<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Sect. 240.14a-11(c) or Sect. 240.14a-12
Network Imaging Corporation
(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):
/ / $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 O-11.
1) Title of each class of securities to which transaction applies:
....................................................................
2) Aggregate number of securities to which transaction applies:
..................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-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:
.................................................................
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule O-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
.....................................................................
2) Form, Schedule or Registration Statement No.:
....................................................................
3) Filing Party:
....................................................................
4) Date Filed:.....................................
<PAGE> 2
[NETWORK IMAGING CORPORATION LOGO]
NETWORK IMAGING CORPORATION
500 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
October 28, 1996
Dear Stockholders:
It is my pleasure to invite you to the Annual Meeting of Stockholders of
Network Imaging Corporation to be held on Thursday, November 21, 1996 at 9:00
a.m., at the Sheraton Premiere Hotel, 8661 Leesburg Pike, Vienna, Virginia.
Whether or not you plan to attend, and regardless of the number of shares
you own, it is important that your shares be represented at the Annual Meeting.
You are accordingly urged to complete, sign, date and return your proxy promptly
in the enclosed envelope. Your return of a proxy in advance will not affect your
right to vote in person at the Annual Meeting.
I hope that you will attend the Annual Meeting. The officers and directors
of the Company look forward to seeing you at that time.
Very truly yours,
/s/ JAMES J. LETO
JAMES J. LETO
Chief Executive Officer
<PAGE> 3
[NETWORK IMAGING CORPORATION LOGO]
NETWORK IMAGING CORPORATION
500 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
THURSDAY, NOVEMBER 21, 1996
------------------------
To our Stockholders:
The Annual Meeting of Stockholders (the "Meeting") of Network Imaging
Corporation (the "Company") will be held on Thursday, November 21, 1996 at 9:00
a.m. E.D.T. at the Sheraton Premiere Hotel at 8661 Leesburg Pike, Vienna,
Virginia for the following purposes:
1. To ratify the adoption of amendments to Sections 3.02, 3.04 and 3.05 of
the Bylaws of the Company to provide for a classified Board of
Directors;
2. To elect five directors;
3. To ratify the selection of Ernst & Young LLP as independent accountants
for the fiscal year ending December 31, 1996;
4. To consider and vote upon a proposal to amend the 1994 Key Employee
Incentive Stock Option Plan that increases the total number of shares
for which options may be granted under the plan from 5,000,000 to
6,000,000; and
5. To transact such other business as may properly come before the Meeting.
Stockholders of record at the close of business on October 1, 1996 are
entitled to receive notice of and to vote at the Meeting.
You are invited to attend the Meeting. Please carefully read the attached
Proxy Statement for information regarding the matters to be considered and acted
upon at the Meeting. We hope that you will attend the Meeting.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING IN PERSON, YOU ARE
URGED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
RETURN POSTAGE-PAID ENVELOPE. No postage need be affixed to the return envelope
if mailed in the United States. If you attend the Meeting, you may withdraw your
proxy and vote in person by ballot.
By Order of the Board of Directors
/s/ ROBERT P. BERNARDI
ROBERT P. BERNARDI
Chairman of the Board and Secretary
Herndon, Virginia
October 28, 1996
<PAGE> 4
NETWORK IMAGING CORPORATION
500 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
------------------------
PROXY STATEMENT
This Proxy Statement and the accompanying Notice of Annual Meeting of
Stockholders and Proxy Card are being furnished in connection with the
solicitation by the Board of Directors of Network Imaging Corporation (the
"Company") of proxies to be voted at the Annual Meeting of Stockholders
scheduled to be held on Thursday, November 21, 1996 at 9:00 a.m. E.D.T., at the
Sheraton Premiere Hotel, 8661 Leesburg Pike, Vienna, Virginia, and any
adjournment or postponement thereof (the "Meeting"). This Proxy Statement and
the enclosed Proxy Card are being furnished on or about October 28, 1996, to all
holders of record of the Company's Common Stock (the "Common Stock") as of
October 1, 1996. A copy of the Company's Form 10-K for the fiscal year ended
December 31, 1995, including consolidated financial statements for that year,
accompanies this Proxy Statement.
At the Meeting, stockholders will vote on a proposal to ratify the adoption
of certain amendments to the Company's Bylaws, elect five directors, in Class I
and Class II, who shall then have terms that end for Class I in 1997 and Class
II in 1998. Stockholders will also act upon a proposal to increase the number of
shares for which options may be granted under the Company's 1994 Key Employee
Incentive Stock Option Plan.
VOTING SECURITIES AND RECORD DATE
The Board of Directors has fixed the close of business on October 1, 1996
as the record date (the "Record Date") for determination of stockholders
entitled to notice of and to vote at the Meeting. As of the Record Date, there
were 21,260,899 shares of Common Stock issued and outstanding and there were no
other voting securities of the Company outstanding. Each outstanding share of
Common Stock entitles the record holder thereof to one vote. Abstentions and
broker non-votes are counted for purposes of determining the presence or absence
of a quorum for the transaction of business. 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 Company's bylaws provide that a quorum consists of
one-third of the shares entitled to vote at the meeting.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Stockholders of record on the Record Date may vote at the Meeting in person
or by means of the enclosed Proxy Card. You may specify your voting choices by
marking the appropriate boxes on the Proxy Card. The proxy solicited hereby, if
properly signed and returned to the Company and not revoked prior to or at the
Meeting, will be voted in accordance with the instructions specified thereon. If
you properly sign and return your Proxy Card, but do not specify your choices,
your shares will be voted by the proxy holders as recommended by the Board of
Directors.
The Board of Directors encourages you to complete and return the Proxy Card
even if you expect to attend the Meeting. You may revoke your proxy at any time
before it is voted at the Meeting by giving written notice of revocation to the
Secretary of the Company, by submission of a proxy bearing a later date or by
attending the Meeting and casting a ballot.
The proxy holders, James J. Leto and Robert P. Bernardi, will vote all
shares of Common Stock represented by Proxy Cards that are properly signed and
returned by stockholders. The Proxy Card also authorizes the proxy holders to
vote the shares represented with respect to any matters not known at the time
this Proxy Statement was printed that may properly be presented for
consideration at the Meeting. YOU MUST RETURN A SIGNED PROXY CARD IF YOU WANT
THE PROXY HOLDERS TO VOTE YOUR SHARES OF COMMON STOCK.
The cost of soliciting proxies will be borne by the Company. Following the
mailing of proxy solicitation materials, proxies may be solicited by directors,
officers and employees of the Company and its subsidiaries
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<PAGE> 5
personally, by telephone or otherwise. Such persons will not receive any fees or
other compensation for such solicitation. In addition, the Company will
reimburse brokers, custodians, nominees and other persons holding shares of
Common Stock for others for their reasonable expenses in sending proxy materials
to the beneficial owners of such shares and in obtaining their proxies.
PROPOSAL 1 -- RATIFICATION OF THE ADOPTION OF AMENDMENTS
TO THE BYLAWS OF THE COMPANY
General. The Board of Directors of the Company has unanimously approved
and recommended the adoption of amendments ("Classified Board Amendments") to
the Bylaws of the Company (the "Bylaws"), the purpose of which is to classify
the Company's Board of Directors. The Classified Board Amendments would classify
the Corporation's Board of Directors into two classes, as nearly equal in
numbers as possible. Directors in Class I will serve for an initial term to
expire at the next annual meeting of stockholders succeeding their election, and
directors in Class II will serve for an initial term to expire at the second
annual meeting of stockholders succeeding their election. Each successor to a
Class I or Class II Director will serve until the second annual meeting of the
Stockholders next succeeding his or her election.
The Classified Board Amendments would modify Sections 3.02, 3.04 and 3.05
of the Bylaws in order to effect the classification of the Board. The following
description and discussion of the Classified Board Amendments is a summary only
and is not intended to be complete. Stockholders are urged to read carefully the
provisions of the proposed Sections 3.02, 3.04 and 3.05, the full text of which
is annexed as Appendix A to this Proxy Statement.
Reasons for and Effects of the Classified Board Amendments. The Board of
Directors has unanimously proposed the adoption of the Classified Board
Amendments because it believes that it is in the best interests of the Company
and its stockholders. The Board of Directors believes that a classified Board
structure will provide both continuity and stability to the Company and
accountability to the Company's stockholders.
Board accountability is enhanced by selection of responsible, experienced
and respected directors. The Company's annual elections at which approximately
one-half of the Board would be elected under the Classified Board Amendments
will provide stockholders with the regular opportunity to make significant
change in the composition of the Board, while also providing the Company with
experienced and knowledgeable directors.
The Company's Board plays an important role in strategic planning and
corporate policy-making. A director's ability to make meaningful contributions
in these areas depends in large part on his or her familiarity with the
Company's business and affairs. The classified board structure lends stability
and enables directors to make deliberate and insightful decisions regarding the
Company's business.
If the Classified Board Amendments are approved, a majority of the
Company's directors could only be replaced at the biannual meeting of
stockholders at which Class II Directors are elected (instead of each annual
meeting), unless directors were removed for cause by the requisite vote of
stockholders. The Board of Directors accordingly would be better able to
evaluate any takeover proposal for the Company, or any other self-interested
proposal, and to assess alternatives, and thereby to ensure that the interests
of all stockholders are protected.
The Classified Board Amendments may discourage potential acquirers because
its provisions could operate to delay the purchaser's ability to obtain control
of the Board of Directors. The Classified Board Amendments could similarly delay
stockholders who do not approve of policies of the Board from replacing the
entire board of directors. Adoption of the Classified Board Amendments may also
deter certain mergers, tender offers or other takeover attempts which some or a
majority of holders of the Company's voting stock may deem to be in their best
interest. The Company is not aware of any existing or planned effort on the part
of any person to gain control of the Company or to organize a proxy contest for
control of the Board.
If the Classified Board Amendments are not approved, directors will be
elected annually.
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<PAGE> 6
The affirmative vote of a majority of the outstanding shares of Common
Stock entitled to vote in the election of directors at the Meeting is required
to approve the Classified Board Amendments.
THE BOARD OF DIRECTORS BELIEVES THAT A CLASSIFIED BOARD BEST SERVES THE
COMPANY, THE STOCKHOLDERS AND THOSE WITH WHOM THE COMPANY DOES BUSINESS, AND
ACCORDINGLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 2 -- ELECTION OF DIRECTORS
The Bylaws, as proposed to be amended by the Classified Board Amendments,
will provide that the Company's Board of Directors be divided into Class I and
Class II, each class being as nearly equal in number as possible. The term of
office of each class of directors will expire alternate years in rotation so
that one class is elected at each subsequent annual meeting of stockholders for
a two year term. The terms of each of the five current directors will expire at
the Meeting. The election shall be for three Class I directors, John F. Burton,
James J. Leto and C. Alan Peyser, whose terms shall expire at the next annual
meeting of stockholders. The election of the two Class II directors, Robert P.
Bernardi and Robert Ripp, shall expire at the second annual meeting of
stockholders.
If the Classified Board Amendments are not adopted at the Meeting, five
directors will be elected for terms expiring at the next annual meeting.
Director candidates are nominated by the Board of Directors.
At the Meeting, the five directors are to be elected. Each nominee has
consented to being named as a nominee for director of the Company and has agreed
to serve if elected. Directors in Class I will serve for an initial term to
expire at the next annual meeting of stockholders succeeding their election, and
directors in Class II will serve for an initial term to expire at the second
annual meeting of stockholders succeeding their election. Each successor to a
Class I or Class II Director will serve until the second annual meeting of the
Stockholders next succeeding his or her election.
The directors will be elected to serve for their respective terms and until
their successors have been elected and have qualified. In the event that any
nominee should become unavailable or unable to serve as a director, the persons
named as proxies on the proxy card will vote for the person(s) the Board of
Directors recommends.
Set forth below is certain information regarding each nominee for Class I
director and each Class II director, each of whose term of office will continue
after the Meeting.
NOMINEES FOR CLASS I DIRECTORS
<TABLE>
<S> <C> <C>
John F. Burton James. J. Leto C. Alan Peyser
</TABLE>
The three nominees receiving the vote of a plurality of the outstanding
shares of Common Stock present, in person or represented by proxy at the Meeting
and entitled to vote on the elections of directors will be elected as the Class
I Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION
OF EACH OF THE NOMINATED CLASS I DIRECTORS.
NOMINEES FOR CLASS II DIRECTORS
<TABLE>
<S> <C>
Robert P. Bernardi Robert Ripp
</TABLE>
The two nominees receiving the vote of a plurality of the outstanding
shares of Common Stock present, in person or represented by proxy at the Meeting
and entitled to vote on the election of directors will be elected as the Class
II Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION
OF EACH OF THE NOMINATED CLASS II DIRECTORS.
3
<PAGE> 7
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The current directors and executive officers of the Company, their ages,
and their positions held in the Company and other principal occupations are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY AND PRINCIPAL OCCUPATIONS
- ------------------------------ --- --------------------------------------------------------
<S> <C> <C>
Robert P. Bernardi............ 43 Chairman of the Board and Secretary
James J. Leto................. 52 Director; President and Chief Executive Officer
John F. Burton................ 45 Director; Independent Consultant
Alan C. Peyser................ 62 Director; Independent Consultant
Robert Ripp................... 54 Director; Corporate Vice President and Chief Financial
Officer, AMP, Inc.
Jorge R. Forgues.............. 41 Chief Financial Officer, Vice President of Finance and
Administration and Treasurer
John Flowers.................. 46 Senior Vice President of Engineering
Brian H. Hajost............... 40 Senior Vice President of Integrated Products
Russell D. Hale............... 52 Senior Vice President of Federal Sales
Mark T. Wasilko............... 43 Senior Vice President of Marketing
</TABLE>
The Company's executive officers are appointed by the Board of Directors
and serve at the discretion of the Board, subject to provisions of the
employment and consulting contracts described below.
The following is a brief description of the background and business
experience of the directors and executive officers of the Company:
ROBERT P. BERNARDI was a co-founder of the Company and has been a Director
of the Company (and its predecessor) since its inception and Chairman of the
Board of Directors since September 1995. Mr. Bernardi served as President of the
Company from inception to February 1995 and as Chief Executive Officer from
inception to May 1996. From 1988 to 1990, Mr. Bernardi was an independent
consultant in the document imaging and telecommunications fields. From March
1984 to December 1987, Mr. Bernardi was Chairman and Chief Executive Officer of
Spectrum Digital Corporation, a publicly held telecommunications equipment
manufacturing company ("Spectrum Digital"), with overall management
responsibilities including marketing, sales, engineering and finance. Prior to
1984, Mr. Bernardi held various executive management positions with MCI
Communications Corporation ("MCI"), Mobil Corporation, Booz, Allen & Hamilton
("Booz Allen") and the MITRE Corporation. Mr. Bernardi was a co-founder, and,
from 1984 to 1987, was a Director of PictureTel Corporation, a manufacturer of
full-motion videoconferencing systems ("PictureTel"), and of TranSwitch
Corporation, a designer of high-speed telecommunications chips. Mr. Bernardi
earned his Bachelor of Science degree in Physics and a Master of Science degree
in Business and Economics from the State University of New York at Stonybrook.
JAMES J. LETO became President and Chief Executive Officer and a Director
of the Company in May 1996. Mr. Leto served as the Chairman and Chief Executive
Officer of PRC Inc., an information technology company ("PRC"), from January
1993 to February 1996, and prior thereto in various capacities as an executive
officer of that company. From January 1989 until February 1992, Mr. Leto served
as the Vice President and General Manger of AT&T Federal Systems Computer
Division, a division of AT&T charged with developing a major system integration
and computer presence in the federal marketplace. Mr. Leto first joined AT&T in
November 1977. Mr. Leto is a director of Government Technology Systems, Inc. Mr.
Leto earned his Bachelor of Science degree from Wayne State University and his
Executive Masters of Science from Pace University.
JOHN F. BURTON was appointed to the Board of Directors in September 1995.
Mr. Burton was President and Chief Executive Officer of Nat Systems, Inc., a
provider of applications development software from August 1995 to September
1996. From January 1995 to August 1995, Mr. Burton was an independent consultant
in the applications software field. From March 1992 to January 1995, Mr. Burton
served as Chief Executive Officer, and from 1989 to January 1995 as President,
Chief Operating Officer and a Director, of
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<PAGE> 8
Legent Corporation ("Legent"), an independent software vendor. Mr. Burton was
co-founder, and from 1984 to 1989 Chief Operating Officer and a Director, of
Business Software Technology Inc., a provider of applications management
software, which was acquired by Legent in 1989. Prior to 1984, Mr. Burton was
Vice President for sales and marketing of Higher Order Software and held senior
sales and marketing positions with Cullinet Software. Mr. Burton is also a
Director of Banyan Systems, Inc., MapInfo Corporation and Netrix Corporation.
Mr. Burton was a founding member of the Northern Virginia High Tech Council. Mr.
Burton earned his Bachelor of Arts degree in Economics with honors from Boston
College.
C. ALAN PEYSER became a Director of the Company in May 1996. Mr. Peyser was
appointed President and Chief Executive Officer of Cable & Wireless, Inc., in
October 1996. From September 1995 to October 1996, Mr. Peyser served as a
consultant to Cable & Wireless, Inc. He is also currently President of Country
Long Distance Corporation and a member of the Board of Directors of Tridex
Corporation and TCI International, Inc. Mr. Peyser previously served as the
Chief Executive Officer and President of Cable & Wireless, Inc. from 1980
through September 1995.
ROBERT RIPP has served as a Director since October 1994. Mr. Ripp is
Corporate Vice President and Chief Financial Officer of AMP, Inc., an
electronics manufacturer. Prior to joining AMP in 1994, Mr. Ripp was Vice
President and Treasurer of International Business Machines Corporation, where he
served in various capacities as a finance executive from 1964 to 1994. Mr. Ripp
earned his Bachelor of Arts degree in Economics from Iona College and his Master
of Arts degree in Economics from New York University. He is a member of the
board of directors of ACE, Limited.
JORGE R. FORGUES became Chief Financial Officer, Vice President of Finance
and Administration and Treasurer of the Company in April 1996. From October 1993
through April 1996 Mr. Forgues served as the Vice President of Finance &
Administration and Chief Financial Officer of Globalink, Inc., a computer
software developer that offers foreign language translation software. From July
1992 to September 1993, Mr. Forgues served as Director of Accounting at Spirit
Cruises, Inc., and from June 1987 to June 1992 he served as the Vice President
of Finance of Best Programs, Inc., a computer software developer. Mr. Forgues is
a director of On-Site Sourcing Incorporated. Mr. Forgues earned a Bachelor of
Science in Accounting and a Masters of Business Administration with honors from
George Mason University. Mr. Forgues has been a Certified Public Accountant
since November 1986.
JOHN M. FLOWERS, JR. was appointed Senior Vice President of Engineering
Services in April 1996. From 1989 to April 1996, Mr. Flowers was with PRC,
serving in various capacities, including Manager of the Center for Imaging
Technology, Chief Architect for Systems Integration Division, Corporate Director
of the Imaging Core Competency Program, and Vice President and Chief Scientist
for the Information Systems Division. Mr. Flowers earned a Bachelor of Science
in Mathematics from University of Mississippi and a Masters in Divinity from the
Southeastern Baptist Theological Seminary.
RUSSELL D. HALE joined the Company in October 1994 and became Senior Vice
President of Sales for the Company in October 1995. From July 1990 to 1994, Mr.
Hale was President and General Manager of Network Equipment Technology Federal,
Inc., a developer and marketer of wide-area networks and related products. From
February 1986 to July 1990, Mr. Hale was Vice President, Business Development
for Computer Sciences Corporation, an integrator of computer systems. From March
1984 to February 1986, Mr. Hale served as Senior Defense Advisor to Chase
Manhattan Bank and the investment banking firm of Drexel Burnham Lambert. From
March 1981 to March 1984 Mr. Hale was Assistant Secretary of the Air Force,
Financial Management. Prior thereto Mr. Hale held positions with the House Armed
Services Committee, the House Budget Committee, IBM Corporation and the USAF.
Mr. Hale earned his Bachelor of Science degree in Engineering from the U.S.
Naval Academy and his Master of Science degree in Computer Science from the
Georgia Institute of Technology.
BRIAN H. HAJOST joined the Company in March 1996 and was appointed Senior
Vice President of Integrated Products in April 1996. From 1985 to 1995, Mr.
Hajost was with Servantis Systems, Inc. (formerly Stockholder Systems, Inc.)
where he served in various capacities including Securities Products Group
Regional Director Banking Sales, Securities Products Group Vice President Sales
Manager, Imaging Technologies Group Vice President Sales and Marketing, and
5
<PAGE> 9
Imaging Technologies Group Senior Vice President Business Unit Manager. Mr.
Hajost earned his Bachelors of Science degree in Business Administration from
Miami University.
MARK T. WASILKO joined the Company in September 1995 and became Senior Vice
President of Marketing for the Company in October 1995. From January 1994 to
1995, Mr. Wasilko was Vice President of Corporate Marketing for Legent. Prior
thereto, Mr. Wasilko was Senior Vice President for Corporate Marketing at
Computer Associates International, Inc., an independent software vendor, where
he had held a variety of sales and marketing positions since 1982. Mr. Wasilko
earned his Bachelor of Science degree in Business from Miami University.
COMPENSATION OF DIRECTORS
Each director of the Company who is not also currently employed by the
Company, currently Messrs. Burton, Peyser and Ripp, receives a fee of $1,000 for
each meeting of the Board or committee thereof which he attends in person and
$250 for each such meeting in which he participates by telephone. Mr. Ripp has
been granted options on 21,675 shares of Common Stock at $3.75 per share, 25,000
shares of Common Stock at $6.82 per share, and 25,000 shares of Common Stock at
$3.82 per share, each with a term of 10 years and each of which is exercisable
on a cumulative basis in four equal installments on each of the first four
anniversaries of the applicable date of grant. Mr. Burton has been granted an
option on 100,000 shares of Common Stock with an exercise price of $3.38 per
share and a term of 10 years. The option vests on May 2, 2002 or, earlier, upon
the Company's entering into a strategic partnership agreement with a major
software company as a result of the assistance of Mr. Burton. Mr. Peyser has
been granted an option on 50,000 shares of Common Stock at $3.69 per share with
a term of 10 years and which is exercisable on a cumulative basis in four equal
installments on each of the first four anniversaries of its date of grant. The
exercise prices of the options granted to directors were set at the fair market
value of the common stock at the time of grant. The Company otherwise has not
compensated any director for any service provided as a director, and it has no
standard or other arrangements pursuant to which directors are compensated for
services provided as directors.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
The Board of Directors held eight meetings during 1995.
The members of the Audit Committee until September 1995 were William
Grossman, Robert P. Bernardi and Robert Ripp. In September, Mr. Grossman
resigned from the Board of Directors, and John F. Burton was appointed to fill
the vacancy on the Audit Committee. In November 1995 the size of the Audit
Committee was reduced to two, with Messrs. Ripp and Burton continuing as
members. The Audit Committee functions to recommend to the Board the selection
of the independent accountants for the Company and conduct such reviews and
examinations as it deems necessary or desirable with respect to the practices
and procedures of the independent accountants, the scope and results of the
audit, the accounting controls practices and policies and the relationship
between the Company and its independent accountants. The Audit Committee held
three meetings in 1995. During the period he was a director, Mr. Burton attended
fewer than 75% of the aggregate number of meetings held by the Board of
Directors and its committees on which he served.
The Company does not have a standing nominating or compensation committee
or committees performing similar functions. The Company has a Stock Option Plan
Committee which has authority to grant options under the Company's stock option
plans to persons who are not executive officers of the Company. Mr. Bernardi and
Mr. Ripp are the members of the Stock Option Plan Committee. The Stock Option
Plan Committee has followed the practice of taking action by written consent and
held no meetings during 1995.
6
<PAGE> 10
OWNERSHIP OF NETWORK IMAGING CORPORATION STOCK
The following table sets forth certain information, as of October 1, 1996,
with respect to the beneficial ownership of shares of Common Stock by (i) each
stockholder known by the Company to be the beneficial owner of more than five
percent (5%) of the outstanding shares of Common Stock; (ii) each director of
the Company; (iii) each executive officer named in the Summary Compensation
Table appearing below under "Executive Compensation"; and (iv) all executive
officers and directors as a group. Except as indicated in the footnotes to the
table, persons named in the table have sole voting and investment power with
respect to all shares of Common Stock which they respectively own beneficially.
The address of each person who is an officer or director of the Company is
500 Huntmar Park Drive, Herndon, Virginia 20170.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
---------------------------------------------------------- --------------------- --------
<S> <C> <C>
Fred E. Kassner(2)........................................ 1,985,597 9.3
Robert P. Bernardi(3)..................................... 1,745,825 7.7
James J. Leto............................................. 72,500 *
Robert M. Sterling, Jr.(4)................................ 1,926,825 8.5
John B. Mann.............................................. 900,340 4.1
John F. Burton............................................ 0 *
C. Alan Peyser............................................ 0 *
Robert Ripp(5)............................................ 22,088 *
Joseph T. Pisula.......................................... 184,722 *
Ronald B. Alexander....................................... 92,423 *
Directors and executive officers as a group (10
persons)................................................ 1,996,663 8.7
</TABLE>
- ---------------
* Less than 1% of the outstanding Common Stock.
(1) Under applicable rules of the Securities and Exchange Commission (the
"SEC"), a person is deemed to be the beneficial owner of share of Common
Stock if, among other things, he or she directly or indirectly has or shares
voting power or investment power with respect to such shares. A person is
also considered to beneficially own shares of Common Stock which he or she
does not actually own but has the right to acquire presently or within the
next sixty (60) days, by exercise of stock options or otherwise.
(2) The address of Mr. Kassner is 69 Spring Street, Ramsey, New Jersey 07446. Of
the total shares shown, Mr. Kassner has shared voting and dispositive power
with respect to 1,207,857 shares, including 80,000 shares underlying a
warrant, held by Liberty Travel, Inc. of which Mr. Kassner is an officer,
director, and stockholder. Of the shares reported as being held directly by
Mr. Kassner, 54,000 are issuable upon the exercise of a warrant.
(3) Includes 1,348,325 shares issuable upon exercise of options.
(4) Includes 1,348,325 shares issuable upon exercise of options and 96,000
shares issuable upon exercise of Redeemable Common Stock Purchase Warrants.
Does not include 50,000 shares of Common Stock purchased by Elizabeth
Sterling, the wife of Mr. Sterling. Each of Mr. And Mrs. Sterling disclaims
any beneficial ownership in the shares owned by the other.
(5) Includes 17,088 shares issuable upon exercise of options.
7
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table below lists the Chief Executive Officer and
the four other most highly compensated executive officers of the Company (the
"Named Executives") as of the end of 1995 and their compensation for services in
1995, 1994 and 1993.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
--------------------------- COMPENSATION
AWARDS
------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- ---------------------------- ---- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Bernardi.......... 1995 $ 182,306 $50,000 1,148,325(1)
Chairman of the Board 1994 175,000 64,000 625,000(2)
and Chief Executive
Officer 1993 120,000 35,000 500,000(2)
John B. Mann................ 1995 196,525 13,175 360,340(1)
Assistant Secretary(3) 1994 120,000 24,000 0
1993 111,000 30,000 250,000(2)
Robert M. Sterling, Jr. .... 1995 184,000 50,000 1,148,325(1)
Assistant Secretary(4) 1994 175,000 64,000 625,000(2)
1993 115,000 35,000 500,000(2)
Joseph T. Pisula............ 1995 193,867 28,311 350,000
President, Chief Operating 1994 34,800 0
Officer and Secretary(5)
Ronald B. Alexander......... 1995 171,000 28,331 92,219 211,250(1)
Chief Financial Officer, 1994 75,000 37,000 250,000(2)
Vice President of Finance
and Administration and
Treasurer(6)
</TABLE>
- ---------------
(1) The figures shown treat as newly issued in 1995 the replacement options
which were exchanged for the options surrendered by Messrs. Bernardi, Mann,
Sterling and Alexander pursuant to the Company's 1995 Option Repricing
Program. Messrs. Bernardi and Sterling each received replacement options on
938,325 shares in exchange for surrendering options on the 1,125,000 shares
shown as having been granted in 1993 and 1994. Mr. Mann received replacement
options on 220,840 shares in exchange for surrendering options on the
250,000 shares shown as having been granted in 1993, and Mr. Alexander
received replacement options on 211,250 shares in exchange for surrendering
an option on the 250,000 shares shown as having been granted in 1994. The
Company's 1995 Option Repricing Program allowed holders of out-of-the-money
options to surrender them to the Company and receive in exchange therefor
replacement options exercisable for fewer shares as determined by a formula
intended to achieve approximate economic equivalence between the surrendered
options and the replacement options and having an exercise price of $3.75,
the same vesting schedule as the surrendered options and a term of ten years
commencing on the original grant date of the surrendered option.
(2) Terminated pursuant to the Company's 1995 Option Repricing Program.
(3) During 1992 and 1993, Mr. Mann served as Vice Chairman of the Board of
Directors, Chief Operating Officer and Secretary of the Company. He was
Secretary and Director from February 1994 to October 1994, when he assumed
his current position. He resigned as a director in May 1996. The amounts
were paid to Mr. Mann prior to February 1, 1994 and to Mann Enterprises,
Inc., of which Mr. Mann is the majority stockholder, subsequent thereto. See
"Employment and Consulting Agreements."
(4) From inception of the Company until September 1995, Mr. Sterling served as
Chairman of the Board of Directors. Mr. Sterling served as Secretary of the
Company from October 1994 until September 1995 when he became an Assistant
Secretary. He resigned as a director in May 1996. The amounts were paid
8
<PAGE> 12
to Sterling Capital Group, Inc., of which Mr. Sterling is the sole
stockholder. See "Employment and Consulting Agreements."
(5) Mr. Pisula served as a consultant to the Company from November 1994 until
his appointment as President in February 1995. Mr. Pisula resigned as an
executive officer and director in May 1996.
(6) Mr. Alexander joined the Company as an executive officer on July 7, 1994.
Mr. Alexander resigned as an executive officer effective April 19, 1996. Mr.
Alexander's other annual compensation consisted of reimbursement for costs
and expenses incurred in connection with his relocation from New Jersey to
Northern Virginia.
STOCK OPTIONS
The following table sets forth certain information concerning the grant of
options to the Named Executives in 1995. The Company has not granted any stock
appreciation rights ("SARs").
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
NUMBER OF TOTAL OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION TERM
UNDERLYING EMPLOYEES IN OR BASE EXPIRATION ---------------------
NAME OPTIONS GRANTED(#) FISCAL YEAR PRICE($/SH) DATE (2) 5% 10%
------ ------------------ ------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Bernardi...... 210,000(3) 3.76% $6.82 8/2/05 $900,703 $2,282,558
272,400(4) 4.88% 3.75 2/28/03 478,721 1,168,176
166,800(3)(4) 2.99% 3.75 3/10/03 298,649 715,315
282,375(3)(4) 5.06% 3.75 1/2/04 583,805 1,437,940
216,750(3)(4) 3.88% 3.75 8/14/04 511,174 1,295,414
John B. Mann............ 140,000(3) 2.51% 6.82 8/2/05 600,469 1,521,706
145,280(4) 2.60% 3.75 2/28/03 260,118 623,028
75,060(3)(4) 1.34% 3.75 3/10/03 134,392 321,892
Robert M. Sterling,
Jr. .................. 210,000(3) 3.76% 6.82 8/2/05 900,703 2,282,558
272,400(4) 4.88% 3.75 2/28/03 478,721 1,168,176
166,800(3)(4) 2.99% 3.75 3/10/03 298,649 715,315
282,375(3)(4) 5.06% 3.75 1/2/04 583,805 1,437,940
216,750(3)(4) 3.88% 3.75 8/14/04 511,174 1,295,414
Joseph T. Pisula........ 350,000(5) 6.27% 3.50 2/26/05 770,396 1,952,335
Ronald B. Alexander..... 211,250(4)(6) 3.78% 3.75 4/20/97 378,325 905,937
</TABLE>
9
<PAGE> 13
The following table summarizes the value realized upon exercise of
outstanding stock options and the value of the outstanding options held by the
Chief Executive Officer and the other Named Executives.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END(#) AT FISCAL-YEAR END($)(7)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Bernardi........ None None 680,582 667,743 $ 230,000 $ 0
John B. Mann.............. None None 382,810 177,530 230,000 0
Robert M. Sterling,
Jr. .................... None None 680,582 667,743 230,000 0
Joseph T. Pisula.......... None None 97,223 252,777 24,306 0
Ronald B. Alexander....... None None 52,813 158,437 0 0
</TABLE>
- ---------------
(1) The tables and the other notes thereto reflect the effects of the
participation by Messrs. Bernardi, Sterling, Mann, and Alexander in the
Company's 1995 Option Repricing Program.
(2) Each option will expire on the earlier of (1) the date shown in the table;
or (2) three years after the date of the termination of the optionee's
relationship with the Company.
(3) Vesting of the options was accelerated in July 1996, and the options are now
fully exercisable.
(4) Shares underlying replacement options issued in 1995 in exchange for
surrender of options previously granted. See Note (1) to Summary
Compensation Table.
(5) In connection with Mr. Pisula's departure as an executive officer and
retention as a consultant of the Company, the per share exercise price was
increased to $3.75 and the vesting of the option has been continued through
the later of November 30, 1996 or the termination of the optionee's
relationship with the Company: (a) at a rate of 9,722 shares per month or
(b) in full upon earliest to occur of (i) the date on which the Company
achieves two consecutive quarters of operating profits which aggregate at
least $1.75 million, or (ii) upon the acquisition of the Company.
(6) In connection with Mr. Alexander's departure as an executive officer of the
Company, the option became exercisable for 92,423 shares.
(7) The value of the unexercised in-the-money options in the table was
determined by subtracting the exercise price of the options from the closing
sale price of the Common Stock on the NASDAQ-NMS on December 29, 1995 ($3.75
per share) and multiplying the result by the number of options.
The information set forth in the following Report and Performance Graph
shall not be deemed incorporated by reference by anything incorporating by
reference this Proxy Statement, future filings or generally into any filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, except to the extent that the Company specifically
incorporates such information by reference.
REPORT ON REPRICING OF OPTIONS
In connection with the Company's stock option repricing program (the
"Option Repricing Program") approved by the Board of Directors on March 14, 1995
certain outstanding options were surrendered in exchange for "New Options." The
Board of Directors approved the Option Repricing Program in order to restore the
incentive value of stock options held by directors, officers, key employees and
other personnel of the Company and thus encourage their continuing services to
the Company. As a result of the Option Repricing Program, outstanding employee
stock options ("Old Options") for an aggregate of 3,943,000 shares of common
stock with exercise prices ranging from $3.87 to $12.38 per share were
surrendered for replacement options ("New Options") for an aggregate of
3,284,401 shares at $3.75 per share, the closing price for the common stock on
March 14, 1995, the date on which the Board of Directors approved the Option
10
<PAGE> 14
Repricing Program. Each New Option has the same vesting schedule as the Old
Option exchanged therefor (i.e., each vesting schedule continues to run from the
original date of grant of or other applicable date with respect to the Old
Option). In connection with the Option Repricing Program, option agreements with
respect to New Options were amended to: (i) extend option terms from five to ten
years, the maximum term under the Plans; (ii)(a) extend the period of
post-employment exercise from three months to one year in the case of
Non-Qualified Stock Options and where termination is by reason of the optionee's
death or disability, and (ii)(b) accelerate vesting in the case of termination
by reason of disability; (iii) specify alternative means of payment upon
exercise of options; and (iv) authorize tax withholding of shares. The following
Ten-Year Option/SAR Repricing table sets forth the name of each executive
officer who participated in the Option Repricing Program, his position with the
Company at the time of the repricing and certain information concerning the
repricing of their respective options.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
EXERCISE LENGTH OF ORIGINAL
NUMBER OF SECURITIES MARKET PRICE OF PRICE AT OPTION TERM
UNDERLYING STOCK AT TIME TIME OF NEW REMAINING AT DATE
OPTIONS/SARS REPRICED OF REPRICING OR REPRICING OR EXERCISE OF REPRICING OR
NAME DATE OR AMENDED(#) AMENDMENT($) AMENDMENT($) PRICE($) AMENDMENT
- ---------------------------- -------- --------------------- --------------- ------------ -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Bernardi.......... 3/14/95 272,400 $3.75 $ 5.88 $ 3.75 3 years
Chief Executive Officer, 3/14/95 166,800 $3.75 $ 7.63 $ 3.75 3 years
Treasurer and Director 3/14/95 282,375 $3.75 $10.36 $ 3.75 3.8 years
3/14/95 216,750 $3.75 $ 6.68 $ 3.75 9.4 years
Robert M. Sterling, Jr...... 3/14/95 272,400 $3.75 $ 5.88 $ 3.75 3 years
Chairman of the Board, 3/14/95 166,800 $3.75 $ 7.63 $ 3.75 3 years
Secretary and Director 3/14/95 282,375 $3.75 $10.38 $ 3.75 3.8 years
3/14/95 216,750 $3.75 $ 6.88 $ 3.75 9.4 years
John B. Mann................ 3/14/95 145,280 $3.75 $ 5.88 $ 3.75 3 years
Assistant Secretary and 3/14/95 75,060 $3.75 $ 7.63 $ 3.75 3 years
Director
Ronald B. Alexander......... 3/14/95 211,250 $3.75 $ 7.13 $ 3.75 4.4 years
Chief Financial Officer
and Vice President of
Finance and Administration
</TABLE>
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Board of Directors has not appointed a compensation or similar
committee and has therefore retained the responsibility for setting and
administering the policies which govern executive compensation.
Executive compensation is structured to provide levels of compensation that
will assist the Company in attracting and retaining qualified executives who are
capable of maximizing stockholder value. The compensation paid to the Company's
executive officers is structured to be competitive within the high technology
industry. Compensation for executive officers consists primarily of base salary,
cash bonuses and grants of stock pursuant to the Company's stock option plans.
Base salaries are initially determined by evaluating the responsibilities of the
position and the experience and knowledge of the individual. Bonuses and annual
salary adjustments, if any, are determined by evaluating performance taking into
account such factors as achievement of the Company's strategic goals, assumption
of additional responsibilities and attainment of specific individual objectives.
The Board believes that stock ownership by management is especially beneficial
in aligning management's and stockholders' interests in the Company.
The chief executive officer's February 1994 employment agreement with the
Company provided for a base salary of $175,000 and a minimum bonus of $50,000.
In May 1996 the Company entered into a consulting agreement with Mr. Bernardi
and BCG, Inc., a company owned by Mr. Bernardi, which provides for compensation
in substantially the same amount as Mr. Bernardi's 1994 employment agreement.
The total
11
<PAGE> 15
bonus accrued for 1995 was $50,000. See "Employment and Consulting Agreements."
The chief executive officer was granted an option on 210,000 shares of common
stock in August 1995. In October 1994, in connection with a restructuring
program adopted by the Company, the chief executive officer agreed to defer
further payment of his bonuses until the Company achieves profitable operations.
The 1995 salary and bonuses of the other executive officers were determined
in large part, in the case of Messrs. Sterling and Mann, on the terms of the
consulting agreements to which they and the Company are parties and a subjective
assessment of their respective contributions to the Company's restructuring and
capital raising activities in 1995 and, in the case of Mr. Alexander, on the
terms of the compensation arrangement which he negotiated in connection with his
decision to join the Company in July 1994. In October 1994, Messrs. Sterling,
Mann and Alexander also agreed to defer further payment of their respective
bonuses until the Company achieves profitable operations.
Grants of Company stock options are intended to align the interests of
executives, key employees and others with the long-term interests of the
Company's stockholders and to encourage executives and key employees to remain
in the Company's employ. Grants for more than 50,000 shares or to persons who
are executive officers must be made by the Board of Directors, instead of by the
Stock Option Plan Committee. Grants are not made at regular intervals, but are
awarded subjectively based on a number of factors, including the achievement of
the Company's financial and strategic goals and the individual's contribution to
those achievements. The purpose of the awards to Messrs. Bernardi and Sterling
in 1995 (210,000 shares in August) was to reward them for the substantial
efforts required in connection with the Company's optionees in 1995 and to
provide them with an additional equity interest in the Company.
Section 162(m) of the Code imposes a limitation on the deductibility of
nonperformance-based compensation in excess of $1 million paid to the Named
Executives. The cash compensation of each of the Company's executive officers is
substantially below the $1 million threshold. The options granted under the
Company's stock option plans to date may not meet the requirement of being
performance-based as that term is used in the section and consequently their
exercise could reduce the compensation tax deduction that would otherwise be
available to the Company if the spread between the exercise price and the then
fair market value of the common stock should cause a specified executive's
compensation to exceed $1 million. The Board of Directors currently believes
that it should be able to continue to manage the executive compensation paid to
the Named Executives so as to preserve the related federal income tax
deductions.
The foregoing report covers the year 1995. The following persons served as
directors during 1995:
<TABLE>
<S> <C> <C>
Robert P. Bernardi John B. Mann Robert Ripp
Robert M. Sterling, Jr. Herbert E. Welch John F. Burton
Joseph T. Pisula
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Bernardi, Mann, Sterling, Pisula, and Welch who were members of the
Company's Board of Directors and executive officers of the Company in 1995
participated in the Board's deliberations concerning executive officer
compensation for 1995.
12
<PAGE> 16
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total stockholder return on the Company's Common Stock for the period beginning
with the Company's initial public offering on May 8, 1992 through December 31,
1995 with cumulative total return for the Nasdaq Stock Market (US) and for
Nasdaq Computer & Data Processing Stocks (SIC code 737). The comparison assumes
$100 was invested on May 8, 1992 in the Company's Common Stock at the $4.00
initial offering price and in each of the foregoing indices and assumes
reinvestment of dividends, if any.
<TABLE>
<CAPTION>
Measurement Period NIC-Common NASDAQ
(Fiscal Year Covered) Stock COMPOSITE NASDAQ C&DPS
<S> <C> <C> <C>
5/8/92 100 100 100
12/31/92 115.63 116.56 112.33
12/31/93 262.50 132.99 118.94
12/31/94 115.63 130.03 144.87
12/31/95 93.75 188.26 219.84
</TABLE>
<TABLE>
<CAPTION>
INDEXED/CUMULATIVE RETURNS
BASE PERIOD --------------------------------------------
COMPANY/INDEX NAME 5/8/92 12/31/92 12/31/93 12/31/94 12/31/95
-------------------------------------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NIC-Common Stock...................... 100 115.63 262.50 115.63 93.75
NASDAQ COMPOSITE...................... 100 116.56 132.99 130.03 188.26
NASDAQ Computer & Data Processing
Services............................ 100 112.33 118.94 144.87 219.84
</TABLE>
AGREEMENTS WITH EMPLOYEES AND CONSULTANTS
The Company has entered into consulting agreements with BCG, Inc. ("BCG")
(of which Mr. Bernardi is the sole stockholder), Mann Enterprises, Inc. ("Mann
Enterprises") (of which Mr. Mann is the majority stockholder) and with Sterling
Capital Group, Inc. ("Sterling Capital") (of which Mr. Sterling is the sole
stockholder) which provide for BCG, Mann Enterprises and Sterling Capital to
make the services of Messrs. Bernardi, Mann and Sterling available to the
Company. Each of the consulting agreements is for an initial term ending January
31, 1999 and continues from year to year thereafter unless terminated. Each of
the agreements with BCG and Sterling Capital Group provides for an annual
consulting fee of $175,000, subject to increases upon review by the Board of
Directors, and an annual performance bonus of not less than $50,000 as
determined by the Board of Directors. The consulting agreement with Mann
Enterprises provides for an annual consulting fee of $120,000, subject to
increases upon review by the Board of Directors, and an annual performance bonus
based on the operating results of certain businesses acquired by the Company in
which Mr. Mann was significantly involved. The Company has also agreed to employ
each of Mr. Sterling and Mr. Mann as Assistant Secretary of the Company at an
annual salary of $5,000. In determining the levels of bonuses and increases in
salary or consulting fees, the Board of Directors intends to consider such
factors as the levels of compensation of senior executives of comparable
companies, the overall performance of the Company and the respective
contributions of Messrs. Bernardi, Mann and Sterling to that performance. Apart
from these considerations, no criteria have been established that would limit
the amounts of bonuses or the size of increases in consulting fees. The
agreements provide demand registration rights to Messrs. Bernardi, Mann and
Sterling with respect to securities of the Company owned by them or which they
may acquire upon
13
<PAGE> 17
exercise of options. The consulting agreements provide that Messrs. Bernardi,
Mann and Sterling will devote their reasonable best efforts to the business of
the Company and the furthering of its interests and that each of them is
expected to devote up to 100 hours per month to the Company's affairs as
requested by the Company. The Company expects that Mr. Bernardi will, in
addition to serving as Chairman, perform other duties assigned to him by the
Board of Directors and that Messrs. Mann and Sterling will identify and pursue
on behalf of the Company business development projects, including acquisitions
and, as needed, financings, perform other duties as requested by the Board and
be available to consult with the executive officers on matters affecting the
Company. Each of the respective agreements prohibits Messrs. Bernardi, Mann and
Sterling during the term of the agreement from certain associations with any
business that competes with the Company.
The agreements also provide that if the consultant's services are
terminated by the Company for any reason other than cause, death or disability,
or if the consultant terminates the agreement for "good reason," the Company
will pay in a lump sum the full amount of the fees and benefits which the
consultant would have received, at the average rate in effect during the six
month period immediately prior to termination, and of the annual bonuses which
would have been received, at the rate of the bonus for the last full fiscal year
prior to termination, if the consultant's services had continued for the
remaining term of the agreement. The term "good reason" means a failure by the
Company to comply with any material provision of the agreement, a change of
control of the Company to which the consultant has not given prior written
consent or a good faith determination by the consultant that as a result of a
change in control he is unable to discharge effectively his duties under the
agreement. A change in control is deemed to occur if substantially all the
assets of the Company are sold, if the Company is merged or consolidated with,
or becomes a subsidiary of another corporation, if any person acquires 20% or
more of the combined voting power of the Company's securities and is then the
largest holder of such securities or if during any period of two consecutive
years individuals who at the beginning of such period constitute the Board of
Directors of the Company cease for any reason to constitute at least a majority
thereof, unless the election of each director who was not a director at the
beginning of such period has been approved in advance by directors representing
at least two-thirds of the directors then in office who were directors at the
beginning of the period.
Effective February 27, 1995, the Company entered into an employee retention
agreement with Mr. Pisula which replaced his prior consulting arrangement with
the Company. "See Certain Relationships and Related Transactions." Under the
retention agreement, Mr. Pisula was an employee at will, and his compensation
consisted of a base salary of $200,000 and a bonus of $75,000 to be earned
quarterly on a pro-rated basis if the Company's revenues and earnings met or
exceeded certain objectives. In May 1996, Mr. Pisula departed as an executive
officer and director of the Company but agreed to serve as a consultant through
November 30, 1996 for a monthly fee equal to his base salary. Pursuant to the
retention agreement, Options were granted to Mr. Pisula in February 1995 on
350,000 shares of Common Stock at $3.50 per share. See "Executive
Compensation -- Stock Options."
CERTAIN BUSINESS RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into consulting agreements with BCG, Inc., a
corporation of which Mr. Bernardi is the sole stockholder, Sterling Capital
Group, Inc., a corporation of which Mr. Sterling is the sole stockholder, and
Mann Enterprises, Inc., a corporation of which Mr. Mann is the majority
stockholder, and an employee retention agreement with Mr. Pisula. See "Executive
Compensation -- Employment and Consulting Agreements."
Prior to his appointment as a Director, President and Chief Operating
Officer of the Company, Mr. Pisula was a consultant affiliated with Focus, a
management consulting firm which provided his services to the Company from
November 1, 1994 to February 27, 1995 at a fee of $1,200 per day for
approximately 75% of the business days falling between those dates. The Company
paid Focus an aggregate of approximately $72,000 during 1994 and 1995 for Mr.
Pisula's services. While Mr. Pisula was a management consultant to the Company,
the Company and one of its subsidiaries retained another management consultant
affiliated with Focus to find a buyer for the Company's Wildsoft division ("WS")
and otherwise to assist the Company in the sale of WS. In connection therewith,
Focus was paid 1% of the sale price of WS ($13.00). The Company has
14
<PAGE> 18
also retained Focus to advise it on certain marketing and sales activities and
other possible divestitures. Mr. Pisula has no economic interest in Focus and
will receive no remuneration from Focus in connection with the sale of WS or the
ongoing advisory activities of Focus for the Company.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's executive officers, directors and persons
who own more than ten percent of the Common Stock (collectively, "Reporting
Persons") to file initial reports of ownership and changes of ownership of the
Common Stock with the SEC and the NASDAQ Stock Market. Reporting Persons are
required to furnish the Company with copies of all forms that they file under
Section 16(a). Based solely upon a review of the copies of such forms received
by the Company or written representations from Reporting Persons, the Company
believes that, with respect to fiscal year 1995, all reports required of
Reporting Persons pursuant to Section 16(a) were timely filed except that: Mr.
John F. Burton filed a Form 5 in February 1996 reporting an option on shares of
the Company's Common Stock held by him but not reported when he became a
Director in September 1995, and Mr. Fred E. Kassner, then a beneficial owner of
more than 10% of the Company's Common Stock, filed a Form 5 in February 1996
reporting Redeemable Common Stock Purchase Warrants held by him but not reported
on his Form 3 filed in December 1995.
PROPOSAL 3 -- RATIFICATION OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors, upon the recommendation of the Audit Committee, has
appointed Ernst & Young LLP, independent accountants, as auditors of the Company
to examine and report to stockholders on the consolidated financial statements
of the Company and its subsidiaries for the fiscal year ending on December 31,
1996. Ernst & Young LLP currently serves as the Company's independent
accountants. Representatives of Ernst & Young LLP will be present at the Meeting
and will be given an opportunity to make a statement. They also will be
available to respond to appropriate questions from stockholders.
Although ratification of the appointment of Ernst & Young LLP is not
required, the Board of Directors requests that the stockholders ratify the
appointment. If ratification is not obtained, the Board will reconsider the
matter of appointment of independent accountants for the Company.
The Company engaged Ernst & Young LLP effective June 25, 1995 as
independent accountants to examine the consolidated financial statements of the
Company for the fiscal year ending December 31, 1996. Ernst & Young LLP replaced
Price Waterhouse LLP. The Company's decision to retain Ernst & Young and
discontinue the engagement of Price Waterhouse as the Company's principal
independent accountants was approved by the Board of Directors of the Company.
The Company had engaged Price Waterhouse LLP effective January 21, 1994 as
independent accountants to examine the consolidated financial statements of the
Company for the fiscal year ending December 31, 1993. Price Waterhouse replaced
Hoffman Dykes & Fitzgerald, P.C. ("HD&F"). The Company's decision to retain
Price Waterhouse LLP and discontinue the engagement of HD&F as the Company's
principal independent accountants was approved by the Board of Directors of the
Company. The Company decided to engage Price Waterhouse LLP because the
Company's operations were becoming increasingly international in scope. At the
time the Company changed principal independent accountants, there had been no
disagreements with HD&F on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which, if not
resolved to the satisfaction of HD&F, would have caused it to make reference to
the subject matter of the disagreement in connection with its report on the
financial statements of the Company for the fiscal years ended December 31, 1992
and December 31, 1991. There have been no disagreements with Price Waterhouse on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction of Price Waterhouse, would have caused it to make reference to the
subject matter of the disagreement in connection with its report for the fiscal
years ended December 31, 1995 and December 31, 1994. Following its retention in
January 1994, Price Waterhouse communicated certain internal control matters to
the Company involving, for the fiscal year ended December 31, 1994,
recommendations that the Company should ensure compliance with its revenue
recognition policies and should further ensure that
15
<PAGE> 19
significant and/or unusual accounting and reporting issues are addressed and
documented on a timely basis. The report of Price Waterhouse on the financial
statements of the Company for the three fiscal years ending December 31, 1995
contained no adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope, or accounting principles.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR FISCAL YEAR 1996.
PROPOSAL 4 -- APPROVAL OF AMENDMENT TO THE 1994 KEY EMPLOYEE
INCENTIVE STOCK OPTION PLAN
The Company believes that stock options are an important incentive in
attracting, retaining and motivating key personnel who can contribute to the
successful conduct of its business and affairs. In order to provide such
incentive, the Board of Directors has adopted, and the Company's stockholders
have approved, among other plans, the 1994 Key Employee Incentive Stock Option
Plan (the "1994 Plan").
Through January 1994, when considering the grant of a number of options for
which there were not enough shares available under an existing plan, the Board
of Directors followed the practice of adopting a new plan instead of amending an
existing plan to increase the number of shares available for grant thereunder.
Since that time, the Board of Directors has followed the practice of increasing
the number of shares available for grant under the 1994 Plan and on August 1,
1996 approved an increase under that Plan from 5,000,000 to 6,000,000 shares. At
the time of the Board's action, only 445,428 shares remained available for the
grant of options under all the Plans. The Board of Directors believes that the
adoption of this amendment will allow the Company to continue to utilize stock
options as an incentive in attracting, retaining and motivating key personnel
who can contribute to the successful conduct of its business and affairs.
Whether additional plans or increases in the number of available shares under
existing plans are necessary in the future will depend on the Board's continuing
assessment of the arrangements necessary to attract, retain and motivate key
personnel. Stockholders are being asked to approve this increase so that options
granted with respect to the increased shares may qualify as Incentive Stock
Options under the Code. The amendment is being implemented by changing the
number of shares referred to in Section 4 of the Plan to 6,000,000 shares.
The affirmative vote of a majority of the shares of common stock present in
person or represented by proxy and entitled to vote at the meeting is required
to approve an increase in the number of shares available for issuance under the
1994 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSED
AMENDMENT TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE 1994
PLAN.
GENERAL DESCRIPTION OF THE 1994 PLAN
The 1994 Plan is intended to provide incentive to eligible participants by
affording them opportunities to purchase shares under (a) incentive stock
options ("Incentive Stock Options") as that term is defined under Section 422(b)
of the Internal Revenue Code of 1986, as amended (the "Code") and (b) other
stock options ("Non-Qualified Stock Options"). To the extent that the aggregate
fair market value (determined at the time of grant) of the shares for which
Incentive Stock Options are exercisable for the first time by a person during
any calendar year under all incentive stock option plans of the Company exceeds
$100,000, such options are treated as options which are not Incentive Stock
Options.
The 1994 Plan is administered by the Company's Board of Directors or a
committee of directors appointed by the Board. See "Board Committees and
Meetings." Subject to the terms of the 1994 Plan, the Board has the authority:
(a) to determine the individual persons to whom options shall be granted, the
number of shares to be subject to each option, the purchase price of the shares
under each option, the times at which options shall be granted and shall vest,
and the provisions of the instruments by which options shall be evidenced; (b)
to interpret the 1994 Plan; and (c) to make all determinations necessary or
advisable for the administration of the 1994 Plan.
16
<PAGE> 20
The 1994 Plan will terminate no later than ten years after the date of its
adoption by the Board of Directors. Options granted pursuant to the Plans will
terminate at a date fixed by the Board, but no later than ten years after the
date the options are granted. Each Incentive Stock Option granted to a person
who owns, directly or indirectly, shares possessing more than ten percent of the
total combined voting power of all classes of stock of the Company, as
contemplated by Code Sections 422(b)(6) and 424(d) ("Ten-Percent Shareholder"),
will expire no later than five years after the date of the grant of the option.
The Board is authorized to grant options for up 5,000,000 shares under the
1994 Plan. When an option expires or terminates prior to the end of the period
during which options may be granted under the 1994 Plan, new options may be
granted under the 1994 Plan to purchase any shares not purchased pursuant to the
expired or terminated option.
Options granted under the 1994 Plan become exercisable at one time or in
two or more installments as determined by the Board and provided in the
agreement evidencing the option. Options generally become exercisable on a
cumulative basis in four equal installments on each of the first four
anniversaries of the date of grant.
Under the terms of the Plan, each Incentive Stock Option granted must have
an exercise price of at least 100% of the fair market value of a share at the
time of the grant (at least 110% of such value in the case of an Incentive Stock
Option granted to a Ten-Percent Shareholder pursuant to Plan) and, during the
lifetime of the optionee, be exercisable only by the optionee. Accepted forms of
payment of the exercise price include cash or check and, in addition, for
options issued on and after March 14, 1995: shares of common stock previously
owned by the optionee, with certain qualifications; in the case of registered
option shares and subject to certain limitations, exercise through a broker's
sale of the option shares with proceeds covering the option price remitted to
the Company; or a combination of the foregoing. Option agreements issued on and
after March 14, 1995 also allow tax withholding of shares where shares are to be
delivered to or retained by the Company in connection with an exercise of an
option.
Certain options may be exercised, after an optionee's employment
terminates, for the number of shares then vested (or may be exercised in full in
the case of death) for a period of three months, subject in each case to the
stated term of the option. In other cases, an Option continues to be exercisable
for the number of shares as to which it was exercisable at the date of
termination of the optionee's association with the Company and, generally,
terminates on the date which is three months thereafter in the case of an
Incentive Stock Option or one year thereafter in the case of any other option
or, if earlier, the expiration date of the option; provided however, that if
such termination of association is by reason of the optionee's death or
disability (within the meaning of Section 122 (c)(6) of the Code), then the
option immediately becomes exercisable in full and terminates on the date which
is one year thereafter or, if earlier, the expiration date of the option. In May
1996 the period of post employment exercise was generally extended to three
years in the case of Non-Qualified Stock Options and where termination is by
reason of the optionee's death or disability.
The number of shares subject to the 1994 Plan, and the number and price of
shares subject to any option then outstanding thereunder, will be
proportionately adjusted to reflect, as deemed equitable and appropriate by the
Company's Board of Directors, any stock dividend, stock split or share
combination of the common stock or any recapitalization of the Company. In the
event of certain business combinations and reorganizations (such as a merger,
consolidation, sale of substantially all the assets, reorganization, dissolution
or liquidation of the Company) in connection with which all the outstanding
shares of common stock are converted into or exchangeable for other securities
or other property, each outstanding option shall terminate, but the optionee
shall have the right, immediately prior to such event, to exercise the option in
full without regard to the otherwise applicable vesting schedule; provided that,
under certain circumstances, the optionee shall not have such immediate exercise
right, but in that case the option, to the extent not previously exercised,
shall continue in effect and subject to the applicable vesting schedule, but
shall pertain not to shares but to the securities or other property into or for
which the remaining shares would have been convertible or exchangeable had they
been outstanding at the effective time of the transaction. For example, in the
case of a merger of the Company into another company, if each share of common
stock is to be converted into two
17
<PAGE> 21
shares of preferred stock of the acquiring company, the optionee shall be
entitled to acquire, upon exercise of an option, two shares of that preferred
stock.
AMENDED PLAN BENEFITS
The following table shows the number of shares subject to outstanding
options under the 1994 Plan as of October 1, 1996 for each of the Company's
Chief Executive Officer and the Named Executives at December 31, 1995, all seven
current executive officers as a group, all current directors who are not, and at
December 31, 1995 were not, executive officers as a group and all non-executive
officer employees as a group. The number of shares reflect reductions resulting
from the Company's Option Repricing Program.
<TABLE>
<CAPTION>
NAME AND POSITION 1994 PLAN DOLLAR VALUE(1) NUMBER OF OPTIONS
----------------------------------------------- ------------------------- -----------------
<S> <C> <C>
Robert P. Bernardi............................. $ 0 499,125
Chairman of the Board
John B. Mann................................... 0 140,000
Assistant Secretary
Robert M. Sterling, Jr. ....................... 0 709,125
Assistant Secretary
Joseph T. Pisula............................... 0 350,000
President, Chief Operating Officer and
Secretary
Ronald B. Alexander............................ 0 92,423
Vice President of Finance and Administration,
Chief Financial Officer and Treasurer
Current Executive Officers as a Group 0 1,449,125
(7 persons)..................................
All Non-Executive Directors as a Group (3 0 221,675
persons).....................................
All Non-Executive Officer Employees as a Group 0 2,126,994
(124 persons)................................
</TABLE>
- ---------------
(1) All options were granted at exercise prices equal to the fair market value
of the common stock at the date of grant. Because optionees must pay the
exercise price to the Company to acquire shares upon exercise of an option,
the dollar value of benefits received by or allocated to the optionees on
the grant date was zero. The per share exercise prices range from $3.13 to
$6.82. On October 1, 1996, the last sale price for the Common Stock as
reported by NASDAQ was $3 1/16 per share.
18
<PAGE> 22
The following table provides information concerning the values of
exercisable and unexercisable options under all of the Company's stock
option plans as of October 1, 1996. The values shown in the table are based
on the spread between the exercise prices of in-the-money options and
$3 1/16, the last sale price for the common stock on October 1, 1996 as
reported by NASDAQ. The values assume that the shares could be sold at
current market prices and do not reflect restrictions on the sale of the
shares as to which certain of the executive officers may be subject as
affiliates of the Company. The numbers and values of options in the
following table reflect the Company's Option Repricing Program.
OUTSTANDING OPTIONS
<TABLE>
<CAPTION>
TOTAL OPTIONS OPTION VALUE
NAME OF INDIVIDUAL, GROUP AND ---------------------------- ----------------------------
NUMBER OF PERSONS IN GROUP EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert P. Bernardi..................... 1,348,325 0 $92,500 $ 0
John B. Mann........................... 560,340 0 92,500 0
Robert M. Sterling, Jr. ............... 1,348,325 0 92,500 0
Joseph T. Pisula....................... 184,722 165,278 0 0
Ronald B. Alexander.................... 92,423 0 0 0
Current Executive Officers as a Group
(7 persons).......................... 1,567,075 1,031,250 92,500 0
Current Non-Executive Directors as a
Group (3 persons).................... 17,088 204,587 0 0
All Non-Executive Employees as a Group
(166 persons)........................ 2,478,909 1,275,075 0 0
</TABLE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the federal income tax consequences to
Plan participants who may receive awards under the Plans. This summary is based
upon the provisions of the Code in effect as of September 30, 1995, and
regulations and interpretations with respect to the applicable provisions of the
Code as of that date.
A participant who is granted an Incentive Stock Option will not recognize
income and the Company will not be allowed a deduction at the time such an
option is granted. When a participant exercises an Incentive Stock Option while
employed by the Company or within the three-month period after termination of
employment, no ordinary income will be recognized by the participant at that
time but the excess of the fair market value of the shares acquired by such
exercise over the option price will be a tax adjustment item for purposes of the
federal alternative minimum tax applicable to individuals. If the shares
acquired upon exercise are not disposed of until more than two years after the
date of grant and one year after the date of transfer of the shares to the
participant (statutory holding periods), the excess of the sale proceeds over
the aggregate option price of such shares will be long-term capital gain. Except
in the event of death, if the shares are disposed of prior to the expiration of
the statutory holding periods (a "Disqualifying Disposition"), the excess of the
fair market value of such shares at the time of exercise over the aggregate
option price (but not more than the gain on the disposition if the disposition
is a transaction on which a loss, if sustained, would be recognized) will be
ordinary income at the time of such Disqualifying Disposition (and the Company
will be entitled to a federal tax deduction in a like amount).
A participant who receives a Non-Qualified Stock Option grant will not
recognize income and the Company will not be allowed a deduction at the time
such an option is granted. Except as discussed below, when a participant
exercises a Non-Qualified Stock Option, the difference between the option price
and any higher market value of the stock on the date of exercise will be
ordinary income to the participant and will be allowed as a deduction for
federal income tax purposes to the Company. The capital gain holding period of
the shares acquired will begin one day after the date the Non-Qualified Stock
Option is exercised. When a participant disposes of shares acquired by the
exercise of the option, any amount received in excess of the fair market value
of the shares on the date of exercise will be treated as short-term or long-term
capital gain,
19
<PAGE> 23
depending upon the holding period of the shares. If the amount received is less
than the market value of the shares on the date of exercise, the loss will be
treated as short-term or long-term capital loss, depending upon the holding
period of the shares.
If payment of the option price of a Non-Qualified Stock Option is made by
delivery of shares, the transaction is considered to be a tax-free exchange on a
share-for-share basis of the previously owned shares at their then fair market
value for the Non-Qualified Stock Option shares at the option price. Any
Non-Qualified Stock Option shares received by the optionee in excess of the
number of shares surrendered will be taxed at ordinary income tax rates on their
fair market value. Payment of the option price of an Incentive Stock Option by
means of Incentive Stock Option shares will be subject to the rules regarding
Disqualifying Dispositions.
If a participant who is subject to the insider trading rules of Section
16(b) of the 1934 Act receives shares by reason of the exercise of a
Non-Qualified Stock Option, the participant will recognize ordinary income equal
to the excess of the fair market value of the shares received over the amount
paid for the shares, if any, on the earlier of (i) the first day the sale of
such shares at a profit is no longer subject to Section 16(b) of the 1934 Act
(which may be the date of exercise), or (ii) six months less one day from the
date of exercise of the option (the "Recognition Date"), and the Company will be
entitled to a deduction of a like amount for federal income tax purposes at that
time. The income when recognized will include any appreciation in the value of
the stock realized on the Recognition Date, and the capital gain holding period
will not begin until the Recognition Date. However, if the Recognition Date is
not the date of exercise, such a participant may elect to have the normal rules
described with respect to Non-Qualified Stock Options apply by filing a Section
83(b) election with the Internal Revenue Service within 30 days after the
exercise of the Non-Qualified Stock Option.
SHAREHOLDER PROPOSALS
The Company anticipates that its 1997 annual meeting of stockholders will
be held in June, 1997. In order to be considered for that meeting, shareholder
proposals must be received by the Company no later than February 1, 1997.
Stockholders should send their proposals to the Company's corporate headquarters
address and must be submitted in accordance with Rule 14a-8 of the Exchange Act
on or before February 20, 1997.
OTHER BUSINESS
The Board of Directors does not intend to bring any other matter before the
Meeting and does not know of any other business which others will present for
consideration at the Meeting. Except as the Board of Directors may otherwise
permit, only the business set forth and discussed in the Notice of Annual
Meeting of Stockholders and this Proxy Statement may be acted on at the Meeting.
If any other business does properly come before the Meeting the proxy holders
will vote on such matters according to their discretion.
By Order of the Board of Directors
/s/ ROBERT P. BERNARDI
ROBERT P. BERNARDI
Chairman of the Board and Secretary
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, DATE, AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THANK YOU FOR
YOUR PROMPT ATTENTION TO THIS MATTER.
20
<PAGE> 24
APPENDIX A
CLASSIFIED BOARD AMENDMENTS
SECTION 3.02. NUMBER, QUALIFICATION AND TERM OF OFFICE. (a) The number of
Directors shall be one or such other number not greater than nine as shall be
fixed from time to time by the Board. Directors need not be Stockholders.
(b) The Board shall be divided into two classes, as nearly equal in number
as the then total number of Directors constituting the entire Board permits with
the term of office of one class expiring each year. At the Annual Meeting of
Stockholders in 1996, Directors of the first class shall be elected to hold
office for a term expiring at the next annual meeting, and until the election
and qualification of their successors, or until their prior death, resignation
or removal, and Directors of the second class shall be elected to hold office
for a term expiring at the second annual meeting of stockholders thereafter, and
until the election and qualification of their successors, or until their prior
death, resignation or removal. The following present Directors are hereby
designated initial members of the classes as indicated below:
<TABLE>
<CAPTION>
CLASS I CLASS II
- --------------- -------------------
<S> <C>
John F. Burton Robert P. Bernardi
James J. Leto Robert Ripp
C. Alan Peyser
</TABLE>
(c) Each successor to a Class I or Class II Director shall hold office
until the second annual meeting of the stockholders next succeeding his or her
election, and until his or her successor is elected and qualified, or until his
or her prior death, resignation or removal; except however, if additional
directorships are established, the initial term for such directorships shall be
for one or more years not greater than two as determined by the Board in order
to ensure that approximately one-half (1/2) of all of the directors are elected
at each annual meeting of the stockholders.
SECTION 3.04. REMOVAL. Any or all of the Directors may be removed, but
only for cause, at any time by vote of the recordholders of a majority of the
Shares then entitled to vote at an election of Directors, or by written consent
of the recordholders of Shares pursuant to Section 2.09 hereof.
SECTION 3.05. VACANCIES. Vacancies occurring on the Board for any reason
including, without limitation, vacancies occurring as a result of the creation
of new directorships that increase the number of Directors, may be filled by
vote of the recordholders of a majority of the Shares then entitled to vote at
an election of Directors or by written consent of such recordholders pursuant to
Section 2.09 hereof or by vote of the Board or by written consent of the
Directors pursuant to Section 3.08 hereof. If the number of Directors then in
office is less than a quorum, such vacancies may be filled by vote of a majority
of the Directors then in office or by written consent of all such Directors
pursuant to Section 3.08 hereof. Unless earlier removed pursuant to Section 3.04
hereof, each Director chosen in accordance with this Section 3.05 shall have the
same term as that of his or her predecessor, or, if such vacancy is a result of
an increase in the number of directors, as that of the other directors of the
class of which he or she shall be a member.
A-1
<PAGE> 25
THE 1994 KEY EMPLOYEE INCENTIVE STOCK OPTION PLAN
OF
NETWORK IMAGING CORPORATION
1. Purpose. This Stock Option Plan ("Plan") is intended to provide
incentive to Eligible Participants (as hereinafter defined) to advance the
interests of Network Imaging Corporation (the "Company") and its subsidiaries
by providing those persons with opportunities to purchase shares of the
Company's Common Stock ("Shares") under (a) incentive stock options ("Incentive
Stock Options") as such term is defined under Section 422(b) of the Internal
Revenue Code of 1986, as amended ("Code"), in the case of officers and key
employees of the Company and its subsidiaries, and (b) other stock options in
the case of all Eligible Participants. (As used herein, "Options" and "Option"
refer to Incentive Stock Options and other options hereunder.)
2. Administration. The Plan shall be administered by the Board of
Directors of the Company or a committee of one or more directors appointed by
the Board (the "Board"). The Board shall have authority, subject to the terms
of the Plan, (a) to determine the persons to whom Options shall be granted, the
number of Shares to be subject to each Option ("Option Shares"), the purchase
price of and the consideration and method of payment for the Shares under each
Option ("Option Price"), the times at which Options shall be granted and shall
vest and other terms and conditions thereof, and the provisions of the
instruments by which Options shall be evidenced; (b) to modify or amend any
Option or to waive any restrictions or conditions applicable to any Option or
the exercise thereof; (c) to interpret the Plan and the instruments by which
Options shall be evidenced; and (d) to make all determinations necessary or
advisable for the administration of the Plan.
3. Eligibility. Options may be granted to persons who at the time of
grant are existing or potential officers or directors or key employees of or
consultants or advisers to the Company or any of its subsidiaries ("Eligible
Participants"). The granting of any Option to a person shall neither entitle
such person to, nor disqualify such person from, receiving additional Options.
4. Shares Subject to this Plan. The total number of Shares that may
be issued pursuant to Options granted under this Plan shall not exceed
6,000,000 Shares (subject to adjustment as provided in Section 7). In the
event that any outstanding Option under this Plan for any reason expires or is
terminated prior to the end of the period during which Options may be granted,
the
<PAGE> 26
Shares not purchased pursuant to such Option may again be subject in full or in
part to Options under this Plan.
5. Granting of Options. Options may be granted under the Plan at any
time prior to January 3, 2004. Persons to whom Options have been granted and
whose Options remain outstanding under the Plan are referred to herein as
"Optionees."
6. Provisions of Options. Options shall be evidenced by instruments
in such forms as the Board may from time to time approve. Options shall
conform to the following:
(a) Option Price. The Option price per Share of Incentive Stock
Options shall be not less than 100% of the fair market value of a Share at the
time the Option is granted; provided, however, that in the case of an
Incentive Stock Option granted to a person who owns, directly or indirectly,
Shares possessing more than 10 percent of the total combined voting power of
all classes of stock of the Company, as contemplated by Code Sections 422(b)(6)
and 424(d) ("Ten-Percent Stockholder"), the Option price per Share shall not be
less than 110% of the fair market value of a Share at the time the Option is
granted.
(b) Term of Options. Each Option shall expire as provided in the
instrument evidencing the Option, and in no event later than the tenth
anniversary of the date of its grant, provided, however, that in the case of a
Ten-Percent Stockholder, each Incentive Stock Option shall expire no later than
the fifth anniversary of the date of its grant.
(c) Exercisability. Each Option shall become exercisable at one time
or in two or more installments as provided in the instrument evidencing the
Option. An Option shall be exercisable during an Optionee's lifetime only by
the Optionee.
The holder of an Option shall have none of the rights or privileges of
a stockholder with respect to the Shares issuable upon exercise of the Option
until certificates evidencing such Shares shall have been delivered to such
optionee upon exercise of his or her Option.
The Company shall deliver certificates evidencing such Shares within a
reasonable period of time; provided, however, that if any law, regulation, or
agreement requires the Company to take any action with respect to such Shares
before such delivery, then the date for such delivery shall be extended for the
period necessary to take such action.
(d) Termination. If an Optionee ceases to be an Eligible
Participant, any Option or unexercised portion thereof granted to
<PAGE> 27
such Optionee which is otherwise exercisable shall terminate as provided in the
instrument evidencing the Option, but in no event later than the date of
expiration of the term of the Option.
(e) Assignability. An Optionee may not assign, transfer, pledge or
otherwise dispose of an Option other than by will or the laws of descent and
distribution.
(f) Limit. To the extent that the aggregate fair market value
(determined at the time an Incentive Stock Option is granted) of the Shares for
which Incentive Stock Options are exercisable for the first time by a person
during any calendar year under all incentive stock option plans of the Company
(and its parent and subsidiary corporations, if any) exceeds $100,000, such
Options shall be treated as Options which are not Incentive Stock Options.
Instruments evidencing Options may contain such other provisions,
consistent with this Plan, as the Board deems advisable. Among those
provisions may be restrictions on the right of the Optionee to dispose of
Shares and a requirement that the Optionee represent to the Company in writing,
when an Option is granted or when Shares are purchased on exercise of an
Option, that such Optionee is accepting such Option, or purchasing Shares, for
his or her own account for investment only. Certificates issued representing
Shares granted upon the exercise of any Option may be marked with an
appropriate legend noting restrictions on their transfer or other disposition
to insure compliance with any applicable agreements or provisions of law.
7. Capital Adjustments. The number of Shares subject to the Plan,
and the number and price of Shares subject to any Option then outstanding,
shall be proportionately adjusted to reflect, as deemed equitable and
appropriate by the Board of Directors of the Company, any stock dividend, stock
split or share combination of the Common Stock or recapitalization of the
Company. In the event of any merger, consolidation, sale of substantially all
the assets, reorganization, dissolution or liquidation of the Company, in
connection with which all the outstanding shares of the Company's Common Stock
are converted into or exchangeable for other securities or other property, each
outstanding Option shall terminate, but the Optionees shall have the right,
immediately prior to such event, to exercise their Options in full without
regard to the vesting schedule otherwise applicable thereto; provided, however,
that in the case of a merger, consolidation, sale of substantially all the
assets or reorganization, the parties thereto may provide that the Optionees
shall not have such right, but in that case the Options, to the extent not
previously exercised, shall continue in effect and subject to the applicable
vesting schedule but shall pertain
<PAGE> 28
not to the remaining Option Shares but to the securities or other property into
or for which the remaining Option Shares would have been convertible or
exchangeable if they had been outstanding at the effective time of the
transaction (e.g., in the case of a merger of the Company into another company,
if each share of Common Stock of the Company is converted into two shares of
preferred stock of the acquiring company, the Optionee shall be entitled upon
exercise and payment of the Option Price to acquire two shares of that
preferred stock).
8. Term and Amendment of Plan. The Plan shall be effective on
January 3, 1994 and shall expire on January 3, 2004 (except as to Options
outstanding on that date). The adoption of the Plan is subject to approval by
the stockholders of the Company, and any options granted hereunder prior to
such approval shall provide that they may not be exercised unless and until
such approval has been obtained.
The Board, by majority vote and without stockholder approval, may
terminate the Plan at any time and from time to time amend the Plan in such
respects as it shall deem advisable to conform to any change in the applicable
law or for any other purpose, but shall not, without stockholder approval: (a)
increase the number of Shares that may be issued under the Plan (except by
operation of Section 7); or (b) change the class of persons eligible to
receive options under the Plan, if such action would be treated as the adoption
of a new plan for purposes of Section 423(b) of the Code.
An amendment of this Plan shall not, without the written consent of an
Optionee, adversely affect such Optionee's rights and privileges under an
Option theretofore granted.
<PAGE> 29
- --------------------------------------------------------------------------------
NETWORK IMAGING CORPORATION
PROXY FOR THE MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 21, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby constitutes and appoints Robert P. Bernardi and
James J. Leto, or either one of them acting in the absence of the other, the
true and lawful attorneys and proxies of the undersigned, with full power of
substitution, to vote and act for and in the name and stead of the undersigned
at the meeting of stockholders to be held November 21, 1996, and at any and all
adjournments thereof. The proxies are to have full authority to cast, with
respect to the following matters, on the reverse side of this proxy card, the
number of votes the undersigned would entitled to cast if personally present at
the meeting:
(TO BE SIGNED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A /X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
<TABLE>
<CAPTION>
FOR all nominees WITHHOLD
listed at right (except AUTHORITY
as marked to the to vote for all nominees
contrary at right) listed at right
<S> <C>
2. ELECTION OF / / / / NOMINEES:
CLASS I AND
CLASS II CLASS I DIRECTORS:
DIRECTORS. John F. Burton
James J. Leto
(INSTRUCTION: To withhold authority to vote for an C. Alan Peyser
individual nominee, strike a line through the nominee's
name in the list at right) CLASS II DIRECTORS:
Robert P. Bernardi
Robert Ripp
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<TABLE>
FOR AGAINST ABSTAIN
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1. Ratification of the adoption of amendments to / / / / / /
the Company's Bylaws to provide for a
classified Board of Directors.
3. Ratification of the selection of Ernst & Young / / / / / /
LLP as the Company's independent auditors
for 1996.
4. Approval of an amendment to the 1994 Key / / / / / /
Employee incentive Stock Option Plan to
increase the number of shares subject to the
Plan.
5. To transact such other business as may properly
come before the meeting.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH MATTER LISTED ABOVE.
STOCKHOLDERS ARE ENCOURAGED TO VOTE ON THE MATTERS TO BE CONSIDERED. THIS PROXY
WILL BE VOTED AS SPECIFIED, EXCEPT THAT IF NOT INSTRUCTIONS ARE INDICATED, IT
WILL BE VOTED FOR THE ELECTION OF THE LISTED NOMINEES AS DIRECTORS AND IN FAVOR
OF EACH PROPOSAL.
The undersigned hereby acknowledges receipt of a copy of the notice of
the meeting of stockholders and of the related proxy statement.
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
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SIGNATURE DATE SIGNATURE DATE
----------------------------- ------------------ ------------------------ ------------------
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NOTE: Please sign the exact name(s) in which your shares are registered. If
stocks are held jointly, both names should be signed Executors, administrators,
trustees, guardians and other signing in a representative capacity should give
their full titles.
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