SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
X Definitive Proxy Statement Commission Only (as permitted
Definitive Additional Materials by Rule 14a-6(e)(2))
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MathSoft, Inc.
---------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X 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 transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
M A T H S o f t Logo
101 MAIN STREET
CAMBRIDGE, MASSACHUSETTS 02142
___________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
___________________
To the Stockholders:
The Annual Meeting of Stockholders of MathSoft, Inc., a Massachusetts
corporation, will be held on Friday, May 21, 1999 at 10:00 a.m., Boston time, at
Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston,
Massachusetts 02110, for the following purposes:
1. To elect one Class III Director to serve for a three-year term.
2. To consider and act upon a proposal to approve an amendment to the
Amended and Restated 1992 Stock Plan to increase the number of shares of Common
Stock authorized for issuance under the plan from 3,150,000 shares to 3,900,000
shares.
3. To consider and act upon a proposal to approve an amendment to the
Corporation's 1992 Amended Employee Stock Purchase Plan to increase the number
of shares of Common Stock of the Corporation authorized for issuance under the
plan from 200,000 shares to 450,000 shares.
4. To consider and act upon a proposal to approve an amendment to the
Corporation's 1992 Non-Employee Director Stock Option Plan to (i) increase the
annual stock option grant for one year of service on the Board of Directors from
5,000 shares to 10,000 shares, (ii) modify the vesting schedule so that stock
options granted under the plan shall be exercisable on the date of the grant and
(iii) increase the number of shares of Common Stock authorized for issuance
under the plan from 160,000 to 400,000 shares.
5. To ratify the selection of Arthur Andersen LLP as auditors for the fiscal
year ending December 31, 1999.
6. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Stockholders entitled to notice of and to vote at the meeting shall be
determined as of March 31, 1999, the record date fixed by the Board of Directors
for such purpose.
By Order of the Board of Directors
Robert P. Orlando
Vice President Finance and
Administration,
Chief Financial Officer, Treasurer
and Clerk
April 19, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN
THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED STAMPED ENVELOPE BY RETURN MAIL
PRIOR TO THE DATE OF THE ANNUAL MEETING OF STOCKHOLDERS.
<PAGE>
M A T H S o f t Logo
_______________
PROXY STATEMENT
_______________
APRIL 19, 1999
This Proxy Statement is being furnished to holders of Common Stock, $.01
par value per share (the "Common Stock") of MathSoft, Inc., a Massachusetts
corporation with offices at 101 Main Street, Cambridge, Massachusetts 02142
("MathSoft" or the "Corporation"), in connection with the solicitation of
proxies in the form enclosed by the Board of Directors of the Corporation for
use at the 1999 Annual Meeting of Stockholders to be held on Friday, May 21,
1999 at 10:00 a.m., Boston time, at Testa, Hurwitz & Thibeault, LLP, High Street
Tower, 125 High Street, Boston, Massachusetts 02110, and any adjournments or
postponements thereof (the "Meeting"). The Corporation's 1998 Annual Report,
containing financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the fiscal year ended December
31, 1998, is being mailed contemporaneously with this Proxy Statement to all
stockholders entitled to vote at the Meeting. This Proxy Statement and the form
of proxy were first mailed to stockholders on or about April 19, 1999.
The purpose of the Meeting is (1) to elect one Class III director to the
Corporation's Board of Directors, to serve for a term of three years and until
his successor is elected and qualified, or until his earlier resignation or
removal, (2) to consider and vote upon a proposal to amend the Corporation's
Amended and Restated 1992 Stock Plan (the "Plan") to increase the number of
shares currently reserved for issuance under the Plan by 750,000 shares, (3) to
consider and vote upon a proposal to amend the Corporation's Amended Employee
Stock Purchase Plan (the "Stock Purchase Plan") to increase the number of shares
currently reserved for issuance under the Stock Purchase Plan by 250,000 shares,
(4) to consider and vote upon a proposal to amend the Corporation's 1992
Non-Employee Director Stock Option Plan (the "Director Plan") to (i) increase
the annual stock option grant for one year of service on the Board of Directors
from 5,000 shares to 10,000 shares for all non-employee Directors , (ii) modify
the vesting schedule so that all stock options granted under the Director Plan
shall be exercisable on the date of the grant, and (iii) increase the number of
shares currently reserved for issuance under the Director Plan by 240,000
shares, (5) to ratify the selection of Arthur Andersen LLP, independent public
accountants as auditors for the fiscal year ending December 31, 1999.
The Board of Directors has fixed the close of business on March 31, 1999 as the
record date (the "Record Date") for the determination of the Corporation's
stockholders who will be entitled to notice of and to vote, at the Meeting.
Accordingly, only holders of record of Common Stock as of the close of business
on the Record Date will be entitled to notice of, and to vote at, the Meeting or
an adjournment thereof. As of the Record Date, 9,765,461 shares of Common Stock
were issued and outstanding. The holders of Common Stock are entitled to one
vote per share on any proposal presented at the Meeting. Stockholders may vote
in person or by proxy. Execution of a proxy will not in any way affect a
stockholder's right to attend the Meeting and vote in person. Any proxy given
pursuant to this solicitation may be revoked by the person giving it at any time
before it is voted. Proxies may be revoked by (1) filing with the Clerk of the
Corporation, before the taking of the vote at the Meeting, a written notice of
revocation bearing a later date than the proxy, (2) duly executing a later dated
proxy relating to the same shares and delivering it to the Clerk of the
Corporation before the taking of the vote at the Meeting or (3) attending the
Meeting and voting in person (although attendance at the Meeting will not in and
of itself constitute a revocation of a proxy). Any written notice of revocation
or subsequent proxy should be sent so as to be delivered to MathSoft, Inc., 101
Main Street, Cambridge, Massachusetts 02142, Attention: Clerk, at or before the
taking of the vote at the Meeting.
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote at the Meeting is necessary
to constitute a quorum for the transaction of business at the Meeting. Votes
withheld from any nominee, abstentions and broker non-votes are counted as
present or represented for purposes of determining the presence or absence of a
quorum for the Meeting. A "non-vote" occurs when a nominee holding shares for a
beneficial owner votes on one proposal, but does not vote on another proposal
because, in respect of such other proposal, the nominee does not have
discretionary voting power and has not received instructions from the beneficial
owner.
Directors are elected by a plurality of the votes cast by stockholders entitled
to vote at the Meeting. In the election of directors, the nominees receiving the
highest number of affirmative votes of the shares present or represented and
entitled to vote at the Meeting shall be elected as directors. All other matters
being submitted to stockholders require the affirmative vote of a majority of
the shares present or represented and voting on each such matter. An automated
system administered by the Corporation's transfer agent tabulates the votes. The
vote on each matter submitted to stockholders is tabulated separately.
Abstentions are included in the number of shares present or represented and
voting on each matter and, therefore, with respect to votes on specific
proposal, will have the affect of negative votes. Broker "non-votes" are not so
included.
The persons named as attorneys in the proxies are officers of the Corporation.
All properly executed proxies returned in time to be counted at the Meeting will
be voted. Any stockholder giving a proxy has the right to withhold authority to
vote for any individual nominee to the Board of Directors. In addition to the
election of the directors, the stockholders will consider and vote upon
proposals to amend the Corporation's Amended and Restated 1992 Stock Plan to
increase the number of shares of Common Stock of the Corporation authorized to
be issued thereunder from 3,150,000 shares to 3,900,000 shares, to amend the
Corporation's 1992 Amended Employee Stock Purchase Plan to increase the number
of shares of Common Stock of the Corporation authorized to be issued thereunder
from 200,000 shares to 450,000 shares, to amend the Corporation's 1992
Non-Employee Director Stock Option Plan to increase the annual stock option
grant for one year of service on the Board of Directors from 5,000 shares to
10,000 shares, modify the vesting schedule so that stock options granted under
the Plan shall be exercisable on the date of the grant and to increase the
number of shares of Common Stock authorized to be issued thereunder from 160,000
shares to 400,000 shares and to ratify the selection of auditors, all as further
described in this proxy statement. Where a choice has been specified on the
proxy with respect to the foregoing matters, the shares represented by the proxy
will be voted in accordance with the specifications and will be voted FOR if no
specification is indicated.
The Board of Directors of the Corporation knows of no other matters to be
presented at the Meeting. If any other matter should be presented at the Meeting
upon which a vote properly may be taken, shares represented by all proxies
received by the Board of Directors will be voted with respect thereto in
accordance with the judgment of the persons named as attorneys in the proxies.
MANAGEMENT AND PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth as of the Record Date (unless otherwise
indicated): (i) the name of each person who, to the knowledge of the
Corporation, owned beneficially more than 5% of the shares of Common Stock of
the Corporation outstanding at such date; (ii) the name of each director; and
(iii) the name of each executive officer identified in the Summary Compensation
Table set forth below under the heading "COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS," the number of shares owned by each of such
persons and the percentage of the outstanding shares represented thereby, and
also sets forth such information for all current directors and executive
officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF OWNERSHIP(1) PERCENT OF CLASS
------------------------------------ ---------------
<S> <C> <C>
Charles J. Digate**(2). . . . . . . . . . . . . . . . 849,724 8.0%
Charles H. Federman(3). . . . . . . . . . . . . . . . 50,417 *
c/o BRM Group
400 Kelby Street, Suite 1500
Fort Lee, NJ 07024
David D. Martin **(4) . . . . . . . . . . . . . . . . 23,750 *
Samuel P. Meshberg and certain affiliates(5). . . . . 1,388,400 14.2%
c/o Financial Management Investment Services, Inc.
118 Burr Court
Bridgeport, CT 06605
Robert P. Orlando**(6). . . . . . . . . . . . . . . . 59,386 *
June L. Rokoff**(7) . . . . . . . . . . . . . . . . . 56,693 *
All directors and executive officers as a group
(5 persons) (8) . . . . . . . . . . . . . . . . . . . 1,039,970 9.8%
<FN>
___________________
* Less than 1%
** c/o MathSoft, Inc., 101 Main Street, Cambridge, MA 02142.
(1) Except as otherwise noted, to the knowledge of the Corporation, each
person named in the table has sole voting and investment power with respect to
their shares of Common Stock, except to the extent authority is shared by
spouses under applicable law.
(2) Includes 680,000 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(3) Includes 40,417 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(4) Includes 23,750 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(5) Includes 3,000 shares owned by Ron Meshberg and Mr. Meshberg disclaims
beneficial ownership of such shares.
(6) Includes 59,386 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(7) Includes 40,417 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter. Includes
1,000 shares owned by David Rokoff, spouse of Ms. Rokoff, as custodian for Sam
Rokoff, a minor child of Ms. Rokoff. Ms. Rokoff disclaims beneficial ownership
of these 1,000 shares.
(8) Includes 843,970 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
</TABLE>
<PAGE>
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met five times, and took action by unanimous written
consent three times, during the fiscal year ended December 31, 1998.
The Audit Committee of the Board of Directors was established on December 2,
1992 and during the fiscal year ended December 31, 1998 was comprised of Mr.
D'Amore, Mr. Federman and Ms. Rokoff, each a non-employee director of the
Corporation. Mr. D'Amore served on the Audit Committee until his resignation
from the Board of Directors on February 10, 1998. Ms. Rokoff replaced Mr.
D'Amore as a member of the Audit Committee. The Audit Committee oversees the
accounting and tax functions of the Corporation, including matters relating to
the appointment and activities of the Corporation's auditors. The Audit
Committee most recently met on April 14, 1999. It did not meet during the
fiscal year ended December 31, 1998.
The Compensation Committee of the Board of Directors during the fiscal year
ended December 31, 1998 was comprised of Mr. D'Amore, Ms. Rokoff and Mr.
Vana-Paxhia, each a non-employee director of the Corporation. Mr. D'Amore served
on the Compensation Committee until his resignation from the Board of Directors
on February 10, 1998. Mr. Vana-Paxhia replaced Mr. D'Amore as a member of the
Compensation Committee. The Compensation Committee reviews and makes
recommendations concerning executive compensation, oversees the administration
of the Corporations 401(k) plan and administers the Corporations 1996
Non-Qualified, Non-Officer Stock Plan, Amended and Restated 1992 Stock Plan,
1987 Combination Stock Option Plan, 1992 Employee Stock Purchase Plan and 1992
Non-Employee Director Stock Option Plan. The Compensation Committee met five
times, and took action by unanimous written consent three times, during the
fiscal year ended December 31, 1998.
The Board of Directors does not currently have a standing nominating committee.
Each of the directors attended at least 75% of the aggregate of all meetings of
the Board of Directors and of all Committees on which he or she serves.
ELECTION OF DIRECTORS
In accordance with the Corporation's Third Restated Articles of
Organization, the Corporation's Board of Directors is divided into three
classes.
One Class I Director, Mr. Charles H. Federman, was elected by the Board of
Directors as a Class I Director at the Annual Meeting of Stockholders on
December 13, 1994. Mr. Federman's term as a Class I Director expires as of the
date of the Annual Meeting of Stockholders to be held in calendar year 2000.
One Class II Director, Mr. Charles J. Digate, the current Chairman of the Board,
President and Chief Executive Officer of the Corporation, was elected a Class II
Director at the Annual Meeting of Stockholders on December 12, 1997. The other
Class II Director, Ms. June L. Rokoff, was elected by the Board of Directors as
a Class II Director at the Annual Meeting of Stockholders on December 12, 1997.
Mr. Digate's and Ms. Rokoff's terms as Class II Directors will expire as of the
date of the Annual Meeting of Stockholders to be held in calendar year 2001.
One Class III Director, Mr. David D. Martin, was elected by the Board of
Directors on April 15, 1998 to replace Mr. D'Amore, who resigned as a Class III
Director on February 10, 1998. Mr. Martin's term as a Class III Director
expires as of the date of the Annual Meeting of Stockholders to be held in
calendar year 1999.
One Class III Director will be elected at the Meeting for a term of three years.
The Class III nominee, Mr. Martin, is currently serving as a director of the
Corporation. Shares represented by all proxies received by the Board of
Directors and not so marked to withhold authority to vote for Mr. Martin will
be voted (unless Mr. Martin is unable or unwilling to serve) FOR the election
of Mr. Martin. The Board of Directors knows of no reason why Mr. Martin should
be unable or unwilling to serve, but if such should be the case, proxies may be
voted for the election of one or more other persons or for fixing the number of
directors at a lesser number.
The following table sets forth for the nominees to be elected at the Meeting and
for each director whose term of office will extend beyond the Meeting, the year
each such nominee or director was first elected a director, the positions
currently held by each nominee or director with the Corporation, the year each
nominee's or director's term will expire and the class of director of each
nominee or director.
<TABLE>
<CAPTION>
DIRECTOR'S OR NOMINEE'S NAME
AND YEAR DIRECTOR OR NOMINEE YEAR TERM CLASS OF
FIRST BECAME A DIRECTOR POSITION(S) HELD WILL EXPIRE DIRECTOR
<S> <C> <C> <C> <C>
Charles J. Digate Chairman of the Board of Directors,
1994. . . . . . President and Chief Executive Officer 2001 II
Charles H. Federman Director 2000 I
1994
David D. Martin Director 1999 III
1998
June L. Rokoff Director 2001 II
1994
</TABLE>
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the Class III nominees to be elected at the
Meeting, the current directors who will continue to serve as directors beyond
the Meeting, and the current executive officers of the Corporation, their ages,
and the positions currently held by each such person with the Corporation.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE POSITION
- ---- --- --------
Charles J. Digate 45 Chairman of the Board of Directors, President and Chief
Executive Officer
Charles H. Federman 42 Director
David D. Martin 60 Director
Robert P. Orlando 41 Vice President Finance and Administration, Chief Financial
Officer, Treasurer and Clerk
June L. Rokoff 49 Director
</TABLE>
DIRECTORS TO BE ELECTED AT THE MEETING
Mr. Martin has been a director of the Corporation since April 1998. Mr.
Martin was the Executive Vice President of Texas Instruments, Inc. from 1993 to
1999. Texas Instruments, Inc. is a semiconductor company that specializes in
digital signal processing. Mr. Martin is also a director of Network Plus, Inc.,
a company that specializes in telecommunications.
<PAGE>
DIRECTORS WHOSE TERMS EXTEND BEYOND THE MEETING
Mr. Digate has been a director and an executive officer of the Corporation
since September 1994. Mr. Digate founded Beyond Incorporated, a developer and
publisher of enterprise messaging systems, in 1988 and served as its Chairman,
Chief Executive Officer and President until February 1994 when Beyond was
acquired. Prior to founding Beyond, Mr. Digate spent more than four years at
Lotus Development Corp., where his posts included Senior Vice President,
Analytical Software Products and Vice-President, International Operations and
Corporate Marketing. Mr. Digate also served approximately seven years at Texas
Instruments, primarily focusing on its consumer electronics products, including
calculators and home computers. He also serves on the board of two privately
held software companies, Centra Software and Network Integrity.
Ms. Rokoff has been a director of the Corporation since 1994. Ms. Rokoff is also
a director of NewsEdge Corporation, a public company that provides customized
real-time news and information. Until December 1995, Ms. Rokoff was a Senior
Vice President, Worldwide Services Group, at Lotus Development Corp., where she
had spent ten years in management. Lotus, a wholly owned subsidiary of
International Business Machines, is a provider of software and support services
for businesses and individuals. Prior management positions at Lotus included
Senior Vice President, Development, Vice President, Graphics and Information
Management Division, and General Manager, Lotus 1-2-3 Release 3.
Mr. Federman has been a Managing Director of BRM Group, a private equity firm,
since January 1998. From 1983 until December 1997, Mr. Federman served in
various roles, culminating as the Chairman of Broadview Associates, L.P., an
investment banking firm specializing in information technology mergers and
acquisitions. Mr. Federman is also a director of Phoenix Technologies Ltd.,
International Micro Software, Inc. and Backweb Technologies, Inc. Phoenix
Technologies Ltd. designs, develops and markets systems software compatibility
products for personal computers, workstations and peripheral devices.
International Micro Software, Inc. develops and publishes PC and World Wide Web
based productivity applications. Backweb Technologies, Inc. develops intranet
software applications.
EXECUTIVE OFFICERS
Mr. Orlando joined the Corporation in December 1991 as Vice President
Finance and Administration and Chief Financial Officer. He was named Treasurer
in November, 1994. From May 1987 to November 1991, Mr. Orlando was employed by
Bitstream, Inc., most recently as Vice President of Finance and Treasurer.
Before that he served as Controller of Unicco Service Co. from 1986 to 1987, as
General Accounting Manager of Orion Research from 1985 to 1986 and as a
certified public accountant with Arthur Andersen LLP from 1980 to 1985.
<PAGE>
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION SUMMARY
The following table sets forth certain information with respect to the
annual compensation paid or accrued by the Corporation for services rendered to
the Corporation, in all capacities, for the fiscal year ended December 31, 1998
by its Chief Executive Officer (the "CEO") and the other most highly compensated
executive officer other than the CEO, whose total salary and bonus exceeded
$100,000 during the fiscal year ended December 31, 1998 (collectively with the
CEO, the "Named Executive Officers"). The Corporation did not grant any
restricted stock awards or stock appreciation rights or make any long-term
incentive plan payouts during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) OPTIONS/SARS(#)
<S> <C> <C> <C> <C>
Charles J. Digate 1998 $250,000 $180,000 100,000
Chairman of the Board of 1997(3) $125,000 $ 50,000 0
Directors, President and Chief 1997(4) $250,000 $ 0 100,000
Executive Officer 1996(5) $250,000 $100,000 75,000
Robert P. Orlando 1998 $140,000 $ 48,000 40,000
Vice President Finance and 1997(3) $ 64,000 $ 20,000 0
Administration, Chief Financial 1997(4) $128,000 $ 8,000 30,000
Officer, Treasurer and Clerk 1996(5) $125,000 $ 35,000 35,000
<FN>
__________
(1) Excludes perquisites and other personal benefits, if any, the aggregate
annual amount of which for each officer was less than the lesser of $50,000 or
10% of the total of annual salary and bonus reported. The Corporation did not
grant any restricted stock awards or stock appreciation rights or make any long
term incentive plan payouts during the fiscal years ended December 31, 1998,
June 30, 1997 or 1996 or the period of July 1 to December 31, 1997.
(2) Bonuses are reported in the year earned, even if actually paid in a
subsequent year.
(3) On December 12, 1997, the Corporation changed its fiscal year end from
June 30 to December 31. The footnoted period represents the period of July 1 to
December 31, 1997.
(4) The footnoted period represents the fiscal year of July 1, 1996 to June
30, 1997.
(5) The footnoted period represents the fiscal year of July 1, 1995 to June
30, 1996.
</TABLE>
<PAGE>
OPTION GRANTS
The following table sets forth information concerning options granted
pursuant to the Corporation's Amended and Restated 1992 Stock Plan during the
fiscal year ended December 31, 1998 to the Named Officers as reflected in the
Summary Compensation Table above.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS OR AT ASSUMED ANNUAL RATES
SECURITIES SARS EXERCISE OF STOCK PRICE
UNDERLYING GRANTED OR APPRECIATION FOR
OPTIONS/SARS IN FISCAL BASE PRICE EXPIRATION OPTION TERM(1)
NAME GRANTED YEAR PER SHARE DATE 5% 10%
<S> <C> <C> <C> <C> <C>
Charles J.
Digate. 100,000(2). 13.89% $2.6875 1/7/08 $169,015.43 $428,318.29
Robert P.
Orlando. 40,000(3) . 5.55% 2.6875 1/7/08 67,606.17 171,327.31
__________
<FN>
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their term
assuming the specified compounded rates of appreciation of the Corporation's
Common Stock over the term of the options. These numbers are calculated based
on rules promulgated by the Securities and Exchange Commission (the
"Commission") and do not reflect the Corporation's estimate of future stock
price growth. Actual gains, if any, on stock option exercises and Common Stock
holdings are dependent on the timing of such exercises and the future
performance of the Corporation's Common Stock. There can be no assurance that
the rates of appreciation assumed in this table can be achieved or that the
amounts reflected will be received by the individuals.
(2) Exercisable in sixteen quarterly installments (so long as Mr. Digate
continues to be an employee of the Corporation through each such date).
(3) Exercisable in sixteen quarterly installments (so long as Mr. Orlando
continues to be an employee of the Corporation through each such date).
</TABLE>
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to options to purchase the
Corporation's Common Stock granted under the Corporation's stock plans,
including: (i) the number of shares of Common Stock purchased upon exercise of
options in the fiscal year ending December 31, 1998; (ii) the net value realized
upon such exercise; (iii) the number of unexercised options outstanding at
December 31, 1998; and (iv) the value of such unexercised options at December
31, 1998.
AGGREGATED OPTION / SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION / SAR VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
ON VALUE OPTIONS/SARS AT FY-END AT FY-END(2)
NAME. . . .EXERCISE REALIZED(1) (EXERCISABLE) (UNEXERCISABLE) (EXERCISABLE) (UNEXERCISABLE)
<S> <C> <C> <C> <C> <C> <C>
Charles J. Digate 0 0 711,251 188,749 $ 490,625 $ 0
Robert P. Orlando 0 0 45,386 72,900 10,650 5,800
__________
<FN>
(1) Amounts disclosed in this column do not reflect amounts actually received by the Named Executive
Officers but are calculated based on the difference between the fair market value of Common Stock on the
date of exercise and exercise price of the options. Named Executive Officers will receive cash only if and
when they sell the Common Stock issued upon exercise of the options and the amount of cash, if any,
received by such individuals is dependent on the price of the Corporation's Common Stock at the time of
such sale.
(2) Value is based on the difference between the option exercise price and the fair market value at
December 31, 1998, the fiscal year-end ($2.625 per share), multiplied by the number of shares underlying
the option.
</TABLE>
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Corporation has entered into an amended and restated executive
agreement (the "Executive Agreement") with Charles J. Digate, the Corporation's
President and Chief Executive Officer. Pursuant to the Executive Agreement, Mr.
Digate will receive a base salary of $250,000 for the fiscal year ended December
31, 1999 and a bonus on plan of up to $140,000 based on the Corporation's
achievement of a net income per share plan approved by the Board of Directors,
plus additional bonus payments based on specific objectives as may be agreed
upon between Mr. Digate and the Board from time to time.
If the Corporation terminates Mr. Digate's employment without cause,
Mr. Digate will receive severance benefits for eighteen months after such
termination equal to his base salary, and any options held by Mr. Digate which
are then exercisable and unexpired may be exercised for three years following
the date on which he also ceases to be a member of the Corporation's Board of
Directors. Upon a change of control of the Corporation, fifty percent (50%) of
the unexercisable and unexpired stock options held by Mr. Digate will become
exercisable and Mr. Digate will receive a one-time retention bonus of $250,000
if he remains employed by the Corporation for 90 days following the change in
control. Following a change of control, if the Corporation terminates Mr.
Digate without cause, Mr. Digate will receive severance benefits equal to his
base salary and his bonus paid ratably for a maximum of eighteen months after
such termination.
The Corporation has an option acceleration agreement with Mr. Orlando (the
"Option Acceleration Agreement"), which provides that upon a change of control,
(i) the Corporation will cause fifty percent (50%) of any unexercisable,
unexpired installments of stock options held by Mr. Orlando at the time of the
change of control to become exercisable and (ii) the Corporation shall extend
the period within which any option may be exercised by Mr. Orlando after the
termination of his employment to twelve months. Upon a change in control, Mr.
Orlando will receive a one-time retention bonus of 125% of his base salary if he
remains employed by the Corporation for 90 days following the change of control.
If the Corporation terminates Mr. Orlando's employment within twelve months of a
change of control, Mr. Orlando will receive severance benefits equal to his base
salary and 100% of his bonus for a maximum of twelve months after such
termination.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overview
The Corporation's executive compensation program is administered by the
Compensation Committee of the Board of Directors (the "Compensation Committee").
Pursuant to authority delegated by the Board of Directors, the Compensation
Committee establishes each year the compensation of senior management. The
Compensation Committee also reviews, as appropriate, other compensation
standards of the Corporation, administers the Corporation's 401(k) Savings and
Retirement Plan, and administers the Corporation's 1996 Non-Qualified,
Non-Officer Stock Plan, Amended and Restated 1992 Stock Plan, 1987 Combination
Stock Option Plan, 1992 Amended Employee Stock Purchase Plan and 1992
Non-Employee Director Stock Option Plan.
During the fiscal year ended December 31, 1998, the Compensation Committee was
comprised of Mr. D'Amore, Mr. Vana-Paxhia and Ms. Rokoff, each a non-employee
director of the Corporation. Mr. D'Amore served on the Compensation Committee
until his resignation from the Board of Directors on February 10, 1998. Mr.
Vana-Paxhia replaced Mr. D'Amore as a member of the Compensation Committee. The
members of the Compensation Committee bring expertise gained through their
experience on other Boards of Directors of public and private companies in
matters relating to executive compensation to their service on the Compensation
Committee.
Procedure for Establishing Compensation
At the beginning of each fiscal year the Compensation Committee establishes
the annual salary for the Corporation's executive officers based on
recommendations of the Corporation's Chief Executive Officer. The Board reviews
the recommendations taking into account the following factors: (i) external
market data; (ii) the Corporation's performance; (iii) the individual's
contribution to the Corporation's success; and (iv) the internal equity of
compensation levels among executive officers.
Tax Considerations
In general, under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), the Corporation cannot deduct, for federal income tax
purposes, compensation in excess of $1,000,000 paid to certain executive
officers. This deduction limitation does not apply, however, to compensation
that constitutes "qualified performance-based compensation" within the meaning
of Section 162(m) of the Code and the regulations promulgated thereunder. The
Compensation Committee has considered the limitations on deductions imposed by
Section 162(m) of the Code, and it is the Compensation Committee's present
intention that, for so long as it is consistent with its overall compensation
objective, substantially all tax deductions attributable to executive
compensation will not be subject to the deduction limitations of Section 162(m)
of the Code.
Elements of Executive Compensation
The Corporation's compensation policy for executive officers is designed to
achieve the following objectives: (i) to enhance profitability of the
Corporation and increase stockholder value; (ii) to reward executives consistent
with the Corporation's annual and long-term performance goals; (iii) to
recognize individual initiative and achievement; and (iv) to provide competitive
compensation that will attract and retain qualified executives. Compensation
under the executive compensation program is comprised of cash compensation in
the form of salary and performance-based compensation in the form of cash
bonuses, long-term incentive opportunities in the form of stock options and
various benefits, including medical, savings and insurance plans available to
all employees of the Corporation.
An executive officer's compensation package includes: (i) base salary, which is
based upon the overall performance of the Corporation and external market data;
(ii) annual performance-based compensation, which is based upon achievement of
pre-determined financial objectives of the Corporation and individual
objectives; and (iii) long-term incentive compensation, in the form of stock
options, granted with the objective of aligning executive officers' long-term
interests with those of the stockholders and encouraging the achievement of
superior results over an extended period. In addition, the compensation program
is comprised of various benefits, including medical, savings and insurance
plans, and the Corporation's 1992 Amended Employee Stock Purchase Plan, which
are generally available to all employees of the Corporation.
Base Compensation
Base salaries for executive officers are targeted at competitive market
levels for their respective positions, levels of responsibility and experience.
In setting base cash compensation levels for executive officers, the
Compensation Committee generally takes into account such factors as: (i) the
Corporation's past financial performance and future expectations; (ii) the
general and industry-specific business environment; (iii) the individual
executive officer's base compensation in the prior year; (iv) periodic published
surveys of base compensation at comparable companies, including the 1998 Annual
Survey of Compensation in the Software Industry published by the Massachusetts
Computer Software Council, Inc. and PricewaterhouseCoopers and the 1999 Officer
Compensation Report for Small to Medium-Sized Businesses in the Hi-Tech
Category; and (v) corporate and individual performance. The Committee's review
of the foregoing factors is subjective and the Committee assigns no fixed value
or weight to any specific factors when making its decisions regarding the salary
of executive officers.
Performance-Based Compensation
The Corporation's performance-based compensation policies are designed to
reward executive officers when the Corporation meets or exceeds pre-determined
financial goals and are also based on various non-financial objectives such as
the ability to motivate others, to recognize and pursue new business
opportunities and to initiate programs to enhance the Corporation's growth and
success. Performance-based cash compensation is generally awarded based on
formulas established by the Compensation Committee at the time salaries are
fixed.
In establishing performance-based compensation formulas for the fiscal year
ended December 31, 1998 for the executive officers, the Compensation Committee
considered: (i) the annual base compensation of each individual; (ii) individual
performance; (iii) the actual performance of the Corporation as compared to
projected performance under the Corporation's annual operating plan; (iv) the
projected future performance of the Corporation; (v) the general business
environment; and (vi) periodically published surveys of performance compensation
at comparable companies, including the 1998 Annual Survey of Compensation in the
Software Industry published by the Massachusetts Computer Software Council, Inc.
and PricewaterhouseCoopers and the 1999 Officer Compensation Report for Small to
Medium-Sized Businesses in the Hi-Tech Category. The Committee's review of the
foregoing factors is subjective and the Committee assigns no fixed value or
weight to any specific factors when making its decisions regarding the salary of
executive officers.
Pursuant to the performance bonus formulas established by the Compensation
Committee in the fiscal year ended December 31, 1998, bonus formulas for each
executive officer, other than the Chief Executive Officer, were based on the
Corporation's achieving a pre-determined post-bonus net income as set forth in
the Corporation's annual operating plan and on the executive officer's achieving
specified individual objectives. The bonus formula for the Chief Executive
Officer is based on the Corporation's achieving a pre-determined post-bonus net
income as set forth in the Corporation's annual operating plan. The maximum
attainable bonus amounts varied depending on how the Corporation's actual
post-bonus net income compared to the pre-determined post-bonus net income set
forth in the Corporation's annual operating plan. For executive officers other
than the Chief Executive Officer, the maximum bonus was payable if the
Corporation achieved 200% of its pre-determined post-bonus net income and the
executive officer achieved all of his or her individual performance goals. The
maximum bonus was payable to the Chief Executive Officer if the Corporation
achieved 200% of its pre-determined post-bonus net income. The Operating Plan
for the fiscal year ended December 31, 1998, on which performance bonuses for
the fiscal year ended December 31, 1998 were based, was reviewed and approved by
the Board of Directors prior to the Compensation Committee's action to establish
bonus formulas.
Stock Options
Long-term incentive compensation, in the form of stock options, allows the
executive officers to share in any appreciation in the value of the
Corporation's Common Stock. The Board of Directors believes that stock option
participation aligns executive officers' interests with those of the
Corporation's stockholders. When establishing stock option grant levels for
executive officers, the Compensation Committee considered the existing levels of
stock ownership, previous grants of stock options, vesting schedules of
outstanding options, the current stock price, individual performance during the
fiscal year in question and past financial performance and future expectations.
Stock options granted under the Corporation's Amended and Restated 1992 Stock
Plan generally have an exercise price equal to the fair market value of the
Corporation's Common Stock on the date of grant and generally vest over a four
or five year period. The Corporation attempts to ensure that its executive
officers are granted stock options in numbers comparable to or slightly above
industry standards.
In the fiscal year ended December 31, 1998, Mr. Digate was awarded a stock
option to purchase 100,000 shares of Common Stock. Mr. Orlando was awarded a
stock option to purchase 40,000 shares during the fiscal year ended December 31,
1998.
RESPECTFULLY SUBMITTED BY THE COMPENSATION COMMITTEE:
June L. Rokoff
Steven R. Vana-Paxhia
Richard D'Amore
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1998, Mr. D'Amore, Ms. Rokoff
and Mr. Vana-Paxhia served on the Compensation Committee. Mr. D'Amore served on
the Compensation Committee until his resignation from the Board of Directors on
February 10, 1998. Mr. Vana-Paxhia replaced Mr. D'Amore as a member of the
Compensation Committee. Ms. Rokoff served on the Compensation for the entire
fiscal year ended December 31, 1998. No person who served as a member of the
Compensation Committee was, during the past fiscal year, an officer or employee
of the Corporation or any of its subsidiaries, was formerly an officer of the
Corporation or any of its subsidiaries, or had any relationship requiring
disclosure herein. No executive officer of the Corporation served as a member
of the Compensation Committee (or other Board committee performing equivalent
functions or, in the absence of any such committee, the entire Board of
Directors) of another entity, one of whose executive officers served as a
director of the Corporation.
COMPENSATION OF DIRECTORS
As compensation for serving on the Board of Directors, the Corporation pays
each non-employee director $1,000 for each meeting attended. Each non-employee
director who also serves on either the audit or compensation committee receives
an additional $2,000 annually.
Each non-employee director of the Corporation is entitled to participate in the
Corporation's 1992 Non-Employee Director Stock Option Plan (the "Director
Plan"). The Director Plan authorizes the grant of stock options only to members
of the Corporation's Board of Directors who are neither employees nor officers
of the Corporation. Currently under the Director Plan, each non-employee
director who has served as a member of the Board for at least one year on
February 3rd of each year receives automatically, on such date, an option to
purchase 5,000 shares of Common Stock at an exercise price equal to 100% of the
fair market value of a share of Common Stock on such date. Currently, each
non-employee director who has served for less than an entire year on February
3rd receives automatically an option to purchase the number of shares of Common
Stock equal to the number of full months he has served on the Board during the
prior year, divided by 12 and multiplied by 5,000. In addition, each
non-employee director first elected to the Board of Directors after February 3,
1993 will receive automatically on the date of his or her election an option to
purchase 20,000 shares of the Common Stock of the Corporation at an exercise
price equal to 100% of the fair market value of a share of Common Stock on such
date. Currently, the number of shares of Common Stock authorized for issuance
under the Director Plan is 160,000 shares, of which 137,084 shares were
outstanding as of the Record Date.
Options granted under the Director Plan may not be exercised until they become
vested. Each option granted under the Director Plan becomes exercisable in one
installment on the earlier of: (i) the first anniversary of the date of grant;
or (ii) the first Annual Meeting of Stockholders following the date of grant at
which members of the Board of Directors are elected, provided that the optionee
has continuously served as a member of the Board of Directors through such date.
Options granted under the Director Plan expire on the date which is ten years
from the date of the option grant.
The Board of Directors of the Corporation proposes to amend the Director Plan at
the Annual Meeting of Stockholders on May 21, 1999 to (i) increase the annual
automatic stock option grant from 5,000 shares to 10,000 shares, (ii) modify the
vesting schedule so that stock options granted under the Director Plan shall be
exercisable on the date of grant and (iii) increase the number of shares of
Common Stock available for issuance under the plan from 160,000 to 400,000. See
below under the heading "PROPOSAL TO AMEND THE 1992 NON-EMPLOYEE DIRECTOR STOCK
OPTION PLAN."
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total stockholder return on the Corporation's Common Stock during the period
from the Corporation's initial public offering through December 31, 1998, with
the cumulative total return on the Nasdaq Composite Index (Total Return) and the
S&P Computer Software and Services Index. The comparison assumes $100 was
invested on February 3, 1993 in the Corporation's Common Stock and in each of
the foregoing indices and assumes reinvestment of dividends, if any.
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG
MATHSOFT, INC., NASDAQ COMPOSITE INDEX (TOTAL RETURN)
AND S&P COMPUTER SOFTWARE & SERVICES INDEX
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
12/93 12/94 12/95 12/96 12/97 12/98
MathSoft, Inc.. . $100.00 $ 34.55 $ 83.64 $ 55.45 $ 40.00 $ 38.18
Standard & Poor's $100.00 $117.91 $165.44 $256.98 $357.88 $648.28
NASDAQ. . . . . . $100.00 $ 97.75 $138.27 $170.01 $208.58 $293.21
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation has adopted a policy that all transactions between the
Corporation and its officers, directors, principal stockholders and their
affiliates be on terms no less favorable to the Corporation than could be
obtained from unrelated third parties and must be approved by a majority of the
non-employee independent and disinterested directors.
PROPOSAL TO AMEND THE AMENDED AND RESTATED 1992 STOCK PLAN
AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED SHARES UNDER THE AMENDED AND
RESTATED
1992 STOCK PLAN
The Amended and Restated 1992 Stock Plan (the "1992 Plan") was adopted by
the Board of Directors of the Corporation on January 28, 1992 and received
stockholder approval on March 6, 1992. Currently, the number of shares of Common
Stock authorized for issuance under the 1992 Plan is 3,150,000 shares. It is now
proposed to approve an amendment to increase the number of shares of Common
Stock authorized for issuance pursuant to the 1992 Plan to 3,900,000 shares.
Management of the Corporation believes that this increase is important to permit
the Board of Directors to provide incentives to present employees, to attract
and retain qualified candidates for future positions, and to replenish the
available stock option pool after option grants were issued, during the fiscal
year ended December 31, 1998, to current and new employees.
It is management's philosophy to grant options to all employees of the
Corporation, allowing each employee to have an equity interest in the
Corporation. Management believes that this policy provides better performance
incentives to employees than cash compensation alone. In furtherance of this
policy, during the fiscal year ended December 31, 1998, the Compensation
Committee of the Board of Directors granted options to new employees. The
Corporation has not increased the number of shares available for future grants
since the 1997 Annual Meeting of Stockholders. Option grants over the past
eighteen months have depleted the available pool of options under the 1992 Plan
such that, as of the date hereof, there is an inadequate number of shares
available for future option grants under the 1992 Plan to new or existing
employees of the Corporation.
The additional shares proposed to be authorized under the 1992 Plan will allow
management of the Corporation to make grants to key management and other
employees in the future, consistent with the corporate policy of granting
options to all employees, as well as allow the Corporation to meet its stock
option grant needs at least through the next annual meeting of stockholders.
DESCRIPTION OF THE 1992 PLAN
The purpose of the 1992 Plan is to provide incentives to officers and other
employees of the Corporation and any present or future subsidiaries of the
Corporation (collectively, "Related Corporations") by providing them with
opportunities to purchase stock of the Corporation pursuant to options which
qualify as incentive stock options ("ISO" or "ISOs") as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"). The 1992 Plan
also provides for the issuance of options to consultants, employees, officers
and directors of the Corporation and Related Corporations which do not qualify
as ISOs ("Non-Qualified Option" or "Non-Qualified Options"). Awards and
Purchases may also be granted to consultants, employees, officers and directors
of the Corporation and Related Corporations. ISOs, Non-Qualified Options,
Awards and Purchases are sometimes referred to collectively as "Stock Rights"
and ISOs and Non-Qualified Options are sometimes referred to individually as an
"Option" and collectively as "Options".
Administration
The Compensation Committee of the Board of Directors of the Corporation
administers the 1992 Plan. During the fiscal year ended December 31, 1998, the
Compensation Committee was comprised of Mr. D'Amore, Ms. Rokoff and Mr.
Vana-Paxhia, each a non-employee director of the Corporation. Mr. D'Amore
served on the Compensation Committee until his resignation from the Board of
Directors on February 10, 1998. Mr. Vana-Paxhia replaced Mr. D'Amore as a
member of the Compensation Committee. Mr. D'Amore was, and Ms. Rokoff and Mr.
Vana-Paxhia are, "outside directors," as defined in the regulations issued under
Section 162(m) of the Code.
Subject to the terms of the 1992 Plan, the Compensation Committee has the
authority to determine to whom Options may be granted (subject to certain
eligibility requirements for grants of ISOs), the number of shares covered by
each such grant, the exercise or purchase price per share, the time or times at
which Options will be granted, and other terms and provisions governing the
Options, as well as the restrictions, if any, applicable to shares of Common
Stock issuable upon exercise of Options; provided, however, that the 1992 Plan
shall be administered so that stock options or awards granted under the 1992
Plan will qualify for the benefits provided by Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, and by Section 162(m) of the Code, or any
successor rules to each of these. The interpretation or construction by the
Compensation Committee of the 1992 Plan or any Option granted under it will be
final.
Eligible Employees and Others
Subject to the above mentioned limitations, ISOs under the 1992 Plan may be
granted to any employee of the Corporation or any Related Corporation. Only
those officers and directors of the Corporation who are employees may be granted
ISOs under the 1992 Plan. In no event may the aggregate fair market value
(determined on the date of grant of an ISO) of Common Stock for which ISOs
granted to any employee are exercisable for the first time by such employee
during any calendar year (under all stock option plans of the Corporation)
exceed $100,000. Non-Qualified Options may be granted to any director, officer,
employee or consultant of the Corporation or its subsidiaries. No employee of
the Corporation or its subsidiaries shall be granted Options to acquire, in the
aggregate, more than 1,785,000 shares of Common Stock under the 1992 Plan during
any fiscal year of the Corporation. As of the Record Date, 47 employees are
eligible to participate in the 1992 Plan.
Outstanding Options are subject to adjustment as described hereinafter under
"Changes in Stock; Recapitalization and Reorganization." Pursuant to the terms
of the 1992 Plan, shares subject to Options which for any reason expire or are
terminated unexercised as to such shares may again be the subject of a grant
under the 1992 Plan. Such shares, however, will be included in the determination
of the aggregate number of shares of Common Stock deemed to have been granted to
a particular employee under the Plan for purposes of the Section 162(m) limit.
Granting of Options
Options may be granted under the 1992 Plan at any time after January 28,
1992 and prior to January 28, 2002. The Compensation Committee may, with the
consent of the holder of an ISO, convert an ISO granted under the 1992 Plan to a
Non-Qualified Option.
Non-Qualified Option Price
The exercise price per share of Non-Qualified Options granted under the
1992 Plan cannot be less than the lesser of the book value per share of Common
Stock as of the end of the preceding fiscal year or fifty percent of the fair
market value per share of Common Stock on the date of grant; provided, however,
that any non-qualified options with an exercise price less than the fair market
value per share of common stock on the date of grant will be granted in
accordance with the provisions of the 1992 Plan relating to Section 162(m).
ISO Price
The exercise price per share of ISOs granted under the 1992 Plan cannot be
less than the fair market value of the Common Stock on the date of grant, or, in
the case of ISOs granted to employees holding more than ten percent of the total
combined voting power of all classes of stock of the Corporation, not less than
110% of the fair market value of the Common Stock on the date of grant.
Option Duration
The 1992 Plan requires that each Option expire on the date specified by the
Compensation Committee, but not more than ten years from its date of grant in
the case of ISOs and ten years and one day in the case of Non-Qualified Options.
However, in the case of any ISO granted to an employee owning more than ten
percent of the total combined voting power of all classes of stock of the
Corporation, such ISO will expire on the date specified by the Compensation
Committee, but not more than five years from its date of grant.
Exercise of Options and Payment for Stock
Each Option granted under the 1992 Plan is exercisable as follows:
A. The Option is either fully exercisable at the time of grant or
becomes exercisable in such installments as the Compensation Committee may
specify.
B. Once an installment becomes exercisable it remains exercisable until
expiration or termination of the Option, unless otherwise specified by the
Compensation Committee.
C. Each Option may be exercised from time to time, in whole or in part, up
to the total number of shares with respect to which it is then exercisable.
D. The Compensation Committee has the right to accelerate the date of
exercise of any installment (subject to the $100,000 per year limit on the fair
market value of Common Stock subject to ISOs granted to any employee that become
exercisable in any calendar year).
Exercise of an Option under the 1992 Plan is effected by a written notice
of exercise delivered to the Corporation at its principal office together with
payment for the shares in full in cash or by check, or at the discretion of the
Compensation Committee, (a) through delivery of shares of Common Stock having
fair market value equal as of the date of exercise to the cash exercise price of
the Option, (b) by delivery of the optionee's personal recourse note, or (c) by
delivery of a sufficient amount of the proceeds from the sale of the Common
Stock acquired upon exercise of the option by the optionee's broker or selling
agent. Such written notice will also identify the Option being exercised and
specify the number of shares as to which the Option is being exercised.
Effect of Termination of Employment, Death or Disability
If an ISO optionee ceases to be employed by the Corporation other than by
reason of death or disability, no further installments of his or her ISOs will
become exercisable, and the ISOs will terminate after the passage of 90 days
from the date of termination of employment (but not later than their specified
expiration dates), except to the extent that such ISOs have been converted into
Non-Qualified Options. Employment will be considered as continuing
uninterrupted during any bona fide leave of absence (including illness, military
obligations or governmental service) provided that such leave does not exceed 90
days or, if longer, any period during which the employee's right to
re-employment is guaranteed by statute or by contract.
If an optionee dies, any ISO held by the optionee may be exercised, to the
extent exercisable on the date of death, by the optionee's estate, personal
representative or beneficiary who acquires the ISO by will or by the laws of
descent and distribution, at any time within 180 days from the date of the
optionee's death (but not later than the specified expiration date of the ISO).
If an ISO optionee ceases to be employed by the Corporation by reason of his or
her disability (as defined in Section 22(e)(3) of the Code), the optionee may
exercise any ISO held by him or her on the date of termination of employment, to
the extent exercisable on that date, at any time within 180 days from the date
of termination of employment (but not later than the specified expiration date
of the ISO).
Non-Qualified Options are subject to such termination and cancellation
provisions as may be determined by the Compensation Committee.
Non-Assignability of Options
No option shall be assignable or transferable by an optionee except by will
or by the laws of descent and distribution, and during his or her lifetime only
the optionee may exercise an option.
Changes in Stock; Recapitalization and Reorganization
Option holders are protected against dilution in the event of a stock
dividend, recapitalization, stock split, merger or similar transaction. Upon
the happening of any of the foregoing events, the class and aggregate number of
shares reserved for issuance upon the exercise of Options under the 1992 Plan
will also be appropriately adjusted to reflect the events described above.
Notwithstanding the foregoing, with respect to ISOs, the adjustments described
above will be made only after the Compensation Committee, in consultation with
legal counsel, has determined whether such adjustments would constitute a
modification of such ISOs and will not cause adverse tax consequences to the
holders of ISOs.
Amendment, Suspension and Termination
The Board of Directors may terminate or amend the 1992 Plan in any respect
at any time, except that, without the approval of the stockholders within twelve
(12) months before or after the Board of Directors adopts a resolution
authorizing any of the following actions: (a) the total number of shares that
may be issued under the 1992 Plan may not be increased except as previously
described under "Changes in Stock; Recapitalization and Reorganization"; (b) the
provisions regarding eligible employees may not be modified; (c) the provisions
regarding the exercise price at which shares may be offered pursuant to ISOs may
not be modified (except by adjustment referred to above); and (d) the expiration
date of the 1992 Plan may not be extended. No action of the Board of Directors
or stockholders, however, may, without the consent of an optionee, alter or
impair his or her rights under any Option previously granted to him or her.
Miscellaneous
The proceeds received by the Corporation from the sale of shares pursuant
to the 1992 Plan are to be used for general corporate purposes. The
Corporation's obligation to deliver shares is subject to the approval of any
governmental authority required in connection with the sale or issuance of such
shares. The exercise of Non-Qualified Options for less than fair market value
may require the holder to recognize ordinary income and pay additional
withholding taxes in respect of such income, and the Compensation Committee may
condition the grant or exercise of an Option on the payment to the Corporation
of such taxes. An employee is required to notify the Corporation in the event
that he or she disposes of shares acquired on the exercise of an ISO prior to
the later of two years from the date of grant or one year from the date of
exercise of the ISO. Unless terminated earlier by the Compensation Committee,
the 1992 Plan will expire on January 28, 2002.
Federal Income Tax Consequences
THE FOLLOWING DISCUSSION OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
OF THE ISSUANCE AND EXERCISE OF OPTIONS GRANTED UNDER THE 1992 PLAN, AND OF
CERTAIN OTHER RIGHTS GRANTED UNDER THE 1992 PLAN, IS BASED UPON THE PROVISIONS
OF THE CODE AS IN EFFECT ON THE DATE OF THIS PROXY STATEMENT, CURRENT
REGULATIONS, AND EXISTING ADMINISTRATIVE RULINGS OF THE INTERNAL REVENUE
SERVICE. IT IS NOT INTENDED TO BE A COMPLETE DISCUSSION OF ALL OF THE FEDERAL
INCOME TAX CONSEQUENCES OF THE 1992 PLAN OR OF THE REQUIREMENTS THAT MUST BE MET
IN ORDER TO QUALIFY FOR THE DESCRIBED TAX TREATMENT.
A. Incentive Stock Options. The following general rules are applicable for
federal income tax purposes under existing law to ISOs granted under the 1992
Plan:
1. Generally, an optionee will not recognize any income upon the grant
of an ISO or upon the issuance of shares to him or her upon exercise of an ISO,
and the Corporation will not be entitled to a federal income tax deduction upon
either the grant or the exercise of an ISO.
2. If shares acquired upon exercise of an ISO are not disposed of within:
(i) two years from the date the ISO was granted or (ii) one year from the date
the shares are issued to the optionee pursuant to the exercise of the ISO (the
"Holding Periods"), the difference between the amount realized on any subsequent
disposition of the shares and the exercise price will generally be treated as
capital gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are disposed of and the
optionee does not satisfy the Holding Periods (a "Disqualifying Disposition"),
then in most cases the lesser of (i) any excess of the fair market value of the
shares at the time of exercise of the ISO over the exercise price or (ii) the
actual gain on disposition, will be treated as compensation to the optionee and
will be taxed as ordinary income in the year of such disposition.
4. In any year that an optionee recognizes ordinary income on a
Disqualifying Disposition of shares acquired upon exercise of an ISO, the
Corporation generally should be entitled to a corresponding deduction for
federal income tax purposes.
5. The difference between the amount realized by the optionee as the result
of a Disqualifying Disposition and the sum of (i) the exercise price and (ii)
the amount of ordinary income recognized under the above rules generally will be
treated as capital gain or loss.
6. Capital gain or loss recognized by an optionee on a disposition of shares
will be long-term capital gain or loss if the optionee's holding period for the
shares exceeds one year.
7. An optionee may be entitled to exercise an ISO by delivering shares of
the Corporation's Common Stock to the Corporation in payment of the exercise
price, if the optionee's ISO agreement so provides. If an optionee exercises an
ISO in such fashion, special rules will apply.
8. In addition to the tax consequences described above, the exercise of an
ISO may result in an "alternative minimum tax." The alternative minimum tax (at
a maximum rate of 28%) will be applied against a taxable base which is equal to
"alternative minimum taxable income," reduced by a statutory exemption. In
general, the amount by which the value of the shares received upon exercise of
the ISO exceeds the exercise price is included in the optionee's alternative
minimum taxable income. A taxpayer is required to pay the higher of his or her
regular tax liability or the alternative minimum tax. A taxpayer who pays
alternative minimum tax attributable to the exercise of an ISO may be entitled
to a tax credit against his or her regular tax liability in later years.
9. Special rules apply if the shares acquired upon the exercise of an ISO
are subject to vesting, or are subject to certain restrictions on resale under
federal securities laws applicable to directors, officers or 10% stockholders.
B. Non-Qualified Options. The following general rules are applicable
under current federal income tax law to options granted under the 1992 Plan
which do not qualify as ISOs ("Non-Qualified Options"):
1. In general, an optionee will not recognize any income upon the grant
of a Non-Qualified Option, and the Corporation will not be entitled to a federal
income tax deduction upon such grant.
2. An optionee generally will recognize ordinary income at the time of
exercise of a Non-Qualified Option in an amount equal to the excess, if any, of
the fair market value of the shares on the date of exercise over the exercise
price. The Corporation will require the optionee to make appropriate
arrangements for the withholding of taxes on this amount.
3. When an optionee sells the shares acquired upon the exercise of a
Non-Qualified Option, he or she generally will recognize capital gain or loss in
an amount equal to the difference between the amount realized upon the sale of
the shares and his or her tax basis in the shares (generally, the exercise price
plus the amount taxed to the optionee as ordinary income). If the optionee's
holding period for the shares exceeds one year, this gain or loss will be
long-term capital gain or loss.
4. When an optionee recognizes ordinary income attributable to a
Non-Qualified Option, the Corporation generally should be entitled to a
corresponding federal income tax deduction.
5. An optionee may be entitled to exercise a Non-Qualified Option by
delivering shares of the Corporation's Common Stock to the Corporation in
payment of the exercise price. If an optionee exercises a Non-Qualified Option
in such fashion, special rules will apply.
6. Special rules apply if the shares acquired upon the exercise of a
Non-Qualified Option are subject to vesting, or are subject to certain
restrictions on resale under federal securities laws applicable to directors,
officers or 10% stockholders.
C. Stock Awards and Purchases. The following general rules are
applicable under current federal income tax law to Awards and Purchases under
the 1992 Plan:
Persons receiving Common Stock under the 1992 Plan pursuant to an Award or
Purchase generally will recognize ordinary income equal to the fair market value
of the shares received, reduced by any purchase price paid. The Corporation
generally should be entitled to a corresponding federal income tax deduction.
When such shares are sold, the seller generally will recognize capital gain or
loss. Special rules apply if the shares acquired pursuant to an Award or
Purchase are subject to vesting, or are subject to certain restrictions on
resale under federal securities laws applicable to directors, officers or 10%
stockholders.
Options Outstanding
As of the Record Date, 482,580 shares of Common Stock had been issued upon the
exercise of stock options granted under the 1992 Plan. As of that date, options
to purchase 2,560,041 shares of Common Stock were outstanding and 107,379 shares
of Common Stock were available under the 1992 Plan for additional option grants.
The closing price of the Corporation's Common Stock on the Record Date was
$3.188 per share.
Approval of the amendments to the 1992 Plan will require the affirmative vote of
a majority of the outstanding shares of Common Stock of the Corporation eligible
to vote and present and voting on this matter. The Board of Directors recommends
a vote FOR the approval of the amendments to the 1992 Plan.
<PAGE>
PROPOSAL TO AMEND THE 1992 AMENDED EMPLOYEE STOCK PURCHASE PLAN
AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED SHARES UNDER THE 1992 AMENDED
EMPLOYEE STOCK PURCHASE PLAN
The 1992 Amended Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors on December 2, 1992, and received Stockholder
approval on December 10, 1992. Currently, the number of shares of Common Stock
authorized for issuance under the Purchase Plan is 200,000 shares. It is now
proposed to approve an amendment to the Purchase Plan to increase the number of
shares authorized for issuance from 200,000 to 450,000 shares.
Management believes that in order to attract and retain qualified employees
for the Corporation, it is necessary to continue to afford employees the
opportunity to invest meaningfully in the equity of the Corporation through
payroll deductions. Management believes that this increase is important to
permit the Board of Directors to provide incentives to present employees, to
attract and retain qualified employees and to afford existing employees the
maximum opportunity possible to invest in equity of the Corporation.
DESCRIPTION OF THE PURCHASE PLAN
The purpose of the Purchase Plan is to provide employees of the Corporation
(and any of its subsidiaries designated by the Board of Directors) with an
opportunity to share in the growth of the Corporation by acquiring or increasing
their proprietary interest in the Corporation.
Administration
The Compensation Committee of the Board of Directors of the Corporation
administers the Purchase Plan. During the fiscal year ended December 31, 1998,
the Compensation Committee was comprised of Mr. D'Amore, Ms. Rokoff and Mr.
Vana-Paxhia, each a non-employee director of the Corporation. Mr. D'Amore served
on the Compensation Committee until his resignation from the Board of Directors
on February 10, 1998. Mr. Vana-Paxhia replaced Mr. D'Amore as a member of the
Compensation Committee. The Compensation Committee, subject to the provisions
of the Purchase Plan, has the power to construe the Purchase Plan, to determine
all questions thereunder and to adopt and amend such rules and regulations for
the administration of the Purchase Plan as it may deem desirable. The
Corporation makes no cash contributions to the Purchase Plan, but bears the
expenses of administration.
Eligible Employees
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Code. Any person who is employed by the
Corporation (or any of its subsidiaries designated by the Board of Directors)
whose customary employment is more than twenty (20) hours per week and more than
five (5) months in a calendar year, is eligible to participate in the Purchase
Plan, subject to certain limitations imposed by Section 423(b) of the Code.
Members of the Board of Directors who are eligible employees are permitted to
participate in the Purchase Plan, provided that any such eligible member may not
vote on any matter affecting the administration of the Purchase Plan or the
grant of any option pursuant to it, or serve on a committee appointed to
administer the Purchase Plan.
Participation in the Plan
An employee electing to participate in the Purchase Plan must authorize an
amount (a whole percentage not less than 1% nor more than 10% of the employee's
total compensation) to be deducted by the Corporation from the employee's pay
and applied toward the purchase of Common Stock under the Purchase Plan. For
the duration of the Purchase Plan, the "Purchase Periods" are defined as the
six-month periods commencing on March 1 and September 1, and ending on August 31
and the last day of February of each year. On the first business day of each
Purchase Period, the Corporation will grant to each Purchase Plan participant an
option to purchase shares of Common Stock of the Corporation. On the last day
of the Purchase Period, the employee will be deemed to have exercised this
option, at the option price, to the extent of such employee's accumulated
payroll deductions, on the condition that the employee remains eligible to
participate in the Purchase Plan throughout the Purchase Period. In no event,
however, may the employee exercise an option granted under the Purchase Plan for
more than 2,000 shares during a Purchase Period. If the amount of the
accumulated payroll deductions exceeds the aggregate purchase price of 2,000
shares, the excess deductions will be promptly refunded to the employee without
interest.
The price per share at which shares of Common Stock are purchased pursuant
to the Purchase Plan for any Purchase Period is the lesser of 85% of the fair
market value of Common Stock on the date of the first business day of the
Purchase Period or (b) 85% of the fair market value of Common Stock on the last
business day of the Purchase Period. The fair market value of a share of Common
Stock shall be (i) the average (on that date) of the high and low prices of the
Corporation's Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the NASDAQ National Market, if the Common Stock is
not then traded on a national securities exchange; or (iii) the average of the
closing bid and asked prices last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is not
reported on the NASDAQ National Market. Any amounts left over in the accounts
of participants at the end of any Purchase Period are refunded to the
participants. Only amounts credited to the accounts of participants may be
applied to the purchase of shares of Common Stock under the Purchase Plan. The
number of shares of Common Stock which may be purchased under outstanding
participation elections is subject to adjustment in the event of a stock split,
stock dividend or other similar change in the Common Stock or the capital
structure of the shares of the Corporation.
Notwithstanding the foregoing, no participant shall be permitted to
subscribe for shares under the Purchase Plan if immediately after the grant of
the option the participant would own stock and/or hold outstanding options to
purchase stock possessing 5% or more of the total combined voting power or value
of all classes of stock of the Corporation or of any of its subsidiaries, nor
shall any participant be granted an option which would permit the participant to
purchase pursuant to the Purchase Plan more than $25,000 worth of stock
(determined by the fair market value of the shares at the time the option is
granted) in any calendar year. Furthermore, if the number of shares which would
otherwise be placed under option at the beginning of a Purchase Period exceeds
the number of shares then available under the Purchase Plan, the Corporation
shall make a pro rata allocation of the shares remaining available for purchase
in as uniform a manner as shall be practicable and as it shall determine to be
equitable.
A participant may withdraw from the Purchase Plan, but may not increase nor
decrease the rate of payroll deductions at any time during the Purchase Period.
Payroll deductions shall commence on the first payday following the date of the
commencement of the Purchase Period, and shall continue at the same rate until
the end of the Purchase Period unless sooner terminated as provided in the
Purchase Plan. Termination of a participant's employment for any reason during
the Purchase Period cancels his or her participation in the Purchase Plan
immediately. In such event, the payroll deductions credited to the
participant's account will be returned to such participant, or in the case of
death, to the person or persons designated by the participant, and such
participant's option will be automatically terminated.
The Purchase Plan will terminate on December 2, 2002. As of the Record
Date, there were approximately 47 employees enrolled in the Purchase Plan.
Federal Income Tax Consequences
THE FOLLOWING DISCUSSION OF THE UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES TO PARTICIPANTS AND THE CORPORATION OF THE ACQUISITION AND
DISPOSITION OF SHARES UNDER THE PURCHASE PLAN, AND OF CERTAIN OTHER RIGHTS
GRANTED UNDER THE PURCHASE PLAN, IS BASED UPON THE PROVISIONS OF THE CODE AS IN
EFFECT ON THE DATE OF THIS PROXY STATEMENT, CURRENT REGULATIONS, AND EXISTING
ADMINISTRATIVE RULINGS OF THE INTERNAL REVENUE SERVICE. IT IS NOT INTENDED TO
BE A COMPLETE DISCUSSION OF ALL OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
PURCHASE PLAN OR OF THE REQUIREMENTS THAT MUST BE MET IN ORDER TO QUALIFY FOR
THE DESCRIBED TAX TREATMENT.
1. The amounts deducted from an employee's pay under the Purchase Plan
will be included in the employee's compensation subject to federal income tax.
Generally, no additional income will be recognized by the employee either at the
time options are granted pursuant to the Purchase Plan or at the time the
employee purchases shares pursuant to the Purchase Plan.
2. If the employee disposes of shares purchased pursuant to the Purchase
Plan more than two years after the first business day of the Purchase Period in
which the employee acquired the shares, then upon such disposition the employee
will recognize ordinary income in an amount equal to the lesser of:
(a) the excess, if any, of the fair market value of the shares at the time
of disposition over the amount the employee paid for the shares, or
(b) 15% of the fair market value of the shares on the first business day of
the Purchase Period.
In addition, the employee generally will recognize capital gain or loss in
an amount equal to the difference between the amount realized upon the sale of
shares and the employee's tax basis in the shares (generally, the amount the
employee paid for the shares plus the amount, if any, taxed as ordinary income).
3. If the employee disposes of shares purchased pursuant to the Purchase
Plan within two years after the first business day of the Purchase Period in
which the employee acquired the shares, then upon disposition the employee will
recognize ordinary income in an amount equal to the excess, if any, of the fair
market value of the shares on the last business day of the Purchase Period over
the amount the employee paid for the shares.
In addition, the employee generally will recognize capital gain or loss in an
amount equal to the difference between the amount realized upon the sale of
shares and the employee's tax basis in the shares (generally, the amount the
employee paid for the shares plus the amount, if any, taxed as ordinary income).
Capital gain or loss recognized on a disposition of shares will be long-term
capital gain or loss if the employee's holding period for the shares exceeds one
year.
4. If the employee disposes of shares purchased pursuant to the
Purchase Plan more than two years after the first business day of the Purchase
Period in which the employee acquired the shares, the Corporation will not be
entitled to any federal income tax deduction with respect to the options or the
shares issued upon their exercise. If the employee disposes of such shares
prior to the expiration of this two-year holding period, the Corporation
generally will be entitled to a federal income tax deduction in an amount equal
to the amount of ordinary income recognized by the employee as a result of such
disposition.
5. Executive officers of the Corporation who are subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and who participate in the Purchase Plan may be subject to special
federal income tax rules and should consult their own tax advisors.
Approval of the amendment to the Employee Stock Purchase Plan will require
the affirmative vote of a majority of the outstanding shares of Common Stock of
the Corporation eligible to vote and present and voting on this matter. The
Board of Directors recommends a vote FOR the approval of the amendment to the
Employee Stock Purchase Plan.
<PAGE>
PROPOSAL TO AMEND THE 1992 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED SHARES, INCREASE THE ANNUAL STOCK
OPTION GRANT AND MODIFY THE VESTING SCHEDULE OF STOCK OPTION GRANTS UNDER THE
1992 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN,
The 1992 Non-Employee Director Plan (the "Director Plan") was adopted by
the Board of Directors of the Corporation on December 2, 1992, and received
stockholder approval on December 10, 1992. Currently, the number of shares of
Common Stock authorized for issuance under the Director Plan is 160,000. It is
now proposed to approve an amendment to (i) increase the annual stock option
grant for one year of service on the Board of Directors from 5,000 shares to
10,000 shares for all non-employee Directors, (ii) modify the vesting schedule
so that stock options granted under the Plan shall be exercisable on the date
of the grant and (iii) increase the number of shares of Common Stock authorized
for issuance under the plan from 160,000 to 400,000 shares.
Management of the Corporation believes that the proposed modification and
increases are important to permit the Corporation to obtain and retain the
services of qualified persons who are neither employees nor officers of the
Corporation to serve as members of the Board of Directors.
DESCRIPTION OF THE DIRECTOR PLAN
Administration
The Compensation Committee of the Board of Directors of the Corporation
administers the Director Plan. During the fiscal year ended December 31, 1998,
the Compensation Committee was comprised of Mr. D'Amore, Mr. Vana-Paxhia and Ms.
Rokoff, each a non-employee director of the Corporation. Mr. D'Amore served
on the Compensation Committee until his resignation from the Board of Directors
on February 10, 1998. Mr. Vana-Paxhia replaced Mr. D'Amore as a member of the
Compensation Committee. The Compensation Committee, subject to the provisions
of the Director Plan, has the power to construe the Plan, to determine all
questions thereunder and to adopt and amend such rules and regulations for the
administration of the Director Plan as it may deem desirable.
Automatic Grant of Options under the Director Plan
Options are granted pursuant to the Director Plan only to members of the
Board of Directors of the Corporation who are neither employees nor officers of
the Corporation. Under the provisions of the Director Plan, each non-employee
director was automatically granted, upon the initial public offering of the
Corporation, an option for 5,000 shares on such date. Each non-employee
director first elected to the Board of Directors after the effective date of the
Corporation's initial public offering is automatically granted an option for
20,000 shares on the date of his or her election. Each non-employee director
who has served on the Board of Director of the Corporation for an entire year
prior to the anniversary of the initial public offering is automatically granted
an option to purchase 5,000 shares of the Common Stock. Each person who has not
served for an entire year prior to the anniversary of the initial public
offering is automatically granted an option to purchase the number of shares of
the Common Stock equal to the number of full months the non-employee director
has served on the Board of Directors of the Corporation for the one year
preceding such anniversary, divided by twelve and multiplied by 5,000.
Outstanding options under the Director Plan are subject to adjustment as
described below under "Changes in Stock; Recapitalization and Reorganization."
If any options granted under the Director Plan are surrendered before exercise
or lapse without exercise, in whole or in part, the shares reserved therefor
revert to the status of available shares under the Director Plan.
<PAGE>
Exercise Price
The exercise price per share of options granted under the Director Plan is
100% of the fair market value of the Common Stock of the Corporation on the date
the option is granted.
Option Duration
The Director Plan provides that each option granted thereunder expire on
the date which is ten years from the date of the option grant subject to certain
qualifications in the event an optionee ceases to be a member of the Board of
Directors.
Exercisability of Shares
Options granted under the Director Plan may not be exercised until they
become vested. Options granted under the Director Plan become exercisable,
provided that the optionee has continuously served as a member of the Board of
Directors through such date, on the earlier of: (i) the first anniversary of
the date of grant or (ii) the first Annual Meeting of Stockholders following the
date of grant at which members of the Board of Directors are elected.
Exercise of Options and Payment for Stock
Exercise of an option under the Director Plan is effected by a written
notice of exercise, delivered to the Corporation together with payment for the
shares in full, which payment may be: (i) in cash or by check, (ii) in whole or
in part in shares of the Common Stock of the Corporation already owned by the
person exercising the option (subject to such restrictions and guidelines as the
Board of Directors may adopt from time to time) or (iii) consistent with
applicable law, through the delivery of an assignment to the Corporation of a
sufficient amount of the proceeds from the sale of the Common Stock acquired
upon exercise of the option and an authorization to the broker or selling agent
to pay that amount to the Corporation. Such written notice will also specify
the number of shares as to which the option is being exercised, which number of
shares shall not be less than 100, or all shares then exercisable, if less than
100.
Effect of Termination as a Director or of Death or Disability
In the event an optionee ceases to be a member of the Board of Directors of
the Corporation for any reason other than death or disability, any portion of an
option which is then vested may, be exercised by the optionee within a period of
180 days following the date the optionee ceases to be a member of the Board of
Directors, but in no event later than the expiration of the option. Any options
not exercisable on the date the optionee ceases to be a member of the Board of
Directors will immediately terminate and become void.
In the event an optionee ceases to be a member of the Board of Directors of
the Corporation by reason of his or her death or disability, any option granted
under the Director Plan to such optionee will immediately become fully
exercisable and all unexercised options will be exercisable (by the optionee's
person representative, heir or legatee, in the event of death) until the
scheduled expiration date of the option.
Non-Assignability of Options
Any option granted pursuant to the Director Plan is not assignable or
transferable other than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order and is exercisable during the
optionee's lifetime only by the optionee.
<PAGE>
Changes in Stock; Recapitalization and Reorganization
Option holders are protected against dilution in the event of a stock
dividend, stock split, reorganization, merger, consolidation, recapitalization
on similar transaction. Upon the happening of any of the foregoing events,
adjustment will be made in the number and kind of shares covered by, and in the
option price of outstanding options under the Director Plan necessary to
maintain the proportionate interest of the option holder and preserve the value
of such options.
Termination and Amendment of the Director Plan
The Director Plan automatically terminates on December 2, 2002 or when all
options granted thereunder are no longer outstanding, whichever occurs first.
The Board of Directors may at any time terminate the Director Plan or make such
modification or amendment thereof as it may deem advisable; provided, however,
that the Board of Directors may not, without approval of the stockholders, (a)
increase the maximum number of shares for which options may be granted under the
Director Plan, (b) materially modify the requirements as to eligibility to
participate in the Director Plan, (c) materially increase benefits accruing to
option holders under the Director Plan, or (d) amend the Director Plan in any
manner which would cause Rule 16b-3 to become inapplicable to the Director Plan;
and provided, further that the provisions of the Director Plan specified in Rule
16b-3(c)(2)(ii)(A) (or any successor or amended provision thereof) under the
Exchange Act (including without limitation, provisions as to eligibility,
amount, price and timing of awards) may not be amended more than once every six
months, other than to comport with changes in the Code, the Employee Retirement
Income Security Act, or the rules thereunder. Termination or any modification
or amendment of the Director Plan shall not, without consent of a participant,
affect his or her rights under an option previously granted to him or her.
Federal Income Tax Consequences
THE FOLLOWING DISCUSSION OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE
ISSUANCE AND EXERCISE OF OPTIONS GRANTED UNDER THE DIRECTOR PLAN IS BASED UPON
THE PROVISIONS OF THE CODE AS IN EFFECT ON THE DATE OF THIS PROXY STATEMENT,
CURRENT REGULATIONS, AND EXISTING ADMINISTRATIVE RULINGS OF THE INTERNAL REVENUE
SERVICE. IT IS NOT INTENDED TO BE A COMPLETE DISCUSSION OF ALL OF THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THESE PLANS OR OF THE REQUIREMENTS
THAT MUST BE MET IN ORDER TO QUALIFY FOR THE DESCRIBED TAX TREATMENT.
Non-Qualified Options. The following general rules are applicable under
current federal income tax law to Non-Qualified Options, which are the only
options that may be granted under the Director Plan:
1. In general, an optionee will not recognize any income upon the grant
of a Non-Qualified Option, and the Corporation will not be entitled to a federal
income tax deduction upon such grant.
2. An optionee generally will recognize ordinary income at the time of
exercise of a Non-Qualified Option in an amount equal to the excess, if any, of
the fair market value of the shares on the date of exercise over the exercise
price. The Corporation may require the optionee to make appropriate arrangements
for the withholding of taxes on this amount.
3. When an optionee sells the shares acquired upon the exercise of a
Non-Qualified Option, he or she generally will recognize capital gain or loss in
an amount equal to the difference between the amount realized upon the sale of
the shares and his or her tax basis in the shares (generally, the exercise price
plus the amount taxed to the optionee as ordinary income). If the optionee's
holding period for the shares exceeds one year, this gain or loss will be
long-term capital gain or loss.
4. When an optionee recognizes ordinary income attributable to a
Non-Qualified Option, the Corporation generally should be entitled to a
corresponding federal income tax deduction.
5. An optionee may be entitled to exercise a Non-Qualified Option by
delivering shares of the Corporation's Common Stock to the Corporation in
payment of the exercise price. If an optionee exercises a Non-Qualified Option
in such fashion, special rules will apply.
6. Special rules apply if the shares acquired upon the exercise of a
Non-Qualified Option are subject to vesting, or are subject to certain
restrictions on resale under federal securities laws applicable to directors.
Options Outstanding
As of the Record Date, no shares of Common Stock had been issued upon the
exercise of stock options granted under the Director Plan. As of that date,
options to purchase 137,084 shares of Common Stock were outstanding and 22,916
shares of Common Stock were available under the Director Plan for additional
option grants. The closing price of the Common Stock of the Corporation on the
Record Date was $3.188 per share.
Approval of the amendment to the Director Plan will require the affirmative
vote of a majority of the outstanding shares of Common Stock of the Corporation
eligible to vote and present and voting on this matter. The Board of Directors
recommends a vote FOR the approval of the amendment to the Director Plan.
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of Arthur Andersen LLP,
independent certified public accountants, to serve as auditors for the fiscal
year ending December 31, 1999. Arthur Andersen LLP has served as the
Corporation's auditors since 1984. It is expected that a member of the firm will
be present at the meeting with the opportunity to make a statement if so desired
and will be available to respond to appropriate questions. The Board of
Directors recommends a vote FOR the ratification of this selection.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Corporation's directors,
executive officers and holders of more than 10% of the Corporation's Common
Stock (collectively, "Reporting Persons") to file with the Commission initial
reports of ownership and reports of changes in ownership of Common Stock of the
Corporation. Such persons are required by regulations of the Commission to
furnish the Corporation with copies of all such filings. Based on its review of
the copies of such filings received by it with respect to the fiscal year ended
December 31, 1998 and written representations from certain Reporting Persons,
the Corporation believes that all Reporting Persons complied with all Section
16(a) filing requirements in the fiscal year ended December 31, 1998.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy statement to
be furnished to all stockholders entitled to vote at the next Annual Meeting of
Stockholders of the Corporation pursuant to Securities Exchange Act Rule 14a-8
must be received at the Corporation's principal executive offices not later than
December 21, 1999. In order to curtail controversy as to the date on which a
proposal was received by the Corporation, it is suggested that proponents submit
their proposals by Certified Mail, Return Receipt Requested.
Stockholders who wish to make a proposal at the 2000 Annual Meeting - other than
one that will be included in the Company's proxy materials - should notify the
Company no later than March 5, 2000. If a stockholder who wishes to present a
proposal fails to notify the Company by this date, the proxies that management
solicits for the meeting will have the discretionary authority to vote on the
stockholder's proposal if it is properly brought before the meeting. If a
stockholder makes a timely notification, the proxies may still exercise
discretionary voting authority under circumstances consistent with the SEC's
proxy rules.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation, and, in
addition to soliciting stockholders by mail through its regular employees, the
Corporation may request banks, brokers and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Corporation
registered in the names of a nominee and, if so, will reimburse such banks,
brokers and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket costs. Solicitation by officers and employees of the Corporation
may also be made of some stockholders in person or by mail, telephone or
telegraph following the original solicitation. The Company may, if appropriate,
retain an independent proxy solicitation firm to assist in soliciting proxies.
If the Company does so, it will pay such firm's customary fees and expenses.
