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 ss.240.14a-11(c) or ss.240.14a-12
KRONOS INCORPORATED
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
KRONOS INCORPORATED
400 Fifth Avenue
Waltham, Massachusetts 02154
December 12, 1997
Dear Stockholder:
We cordially invite you to attend our 1998 Annual Meeting of
Stockholders, which will be held at 10:00 a.m. on January 30, 1998 at the
offices of the Company, 400 Fifth Avenue, Waltham, Massachusetts 02154.
At this meeting you are being asked to elect three Class III Directors,
approve an amendment to the Company's Restated Articles of Organization to
increase the number of authorized shares of Common Stock, approve amendments to
the Company's 1992 Equity Incentive Plan and ratify the selection of Ernst &
Young LLP as independent auditors for the Company for the 1998 fiscal year.
Please read the enclosed Proxy Statement, which describes the nominees for
Director and presents other important information, and complete, sign and return
your proxy promptly in the enclosed envelope.
We hope you will join us on January 30 for our Annual Meeting, but we
know that every stockholder will not be able to do so. Whether or not you plan
to attend, please return your signed proxy as soon as possible.
Sincerely,
MARK S. AIN
Chairman and Chief Executive Officer
<PAGE>
KRONOS INCORPORATED
400 Fifth Avenue
Waltham, Massachusetts 02154
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
JANUARY 30, 1998
Notice is hereby given that the Annual Meeting of Stockholders of
Kronos Incorporated (the "Company") will be held at the offices of the Company,
400 Fifth Avenue, Waltham, Massachusetts 02154, on January 30, 1998 at 10:00
a.m. for the following purposes:
1. To elect three Class III Directors for the ensuing three years.
2. To approve an amendment to the Company's Restated Articles of
Organization increasing the number of authorized shares of
Common Stock from 12,000,000 to 20,000,000 shares.
3. To approve amendments to the Company's 1992 Equity Incentive
Plan (the "Plan"), as set forth in the accompanying Proxy
Statement under "Approval of Amendments to 1992 Equity
Incentive Plan."
4. To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the 1998 fiscal year.
5. To transact such other business as may properly come before
the meeting and any and all adjourned sessions thereof.
Only stockholders of record at the close of business on December 4,
1997 will be entitled to notice of and to vote at the Annual Meeting and any and
all adjourned sessions thereof. The stock transfer books of the Company will
remain open.
By Order of the Board of Directors,
PAUL A. LACY, CLERK
Waltham, Massachusetts
December 12, 1997
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING. WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF THE PROXY IS
MAILED IN THE UNITED STATES.
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<PAGE>
KRONOS INCORPORATED
400 Fifth Avenue
Waltham, Massachusetts 02154
Proxy Statement for the Annual Meeting of Stockholders
To Be Held on January 30, 1998
The enclosed form of proxy is solicited on behalf of the Board of
Directors of Kronos Incorporated ("Kronos" or the "Company") for use at the
Annual Meeting of Stockholders (the "Meeting") to be held at the offices of the
Company, 400 Fifth Avenue, Waltham, Massachusetts 02154, on January 30, 1998 at
10:00 a.m. and at any and all adjourned sessions thereof. A proxy may be revoked
by a stockholder, at any time before it is voted, (i) by returning to the
Company another properly signed proxy bearing a later date, (ii) by otherwise
delivering a written revocation to the Clerk of the Company, or (iii) by
attending the Meeting or any adjourned session thereof and voting the shares
covered by the proxy in person. Shares represented by the enclosed form of proxy
properly executed and returned, and not revoked, will be voted at the Meeting in
accordance with the instructions contained therein. If no choice is specified,
the proxies will be voted in favor of the matters set forth in the accompanying
Notice of Meeting.
The expense of soliciting proxies will be borne by the Company. In
addition to solicitations by mail, officers and regular employees of the
Company, without additional remuneration, may solicit proxies by telephone,
telegram and personal interviews from brokerage houses and other shareholders.
The Company has retained Corporate Investor Communications, Inc. to assist in
the solicitation of proxies and will pay that firm a fee of $4,000 plus
expenses. The Company will also reimburse brokers and other persons for their
reasonable charges and expenses incurred in forwarding soliciting materials to
their principals.
The Annual Report of the Company for the fiscal year ended September
30, 1997, is being mailed to the Company's stockholders with this Notice and
Proxy Statement on or about December 12, 1997.
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997, as filed with the Securities and Exchange Commission,
except for exhibits, will be furnished without charge to any stockholder upon
written request to the Treasurer, Kronos Incorporated, 400 Fifth Avenue,
Waltham, Massachusetts 02154.
3
<PAGE>
Voting Securities and Votes Required
On December 4, 1997, the record date for the determination of
stockholders entitled to notice of and to vote at the Annual Meeting, there were
outstanding and entitled to vote an aggregate of 8,207,008 shares of
Common Stock of the Company, $.01 par value per share ("Common Stock"). Each
share is entitled to one vote.
The holders of a majority of the number of shares of Common Stock
issued, outstanding and entitled to vote on any matter shall constitute a quorum
with respect to that matter at the Annual Meeting. Shares of Common Stock
present in person or represented by proxy (including shares which abstain or do
not vote with respect to one or more of the matters presented for stockholder
approval) will be counted for purposes of determining whether a quorum is
present.
The affirmative vote of the holders of a plurality of the votes cast by
the stockholders entitled to vote at the Annual Meeting is required for the
election of Directors. The affirmative vote of the holders of the majority of
the outstanding shares of Common Stock is required for approval of the proposed
amendment to the Company's Restated Articles of Organization. The affirmative
vote of the holders of a majority of the shares of Common Stock present or
represented and properly cast on a matter is required for the amendments to the
1992 Equity Incentive Plan (the "Plan"), and the ratification of the selection
of Ernst & Young LLP ("Ernst & Young") as the Company's independent auditors for
the current fiscal year.
Shares which abstain from voting as to a particular matter, and shares
held in "street name" by brokers or nominees who indicate on their proxies that
they do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter, and will also not
be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have the effect of a vote against the
proposed amendment to the Company's Restated Articles of Organization and will
have no effect on the voting on a matter that requires the affirmative vote of a
certain percentage of the votes cast or shares voting on a matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information with respect to the
beneficial ownership of the Common Stock of the Company as of September 30, 1997
by (i) each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock; (ii) each Director and nominee for Director;
(iii) each executive officer named in the Summary Compensation Table under the
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<PAGE>
heading "Executive Compensation" below and (iv) all Directors and executive
officers of the Company as a group.
The number of shares beneficially owned by each Director or executive
officer is determined under rules of the Securities and Exchange Commission, and
the information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares as to
which the individual has sole or shared voting power or investment power and
also any shares which the individual has the right to acquire within 60 days
after September 30, 1997 through the exercise of any stock option or other
right. Unless otherwise indicated, each person has sole investment and voting
power (or shares such power with his or her spouse) with respect to the shares
set forth in the following table. The inclusion herein of any shares deemed
beneficially owned does not constitute an admission of beneficial ownership of
those shares.
<TABLE>
<CAPTION>
Percentage of
Shares of Common Stock Common Stock
Name and Address Beneficially Owned Outstanding
- ---------------- ------------------------- -------------
<S> <C> <C>
Wanger Asset Management, L.P.
227 W. Monroe Street, Suite 3000
Chicago, Illinois 60606.......... 934,700(1) 11.5%
Wellington Management Company, LLP
75 State Street
Boston, MA 02109................. 715,249(2) 8.8%
Fidelity Entities
82 Devonshire Street
Boston, Massachusetts 02109-3614. 631,000(3) 7.7%
Acorn Fund, a Series of the Acorn Investment Trust
227 W. Monroe Street, Suite 3000
Chicago, Illinois 60606..........
650,000(4) 8.0%
Mark S. Ain*...................... 583,849(5)(7) 7.0%
W. Patrick Decker*................ 33,251(7) ^
Richard J. Dumler*................ 196,596(6)(7) 2.4%
D. Bradley McWilliams*............ 130,665(7) 1.6%
Lawrence Portner*................. 2,880(7) ^
Samuel Rubinovitz*................ 6,000 ^
Aron J. Ain....................... 41,744(7) ^
Paul A. Lacy...................... 42,253(7) ^
Laura L. Woodburn................. 4,000(7) ^
All Directors and executive officers as a group (13
persons)............. 1,133,791(8) 13.4%
- ------------
</TABLE>
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<PAGE>
* Director of the Company
^ Less than 1% of the shares of Common Stock outstanding
(1) Represents 650,000 shares of Common Stock beneficially owned by The
Acorn Fund, 12,000 shares of Common Stock beneficially owned by Wanger
U.S. Smaller Companies Fund, 118,000 shares of Common Stock
beneficially owned by Acorn USA, and 154,700 shares of Common Stock
beneficially owned by the Oregon State Treasury. Wanger Asset
Management, L.P. shares voting and dispositive power with respect to
these shares of Common Stock in its capacity as an investment advisor
to those entities.
(2) Represents 715,249 shares of Common Stock owned by the investment
advisory clients of Wellington Management Company, LLP ("WMC"), with
respect to which WMC shares dispositive power. In addition, of these
715,249 shares, WMC shares voting power for 265,199 shares.
(3) Includes 460,550 shares of Common Stock which are beneficially owned by
Fidelity Contrafund, and 631,000 shares of Common Stock with respect to
which FMR Corp. has sole dispositive power, and which are beneficially
owned by Fidelity Management & Research Company, an investment advisor
to various Fidelity funds.
(4) The Acorn Fund, a Series of the Acorn Investment Trust, shares voting
and dispositive power over these shares of Common Stock with Wanger
Asset Management, L.P., its investment advisor.
(5) Mr. Mark Ain's address is c/o Kronos Incorporated, 400 Fifth Avenue,
Waltham, MA, 02154.
(6) Includes 190,126 shares of Common Stock held by Lambda CFD 1987, L.P.
and Lambda III, L.P. of which Lambda Management, L.P. is the sole
general partner. Mr. Dumler is a general partner of Lambda Management,
L.P.
(7) Includes the following shares of Common Stock issuable upon the
exercise of outstanding stock options which may be exercised within 60
days after September 30, 1997: Mr. Mark Ain: 122,200; Mr. Decker:
27,250; Mr. Dumler: 720; Mr. McWilliams: 2,880; Mr. Portner: 720;
Mr. Aron Ain: 40,100; Mr. Lacy: 39,950; Ms. Woodburn: 4,000.
(8) Includes 281,845 shares of Common Stock issuable upon the exercise of
outstanding stock options held by executive officers and Directors of
the Company which may be exercised within 60 days after September 30,
1997. Also includes shares of Common Stock held by affiliates of
Directors (See footnote (6)).
ELECTION OF DIRECTORS
The Company's Restated Articles of Organization and Amended and
Restated By-Laws provide for the classification of the Board of Directors into
three classes, as nearly equal in number as possible. The Class I, Class II and
Class III Directors will serve until the annual meeting of stockholders to be
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held in 1999, 2000 and 2001, respectively, and until their respective successors
are duly elected and qualified. At each annual meeting of stockholders,
Directors are generally elected for a full term of three years to succeed those
whose terms are expiring.
The Board of Directors has voted to fix the number of Directors at
seven and to fix the number of Class II Directors at two. There are currently
two Class I Directors, one Class II Director and three Class III Directors.
The Company is in the process of identifying a candidate to fill the
Class II vacancy, but does not expect that such candidate will be identified
prior to the Annual Meeting. The Company's Restated Articles of Organization and
Amended and Restated By-Laws permit the Board of Directors to fill any vacancy
on the Board without the approval of the Company's stockholders. It is currently
expected that the Board will identify a suitable candidate and fill the Class II
vacancy at some time after the Annual Meeting.
Unless otherwise instructed, the enclosed proxy will be voted to elect
the persons named below as Class III Directors for a term of three years
expiring at the 2001 annual meeting of stockholders and until their respective
successors are duly elected and qualified.
All nominees are currently serving as Directors of the Company. If any
nominee should become unavailable, the enclosed proxy may be voted for a
substitute nominee designated by the Board of Directors, unless instructions are
given to the contrary. The Board of Directors does not anticipate that any of
the nominees will become unavailable. The Company has no nominating committee
and all nominations are made by the Board of Directors.
The following table sets forth the name, age, length of service as a
Director of each member of the Board of Directors, including the nominees for
Class III Directors, information given by each concerning all positions he holds
with the Company, his principal occupation and business experience for the past
five years and the names of other publicly-held companies of which he serves as
a Director. Information with respect to the number of shares of Common Stock
beneficially owned by each Director, directly or indirectly, as of September 30,
1997, appears above under the heading "Security Ownership of Certain Beneficial
Owners and Management."
7
<PAGE>
Nominees for Class III Directors
Terms Expiring in 2001
Mark S. Ain, 54
Chief Executive Officer, Chairman of the Board and Director
Mark S. Ain, a founder of the Company, has served as Chief Executive
Officer, Chairman of the Board and a Director of the Company since its
organization in 1977. He also served as President from 1977 through September
1996. From 1974 to 1977, Mr. Ain operated his own consulting company, providing
strategic planning, product development and market research services. From 1971
to 1974, he was associated with a consulting firm. From 1969 to 1971, Mr. Ain
was employed by Digital Equipment Corporation both in product development and as
Sales Training Director. He received a B.S. from the Massachusetts Institute of
Technology and an M.B.A. from the University of Rochester. Mr. Ain is a director
of KVH Industries, Inc., a manufacturer of navigation and satellite
communications equipment. Mr. Ain is the brother of Aron J. Ain, Vice President,
Marketing and Worldwide Field Operations of the Company.
Richard J. Dumler, 55
Director
Richard J. Dumler has served as a Director of the Company since 1982.
Mr. Dumler has been general partner of Lambda Management, L.P. since 1983 and
Vice President of Lambda Fund Management Inc., an investment management company,
since 1990. He served as First Vice President of Drexel, Burnham, Lambert, Inc.
from 1983 to 1990. Mr. Dumler is a Director of Enscor Inc., a Toronto based
real estate finance organization.
Samuel Rubinovitz, 67
Director
Samuel Rubinovitz has served as a Director of the Company since 1985.
From 1989 until April 1996, he was a Director of EG&G, Inc., a diversified
manufacturer of scientific instruments and electronic, optical and mechanical
equipment. In January 1994, Mr. Rubinovitz retired from his position as
Executive Vice President of EG&G, a position he had held since 1989. From 1986
to 1989, he was Senior Vice President of EG&G. Mr. Rubinovitz is a Director of
the following three companies: Richardson Electronics, Inc., a manufacturer and
distributor of electron tubes and semiconductors; KLA-Tencor Corporation, a
manufacturer of high performance instrumentation used in the processing and
inspection of semiconductors; and LTX Corporation, a manufacturer of instruments
used to test semiconductor devices.
8
<PAGE>
Class II Director
Term Expiring in 2000
W. Patrick Decker, 50
President, Chief Operating Officer
W. Patrick Decker has served as President and Chief Operating Officer
of the Company since October, 1996. Previously, he served as Vice President,
Marketing and Field Operations of the Company from 1982 until October 1996. From
1981 to 1982, Mr. Decker was General Manager at Commodore Business Machines,
Inc.-New England Division, a personal computer manufacturer. From 1979 to 1980,
Mr. Decker was a National Sales Manager for the General Distribution Division of
Data General Corporation, a computer company.
Class I Directors
Terms Expiring in 1999
D. Bradley McWilliams, 56
Director
D. Bradley McWilliams has served as a Director of the Company since
1993. From 1982 to 1995, Mr. McWilliams held the position of Vice President of
Cooper Industries, Inc., a worldwide manufacturer of electrical products, tools
and hardware and automotive products. In 1995, Mr. McWilliams was named Senior
Vice President and Chief Financial Officer of Cooper Industries, Inc.
Lawrence Portner, 61
Director
Lawrence Portner has served as a Director of the Company since 1993.
Mr. Portner held the position of Vice President of Software Engineering for Data
General Corporation from June 1992 to December 1994 and served as a consultant
to Data General from 1988 to June 1992. Prior to that time, Mr. Portner held the
position of Research and Development Vice President and General Manager of
Apollo Computer from 1983 to 1986. From 1963 to 1983, Mr. Portner served in
various capacities at Digital Equipment Corporation, most recently as Vice
President of Strategic Planning.
Board of Directors and Committees
The Audit Committee of the Board of Directors, which held two meetings
during fiscal year 1997, reviews with management and the independent auditors
the Company's annual financial statements, the scope of the audit, any comments
made by the independent auditors and such other matters that the Committee deems
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appropriate. In addition, the Committee reviews the performance and retention of
the Company's independent auditors and reviews with management such matters
relating to compliance with corporate policies as the Committee deems
appropriate. Messrs. McWilliams and Dumler neither of whom is an executive
officer or employee of the Company, currently serve on the Audit Committee.
The Compensation and Stock Option Committee of the Board of Directors,
which held six meetings during fiscal year 1997, administers the Company's stock
option plans, recommends to the Board of Directors the annual salaries and
bonuses of the Company's executive officers and makes recommendations to the
Board of Directors with regard to the adoption of any new employee stock benefit
plans. Messrs. Rubinovitz, Dumler and Portner, none of whom is an executive
officer or an employee of the Company, currently serve on the Compensation and
Stock Option Committee. See "Report of the Compensation Committee" below.
During the Company's fiscal year ended September 30, 1997, the Board of
Directors of the Company held a total of seven meetings. Each Director attended
at least 75% of the total number of meetings of the Board of Directors and all
committees on which he served.
Section 16(a) Beneficial Ownership Reporting Compliance
Mr. Theodore Johnson, a former director of the Company, filed in
February 1997 a Statement of Changes in Beneficial Ownership on Form 4 required
by Section 16(a) of the Securities Exchange Act of 1934, relating to the sale of
3,500 shares in December 1996. The shares were held in the Wolverine Trust, of
which Mr. Johnson is the settlor and sole beneficiary.
Director Compensation
Effective May 1, 1997, the compensation paid to non-employee members of
the Board of Directors was revised. Each Director who is not a full time
employee of the Company currently receives a quarterly retainer of $1,000 for
his services as a Director, $2,000 for each Board meeting attended, and $1,000
for each committee meeting not held on the same day as a Board meeting. In
addition, each Director who serves as a Committee Chairman receives a quarterly
retainer of $500. Expenses incurred by non-employee Directors to attend Board
meetings are paid by the Company. It is also expected that each non-employee
Director will receive annually a stock option grant to purchase 1,000 shares of
Common Stock at a price equal to fair market value on the date of grant, so long
as that Director owns a minimum of 2,000 shares of Common Stock of the Company.
On April 23, 1997, each of Messrs. Dumler, Rubinovitz, McWilliams and Portner
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was awarded a stock option to purchase 1,000 shares of Common Stock at an
exercise price of $18.125 per share.
Executive Compensation
Summary Compensation. The following table sets forth certain
information with respect to the annual and long-term compensation of the
Company's Chief Executive Officer and each of the four other most highly
compensated executive officers during the three fiscal years ended September 30,
1995, 1996 and 1997 who were serving as executive officers on September 30, 1997
(the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation Awards
-------------------------------------------------------------- -------------------------------
Name and Other Annual All Other
Principal Salary Bonus Compensation Options/SARs Compensation
Position Year ($) ($) ($) (#) ($)(1)
-------- -------- -------------- ------------ --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark S. Ain......... 1997 $311,192 -- -- 35,000 $1,500
Chief Executive 1996 276,058 110,423 -- 27,000 1,200
Officer 1995 250,000 87,500 -- 27,000 800
W. Patrick Decker... 1997 230,885 -- 47,699(2) 35,000 1,500
President & Chief 1996 172,862 69,144 -- 7,500 1,200
Operating Officer 1995 164,000 57,400 -- 7,500 800
Aron J. Ain ........ 1997 175,673 -- -- 16,000 1,500
Vice President 1996 147,565 59,026 -- 7,500 1,200
Marketing and
Worldwide Field
Operations 1995 140,000 49,000 -- 7,500 800
Paul A. Lacy........ 1997 175,673 -- -- 14,000 1,500
Vice President 1996 147,565 59,026 -- 7,500 1,200
Finance &
Administration 1995 140,000 49,000 -- 7,500 800
Laura L. Woodburn.... 1997 151,442 30,000 -- 25,000 1,500
Vice President
Engineering(3)
- -----------
(1) Amounts shown represent matching contributions made by the Company to its 401(k) Savings Plan on behalf of the Named
Executive Officers.
(2) Includes $43,729 which represents reimbursement of Mr. Decker's relocation expenses grossed-up for associated tax
liabilities.
(3) Ms. Woodburn joined the Company as Vice President for Engineering on November 20, 1996.
</TABLE>
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Option Grants and Exercises
The following tables summarize option grants and exercises during
fiscal year 1997 to or by the Named Executive Officers and the value of the
options held by such persons at the end of fiscal year 1997.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term(2)
------------------------------------------------------------------ ----------------------------
Percent of
Options Exercise
Options Granted to or Base
Granted Employees in Price Expiration
Name (#)(1) Fiscal Year ($/Sh) Date 5%($) 10%($)
---- ------- ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Mark S. Ain...... 35,000 10.25% $25.125 01/17/02 $252,180 $560,145
W. Patrick Decker. 35,000 10.25% 25.125 01/17/02 252,180 560,145
Aron J. Ain...... 16,000 4.68% 25.125 01/17/02 115,282 256,066
Paul A. Lacy..... 14,000 4.10% 25.125 01/17/02 100,872 224,058
Laura L. Woodburn. 20,000 5.85% 25.125 01/17/02 144,103 320,083
5,000(3) 1.46% 17.50 06/02/02 25,093 55,736
- ------------------
</TABLE>
(1) Unless otherwise noted, each option was granted on November 18, 1996 and
vests in five equal annual installments commencing one year from the
date of grant.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These
gains are based on assumed rates of stock appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. Actual gains, if any, on stock option exercises
will depend on the future performance of the Common Stock and the date on
which the options are exercised.
(3) Option was granted on April 3, 1997 and vests in five equal annual
installments commencing one year from the date of grant.
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<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Value of Unexercised
Unexercised Options In-The-Money Options at
at Fiscal Year-End Fiscal Year-End ($)(2)
(#)
---------------------- ----------------------------
Shares Acquired Value
on Exercise(#) Realized Exercisable/ Exercisable/
Name ($)(1) Unexercisable Unexercisable
----
------------------- --------------- ---------------------- ----------------------------
<S> <C> <C> <C> <C>
Mark S. Ain..... 0 0 104,400/88,100 $1,725,624/442,312
W. Patrick Decker. 0 0 17,250/50,600 218,881/153,799
Aron J. Ain...... 9,000 $256,317 33,900/31,600 567,449/139,549
Paul A. Lacy...... 5,000 128,305 34,150/29,600 572,946/138,049
Laura L. Woodburn. 0 0 0/25,000 0/56,875
- ------------
</TABLE>
(1) Represents the difference between the exercise price and the fair market
value of the Common Stock on the date of exercise.
(2) Based on the fair market value of the Common Stock on September 30,
1997 ($25.875), the last day of the Company's 1997 fiscal year, less
the option exercise price.
REPORT OF COMPENSATION COMMITTEE
Introduction
The Company's compensation program for executive officers is
administered by the Compensation and Stock Option Committee of the Board of
Directors (the "Compensation Committee"), which is composed of three
non-employee Directors, Messrs. Rubinovitz, Dumler and Portner. The Committee is
responsible for establishing and administering the policies which govern both
annual compensation and equity ownership.
The Company's executive compensation program reflects input from the
Company's Chief Executive Officer. The Compensation Committee reviews his
proposals concerning executive compensation and makes a final determination
concerning the scope and nature of compensation arrangements. The actions of the
Compensation Committee are reported to the Company's entire Board of Directors.
Kronos believes it is important that its stockholders understand the
Company's philosophy regarding executive compensation, and how this philosophy
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manifests itself in the Company's various compensation plans.
Philosophy
All of Kronos' compensation programs are aimed at attracting and
retaining key employees, motivating them to achieve, and rewarding them for
above average Company performance. Different programs are geared to short and
longer term performance with the goal of increasing stockholder value over the
long term.
Executive compensation programs impact all employees by setting general
levels of compensation and helping to create an environment of goals, rewards,
and expectations. Since Kronos believes the performance of every employee is
important to the success of the Company, it is mindful of the effect of its
executive compensation and incentive programs on all employees.
The Compensation Committee of Kronos believes that the compensation of
Kronos' executives should reflect their success in attaining key operating
objectives, such as growth of sales, growth of operating earnings and earnings
per share, and growth or maintenance of market share and long term competitive
advantage, and ultimately, in attaining an increased price for the Company's
stock. The Compensation Committee believes that the performance of Kronos'
executives in the management of the Company, considered in the light of general
economic and specific company, industry, and competitive conditions, should be
the basis for the determination of executive compensation, bonuses, and stock
option awards. It believes executive compensation should not be based on the
short term performance of the Company's stock, whether favorable or unfavorable,
but rather that the price of the Company's stock will, in the long term, reflect
the operating performance of the Company, and ultimately, the management of the
Company by its executives. The Company seeks to have the long term performance
of the Company's stock reflected in executive compensation through the Company's
stock option and other equity incentive programs.
Programs
Kronos currently has three major components to its executive
compensation plans: salary, bonus and stock option and other equity incentive
programs.
Salary
In determining appropriate salary levels for executives, the
Compensation Committee primarily takes into account salary compensation at
comparably sized companies in the electronics and software industries. To track
14
<PAGE>
this, the Committee relies on salary surveys conducted by third parties and its
own knowledge of compensation at companies in the Boston, Massachusetts area.
The Committee's goal is to establish base salary compensation in the
upper half of the range of salaries for executive officers with comparable
qualifications, experience and responsibilities at other companies in the same
or similar businesses and of comparable size and success, but not at the highest
levels. The Company believes this gives it the opportunity to attract and retain
talented managerial employees both at the level of Vice President and below. At
the same time, this level of salary allows the Company to have a bonus plan
based on performance without raising executive compensation beyond levels which
the Company believes are appropriate.
Bonus
Kronos' cash bonus plan is aimed at rewarding its executives for the
achievement of shorter term Company financial goals, primarily increases in the
Company's pre-tax income. The Company's philosophy is to reward its senior
executives as a group if the goals are achieved. The maximum bonus payable for
fiscal 1997 ranged between 10 to 50% of base salary, depending on the
achievement of financial goals, including the level of pre-tax income reached by
the Company. The Company believes this level of award strikes the right balance
between incentive and reward, without offering undue incentives to management to
make short term decisions that could be harmful in the long run. Early in the
Company's fiscal year, the Compensation Committee sets guidelines for the awards
based upon achievement of financial goals, including the level of pre-tax
income, and based upon its own assessment of the ability of the Company to
achieve the Company's annual financial plan, in light of economic conditions and
other factors. It is the general philosophy of the Board that management be
rewarded for their performance as a team in the attainment of these goals,
rather than individually.
While the cash bonus plan is based on the attainment of certain
financial goals, awards under the plan for any individual or the officers as a
group are entirely at the discretion of the Compensation Committee, who may
choose to award the bonus or not, in light of all relevant factors after
completion of the Company's fiscal year.
Stock Option and Equity Incentive Programs
The Company intends that its stock option program be its primary
vehicle for offering long-term incentives and rewarding its executives and key
employees. Kronos believes that stock options are the compensation mechanism
which works most effectively to align the interests of the Company's management
15
<PAGE>
and shareholders. The goal of the program has been to enable members of the
program to participate in the success of the Company in line with their
contributions. Kronos desires that senior executives achieve a meaningful equity
stake in the Company through their participation in the option program.
Much has been written about the value of stock options at the time they
are granted. In Kronos' case, in order to make their past options valuable,
members of management worked over an extended period of time to build the
Company, whose success at the time the options were granted was hardly assured.
Given the price earnings multiple of Kronos stock, management will have to
achieve substantial ongoing earnings growth for their options to have meaningful
value. This also is not assured and will require dedication and effort similar
to that put forth in the past. Kronos seeks to ensure this through continuing
grants of stock options.
Stock options are granted to key employees based upon prior
performance, the importance of retaining their services for the Company, and the
potential for their performance to help the Company attain its long term goals.
There is no set formula for the award of options to individual executives or
employees. The award of stock options is generally done annually in conjunction
with the Compensation Committee's formal review of the individual performance of
its key executives, including its CEO, and their contributions to the Company.
In the past, Kronos has annually granted options to purchase between 2%
and 5% of the Company's outstanding shares on a fully-diluted basis. Of this
amount, approximately half have been granted to the Company's officers and the
balance to key employees. The Compensation Committee currently expects to
continue this general practice in the future.
In connection with its equity incentive plan, participants may use
shares to exercise their options or to pay taxes on nonstatutory options. In
addition, the Company has a cash loan program available to its officers under
which, given certain circumstances, up to $50,000 may be borrowed using Kronos
shares as collateral. The purpose of these programs is to encourage the officers
to hold rather than sell their Kronos shares.
The Employee Stock Purchase Plan is designed to appeal primarily to
non-executive Kronos employees and is not intended to be a meaningful element in
executive compensation.
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Summary of Compensation of Chief Executive Officer
In fiscal year 1997, Mark S. Ain, the Company's Chief Executive
Officer, received a salary of $311,192. He received no bonus compensation for
fiscal year 1997. In deciding whether or not bonus compensation would be paid
for fiscal year 1997, the Compensation Committee reviewed whether certain of the
Company's financial goals established at the beginning of fiscal year 1997 had
been attained. On October 1, 1997, Mr. Ain was granted stock options to purchase
30,000 shares of Common Stock at a price of $26.50 per share, the fair market
value on the date of the grant, based on Mr. Ain's performance in fiscal year
1997. These options vest at the rate of 7,500 shares per year, beginning on the
first anniversary date of the grant. In determining the number of shares covered
by the options granted to Mr. Ain, the Compensation Committee evaluated Mr.
Ain's prior performance, the importance of retaining his services for the
Company, and his potential to help the Company attain its long-term goals.
The Company does not believe that Section 162(m) of the Internal
Revenue Code, as amended (the "Code"), which disallows a tax deduction for
certain compensation in excess of $1 million, will generally have an effect on
the Company. The Compensation Committee has determined to amend the Company's
1992 Equity Incentive Plan as described below to comply with Section 162(m).
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was at any time during the past
fiscal year, or formerly, an officer or employee of the Company or any
subsidiary of the Company, nor has any member of the Compensation Committee had
any relationship with the Company requiring disclosure under Item 404 of
Regulation S-K under the Securities Exchange Act of 1934, as amended. No
executive officer of the Company has served as a Director or member of the
Compensation Committee (or other committee serving an equivalent function) of
any other entity, one of whose executive officers served as a Director of or
member of the Compensation Committee of the Company.
COMPARATIVE STOCK PERFORMANCE
The following graph compares the cumulative total stockholder return on
the Company's Common Stock with the cumulative return of (i) the Nasdaq Stock
Market - U.S. Index (the "Nasdaq Composite Index"), and (ii) the Hambrecht &
Quist Technology Index (the "Industry Index") during the five-year period ended
September 30, 1997. The graph assumes the investment of $100 in the Company's
Common Stock, the Nasdaq Composite Index and the Industry Index and assumes
dividends are reinvested. Measurement points are the last days of the Company's
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<PAGE>
fiscal years ended September 30, 1993, 1994, 1995, 1996 and 1997, and the last
trading days of each of the other months in the Company's 1993, 1994, 1995, 1996
and 1997 fiscal years.
<TABLE>
<CAPTION>
DATES Kronos Incorporated Industry Index Nasdaq Composite Index
----- ------------------- -------------- ----------------------
<S> <C> <C> <C>
Sep-92 100 100 100
Oct-92 123.44 105.76 103.94
Nov-92 137.50 113.27 112.21
Dec-92 134.37 118.53 116.34
Jan-93 106.25 128.40 119.65
Feb-93 112.50 124.02 115.19
Mar-93 110.94 125.93 118.52
Apr-93 90.62 118.47 113.46
May-93 100.00 130.82 120.24
Jun-93 92.19 129.15 120.80
Jul-93 103.13 121.73 120.94
Aug-93 110.94 129.51 127.19
Sep-93 118.75 131.89 130.98
Oct-93 110.94 134.15 133.92
Nov-93 98.44 136.12 129.93
Dec-93 106.25 139.16 133.55
Jan-94 92.19 147.76 137.61
Feb-94 103.13 152.64 136.32
Mar-94 96.87 144.29 127.94
Apr-94 101.56 140.58 126.28
May-94 103.13 140.99 126.59
Jun-94 97.66 132.00 121.96
Jul-94 109.37 136.93 124.46
Aug-94 112.50 151.02 132.39
Sep-94 121.88 150.53 132.06
Oct-94 142.19 164.32 134.65
Nov-94 146.09 162.91 130.18
Dec-94 162.50 167.17 130.55
Jan-95 162.50 164.73 131.28
Feb-95 170.31 179.00 138.22
Mar-95 180.47 187.20 142.32
Apr-95 190.62 201.22 146.80
May-95 203.12 208.43 150.59
Jun-95 232.03 233.52 162.79
Jul-95 284.37 254.84 174.76
Aug-95 289.06 257.76 178.30
Sep-95 289.06 263.91 182.40
Oct-95 287.50 267.62 181.35
Nov-95 271.88 264.33 185.61
Dec-95 296.87 249.96 184.62
Jan-96 318.75 253.65 185.53
Feb-96 291.07 266.36 192.60
Mar-96 239.06 254.77 193.23
Apr-96 278.91 289.98 209.27
May-96 302.34 294.35 218.88
Jun-96 332.81 272.91 209.01
Jul-96 258.98 244.86 190.39
Aug-96 278.91 259.69 201.06
Sep-96 288.28 289.71 216.44
Oct-96 273.05 285.56 214.05
Nov-96 267.19 319.23 227.28
Dec-96 300.00 310.66 227.08
Jan-97 309.38 343.93 243.22
Feb-97 255.47 315.84 229.77
Mar-97 164.06 296.11 214.77
Apr-97 201.56 307.07 221.49
May-97 243.75 353.29 246.60
Jun-97 257.81 356.41 254.15
Jul-97 229.69 413.75 280.98
Aug-97 254.30 414.93 280.51
Sep-97 242.58 431.95 297.11
</TABLE>
18
<PAGE>
APPROVAL OF AMENDMENT TO RESTATED ARTICLES OF ORGANIZATION
On November 14, 1997, the Board of Directors of the Company unanimously
voted to recommend to the stockholders that the Company's Restated Articles of
Organization be amended to increase the number of authorized shares of common
stock from 12,000,000 shares to 20,000,000 shares.
The authorized Common Stock of the Company currently consists of
12,000,000 shares, $0.01 par value per share, of which 8,182,245 shares were
outstanding as of November 14, 1997, and approximately 1,431,846 shares were
reserved for issuance pursuant to the Company's stock option plans, stock
purchase plans and other employee benefit plans. In addition, the Board of
Directors has approved, subject to stockholder approval, an amendment to the
Company's 1992 Equity Incentive Plan increasing by 1,000,000 the number of
shares available for issuance under the Plan. See "Approval of Amendments to
1992 Equity Incentive Plan" below. The Board of Directors believes that the
authorization of additional shares of Common Stock is desirable to provide
shares for issuance in connection with possible future financings, joint
ventures, acquisitions, possible future stock dividends, or other general
corporate purposes. However, there is no existing plan, understanding or
agreement for the issuance of any shares of Common Stock with the exception of
the shares of Common Stock available for issuance upon exercise of stock options
or similar arrangements as described above. If the amendment to the Restated
Articles of Organization is adopted by the stockholders, the Board of Directors
would have authority to issue shares of Common Stock without the necessity of
future stockholder action. Holders of the Common Stock have no preemptive rights
with respect to any shares which may be issued in the future.
APPROVAL OF AMENDMENTS TO
1992 EQUITY INCENTIVE PLAN
In the opinion of the Board of Directors, the future success of the
Company depends, in large part, on its ability to attract, retain and motivate
key employees with experience and ability. Under the Company's 1992 Equity
Incentive Plan (the "Plan") the Company is currently authorized to grant equity
incentives, including stock options, to purchase up to an aggregate of 1,237,500
shares of Common Stock. As of November 14, 1997, 1,200,320 shares of Common
Stock had been issued, or are reserved for issuance, pursuant to awards granted
under the Plan to employees and Directors of the Company; the Company estimates
that the remaining 37,180 shares available for issuance under the Plan will not
be sufficient to meet the Company's needs for the duration of the Plan, which
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<PAGE>
expires by its terms in 2002. The Company does not currently intend to issue any
awards under any of its other stock option plans.
Section 162(m) of the Code, enacted in 1993, generally disallows a tax
deduction to public companies for compensation over $1 million paid to the
corporation's Chief Executive Officer and four other most highly compensated
executive officers. Qualifying performance-based compensation is not subject to
the deduction limit if certain requirements are met. In particular, income
recognized upon the exercise of a stock option is not subject to the deduction
limit if the option was issued under a plan approved by stockholders that
provides a limit to the number of shares that may be issued under the plan to
any individual. To comply with Section 162(m), the Plan was amended in 1996 to
limit to 75,000 the number of shares that may be issued to any employee in any
calendar year, (subject to adjustment for certain changes in the Company's
capitalization). In order to give the Company additional flexibility in
attracting and retaining key officers and employees, the Board of Directors has
decided, subject to stockholder approval, to increase from 75,000 to 100,000 the
number of shares that may be issued under the Plan to any employee in any
calendar year. In addition, Section 162(m) requires that the continuance of the
Plan be approved by stockholders.
Accordingly, on November 14, 1997, the Board of Directors voted,
subject to stockholder approval, (i) to increase from 1,237,500 to 2,237,500 the
number of shares available for issuance under the Plan (subject to adjustment
for certain changes in the Company's capitalization); (ii) to increase from
75,000 to 100,000 the number of shares that may be issued to any employee in any
calendar year (subject to adjustment for certain changes in the Company's
capitalization); and (iii) to continue the Plan, as amended. If the stockholders
do not approve the proposed amendments, the Company will not grant any further
options or make any further awards of stock under the Plan.
On November 14, 1997, the last reported sale price of the Company's
Common Stock on the Nasdaq National Market was $32.0625.
General
The Plan was adopted by the Board of Directors on March 27, 1992 and
approved by the stockholders on April 16, 1992. An amendment to the Plan was
approved by the stockholders on February 2, 1996, to increase the number of
shares available for issuance under the Plan to 1,237,500 and to limit to 75,000
(subject to adjustment for certain changes in the Company's capitalization) the
number of shares or rights to acquire shares under the Plan which may be granted
in any calendar year to any one employee of the Company. The Plan provides for
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<PAGE>
the grant of stock options, stock appreciation rights ("SARs"), restricted and
unrestricted stock, deferred stock, performance awards, loans and supplemental
grants ("Awards") to employees and Directors of the Company and its subsidiaries
and to other persons in a position to make a contribution to the success of the
Company and its subsidiaries. The Plan is administered by the Board of
Directors, which has the authority to select the persons to whom Awards are
granted and to determine the terms of each Award. The Board of Directors may
delegate some or all of its powers with respect to the Plan to a committee of
the Board, and has currently delegated substantially all of such powers to the
Compensation Committee.
All Awards (other than Awards in the form of an outright transfer of
cash or unrestricted stock) are nontransferable other than by will or by the
laws of descent and distribution or, in some cases, pursuant to certain domestic
relations orders. Upon the termination of the relationship of a participant in
the Plan (a "Participant") with the Company, any options or SARs which were
exercisable by the Participant immediately prior to such termination may be
exercised by the Participant for up to three months following such termination
(or other period determined by the Board), except in the case of the death of
the Participant, in which case the Participant's executor or heir will have a
period of up to one year in which to exercise such options or SARs. Unless
otherwise determined by the Board, upon any such termination, all restricted
stock of the Participant will be transferred to the Company, and all other
Awards to which the Participant is not irrevocably entitled will be canceled. In
the event of a "change in control" of the Company, each outstanding option and
SAR under the Plan will become exercisable in full, each share of restricted
stock will become free of restrictions and conditions on deferred stock awards,
performance awards and supplemental grants relating to the passage of time and
continued employment will be removed. A "change in control" will occur when any
person (together with its affiliates) becomes the beneficial owner of 35% or
more of the Company's outstanding securities (other than as a result of
acquiring such securities from the Company) or when, during any two-year period,
the majority of the Board of the Company is replaced by Directors who were not
elected or nominated by at least a two-thirds majority of the Directors of the
Company.
Because Award grants under the Plan are determined on a case by case
basis, the benefits to be received by any particular current executive officer,
by all current executive officers as a group, or by non-executive officer
employees as a group cannot be determined by the Company at this time.
21
<PAGE>
Stock Options
Under the Plan, the Company may grant Awards comprising stock options
that are intended to qualify as incentive stock options within the meaning of
Section 422 of the Code, or options not intended to qualify as incentive stock
options. Any incentive stock options may be granted to employees of the Company,
and with an exercise price established by the Board which may not be less than
100% of the fair market value of the Common Stock as of the date of grant, or
110% of the fair market value on the date of grant in the case of grants to
persons who are at the time of such grant the owners of stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or its subsidiaries. The term of an option may not exceed ten years from
the date of grant, or five years from the date of grant in the case of an option
granted to a ten percent shareholder.
Options granted under the Plan may provide for the payment of the
exercise price by delivery of cash or check in an amount equal to the exercise
price of such options or, to the extent permitted by the Board, by (A) delivery
of shares of Common Stock owned by the optionee for at least six months (or such
shorter period as is approved by the Board), and which have a fair market value
equal to the exercise price, (B) delivery of a promissory note of the optionee
to the Company on terms determined by the Board, (C) delivery of an irrevocable
undertaking by a broker to deliver promptly to the Company sufficient funds to
pay the exercise price, or (D) any combination of the foregoing.
Stock Appreciation Rights
An SAR is the right to receive any excess in value of shares of Common
Stock over the exercise price awarded to a Participant. The Board may grant SARs
entitling recipients on exercise of the SAR to receive an amount, in cash or
Common Stock or a combination thereof, determined in whole or in part by
reference to appreciation in the fair market value of the stock between the date
of the grant of the SAR and the exercise of the SAR. An SAR shall entitle the
Participant to receive, with respect to each share of Common Stock as to which
the SAR is exercised, the excess of the share's fair market value on the date of
exercise over its fair market value on the date the SAR was granted. The Board
may also grant SARs that provide that, following a change in control of the
Company, the holder of such SAR will be entitled to receive, with respect to
each share of stock subject to the SAR, an amount equal to the excess of a
specified value (which may include an average of values) for a share of Common
Stock during a period preceding such change in control over the fair market
value of a share of Common Stock on the date the SAR was granted. SARs may be
22
<PAGE>
granted in tandem with, or independently of, options granted under the Plan. An
SAR granted in tandem with an option that is not an incentive stock option may
be granted either at or after the time the option is granted. An SAR granted in
tandem with an incentive stock option may be granted only at the time the option
is granted. When SARs are granted in tandem with options, certain special
provisions will apply.
Performance Awards
The Board may make performance share awards entitling recipients to
acquire, without payment, shares of Common Stock or cash or a combination
thereof upon the attainment of specified performance goals.
Restricted and Unrestricted Stock; Deferred Stock
The Board may grant Restricted Stock Awards entitling recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their purchase price (or to require
forfeiture of such shares if received at no cost) from the recipient in the
event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restricted period or restricted
periods established by the Board for such Award ("Restricted Stock"). Shares of
Restricted Stock may not be sold, assigned, transferred, pledged or otherwise
encumbered, except as permitted by the Board, during the applicable restriction
period. In addition, the Board may grant (or sell at a purchase price determined
by the Board) to Participants shares of Common Stock free of any restrictions
under the Plan, or the issuance of which will be deferred until certain
conditions are met. The purchase price for each share of Restricted Stock and
Common Stock not subject to restrictions shall be determined by the Board of
Directors and may not be less than the par value of the Common Stock.
Loans and Supplemental Grants
Under the Plan, the Company may make cash loans or grants available to
a Participant in connection with Awards. No loan may have a term of more than
ten years. Cash grants will not exceed the Participant's grossed-up tax
liability with respect to any Award.
Federal Income Tax Consequences
Incentive Stock Options. No taxable income is recognized by an
optionee, and no business expense deduction is available to the Company, upon
23
<PAGE>
either the grant or exercise of an incentive stock option. However, the
difference between the exercise price of an incentive stock option and the fair
market value on the date of exercise of the Common Stock acquired will be
included in alternative minimum taxable income for an optionee for purposes of
the "alternative minimum tax." Generally, if an optionee holds shares acquired
upon the exercise of incentive stock options until the later of (i) two years
from the grant of the option and (ii) one year from the date of transfer of the
purchased shares to him or her (the "Statutory Holding Period"), any gain
recognized by the optionee on a sale of the shares will be treated as capital
gain. The gain recognized upon the sale of the stock is the difference between
the option price and the sale price of the stock. The net federal income tax
effect on the holder of incentive stock options is to defer, until the stock is
sold, taxation of any increase in the stock's value from the time of grant to
the time of exercise.
If the optionee sells the stock prior to the expiration of the
Statutory Holding Period, he or she will realize taxable income at ordinary
income tax rates in an amount equal to the lesser of (i) the fair market value
of the stock on the date of exercise less the option price, or (ii) the amount
realized on sale less the option price, and the Company will receive a
corresponding business expense deduction. The optionee will recognize a capital
gain in an amount equal to the excess, if any, of the sale price over the fair
market value of the stock on the date of exercise. If the optionee sells the
stock for less than the option price, he or she will recognize a capital loss
equal to the difference between the sale price and the option price. The capital
gain or loss will be long-term if the shares are held for more than one year
after exercise and short-term if the shares are held for a shorter period.
Non-Statutory Options. No taxable income is recognized by the optionee
upon the grant of a non-statutory option. The optionee must recognize as
ordinary compensation income in the year in which the option is exercised the
amount by which the fair market value of the purchased shares on the date of
exercise exceeds the option price. The Company will be entitled to a business
expense deduction equal to the amount of ordinary compensation income recognized
by the optionee, subject to the limitations imposed by Section 162(m) of the
Code. The optionee will have a basis in the shares acquired upon exercise of the
option equal to the option price plus any ordinary compensation income
recognized.
The optionee will recognize a capital gain or any loss upon
the subsequent disposition of the purchased shares equal to the difference
between his or her basis and the amount realized upon the sale. The capital gain
or loss will be a capital gain or loss, and will be a long-term capital gain or
capital loss if the shares are held for more than one year and a short-term
capital gain or loss if the shares are held for a shorter period.
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<PAGE>
Stock Appreciation Rights. No taxable income is recognized by
the recipient upon the grant of an SAR under the Plan. The recipient must
recognize as ordinary compensation income any cash delivered and the fair market
value of any shares of Common Stock delivered in payment of an amount due under
an SAR. The Company will be entitled to a business expense deduction equal to
the amount of ordinary compensation income recognized by the recipient, subject
to the limitations of Section 162(m) of the Code.
On the disposition by the recipient of any Common Stock
received in payment of an SAR, any additional gain or any loss recognized will
be a capital gain or loss, and will be a long-term capital gain or loss if the
shares are held for more than one year, and a short-term capital gain or loss if
the shares are held for a shorter period.
Performance Awards. No taxable income is recognized by the recipient
upon the grant of a Performance Award. The recipient must recognize as ordinary
compensation income the fair market value of any shares of Common Stock actually
delivered in accordance with the terms of the Performance Award. The Company
will be entitled to a business expense deduction equal to the amount of ordinary
compensation income recognized by the recipient, subject to the limitations of
Section 162(m) of the Code.
On the disposition by the recipient of any Common Stock received
pursuant to a Performance Award, any additional gain or any loss recognized will
be a capital gain or loss, and will be a long-term capital gain or loss if the
shares are held for more than one year, and a short-term capital gain or loss if
the shares are held for a shorter period.
Restricted and Unrestricted Stock. Neither the Company nor the
recipient of a Restricted Stock Award will realize any federal tax consequences
at the time the award is granted, unless the recipient makes an election under
Section 83(b) of the Code. If the recipient makes a Section 83(b) election
within 30 days of the date of the grant, then the recipient will recognize
ordinary compensation income, for the year in which the Award is granted, in an
amount equal to the difference between the fair market value of the Common Stock
at the time the Award is granted and the purchase price paid for the Common
Stock. If such election is made and the recipient subsequently forfeits some or
all of the shares, the recipient will not be entitled to any tax refund. If the
Section 83(b) election is not made, the recipient will recognize ordinary
compensation income, at the time that the forfeiture provisions or restrictions
on transfer lapse, in an amount equal to the difference between the fair market
25
<PAGE>
value of the Common Stock at the time of such lapse and the original purchase
price paid for the Common Stock. The Company will be entitled to deduct, as a
compensation expense, the same amount as the employee is required to recognize
as ordinary compensation income, in the same year as the employee includes the
amount in income for federal tax purposes, subject to the limitations of Section
162(m) of the Code.
When the recipient sells the stock, he or she will recognize a capital
gain or loss at the time of sale on the difference between his or her basis (the
price paid plus any amount taxed as ordinary compensation income) and the sale
price. Such capital gain or loss will be a long-term capital gain or loss if the
stock is held for more than one year from the date of grant if a Section 83(b)
election is made, and, for all other cases, for more than one year from the date
that the forfeiture provisions or restrictions on transfer lapse. The capital
gain or loss will be short-term if the shares are held for shorter period.
The recipient of an Unrestricted Stock Award will recognize ordinary
compensation income, for the year in which the Award is granted, in an amount,
if any, equal to the difference between the fair market value of the Common
Stock at the time the Unrestricted Stock Award is granted and the purchase price
for the Common Stock. The Company will be entitled to a business expense
deduction equal to the amount of ordinary compensation income recognized by the
recipient, subject to the limitations of Section 162(m) of the Code. On the
disposition by the recipient of any Unrestricted Stock, any additional gain or
any loss recognized will be a capital gain or loss, and will be a long-term gain
or loss if the shares are held for more than one year, and as a short-term gain
or loss if the shares are held for a shorter period.
Maximum Income Tax Rates on Capital Gain and Ordinary Income. Long-term
capital gain will be taxable at a maximum rate of 20% if attributable to Common
Stock held for more than eighteen months and at a maximum rate of 28% if
attributable to Common Stock held for more than one year but not more than
eighteen months. Short-term capital gain and ordinary income will be taxable at
a maximum rate of 39.6%. Phaseouts of personal exemptions and reductions of
allowable itemized deductions at higher levels of income may result in slightly
higher marginal tax rates. Ordinary compensation income will also be subject to
a medicare tax and, under certain circumstances, a social security tax.
Board Recommendation
The Board of Directors believes that the Amendments are in the best
interests of the Company and its stockholders and therefore recommends that the
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<PAGE>
stockholders vote FOR these Amendments. If the Amendments are not approved by
the stockholders, the Company will not grant options in excess of the current
authorized number of options.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Board of Directors, at the recommendation of the Audit Committee,
has selected the firm of Ernst & Young as the Company's independent auditors for
the current fiscal year. Ernst & Young has served as the Company's independent
auditors since 1979. Although stockholder approval of the Board of Directors'
selection of Ernst & Young is not required by law, the Board of Directors
believes that it is advisable to give stockholders an opportunity to ratify this
selection. If this proposal is not approved at the Annual Meeting, the Board of
Directors will reconsider its selection of Ernst & Young.
A representative of Ernst & Young is expected to be present at the
Annual Meeting with the opportunity to make a statement if he or she desires and
to respond to appropriate questions.
SHAREHOLDER PROPOSALS
Proposals of stockholders submitted for consideration at the 1999
Annual Meeting of Stockholders must be received by the Company not later than
August 14, 1998 in order to be considered for inclusion in the Company's proxy
material for that meeting.
The Company's Amended and Restated By-Laws also establish an advance
notice procedure with respect to stockholder nomination of candidates for
election as Directors. A notice regarding stockholder nominations for Director
must be received by the Company not less than 60 days nor more than 90 days
prior to the applicable stockholder meeting, provided, however, that in the
event the date of the meeting is not publicly announced by the Company by mail,
press release or otherwise more than 70 days prior to the meeting, the notice
must be received by the Company not later than the tenth day following the day
on which such announcement of the date of the meeting is made. Any such notice
must contain certain specified information concerning the persons to be
nominated and the stockholder submitting the nomination, all as set forth in the
By-Laws. The presiding officer of the meeting may refuse to acknowledge any
Director nomination not made in compliance with such advance notice
requirements. The Company has not publicly announced the date of the 1999 Annual
Meeting prior to the mailing of this Notice and Proxy Statement. Accordingly, an
appropriate notice from a stockholder regarding nominations for Director to be
27
<PAGE>
acted on at the 1999 Annual Meeting must be received by the Company within ten
days of this mailing.
OTHER BUSINESS
The Board of Directors knows of no business to be brought before the
Annual Meeting which is not referred to in the accompanying Notice of Annual
Meeting. However, if any other matters are properly presented to the Annual
Meeting, it is the intention of the persons named in the accompanying proxy to
vote, or otherwise act, in accordance with their judgment on such matters.
By Order of the Board of Directors,
PAUL A. LACY, Clerk
December 12, 1997
THE BOARD OF DIRECTORS ENCOURAGES STOCKHOLDERS TO ATTEND THE MEETING. WHETHER OR
NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. A PROMPT RESPONSE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THIS MEETING MAY VOTE THEIR STOCK
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
28
<PAGE>
<TABLE>
<CAPTION>
- -------
X PLEASE MARK VOTES AS IN THIS EXAMPLE
- -------
<S> <C>
For
All With- For All
Nominees hold Except
___________________________ 1.) To elect the following persons [_] [_] [_]
KRONOS INCORPORATED as Class III Directors
___________________________ (except as marked below):
Mark S. Ain
Richard J. Dumler
Samuel Rubinovitz
If you do not wish your shares voted "For"
Mark box at right if an address change or comment a particular nominee, mark the "For All
has been noted on the reverse side of this card. [_] Except" box and strike a line through the
name(s) of that nominee(s). Your shares will
be voted for the remaining nominee(s).
For Against Abstain
RECORD DATE SHARES: 2.) To approve an amendment to the [_] [_] [_]
Company's Restated Articles of
Organization increasing the number
of authorized shares of Common
Stock from 12,000,000 to
20,000,000 shares
3.) To approve amendments to the [_] [_] [_]
Company's 1992 Equity Incentive Plan
(the "Plan") to (i) increase from
1,237,500 to 2,237,500 (subject to
adjustments for certain changes in the
Company's capitalization) the number
of shares of Common Stock available
for issuance under the Plan; (ii)
increase from 75,000 to 100,000
(subject to adjustments for certain
changes in the Company's
capitalization) the number of shares
for which Awards under the Plan may
be granted in any calendar year to any
one employee of the Company; and
(iii) to continue the Plan.
4.) To ratify the selection of Ernst [_] [_] [_]
& Young LLP as the Company's
independent auditors for the 1998
fiscal year.
5.) To transact such other business [_] [_] [_]
as may properly come before the
meeting or any and all adjourned
sessions of the meeting.
-----------
Please be sure to sign and date this Proxy. | Date |
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| |
| |
| |
| |
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Stockholder sign here Co-owner sign here
</TABLE>
DETACH CARD DETACH CARD
KRONOS INCORPORATED
Dear Stockholder:
Please take note of the important information enclosed with this Proxy
Ballot. There are a number of issues related to the management and
operation of your Company that require your immediate attention and
approval. These are discussed in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right
to vote your shares.
Please mark the boxes on the proxy card to indicate how your shares will
be voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders of
the Company on Friday, January 30, 1998.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Kronos Incorporated
<PAGE>
KRONOS INCORPORATED
Proxy for the Annual Meeting of Stockholders
to be held on January 30, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoint(s) Mark S. Ain and
Paul A. Lacy, and each of them, with full power of substitution, as proxies to
represent and vote as designated herein, all shares of stock of Kronos
Incorporated (the "Company") which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders of the Company to be
held at the offices of the Company, 400 Fifth Avenue, Waltham, Massachusetts on
Friday, January 30, 1998 at 10:00 a.m., or any adjourned sessions thereof.
In their discretion, the proxies are authorized to vote upon such other matters
as may properly come before the meeting or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed by
the undersigned stockholder. If no direction is given, this proxy will be voted
for proposals 1, 2, 3, 4, and 5. Attendance of the undersigned at the meeting or
at any adjournment thereof will not be deemed to revoke this proxy unless the
undersigned shall revoke this proxy in writing before it is exercised.
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|PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED |
|ENVELOPE. |
|Please sign this proxy exactly as your name(s) appear(s)on the reverse side|
|hereof. Joint owners should each sign personally. Trustees and other|
|fiduciaries should indicate the capacity in which they sign, and where more|
|than one name appears, a majority must sign. If a corporation, this signature|
|should be that of an authorized officer who should state his or her title. |
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HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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