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
Filed by the Registrant [X]
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Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
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, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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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[ ] 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 Statement No.:
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4) Date Filed:
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 2, 1999
The annual meeting of shareholders of Artisoft, Inc., a Delaware corporation,
will be held at The University Park Hotel at MIT, 20 Sidney Street, Cambridge,
Massachusetts 02139 on Tuesday, November 2, 1999, at 10:00 a.m. E.S.T. for the
following purposes:
1. To elect two Directors for the term set forth in the accompanying Proxy
Statement;
2. To consider and act upon a proposal to approve certain amendments to the
Artisoft, Inc. Employee Stock Purchase Plan;
3. To consider and act upon a proposal to ratify the selection of KPMG LLP as
the Company's independent certified public accountants for the fiscal year
ending June 30, 2000; and
4. 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 10, 1999 will be entitled to vote at the meeting.
A copy of the Company's 1999 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/ Sheldon M. Schenkler
Sheldon M. Schenkler
Chief Financial Officer and Secretary
Cambridge, Massachusetts
September 25, 1999
<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 2, 1999, at 10:00 a.m. E.S.T. (the "1999 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
September 25, 1999.
VOTING RIGHTS
Only shareholders of record at the close of business on September 10, 1999, may
vote at the 1999 Annual Meeting or any adjournment or postponement thereof,
notwithstanding any transfer on the books of the Company thereafter. As of that
date, there were 14,841,805 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 1999 Annual Meeting. Abstentions and broker non-votes will also
be included in the determination of the number of shares represented for a
quorum. Abstentions are counted in tabulations of the votes cast on proposals
presented to shareholders, whereas broker non-votes are not counted for purposes
of determining whether a proposal has been approved. Proxies will be tabulated
by the Company's transfer agent, Harris Trust and Savings Bank. The Company
shall, in advance of the election of directors, appoint one or more Inspectors
of Election to count all votes and ballots at the meeting and make a written
report thereof. 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
$4,000 plus reasonable out-of-pocket expenses.
All valid proxies received before the 1999 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 1999 Annual Meeting and voting in person
(attendance at the 1999 Annual Meeting will not in and of itself constitute
revocation of a proxy).
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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 1999 is comprised of two directors, Kathryn B. Lewis and James L.
Zucco, Jr. Ms. Lewis and Mr. Zucco have been nominated for election at the 1999
Annual Meeting to hold office until the year 2002 Annual Meeting of Shareholders
and until their respective successors are elected and qualified.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR KATHRYN B. LEWIS AND
JAMES L. ZUCCO, JR., AS DIRECTORS. Should either 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.
NOMINEES FOR ELECTION TO TERM EXPIRING 2002
KATHRYN B. LEWIS, age 48, has served on the Board of Directors of the Company
since August 1994. Until August 1998, Ms. Lewis served as President and Chief
Operating Officer, Personal Storage Division, of Western Digital Corporation, a
manufacturer of computer disk drives, where she served in other capacities since
1978. Ms. Lewis is also a member of the board of directors of Pacific Corp., a
publicly traded electric utility company.
JAMES L. ZUCCO, JR., age 48, has served on the Board of Directors of the Company
since January 1999. Mr. Zucco currently serves as Chief Executive Officer of
Spike Technologies. Mr. Zucco formerly served as President and Chief Executive
Officer of Shiva Corporation. Mr. Zucco has also served as President, Network
Communications Software at Lucent Technologies and Vice President and General
Manager of Lucent North America Carrier Business for Network Systems. Prior to
joining Lucent, Mr. Zucco served as Vice President and General Manager of AT&T
Advanced Network Applications at AT&T Business Communications Services (BCS).
From 1986 to 1993, Mr. Zucco served in key technology management positions at
MCI.
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INCUMBENT DIRECTORS - TERM EXPIRING 2000
T. PAUL THOMAS, age 39, has served on the Board of Directors of the Company
since September 1997. Mr. Thomas joined Artisoft in June, 1997 as the President
of the Communications Software Group and was later named President and Chief
Operating Officer of the Company. In October, 1998, Mr. Thomas was named Chief
Executive 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.
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INCUMBENT DIRECTORS - TERM EXPIRING 2001
MICHAEL P. DOWNEY, age 52, has served on the Board of Directors since February
1997 and as Chairman of Board since October 1998. From 1986 to 1997, Mr. Downey
served as a senior financial executive with Nellcor and Nellcor Puritan Bennett,
Inc., a manufacturer of medical instruments, most recently as Executive Vice
President and Chief Financial Officer. From 1984 to 1986, Mr. Downey was Vice
President, Finance with Shugart Corporation, a manufacturer of disk drives. Mr.
Downey also serves as a member of the board of directors of Emulex Corp., a
designer and manufacturer of network connectivity products.
FRANCIS GIRARD, age 60, has served on the Board of Directors since October 1998.
Mr. Girard currently serves as a member of the board of directors of Comverse
Technology, Inc. Prior to joining Comverse, Mr. Girard was President and Chief
Executive Officer of Boston Technology and Vice President of Sales, Marketing
and Support for NEC Information Systems, Inc.
MEETINGS AND COMMITTEES OF THE BOARD
During fiscal 1999, the Board of Directors met six times. Each director attended
at least 75% of the meetings held during fiscal 1999, 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 Francis Girard (Chair),
Michael P. Downey and Kathryn B. Lewis, is responsible for: reviewing and
recommending to the directors the independent certified public accountants to be
nominated or reappointed to audit the consolidated financial statements of the
Company; confirming and assuring the independence of the independent certified
public accountants; reviewing with the independent certified public accountants
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 certified public accountants and with management, the adequacy and
effectiveness of the accounting and financial controls of the Company; reviewing
with management and the independent certified public accountants 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 certified public accountants the significant accounting and other
policies and practices of the Company; inquiring of management and the
independent certified public
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accountants 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 five meetings in fiscal 1999.
The Compensation Committee, which currently is comprised of Kathryn B. Lewis
(Chair), Francis Girard and James L. Zucco Jr., 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 four
meetings in fiscal 1999.
The Nominating Committee, which currently is comprised of James L. Zucco, Jr.,
(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 three meetings in fiscal 1999.
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). In addition to the Director Fees, a nonemployee Chairman of
the Board receives cash compensation of $50,000 per year.
A nonemployee Director who is appointed as Chairman of the Board shall
automatically be granted, at the time of such initial appointment, a
nonqualified option to purchase 10,000 shares of Common Stock pursuant to the
1994 Stock Incentive Plan. A Chairman who is reappointed as Chairman at the
Annual Meeting of the Board shall be automatically granted a nonqualified option
to purchase 10,000 shares of Common Stock pursuant to the 1994 Stock Incentive
Plan, provided he has served as Chairman for at least six months.
Directors who are not employees of the Company receive a nonqualified 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 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.
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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, 1999, 1998
and 1997, the compensation paid to (i) each person serving as the Company's
chief executive officer during the fiscal year ended June 30, 1999; and (ii)
each of the other most highly paid executive officers serving at the end of the
fiscal year ended June 30, 1999 whose aggregate salary and bonus compensation
exceeded $100,000 (collectively, the "Named Officers"):
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------------- ------------
Other Annual Securities All Other
Compensation Underlying Compensation
Executive Officers Year Salary ($) Bonus ($)1 ($)2 Options # ($)3
- ------------------ ---- ---------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
PERSONS SERVING AS CHIEF
EXECUTIVE OFFICER
T. Paul Thomas(4), 1999 213,230 106,728 63,879 125,000 6,235
President and Chief 1998 179,481 48,750 544 50,000 1,246
Executive Officer 1997 3,173 0 0 200,000 0
EXECUTIVE OFFICERS
Steven G. Manson 1999 143,077 47,833 466 70,000 5,053
Senior Vice 1998 115,039 17,011 5,000 70,000 4,139
President and 1997 NA NA NA NA NA
General Manager
Scott S. Moule 1999 109,923 59,768 329 50,000 4,052
Vice President and 1998 NA NA NA NA NA
General Manager 1997 NA NA NA NA NA
Christopher H. Brookins 1999 133,317 24,710 0 40,000 4,437
Vice President-Development 1998 NA NA NA NA NA
and Chief Technology Officer 1997 NA NA NA NA NA
Sheldon M. Schenkler 1999 91,846 28,299 163 50,000 3,108
Vice President, Chief 1998 NA NA NA NA NA
Financial Officer and 1997 NA NA NA NA NA
Secretary
</TABLE>
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1 Includes amounts paid or payable under the executive bonus plans for fiscal
1999 or 1998, respectively. No bonus payments were made for fiscal 1997.
2 Unless otherwise noted, includes Company-paid life insurance.
3 Includes 401(k) plan Company matching funds.
4 For fiscal 1999, Other Annual Compensation consisted of $63,257 of
relocation expenses imputed into income, in addition to $622 of
Company-paid life insurance.
<PAGE>
The following table sets forth information with respect to the grants of stock
options to the Named Officers during the fiscal year ended June 30, 1999:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
% of Total Potential Realizable Value at
Options Exercise Assumed Annual Rates of Stock
Options Granted to or Base Price Appreciation for Option Term(3)
Granted Employees in Price Expiration -------------------------------------
Name (#)(1) Fiscal Year ($/sh)(2) Date 5% ($) 10% ($)
- ---- ------ ----------- --------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
T. Paul Thomas 50,000 5.97 2.0625 10/1/08 64,855 164,355
75,000 8.95 5.0625 6/10/09 238,783 605,124
Steven G. Manson 50,000 5.97 2.5938 11/10/08 81,561 206,692
20,000 2.39 5.0625 6/10/09 63,676 161,366
Scott S. Moule 50,000 5.97 5.0625 6/10/09 159,189 403,416
Christopher H. Brookins 25,000 2.98 2.5938 11/10/08 40,781 103,346
15,000 1.97 5.0625 6/10/09 47,751 121,025
Sheldon M. Schenkler 50,000 5.97 2.2188 9/8/08 69,770 176,810
</TABLE>
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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.
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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, 1999, 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 Fiscal
on (#)(1,2) Year End ($)(3)
Exercise Value --------------------------- ------------------------------
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
T. Paul Thomas 0 0 112,500 262,500 285,156 492,969
Steven G. Manson 0 0 29,027 115,973 40,066 177,754
Scott S. Moule 0 0 15,056 62,944 18,980 27,900
Christopher H. Brookins 0 0 34,236 60,764 60,209 108,706
Sheldon M. Schenkler 0 0 0 50,000 0 142,185
</TABLE>
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1 All options for Common Stock were granted pursuant to the Artisoft, Inc.
1994 Stock Incentive Plan.
2 Options for Common Stock granted under 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 ($5.0625) of the
Company's Common Stock as of June 30, 1999 as reported by the Nasdaq
National Market, and the exercise price of the options.
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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.
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 B. Lewis (Chairman),
Francis Girard and James L. Zucco, Jr. No member of the Compensation Committee
was at any time during fiscal 1999, 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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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 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 1999, except that the initial statements of beneficial ownership of
securities on Form 3 for Francis Girard and James L. Zucco, Jr., directors of
the Company, were filed later than required following their appointment as
directors of the Company.
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, 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 1999, T. Paul Thomas acted as the
Chief Executive Officer of the Company. The Committee is composed entirely of
independent outside members of the Company's Board of Directors.
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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 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
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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 50% 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, 75% 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 75%. The
individual performance objectives for executives other than the Chief Executive
Officer are proposed by management and reviewed and approved by the Committee.
Individual performance objectives for the Chief Executive Officer are determined
by the Committee and reviewed and approved by the Board of Directors (other than
the Chief Executive Officer).
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 succeeding fiscal year. The Committee
believes that these periodic grants provide incentives for executive officers to
remain with the Company.
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CHIEF EXECUTIVE OFFICER COMPENSATION
In fiscal 1999, the Chief Executive Officer was paid $319,958 consisting of
$213,230 of salary and $106,728 of bonus. The amount of such salary was
determined by the Compensation Committee based on Mr. Thomas' performance in
continuing to implement the Company's restructuring plan and in developing and
implementing new business strategies for the Company focused on the Company's
Computer Telephony Group, as well as the Committee's recognition of the
importance of Mr. Thomas' 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 1999, 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 and implementation of the
Company's restructuring plan and new business strategies.
Respectfully submitted,
Compensation Committee
Kathryn B. Lewis
Francis Girard
James L. Zucco, Jr.
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COMPARISON OF STOCK PERFORMANCE
The following graph compares the cumulative total returns for the Company's
Common Stock ("ASFT"), the Nasdaq Composite Index ("NASDAQ") and the Nasdaq
Computer and Data Processing Stocks ("NCDPS") for the period commencing June 30,
1994, and ending June 30, 1999.
ASFT NASDAQ NCDPS
---- ------ -----
6/94 100 100 100
9/94 70 108 111
12/94 53 107 122
3/95 60 117 138
6/95 56 133 163
9/95 71 150 178
12/95 42 151 186
3/96 53 159 195
6/96 59 171 217
9/96 39 177 221
12/96 35 186 230
3/97 21 176 213
6/97 16 208 274
9/97 20 244 299
12/97 13 228 283
3/98 20 267 373
6/98 18 274 414
9/98 15 248 388
12/98 18 322 504
3/99 18 359 606
6/99 34 393 631
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table includes, as of September 25, 1999, 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:
Percent of Artisoft
Amount and Nature of Common Stock
Name of Beneficial Owner(1) Beneficial Ownership Outstanding
- --------------------------- -------------------- -----------
Gerald R. Forsythe(2) 2,288,559 15.4%
1075 Noel Avenue
Wheeling, IL 60090
T. Paul Thomas(3) 169,956 1.1%
Michael P. Downey(4) 41,668 *
Francis Girard 15,000 *
Kathryn B. Lewis(5) 31,201 *
James L. Zucco, Jr. 0 *
Steven G. Manson(6) 59,823 *
Scott S. Moule(7) 20,635 *
Christopher H. Brookins(8) 56,701 *
Sheldon M. Schenkler(9) 14,924 *
All executive officers and directors 482,937 3.3%
as a group (11 persons)(10)
- ----------
* 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, Cambridge Massachusetts 02142.
2 According to Amendment No. 6, dated October, 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 148,956 shares of Common Stock subject to options exercisable
within 60 days of September 25, 1999.
4 Includes 16,668 shares of Common Stock subject to options exercisable
within 60 days of September 25, 1999.
5 Includes 29,201 shares of Common Stock subject to options exercisable
within 60 days of September 25, 1999.
6 Includes 50,034 shares of Common Stock subject to options exercisable
within 60 days of September 25, 1999.
7 Includes 18,319 shares of Common Stock subject to options exercisable
within 60 days of September 25, 1999.
8 Includes 46,701 shares of Common Stock subject to options exercisable
within 60 days of September 25, 1999.
9 Includes 12,500 shares of Common Stock subject to options exercisable
within 60 days of September 25, 1999.
10 Includes 382,908 shares of Common Stock subject to options exercisable
within 60 days of September 25, 1999.
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ITEM NO. 2
PROPOSAL TO APPROVE AMENDMENTS TO THE ARTISOFT, INC.
EMPLOYEE STOCK PURCHASE PLAN
The Company's shareholders are being asked to approve amendments to the
Artisoft, Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"). The
amendments to the Stock Purchase Plan (a) increase by 200,000 the number of
shares of Common Stock issuable under the Stock Purchase Plan; and (b) remove a
provision contained in the Stock Purchase Plan restricting participants in the
Plan from purchasing more than 500 shares of Common Stock on any semiannual
purchase date. The amendments were approved by the Board of Directors on
September 2, 1999, subject to shareholder approval at the 1999 Annual Meeting.
The purpose of the Stock Purchase Plan is to provide eligible employees of the
Company, including subsidiaries and affiliates, with the opportunity to acquire
a proprietary interest in the Company, through a payroll-deduction based
employee stock purchase plan designed to qualify under Section 423 of the Code,
and thereby to encourage such individuals to remain in the service of the
Company and to more closely align their interests with those of the Company's
shareholders.
The Board of Directors believes that the amendments are necessary to assure that
the Company will have a sufficient reserve of Common Stock available for
purchase over the remaining term of the Stock Purchase Plan, and to enable
eligible employees to make a larger investment in the Company under the terms of
the Stock Purchase Plan. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE PROPOSED AMENDMENTS TO THE STOCK PURCHASE PLAN.
ORIGINAL ADOPTION OF STOCK PURCHASE PLAN
The Board of Directors adopted the Stock Purchase Plan on June 16, 1994. The
Stock Purchase Plan was approved by the Company's stockholders at the Company's
annual meeting held on October 20, 1994, and became effective on January 1,
1995. Under the Stock Purchase Plan, as originally approved, the number of
shares of Common Stock issuable under the Stock Purchase Plan was limited to
200,000, and the number of shares of Common Stock purchasable by any participant
was subject to various limitations, including a provision that a participant
could not purchase more than 500 shares on any semiannual purchase date. The
amendments subject to this proposal modify these 200,000 share and 500 share
limitations. The termination date of the Stock Purchase Plan, under its original
and its amended terms, is the last business day of December 2003, subject to
certain provisions regarding earlier termination.
AMENDMENTS
The amendments increase the maximum number of shares of Common Stock issuable
under the Stock Purchase Plan from 200,000 to 400,000. As of July 1, 1999,
72,753 shares of Common Stock remained available for issuance under the Stock
Purchase Plan. In order to assure there are sufficient shares available through
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the term of the Stock Purchase Plan, the Board of Directors has determined that
it is necessary to amend the Stock Purchase Plan to increase the number of
shares of Common Stock available for issuance. As a result of the proposed
amendment of the Stock Purchase Plan, the number of shares of Common Stock
available for issuance under the Stock Purchase Plan would increase by 200,000
to 400,000. However, as of July 1, 1999, approximately 127,247 shares had been
issued or allocated to purchase rights under the Stock Purchase Plan. As a
result, approximately 272,753 shares of Common Stock would be available for
issuance after giving effect to the amendments.
The amendments also remove the 500 share limitation on the number of shares of
Common Stock purchasable by any participant on any semiannual purchase date. The
Board of Directors believes this restriction has become overly restrictive
because of declines in the market price of the Company's Common Stock since the
date the Stock Purchase Plan was originally approved by the stockholders of the
Company. On the record date of the Company's 1994 annual meeting, the fair
market value of the Common Stock was $12.75 per share. On the record date of the
Company's 1999 annual meeting, the fair market value of the Common Stock was
$5.75 per share. As a result, in recent periods, under the terms of the 500
share purchase limitation, participants are permitted to invest substantially
lesser amounts in the Company's Common Stock pursuant to the Stock Purchase Plan
than they were when the plan was adopted by the Company's shareholders.
Accordingly, the Board of Directors believes the 500 share limitation detracts
from the purposes of the Stock Purchase Plan and should be removed. The number
of shares purchasable by participants would continue to be subject to other
limitations contained in the Stock Purchase Plan. These limitations are
described below under "Eligibility and Participation" and "Purchase Rights."
The amendments to the Stock Purchase Plan shall become effective upon their
approval by the shareholders, provided that no purchase rights granted under the
Stock Purchase Plan shall be exercised, and no shares of Common Stock shall be
issued thereunder, in excess of the original 200,000 share limitation until the
Company shall have complied with all applicable requirements of the Securities
Act of 1933, all applicable listing requirements of any securities exchange on
which the Common Stock is listed for trading and all other applicable legal and
regulatory requirements.
The Company believes that the benefits or amounts that will be received by any
Participant or group of Participants under the Stock Purchase Plan in the future
cannot be determined.
Set forth below is a summary of the principal features of the Stock Purchase
Plan, as modified by the amendments described above. The summary, however, does
not purport to be a complete description of all the provisions of the amended
Stock Purchase Plan. Any stockholder of the Company who wishes to obtain a copy
of the actual plan documents may do so upon written request to the Company's
Secretary at the Company's principal executive offices in Cambridge,
Massachusetts.
SHARES RESERVED. An aggregate of 400,000 shares of Common Stock (including the
share increase subject to stockholder approval under this proposal) have been
reserved for issuance over the remaining term of the amended Stock Purchase
Plan. In the event any change is made to the Company's outstanding Common Stock
by reason of any stock dividend, stock split, exchange or combination of shares,
recapitalization or any other change affecting the Common Stock as a class
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without the receipt of consideration, appropriate adjustments shall be made by
the Plan Administrator to (i) the class and maximum number of securities
issuable over the term of the Stock Purchase Plan, (ii) the class and maximum
number of securities purchasable per Participant on any one Semiannual Purchase
Date and (iii) the class and number of securities and the price per share in
effect under each purchase right at the time outstanding under the Stock
Purchase Plan. Such adjustments shall be designed to preclude the dilution or
enlargement of rights and benefits under the Stock Purchase Plan.
ELIGIBILITY AND PARTICIPATION. Each Eligible Employee on the first Semiannual
Period of Participation will be eligible to become a participant (a
"Participant") in the Stock Purchase Plan. "Eligible Employee" means any person
who is engaged, on a regularly-scheduled basis of more than 20 hours per week
for more than five months per calendar year, in rendering personal services to
the Company as an employee for earnings considered wages under Section 3401(a)
of the Code. The approximate number of persons currently eligible to participate
in the amended Stock Purchase Plan is 175. "Semiannual Period of Participation"
means each semiannual period for which a Participant actually participates in an
offering period in effect under the Stock Purchase Plan. The Plan Administrator
(as defined below) may designate between one and four Semiannual Periods of
Participation within each offering period. The first such semiannual period
commenced on January 1, 1995, and extended through the last business day in
June, 1995. Subsequent semiannual periods have been and will be measured from
the first business day of July to the last business day of December each
calendar year and from the first business day in January in the succeeding
calendar year to the last business day of June in that calendar year. An
offering period and a Semiannual Period of Participation may be coincident under
the Stock Purchase Plan.
Each person who is an Eligible Employee on the start date of any offering period
shall be eligible to begin participation in that offering period on such start
date, which shall become such person's entry date ("Entry Date") for the
offering period. If an Eligible Employee elects not to become a Participant at
the start date of an offering period, then such person may not subsequently
become a Participant in that particular offering period but will be eligible to
become a Participant at the start date of a subsequent offering period. A person
who first becomes an Eligible Employee after the start date of any offering
period may enter that offering period only on the first semiannual Entry Date,
which shall become such person's Entry Date, after the person becomes an
Eligible Employee or may enter a subsequent offering period at its start date. A
Participant's Entry Date shall be considered the date of the grant of purchase
rights to acquire shares of Common Stock.
To participate in the Stock Purchase Plan for a particular offering period, an
Eligible Employee must complete the enrollment forms, including a purchase
agreement and a payroll deduction authorization, prescribed by the Plan
Administrator on or before the start date of the offering period. The payroll
deduction authorized by a Participant for purposes of acquiring Common Stock may
be between 1% and 15% of the Participant's base salary, excluding overtime,
bonuses, commissions (other than those functioning as base salary equivalents),
severance payments, profit-sharing distributions and other incentive-type
payments. All amounts collected by payroll deduction shall be credited to the
Participant's book account under the Stock Purchase Plan, but no interest shall
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be paid on the balance of the account. A Participant who is not deemed to be an
"affiliate" of the Company within Section 16 of the Exchange Act may at any time
during a Semiannual Period of Participation reduce the rate of payroll deduction
to become effective as soon as practicable after filing the requisite form with
the Plan Administrator. A Participant may make only one such payroll reduction
during a Semiannual Period of Participation. Prior to the start of any new
Semiannual Period of Participation, a Participant may increase the percentage
payroll deduction by filing the requisite form with the Plan Administrator, and
the new percentage will become effective as of the first day of the next
Semiannual Period of Participation.
Termination of a Participant's employment for any reason, including retirement,
death, discharge or permanent and total disability, immediately cancels
participation in the Stock Purchase Plan. In such event, the payroll deductions
credited to the Participant's account will be returned to such Participant as
soon as practicable or in the case of death, to the Participant's legatees,
executors, distributees or personal representatives, without interest.
ADMINISTRATION. The Stock Purchase Plan is administered by the Compensation
Committee of the Board, as plan administrator thereunder (the "Plan
Administrator"). The Stock Purchase Plan requires that the Compensation
Committee, acting as Plan Administrator, be composed of not less than two
members of the Board, each of whom is to be a "disinterested Person" within the
meaning of Rule 16b-3 of the Exchange Act. Accordingly, members of the
Compensation Committee are not eligible to participate in the Stock Purchase
Plan. The Compensation Committee is authorized (1) to establish the duration of
offering periods, (2) to prescribe forms, (3) to collect payroll deductions and
to issue Common Stock within the provisions of the Stock Purchase Plan, (4) to
adjust (i) the class and maximum number of securities issuable over the term of
the Stock Purchase Plan, (ii) the class and maximum number of securities
purchasable per Participant on any semiannual purchase date under the Stock
Purchase Plan (each, a "Semiannual Purchase Date") and (iii) the class and
number of securities and the price per share in effect under each purchase right
at the time outstanding under the Stock Purchase Plan, all in the event that any
change is made to the Company's outstanding Common Stock by reason of any stock
dividend, stock split, exchange or combination of shares, recapitalization or
any other change in the capital structure of the Company affecting the Common
Stock as a class without the Company's receipt of consideration, (5) to
terminate all outstanding purchase rights under the Stock Purchase Plan
immediately following the close of any Semiannual Period of Participation,
thereby terminating the Stock Purchase Plan in its entirety, (6) to interpret
the provisions of the Stock Purchase Plan and adopt rules and regulations for
the administration of the Stock Purchase Plan, and (7) to otherwise supervise
the administration of the Stock Purchase Plan. Decisions of the Plan
Administrator are final and binding.
AMENDMENT AND TERMINATION. The Stock Purchase Plan will terminate on the earlier
of the last business day in December, 2003 or the date on which all shares of
Common Stock available for issuance under the Stock Purchase Plan have been sold
pursuant to purchase rights exercised thereunder. The Board of Directors may
alter, amend, suspend or discontinue the Stock Purchase Plan following any
Semiannual Period of Participation; provided, however, that the Board may not,
without the authorization of the Company's shareholders, (i) increase the number
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of shares of Common Stock issuable under the Stock Purchase Plan or the maximum
number of shares purchasable per Participant on any one Semiannual Purchase
Date, except by reason of any stock dividend, stock split, exchange or
combination of shares, recapitalization or any other change affecting the Common
Stock as a class without the Company's receipt of consideration, (ii) alter the
purchase price formula so as to reduce the purchase price payable for the Common
Stock purchasable under the Stock Purchase Plan, (iii) materially increase the
benefits accruing to Participants under the Stock Purchase Plan, or (iv)
materially modify the requirements for participation in the Stock Purchase Plan.
PURCHASE RIGHTS. By executing a purchase agreement and a payroll deduction
authorization, a Participant is entitled to have shares of Common Stock
purchased under the Stock Purchase Plan and issued directly to the Participant.
Unless participation is terminated, shares of Common Stock will be purchased
directly from the Company or in open market transactions from funds available in
the Participant's account on each Semiannual Purchase Date, at a purchase price
per share equal to 85% of the lower of (i) the fair market value per share of
Common Stock on the Participant's Entry Date into that offering period or (ii)
the fair market value per share of Common Stock on that Semiannual Purchase
Date. For purposes of the Stock Purchase Plan, the fair market value of the
Company's Common Stock equals the closing selling price on the date in question
as reported by the Nasdaq National Market. The fair market value of the Common
Stock on the Record Date was $5.75 per share. For each Participant whose Entry
Date is other than the start date of the offering period, in no event shall the
per share fair market value computed in clause (i) above be less than the per
share fair market value of the Common Stock on the start date of that offering
period. The number of shares purchased per Participant on each Semiannual
Purchase Date during each offering period shall be the whole number of shares
derived from dividing the amount collected from the Participant's payroll
deductions during the Semiannual Period of Participation plus any carryover
deductions from the preceding Semiannual Period of Participation by the purchase
price in effect for the Semiannual Purchase Date.
No Participant may be granted rights to purchase any Common Stock under the
Stock Purchase Plan (i) if immediately after such grant such person would own
Common Stock or hold outstanding options to acquire Common Stock possessing in
the aggregate 5% or more of the total combined voting power of all classes of
securities of the Company, or (ii) if the grant would permit the Participant to
purchase Common Stock which when aggregated with rights to purchase Common Stock
accrued under any other purchase right outstanding under the Stock Purchase Plan
and similar rights accrued under any other employee stock purchase plans (within
the meaning of Section 423 of the Code) of the Company, would otherwise permit
such Participant to purchase more than $25,000 worth of Common Stock of the
Company for each calendar year that such purchase rights are at any time
outstanding. Any payroll deductions not applied to purchase shares of Common
Stock on a Semiannual Purchase Date shall be held for the purchase of Common
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Stock on the next Semiannual Purchase Date; provided, however, that any payroll
deductions not applied to the purchase of Common Stock because of the limitation
on the maximum number of shares purchasable by the Participant shall be refunded
to the Participant as soon as practicable. If the total number of shares of
Common Stock which are to be purchased on any Semiannual Purchase Date exceed
the number of shares then available for issuance under the Stock Purchase Plan,
the Plan Administrator shall make a pro rata allocation of the available shares
on a uniform and nondiscriminatory basis, and unapplied balances of
Participants' accounts shall be refunded as soon as practicable.
Purchase rights may be terminated under the Stock Purchase Plan. During a
Semiannual Period of Participation, a Participant who is not deemed to be an
"affiliate" of the Company may terminate all purchase rights by filing the
required notification form with the Plan Administrator. No further payroll
deductions will be collected from the Participant, and any payroll deductions
collected for the Semiannual Period of Participation in which such termination
occurs shall, at the Participant's election, be refunded or held for the
purchase of shares of Common Stock on the Semiannual Purchase Date immediately
following such termination. Any such termination of purchase rights shall be
irrevocable, and the Participant will be ineligible to rejoin the offering
period for which the terminated purchase rights were granted. Provided that the
Participant is an Eligible Employee, the Participant may rejoin the Stock
Purchase Plan and recommence payroll deductions at the next offering period. If
the Participant ceases to be an Eligible Employee for any reason while purchase
rights remain outstanding, then all purchase rights shall immediately terminate
and the balance of the Participant's account will be refunded to the Participant
as soon as practicable.
A Participant shall have no rights as a stockholder with respect to any purchase
rights until the shares of Common Stock are actually purchased on behalf of the
Participant. A Participant shall receive, as soon as practicable after each
Semiannual Purchase Date, a stock certificate for the number of shares of Common
Stock purchased on the Participant's behalf, or, alternatively, the Participant
may request that the certificate be issued in "street name" for deposit in a
Company-designated brokerage account. A Participant shall not be able to assign
any purchase rights.
CHANGE IN OWNERSHIP. If a Change in Ownership occurs, then all outstanding
purchase rights under the Stock Purchase Plan shall automatically be exercised
immediately prior to the effective date of such Change in Ownership by
purchasing shares of Common Stock, using the proceeds of the Participants'
accounts, at a purchase price equal to 85% of the lower of (i) the fair market
value per share of Common Stock on the Participant's Entry Date into the
offering period during which the Change in Ownership occurs or (ii) the fair
market value per share of Common Stock immediately prior to the effective date
of such Change in Ownership. For each Participant whose Entry Date is other than
the start date of the offering period, in no event shall the per share fair
market value computed in clause (i) above be less than the per share fair market
value of the Common Stock on the start date of that offering period. The Company
will use its best efforts to provide the Participants at least 10 days prior
written notice of any Change in Ownership.
For purposes of the Stock Purchase Plan, "Change in Ownership" means (i) a
merger or consolidation in which the Company is not the surviving entity, except
for a transaction the principal purpose of which is to change the state in which
the Company is incorporated, (ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Company in complete liquidation or
dissolution of the Company, or (iii) any reverse merger in which the Company is
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the surviving entity but in which securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from the persons holding those
securities immediately prior to such merger.
SPECIAL RULES FOR AFFILIATES.
No person who acquires shares of Common Stock under the Stock Purchase Plan may,
during any period of time that such person is an "affiliate" of the Company
within the meaning of the Exchange Act, offer to sell such shares of Common
Stock unless such offer and sale is made (i) pursuant to an effective
registration statement under the Securities Act, or (ii) pursuant to an
appropriate exemption from the registration requirements of the Securities Act,
such as that set forth in Rule 144 promulgated thereunder.
Under Section 16 of the Exchange Act, any person who is a beneficial owner of
more than 10% of any equity security of the Company registered under the
Exchange Act (such as the Common Stock of the Company), or an executive officer
or director of the Company, is deemed to be an "affiliate" of the Company and
may be liable to the Company for any profit realized from any sale of Common
Stock or any other equity security of the Company within a period of less than
six months before or after any purchase of an equity security of the Company,
irrespective of the intention on the part of such person in entering into the
transaction.
In addition, a Participant who is deemed to be an affiliate of the Company may
not, during any Semiannual Period of Participation, reduce or suspend payroll
deductions but may do so at the commencement of the next Semiannual Period of
Participation. The Plan Administrator will administer the Stock Purchase Plan in
order to assure that any affiliate Participant's discontinuation of
participation, increase or decrease of payroll deductions or commencement or
termination of participation in the Stock Purchase Plan will be effected in
compliance with the exemptions from liability under Section 16(b) of the
Exchange Act as set forth in Rule 16b-3 promulgated thereunder.
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FEDERAL INCOME TAX CONSIDERATIONS
The discussion that follows is a summary, based upon current law, of the federal
income tax consequences of participation in the Stock Purchase Plan. The
following discussion does not address state, local or foreign tax consequences.
The Stock Purchase Plan and the rights of Participants to make purchases
thereunder are intended to qualify under the provisions of Sections 421 and 423
of the Code. Under such provisions, no income will be taxable to a Participant
at the time of grant or purchase of shares of Common Stock; however, a
Participant may become liable for income tax upon a disposition of shares
acquired under the Stock Purchase Plan, and the income tax consequences will
depend upon how long a Participant has held the shares before disposition.
Payroll deductions remain fully taxable as ordinary income at the time the
deduction is taken, and there is no deferral of the income tax assessed on the
deduction.
If the shares of Common Stock are sold or disposed of at least two years after
the date of grant of purchase rights and at least one year after the date of
purchase, then the lesser of (i) the excess of the fair market value of the
shares at the time of such disposition over the purchase price of the shares or
(ii) the excess of the fair market value of the shares on the date of grant of
purchase rights over the purchase price, will be treated as ordinary income to
the Participant. Any further gain upon such disposition will be taxed as a
long-term capital gain at the income tax rates then in effect. If the shares are
sold and the sale price is less than the purchase price, then there is no
ordinary income, and the Participant will have a long-term capital loss equal to
the difference between the sale price and the purchase price. The ability of a
Participant to utilize such a capital loss will depend upon the Participant's
other tax attributes and the statutory limitations on capital loss deductions
not discussed herein.
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If the shares of Common Stock are sold or disposed of before the expiration of
the two-year holding period described above and within one year after the date
of purchase, then the excess of the fair market value of the shares on the date
of purchase over the purchase price will be treated as ordinary income to the
Participant and is subject to withholding. This excess will constitute ordinary
income for the year of sale or other disposition even if no gain is realized on
the sale or a gratuitous transfer of shares is made. The balance of the gain
will be taxed as a capital gain at the rates then in effect. If the shares of
Common Stock are sold for less than their fair market value on the date of
purchase, then the same amount of ordinary income will be attributed to the
Participant and a capital loss will be recognized equal to the difference
between the sale price and the fair market value of the shares on the date of
purchase. The ability of a Participant to utilize such a capital loss will
depend upon the Participant's other tax attributes and the statutory limitations
on capital loss deductions not discussed herein.
The ordinary income reported under the rules described above, plus the actual
purchase price of the shares of Common Stock, determines the tax basis of the
shares for purposes of determining gain or loss on the sale or disposition of
the shares.
In addition to the foregoing federal tax consequences, the disposition of Common
Stock acquired under the Stock Purchase Plan will in most cases be subject to
state income taxation.
Under currently existing law, the Company is entitled to a deduction for
financial statement and federal income tax purposes for amounts taxed as
ordinary income to a Participant only to the extent that ordinary income must be
reported upon disposition of the shares of Common Stock by a Participant before
the expiration of the holding periods described above.
VOTING REQUIREMENTS
The affirmative vote of holders of a majority of the outstanding shares of
Common Stock of the Company entitled to vote and present in person or by proxy
at the annual meeting of shareholders is required for approval of the amendments
to the Stock Purchase Plan. Proxies solicited by the Board of Directors will be
voted for approval of the amendments to the Stock Purchase Plan. Shareholders
are not entitled to cumulate votes.
For this purpose, a shareholder voting through a proxy who abstains with respect
to approval of the amendments to the Stock Purchase Plan is considered to be
present and entitled to vote on the approval of the amendments at the meeting,
and is in effect a negative vote, but a shareholder (including a broker) who
does not give authority to a proxy to vote on the approval of the amendments
shall not be considered present and entitled to vote on the Stock Purchase Plan.
If the shareholders do not approve the amendments, the amendments will not
become effective, and the Stock Purchase Plan will remain in effect under its
original terms, including the provisions limiting the number of shares issuable
thereunder to a maximum of 200,000, and limiting the number of shares
purchasable by any Participant on a Semiannual Purchase Date to 500.
25
<PAGE>
ITEM NO. 3
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of its Audit Committee, has
selected KPMG LLP as independent certified public accountants to audit the
consolidated financial statements of the Company for the fiscal year ending June
30, 2000, and to perform other accounting services as requested by the Company.
KPMG LLP has acted as independent certified public accountants of the Company
since its appointment in 1990.
Representatives of KPMG LLP are expected to be present at the 1999 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 LLP to the shareholders for ratification. Unless a contrary
choice is specified, proxies will be voted for ratification of the selection of
KPMG LLP. The Board of Directors unanimously recommends the ratification of its
selection of KPMG LLP as the Company's independent certified public accountants
for the fiscal year ending June 30, 2000.
SHAREHOLDER PROPOSALS TO BE PRESENTED
AT THE NEXT ANNUAL MEETING
Any shareholder proposals intended to be presented at the Company's 2000 annual
shareholders' meeting must be received by the Company no later than May 30,
2000, 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 2000
annual meeting, except in circumstances where (i) the Company receives notice of
the proposed matter no later than August 14, 2000, 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.
26
<PAGE>
1999 ANNUAL REPORT ON FORM 10-K
Copies of the Company's annual report on Form 10-K for the fiscal year ended
June 30, 1999, 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, Cambridge, Massachusetts 02142.
By the Board of Directors,
/s/ Sheldon M. Schenkler
Sheldon M. Schenkler
Chief Financial Officer and Secretary
27
<PAGE>
PROXY
ARTISOFT, INC.
5 CAMBRIDGE CENTER, CAMBRIDGE, MASSACHUSETTS 02142
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned appoints Michael P. Downey, T. Paul Thomas and James L. Zucco,
Jr., and each of them, as proxies, each with the power to appoint a substitute,
and authorizes them to represent and vote, as designated on the reverse side
hereof, all shares of common stock of Artisoft, Inc. held by the undersigned on
September 10, 1999, at the annual shareholders' meeting to be held on November
2, 1999, and at any adjournment or postponement of the meeting. In their
discretion, the proxies are authorized to vote such shares upon such other
business as may properly come before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
ARTISOFT, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY [X]
The Board of Directors recommends a vote FOR FOR WITHHOLD FOR ALL
each of the proposals listed below. ALL ALL EXCEPT*
1. Election of Directors-
NOMINEES: Kathryn B. Lewis [ ] [ ] [ ]
James L. Zucco, Jr. [ ] [ ] [ ]
FOR AGAINST ABSTAIN
2. Approval of amendments to the Artisoft, Inc. [ ] [ ] [ ]
Employee Stock Purchase Plan.
FOR AGAINST ABSTAIN
3. Ratification of the appointment of KPMG LLP [ ] [ ] [ ]
as independent certified public accountants.
This proxy, when properly executed, will be voted in the manner directed by the
undersigned shareholder(s). If no direction is made, the proxy will be voted FOR
each of the listed proposals and, with respect to any other business as may
properly come before the meeting, in accordance with the discretion of the
proxies.
Dated: _________________________________
Signature: _____________________________________________________________________
________________________________________________________________________________
Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
