SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 [ ] Definitive Additional Materials
[ ] Confidential, for Use of the [ ] Soliciting Material Pursuant to Rule
Commission Only (as permitted 14a-11(c) or Rule 14a-12
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
ARTISOFT, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration No.
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4) Date filed:
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<PAGE>
ARTISOFT, INC.
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 10, 1998
The annual meeting of shareholders of Artisoft, Inc., a Delaware corporation,
will be held at The Lenox Hotel, 710 Boylston, Boston, Massachusetts, on
Tuesday, November 10, 1998, at 10:00 a.m. E.S.T. for the following purposes:
1. To elect one Director for the term set forth in the accompanying Proxy
Statement;
2. To consider and act upon a proposal to ratify the selection of KPMG
Peat Marwick LLP as the Company's independent public accountants for
the fiscal year ending June 30, 1999; and
3. To transact such other business as may properly come before the
meeting.
Only holders of record of Artisoft Common Stock at the close of business on
September 11, 1998 will be entitled to vote at the meeting.
A copy of the Company's 1998 Annual Report to Shareholders, which includes
certified financial statements, is enclosed. Management and the Board of
Directors cordially invite you to attend the annual meeting.
Your vote is very important. Whether or not you plan to attend the annual
meeting, we urge you to sign, date and return the enclosed proxy card promptly.
/s/ Kirk D. Mayes
--------------------------------------
Kirk D. Mayes
Chief Accounting Officer and Secretary
Cambridge, Massachusetts
October 5, 1998
<PAGE>
Artisoft, Inc.
5 Cambridge Center
Cambridge, Massachusetts 02142
PROXY STATEMENT
The Board of Directors of Artisoft, Inc. (the "Company") solicits your proxy in
the form enclosed to use at the annual meeting of shareholders to be held on
Tuesday, November 10, 1998, at 10:00 a.m. E.S.T. (the "1998 Annual Meeting") or
any adjournment or postponement thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders. This Proxy Statement and
the accompanying form of proxy are being mailed to shareholders on or about
October 5, 1998.
VOTING RIGHTS
Only shareholders of record at the close of business on September 11, 1998, may
vote at the 1998 Annual Meeting or any adjournment or postponement thereof,
notwithstanding any transfer on the books of the Company thereafter. As of that
date, there were 14,660,102 shares of $.01 par value Common Stock of the
Company, and no outstanding shares of $1.00 par value Preferred Stock of the
Company. Each shareholder of record is entitled to one vote for each share of
Common Stock registered in his or her name. Cumulative voting is not permitted.
A majority of all the shares of stock entitled to vote, whether present in
person or represented by proxy, shall constitute a quorum for the transaction of
business at the 1998 Annual Meeting. Abstentions and broker non-votes will also
be included in the determination of the number of shares represented for a
quorum. The Company may reimburse brokers, banks and others holding shares in
their names for others for the cost of forwarding materials and obtaining
proxies from their principals. The Company has also retained Morrow & Co., Inc.
to assist in the solicitation of proxies at an estimated cost of $3,000 plus
reasonable out-of-pocket expenses.
All valid proxies received before the 1998 Annual Meeting and not revoked will
be exercised. All shares represented by proxy will be voted, and where a
shareholder specifies by means of his or her proxy a choice with respect to any
matter to be acted upon, the shares will be voted in accordance with the
specifications so made. If no choice is indicated on the proxy, the shares will
be voted in accordance with the recommendations of the Board of Directors as to
such matters. Proxies may be revoked at any time prior to the time they are
voted by: (a) delivering to the Secretary of the Company a written instrument of
revocation bearing a date later than the date of the proxy; or (b) duly
executing and delivering to the Secretary a subsequent proxy relating to the
same shares; or (c) attending the 1998 Annual Meeting and voting in person
(attendance at the 1998 Annual Meeting will not in and of itself constitute
revocation of a proxy).
<PAGE>
Item No. 1
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes with one class of directors
elected annually for a term of three years. Each director serves until a
successor has been elected and qualified. The class of directors whose term
expires in 1998 is comprised of one director, Michael P. Downey. Mr. Downey has
been nominated for election at the 1998 Annual Meeting to hold office until the
year 2001 Annual Meeting of Shareholders and until his successor is elected and
qualified.
The Board of Directors of the Company recommends a vote for Michael P. Downey as
Director. Should such nominee become unable to serve for any reason, the
Nominating Committee of the Board of Directors may designate a substitute
nominee, in which event the persons named in the enclosed proxy will vote for
the election of such substitute nominee.
Nominee for Election to Term Expiring 2001
Michael P. Downey, age 50, has served on the Board of Directors since February
19, 1997. In addition, Mr. Downey is a private investor and executive
consultant. From 1995 until November, 1997, Mr. Downey served as Executive Vice
President and Chief Financial Officer of Nellcor Puritan Bennett ("NPB"), a
medical manufacturing company. Mr. Downey served as Vice President and Chief
Financial Officer of NPB from 1989 until 1995, and in other capacities for NPB
from 1986 until 1989. He retired from NPB upon its acquisition in November 1997
by Mollinckrodt. Mr. Downey is also a member of the board of directors of Emulex
Corporation, a publicly traded company engaged in the design and manufacture of
both software- and hardware-based network access products. Previous to his
employment by NPB, Mr. Downey was Vice President for Finance for Shugart
Corporation, a manufacturer and distributor of computer disk drives, and had
several years experience in accounting management positions with General Motors
Corporation.
Incumbent Director - Term Expiring 1999
Kathryn A. Braun, age 47, has served on the Board of Directors of the Company
since August 4, 1994. Until August 1998, Ms. Braun was President and Chief
Operating Officer, Personal Storage Division of Western Digital Corporation, a
manufacturer of computer disk drives, where she served in various capacities
since 1978. Ms. Braun is also a member of the board of directors of Pacific
Corp., a publicly traded, electric utility company.
Incumbent Directors - Term Expiring 2000
T. Paul Thomas, age 38, has served on the Board of Directors of the Company
since September 12, 1997. Mr. Thomas joined Artisoft on June 9, 1997 as a Vice
President
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<PAGE>
and President of the Communications Software Group. On June 27, 1997, he was
named President and Chief Operating Officer of the Company. Mr. Thomas was
Senior Vice President-Marketing of Sunquest Information, Inc. from May 1996
until he joined the Company in 1997. From October 1994 to April 1996 he was
employed by Apple Computer, Inc. in executive marketing and sales positions.
From November 1993 to October 1994 he was employed by the Company as Vice
President of Worldwide Marketing. From January 1990 to November 1993, Mr. Thomas
was employed by Compaq Corp., where he served in various management positions.
Jerry E. Goldress, age 67, has served on the Board of Directors of the Company
since June 27, 1997 and as Chairman of the Board of Directors since September
12, 1997. Mr. Goldress is Chairman of the Board and Chief Executive Officer of
Grisanti, Galef and Goldress, Inc. ("GG&G"), a firm specializing in corporate
turnaround management and performance improvement. Since joining GG&G in 1973,
Mr. Goldress has been president of more than 100 manufacturing, distribution and
retail organizations.
Item No. 2
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of its Audit Committee, has
selected KPMG Peat Marwick LLP as independent public accountants to audit the
consolidated financial statements of the Company for the fiscal year ending June
30, 1999, and to perform other accounting services as requested by the Company.
KPMG Peat Marwick LLP has acted as independent auditors of the Company since its
appointment in 1990.
Representatives of KPMG Peat Marwick LLP are expected to be present at the 1998
Annual Meeting, will be available to respond to appropriate questions, and will
have the opportunity to make a statement if they desire to do so.
Although it is not required to do so, the Board of Directors has submitted the
selection of KPMG Peat Marwick LLP to the shareholders for ratification. Unless
a contrary choice is specified, proxies will be voted for ratification of the
selection of KPMG Peat Marwick LLP. The Board of Directors unanimously
recommends the ratification of its selection of KPMG Peat Marwick LLP as the
Company's independent public accountants for the fiscal year ending June 30,
1999.
MEETINGS AND COMMITTEES OF THE BOARD
During fiscal 1998, the Board of Directors met seven times. Each director
attended at least 75% of the meetings held during fiscal 1998, including
meetings of Committees of which each is a member. The Board of Directors has
Audit, Compensation, and Nominating Committees. The Audit Committee and
Compensation Committee are comprised exclusively of outside directors.
The Audit Committee, which currently is comprised of Michael P. Downey (Chair),
Kathryn A. Braun and Jerry E. Goldress, is responsible for: reviewing and
recommending to the directors the independent auditors to be nominated or
reappointed to audit the financial statements of the Company; confirming and
assuring
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<PAGE>
the independence of the independent auditors; reviewing with the independent
auditors and management of the Company the scope of and plan for the annual
audit, and at the conclusion thereof, reviewing the results of such audit;
reviewing with the independent auditors and with management, the adequacy and
effectiveness of the accounting and financial controls of the Company; reviewing
with management and the independent auditors the financial statements, financial
statement footnotes and information contained in the annual report and interim
reports to shareholders and in filings with the Securities and Exchange
Commission; reviewing with management and the independent auditors the
significant accounting and other policies and practices of the Company;
inquiring of management and the independent auditors about significant risks or
exposures and assessing the steps taken by management to minimize such risks;
reviewing with management the major relationships with financial service
providers to the Company; and investigating any matter brought to its attention
within the scope of its duties. The Audit Committee held six meetings in fiscal
1998.
The Compensation Committee, which currently is comprised of Kathryn A. Braun
(Chair), Michael P. Downey and Jerry E. Goldress, is responsible for: approving
and administering executive compensation plans, executive bonus plans and stock
option plans; approving stock option grants; and reviewing and approving salary
increase guidelines, general compensation policies and procedures, employee
loans and Company relocation policies. The Compensation Committee held three
meetings in fiscal 1998.
The Nominating Committee, which currently is comprised of Jerry E. Goldress
(Chair), Michael P. Downey and T. Paul Thomas, is responsible for: considering
and making recommendations to the Board of Directors as to the appropriate size
of the Board and the criteria for selection of candidates to serve on the Board;
evaluating all proposed candidates, including those recommended by management,
the Board of Directors and the shareholders; recommending to the Board nominees
to fill vacancies existing on the Board from time to time; recommending to the
Board a slate of nominees for election by the shareholders; making
recommendations to the Board with respect to the Chair position; and making
recommendations to the Board as to the appropriate size and composition of the
committees of the Board. The Nominating Committee will consider as nominees for
director persons recommended by the shareholders. Such recommendations should be
sent to the Secretary of the Company not later than 90 days preceding the next
annual meeting of shareholders at which directors are to be elected and should
include the address of the person, a brief description of his or her
qualifications and a consent to serve on the Board of Directors. The Nominating
Committee held two meetings in fiscal 1998.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive a $10,000 annual
retainer. All Directors receive an additional $2,000 annual retainer for each
Committee on which they serve as a Chairman, plus $1,000 per Board meeting
attended and $700 per Committee meeting attended ($400 for telephonic Board or
Committee meetings).
Directors who are not employees of the Company receive an option to purchase
15,000 shares of Common Stock upon their initial election to the Board of
Directors pursuant to the Artisoft, Inc. 1994 Stock Incentive Plan. In addition,
on the date of each annual
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meeting of shareholders, each Director who is not an employee of the Company
receives a nonqualified option to purchase an additional 5,000 shares of Common
Stock pursuant to the Artisoft, Inc. 1994 Stock Incentive Plan. Options granted
pursuant to the Artisoft, Inc. 1994 Stock Incentive Plan vest over a period of
three years. The option exercise price is equal to the fair market value of the
Common Stock on the grant date.
All Directors are reimbursed for their reasonable out-of-pocket expenses
incurred in connection with attendance at Board and Committee meetings.
Directors who are employees of the Company do not receive compensation for
service on the Board or Committees of the Board other than their compensation as
employees.
EXECUTIVE COMPENSATION
The following table shows for the three fiscal years ended June 30, 1998, the
compensation paid to (i) each person serving as the Company's chief executive
officer during the fiscal year ended June 30, 1998; (ii) each of the other most
highly paid executive officers serving at the end of the fiscal year ended June
30, 1998 whose aggregate salary and bonus compensation exceeded $100,000 and
(iii) one former executive officer of the Company (collectively, the "Named
Officers"):
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------- -----------
Securities All Other
Other Annual Underlying Compensation
Executive Officers Year Salary ($) Bonus ($)1 Compensation ($)2 Options # ($)3
- - ------------------ ---- ---------- ---------- ----------------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Persons Serving as Chief
Executive Officer
T. Paul Thomas 4, 1998 179,481 48,750 544 50,000 1,246
President and Chief 1997 3,173 0 0 200,000 0
Operating Officer 1996 NA NA NA NA NA
William Keiper 5 1998 88,846 0 1,175 0 683,744
Former Executive 1997 309,538 0 1,411 0 4,625
1996 350,000 93,030 4,784 200,000 2,250
Executive Officers
- - ------------------
Rick L. McGee 6 1998 128,654 30,654 349 55,000 5,830
Vice-President-Sales and 1997 NA NA NA NA NA
Marketing; General 1996 NA NA NA NA NA
Manager
Steven Manson 7 1998 115,039 17,011 5,000 70,000 4,139
Vice President-Product 1997 NA NA NA NA NA
Marketing; General 1996 NA NA NA NA NA
Manager
Former Executive
- - ----------------
Ernest East 8 1998 113,750 0 780 0 36,113
Former Executive 1997 130,000 0 24,942 0 2,850
1996 55,000 0 100,000 0
</TABLE>
- - ----------
1 Unless otherwise noted, includes amounts paid or payable under the
executive bonus plans for fiscal 1998 or 1996 respectively. No bonus
payments were made for fiscal 1997.
2 Includes relocation expenses imputed into income for 1997 and Company-paid
life insurance for 1998, 1997 and 1996.
3 Includes severance payments and 401(k) plan Company matching funds.
4 For fiscal 1998 and 1997, Other Annual Compensation consisted of
Company-paid life insurance and All Other Compensation consisted of 401(k)
plan Company matching funds.
5 For fiscal 1998, 1997 and 1996 Other Annual Compensation consisted of
Company-paid life insurance. For fiscal 1998, All Other Compensation
consisted of $681,000 of severance payments and $2,744 of 401(k) plan
Company matching funds. For fiscal 1997 and 1996, All Other Compensation
consisted of 401(k) Plan Company matching funds. Mr. Keiper ceased serving
as an officer of the Company effective as of September 30, 1997.
6 For fiscal 1998, Other Annual Compensation consisted of Company-paid life
insurance and All Other Compensation consisted of 401(k) plan Company
matching funds Mr. McGee ceased serving as an officer of the Company on
July 1, 1998.
7 For fiscal 1998, Other Annual Compensation consisted of Company-paid life
insurance and All Other Compensation consisted of 401(k) Plan Company
matching funds.
8 For fiscal 1998, Other Annual Compensation consisted of Company-paid life
insurance. For fiscal 1997, Other Annual Compensation consisted of $23,431
for relocation expenses imputed into income and $1,511 for Company-paid
life insurance. For fiscal 1998, All Other Compensation consisted of
$32,500 of severance payments and $3,613 of Company 401(k) plan matching
funds. For fiscal 1997, All other Compensation consisted of Company 401(k)
plan matching funds. Mr. East ceased serving as an officer of the Company
effective in November, 1997.
6
<PAGE>
OFFICER SEVERANCE
Effective October 23, 1995, William C. Keiper entered into an Employment
Agreement with the Company. Mr. Keiper's agreement provided that if his
employment were terminated by the Company without cause the Company would (i)
continue his base salary then in effect until the earlier of his employment in a
senior executive position, or two years following the date of termination of
employment (with a minimum salary continuation period of one year), (ii) pay to
Mr. Keiper a sum equal to the average of his annual bonuses paid for the three
fiscal years immediately preceding the fiscal year in which the termination of
employment occurred, (iii) maintain the employee benefits available to him
immediately prior to the termination of employment until the earlier of his
attainment of comparable benefits upon alternative employment or one year
following the termination date, and (iv) provide for the immediate vesting of
all unvested stock options previously granted to him.
In June 1997, the Company determined to modify the terms of Mr. Keiper's
employment and, in connection with a major restructuring of the Company,
delivered to him on June 27, 1997 a notice of termination pursuant to the Worker
Adjustment and Retraining Act ("WARN Act"). However, the Board of Directors
desired to retain the services of Mr. Keiper to pursue certain activities on
behalf of the Company, for a period up to January 1, 1998, unless an earlier
termination of services was mutually agreed. As a consequence of Mr. Keiper's
agreement to continue in the employ of the Company following receipt of the WARN
Act notice, and to pursue the activities on behalf of the Company, the Company
agreed to pay to Mr. Keiper on his termination date a lump sum payment equal to
two years' Base Salary (as defined in the Employment Agreement between the
Company and Mr. Keiper) plus bonuses in an amount up to an additional $250,000
if certain events were to occur. All other terms and conditions of the
Employment Agreement continued to apply. On September 10, 1997, Mr. Keiper and
the Board of Directors mutually agreed to accelerate his departure from the
Company and reduce the amounts payable to him as a consequence of such
departure. Mr. Keiper resigned as Chairman of the Board on September 12, 1997,
and as Chief Executive Officer effective September 30, 1997. On September 30,
1997, the Company paid Mr. Keiper one and one-half years' of Base Salary
($525,000), bonus payments related to the achievement of agreed upon performance
objectives ($125,000) and a bonus required under his Employment Agreement
($31,000). In addition, Mr. Keiper participated in employee benefit plans and
fringe benefits generally available to the Company's Senior Executives until he
obtained alternative employment in March, 1998. Such payments and the
continuation of such benefits satisfied the Company's severance obligations to
Mr. Keiper.
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<PAGE>
The following table sets forth information with respect to the grants of stock
options to the Named Officers during the fiscal year ended June 30, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
% of Total Assumed Annual Rates of Stock
Options Exercise Price Appreciation for Option
Options Granted to or Base Term 3
Granted Employees in Price Expiration -----------------------------
Name (#)1 Fiscal Year ($/sh)2 Date 5% ($) 10% ($)
- - ---- ---- ----------- ------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
T. Paul Thomas 50,000 2.66% 2.75 6/16/2008 86,473 219,140
William Keiper 0 0% NA NA 0 0
Rick L. McGee 20,000 1.06% 2.13 7/29/2007 26,728 67,734
35,000 1.86% 2.03 1/14/2008 34,960 84,290
Steven Manson 20,000 4 1.06% 2.69 10/21/2007 33,797 85,648
50,000 2.66% 4.13 4/23/2008 129,710 328,709
Ernest East 0 0% NA N/A 0 0
</TABLE>
- - ----------
1 Options were granted under the Artisoft, Inc. 1994 Stock Incentive Plan
("1994 Plan"). The 1994 Plan authorizes the issuance of up to 2 million
shares of the Company's Common Stock plus additional shares equivalent to
1.5% of the number of shares of Common Stock issued and outstanding as of
January 1 of each year commencing on January 1, 1995. The Plan is
administered by the Compensation Committee of the Board of Directors, the
members of which are required to be "disinterested" within the meaning of
Rule 16b-3 promulgated pursuant to the Exchange Act. The Plan provides for
adjustments to reflect any future stock dividends, stock splits or other
relevant capitalization changes. Options to be granted under the Plan may
be either "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended, or nonqualified options, and
will be exercisable within 10 years after the date of the grant (five years
for incentive stock options granted to holders of more than 10% of the
outstanding Common Stock). The option price is 100% of the fair market
value of the shares on the date the option was granted (or 110% of fair
market value in the case of incentive stock options granted to holders of
more than 10% of the outstanding Common Stock). The options granted under
the Plans generally become 25% vested after the first anniversary of the
date of grant, and thereafter the options vest monthly over the remaining
three-year period. The options are not exercisable later than 10 years
after the date they are granted. Unvested options generally terminate upon
the death or termination of employment of the optionee.
2 All options were granted at the fair market value on the date of grant.
3 Reflects the value of the stock option on the date of grant assuming (i)
for the 5% column, a five percent annual rate of appreciation in the
Company's Common Stock over the 10-year term of the option and (ii) for the
10% column, a 10% annual rate of appreciation in the Company's Common Stock
over the 10-year term of the option, in each case without any discounting
to net present value and before any income taxes associated with the
exercise. Actual gains, if any, on stock option exercises depend on the
future performance of the Company's Common Stock and the continued
employment of the Named Officer through the vesting period and exercise
period. These amounts represent assumed rates of appreciation only, based
on Securities and Exchange Commission Rules, and may not necessarily be
indicative of actual results obtained.
4 Granted pursuant to repricing and cancellation of outstanding option for
20,000 shares of the Company's Common Stock.
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<PAGE>
The following table sets forth information with respect to the
repricing of stock options held by the executive officers of the Company during
the ten-year period ended July 30, 1998.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
Number of Market Length of
Securities Price of Original Option
Underlying Stock at Exercise Term Remaining
Options Time of Price At time New Exercise at Date of
Name Date Repriced (#) Re-pricing ($) of Repricing ($) Price ($) Repricing
- - ---- ---- ------------ -------------- ---------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rick L. McGee 1/14/98 25,000 2.03 8.81 2.03 95 months
1/14/98 10,000 2.03 5.50 2.03 108 months
7/29/97 20,000 2.13 3.00 2.13 118 months
Joel J. Kocher 1/23/95 300,000 $8.56 11.25 8.56 45 months
</TABLE>
9
<PAGE>
The following table sets forth information with respect to the exercise of stock
options by the Named Officers during the fiscal year ended June 30, 1998, and
the number and value of unexercised options held by the Named Officers at the
fiscal year end:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Unexercised Value of Unexercised
Acquired Options at Fiscal Year End In-the-Money Options at
on (#)1,2 Fiscal Year End ($)3
Exercise Value --------------------------- --------------------------
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- - ---- -------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
T. Paul Thomas 0 0 50,000 200,000 12,500 37,500
William Keiper 0 0 0 0 0 0
Rick L. McGee 0 0 25,053 0 17,509 0
Steven Manson 0 0 6,527 68,473 280 980
Ernest East 0 0 0 0 0 0
</TABLE>
- - ----------
1 All options for Common Stock were granted pursuant to the Artisoft, Inc.
Amended 1990 Stock Incentive Plan or the 1994 Stock Incentive Plan.
2 Options for Common Stock granted under the Amended 1990 Stock Incentive
Plan and the 1994 Stock Incentive Plan generally vest over a four-year
period from the date of grant, with 25% of the shares vesting on the first
anniversary of the date of grant and the remaining shares vesting monthly
over the remaining three-year period.
3 Represents the difference between the closing price ($2.75) of the
Company's Common Stock as of June 30, 1998 as reported by the Nasdaq
National Market, and the exercise price of the options.
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<PAGE>
CHANGE IN CONTROL AND SEVERANCE AGREEMENTS
The Company has entered into Change in Control agreements with all of its
Executive Officers. These agreements provide that in the event of a Change in
Control, as defined, and a termination of employment (i) without cause or (ii)
by the executive for "Good Reason" such as a reduction in duties and
responsibilities, then the executive's unvested stock options that would
otherwise vest following the termination of employment, will vest and the
Company will pay the executive a lump sum equal to one year's base salary plus
target bonus. In addition, the executive will be entitled to other employee
benefits that the executive officer would otherwise have received for a one year
period after the termination of employment.
With respect to options granted under the Artisoft, Inc. Amended 1990 Stock
Incentive Plan, in the event of a change of control of the Company, the
Compensation Committee of the Board of Directors, in its discretion, may elect
to do either or both of the following: (a) declare any option theretofore
granted to be immediately exercisable and fully vested; and (b) cash out the
value of all outstanding stock options at the price per share at which the
change in control occurs. Under the Artisoft, Inc. 1994 Stock Incentive Plan
("Stock Incentive Plan"), the Compensation Committee may, in its discretion for
all Participants (as defined in the Stock Incentive Plan) other than nonemployee
directors, accelerate vesting under any award under the Stock Incentive Plan in
the event of a Corporate Transaction or Change of Control (as defined in the
Stock Incentive Plan). For nonemployee directors who receive awards under the
Automatic Option Grant Program (as defined in the Stock Incentive Plan), in the
event of a Corporate Transaction or Change of Control, all unvested options will
automatically vest. Under the Artisoft, Inc. Employee Stock Purchase Plan
("Stock Purchase Plan"), if a Change in Ownership (as defined in the Stock
Purchase Plan) occurs, then all outstanding purchase rights will vest and Common
Stock will be purchased for the accounts of the Participants (as defined in the
Stock Purchase Plan).
In addition, the Company has entered into severance agreements with certain
members of senior management providing that, in the event of their involuntary
termination, they will have the option of receiving a lump sum payment equal to
not more than six months base salary or a salary continuation for the earliest
to occur of the time they obtain other full time employment or not more than
nine months from the date of involuntary termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Kathryn A. Braun (Chairman),
Michael P. Downey and Jerry E. Goldress. No member of the Compensation Committee
was at any time during fiscal 1998, or formerly, an officer or employee of the
Company or any subsidiary of the Company. No executive officer of the Company
has served as a director or member of the Compensation Committee (or other
committee serving an equivalent function) of any other entity, one of whose
executive officers served as a director of or member of the Compensation
Committee of the Company.
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<PAGE>
On June 19, 1997, the Company entered into an agreement with Grisanti, Galef and
Goldress, Inc. ("GG&G") pursuant to which GG&G was retained by the Company to
provide management and turnaround services. Mr. Goldress is the Chairman and
Chief Executive Officer of GG&G and was the principal consultant assigned to
perform these services. On June 27, 1997, Mr. Goldress was appointed to the
Board of Directors of the Company, and on September 12, 1997, he was appointed
Chairman of the Board of Directors and assumed additional management
responsibilities regarding the Company. Under the terms of the initial
engagement GG&G was paid $40,000 in fiscal 1997, plus expenses incurred by Mr.
Goldress in the amount of $1,297. In connection with the additional
responsibilities assumed by Mr. Goldress, the Company entered into a new
agreement with GG&G effective as of July 1, 1997 pursuant to which GG&G was
compensated for the services provided by Mr. Goldress to the Company during
fiscal 1998 at the rate of $35,000 per month, plus expenses incurred by Mr.
Goldress. In addition, the agreement provided that GG&G was paid a performance
bonus of 100,000 shares of the Company's Common Stock, to be issued to GG&G upon
the achievement of objectives established by the Board of Directors. On April
23, 1998, the Board of Directors determined that those objectives had been met,
and the 100,000 shares of Common Stock were issued to GG&G.
SECTION 16(a) BENEFICIAL OWNERSHIP
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission ("SEC") and the National Association of
Securities Dealers initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than 10% shareholders are required by SEC regulations to
furnish the Company. Officers, directors and greater than 10% shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) reports they file. To the Company's knowledge, based solely upon review of
the copies of such reports furnished to the Company and written representations
that no other reports were required, all Section 16(a) filing requirements
applicable to the Company's officers, directors and greater than 10% beneficial
owners were satisfied during fiscal 1998.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") of the Board of Directors makes
this report on executive compensation pursuant to Item 402 of Regulation S-K.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act, that might incorporate future filings, including this Proxy Statement, in
whole or in part, this report of the Compensation Committee and the graph which
follows this report shall not be incorporated by reference into any such
filings, and such information shall be entitled to the benefits provided in Item
402(a)(9).
The Committee recommends the compensation of the person serving as the chief
executive officer of the Company to the Board and reviews and approves the
design,
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<PAGE>
administration and effectiveness of compensation programs for other key
executive officers, including salary, cash bonus levels, other perquisites and
option grants under the Amended 1990 Stock Incentive Plan and the 1994 Stock
Incentive Plan (the "Plans"). During fiscal 1998, T. Paul Thomas, the President
and Chief Operating Officer of the Company, acted in a capacity similar to chief
executive officer and was treated by the Compensation Committee for
compensation-related purposes as the chief executive officer of the Company. The
Committee is composed entirely of independent outside members of the Company's
Board of Directors.
Compensation Philosophy
The objectives of the Company's executive compensation policies are to attract,
retain and reward executive officers who contribute to the Company's success, to
align the financial interests of executive officers with the performance of the
Company, to strengthen the relationship between executive pay and shareholder
value, to motivate executive officers to achieve the Company's business
objectives and to reward individual performance.
In general, the Committee considers the following:
(1) The level of compensation paid to executive officers in companies similarly
situated in size and products. To ensure that pay is competitive, the
Committee, from time to time, compares the Company's executive compensation
packages with those offered by other companies in the same or similar
industries or with other similar attributes. Compensation surveys used by
the Company typically include the companies comprising the Nasdaq Computer
and Data Processing Stocks used for the comparative graph following this
report, as well as other public and private companies comparable in size,
products or industry with the Company.
(2) The individual performance of each executive officer. Individual
performance includes meeting individual performance objectives,
demonstration of job knowledge, skills, teamwork and acceptance of the
Company's core values.
(3) Corporate performance. Corporate performance is evaluated by factors such
as performance relative to competitors, performance relative to business
conditions and progress in meeting the Company's objectives and goals.
(4) The responsibility and authority of each position relative to other
positions within the Company.
The Committee does not quantitatively weight these factors, but considers all of
these factors as a whole in establishing executive compensation. The application
given each of these factors in establishing the components of executive
compensation follows:
Base Salary
Base salaries are established for each executive officer at levels that are
intended to be competitive with salaries for comparable positions at other
software and computer industry companies of similar size or products. The
Company seeks to pay salaries to executive officers that are commensurate with
their qualifications, duties and responsibilities and that are competitive in
the marketplace. In conducting annual salary reviews, the Committee considers
each individual executive officer's achievements during the prior fiscal year in
meeting Company financial and business
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<PAGE>
objectives, as well as the executive officer's performance of individual
responsibilities and the Company's financial position and overall performance.
While the Committee considers the low, midpoint and upper ranges of base
salaries published by compensation surveys in establishing base salaries of each
executive officer, the Committee does not have a policy or target of how each
executive officer's base salary, or salaries of executive officers as a group,
compare with the low, midpoint or upper ranges of compensation surveys.
Performance Bonus
In addition, executives are eligible to receive a performance bonus payable in
cash. Performance bonuses are used to provide executive officers with financial
incentives to meet six month performance targets of the Company and individual
performance objectives. At the beginning of each fiscal year and at mid-year,
the Committee establishes a targeted bonus for each executive and establishes
the individual performance objectives for the executive to achieve the bonus. If
applicable, executive bonuses are targeted between 20% and 60% of the executive
officers' base salaries, for the applicable period, if the predetermined goals
are achieved, with the more senior executive officers having a higher percentage
of total compensation from annual cash bonuses. Before any bonus became payable
under the executive bonus plan, 80% of both the established net sales and
operating income goals for the Company must have been achieved. The bonus
attributed to the net sales and operating income components would be fully
earned at 100% of both the established goals, and up to 150% of the bonus
attributable to each of these components of the bonus could be achieved upon
attainment of 133% or more of the goal, provided that the percentage of
attainment for the other financial component of the goal was at least 80%. The
individual performance objectives for executives other than the President and
Chief Operating Officer are proposed by management and reviewed and approved by
the Committee. Individual performance objectives for the President and Chief
Operating Officer are determined by the Committee and reviewed and approved by
the Board of Directors.
Option Grants
The Committee believes that equity ownership by executive officers provides
incentives to build shareholder value and aligns the interests of executive
officers with the shareholders. The Committee typically awards a stock option
grant under the Plans upon hiring executive officers, subject to a four-year
vesting schedule. After the initial stock option grant, the Committee considers
awarding additional grants, usually on an annual basis, under the Plans. Options
are granted at the current market price for the Company's Common Stock and,
consequently, have value only if the price of the Company's Common Stock
increases over the exercise price for the period during which the options vest.
The size of the initial grant is usually determined with reference to the level
and responsibility of the executive officer, the contribution that the executive
officer is expected to make to the Company and comparable equity compensation
offered by other software and computer industry companies. In determining the
size of the periodic grants the Compensation Committee considers prior option
grants to the executive officer, independent of whether the options have been
exercised, the executive's performance during the current fiscal year and his or
her expected contributions during the
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<PAGE>
succeeding fiscal year. The Committee believes that these periodic grants
provide incentives for executive officers to remain with the Company.
Certain Option Repricings
In July, 1997, the Compensation Committee recommended, and the Board of
Directors adopted, a program pursuant to which all of the Company's employees,
including executive officers, would be awarded stock options under the 1994
Stock Option Plan in amounts commensurate with their positions and experience
with the Company. The purpose of this program was to broadly align the interests
of employees with shareholders, and to assist in the retention of employees. In
pursuance of these purposes and for equitable considerations relating to
employees, the Company determined that the value of options held by employees
should be rationalized and based on the fair market value of the Company's Stock
during the fiscal year ended June 30, 1998. Consequently, certain outstanding
stock options held by employees and covering an aggregate of 838,000 shares of
Common Stock were "repriced", such that their exercise price was adjusted to
equal the fair market value of the Company's stock at the time of the repricing.
In connection with the Company's 1998 fiscal year program for granting
stock options to employees, certain outstanding stock options held by Rick L.
McGee were repriced. On September 29, 1997, options held by Mr. McGee and
exercisable for 20,000 shares of Common Stock for $3.00 per share were amended
to permit exercise at $2.13 per share, the fair market value of the Company's
Common Stock on such date; on January 14, 1998, options held by Mr. McGee and
exercisable for 25,000 shares of Common Stock for $8.81 per share were amended
to permit exercise at $2.03 per share, the fair market value of the Company's
Common Stock on such date; and on January 14, 1998, options held by Mr. McGee
and exercisable for 10,000 shares of Common Stock for $5.50 per share were
amended to permit exercise at $2.03 per share, the fair market value of the
Company's Common Stock on such date.
The Compensation Committee recommended and the Board of Directors
approved, repricing of stock options held by Mr. McGee in connection with, and
for the purposes of, the Company's 1998 fiscal year program for granting and
repricing stock options.
Chief Executive Officer Compensation
In fiscal 1998, the President and Chief Operating Officer was paid $228,230
consisting of $179,481 of salary and $48,750 of bonus. The amount of such salary
was determined by the Compensation Committee based on Mr. Thomas' performance in
developing a restructuring plan and new business strategy for the Company and
the recognition by the Committee of the importance of his leadership for the
future success of the Company. The amount of Mr. Thomas' bonus was determined by
the Compensation Committee taking into account the operational results of the
Company for the first and second halves of fiscal 1998, his contribution to the
Company and the achievement of his individual performance objectives, including
the improvement of the Company's operating results and the development of a
restructuring plan and new business strategy.
Respectfully submitted,
Compensation Committee
Kathryn Braun
Michael P. Downey
Jerry E. Goldress
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<PAGE>
COMPARISON OF STOCK PERFORMANCE
The following graph compares the cumulative total returns for the Company's
Common Stock ("ASFT"), the Standard & Poor's 500 ("S&P 500") and the Nasdaq
Computer and Data Processing Stocks ("NCDPS") for the period commencing June 30,
1993, and ending June 30, 1998.
Artisoft NASDAQ NCDPS
-------- ------ -----
6/93 100 100 100
9/93 142 108 100
12/93 216 111 101
3/94 284 106 102
6/94 216 101 100
9/94 151 109 112
12/94 114 108 123
3/95 129 118 138
6/95 121 135 164
9/95 155 151 179
12/95 92 153 187
3/96 115 160 195
6/96 127 173 217
9/96 85 179 222
12/96 75 188 230
3/97 45 178 214
6/97 35 210 274
9/97 44 246 300
12/97 29 231 283
3/98 43 270 374
6/98 40 278 415
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table includes, as of June 30, 1998, information regarding the
beneficial ownership of the Company's Common Stock by (i) all persons known by
the Company to be the beneficial owners of more than 5% of the outstanding
Common Stock of the Company, (ii) each director and director-nominee of the
Company, (iii) each of the Named Officers, and (iv) all executive officers and
directors of the Company as a group:
<TABLE>
<CAPTION>
Amount and Nature of Percent of Artisoft
Name of Beneficial Owner 1 Beneficial Ownership Common Stock Outstanding
------------------------- -------------------- ------------------------
<S> <C> <C>
Gerald R. Forsythe 2 2,083,959 14.2%
1075 Noel Avenue
Wheeling, IL 60090
T. Paul Thomas 3 62,111 *
Jerry E. Goldress 4 104,583 *
Michael P. Downey 5 5,833 *
Kathryn A. Braun 6 18,995 *
Rick L. McGee 7 26,880 *
Steven Manson 8 9,416 *
All executive officers and directors
as a group (8 persons) 9 251,342 1.7%
</TABLE>
- - ----------
*Less than 1%
1 Unless otherwise noted, the persons listed in the table above have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
were applicable. Unless otherwise noted, the business address of each of
the beneficial owners is 5 Cambridge Center, 3rd Floor, Cambridge
Massachusetts 02142.
2 According to Amendment No. 5, dated August 31, 1998, to the Schedule 13D
filed by Mr. Gerald Forsythe, Indeck Power Equipment Company, and Indeck
Energy Services, Inc., the shares of Common Stock are owned separately by
each of the reporting persons. Mr. Forsythe is Chairman & CEO of Indeck
Power Equipment Company and Chairman & CEO of Indeck Energy Services, Inc.
3 Includes 61,111 shares of Common Stock subject to options exercisable
within 60 days of June 30, 1998.
4 Includes 4,583 shares of Common Stock subject to options exercisable within
60 days of June 30, 1998.
5 Includes 5,533 shares of Common Stock subject to options exercisable within
60 days of June 30, 1998.
6 Includes 16,995 shares of Common Stock subject to options exercisable
within 60 days of June 30, 1998.
7 Includes 25,053 shares of Common Stock subject to options exercisable
within 60 days of June 30, 1998.
8 Includes 7,916 shares of Common Stock subject to options exercisable within
60 days of June 30, 1998. 8 Includes 142,560 shares of Common Stock subject
to options exercisable within 60 days of June 30, 1998.
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<PAGE>
SHAREHOLDER PROPOSALS TO BE PRESENTED
AT THE NEXT ANNUAL MEETING
Any shareholder proposals intended to be presented at the Company's 1999 annual
shareholders' meeting must be received by the Company no later than July 13,
1999, to be evaluated by the Board for inclusion in the proxy statement for that
meeting.
Pursuant to Rule 14a-4 under the Securities Exchange Act of 1934, as amended,
the Company intends to retain discretionary authority to vote proxies with
respect to shareholder proposals for which the proponent does not seek inclusion
of the proposed matter in the Company's proxy statement for the Company's 1999
annual meeting, except in circumstances where (i) the Company receives notice of
the proposed matter no later than September 29, 1999, and (ii) the proponent
complies with the other requirements set forth in Rule 14a-4.
DISCRETIONARY AUTHORITY
While the Notice of Annual Meeting of Shareholders calls for the transaction of
such other business as may properly come before the meeting, the Board of
Directors has no knowledge of any matters to be presented for action by the
shareholders at the meeting other than as set forth above. The enclosed Proxy
gives discretionary authority, however, in the event that any additional matters
should be presented.
1998 ANNUAL REPORT ON FORM 10-K
Copies of the Company's annual report on Form 10-K for the fiscal year ended
June 30, 1998, as filed with the Securities and Exchange Commission, may be
obtained without charge by any shareholder to whom this proxy statement is
delivered upon written request to the Secretary, Artisoft, Inc., 5 Cambridge
Center, 3rd Floor, Cambridge, Massachusetts 02142.
By the Board of Directors,
/s/ Kirk D. Mayes
--------------------------------------
Kirk D. Mayes
Chief Accounting Officer and Secretary
18
