase price, the number of
shares purchased and the remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of shares of Common
Stock covered by each option under the Plan which has not yet been exercised
and the number of shares of Common Stock which have been authorized for
issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the price per share of Common Stock
covered by each option under the Plan which has not yet been exercised, shall
be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock, or
any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company, the
then-current Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.
In the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation,
each option under the Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution, to shorten the
Offering Period then in progress by setting a new Exercise Date (the "New
Exercise Date"). If the Board shortens the Offering Period then in progress in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify each participant in writing, at least ten (10) calendar
days prior to the New Exercise Date, that the Exercise Date for his or her
option has been changed to the New Exercise Date and that his or her option
will be exercised automatically on the New Exercise Date, unless prior to such
date he or she has withdrawn from this Plan as to that Offering Period as
provided in paragraph 10. For purposes of this paragraph, an option granted
under the Plan shall be deemed to be assumed if, following the sale of assets
or merger, the option confers the right to purchase, for each share of option
stock subject to the option immediately
5
<PAGE>
prior to the sale of assets or merger, the consideration (whether stock, cash
or other securities or property) received in the sale of assets or merger by
holders of Common Stock for each share of Common Stock held on the effective
date of the transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority
of the outstanding shares of Common Stock); provided, however, that if such
consideration received in the sale of assets or merger was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)
of the Code), the Board may, with the consent of the successor corporation and
the participant, provide for the consideration to be received upon exercise of
the option to be solely common stock of the successor corporation or its
parent equal in fair market value to the per share consideration received by
holders of Common Stock in the sale of assets or merger.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one ore more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, and in the event of the Company being consolidated with or merged into
any other corporation.
19. Amendment or Termination. The Board of Directors of the Company may at
any time terminate or amend the Plan. Except as provided in paragraph 18, no
such termination may affect options previously granted, nor may an amendment
make any change in any option theretofore granted which adversely affects the
right of any participant. In addition, to the extent necessary to comply with
Rule 16b-3 under the Exchange Act, or under Section 423 of the Code (or any
successor rule or provision or any applicable law or regulation), the Company
shall obtain stockholder approval in such a manner and to such a degree as so
required.
20. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or
by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
22. Term of Plan. The Plan became effective July 1, 1997, and shall continue
in effect for a term of twenty (20) years, unless sooner terminated under
paragraph 19.
23. Additional Restrictions of Rule 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of shares by, persons subject
to Section 16 of the Exchange Act shall comply with the applicable provisions
of Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
24. Severability. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act.
To the extent any provision of the Plan or any action by the administrator of
the Plan fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the administrator of the Plan.
6
<PAGE>
New Election
Change of Election
STATE OF THE ART, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
1. I, hereby elect to participate in the State of the
---------------------
Art, Inc., 1997 Employee Stock Purchase Plan (the "Plan") for the Offering
Period 19 , to , 19 , and subscribe to
------------------ -- -------------- --
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of % of my Compensation,
----
as those terms are defined in the Plan, applied to this purchase. I understand
that his amount must not be more than 20% of my Compensation during the
Offering Period. (Please note that no fractional percentages are permitted.)
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into
such account. I understand that all payments made by me shall be accumulated
for the purchase of shares of Common Stock at the applicable purchase price
determined in accordance with the Plan. I further understand that, except as
otherwise set forth in the Plan, shares will be purchased for me automatically
on the Exercise Date of the Offering Period unless I otherwise withdraw from
the Plan by giving written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Exercise
Date my participation in the Plan as provided in paragraph 10 of the Plan. I
also understand that on one occasion only during the Offering Period I may
increase or decrease the rate of my Contributions during the Offering Period
by completing and filing with the Company a new Subscription Agreement. The
change in rate shall be effective as of the beginning of the calendar quarter
following the date of filing of the new Subscription Agreement.
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "State of the Art, Inc., 1997 Employee Stock
Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s) of
(name of employee or employee and spouse only):
---------------------------
---------------------------
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print)
--------------------------------------------------------
(First) (Last)
(Middle)
- --------------------- --------------------------------------------------------
(Relationship) (Address)
--------------------------------------------------------
7
<PAGE>
8. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Offering Date (the first day of the Offering
Period during which I purchased such shares) or within 1 year after the date
of the end of the Offering Period, I will be treated for federal income tax
purposes as having received ordinary compensation income at the time of such
disposition in an amount equal to the excess of the fair market value of the
shares at the time such shares were transferred to me over the price which I
paid for the shares, regardless of whether I disposed of the shares at a price
less than their fair market value at transfer. The remainder of the gain or
loss, if any, recognized on such disposition will be treated as capital gain
or loss.
I hereby agree to notify the Company in writing within 30 days after the
date of any such disposition, and I will make adequate provision for federal,
state or other tax withholding obligations, if any, which arise upon the
disposition of the Common Stock. The Company may, but will not be obligated
to, withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available
to the Company any tax deductions or benefits attributable to the sale or
early disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent
of an amount equal to the lesser of (1) the excess of the fair market value of
the shares at the time of such disposition over the purchase price which I
paid for the shares under the option, or (2) 15% of the fair market value of
the shares on the Offering Date. The remainder of the gain or loss, if any,
recognized on such disposition will be treated as capital gain or loss.
I understand that this tax summary is only a summary and is subject to
change.
10. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
SIGNATURE:
---------------------------
SOCIAL SECURITY #:
-------------------
DATE:
--------------------------------
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
- -------------------------------------
(Signature)
- -------------------------------------
(Print name)
8
<PAGE>
STATE OF THE ART, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, , hereby elect to withdraw my
---------------------------------
participation in the State of the Art, Inc., 1997 Employee Stock Purchase Plan
(the "Plan") for the Offering Period beginning . This
------------------------
withdrawal covers all Contributions credited to my account and is effective on
the date designated below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to
the Company a new Subscription Agreement.
If the undersigned is an officer or director of State of the Art, Inc. or
other person subject to Section 16 of the Securities Exchange Act of 1934, the
undersigned further understands that under rules promulgated by the U.S.
Securities and Exchange Commission he or she may not re-enroll in the Plan for
a period of six (6) months after withdrawal.
Dated:
------------------------- ---------------------------------------
Signature of Employee
---------------------------------------
Social Security Number
9
<PAGE>
PLEASE MARK
YOUR VOTE [X]
AS INDICATED
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WITHHOLD
FOR FOR ALL FOR AGAINST ABSTAIN
(1) Election of Directors [_] [_] 2. PROPOSAL 2: ADOPTION OF THE STATE OF THE ART, [_] [_] [_]
INC. 1997 EMPLOYEE STOCK PURCHASE
PLAN.
</TABLE>
Nominees David W. Hanna, George Riviere,
Susan L. Rasinski, W. Frank King and
James H. Clement, Jr.
(Instruction: to withhold authority to vote for
any individual nominee, write than nominee's
name on the space provided below.)
_____________________________________________
Signature(s)____________________________________________ Dated _________, 1997
(Signature should conform to your name as printed hereon, Co-owners should both
sign.)
________________________________________________________________________________
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THIS SHEET
AND RETURNING IT IN THE ENCLOSED POSTPAID ENVELOPE
<PAGE>
PROXY FORM FOR ANNUAL MEETING OF SHAREHOLDERS
STATE OF THE ART, INC.
THIS PROXY FORM IS SOLICITED OF BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints DAVID W. HANNA and JAMES R. ECKSTAEDT, and each of
them, proxies with full power of substitution, to vote all shares of Common
Stock of STATE OF THE ART, INC. ("SOTA"), held of record by the undersigned as
of March 17, 1997, at the meeting of shareholders of SOTA, to be held at the
Holiday Inn DFW South, 4440 West Airport Freeway, Irving, Texas 75062, on
Thursday, May 29, 1997, at 10:00 a.m., central daylight savings time, and at all
adjournments thereof, upon the following matters.
When properly executed, this proxy form also authorizes the proxies to act
in accordance with their discretion upon all matters incident to the conduct of
the meeting, and upon other matters as may properly come before the meeting.
THIS PROXY FORM, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTOR HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS
PROXY FORM WILL BE VOTED FOR THE NOMINEES AND PROPOSALS LISTED ABOVE. IF ANY
NOMINEE NAMED ABOVE DECLINES OR IS UNABLE TO SERVE AS A DIRECTOR, THE PERSONS
NAMES AS PROXIES SHALL HAVE FULL DISCRETION TO VOTE FOR ANY OTHER PERSON WHO MAY
BE NOMINATED.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THIS SHEET
AND RETURNING IT IN THE ENCLOSED POSTPAID ENVELOPE
