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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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
SPECTRUM HOLOBYTE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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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):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 19, 1996
TO OUR STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders of
Spectrum HoloByte, Inc. (the "Company") to be held at the
, at a.m., local time, on September , 1996 for the following
purposes:
1. To elect directors to serve for the ensuing year or until their
successors are elected;
2. To approve an amendment to the Company's 1994 Stock Option Plan to
increase the number of shares of Common Stock for issuance thereunder by
1,000,000 shares to shares;
3. To amend the Company's Certificate of Incorporation to change the
Company's name from Spectrum HoloByte, Inc. to MicroProse, Inc.;
4. To ratify the selection of Coopers & Lybrand, LLP, as independent public
accountants for the Company for the fiscal year ending March 31, 1997;
and
5. To act upon such other business as may properly come before the meeting
or at any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on July 26, 1996 as
the record date for determining those stockholders who will be entitled to vote
at the meeting. The stock transfer books will not be closed between the record
date and the date of the meeting.
Representation of at least a majority of all of the Company's outstanding
shares on the record date is required to constitute a quorum. Accordingly, it is
important that your shares be represented at the meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. You may revoke your proxy at any
time prior to the time it is voted. If you attend the Annual Meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
Annual Meeting will be counted.
Sincerely,
(sig)
Stephen M. Race
CHIEF EXECUTIVE OFFICER
Alameda, California
August , 1996
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STOCKHOLDERS SHOULD READ THE ENTIRE PROXY STATEMENT
CAREFULLY PRIOR TO RETURNING THEIR PROXIES
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS OF
SPECTRUM HOLOBYTE, INC.
TO BE HELD SEPTEMBER , 1996
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Spectrum HoloByte, Inc. ("Spectrum HoloByte" or the
"Company") of proxies to be voted at the Annual Meeting of Stockholders, which
will be held at a.m., local time, on September , 1996 at
, or at any adjournments or postponements thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
This Proxy Statement and the proxy card were first mailed to stockholders on or
about August , 1996
VOTING RIGHTS AND SOLICITATION
The close of business on July 26, 1996 was the record date for stockholders
entitled to notice of and to vote at the Annual Meeting. As of that date,
Spectrum HoloByte had shares of Common Stock, $.001 par value per share
(the "Common Stock"), 4,000,000 shares of Series A Preferred Stock issued and
outstanding, 750,000 shares of Series B Convertible Preferred Stock issued and
outstanding, and 1,168,860 shares of Series B-1 Convertible Preferred Stock
issued and outstanding. All of the shares of the Company's Common Stock
outstanding on the record date are entitled to vote at the Annual Meeting and
stockholders of record entitled to vote at the meeting will have one (1) vote
for each share so held on the matters to be voted upon. The 4,000,000 shares of
Series A Preferred Stock outstanding on the record date, which are convertible
into an aggregate of 196,078 shares of Common Stock, the 750,000 shares of
Series B Convertible Preferred Stock, which are convertible into an aggregate of
750,000 shares of Common Stock, and the 1,168,860 shares of Series B-1
Convertible Preferred Stock, which are convertible into an aggregate of
1,168,860 shares of Common Stock, are all entitled to vote at the Annual Meeting
on an as-converted to Common Stock basis.
Shares of the Company's Common Stock represented by proxies in the
accompanying form that are properly executed and returned to Spectrum HoloByte
will be voted at the Annual Meeting of Stockholders in accordance with the
stockholders' instructions contained therein. In the absence of contrary
instructions, shares represented by such proxies will be voted FOR the election
of each of the directors as described herein under "Proposal 1 -- Election of
Directors," FOR the approval of the amendment to the Company's 1994 Stock Option
Plan as described herein under "Proposal 2 -- Approval of Amendment to the 1994
Stock Option Plan," FOR the approval of the amendment to the Company's
Certificate of Incorporation as described herein under "Proposal 3 -- Approval
of Amendment to Company's Certificate of Incorporation to Change Its Name" and
FOR ratification of the selection of accountants as described herein under
"Proposal 4 -- Ratification of Selection of Independent Public Accountants."
Management does not know of any matters to be presented at this Annual Meeting
other than those set forth in this Proxy Statement and in the Notice
accompanying this Proxy Statement. If other matters should properly come before
the meeting, the proxy holders will vote on such matters in accordance with
their best judgment. Any stockholder has the right to revoke his or her proxy at
any time before it is voted. Abstentions and broker non-votes are each included
in the determination of the number of shares present for quorum purposes.
Abstentions are counted in tabulations of the votes cast on proposals presented
to stockholders, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
The entire cost of soliciting proxies will be borne by Spectrum HoloByte.
Proxies will be solicited principally through the use of the mails, but, if
deemed desirable, may be solicited personally or by telephone, telegraph or
special letter by officers and regular Spectrum HoloByte employees for no
additional compensation. In addition, the Company may engage a proxy
solicitation service to aid in the solicitation of proxies, for which the
Company would pay customary fees not to exceed $10,000, plus
<PAGE>
expenses. Arrangements may also be made with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy material to the
beneficial owners of the Company's Common Stock, and such persons may be
reimbursed for their expenses.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be considered at the 1997 Annual Meeting
of Stockholders must be received by no later than March , 1997. The proposal
must be mailed to the Company's principal executive offices, 2490 Mariner Square
Loop, Suite 100, Alameda, California 94501, Attention: Corporate Secretary. Such
proposals may be included in next year's proxy statement if they comply with
certain rules and regulations promulgated by the Securities and Exchange
Commission.
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL 1:
ELECTION OF DIRECTORS
The nominees for the Board of Directors are set forth below. The proxy
holders intend to vote all proxies received by them in the accompanying form for
the nominees for directors listed below. In the event any nominee is unable or
declines to serve as a director at the time of the Annual Meeting, the proxies
will be voted for any nominee who shall be designated by the present Board of
Directors to fill the vacancy. In the event additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them for the nominees listed below. Soo Boon Koh, a current director of the
Company, has elected not to pursue an additional term as a director of the
Company. As of the date of this Proxy Statement, the Board of Directors is not
aware of any other nominee who is unable or will decline to serve as a director.
NOMINEES TO BOARD OF DIRECTORS
<TABLE>
<CAPTION>
NAME DIRECTOR SINCE AGE
- ------------------- --------------- ---
<S> <C> <C>
Gilman G. Louie 1993 36
David C. Costine 1990 55
Vinod Khosla 1993 41
Stephen M. Race 1995 46
Keith Schaefer 1993 47
</TABLE>
GILMAN G. LOUIE has served as Chairman of the Board of Directors of the
Company since December 14, 1993, the effective date of the merger (the "Merger
Date") between Spectrum HoloByte, Inc., a California corporation (which for the
purposes of this section shall be referred to as "Spectrum HoloByte") and
MicroProse, Inc. (the Company prior to the Merger Date, also referred to in this
section as "MicroProse") (the "Merger"). Mr. Louie also served as Chief
Executive Officer of the Company from May 1, 1995 to August 15, 1995. Prior to
the Merger, Mr. Louie served as Chairman of the Board of Spectrum HoloByte since
its inception in September 1992. He has served as a director of the Company
since June 1993. In 1983, Mr. Louie became President and Chairman of the Board
of Nexa Corporation, a company specializing in developing software for the
microcomputer, which merged with another company to form Sphere, Inc. in 1986.
Mr. Louie then served as Chief Executive Officer and Chairman of the Board for
Sphere, Inc., where he designed Falcon. Mr. Louie holds a Bachelor's degree in
Business Administration from San Francisco State University where he graduated
magna cum laude.
DAVID C. COSTINE has served as a director of the Company since November
1990. Since 1987, Mr. Costine has been President of Costine Management Co. Since
1988, he has been a General Partner of Costine Associates, L.P., which is the
General Partner of Corporate Venture Partners, L.P., a venture capital fund that
is a stockholder of the Company. From 1982 to 1987, he served as General Partner
of Venturtech Associates,
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L.P., the General Partner of Venturtech II, L.P., a venture capital fund. He
currently serves on the Board of Directors of Yes! Entertainment and two private
companies. Mr. Costine has a Bachelor's degree in Mechanical Engineering from
Cornell University and an M.B.A. from Harvard University.
VINOD KHOSLA has been a director of the Company since the Merger Date and of
Spectrum HoloByte since its inception in September 1992. He has been a General
Partner at Kleiner Perkins Caufield & Byers, a venture capital firm, since
November 1987. Mr. Khosla was a co-founder of Daisy Systems, Inc., a computer
aided engineering company, and President and co-founder of Sun Microsystems, a
computer technology company. He currently serves on the Board of Directors of
PictureTel, the 3DO Company (a producer of next generation game platforms),
Excite, Inc., and several private companies. Mr. Khosla holds a Bachelor of
Technology in Electrical Engineering from the Indian Institute of Technology in
New Delhi, a Master's Degree in Biomedical Engineering from Carnegie Mellon
University and an M.B.A. from the Stanford University Graduate School of
Business.
STEPHEN M. RACE has been a director and the Chief Executive Officer of the
Company since August 1995. From May 1994 until August 1995, Mr. Race served as
president of Sony Computer Entertainment of America. Prior to joining Sony
Computer Entertainment of America, Mr. Race directed his own consulting practice
and served as a consultant to a variety of computer software and hardware
companies from July 1991 until May 1994. He also served as General Manager,
Athletic Footwear for Reebok International Ltd. from November 1990 to June 1991
and as Chairman and Chief Executive Officer of Homestar International from April
1987 to October 1990. Mr. Race has a B.S. in economics and an M.S. in Energy and
Power Management from the University of Pennsylvania and an M.B.A. from the
Wharton Graduate School of Finance and Commerce.
KEITH SCHAEFER has been a director of the Company since the Merger Date and
of Spectrum HoloByte since March 1993. He is currently President and Chief
Executive Officer of OnLive! Technologies, Inc., a privately held on-line
services and interactive television company. From October 1992 until June 1994,
Mr. Schaefer served as President of Paramount Communications Technology Group,
Inc., a global entertainment and communications company. Prior to joining
Paramount Communications Technology Group, Inc., Mr. Schaefer was President and
Chief Executive Officer of Computer Curriculum Corporation, a Paramount
Communications Company. From January 1991 to July 1991, he was President and
Chief Executive Officer of WOW, Inc. He has a B.A. from the University of
Pittsburgh and attended the University of California, Los Angeles Graduate
School of Business.
There are no family relationships among executive officers or directors of
the Company.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended March 31, 1996, the Board of Directors of the
Company held a total of six meetings. During this period, each director attended
or participated in at least 75% of the aggregate of (i) the total number of
meetings of the Board that were held while they were members and (ii) the total
number of meetings held by all committees of the Board of which they were
members.
The Company has an Audit Committee and a Compensation Committee of the Board
of Directors. There is no nominating committee or committee performing the
functions of such committee.
The Audit Committee meets with the Company's financial management and its
independent accountants at various times during each year and reviews internal
control conditions, audit plans and results, and financial reporting procedures.
This Committee, consisting of Messrs. Costine and Schaefer, held two meetings
during fiscal 1996. Currently, the Committee consists of Messrs. Costine and
Schaefer.
The Compensation Committee reviews and makes recommendations with respect to
matters related to the hiring, employment and compensation of the Company's
officers and employees. This Committee, consisting of Mrs. Koh and Messrs.
Schaefer and Khosla, held four meetings during fiscal 1996. Upon the expiration
of Mrs. Koh's term as a director of the Company, the Committee will consist of
Messrs. Schaefer and Khosla.
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DIRECTOR REMUNERATION
Members of the Board are reimbursed for all out-of-pocket costs incurred in
connection with their attendance at Board and committee meetings. Although the
Board of Directors may fix the compensation of directors and committee members
and may pay a salary or a fixed sum for each meeting attended, no such cash
compensation is currently paid to the directors. Under the automatic option
grant program in effect under the Company's 1994 Stock Option Plan, an
individual who first becomes a non-employee member of the Board will receive an
automatic one-time option grant for 10,000 shares of the Company's Common Stock
upon commencement of Board service, and each individual with six or more months
of Board service will receive an automatic option grant for an additional 2,500
shares at each Annual Stockholders Meeting at which he or she continues to serve
as a non-employee Board member. Accordingly, Mrs. Koh and Messrs. Costine,
Khosla, Rowbotham, Douglas and Schaefer were granted options for 10,000 shares
of the Company's Common Stock at an exercise price of $9.75 per share on
December 16, 1993 and options for 2,500 shares of the Company's Common Stock at
an exercise price of $13.25 on September 21, 1994, Mrs. Koh and Messrs. Costine,
Khosla and Schaefer were granted options for 2,500 shares of the Company's
Common Stock at an exercise price of $11.25 on October 5, 1995, and Messrs.
Costine, Khosla and Schaefer will be granted options for 2,500 shares of the
Company's Common Stock on the date of the 1996 Annual Meeting. See Proposal 2
for a detailed description of these option grants.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
election of each of the above nominees.
PROPOSAL 2:
APPROVAL OF AMENDMENT TO THE 1994 STOCK OPTION PLAN
INTRODUCTION
The stockholders are being asked to vote on a proposal to amend the
Company's 1994 Stock Option Plan ("Option Plan"). The Option Plan was amended on
June 26, 1996 to increase the number of shares of Common Stock authorized for
issuance thereunder by 1,000,000 shares to shares in the aggregate. The
1994 Stock Option Plan was adopted by the Company's Board of Directors ("Board")
to be effective as of May 5, 1994. The Option Plan is the successor to the 1991
Employee Stock Option Plan ("1991 Option Plan"), and all outstanding stock
options under the 1991 Option Plan have been incorporated into the Option Plan.
The terms and provisions of the Option Plan are summarized below. The
summary, however, does not purport to be a complete description of the Option
Plan. Copies of the actual plan document may be obtained by any stockholder upon
written request to the Secretary of the Company at the corporate offices in
Alameda, California.
PLAN STRUCTURE; ELIGIBILITY
The Option Plan is comprised of two (2) parts: a discretionary option grant
program and an automatic option grant program. Under the discretionary option
grant program, options may be granted to employees (including officers),
consultants and other independent contractors of the Company or its parent or
subsidiaries who contribute to the management, growth and financial success of
the Company or its parent or subsidiaries. Under the automatic grant program,
options are automatically granted to the non-employee members of the Board.
As of July 26, 1996, approximately employees (including
executive officers) and consultants and independent contractors, were
eligible to participate in the Option Plan and three non-employee Board members
were eligible for automatic option grants.
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ADMINISTRATION
The Plan is currently administered by the Compensation Committee appointed
by the Board (the "Committee"). Administration of the Plan with respect to
officers subject to Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act") shall be by members who are "disinterested persons" as that term
is defined in Rule 16b-3 under that Act to the extent necessary to satisfy such
rule.
The Committee has the exclusive authority, subject to the provisions of the
Option Plan, to determine the eligible individuals who are to receive
discretionary options under the Option Plan, the number of shares to be covered
by each granted option, the date or dates on which the option is to become
exercisable and the maximum term for which the option is to remain outstanding.
The Committee also has the authority to determine whether the granted option is
to be an incentive stock option under the Federal tax laws and to establish
rules and regulations for proper plan administration. The automatic grant
program is self-administering.
ISSUABLE SHARES
The aggregate number of shares available for issuance under the Option Plan
may not exceed . The pool of shares reserved under the Option Plan
consists of (i) the number of shares that remained available for issuance under
the 1991 Option Plan, including the shares subject to outstanding options
incorporated into the Option Plan and any other shares that were otherwise
available for future option grants under the 1991 Option Plan as of May 5, 1994
plus (ii) an additional 3,000,000 shares authorized by the Board for issuance
under this Plan and previously approved by the Company's stockholders and (iii)
an increase of 1,000,000 shares, which is the subject of this Proposal 2. This
amount is subject to adjustment from time to time in the event of certain
changes in the Company's capital structure. To the extent any of the
incorporated options are subsequently exercised, the number of shares issued
under those options will reduce, on a share-for-share basis, the number of
shares available for issuance under the Option Plan. In no event may any one
person acquire shares of Common Stock under the Option Plan in excess of 35% of
the total share reserve available for issuance under the Option Plan. The
foregoing limitation shall not be applicable to options granted on or before
December 31, 1993. The stockholders have previously approved the Option Plan and
a share reserve of 4,464,321 shares.
Should any option under the Option Plan expire or terminate prior to
exercise or surrender in full (including any options incorporated from the 1991
Option Plan), the shares subject to the portion of the option not so exercised
or surrendered will be available for subsequent option grants. Shares subject to
any option surrendered in accordance with the option surrender provisions of the
Option Plan and all share issuances under the Option Plan, whether or not the
shares are subsequently repurchased by the Company pursuant to its repurchase
rights under the Option Plan, will reduce on a share-for-share basis the number
of shares available for subsequent option grants.
OPTION PRICE AND EXERCISABILITY
The exercise price of options issued under the Option Plan will be
determined by the Committee, but may not be less than the fair market value of
the Common Stock on the grant date for an incentive option and not less than 85%
of fair market value for a non-statutory option, and the maximum period during
which any option may remain outstanding may not exceed ten (10) years.
Options issued under the Option Plan may become exercisable in cumulative
increments over a period of months or years as determined by the Committee. The
option price may be paid in cash or in shares of Common Stock valued at fair
market value on the exercise date. Outstanding options may also be exercised
through a same-day sale program, pursuant to which a designated brokerage firm
is to effect an immediate sale of the shares purchased under the option and pay
over to the Company, out of the sales proceeds available on the settlement date,
sufficient funds to cover the option price for the purchased shares plus all
applicable withholding taxes.
The Committee may also assist any optionee (including an officer) in the
exercise of outstanding options under the discretionary option grant program by
authorizing a loan from the Company or permitting the optionee to pay the option
price in installments over a period of years. The terms and conditions of any
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such loan or installment payment will be established by the Committee in its
sole discretion, but in no event may the maximum credit extended to the optionee
exceed the aggregate option price payable for the purchased shares (less the par
value) plus any Federal, state or local income taxes or Federal employment taxes
incurred by the optionee in connection with the option exercise.
VALUATION
For purposes of establishing the option price and for all other valuation
purposes under the Option Plan, the fair market value per share of Common Stock
on any relevant date will be the closing selling price per share on such date,
as reported on the Nasdaq National Market. If there is no reported selling price
for such date, then the closing selling price for the last previous date for
which such quotation exists will be determinative of fair market value.
On July 26, 1996, the fair market value of the Common Stock was $ per
share.
TERMINATION OF SERVICE
Outstanding options under the Option Plan will terminate, with respect to
any shares for which such options are exercisable at the time of the optionee's
cessation of service with the Company, within three months following such
cessation of service (twelve months in the case of cessation of service due to
permanent disability). Under no circumstances, however, may any such option
remain exercisable after the specified expiration date of the option term.
Should the optionee die while in service or in the 3 month period following
his cessation of service, then the optionee's outstanding options may
subsequently be exercised by the personal representative of the optionee's
estate or by the persons to whom such options are transferred by the optionee's
will or by the laws of inheritance within twelve months following such
optionee's cessation of service.
During the applicable exercise period following the optionee's cessation of
service, the option may not be exercised for more than the number of option
shares for which the option is exercisable at the time of such cessation of
service. However, the Committee will have the discretionary authority to
accelerate in whole or in part the vesting of any outstanding options held by
the optionee and may exercise this discretion at any time while the option
remains outstanding.
For purposes of the Option Plan, the optionee will be deemed to be in the
service of the Company for so long as such individual renders periodic services
to the Company or any parent or subsidiary, whether as an employee, a member of
the Board of Directors or an independent consultant or advisor.
REPURCHASE RIGHTS
The shares of Common Stock purchased upon the exercise of options may be
subject to repurchase by the Company. Unvested shares of Common Stock acquired
under the discretionary grant program will be subject to repurchase by the
Company, at the original option price paid per share, upon the optionee's
cessation of service. The Committee has complete discretion in establishing the
vesting schedule for any unvested shares issued under the discretionary grant
program and may cancel the Company's outstanding repurchase rights with respect
to one or more unvested shares held by the optionee at the time of his or her
cessation of service. All shares subject to the Company's repurchase rights
under the discretionary grant program will immediately vest upon a Corporate
Transaction (as defined below), except to the extent the repurchase rights are
to be assigned to the successor entity or parent thereof.
STOCKHOLDER RIGHTS AND ASSIGNABILITY OF OPTIONS
No optionee is to have any stockholder rights with respect to the option
shares until such individual has exercised the option and paid the option price.
Options are not assignable or transferable other than by will or by the laws of
inheritance and, during the optionee's lifetime, the option may be exercised
only by the optionee.
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CORPORATE TRANSACTIONS
In the event of any of the following stockholder-approved transactions to
which the Company is a party (a "Corporate Transaction"):
(a) a merger or consolidation 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 those who
held those securities immediately prior to such transaction, or
(b) the sale, transfer or other disposition of all or substantially all
of the Company's assets in complete liquidation or dissolution of the
Company,
the exercisability of each outstanding option under the discretionary grant
program will automatically accelerate unless the option is either to be assumed
by the successor corporation (or its parent corporation) in such Corporate
Transaction or is otherwise to be replaced with a comparable option to purchase
shares of the capital stock of the successor corporation or parent thereof. To
the extent not assumed or exercised, each outstanding option will terminate and
cease to be outstanding upon consummation of the Corporate Transaction.
LIMITED STOCK APPRECIATION RIGHTS
In the discretion of the Committee, each officer of the Company subject to
the short-swing profit restrictions of the Federal securities laws may be
granted limited stock appreciation rights as part of any stock option grants
made to such officer under the Option Plan. Any option with such a limited stock
appreciation right in effect for at least six (6) months shall automatically be
cancelled upon the occurrence of a Hostile Take-Over (defined below), to the
extent the option is at the time exercisable for fully-vested shares. In return,
the optionee will be entitled to a cash distribution from the Company in an
amount equal to the excess of (i) the Take-Over Price (defined below) of the
shares of Common Stock at the time subject to the cancelled option over (ii) the
aggregate exercise price payable for such shares.
For purposes of such limited stock appreciation right, the following
definitions will be in effect.
HOSTILE TAKE-OVER: (i) the acquisition by any person or related group
of persons (other than the Company or its affiliates) of securities
possessing more than 50% of the combined voting power of the Company's
outstanding securities pursuant to a tender or exchange offer that the Board
does not recommend the Company's stockholders to accept and (ii) more than
50% of the securities so acquired in such tender or exchange offer are
accepted from holders other than officers and directors of the Company who
are subject to the short-swing profit restrictions of the Federal securities
laws.
TAKE-OVER PRICE: the greater of (i) the fair market value per share on
the date of cancellation, as determined in accordance with the valuation
provisions of the Option Plan described above, or (ii) the highest reported
price per share paid by the acquiring entity in effecting the Hostile
Take-Over.
SPECIAL TAX WITHHOLDING ELECTION
The Committee may in its discretion provide one or more option holders under
the discretionary option grant program with the election to have the Company
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of their options, a portion of such shares with an aggregate fair market value
equal to the designated percentage (up to 100%) of the Federal, state and local
income and employment tax liability incurred by such option holder in connection
with the exercise of such option. Any election so made will be subject to the
approval of the Committee. One or more option holders may also be granted the
alternative right, subject to Committee approval, to deliver previously-issued
shares of Common Stock in satisfaction of such tax liability.
CHANGES IN CAPITALIZATION
In the event any change is made to the Common Stock issuable under the
Option Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares, or other change in corporate
structure effected without the Company's receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and/or class of securities
issuable under the Option Plan, (ii) the
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number and/or class of securities and price per share in effect under each
outstanding option (including all option grants incorporated from the 1991
Option Plan), (iii) the number of shares to be made the subject of subsequent
automatic option grants, and (iv) the maximum number and/or class of shares
issuable to any one person under the Option Plan.
Each outstanding option that is assumed or is otherwise to continue in
effect after a merger or business combination will be appropriately adjusted to
apply and pertain to the number and class of securities that would have been
issuable, in connection with such merger or business combination, to an actual
holder of the same number of shares of Common Stock as are subject to such
option immediately prior to such merger or business combination. Appropriate
adjustments will also be made to the option price payable per share and to the
number and class of securities available for issuance under the Option Plan.
Option grants under the Option Plan will not affect the right of the Company
to adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
NON-EMPLOYEE DIRECTOR AUTOMATIC GRANT PROGRAM
The automatic grant program was approved by the Board in December 1993 as
part of the 1991 Option Plan, was approved by the stockholders at the 1994
Annual Meeting and was subsequently incorporated into the Option Plan. The
automatic option grant program under the Option Plan authorizes the grant of
non-statutory options to purchase shares of Common Stock to non-employee members
of the Board. Each non-employee Board member who was serving as a non-employee
Board member on December 16, 1993 was automatically granted, on that date,
options to purchase 10,000 shares of Common Stock. Each non-employee Board
member who first becomes a non-employee Board member at any time after December
16, 1993 shall automatically be granted at the time of such initial election or
appointment, provided they have not otherwise been in the prior employ of the
Company (or any parent or subsidiary), an option to purchase 10,000 shares of
Common Stock. At each Annual Meeting of Stockholders beginning with the 1994
Annual Meeting, each individual who is at the time serving as a non-employee
Board member will automatically be granted options to purchase 2,500 shares of
Common Stock on the date of the Annual Meeting, provided he or she has served as
a non-employee Board member for at least six months prior to the date of the
meeting.
The option price per share for each automatic grant will be the fair market
value per share of Common Stock on the date of grant, and the option price for
purchased shares will be payable in cash or shares of Common Stock or through a
cashless exercise procedure.
Automatic option grants become exercisable for 12% of the option shares upon
completion of six months of Board service, and for the balance of the option
shares in a series of 44 equal successive monthly installments thereafter,
provided the director remains a member of the Board through such date. However,
full and immediate vesting will occur upon a Corporate Transaction (as such term
is defined in the section above entitled "Corporate Transactions") and upon
certain hostile take-overs. Also, each automatic option grant will be
automatically cancelled upon the occurrence of a Hostile Take-Over (as such term
is defined in the section above entitled "Limited Stock Appreciation Rights"),
whether or not the option is otherwise at the time exercisable for such shares.
In return the optionee will be entitled to a cash distribution from the Company
in an amount equal to the excess of (i) the Take-Over Price (as such term is
defined in the section above entitled "Limited Stock Appreciation Rights") of
the shares of Common Stock subject to the surrendered option over (ii) the
aggregate exercise price payable for such shares.
Upon cessation of Board service, the options held by the director will
remain exercisable for six months. Should the optionee die while holding one or
more options, then those options may subsequently be exercised by the personal
representative of the optionee's estate or by the persons to whom such options
are transferred by the optionee's will or by the laws of inheritance within
twelve months of the director's death.
8
<PAGE>
AMENDMENT AND TERMINATION OF THE OPTION PLAN
The Board may amend or modify the Option Plan in any or all respects
whatsoever; provided, however, that no such amendment may adversely affect the
rights of outstanding option holders without their consent, and the Board may
not, without the approval of the Company's stockholders: (i) materially increase
the maximum number of shares issuable under the Option Plan or the number of
shares for which automatic grants may be made to non-employee Board members,
except in the event of certain changes to the Company's capital structure as
indicated above; (ii) materially modify the eligibility requirements for option
grants; or (iii) otherwise materially increase the benefits accruing to
participants under the Option Plan. Amendments to the automatic option grant
program and automatic options may not be effected at intervals more frequent
than once every six months.
The Board may terminate the Option Plan at any time, and the Option Plan
will in all events terminate not later than May 4, 2004. Any options outstanding
at the time of such plan termination will continue to remain outstanding and
exercisable in accordance with the terms and provisions of the instruments
evidencing those grants. The Option Plan will, however, automatically terminate
on the date all shares available for issuance are issued or cancelled.
FEDERAL TAX CONSEQUENCES
Options granted under the Option Plan may be either incentive stock options,
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options, which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as described
below:
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. However, the difference between the fair market
value of the purchased shares and the exercise price is generally included as
alternative minimum taxable income for purposes of the alternative minimum tax.
The optionee will recognize taxable income in the year in which the purchased
shares are sold or otherwise made the subject of disposition. For Federal tax
purposes, dispositions are divided into two categories: (i) qualifying and (ii)
disqualifying. The optionee will make a qualifying disposition of the purchased
shares if the sale or other disposition of such shares is made after the
optionee has held the shares for more than two (2) years after the grant date of
the option and more than one (1) year after the exercise date. If the optionee
fails to satisfy either of these two minimum holding periods prior to the sale
or other disposition of the purchased shares, then a disqualifying disposition
will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying disposition
of the shares, then the excess of (i) the fair market value of those shares on
the exercise date over (ii) the exercise price paid for the shares will be
taxable as ordinary income. Any additional gain recognized upon the disposition
will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the exercise date over (ii) the exercise price
paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
9
<PAGE>
Special provisions of the Internal Revenue Code apply to the acquisition of
unvested shares of Common Stock under a non-statutory option. These special
provisions may be summarized as follows:
(a) If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by the Company at the original exercise price in the
event of the optionee's termination of service prior to vesting in such
shares, then the optionee will not recognize any taxable income at the time
of exercise but will have to report as ordinary income, as and when the
Company's repurchase right lapses, an amount equal to the excess of (i) the
fair market value of the shares on the date the Company's repurchase right
lapses with respect to those shares over (ii) the exercise price paid for
the shares.
(b) The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the
non-statutory option an amount equal to the excess of (i) the fair market
value of the purchased shares on the exercise date (determined as if the
shares were not subject to the Company's repurchase right) over (ii) the
exercise price paid for such shares. If the Section 83(b) election is made,
the optionee will not recognize any additional income as and when the
Company's repurchase right lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
The Company anticipates that the deductions attributable to the compensation
income arising from most exercises of options under the Option Plan will not be
subject to the annual $1 million limit per covered individual on the
deductibility of compensation paid to certain executive officers of the Company.
STOCK APPRECIATION RIGHTS. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. The Company will be entitled to a business
expense deduction equal to the appreciation distribution for the taxable year of
the Company in which the ordinary income is recognized by the optionee.
PARACHUTE PAYMENTS. If the exercisability of an option or stock
appreciation right is accelerated as a result of a change of control, all or a
portion of the value of the option or stock appreciation right at that time may
be a parachute payment for purposes of the excess parachute provisions of the
Internal Revenue Code. Those provisions generally provide that if parachute
payments exceed three times an employee's average compensation for the five (5)
tax years preceding the change of control, the company loses its deduction and
the recipient is subject to a 20% excise tax for the amount of the parachute
payments in excess of one times such average compensation.
ACCOUNTING TREATMENT
Option grants at 100% of fair market value will not result in any charge to
the Company's earnings. The number of outstanding options may be a factor in
determining the Company's earnings per share on a fully-diluted basis.
NEW PLAN BENEFITS
The following table sets forth certain information regarding the options
granted under the Option Plan as of July 26, 1996 on the basis of the share
increase which is the subject of this Proposal 2, together with the weighted
average option exercise price payable per share, and the options expected to be
granted under the Automatic Option Grant Program on the date of the 1996 Annual
Meeting at an exercise price per share equal to the closing selling price per
share of Common Stock on that date on the Nasdaq National Market.
10
<PAGE>
OPTION GRANTS
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS GRANTED EXERCISE PRICE OF
NAME AND POSITION (NUMBER OF SHARES) OPTIONS GRANTED
- -------------------------------------------------------- ------------------- -------------------
<S> <C> <C>
Gilman Louie, Chairman and former Chief Executive
Officer 0 --
Stephen M. Race, Chief Executive Officer 0 --
Leo Goshgarian, former President, North American Sales
and Distribution 0 --
Richard Gelhaus, former Chief Financial Officer 0 --
Louis Gioia, Jr., Chief Marketing Officer 0 --
Patrick S. Feely, former President and Chief Executive
Officer 0 --
All current executive officers as a group (7 persons) 0 --
David C. Costine, Director 2,500 --
Vinod Khosla, Director 2,500 --
Keith Schaefer, Director 2,500 --
All current directors (other than executive officers) as
a group (3 persons) 7,500 --
</TABLE>
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding shares of the
Company's voting Common Stock present or represented and entitled to vote at the
1996 Annual Meeting is required for approval of the amendment to the Option
Plan. If such stockholder approval is not obtained, then the amendment to the
Option Plan will not become effective, and all outstanding options granted on
the basis of the 1,000,000 share increase will terminate without ever becoming
exercisable for any of the option shares.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendments to the Option Plan.
PROPOSAL 3:
AMENDMENT TO CERTIFICATE OF INCORPORATION TO CHANGE
THE NAME OF THE COMPANY
The stockholders are being asked to vote on a proposal to change the name of
the Company from Spectrum HoloByte, Inc. to MicroProse, Inc. by amending the
Company's Certificate of Incorporation. No other change to the Company's
Certificate of Incorporation, other than to change the Company's name as
recorded by the Delaware Secretary of State and to change the name under which
the Company transacts business and trades on the Nasdaq National Market, is
contemplated. The Company's new name will be effective upon the filing of an
Amended and Restated Certificate of Incorporation with the Delaware Secretary of
State.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendment to the Company's Certificate of Incorporation to
change the name of the Company to MicroProse, Inc.
PROPOSAL 4:
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Coopers & Lybrand, LLP served as independent public accountants
for the Company for the fiscal year ended March 31, 1996. The Board of Directors
desires the firm to continue in this capacity for the current fiscal year.
Accordingly, a resolution will be presented to the meeting to ratify the
selection of
11
<PAGE>
Coopers & Lybrand, LLP, by the Board of Directors as independent public
accountants to audit the accounts and records of the Company for the fiscal year
ending March 30, 1997, and to perform other appropriate services. In the event
that stockholders fail to ratify the selection of Coopers & Lybrand, LLP the
Board of Directors would reconsider such selection. Even if its selection is
ratified, the Board in its discretion may direct the appointment of a different
independent auditing firm at any time during the year if the Board believes that
such a change would be in the best interest of the Company and its stockholders.
A representative of Coopers & Lybrand, LLP will be present at the Annual
Meeting to respond to appropriate questions and to make a statement if such
representative desires to do so.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of Coopers & Lybrand, LLP to serve as the
Company's Independent auditors for the fiscal year ending March 30, 1997.
OWNERSHIP OF SECURITIES
COMMON STOCK -- MANAGEMENT AND DIRECTORS
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock as of July 26,
1996 by each director, the "Named Executive Officers" as shown in the Summary
Compensation Table in the "Executive Compensation" section below, and all
current directors and executive officers as a group. Unless otherwise indicated,
each of the stockholders has sole voting and investment power with respect to
the shares beneficially owned, subject to community property laws, where
applicable. The address for each Director and Officer is that of the Company.
<TABLE>
<CAPTION>
APPROXIMATE
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME OWNED OWNED (1)
- -------------------------------------------------------------------- ----------- ----------------
<S> <C> <C>
David C. Costine, Director (2) 291,475 1.1%
Vinod Khosla, Director (3) 969,963 3.7%
Keith Schaefer, Director (4) 9,550 *
Soo Boon Koh, Director (5) 8,350 *
Gilman G. Louie, Chairman and former Chief Executive Officer (6) 589,645 2.3%
Richard Gelhaus, former Chief Financial Officer (7) 52,000 *
Louis Gioia, Jr., Chief Marketing Officer (8) 71,600 *
Leo Goshgarian, former President, North American Sales and
Distribution (9) 13,956 *
Stephen M. Race, Chief Executive Officer (10) 133,333 *
Patrick S. Feely, former President and Chief Executive Officer 58,800 *
All current directors and executive officers as a group (11 persons)
(11) 2,155,200 8.1%
</TABLE>
- ------------------------
* Less than one percent of the outstanding Common Stock.
(1) Percentage of beneficial ownership is calculated assuming 26,101,180 shares
of Common Stock were outstanding on July 26, 1996. This percentage also
includes Common Stock of which such individual or entity has the right to
acquire beneficial ownership within sixty days of July 26, 1996, including
but not limited to the exercise of an option; however, such Common Stock
shall not be deemed outstanding for the purpose of computing the percentage
owned by any other individual or entity. Such calculation is required by
General Rule 13d-3(d)(1)(i) under the Securities Exchange Act of 1934.
12
<PAGE>
(2) Includes 8,350 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 26, 1996. Also includes 217,847 shares of Common Stock and a
warrant to purchase 90,278 shares of Common Stock held by Corporate Venture
Partners, L.P. Mr. Costine is a principal of Corporate Venture Partners,
L.P. He disclaims beneficial ownership of the listed securities not held by
him personally, except to the extent of his pecuniary interest.
(3) Includes 8,350 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 26, 1996. Also includes 648,172 shares of Common Stock held by
Kleiner Perkins Caufield & Byers VI; 80,197 shares of Common Stock held by
KPCB VI Founders Fund; 200,000 shares of Common Stock held by Mr. Khosla's
wife; and 17,061 shares of Common Stock held by an irrevocable trust for Mr.
Khosla and his wife. Mr. Khosla is a partner of KPCB VI Associates, which is
the general partner of both of the foregoing venture funds. Mr. Khosla
disclaims beneficial ownership of the securities held by his wife and the
foregoing venture funds, except to the extent of his pecuniary interest.
(4) Includes 8,350 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 26, 1996.
(5) Includes 8,350 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 26, 1996.
(6) Includes 38,333 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 26, 1996.
(7) Includes 52,000 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 26, 1996.
(8) Includes 71,600 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 26, 1996.
(9) Includes 11,680 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 26, 1996.
(10) Includes 133,333 shares of Common Stock purchasable under stock options
that are currently exercisable or that will become exercisable within sixty
(60) days of July 26, 1996.
(11) Includes 356,699 shares of Common Stock purchasable under options and
warrants that are currently exercisable or that will become exercisable
within sixty (60) days of July 26, 1996.
13
<PAGE>
COMMON STOCK -- PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the only persons,
other than those persons shown on the previous table, who beneficially owned (to
the Company's knowledge) more than 5% of the Company's Common Stock as of July
26, 1996.
<TABLE>
<CAPTION>
APPROXIMATE
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED OWNED (1)
- -------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
FMR Corp. (2) 2,400,200
82 Devonshire Street
Boston, MA 02109
SWICO Anstalt (3) 1,984,313
c/o Rowbotham & Company, Inc.
400 Montgomery Street, Suite 600
San Francisco, CA 94104
Vertex Investment Pte. Ltd. 1,325,510
Three Lagoon Drive, Suite 350
Redwood City, CA 94065
Wellington Management Company (4) 2,745,692
75 State Street
Boston, MA 02109
Massachusetts Financial Services Company (5) 2,904,660
500 Boylston Street
Boston, MA 02116
</TABLE>
- ------------------------
(1) Percentage of beneficial ownership is calculated assuming 26,101,180 shares
of Common Stock were outstanding on July 26, 1996. This percentage also
includes Common Stock of which such individual or entity has the right to
acquire beneficial ownership within sixty days of July 26, 1996, including
but not limited to the exercise of an option; however, such Common Stock
shall not be deemed outstanding for the purpose of computing the percentage
owned by any other individual or entity. Such calculation is required by
General Rule 13d-3(d)(1)(i) under the Securities Exchange Act of 1934.
(2) Includes 2,428,200 shares beneficially owned by Fidelity Management &
Research Company and 12,000 shares beneficially owned by Fidelity Management
Trust Company. FMR Corp. is the parent holding company of both of the
foregoing entities.
(3) Includes 196,078 shares of Common Stock issuable upon conversion of the
Series A Convertible Preferred Stock held by PH(US), Inc. SWICO Anstalt is
the sole shareholder of PH(US), Inc.
(4) Includes 2,745,692 shares held by Wellington Trust Co., N.A. (BK).
Wellington Management Company is the parent of Wellington Trust, Co., N.A.
(BK).
(5) Includes 2,683,700 shares beneficially owned and 220,960 shares which may be
acquired through the conversion of convertible bonds.
14
<PAGE>
PREFERRED STOCK
The following table sets forth beneficial ownership information for the
Company's Preferred Stock outstanding as of July 26, 1996, which is designated
as: Series A Convertible Preferred Stock, Series B Convertible Preferred Stock
and Series B-1 Convertible Preferred Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
- --------------------------------------------------- --------------------------- ---------------------
<S> <C> <C>
PH(US), Inc. (1) 4,000,000 67.6%
c/o Rowbotham Company, Inc. Series A Preferred
400 Montgomery Street, Suite 600
San Francisco, CA 94104
Robertson, Stephens & Company 750,000 12.7%
555 California Street Series B Preferred (2)
San Francisco, CA 94104
PaineWebber, Inc. 1,168,860 19.7%
1285 Avenue of the Americas Series B-1 Preferred (3)
10th Floor
New York, NY 10019
</TABLE>
- ------------------------
(1) SWICO Anstalt is the sole shareholder of PH(US), Inc., the record owner of
all shares of Series A Convertible Preferred Stock of the Company.
Accordingly, SWICO Anstalt may be deemed to be the beneficial owners of all
the shares of Series A Convertible Preferred Stock of the Company. These
Preferred Shares are convertible into 196,078 shares of the Company's Common
Stock.
(2) These Preferred Shares are convertible into an aggregate of 750,000 shares
of Common Stock.
(3) These Preferred Shares are convertible into an aggregate of 1,168,860 shares
of Common Stock.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission (the "SEC") 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 ten-percent beneficial owners are required
by SEC regulation to furnish the Company with copies of all Section 16(a)
reports they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that, except as further described below, there was compliance
for the fiscal year ended March 31, 1996 with all Section 16(a) filing
requirements applicable to the Company's officers, directors and greater than
ten-percent beneficial owners.
15
<PAGE>
The following new officers of the Company filed a late Form 3 reporting
their beneficial ownership of securities of the Company upon commencement as an
officer of the Company: Alden Andersen, Jeffery Forestier, and Tim Christian.
Jeffery Forestier, an officer of the Company, filed a late Form 4 reporting his
purchase of 450 shares of the Company's Common Stock.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation earned for each of the three fiscal years preceding March 31, 1996
by the Company's Chief Executive Officer, the four most highly compensated
executive officers of the Company earning at least $100,000 for services
rendered in all capacities to the Company and its subsidiaries (the "Named
Executive Officers"). No executive officer who would have otherwise been
includible in such table on the basis of salary and bonus earned for the 1996
fiscal year has resigned or terminated employment during the fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING COMPENSATION
POSITION FISCAL YEAR SALARY ($)(1) BONUS ($) COMPENSATION (2) OPTIONS (#) ($)(3)
- ------------------------------------ ----------- ------------ ----------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gilman Louie, 1996 203,173 -- -- 200,000 2,282
Chairman and former Chief Executive 1995 177,000 -- -- -- 2,625
Officer (4) 1994 174,327 7,000 -- -- 2,266
Stephen M. Race, 1996 172,404 75,000 -- 500,000 529
Chief Executive Officer (5) 1995 -- -- -- -- --
1994 -- -- -- -- --
Leo Goshgarian, 1996 148,123 25,515 37,440(7) 40,000 2,527
former President, North American 1995 162,496 107,556 -- 12,000 2,436
Sales and Distribution (6) 1994 136,769 10,000 16,250(7) 21,000 1,065
Richard Gelhaus, 1996 154,777 -- 135,000 -- 1,814
former Chief Financial Officer (8) 1995 165,000 -- -- -- --
1994 20,625 -- -- -- --
Louis Gioia, Jr., 1996 180,000 -- -- 10,000 2,663
Chief Marketing Officer 1995 152,134 -- 43,196 -- --
1994 -- -- -- -- --
Patrick Feely, 1996 34,819 -- 16,654 -- 303
former President and Chief 1995 175,000 -- 74,798(9) -- 3,260
Executive Officer 1994 175,000 7,000 -- -- 1,514
</TABLE>
- ------------------------
(1) Compensation summarized in this table includes amounts paid by MicroProse,
Inc., the predecessor of the Company, and amounts paid by Spectrum HoloByte,
Inc., a California corporation, which was merged into the Company pursuant
to the Merger. Salary includes salary deferred under the Company's 401(k)
Plan.
(2) In accordance with Commission rules, perquisites constituting less than the
lesser of $50,000 or 10% of total salary and bonus are not reported.
(3) "All Other Compensation" reflects a matching contribution to the Company's
401(k) Plan.
16
<PAGE>
(4) Mr. Louie served as the Chief Executive Officer of the Company from May 1,
1995 until August 15, 1995.
(5) Mr. Race has served as the Chief Executive Officer of the Company since
August 16, 1995.
(6) Mr. Goshgarian terminated his employment with the Company on December 31,
1995.
(7) Represents commission.
(8) Mr. Gelhaus terminated his employment with the Company on December 31, 1995.
(9) Includes $65,198 paid to Mr. Feely for temporary living expenses.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options made under the Company's 1994 Stock Option Plan for the 1996 fiscal year
to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------ POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL OF ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM (4)
OPTIONS/SARS EMPLOYEE IN BASE PRICE ($/ EXPIRATION ---------------------------
NAME GRANTED (#)(1) FISCAL YEAR SHARE) (2)(3) DATE 5% ($) 10% ($)
- ----------------------------- -------------- --------------- -------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Gilman G. Louie, 150,000 8.33% $ 16.375 8/16/05 $ 1,544,723 $ 3,914,630
Chairman and former Chief 50,000 2.78% $ 5.375 2/1/05 169,015 428,318
Executive Officer
Stephen M. Race, 500,000 27.76% $ 16.375 2/26/06 5,149,075 13,048,766
Chief Executive Officer
Leo Goshgarian, 40,000 2.22% $ 8.50 12/6/05 213,824 541,872
former President, North
American Sales and
Distribution
Richard Gelhaus, -- -- -- -- -- --
former Chief Financial
Officer
Louis Gioia, Jr., 10,000 0.56% $ 5.375 2/1/06 33,803 85,664
Chief Marketing Officer
Patrick S. Feely, -- -- -- -- -- --
former President and Chief
Executive Officer
</TABLE>
- ------------------------
(1) The options granted to Messrs. Goshgarian and Gioia are incentive options
granted under the Spectrum HoloByte, Inc. 1994 Stock Option Plan. Mr.
Goshgarian's options become exercisable as follows: for ten percent (10%) of
the option shares six (6) months after the vesting commencement date and for
the balance of the shares in a series of 54 equal monthly installments. Mr.
Gioia's options became exercisable as follows: twenty-five percent (25%) of
the option shares one year after the vesting commencement date and the
balance of the shares vest in a series of 36 equal monthly installments. The
shares subject to each option will immediately vest in the event the Company
is acquired by a merger, reverse merger or asset sale, unless the Company's
repurchase rights with respect to those shares are transferred to the
acquiring entity. Each option has a maximum term of 10 years, subject to
earlier termination in the event of the optionee's cessation of service with
the Company.
(2) The exercise price of each option may be paid in cash, in shares of Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the
17
<PAGE>
purchased shares. The Company may also finance the option exercise by
loaning the optionee sufficient funds to pay the exercise price for the
purchased shares and the federal and state tax liability incurred in
connection with such exercise. The optionee may be permitted, subject to the
approval of the plan administrator, to apply a portion of the shares
purchased under the option (or to deliver existing shares of Common Stock)
in satisfaction of such tax liability.
(3) On June 26, 1996, as part of an Option Exchange Program, the Company agreed
to enter into Option Exchange Agreements with each of its employee option
holders, including Messrs. Louie, Race and Gioia, pursuant to which the
Company will issue, in exchange for tendered option agreements from current
employee option holders, new options, each with an exercise price of $5.375
which represents the fair market value of one share of the Company's Common
Stock on June 26, 1996, as reported by Nasdaq. The Company's Board of
Directors approved the Option Exchange Program.
(4) The five percent (5%) and ten percent (10%) assumed annual rates of
compounded stock price appreciation are mandated by the rules of the
Securities and Exchange Commission. There is no assurance provided to any
executive officer or any other holder of the Company's securities that the
actual stock price appreciation over the 10-year option term will be at the
assumed 5% and 10% levels or at any other defined level.
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named Executive
Officers concerning the exercise of options during the 1996 fiscal year and
unexercised options held as of the end of the 1996 fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL YEAR-END THE-MONEY OPTIONS AT
SHARES (1996) FISCAL YEAR-END (4)
ACQUIRED ON VALUE --------------------------- --------------------------
NAME EXERCISE (#) REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ----------- ----------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gilman G. Louie, -- -- 17,500(3) 182,500(3) -- $ 137,500
Chairman and former Chief Executive
Officer
Stephen M. Race, -- -- 70,475(3) 429,525(3) -- --
Chief Executive Officer -- 15,180(2) -- 101,544
Leo Goshgarian, 18,240 226,072 4,200(3) 47,800(3) 1,575 2,925
former President, North American
Sales and Distribution
Richard Gelhaus, 10,000 110,000 40,000(3) 50,000(3) 25,000 31,250
former Chief Financial Officer
Louis Gioia, Jr., 5,000 56,875 55,200(3) 89,800(3) 138,050 205,700
Chief Marketing Officer
Patrick S. Feely, 101,700 1,743,575 -- -- -- --
former President and Chief
Executive Officer
</TABLE>
- ------------------------
(1) Based on the fair market value of the shares on the exercise date less the
exercise price paid for the shares.
(2) Options granted pursuant to Spectrum HoloByte's 1992 Stock Option Plan, all
of which are immediately exercisable for all of the option shares, but the
shares purchased under the option may be subject
18
<PAGE>
to repurchase by the Company at the original exercise price per share upon
the optionee's cessation of service. Mr. Goshgarian's 15,180 shares were
subject to the Company's repurchase right as of March 31, 1996.
(3) Options granted pursuant to the Company's 1994 Stock Option Plan.
(4) Based on the fair market value of the shares on the last day of the fiscal
year ($8.125 per share) less the exercise price payable for such shares.
1994 STOCK OPTION PLAN
The Option Plan was adopted on May 5, 1994 to serve as the successor equity
incentive program to the Company's 1991 Employee Stock Option Plan, and was
approved by the Company's stockholders at the 1994 Annual Meeting. All
outstanding stock options under the 1991 Employee Stock Option Plan were
incorporated into the Option Plan. For a complete description of the Option
Plan, see Proposal 2.
EMPLOYMENT AGREEMENTS
In August 1995, the Company entered into an employment agreement with
Stephen M. Race, Chief Executive Officer which terminates upon Mr. Race's
termination of employment with the Company. The agreement provides for an
initial annual base salary of $275,000, which will be reviewed at least
annually, but which may not be reduced below such level. The agreement provides
that the Company grant Mr. Race options to purchase 500,000 shares of Common
Stock, which options vest ratably over a 50 month period. See "Stock Options."
The agreement also provides for an annual performance bonus of up to 100% of
base salary if the Company significantly exceeds certain performance targets
established by its Board of Directors. Under the terms of his employment
agreement and subject to certain conditions, Mr. Race will receive a special
bonus of $3,000,000 (less any realizable value from options Mr. Race holds that
are exercisable or gain as a result of a sale of the stock purchased pursuant to
such options) if Mr. Race remains employed with the Company through March 31,
1999. Mr. Race is also entitled to reimbursement of certain expenses in
connection with his employment with the Company, including automobile expenses
and reimbursement for taxes. He is also entitled to participate in most Company
benefit plans.
In the event that (i) the Company terminates Mr. Race's employment (other
than for cause) or (ii) Mr. Race's title is no longer Chief Executive Officer
and Mr. Race terminates his employment, or (iii) Mr. Race's employment
terminates because of death or disability, or (iv) the Company is acquired and
Mr. Race is no longer the Company's Chief Executive Officer he (or his
beneficiaries in the case of death) will receive a continuation of his base
salary and Mr. Race will receive certain other benefits for twelve months and
the exercisability of his options will be accelerated as though he had remained
employed for one additional year. In addition, in the event of one of the four
events described above, and subject to certain conditions, including the time at
which Mr. Race's employment with the Company is terminated, the profitability of
the Company and whether there had occurred a change in control of the Company,
Mr. Race is entitled to receive a cash payment from the Company up to $4,000,000
(less any realizable value from options Mr. Race holds that are exercisable or
gain as a result of a sale of the stock purchased pursuant to such options). In
the event Mr. Race's employment with the Company terminates for good cause, the
Company is obligated to pay Mr. Race's base salary for a period of six months
following such termination.
Under the employment agreement, the Company has agreed to indemnify Mr. Race
to the fullest extent permitted by law so long as Mr. Race acts in good faith.
Failure by the Company to provide such indemnification is deemed to be a breach
of the employment agreement and may be deemed a termination of Mr. Race's
employment for other than cause.
REPORT OF THE COMPENSATION COMMITTEE CONCERNING
EXECUTIVE COMPENSATION
As members of the Compensation Committee (the "Committee") of the Spectrum
HoloByte, Inc. Board of Directors, it is our duty to exercise the power and
authority of the Board of Directors with respect
19
<PAGE>
to the compensation of executive officers. As such, it is our responsibility to
set the base salaries and to approve the individual bonuses awarded to such
executive officers during the year. In addition, the Committee administers the
Company's 1994 Stock Option Plan and Employee Stock Purchase Plan.
For the 1996 fiscal year, the Committee approved the compensation payable to
Mr. Race, Chief Executive Officer, Mr. Louie, Chairman, and the Company's other
executive officers.
COMPENSATION PHILOSOPHY
Under the supervision of the Committee, the Company has developed a
compensation philosophy which is designed to attract and retain qualified key
executive officers critical to the Company's success and to provide such
executives with performance-based incentives tied to achievement of specific
goals and the profitability of the Company. As an officer's level of
responsibility and accountability within the Company increases over time, a
greater portion of each executive officer's compensation is intended to be
dependent upon the Company's performance, the individual's contribution to the
success of the Company as measured by individual performance, and stock price
appreciation rather than upon base salary. Accordingly, each executive officer's
compensation package is fundamentally comprised of three elements: (i) base
salary which reflects individual performance and expertise; (ii) annual variable
performance awards payable in cash and tied to the Company's achievement of
certain goals; and (iii) long-term stock-based incentive awards which strengthen
the mutuality of interests between the executive officers and the Company's
stockholders.
FACTORS
Several important factors which were considered in establishing the
components of each executive officer's compensation package for the 1996 fiscal
year are summarized below. Additional factors may also be taken into account,
and the Committee may in its discretion apply entirely different factors,
particularly different measures of performance, in setting executive
compensation for future fiscal years. All compensation decisions are designed to
further the compensation philosophy indicated above.
BASE SALARY. Base compensation is established based on competitive market
rates at the time of initial hiring. Base compensation thereafter is reviewed
annually using an analysis of competitive salary ranges provided by an
independent compensation survey which focuses on Silicon Valley companies, with
particular emphasis on the reported compensation paid by companies similar in
size and business who compete with the Company in the recruitment and retention
of senior personnel. The base salary level for executive officers is generally
at the median level determined for such individuals on the basis of the external
salary data provided the Committee by the independent compensation surveys. The
Committee believes that the Company's most direct competitors for executive
talent are not necessarily all of the companies that the Company would use in a
comparison for shareholder returns. Therefore, the compensation comparison group
is not the same as the industry group index in the Performance Graph, below.
INCENTIVE COMPENSATION. During the 1996 fiscal year, the Company's
executive officers participated in an annual incentive compensation plan with
awards based primarily on Company profitability targets. Targeted awards for
executive officers of the Company under this plan are consistent with targeted
awards of companies of similar size and complexity to the Company based on a
review of independent compensation surveys covering companies in Silicon Valley.
For the 1997 fiscal year, the Committee has approved an annual incentive
compensation plan for the Company's executive officers. Executive officers will
be eligible for target incentives based on a percentage of base salary, based on
individual performance, achievement of Company profitability goals and, in
certain cases, achievement of profitability goals with respect to specified
products or lines of business.
LONG-TERM INCENTIVE COMPENSATION. The Company has adopted the 1994 Stock
Option Plan to provide executive officers and other key employees with
incentives to maximize long-term stockholder values. Awards under the 1994 Stock
Option Plan can take the form of stock options and stock appreciation rights,
which are designed to give the recipient a significant equity stake in the
Company and thereby closely align their interests with those of the Company's
stockholders. In addition to linking executive compensation directly to
stockholder value, the Compensation Committee believes that stock options,
through staged
20
<PAGE>
vesting provisions, perform an important role in motivating and retaining key
executives. However, the Committee does not adhere strictly to these guidelines
and will occasionally vary the size of the option grant made to each executive
officer as circumstances warrant.
CEO COMPENSATION. Mr. Race's compensation as President and Chief Executive
Officer during the 1996 fiscal year was paid in accordance with an employment
agreement between Mr. Race and the Company. See "Employment Agreements."
TAX LIMIT. The cash compensation to be paid to each of the Company's
executive officers for the 1996 fiscal year is not expected to exceed the $1
million limit on the tax deductibility of such compensation imposed under
federal tax legislation enacted in 1993. In addition, the Board intends to amend
the Company's 1994 Stock Option Plan to impose a limit on the maximum number of
shares of Common Stock for which any one participant may be granted stock
options over the remaining term of the plan in order to ensure that any
compensation deemed paid to an executive officer upon the exercise of an
outstanding option under the 1994 Stock Option Plan will qualify as
performance-based compensation which will not be subject to the $1 million
limitation. No other changes to the Company's executive compensation programs
will be made as a result of the new limitation until final Treasury Regulations
are issued with respect to such limitation.
We conclude our report with the acknowledgment that no member of the
Compensation Committee is a former or current officer or employee of the Company
or any of its subsidiaries.
Compensation Committee
Vinod Khosla
Soo Boon Koh
Keith Schaefer
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT
OF 1934 THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT,
IN WHOLE OR IN PART, THE FOREGOING REPORT AND THE PERFORMANCE GRAPH WHICH
FOLLOWS SHALL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE INTO ANY SUCH
FILINGS.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There were no Compensation Committee interlocks or insider participation
during fiscal year 1996.
21
<PAGE>
COMPARISON OF STOCKHOLDER RETURN
PERFORMANCE COMPARISON -- NASDAQ MARKET INDEX AND H & Q TECHNOLOGY INDEX
The following stock performance graph shows the cumulative total return of
the Company's Common Stock from October 3, 1991, the date of the Company's
initial public offering and for each fiscal year end thereafter. The Company's
Common Stock performance is compared to the cumulative total return for the same
period of the Nasdaq index and the Hambrecht & Quist Technology Index. The graph
assumes that $100 was invested on October 3, 1991 in the Company's Common Stock
and in each index and that all dividends were reinvested. No cash dividends have
been declared on the Company's Common Stock. Stockholder returns over the
indicated period should not be considered indicative of future stockholder
returns.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SPECTRUM HOLOBYTE H&Q TECHNOLOGY NASDAQ STOCK MARKET -U.S.
<S> <C> <C> <C>
10/3/91 100 100 100
Mar-92 158.33 121.94 117.14
Mar-93 72.22 133.77 134.66
Mar-94 102.78 149.48 145.35
Mar-95 178.48 191.38 161.69
Mar-96 90.28 263.33 219.55
</TABLE>
ANNUAL REPORT
A copy of the Company's Annual Report for the fiscal year ended March 31,
1996 has been mailed concurrently with this Proxy Statement to all stockholders
entitled to notice of and to vote at the Annual Meeting. The Annual Report to
stockholders is not incorporated into this Proxy Statement and is not considered
proxy solicitation material.
FORM 10-K
The Company filed with the SEC an Annual Report on Form 10-K. Stockholders
may obtain copies of this report, without charge, by writing to the Company's
Chief Financial Officer at the Company's executive offices at 2490 Mariner
Square Loop, Suite 100, Alameda, California 94501.
22
<PAGE>
OTHER MATTERS
Management does not know of any matters to be presented at this Annual
Meeting other than those set forth herein and in the Notice accompanying this
Proxy Statement.
THE BOARD OF DIRECTORS
OF SPECTRUM HOLOBYTE, INC.
July , 1996
Alameda, California
23
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECTRUM HOLOBYTE, INC.
The undersigned hereby appoints Stephen M. Race and ___________________
proxies, each with power to act without the other and with power of
substitution, and hereby authorizes them to represent and vote, as designated
on the other side, all the shares of stock of Spectrum HoloByte, Inc.
standing in the name of the undersigned with all powers which the undersigned
would possess if present at the Annual Meeting of Stockholders of the Company
to be held September ___, 1996 or any adjournment thereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
ANNUAL
MEETING OF
SPECTRUM HOLOBYTE, INC. STOCKHOLDERS
September __, 1996, ____ a.m.
<PAGE>
STOCKHOLDER: IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2 AND 3.
Please mark your votes as indicated in this example / X /
FOR all nominees listed to the right WITHHOLD AUTHORITY to vote for
(except as marked to the contrary) all nominees listed to the right
1. ELECTION OF DIRECTORS. / / / /
NOMINEES: Gilman Louie, David Costine, Vinod Khosla, Stephen Race and Keith
Schaefer
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- -------------------------------------------------------------------------------
2. Approval of an amendment to the Company's 1994 Stock Option Plan to increase
the number of shares of Common Stock for issuance thereunder by 1,000,000 to
5,464,321 shares.
FOR AGAINST ABSTAIN
/ / / / / /
3. Approval of an amendment to the Company's Certificate of Incorporation to
change its name to MicroProse, Inc.
FOR AGAINST ABSTAIN
/ / / / / /
4. Ratification of Coopers & Lybrand as the independent certified public
accountants of the Company.
FOR AGAINST ABSTAIN
/ / / / / /
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
FOR AGAINST ABSTAIN
/ / / / / /
Please sign exactly as name appears
hereon. 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.
PLEASE SIGN, DATE, AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Signature(s) Dated , 1996
------------------------------------------ ---
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
ADMISSION TICKET
ANNUAL MEETING
OF
SPECTRUM HOLOBYTE, INC. STOCKHOLDERS
_________, SEPTEMBER __, 1996
____ A.M.
- -------------------------------------------------------------------------------
Agenda
--------
* Election of Directors
* Approval of an amendment to the Company's 1994 Stock Option Plan
* Approval of an amendment to the Company's Certificate of Incorporation
* Ratification of the appointment of independent public accountants
* Report on the progress of the Company
* Discussion on matters of current interest
* Informal discussion among stockholders in attendance
- -------------------------------------------------------------------------------
