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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SOURCE MEDIA, 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)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / 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:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1997
To the Stockholders of Source Media, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Source
Media, Inc., a Delaware corporation (the "Company"), will be held on Wednesday,
May 21, 1997, beginning at 9:00 a.m., Dallas time, at the Marriott Courtyard
Northpark Hotel, 10325 North Central Expressway, Dallas, Texas, for the
following purposes:
1. To elect eight directors to serve until the next Annual Meeting of
Stockholders or until their respective successors are elected and qualified;
2. To consider and vote upon a proposal to amend the Company's 1995
Nonqualified Stock Option Plan for Non-Employee Directors;
3. To consider and vote upon a proposal to amend the Company's 1995
Performance Equity Plan;
4. To consider and vote upon a proposal to approve the Company's Employee
Stock Purchase Plan.
5. To consider and vote upon a proposal to ratify the appointment of Ernst
& Young LLP as independent auditors for the Company for the 1997 fiscal year;
and
6. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors of the Company has fixed April 16, 1997 as the
record date for determining the stockholders entitled to notice of, and to vote
at, the meeting or any adjournment thereof. The list of stockholders entitled
to vote will be available for inspection by any stockholder at the offices of
the Company, 8140 Walnut Hill Lane, Suite 1000, Dallas, Texas, during ordinary
business hours for ten days prior to the meeting.
You are cordially invited to attend this meeting in person, if possible. If
you do not expect to be present in person, please sign and date the enclosed
proxy, and return it in the enclosed envelope, which requires no postage if
mailed in the United States. If you attend the meeting, you may vote in person
if you wish, whether or not you have returned your proxy. In any event, a proxy
may be revoked at any time before it is exercised.
BY ORDER OF THE BOARD OF DIRECTORS
Maryann Walsh, Secretary
Dallas, Texas
April 30, 1997
<PAGE>
SOURCE MEDIA, INC.
8140 WALNUT HILL LANE
SUITE 1000
DALLAS, TEXAS 75231
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1997
INTRODUCTION
This Proxy Statement is furnished to stockholders of Source Media, Inc., a
Delaware corporation, in connection with the solicitation by order of the Board
of Directors of the Company of proxies to be voted at the Annual Meeting of
Stockholders of the Company to be held on May 21, 1997, or any adjournments
thereof (the "Annual Meeting"), and is being mailed with proxies to such
stockholders on or about April 30, 1997. Unless the context otherwise requires:
(a) all references to the "Company" include Source Media, Inc. and its wholly-
owned subsidiaries and (b) all references to the Company prior to June 23, 1995
relate to IT Network, Inc., a Texas corporation ("IT").
Shares represented by proxies in the form enclosed, properly executed by
stockholders and returned to the Company, and that are not revoked, will be
voted at the Annual Meeting in accordance with the directions given. If no
directions are given, the shares will be voted for the election of the nominees
for directors and other proposals set forth herein. A proxy may be revoked at
any time before it is voted by written notice thereof to the Secretary of the
Company or by execution of a subsequently dated proxy.
As of the date hereof, the Board of Directors knows of no other business
that will be presented for action by the stockholders at the Annual Meeting.
However, if other proper matters are brought before the Annual Meeting, a vote
may be cast pursuant to the accompanying proxy in accordance with the judgment
of the proxy holders.
Should any nominee named herein for the office of director become unwilling
or unable to accept nomination or election, the proxy holders will vote for the
election in his place of such other person, if any, as the Board may recommend;
however, the Board has no reason to believe that any of the nominees will be
unwilling or unable to serve if elected. Each nominee has expressed his
intention, if elected, to serve the entire term for which his election is
sought.
The 1996 Annual Report to Stockholders of the Company covering the fiscal
year ended December 31, 1996 is being mailed herewith to stockholders. It does
not, however, form any part of the material for the solicitation of proxies.
VOTING SECURITIES
The record date for stockholders entitled to notice of, and to vote at, the
Annual Meeting was the close of business on April 16, 1997. At the close of
business on that date, the Company had issued, outstanding and entitled to vote
at the Annual Meeting 11,335,418 shares of Common Stock, $.001 par value (the
"Common Stock").
The presence, in person or by proxy, of the holders of a majority of the
outstanding Common Stock is necessary to constitute a quorum at the Annual
Meeting. In deciding all questions, a holder of Common Stock shall be entitled
to one vote, in person or by proxy, for each share of Common Stock in the
stockholder's name on the record date. Stockholders have no cumulative voting
rights.
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VOTING PROCEDURES AND TABULATION
The Company will appoint one or more inspectors of election to act at the
Annual Meeting and to make a written report thereof. Prior to the Annual
Meeting, the inspectors will sign an oath to perform their duties in an
impartial manner and to the best of their abilities. The inspectors will
ascertain the number of shares outstanding and the voting power of each of such
shares, determine the shares represented at the Annual Meeting and the validity
of proxies and ballots, count all votes and ballots and perform certain other
duties as required by law.
With regard to the election of directors, votes may be cast in favor of, or
withheld from, each nominee. Votes that are withheld will be excluded entirely
from the vote and will have no effect. Abstentions may be specified on the
other proposals to be acted upon and will be counted as present for purposes of
determining the existence of a quorum regarding such items of business.
Abstentions on such proposals will have the effect of a negative vote because
such proposals require the affirmative vote of a majority of shares of Common
Stock present in person or represented by proxy and entitled to vote. Under
applicable Delaware law, a broker non-vote (or other limited proxy) will have no
effect on the outcome of the election of directors or the other proposals to be
acted upon.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tabulation sets forth information with respect to each person
as of April 16, 1997 who was known to the Company to be the beneficial owner of
more than 5% of the Common Stock. Except as noted, each person listed below is
believed to have sole voting power and sole investment power with respect to
such shares:
SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
------------------------------------ ------------------ --------
Timothy P. Peters(1). . . . . . . . . . . . . 1,257,596 11.09
8140 Walnut Hill Lane
Suite 1000
Dallas, TX 75231
21st Century Communications Partners,
L.P.(2) . . . . . . . . . . . . . . . . . . 929,290 7.76
767 Fifth Avenue
New York, NY 10019
Freedom Communications, Inc.(3) . . . . . . . 638,094 5.63
17666 Fitch
Irvine, CA 92714
- - -------------------
(1) Includes 3,834 shares of Common Stock issuable upon exercise of options
exercisable within 60 days and 608,635 shares of Common Stock owned by
certain other stockholders. Mr. Peters has the right to vote the 608,635
shares on all matters presented to the stockholders of the Company, other
than matters with respect to which the stockholders of the Company have
dissenters' rights, pursuant to a proxy granted to him under the Stock
Purchase and Rights Agreement dated September 1, 1994 among Mr. Peters and
certain other persons, including 21st Century Communications Partners,
L.P., as purchasers, and several stockholders as sellers (the "Stock
Purchase and Rights Agreement"). Mr. Peters has the right to purchase
96,776 of the shares of Common Stock that he has the right to vote.
(2) Includes 635,949 shares of Common Stock issuable upon exercise of
exercisable warrants. See "Security Ownership of Management" for certain
information regarding Michael J. Marocco, a director of the Company and
limited partner of 21st Century Communications Partners, L.P.
(3) See "Security Ownership of Management" for certain information regarding
David L. Kuykendall, a director of the Company and Senior Vice President
and the Chief Financial Officer of Freedom Communications, Inc.
("Freedom").
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SECURITY OWNERSHIP OF MANAGEMENT
The following tabulation sets forth information with respect to the
beneficial ownership of Common Stock as of April 16, 1997 by each director of
the Company, each nominee for director of the Company, each executive officer
listed in the Summary Compensation Table included elsewhere in this Proxy
Statement and all executive officers and current directors of the Company as a
group.
NAME SHARES BENEFICIALLY OWNED PERCENT OF CLASS
- - ---- ------------------------- ----------------
DIRECTORS AND NOMINEES FOR DIRECTOR
Timothy P. Peters(1)(N). . . . . . . . . 1,257,596 11.09
John J. Reed(2)(N) . . . . . . . . . . . 224,045 1.98
William S. Bedford(3). . . . . . . . . . 470,814 4.15
David L. Kuykendall(4)(A). . . . . . . . 644,094 5.68
Alan M. Flaherty(5)(C) . . . . . . . . . 6,784 *
James L. Greenwald(6)(N) . . . . . . . . 3,000 *
Michael J. Marocco(7)(N) . . . . . . . . 1,395,366 11.36
Robert H. Alter. . . . . . . . . . . . . -- --
Robert J. Cresci(8). . . . . . . . . . . 1,250,000 9.93
EXECUTIVE OFFICERS
(EXCLUDING ANY DIRECTORS NAMED ABOVE)
Michael G. Pate(9) . . . . . . . . . . . 61,645 *
Maryann Walsh(10). . . . . . . . . . . . 151,845 1.34
All current directors and executive
officers as a group (9 persons). . . . 4,187,575 33.92
- - -------------------
(A) Member of the Audit Committee.
(C) Member of the Compensation Committee.
(N) Member of the Nominating Committee.
* Less than one percent
(1) Includes 3,834 shares of Common Stock issuable upon exercise of options
exercisable within 60 days and 608,635 shares of Common Stock owned by
certain stockholders. Mr. Peters has the right to vote the 608,635 shares
on all matters presented to the stockholders of the Company, other than
matters with respect to which the stockholders of the Company have
dissenters' rights, pursuant to a proxy granted to him under the Stock
Purchase and Rights Agreement. Mr. Peters has the right to purchase 96,776
of the shares of Common Stock that he has the right to vote.
(2) Includes 3,377 shares of Common Stock issuable upon exercise of options
exercisable within 60 days and 24,687 shares of Common Stock that may be
purchased pursuant to the Stock Purchase and Rights Agreement.
(3) Includes 3,377 shares of Common Stock issuable upon exercise of options
exercisable within 60 days.
(4) Includes (i) 638,094 shares of Common Stock beneficially owned by Freedom,
as to which Mr. Kuykendall, a Senior Vice President and the Chief Financial
Officer of Freedom, disclaims beneficial ownership and (ii) 6,000 shares of
Common Stock issuable upon exercise of options exercisable within 60 days.
(5) Includes 6,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days.
(6) Includes 3,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days.
(7) Includes (i) 9,675 shares of Common Stock issuable upon exercise of
exercisable warrants and (ii) 3,000 shares of Common Stock issuable upon
exercise of options exercisable within 60 days. Mr. Marocco is a limited
partner of 21st Century Communications Partners, L.P., 21st Century
Communications T-E Partners, L.P. and 21st Century Communications Foreign
Partners, L.P. Accordingly, also includes (iii) 293,341 shares of Common
Stock, (iv) 635,949 shares of Common Stock issuable upon exercise of
exercisable warrants held
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by 21st Century Communications Partners, L.P., (v) 99,772 shares of Common
Stock, (vi) 216,374 shares of Common Stock issuable upon exercise of
exercisable warrants held by 21st Century Communications T-E Partners,
L.P., (vii) 39,527 shares of Common Stock, and (viii) 85,615 shares of
Common Stock issuable upon exercise of exercisable warrants held by 21st
Century Communications Foreign Partners, L.P.
(8) Includes 1,250,000 shares of Common Stock issuable upon the exercise of
exercisable warrants held by four funds of which Peck's Management Partners
Ltd. ("Pecks") serves as manager. Mr. Cresci is a Managing Director of
Pecks, but disclaims beneficial ownership in all such shares.
(9) Includes 32,943 shares of Common Stock issuable upon exercise of options
exercisable within 60 days.
(10) Includes 2,927 shares of Common Stock that may be purchased pursuant to the
Stock Purchase and Rights Agreement.
ITEM 1. ELECTION OF DIRECTORS
The business and affairs of the Company are managed by its Board of
Directors, which exercises all corporate powers of the Company and establishes
broad corporate policies. The Bylaws of the Company provide that the number of
directors may be fixed from time to time by the Board of Directors. The Board
of Directors has determined that the number of directors constituting the Board
shall be fixed at eight. Accordingly, at the Annual Meeting eight directors
will be elected.
Directors are elected by plurality vote, and cumulative voting is not
permitted. All duly submitted and unrevoked proxies will be voted for the
nominees for director selected by the Board of Directors, except where
authorization so to vote is withheld. The Board recommends that stockholders
vote FOR the election of such nominees. If any nominee should become
unavailable for election for any presently unforeseen reason, the persons
designated as proxies will have full discretion to vote for another person
designated by the Board. Proxies cannot be voted for a greater number of
persons than the number of nominees for the office of director named herein.
Directors are elected to serve until the next Annual Meeting of stockholders and
until their successors have been elected and qualified.
The nominees of the Board for directors of the Company are named below.
Each of the nominees has consented to serve as a director if elected. The table
below sets forth certain information with respect to the nominees. Except for
Mr. Alter and Mr. Cresci, all the nominees are presently directors of the
Company and have served continuously as directors since the date of their first
election to the Board.
The Board of Directors' nominees for the office of director are as follows:
TIMOTHY P. PETERS, age 39, has served as a director of the Company since
its inception in 1988, as President from inception through May 1996, and was
elected Chief Executive Officer in December 1992 and Chairman of the Board in
August 1994. In 1986, Mr. Peters founded Information Express, Co., an operator-
assisted Yellow Pages company that served the Denver area, where he acted as a
Vice President from 1986 to 1988. From 1979 to 1986 Mr. Peters served as
Regional Manager for Penn Central Telecommunications Company.
JOHN J. REED, age 39, has served as a director of the Company since its
inception in 1988, as Executive Vice President of Strategic Development of the
Company from December 1992 until May 1996 and was elected President in May 1996.
From 1990 to December 1992, Mr. Reed served in various positions with the
Company, including Executive Vice President of Sales and Marketing. Mr. Reed
was Chairman of the Board of Interactive Channel Technologies Inc., an Ontario,
Canada corporation and wholly-owned subsidiary of the Company ("ICT"), from
November 1991 to October 1993. From 1986 to 1989, Mr. Reed was President of
Reed & Associates, a Dallas-based real estate brokerage and professional service
firm, of which he was the sole shareholder. Mr. Reed has conducted business
through this firm from time to time since 1989.
WILLIAM S. BEDFORD, age 40, has served as a director of the Company since
its inception in 1988 and as Chief Operating Officer since December 1992. From
1988 to 1992, Mr. Bedford served in various positions with
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the Company, including Executive Vice President, Vice President of Sales and
Secretary. From October 1993 until January 1997, Mr. Bedford served as Chairman
of the Board of ICT.
DAVID L. KUYKENDALL, age 43, has served as a director of the Company since
1993. He has served as Senior Vice President and Chief Financial Officer of
Freedom Communications, Inc. ("Freedom") since 1993 and served as its Vice
President and Chief Financial Officer from 1990 to 1993 and as its Controller
from 1989 to 1990. From 1986 to 1988, Mr. Kuykendall was a Senior Manager with
Deloitte & Touche LLP.
MICHAEL J. MAROCCO, age 38, has served as a director of the Company since
May 1996. Mr. Marocco is a Managing Director of Sandler Capital Management
("Sandler") and has been associated with Sandler since April 1989. Prior to
that, Mr. Marocco was a vice president at Morgan Stanley & Co., Incorporated
where he was involved in raising capital and merger and acquisition
transactions. Mr. Marocco serves as a director of YES! Entertainment Corp. and
Paxson Communications Corp.
JAMES L. GREENWALD, age 70, has served as a director of the Company since
May 1996. Mr. Greenwald has served as chairman emeritus of Katz Media
Corporation ("Katz"), a communications representative firm, since August 1995.
Mr. Greenwald joined Katz in 1956 and has held various positions, including
President of the radio division from 1965 through 1970, Executive Vice President
from 1970 through 1975, President from 1975 through 1982 and Chairman of the
Board of Directors and Chief Executive Officer from 1975 through 1994. Mr.
Greenwald is a director of Granite Broadcasting Company and the Young Adult
Institute, an honorary trustee of the Foundation of American Women in Radio and
Television and past president of the International Radio and Television
Foundation and the Station Representatives Association.
ROBERT H. ALTER, age 68, is a nominee for director of the Company. Mr.
Alter has served as the President of Alter Associates, Inc., a domestic and
international television consulting firm, since its founding 1992. Mr. Alter is
currently vice-chairman and director of Cabletelevision Advertising Bureau, with
which he held the position of founding president and chief executive officer
from 1981 to 1991. From November 1991 through December 1992, he was a senior
advisor to the Board of Star TV in Hong Kong. From 1958 through 1981, he was
employed with the Radio Advertising Bureau, where his last position was that of
Executive Vice President. Mr. Alter is a director of International Post, Ltd.,
AdCom, Inc., The Taft Institute of Government, The International Council of the
National Academy of Television Arts and Science and The Young Adult Institute
and Mentor.
ROBERT J. CRESCI, age 53, is a Managing Director of Pecks, an investment
management firm he co-founded in September 1990 that specializes in the
management of convertible securities, both public and private, for pension
funds. Prior to such time, Mr. Cresci was a manager of the convertible
securities group at Alliance Capital Management, L.P. for a period of
approximately five years; and, prior to joining Alliance, Mr. Cresci was a
Senior Vice President in the investment banking division of Lehman Brothers. Mr.
Cresci is a director of Bridgeport Machines, Inc., EMI, Inc., Film Roman, Garnet
Resources Corporation, GeoWaste Incorporated, Hitox Corporation, Meris
Laboratories, Arcadia Financial Ltd., Sepracor Inc., Vestro Natural Foods, Inc.,
Serv-Tech, Inc. and EIS International, Inc.
ADDITIONAL INFORMATION REGARDING THE BOARD OF DIRECTORS
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held eight meetings during 1996. Each
director attended 75% or more of the Board meetings and the meetings of the
Committees on which they serve. The Audit Committee of the Company recommends
independent auditors to the Board and reviews the scope and results of audits
conducted and the Company's internal control procedures. The Audit Committee
held two meetings during 1996. The Nominating Committee of the Company, created
in 1996, recommends nominees for Board of Directors positions to the Board. The
Nominating Committee did not meet during 1996. See "Item 1. Executive
Compensation - Report of Compensation Committee on Executive Compensation" for a
discussion regarding the membership, scope of authority and report of the
Company's Compensation Committee.
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DIRECTOR COMPENSATION
Directors of the Company who are not full-time employees are paid a
retainer of $2,500 per fiscal quarter and $1,000 for each meeting of the Board
of Directors and of any Committee thereof that they attend (so long as the
Committee meeting is not on the same day as a Board of Directors meeting), or
$500 for each telephonic meeting in which they participate and are reimbursed
for travel and related expenses incurred in connection with attendance at Board
and Committee meetings. See "Executive Compensation - Compensation Committee
Interlocks and Insider Participation." Pursuant to the 1995 Nonqualified Stock
Option Plan for Non-Employee Directors, during 1996, each non-employee director
of the Company was granted an option to purchase 3,000 shares of Common Stock,
with an exercise price of $10.43, the fair market value of a share of Common
Stock on the date of grant.
In certain instances, directors of the Company who are not full-time
employees may be engaged by the Board of Directors to participate in projects
for the benefit of the Company. In such instances, the Board of Directors has
authorized payment to those directors at a rate of $125 per hour, up to a
maximum of $1,000 per day, in addition to reimbursement of expenses incurred in
the performance of services.
EXECUTIVE COMPENSATION
The Compensation Committee Report appearing below and the information
presented herein under the caption "Executive Compensation -- Performance Graph"
shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission (the "SEC") or subject to the SEC's proxy
rules, except for the required disclosure herein, or to the liabilities of
Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act"), and such
information shall not be deemed to be incorporated by reference into any filing
made by the Company under the Exchange Act or under the Securities Act of 1933.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors (the
"Compensation Committee") for fiscal year 1996 were John F. Baring and Alan M.
Flaherty. Prior to the Merger (as defined below), Mr. Baring was also an
executive officer of HB Communications Acquisition Corp. ("HBAC"). However, he
resigned from his position as officer effective the date of the Merger.
Effective April 28, 1997, Mr. Baring resigned from the Company's Board of
Directors. Mr. Baring is a principal of Hackman, Baring & Co., Incorporated,
which has provided financial and investor relations consulting services to the
Company.
On July 13, 1995, the Company entered into an agreement with Hackman,
Baring & Co., Incorporated, a stockholder of the Company owned equally by
Rhodric C. Hackman and Mr. Baring, whereby Hackman, Baring & Co., Incorporated
was engaged to act as advisor to the Company in connection with investor
relations. In connection with this agreement, the Company agreed to pay to
Hackman, Baring & Co., Incorporated a monthly retainer of $2,500. This
obligation to pay a monthly retainer of $2,500, will remain in effect until
terminated by either party.
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REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
To the Stockholders of
Source Media, Inc.:
The Compensation Committee establishes the level of compensation of the
executive officers of the Company, administers the Annual Management Incentive
Plan and administers the Company's stock option plans. The Compensation
Committee held 11 meetings during 1996 and took action by unanimous consent on
seven occasions during the year.
GENERAL
The goal of the Company's executive compensation policy is to ensure that
an appropriate relationship exists between executive pay and the creation of
stockholder value, while at the same time motivating and retaining key
employees. To achieve this goal, the Company's executive compensation policies
integrate competitive levels of annual base compensation with bonuses based upon
corporate performance and individual goals and initiatives. This annual cash
compensation, together with the payment of equity-based incentive compensation,
is designed to attract and retain qualified executives and to ensure that such
executives have a continuing stake in the long-term success of the Company. All
executive officers and managers participate in the Company's incentive
compensation plans.
In establishing executive compensation, the Compensation Committee neither
bases its decisions entirely on quantitative relative weights of various
factors, nor does it follow a mathematical formula. Rather, the Compensation
Committee exercises discretion and makes judgments after considering all factors
that it considers relevant, including industry compensation information,
individual performance, level of responsibility, and the achievement of certain
objective targets relating to the Company's operating and financial performance.
In making its decisions about 1997 compensation, the Compensation Committee also
considered a comparative study prepared for the Company by Coopers & Lybrand LLP
in 1996. Coopers & Lybrand provided data extrapolated from its survey of
executive compensation at approximately 27 telecommunications and 11 cable
companies. Companies chosen for comparison purposes in the compensation survey
did not include all the companies in the peer group indices in the performance
graphs included in this Proxy Statement. The Compensation Committee believes
that the pool of executive talent for the Company comes from a broader group of
companies than those comprising the peer groups established for comparing
stockholder returns. The Coopers & Lybrand data indicated that total
compensation of all the executive officers, including the chief executive
officer, was below the range for executives holding similar positions at other
companies in the study.
CASH COMPENSATION
BASE SALARY. The base salaries of executive officers of the Company are
reviewed periodically by the Compensation Committee. Salaries are based
generally on consideration of factors such as the Company's performance and
financial condition, competitive conditions, general economic conditions and
cost of living increases. The Compensation Committee's evaluation of these
factors is subjective, with no particular weight being assigned to any one
factor. Base salaries for each of the executive officers, including the chief
executive officer, were not adjusted during 1994 or 1995. In March 1996, the
Compensation Committee adjusted base salaries for each of the executive officers
on an individual basis. Effective April 1, 1996, Mr. Peters' base salary was
increased to $225,000 per year, and the salaries of the Company's other
executive officers were increased by an average of 60%. These compensation
adjustments were made to align the cash compensation of the Company's executive
officers more closely with executive officers in other companies in the Coopers
& Lybrand study. No adjustment in base salary has been made for any of the
executive officers in 1997.
BONUSES. The Compensation Committee believes that linking a substantial
portion of executive officer cash compensation to Company operating and
financial performance provides a meaningful incentive to such officers to
enhance Company performance. Accordingly, an integral part of executive officer
cash compensation is the use of cash bonuses under the Company's Annual
Management Incentive Plan. The majority of the bonus payments depends on
achievement of corporate and individual goals, which are established both
annually and quarterly to reflect those elements of Company performance that the
Compensation Committee deems of special significance in a particular period, and
the competitive environment in which the Company operates. The remaining
portion of
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the bonus may be paid at the discretion of the Compensation Committee. Effective
April 1, 1996, the maximum bonus that Mr. Peters is eligible to receive was set
at 50% of his base salary, and the maximum bonus that the Company's other
executive officers are eligible to receive was set at 45% or less of their
respective base salaries.
STOCK OPTIONS
The executive officers are also granted stock options under the Company's
stock option plans. The timing of such grants is determined by the Compensation
Committee based upon market conditions affecting the price of the Company's
Common Stock and other factors. The size of the overall option pool to be
awarded in any year is determined by the Compensation Committee based on such
factors as Company performance and the dilutive impact of such grants. Grants
to individual executive officers are based on the Compensation Committee's
evaluation of their performance and their contribution to the long-term
performance of the Company. The Compensation Committee's evaluation of these
factors is subjective with no particular weight being assigned to any one
factor. During 1996, stock options for 75,000 shares of Common Stock were
granted to Mr. Peters, and stock options for an aggregate of 305,000 shares of
Common Stock were granted to other executive officers. The Compensation
Committee anticipates that it will grant stock options to its executive officers
at some point during 1997 but did not do so at its most recent meeting.
COMPENSATION COMMITTEE
John F. Baring (Chairman)
Alan M. Flaherty
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COMPARISON OF STOCK PRICE PERFORMANCE
On June 23, 1995, IT merged (the "Merger") into a wholly-owned subsidiary
of HBAC. HBAC was formed as a Delaware corporation in January 1993 for the
purpose of acquiring a company in the communications industry. In connection
with the Merger, HBAC changed its name to Source Media, Inc. Because HBAC was
engaged in an activity substantially different than the activities of Source
Media Inc., two stock price performance comparisons follow. In addition, in
December 1995, in connection with its public offering of Common Stock, the
Common Stock was included in the Nasdaq Stock Market's National Market.
POST-MERGER PERFORMANCE GRAPH
The following graph and table compare cumulative total return of the
Company's Common Stock (listed in the graph and table under the symbol "SRCM")
with the cumulative total return of (i) the Total Return Index for The Nasdaq
Stock Market ("Nasdaq Index") and (ii) the Total Return Index for The Nasdaq
Telecommunication Stocks ("Telecom Index"). The graph and table assume $100 was
invested on June 23, 1995 (the date of the Merger) in each of the Company's
Common Stock, the Nasdaq Index and the Telecom Index, and the reinvestment of
dividends. The stockholder return shown is not necessarily indicative of future
stock performance.
[GRAPH]
<TABLE>
<CAPTION>
6/23/95 6/30/95 9/30/95 12/31/95 3/31/96 6/30/96 9/30/96 12/31/96
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SRCM $10.50 $10.50 $11.25 $9.13 $8.63 $9.38 $10.69 $6.88
- - ---------------------------------------------------------------------------------------------
Telecom Index 475.41 495.60 558.49 567.17 596.55 615.28 578.78 579.78
- - ---------------------------------------------------------------------------------------------
Nasdaq Index 306.55 304.83 341.55 345.72 361.86 391.40 405.34 425.26
- - ---------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
PRE-MERGER PERFORMANCE GRAPH
The following graph and table compare cumulative total return of HBAC's
common stock (listed in the graph and table under the symbol "HBAC") with the
cumulative total return of (i) the Standard & Poor's Midcap 400 Index ("S&P
Index") and (ii) an industry peer group index consisting of four publicly held
Special Purpose Acquisition Corporation's (SPAC-sm-) ("SPAC Index"). The graph
and table assume $100 was invested on June 30, 1993 (the day HBAC's common stock
was first traded on the OTC Bulletin Board) in each of HBAC common stock, the
S&P Index and the SPAC Index, and the reinvestment of dividends, through
June 23, 1995, the date of the Merger.
[GRAPH]
<TABLE>
<CAPTION>
6/30/93 9/30/93 12/31/93 3/31/94 6/30/94 9/30/94 12/31/94 3/31/95 6/23/95
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HBAC $9.50 $9.50 $9.50 $9.25 $9.13 $9.75 $9.50 $10.50 $10.50
- - ------------------------------------------------------------------------------------------------------
SPAC Index 5.00 4.81 4.84 5.09 4.78 5.09 4.91 4.92 4.90
- - ------------------------------------------------------------------------------------------------------
S&P Index 168.01 175.60 179.37 171.72 164.61 174.85 169.44 182.37 199.50
- - ------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE>
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth the annual compensation
paid or accrued, together with the number of shares covered by options granted,
to the Company's Chief Executive Officer and the four other highest paid
executive officers in 1996 (the "named executive officers") for the years
indicated:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
---------------------------------------
COMMON STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- - --------------------------- ---- ------ ----- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Timothy P. Peters 1996 $200,580 $27,323 75,000 ---
Chairman of the Board and 1995 125,000 56,121 7,554 ---
Chief Executive Officer 1994 125,000 63,410 --- ---
John J. Reed 1996 $189,330 $21,210 70,000 ---
President 1995 125,000 39,854 7,097 ---
1994 125,000 62,097 --- ---
William S. Bedford 1996 $189,330 $23,607 70,000 ---
Chief Operating Officer 1995 125,000 43,604 7,097 ---
1994 125,000 60,063 --- ---
Michael G. Pate 1996 $181,610 $28,292 150,000 ---
Chief Financial Officer 1995 125,000 50,007 1,331 ---
and Treasurer 1994 125,000 23,832 --- ---
Maryann Walsh 1996 $ 93,750 $24,750 15,000 ---
General Counsel 1995 71,875 21,682 --- ---
and Secretary 1994 --- --- --- ---
</TABLE>
- - -------------------
(1) Amounts earned in a year but deferred at the election of the Company to a
subsequent year have been included in the year in which the amounts were
paid. Amounts earned under the Company's Annual Management Incentive Plan
in each year presented are included for the relevant year. All bonus
amounts paid in 1994 represent salary deferred in earlier periods.
No individual named above received perquisites or non-cash
compensation during any of the years indicated exceeding the lesser of $50,000
or an amount equal to 10 percent of such person's annual salary and bonus.
-11-
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth, with respect to all options granted during
the Company's 1996 fiscal year to each of the Company's named executive
officers: (i) the number of shares of Common Stock covered by such options,
(ii) the percent that such options represent of total options granted to all
Company employees during the 1996 fiscal year, (iii) the exercise price,
(iv) expiration date, and (v) the potential realized value at the assumed annual
rates of stock price appreciation of 5% and 10% compounded over the term of the
option. To date, the Company has granted no stock appreciation rights ("SARs").
<TABLE>
<CAPTION>
POTENTIAL
PERCENT OF REALIZED VALUE AT
TOTAL ASSUMED ANNUAL
NUMBER OPTIONS RATES OF STOCK
OF SHARES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERMS (2)
OPTIONS IN 1996 PRICE EXPIRATION ----------------------
NAME GRANTED (1) FISCAL YEAR PER SHARE DATE 5% 10%
- - ----------------- ----------- ----------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Timothy P. Peters 75,000 9.7% $8.28 07/31/06 $219,000 $716,250
John J. Reed 70,000 9.0% $8.28 07/31/06 $204,400 $668,500
W. Scott Bedford 70,000 9.0% $8.28 07/31/06 $204,400 $668,500
Michael G. Pate 150,000 19.3% $9.63 06/20/06 $235,500 $1,230,000
Maryann Walsh 15,000 1.9% $8.28 07/31/06 $43,800 $143,250
</TABLE>
- - -------------------
(1) All options were granted at or above fair market value on the date of
grant.
(2) The assumed 5% and 10% rates of stock price appreciation are specified by
the proxy rules and do not reflect expected appreciation. The amount shown
represents the assumed value of the stock options (less exercise price) at
the end of the ten year period beginning on the date of grant and ending on
the option expiration date. For a ten-year period beginning December 31,
1996, based on the closing price on The Nasdaq Stock Market's National
Market of the Common Stock of $6.875 on such date, a share of the Common
Stock would have a value on December 31, 2006 of approximately $11.20 at an
assumed appreciation rate of 5% and approximately $17.83 at an assumed
appreciation rate of 10%.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table sets forth for each of the named executive officers of
the Company: (i) the number of shares of Common Stock acquired upon exercise of
options during fiscal year 1996; (ii) the net aggregate dollar value realized
upon exercise; (iii) the total number of unexercised options held at the end of
fiscal year 1996; and (iv) the aggregate dollar value of in-the-money
unexercised options held at the end of fiscal year 1996. To date, the Company
has issued no SARs.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1996 DECEMBER 31, 1996
ACQUIRED VALUE ------------------------------ ------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---- ----------- -------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Timothy P. Peters --- --- 3,834 80,736 --- ---
John J. Reed --- --- 3,377 75,736 --- ---
W. Scott Bedford --- --- 3,377 75,736 --- ---
Michael G. Pate --- --- 2,943 150,403 --- ---
Maryann Walsh --- --- 0 15,000 --- ---
</TABLE>
-12-
<PAGE>
CERTAIN TRANSACTIONS
In June 1993, John Reed, then Executive Vice President of the Company,
exercised an option he had received in 1989 to purchase an aggregate of 70,546
shares of Common Stock at an aggregate price of $50,000, or approximately $0.71
per share. Mr. Reed paid for the shares by delivering to the Company a
nonrecourse promissory note in the original principal amount of $50,000, bearing
interest at a rate of 10 percent per annum with all principal and interest
payable in May 1995. This note was cancelled and replaced by a similar note
dated December 1, 1993 in the principal amount of $52,083, and the shares of
Common Stock were reissued as of such date. As of May 1995, the repayment date
was extended to May 31, 1997.
In May 1995, Michael Pate, Chief Financial Officer and Treasurer of the
Company, exercised an option he had received in 1992 to purchase an aggregate of
60,468 shares of Common Stock at an exercise price of $225,000, or approximately
$3.72 per share. Mr. Pate paid for the shares by delivering to the Company a
nonrecourse promissory note in the original principal amount of $225,000 bearing
interest at a rate of 10 percent per annum with all principal and interest
payable by May 31, 1997. In February 1996, Mr. Pate tendered 25,151 shares of
Common Stock to the Company in full payment of the promissory note and related
accrued interest.
ITEM 2. PROPOSAL TO APPROVE THE AMENDMENT TO THE
1995 NONQUALIFIED STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
At the Annual Meeting, holders of Common Stock will be asked to consider
and approve the adoption of an amendment to increase from 90,000 to 140,000 the
number of shares of Common Stock reserved for issuance under the Company's 1995
Nonqualified Stock Option Plan for Non-Employee Directors (the "Directors'
Plan"). This amendment was adopted, subject to stockholder approval, by the
Board of Directors on April 28, 1997.
REASONS FOR THE AMENDMENT TO THE DIRECTORS' PLAN
As of April 16, 1997, there were outstanding stock options under the
Directors' Plan covering 30,000 shares of Common Stock and 60,000 shares
remained available for future awards under the Directors' Plan. On the next
business day after the Annual Meeting, it is expected that each of five non-
employee directors of the Company shall be granted nonstatutory options to
purchase 3,000 shares of Common Stock. Subsequent to this expected grant, only
45,000 shares will remain available for future awards. The purpose of the
proposal is to allow the Company to continue to attract, retain and stimulate
the performance of qualified non-employee directors by giving them an
opportunity to acquire a proprietary interest in the Company and an increased
personal interest in its continued success and progress.
DESCRIPTION OF DIRECTORS' PLAN AS CURRENTLY IN EFFECT
Pursuant to the Directors' Plan, on the next business day after each Annual
Meeting of the stockholders, each non-employee director of the Company who is a
director on such date shall be granted nonstatutory options to purchase 3,000
shares of Common Stock at the fair market value of the Common Stock on that
date. Fair market value is defined in the Directors' Plan generally to mean the
average closing sales price of the Common Stock five business days immediately
preceding the date in question on The Nasdaq Stock Market's National Market. The
options are immediately exercisable.
If an optionee dies during his tenure as a director or within two years
after his tenure has ended, his estate will have two years from the date of
death to exercise the option, provided that the option is exercisable at the
date of death and that the date of exercise is otherwise within the option
period. If the tenure of the optionee terminates for any other reason, he will
have two years from the date of termination to exercise the option, provided
that such option is exercisable at the time of his termination and that the date
of exercise is otherwise within the option period. Notwithstanding the
foregoing, if the optionee ceases to serve as a director on account of his fraud
or intentional misrepresentation or embezzlement, misappropriation or conversion
of assets or opportunities of the Company or any direct or indirect majority-
owned subsidiary of the Company, then the option will automatically terminate.
-13-
<PAGE>
AMENDMENT OF THE DIRECTORS' PLAN
The Board may from time to time amend, modify, suspend or terminate the
Directors' Plan. Nevertheless, no such amendment, modification, suspension or
termination may (i) impair any options previously granted under the Directors'
Plan or (ii) be made without the approval of the stockholders of the Company
where such change would (A) materially increase the total number of shares of
Common Stock which may be issued under the Directors' Plan or decrease the
exercise price at which options may be granted under the Directors' Plan (other
than in accordance with the antidilution provisions of the Directors' Plan); (B)
materially modify the requirements as to eligibility for participation in the
Directors' Plan; (C) materially increase the benefits accruing to participants
under the Directors' Plan or (D) extend the term of the Directors' Plan or the
option period.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the United States Federal income tax
consequences to the Company and optionees under the Directors' Plan. The
following summary is based upon an analysis of the Internal Revenue Code as
currently in effect (the "Code"), existing laws, judicial decisions,
administrative rulings, regulations and proposed regulations, all of which are
subject to change. Moreover, the following is only a summary of United States
Federal income tax consequences, and the tax consequences to an optionee may be
either more or less favorable than those described below depending on his or her
particular circumstances.
All options granted under the Directors' Plan are nonstatutory stock
options not entitled to special tax treatment under Section 422 of the Code. The
Directors' Plan is not qualified under Section 401(a) of the Code and not
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended.
No income will be recognized by an optionee for Federal income tax purposes
upon the grant of an option. Except as described below in the case of an
"insider" subject to Section 16(b) of the Exchange Act who exercises his option
less than six months from the date of grant, upon exercise of an option, the
optionee will recognize ordinary income in an amount equal to the excess of the
fair market value of the shares on the date of exercise over the option price of
such shares. In the absence of an election pursuant to Section 83(b) of the
Code, an "insider" subject to Section 16(b) of the Exchange Act who exercises an
option less than six months from the date the option was granted will recognize
income on the date six months after the date of grant in an amount equal to the
excess of the fair market value of the shares on such date over the option price
of such shares. An optionee subject to Section 16(b) of the Exchange Act can
avoid such deferral by making an election, pursuant to Section 83(b) of the
Code, no later than 30 days after the date of exercise. Executive officers,
directors and 10 percent stockholders of the Company generally will be
considered to be "insiders" for purposes of Section 16(b) of the Exchange Act.
Options granted under the Directors' Plan are designed to provide the
Company with a deduction equal to the amount of ordinary income recognized by
the optionee at the time of such recognition by the optionee.
The basis of shares transferred to an optionee pursuant to exercise of an
option is the price paid for such shares plus an amount equal to any income
recognized by the optionee as a result of the exercise of the option. If an
optionee thereafter sells shares acquired upon exercise of an option, any amount
realized over the basis of the shares will constitute capital gain to the
optionee for Federal income tax purposes.
RECOMMENDATION AND REQUIRED AFFIRMATIVE VOTE
The affirmative vote of the holders of at least a majority of the Common
Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote on this proposal is required to approve the amendment to the
Directors' Plan. The Board of Directors recommends that the Company's
stockholders vote FOR the proposal to approve the amendment to the Directors'
Plan.
-14-
<PAGE>
ITEM 3. PROPOSAL TO APPROVE THE
AMENDMENTS TO THE 1995 PERFORMANCE EQUITY PLAN
At the Annual Meeting, holders of Common Stock will also be asked to
consider and approve the adoption of amendments to increase from 900,000 to
1,400,000 the number of shares of Common Stock reserved for issuance under the
Company's 1995 Performance Equity Plan (the "Equity Plan") and to expand the
class of employees eligible to receive awards under the Equity Plan from the
employees of Source Media, Inc. only to the employees of Source Media, Inc. and
any of its present or future subsidiaries owned 50% or more by Source Media,
Inc. or, with respect to a lower-tier subsidiary, by a subsidiary of Source
Media, Inc. These amendments were adopted, subject to stockholder approval, by
the Board of Directors on April 28, 1997. The following is a summary of the
terms of the Equity Plan, as amended, which is qualified in its entirety by
reference to the complete text of the Equity Plan attached to this Proxy
Statement as Exhibit A.
REASONS FOR THE AMENDMENTS TO THE EQUITY PLAN
As of April 16, 1997, there were outstanding stock options under the Equity
Plan covering 892,926 shares of Common Stock and only 6,924 shares remained
available for future awards under the Equity Plan. In addition, the Equity Plan
now allows awards to be granted to employees of only Source Media, Inc. The
purpose of the proposal is to allow Source Media, Inc. and its present and
future subsidiaries to attract, retain and motivate employees, officers and
consultants. The Company anticipates that it will desire to issue additional
options or other rights to acquire shares of Common Stock to attract and retain
personnel to facilitate the continued development and expansion of the Company's
INTERACTIVE CHANNEL and the growth and expansion of the Company's IT Network
telephone business.
DESCRIPTION OF EQUITY PLAN AS CURRENTLY IN EFFECT
On March 11, 1995, the Board of Directors of the Company adopted the Equity
Plan. The Equity Plan provides for the grant of options to purchase up to
900,000 shares of Common Stock, as amended, to employees, officers and
consultants of Source Media, Inc. Pursuant to the Equity Plan, awards of (i)
stock options, (ii) stock appreciation rights, (iii) restricted stock, (iv)
deferred stock, (v) stock reload options and/or (vi) other stock-based awards
(collectively, "Awards") may be made. The Committee administering the Equity
Plan may determine the specific type of Awards to be granted (E.G., stock option
and restricted stock), the number of shares subject to each Award, share prices,
any restrictions or limitations on such Awards and any vesting, exchange,
deferral, surrender, cancellation, acceleration, termination, exercise or
forfeiture provisions related to such Awards.
Any equity security granted pursuant to the Equity Plan must be held for
six months from the date of grant or in the case of an option, at least six
months must elapse from the date of acquisition of the option to the date of
disposition of the option (other than upon exercise or conversion) or its
underlying equity security. In the event of a "change of control," as defined
in the Equity Plan, any option not then otherwise exercisable will immediately
become exercisable in full. Options generally expire 10 years after the date of
grant. As of April 16, 1997, there were options outstanding under the Equity
Plan to purchase 892,926 shares of Common Stock at a weighted average exercise
price of $9.43.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the United States Federal income tax
consequences to the Company and individuals receiving Awards under the Equity
Plan. The following summary is based upon an analysis of the Code, existing
laws, judicial decisions, administrative rulings, regulations and proposed
regulations, all of which are subject to change. Moreover, the following is
only a summary of United States Federal income tax consequences, and the tax
consequences to individuals participating in the Equity Plan may be either more
or less favorable than those described below depending on their particular
circumstances.
INCENTIVE STOCK OPTIONS. No income will be recognized by an optionee for
Federal income tax purposes upon the grant or exercise of an incentive stock
option. The basis of shares transferred to an optionee pursuant to the exercise
of an incentive stock option is the price paid for the shares. If the optionee
holds the shares for at least one year after transfer of the shares to the
optionee and two years after the grant of the option, the optionee will
-15-
<PAGE>
recognize capital gain or loss upon sale of the shares received upon the
exercise equal to the difference between the amount realized on the sale and the
exercise price. Generally, if the shares are not held for that period, the
optionee will recognize ordinary income upon disposition in an amount equal to
the excess of the fair market value of the shares on the date of exercise over
the option price of such shares, or if less (and if the disposition is a
transaction in which loss, if any, will be recognized), the gain on disposition.
Any additional gain realized by the optionee upon such disposition will be a
capital gain.
The excess of the fair market value of shares received upon the exercise of
an incentive stock option over the option price for the shares is an item of
adjustment for the optionee for purposes of the alternative minimum tax.
The Company is not entitled to a deduction upon the exercise of an
incentive stock option by an optionee. If the optionee disposes of the shares
received pursuant to such exercise prior to the expiration of one year following
transfer of the shares to the optionee or two years after grant of the option,
however, the Company may, subject to the deduction limitation described below,
deduct an amount equal to the ordinary income recognized by the optionee upon
disposition of the shares at the time such income is recognized by the optionee.
If an optionee uses already owned shares of Common Stock to pay the
exercise price for shares under an incentive stock option, the resulting tax
consequences will depend upon whether the already owned shares of Common Stock
are "statutory option stock", and, if so, whether such statutory option stock
has been held by the optionee for the applicable holding period referred to in
Section 424(c)(3)(A) of the Code. In general, "statutory option stock" (as
defined in Section 424(c)(3)(B) of the Code) is any stock acquired through the
exercise of an incentive stock option or of an option granted pursuant to an
employee stock purchase plan. If the stock is statutory option stock with
respect to which the applicable holding period has been satisfied, no income
will be recognized by the optionee upon the transfer of such stock in payment of
the exercise price of an incentive stock option. If the stock is not statutory
option stock, no income will be recognized by the optionee upon the transfer of
the stock unless the stock is not substantially vested within the meaning of the
regulations under Section 83 of the Code (in which event it appears that the
optionee will recognize ordinary income upon the transfer equal to the amount by
which the fair market value of the transferred shares exceeds their basis). If
the stock used to pay the exercise price of an incentive stock option is
statutory option stock with respect to which the applicable holding period has
not been satisfied, the transfer of such stock will be a disqualifying
disposition described in Section 421(b) of the Code which will result in the
recognition of ordinary income by the optionee in an amount equal to the excess
of the fair market value of the statutory option stock at the time the incentive
stock option covering such stock was exercised over the option price of such
stock. Under the present provisions of the Code, it is not clear whether all
shares received upon the exercise of an incentive stock option with already
owned shares will be statutory option stock or how the optionee's basis will be
allocated among such shares.
NONQUALIFIED STOCK OPTIONS. No income will be recognized by an optionee
for Federal income tax purposes upon the grant of a nonqualified stock option.
Upon exercise of a nonqualified stock option (if the optionee acquires shares of
Common Stock upon exercise), the optionee will recognize ordinary income in an
amount equal to the excess of the fair market value of the shares on the date of
exercise over the option price of such shares. If such an optionee acquires
deferred stock upon exercise of a nonqualified stock option, the optionee will
recognize ordinary income on the date shares of Common Stock related to such
deferred stock are received (or, if earlier, the date such shares are made
available to the optionee) in an amount equal to the excess of the fair market
value of the shares on such date over the option price of the shares.
Nonqualified stock options are designed to provide the Company with a
deduction, subject to the deduction limitation described below, equal to the
amount of ordinary income recognized by the optionee at the time of such
recognition by the optionee.
The basis of shares transferred to an optionee pursuant to exercise of a
nonqualified stock option is the price paid for such shares plus an amount equal
to any income recognized by the optionee as a result of the exercise of the
option. If an optionee thereafter sells shares acquired upon exercise of a
nonqualified stock option, any amount realized over the basis of the shares will
constitute capital gain to the optionee for Federal income tax purposes.
-16-
<PAGE>
If an optionee uses already owned shares of Common Stock to pay the
exercise price for shares under a nonqualified stock option, the number of
shares received pursuant to the option which is equal to the number of shares
delivered in payment of the exercise price will be considered received in a
nontaxable exchange, and the fair market value of the remaining shares received
by the optionee upon such exercise will be taxable to the optionee as ordinary
income. If such already owned shares of Common Stock are not "statutory option
stock" (which is defined in Section 424(c)(3)(B) of the Code to include any
stock acquired through the exercise of an incentive stock option or an option
granted pursuant to an employee stock purchase plan) or are statutory option
stock with respect to which the applicable holding period referred to in Section
424(c)(3)(A) of the Code has been satisfied, the shares received pursuant to the
exercise of the option will not be statutory option stock and the optionee's
basis in the number of shares delivered in payment of the exercise price will be
equal to the basis of the shares delivered in payment. The basis of the
remaining shares received upon such exercise will be equal to the fair market
value of such shares. However, if such already owned shares of Common Stock are
statutory option stock with respect to which the applicable holding period has
not been satisfied, it is not presently clear whether such exercise will be
considered a disqualifying disposition of the statutory option stock, whether
the shares received upon such exercise will be statutory option stock or how the
optionee's basis will be allocated among the shares received.
STOCK APPRECIATION RIGHTS. A recipient of stock appreciation rights
("SARs") will not recognize income for Federal income tax purposes upon the
grant of SARs. When SARs are exercised, the recipient will recognize ordinary
income on the date of exercise in an amount equal to the cash (if any) and the
fair market value of the shares transferred to him or her, without limitation,
pursuant to SARs. The Company will be allowed a deduction, subject to the
deduction limitation described below, equal to the amount of ordinary income
recognized by the recipient due to the exercise of SARs at the time of such
recognition by the recipient.
The basis of any shares of Common Stock transferred to a recipient pursuant
to the exercise of an SAR is equal to the amount the recipient is required to
include in income as discussed above. If a recipient sells shares acquired upon
exercise of SARs, any amount realized in excess of the basis of such shares will
constitute capital gain to such recipient for Federal income tax purposes.
RESTRICTED STOCK. If the restrictions placed upon an award of restricted
stock under the Equity Plan are of a nature that such shares are both subject to
a substantial risk of forfeiture and are not freely transferable within the
meaning of Section 83 of the Code, the recipient of such award will not
recognize income for Federal income tax purposes at the time of the award unless
such recipient affirmatively elects to include the fair market value of the
shares of restricted stock on the date of the award in gross income for the year
of the award pursuant to Section 83(b) of the Code. In the absence of such an
election, the recipient will be required to include in income for Federal income
tax purposes, in the year in which the shares either become freely transferable
or are no longer subject to a substantial risk of forfeiture within the meaning
of Section 83 of the Code, the fair market value of the shares of restricted
stock on such date plus the amount of any retained distributions related to such
shares, less any amount paid therefor. The Company will be entitled to a
deduction at such time, subject to the deduction limitation described below, in
an amount equal to the amount the recipient is required to include in income
with respect to the shares.
If the restrictions imposed upon an award of restricted stock under the
Equity Plan are not of a nature that such shares are both subject to a
substantial risk of forfeiture and not freely transferable, within the meaning
of Section 83 of the Code, the recipient of such an award will recognize
ordinary income for Federal income tax purposes at the time of the award (except
as described below in the case of an "insider" subject to Section 16(b) of the
Exchange Act) in an amount equal to the fair market value of the shares of
restricted stock on the date of the award, less any amount paid therefor. The
Company will be entitled to a deduction at such time, subject to the deduction
limitation described below, in an amount equal to the amount the recipient is
required to include in income with respect to the shares.
DEFERRED STOCK. Generally, an individual who receives an award of deferred
stock under the Equity Plan will not recognize any income for Federal income tax
purposes at the time such award, and the Company will not be entitled to any
deduction at that time.
Upon the expiration of the deferral period (or, if applicable, the
additional deferral period) in accordance with the Equity Plan, the recipient
will recognize ordinary income on the date of receipt of shares of Common Stock
-17-
<PAGE>
(or, if earlier, the date such shares are made available to the recipient) in an
amount equal to the fair market value of such shares on such date. The Company
will be entitled to a deduction, subject to the deduction limitation described
below, equal to the amount of ordinary income recognized by the recipient at the
time of such recognition.
The basis of shares of Common Stock transferred to a recipient of deferred
stock in accordance with the Equity Plan will be an amount equal to the ordinary
income recognized by the recipient, as described above. If the recipient
thereafter sells such shares of Common Stock, any amount realized over the basis
of the shares will constitute long-term or short-term capital gain to the
recipient for Federal income tax purposes, depending on the holding period for
such shares.
TAX WITHHOLDING. Income recognized by an employee of the Company with
respect to an Award under the Equity Plan will be considered compensation
subject to withholding at the time the income is recognized, and, therefore, the
Company must make the necessary arrangements with the employee to ensure that
the amount of the tax required to be withheld is available for payment.
LIMITATIONS ON THE COMPANY'S COMPENSATION DEDUCTION. Section 162(m) of the
Code, which became effective in 1994, limits the deduction which the Company may
take for otherwise deductible compensation payable to certain executive officers
of the Company to the extent that compensation paid to such officers for such
year exceeds $1 million, unless such compensation is performance-based, is
approved by the Company's stockholders and meets certain other criteria. There
is no assurance that Awards made to employees under the Equity Plan will satisfy
the performance-based compensation requirements and, accordingly, the Company
may be limited by Section 162(m) of the Code in the amount of deductions it
would otherwise be entitled to take (as described in the foregoing summary).
RECOMMENDATION AND REQUIRED AFFIRMATIVE VOTE
The affirmative vote of the holders of at least a majority of the Common
Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote on this proposal is required to approve the amendment to the
Equity Plan. The Board of Directors recommends that the Company's stockholders
vote FOR the proposal to approve the amendments to the Equity Plan.
ITEM 4. PROPOSAL TO APPROVE THE EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION
At the Annual Meeting, holders of Common Stock will be asked to consider
and approve the adoption of the Source Media, Inc. Employee Stock Purchase Plan
(the "Stock Purchase Plan"). Subject to stockholder approval, the Stock
Purchase Plan was adopted on July 31, 1996, by the Board of Directors. Eligible
employees are given the opportunity to purchase shares of Common Stock under the
Stock Purchase Plan at a price below fair market value by means of voluntary
payroll deductions. A total of 100,000 shares of Common Stock has been
authorized for issuance under the Stock Purchase Plan. The following is a
summary of the terms of the Stock Purchase Plan, which is qualified in its
entirety by reference to the complete text of the Stock Purchase Plan attached
to this Proxy Statement as Exhibit B.
PURPOSE OF THE STOCK PURCHASE PLAN
The Stock Purchase Plan provides a method for eligible employees of the
Company to acquire a proprietary interest in the Company through the regular and
systematic purchase of shares of Common Stock. The Company believes that the
Stock Purchase Plan encourages stock ownership and increases participating
employees' personal interest in, and commitment to, the Company.
MAXIMUM SHARES AVAILABLE
The Stock Purchase Plan authorizes the issuance of up to 100,000 shares of
Common Stock. The Stock Purchase Plan contains antidilution provisions
providing for adjustment of the number of shares available for
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issuance under the Stock Purchase Plan in the event of stock splits, dividends
payable in Common Stock, a combination of these or certain other events.
PARTICIPATING SUBSIDIARIES
Employees of Source Media, Inc. and of any subsidiary corporation of Source
Media, Inc. that is owned 50% or more by Source Media, Inc. or, with respect to
a lower-tier subsidiary, by a subsidiary of Source Media, Inc., and that has
been designated by the Committee as a participating affiliate in the Stock
Purchase Plan are eligible to participate in the Stock Purchase Plan. On August
28, 1996, the Committee designated IT as a participating affiliate in the Stock
Purchase Plan. In the future, the Committee may designate other subsidiaries of
Source Media, Inc. as participating affiliates in the Stock Purchase Plan,
including corporations that become subsidiaries after the adoption and approval
of the Stock Purchase Plan. Any such designation will not require stockholder
approval.
ADMINISTRATION
The Stock Purchase Plan will be administered by the Committee, the members
of which are appointed by the Board of Directors of the Company and serve at its
pleasure. The Stock Purchase Plan provides that the Committee shall consist of
three or more employees of the Company or a participating affiliate. Members of
the Committee who meet all the eligibility requirements of the Stock Purchase
Plan are eligible to participate in the Stock Purchase Plan.
METHOD OF PARTICIPATION
A participating employee's right to purchase shares of Common Stock under
the Stock Purchase Plan is referred to as an "option." Under the Stock Purchase
Plan, options are granted on January 1 and July 1 of each year to the eligible
employees then participating in the Stock Purchase Plan, and such options are
exercisable the following June 30 and December 31, respectively. For the
initial enrollment period only, an eligible employee could choose to participate
in the Stock Purchase Plan on September 1, 1996, in which case options were
granted to such an employee on September 1, 1996, for exercise on June 30, 1997.
Thereafter, options will be granted on a semi-annual basis (including January 1,
1997, for eligible employees not electing to participate on September 1, 1996)
as provided above.
Each eligible employee who elects to participate in the Stock Purchase Plan
on or before September 1, 1996, or any subsequent January 1 or July 1 (an
"Enrollment Date") becomes a participant on such Enrollment Date and remains a
participant until his or her participation is terminated. Each eligible
employee may elect to contribute to the Stock Purchase Plan during the initial
nine-month period, and any semi-annual period, through regular payroll
deductions, not more than 10% nor less than 1% of such employee's annual
compensation.
On the last business day of the initial nine-month period and each semi-
annual period, each employee who is a participant in the Stock Purchase Plan on
that day will be deemed automatically to have exercised the option granted to
him or her on the preceding January 1 or July 1 (or September 1, 1996, in the
case of the initial nine-month period), and the Company will apply all the funds
accumulated in the employee's withholding account to the purchase from the
Company of the largest possible number of whole shares of Common Stock.
The purchase price of a share of Common Stock purchased upon the exercise
of an option under the Stock Purchase Plan will be the lower of 85% of the Fair
Market Value per share on the Enrollment Date on which the option was granted
(September 1, 1996, or any subsequent January 1 or July 1) or 85% of the Fair
Market Value per share on the date on which the option is deemed to be
exercised, which will be the last business day of the initial nine-month period
(June 30, 1997), and any semi-annual period (June 30 or December 31). "Fair
Market Value" is defined in the Stock Purchase Plan as the closing sale price on
the date in question of the Common Stock as reported on the Nasdaq National
Market or such other national stock exchange or stock market on which the Common
Stock may from time to time be traded. If there is no reported sale on either
of such dates, the Fair Market Value on such date will be the closing sale price
on the last preceding day on which a reported sale occurred.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the United States Federal income tax
consequences to the Company and optionees under the Stock Purchase Plan. The
summary applies only to United States citizens and foreign persons who are
United States residents.
The Stock Purchase Plan is designed to qualify as an "employee stock
purchase plan" under Section 423 of the Code. Amounts deducted from the income
of a participating employee under the Stock Purchase Plan will be included in
such employee's income for the year in which such amounts would otherwise have
been paid to the employee, and will be deductible by the Company. The employee
will not recognize additional taxable income either (i) at the time options are
granted pursuant to the Stock Purchase Plan, which is either September 1, 1996,
or any subsequent January 1 or July 1, or (ii) at the time options are exercised
under the Stock Purchase Plan, which is the last business day of the initial
nine-month period (June 30, 1997) or any semi-annual period during which the
option is outstanding (June 30 or December 31), and no further deduction is
allowed to the Company at either time. The employee's basis in shares purchased
under the Stock Purchase Plan will equal the amount paid for such shares. If
the fair market value of shares purchased under the Stock Purchase Plan is less
on the date of disposition or death than the amount paid for the shares, no
amount will be included in the employee's gross income as ordinary income, and
the full amount of any loss (assuming the shares are sold in an arm's-length
transaction) will be a long-term capital loss.
An employee who purchases shares pursuant to an option under the Stock
Purchase Plan and disposes of such shares more than two years after the option
is granted and more than one year after the option is exercised, or who dies at
any time while holding the shares, generally will recognize ordinary income at
the time of disposition or death in an amount equal to the lesser of (i) the
excess, if any, of the fair market value of the shares at the time of the
disposition or death over the amount paid for the shares, or (ii) 15% of the
fair market value of the shares at the time the option was granted. The Company
will not be entitled to a deduction in respect of any amount of ordinary income
so recognized by the employee. The employee's basis in the shares disposed of
will be increased by the amount of ordinary income recognized. Any further gain
recognized on the disposition will be taxed as long-term capital gain.
An employee who purchases shares pursuant to an option under the Stock
Purchase Plan and disposes of such shares less than two years after the option
is granted or less than one year after the option is exercised generally will
recognize ordinary income at the time of disposition in an amount equal to the
excess of the fair market value of the shares on the date of exercise of the
option over the amount paid for such shares or, if less, the gain on
disposition. The Company will be entitled to a deduction equal to the amount of
ordinary income recognized by the employee. Any additional gain recognized by
the employee on the disposition will be short-term or long-term capital gain,
depending on the employee's holding period for the shares transferred. If the
employee's basis in the shares purchased under the Stock Purchase Plan is
greater than the amount received for the shares, the excess of the basis over
the amount received will be short-term or long-term capital loss (assuming the
shares are sold in an arm's-length transaction), depending on the employee's
holding period for the shares.
Ordinary income recognized by an employee upon the disposition of shares
purchased under the Stock Purchase Plan will be considered compensation subject
to withholding at the time such income is recognized.
The Stock Purchase Plan is not subject to the provisions of the Employee
Retirement Income Security Act of 1974 and is not qualified under Section 401(a)
of the Code.
RECOMMENDATION AND REQUIRED AFFIRMATIVE VOTE
The affirmative vote of at least a majority of the Common Stock present in
person or represented by proxy at the Annual Meeting and entitled to vote on
this proposal is required to approve the adoption of the Stock Purchase Plan.
The Board of Directors recommends that the Company's stockholders vote FOR the
proposal to approve the Stock Purchase Plan.
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ITEM 5. APPOINTMENT OF AUDITORS
Based on the recommendation of the Audit Committee of the Board of
Directors of the Company, Ernst & Young LLP, which has served as the Company's
independent public accountants since the Company's inception in 1989, has been
appointed by the Board of Directors to audit the financial statements of the
Company for the year ending December 31, 1997, subject to the ratification of
such appointment by the stockholders of the Company. Although it is not
required to do so, the Board of Directors is submitting the selection of
auditors for ratification in order to obtain the stockholders' approval of this
appointment. If the selection is not ratified, the Board of Directors will
reconsider the appointment. Representatives of Ernst & Young LLP are expected
to be present at the Annual Meeting to respond to appropriate questions from the
stockholders and will be given the opportunity to make a statement should they
desire to do so.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires directors and officers of the
Company, and persons who own more than ten percent of the Common Stock, to file
with the SEC initial reports of ownership and reports of changes in ownership of
the Common Stock. Directors, officers and more than ten percent stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the year ended December 31, 1996, all Section
16(a) filing requirements applicable to its directors, officers and more than
ten percent beneficial owners were in compliance.
STOCKHOLDER PROPOSALS
It is contemplated that the 1998 annual meeting of stockholders of the
Company will take place during the third week of May 1998. Stockholder
proposals for inclusion in the Company's proxy materials for the 1998 annual
meeting of stockholders must be received by the Company at its offices in
Dallas, Texas, addressed to the Secretary of the Company, not less than 120 days
in advance of the date (month and day only) the Proxy Statement is first
distributed to stockholders; provided that if the 1998 annual meeting of
stockholders is changed by more than 30 days from the presently contemplated
date, proposals must be so received a reasonable time in advance of the meeting.
The Board of Directors does not intend to present any other matters at the
Annual Meeting and knows of no other matters that will be presented; however, if
any other matter properly comes before the Annual Meeting, the persons named in
the enclosed proxy intend to vote thereon according to their best judgment.
OTHER MATTERS
The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company. The expense of preparing, printing and mailing the
form of proxy and the material used in the solicitation thereof will be borne by
the Company. In addition to the use of the mails, proxies may be solicited by
personal interview, telephone and telegram by directors, officers and employees
of the Company. Arrangements have been made with brokerage houses, banks and
other custodians, nominees and fiduciaries for the forwarding of soliciting
materials to the beneficial owners of Common Stock held of record by such
persons, and the Company will reimburse them for reasonable out-of-pocket
expenses incurred by them in connection therewith.
All information contained in this Proxy Statement relating to the
occupations, affiliations and securities holdings of directors and officers of
the Company and their relationship and transactions with the Company is based
upon information received from the individual directors and officers. All
information relating to any beneficial owner of more than 5% of the Company
Common Stock is based upon information contained in reports filed by such owner
with the Securities and Exchange Commission.
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The Company has provided without charge to each person whose proxy is
solicited hereby a copy of its 1996 Annual Report, which includes the Company's
Annual Report on Form 10-K, including the financial statements and schedules
thereto, for the fiscal year ended December 31, 1996 filed with the Securities
and Exchange Commission. Additional copies of the Annual Report and a copy of
the exhibits to such report will be furnished without charge to any stockholder
upon written request to Michael G. Pate, Chief Financial Officer and Treasurer,
8140 Walnut Hill Lane, Suite 1000, Dallas, TX 75231.
BY ORDER OF THE BOARD OF DIRECTORS
Maryann Walsh, Secretary
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE ANNUAL MEETING. YOU
ARE URGED TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED
ENVELOPE EVEN IF YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING.
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EXHIBIT A
SOURCE MEDIA, INC.
1995 PERFORMANCE EQUITY PLAN
AS AMENDED AND RESTATED
SECTION 1. PURPOSE; DEFINITIONS.
1.1 PURPOSE. The purpose of the Source Media, Inc. ("Company") 1995
Performance Equity Plan, as amended and restated ("Plan"), is to enable the
Company to offer to the key employees, officers, directors and consultants of
the Company and its Subsidiaries whose past, present and/or potential
contributions to the Company and its Subsidiaries have been, are or will be
important to the success of the Company and its Subsidiaries, an opportunity to
acquire a proprietary interest in the Company. The various types of long-term
incentive awards which may be provided under the Plan will enable the Company to
respond to changes in compensation practices, tax laws, accounting regulations
and the size and diversity of its businesses.
1.2 DEFINITIONS. For purposes of the Plan, the following terms shall
be defined as set forth below:
"Agreement" means the agreement between the Company and the
Holder setting forth the terms and conditions of an award under the Plan.
"Award" means an award of Stock under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto and the regulations promulgated
thereunder.
"Committee" means the Compensation Committee of the Board or
any other committee of the Board, which the Board may designate to administer
the Plan or any portion thereof. If no Committee is so designated, then all
references in this Plan to "Committee" shall mean the Board.
"Common Stock" means the Common Stock of the Company, par
value $.001 per share.
"Company" means Source Media Inc., a Delaware corporation
"Deferred Stock" means Stock to be received, under an award
made pursuant to Section 9 below, at the end of a specified deferral period.
"Disability" means incapacity by illness or other disability
from performing usual employment obligations for a period in excess of 240 days
(whether or not consecutive) or 120 days consecutively, as the case may be,
during any twelve month period.
"Effective Date" means the date set forth in Section 12.
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"Fair Market Value", unless otherwise required by any
applicable provision of the Code or any regulations issued thereunder, means, as
of any given date: (i) if the Common Stock is listed on a national securities
exchange or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, the
last sale price of the Common Stock in the principal trading market for the
Common Stock on the date of grant of an award hereunder, as reported by the
exchange or Nasdaq, as the case may be; (ii) if the Common Stock is not listed
on a national securities exchange or quoted on the Nasdaq National Market or
Nasdaq SmallCap Market, but is traded in the over-the-counter market, the
closing bid price for the Common Stock on the date of grant of an award
hereunder for which such quotations are reported by the National Quotation
Bureau, Incorporated or similar publisher of such quotations; and (iii) if the
fair market value of the Common Stock cannot be determined pursuant to clause
(i) or (ii) above, such price as the Committee shall determine, in good faith.
"Holder" means a person who has received an award under the Plan.
"Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Other Stock-Based Award" means an award under Section 10 below
that is valued in whole or in part by reference to, or is otherwise based upon,
Stock.
"Parent" means any present or future parent corporation of the
Company, as such term is defined in Section 424(e) of the Code.
"Plan" means the Source Media, Inc. 1995 Performance Equity Plan,
as amended and restated and as hereinafter amended from time to time.
"Restricted Stock" means Stock, received under an award made
pursuant to Section 8 below, that is subject to restrictions under said
Section 8.
"Rule 16b-3" means Rule 16b-3 of the General Rules and Regulations
under the Exchange Act, as in effect from time to time.
"SAR Value" means the excess of the Fair Market Value of one share
of Common Stock over the exercise price per share specified in a related Stock
Option in the case of a Stock Appreciation Right granted in tandem with a Stock
Option and the Stock Appreciation Right price per share in the case of a Stock
Appreciation Right awarded on a free standing basis, in each case multiplied by
the number of shares in respect of which the Stock Appreciation Right shall be
exercised, on the date of exercise.
"Stock" means the Common Stock of the Company, par value $.001 per
share.
"Stock Appreciation Right" means the right, pursuant to an award
granted under Section 7 hereof, to recover an amount equal to the SAR Value.
"Stock Option" or "Option" means any option to purchase shares of
Stock which is granted pursuant to the Plan.
"Stock Reload Option" means any option granted under Section 6.3 as
a result of the payment of the exercise price of a Stock Option and/or the
withholding tax related thereto in the form of Stock owned by the Holder or the
withholding of Stock by the Company.
"Subsidiary" means any present or future subsidiary corporation of
the Company, as such term is defined in Section 424(f) of the Code.
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"Tandem Stock Appreciation Right" means a Stock Appreciation Right
granted in tandem with all or part of any Stock Option granted under the Plan.
SECTION 2. ADMINISTRATION.
2.1 COMMITTEE MEMBERSHIP. The Plan shall be administered by a
Committee. Committee members shall serve for such term as the Board may in each
case determine, and shall be subject to removal at any time by the Board. It is
the intent of the Board that the Plan qualify under Rule 16b-3 promulgated under
the Securities Exchange Act of 1934 ("Exchange Act"). To that end, unless
otherwise determined by the Board, each Committee member shall be a
"disinterested person" (i.e., a director who has not, during the one year prior
to service as an administrator of the Plan, or during such service, received a
grant or award of equity securities of the Company pursuant to the Plan or any
other plan of the Company or any of its affiliates). The membership of the
Committee shall at all times be comprised of persons so as not to adversely
affect the compliance of the Plan with the requirements of Rule 16b-3 under the
Exchange Act or with the requirements of any other applicable law, rule or
regulation.
2.2 POWERS OF COMMITTEE. The Committee shall have full authority,
subject to Section 4 hereof, to award, pursuant to the terms of the Plan: (i)
Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv)
Deferred Stock, (v) Stock Reload Options and/or (vi) Other Stock-Based Awards.
For purposes of illustration and not of limitation, the Committee shall have the
authority (subject to the express provisions of this Plan):
(a) to select the key employees, officers, directors and
consultants of the Company or any Subsidiary to whom Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Reload Stock Options
and/or Other Stock-Based Awards may from time to time be awarded hereunder;
(b) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, number of shares, share price, any restrictions or limitations, and
any vesting, exchange, surrender, cancellation, acceleration, termination,
exercise or forfeiture provisions, as the Committee shall determine);
(c) to determine any specified performance goals or such other
factors or criteria which need to be attained for the vesting of an award
granted hereunder;
(d) to determine the terms and conditions under which awards
granted hereunder are to operate on a tandem basis and/or in conjunction with or
apart from other equity awarded under this Plan and cash awards made by the
Company or any Subsidiary outside of this Plan;
(e) to permit a Holder to elect to defer a payment under the Plan
under such rules and procedures as the Committee may establish, including the
crediting of interest on deferred amounts denominated in cash and of dividend
equivalents on deferred amounts denominated in Stock;
(f) to determine the extent and circumstances under which Stock
and other amounts payable with respect to an award hereunder shall be deferred
which may be either automatic or at the election of the Holder; and
(g) to substitute (i) new Stock Options for previously granted
Stock Options, which previously granted Stock Options have higher option
exercise prices and/or contain other less favorable terms, and (ii) new awards
of any other type for previously granted awards of the same type, which
previously granted awards are upon less favorable terms.
2.3 INTERPRETATION OF PLAN.
(a) COMMITTEE AUTHORITY. Subject to Sections 4.2 (b) and 11
hereof, the Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any award issued under the Plan (and to determine the form and
substance of all Agreements relating thereto), and to otherwise
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supervise the administration of the Plan. Subject to Section 11 hereof, all
decisions made by the Committee pursuant to the provisions of the Plan shall be
made in the Committee's sole discretion and shall be final and binding upon all
persons, including the Company, its Subsidiaries and Holders. Determinations by
the Committee under the Plan relating to the form, amount and terms and
conditions of awards need not be uniform, and may be made selectively among
persons who receive or are eligible to receive awards under the Plan, whether or
not such persons are similarly situated.
(b) INCENTIVE STOCK OPTIONS. Anything in the Plan to the contrary
notwithstanding, no term or provision of the Plan relating to Incentive Stock
Options (including but limited to Stock Reload Options or Tandem Stock
Appreciation Rights granted in conjunction with an Incentive Stock Option) or
any Agreement providing for Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the Plan
be so exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the Holder(s) affected, to disqualify any Incentive Stock
Option under such Section 422.
SECTION 3. STOCK SUBJECT TO PLAN
3.1 NUMBER OF SHARES. The total number of shares of Common Stock
reserved and available for distribution under the Plan shall be one million four
hundred thousand (1,400,000) shares. Shares of Stock under the Plan may consist,
in whole or in part, of authorized and unissued shares or treasury shares. If
any shares of Stock that have been granted pursuant to a Stock Option cease to
be subject to a Stock Option, or if any shares of Stock that are subject to any
Stock Appreciation Right, Restricted Stock, Deferred Stock award, Reload Stock
Option or Other Stock-Based Award granted hereunder are forfeited or any such
award otherwise terminates without a payment being made to the Holder in the
form of Stock, such shares shall again be available for distribution in
connection with future grants and awards under the Plan. Only net shares issued
upon a stock-for-stock exercise (including stock used for withholding taxes)
shall be counted against the number of shares available under the Plan.
3.2 ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. In the event of
any merger, reorganization, consolidation, recapitalization, dividend (other
than a cash dividend), stock split, reverse stock split, or other change in
corporate structure affecting the Stock, such substitution or adjustment shall
be made in the aggregate number of shares reserved for issuance under the Plan,
in the number and exercise price of shares subject to outstanding Options, in
the number of shares and Stock Appreciation Right price relating to Stock
Appreciation Rights, and in the number of shares subject to, and in the related
terms of, other outstanding awards (including but not limited to awards of
Restricted Stock, Deferred Stock, Reload Stock Options and Other Stock-Based
Awards) granted under the Plan as may be determined to be appropriate by the
Committee in order to prevent dilution or enlargement of rights, provided that
the number of shares subject to any award shall always be a whole number.
SECTION 4. ELIGIBILITY.
4.1 GENERAL. Awards may be made or granted to key employees, officers,
directors and consultants of the Company or any of its Subsidiaries who are
deemed to have rendered or to be able to render significant services to the
Company or its Subsidiaries and who are deemed to have contributed or to have
the potential to contribute to the success of the Company or any of its
Subsidiaries. No Incentive Stock Option shall be granted to any person who is
not an employee of the Company or a Subsidiary at the time of grant.
4.2 AWARDS AND GRANTS.
(a) The granting of Stock Options and Awards under the Plan shall
be determined by a Committee of two or more directors of the Company, of which
all members shall be disinterested persons, as described in Section 2.1 hereof.
No grants or awards will be made to any person whose eligibility under the Plan
would adversely affect the compliance of the Plan with the requirements of Rule
16b-3.
(b) This Section 4.2 shall not be amended more than once every six
months, other than to comport with any changes in the Code or the Employment
Retirement Income Security Act, or the rules and regulations promulgated
thereunder.
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SECTION 5. GENERAL TERMS AND CONDITIONS.
5.1 GENERAL. With respect to the award or grant of any (i) Stock
Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv) Deferred
Stock, (v) Stock Reload Options and/or (vi) Other Stock-Based Awards, the
following terms and conditions shall apply:
(a) SIX-MONTH HOLDING PERIOD. Any equity security granted
pursuant to the Plan must be held for six months from the date of grant or, in
the case of an option, at least six months elapse from the date of acquisition
of the option to the date of disposition of the option (other than upon exercise
or conversion) or its underlying equity security; and
(b) TRANSFERABILITY:
(i) INCENTIVE STOCK OPTIONS: Any Stock Option issued pursuant
to and intended to be an Incentive Stock Option under the Plan shall not be
transferable by the Holder other than by will or the laws of descent and
distribution.
(ii) NON-QUALIFIED STOCK OPTIONS: Any Stock Option issued
pursuant to the Plan which is not intended to qualify as an Incentive Stock
Option, shall not be transferable by the Holder other than by will or the laws
of descent and distribution; provided, however, should Rule 16b-3 so permit,
such Stock Option may also be transferred, for no consideration, by the Holder
to the following transferees ("Transferee"):
(A) a member of the Holder's immediate family. For
purposes of this section, "immediate family" shall include only
brothers and sisters (whether by the whole or half blood) spouse,
parents, and natural or adopted siblings,
(B) a trust for the benefit of members of the Holder's
immediate family, or
(C) a partnership whose only partners are members of the
Holder's immediate family,
if the Transferee shall agree to be subject to the same restrictions and
conditions as relate to the Holder pursuant to the Plan.
(c) CHANGE IN CONTROL. In the event of a Change in Control (as
defined below), all options to the extent not then currently exercisable shall
become immediately exercisable in full.
As used in this Plan, a "Change in Control" shall be deemed to
occur (i) when the Company acquires actual knowledge that any person, as such
term is used in the Exchange Act, including Section 14(d)(2) thereof, (other
than (a) any employee benefit plan established or maintained by the Company or
any of its Subsidiaries, and (b) any person who is deemed to be the beneficial
owner of any securities of the Company to which any person in clause (a) above
is and remains a beneficial owner, including, without limitation, any person
that is a member of a group (as defined in said Section 14(d)(2) of the Exchange
Act) in which any person defined in clause (a) above is also a member) is or
becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or more of
the combined voting power of the Company's then outstanding securities, (ii)
upon the first purchase of the Company's Common Stock pursuant to a tender or
exchange offer (other than a tender or exchange offer made by the Company or an
employee benefit plan established or maintained by the Company or any of its
subsidiaries), (iii) upon the approval by the Company's stockholders of (A) a
merger or consolidation of the Company with or into another corporation (other
than a merger or consolidation in which the Company is the surviving corporation
and which does not result in any capital reorganization or reclassification or
other change in the Company's then outstanding shares of Common Stock), (B) a
sale or disposition of all or substantially all of the Company's assets or (C) a
plan of liquidation or dissolution of the Company, or (iv) if during any period
of two (2) consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company cease for any reason to
constitute at least two-thirds thereof, unless the election or nomination for
the election by the Company's stockholders of each new director was
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approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period.
SECTION 6. STOCK OPTIONS.
6.1. GRANT AND EXERCISE. Stock Options granted under the Plan may be of
two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options.
Any Stock Option granted under the Plan shall contain such terms, not
inconsistent with this Plan, or with respect to Incentive Stock Options, the
Code, as the Committee may from time to time approve. The Committee shall have
the authority to grant Incentive Stock Options, Non-Qualified Stock Options, or
both types of Stock Options and may be granted alone or in addition to other
awards granted under the Plan. To the extent that any Stock Option intended to
qualify as an Incentive Stock Option does not so qualify, it shall constitute a
separate Non-Qualified Stock Option. An Incentive Stock Option may only be
granted within the ten year period commencing from the Effective Date and may
only be exercised within ten years of the date of grant (or five years in the
case of an Incentive Stock Option granted to an optionee ("10% Stockholder")
who, at the time of grant, owns Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or a Parent or
Subsidiary.
6.2. TERMS AND CONDITIONS. Stock Options granted under the Plan shall
be subject to the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant and may be less than 100% of the Fair Market Value of the Stock as
defined above; provided, however, that the exercise price of an Incentive Stock
Option shall not be less than 100% of the Fair Market Value of the Stock (110%,
in the case of a 10% Stockholder).
(b) OPTION TERM. Subject to the limitations in Section 6.1, the
term of each Stock Option shall be fixed by the Committee.
(c) EXERCISABILITY. Subject to Section 5.1 (a) hereinabove, Stock
Options shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides,
in its discretion, that any Stock Option is exercisable only in installments,
i.e., that it vests over time, the Committee may waive such installment exercise
provisions at any time at or after the time of grant in whole or in part, based
upon such factors as the Committee shall determine.
(d) METHOD OF EXERCISE. Subject to whatever installment, exercise
and waiting period provisions are applicable in a particular case, Stock Options
may be exercised in whole or in part at any time during the term of the Option,
by giving written notice of exercise to the Company specifying the number of
shares of Stock to be purchased. Such notice shall be accompanied by payment in
full of the purchase price, which shall be in cash or, unless otherwise provided
in the Agreement, in shares of Stock (including Restricted Stock and other
contingent awards under this Plan) or, partly in cash and partly in such Stock,
or such other means which the Committee determines are consistent with the
Plan's purpose and applicable law. Cash payments shall be made by wire
transfer, certified or bank check or personal check, in each case payable to the
order of the Company; provided, however, that the Company shall not be required
to deliver certificates for shares of Stock with respect to which an Option is
exercised until the Company has confirmed the receipt of good and available
funds in payment of the purchase price thereof. Payments in the form of Stock
shall be valued at the Fair Market Value of a share of Stock on the date prior
to the date of exercise. Such payments shall be made by delivery of stock
certificates in negotiable form which are effective to transfer good and valid
title thereto to the Company, free of any liens or encumbrances. Subject to the
terms of the Agreement, the Committee may, in its sole discretion, at the
request of the Holder, deliver upon the exercise of a Non-Qualified Stock Option
a combination of shares of Deferred Stock and Common Stock; provided that,
notwithstanding the provisions of Section 9 of the Plan, such Deferred Stock
shall be fully vested and not subject to forfeiture. A Holder shall have none
of the rights of a stockholder with respect to the shares subject to the Option
until such shares shall be transferred to the Holder upon the exercise of the
Option.
(e) TERMINATION BY REASON OF DEATH. If a Holder's employment by
the Company or a Subsidiary terminates by reason of death, any Stock Option held
by such Holder, unless otherwise determined by
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the Committee at the time of grant and set forth in the Agreement, shall be
fully vested and may thereafter be exercised by the legal representative of the
estate or by the legatee of the Holder under the will of the Holder, for a
period of one year (or such other greater or lesser period as the Committee may
specify at grant) from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is the shorter.
(f) TERMINATION BY REASON OF DISABILITY. If a Holder's employment
by the Company or any Subsidiary terminates by reason of Disability, any Stock
Option held by such Holder, unless otherwise determined by the Committee at the
time of grant and set forth in the Agreement, shall be fully vested and may
thereafter be exercised by the Holder for a period of one year (or such other
greater or lesser period as the Committee may specify at the time of grant) from
the date of such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter.
(g) OTHER TERMINATION. Subject to the provisions of Section 13.3
below and unless otherwise determined by the Committee at the time of grant and
set forth in the Agreement, if a Holder is an employee of the Company or a
Subsidiary at the time of grant and if such Holder's employment by the Company
or any Subsidiary terminates for any reason other than death or Disability, the
Stock Option shall thereupon automatically terminate, except that if the
Holder's employment is terminated by the Company or a Subsidiary without cause
or due to retirement from active employment with the Company or any Subsidiary
on or after age 65, then the portion of such Stock Option which has vested on
the date of termination of employment may be exercised for the lesser of three
months after termination of employment or the balance of such Stock Option's
term.
(h) ADDITIONAL INCENTIVE STOCK OPTION LIMITATION. In the case of
an Incentive Stock Option, the amount of aggregate Fair Market Value of Stock
(determined at the time of grant of the Option) with respect to which Incentive
Stock Options are exercisable for the first time by a Holder during any calendar
year (under all such plans of the Company and its Parent and Subsidiaries) shall
not exceed $100,000.
(i) BUYOUT AND SETTLEMENT PROVISIONS. The Committee may at any
time offer to buy out a Stock Option previously granted, based upon such terms
and conditions as the Committee shall establish and communicate to the Holder at
the time that such offer is made.
(j) STOCK OPTION AGREEMENT. Each grant of a Stock Option shall be
confirmed by, and shall be subject to the terms of, the Agreement executed by
the Company and the Holder.
6.3. STOCK RELOAD OPTION. The Committee may also grant to the Holder
(concurrently with the grant of an Incentive Stock Option and at or after the
time of grant in the case of a Non-Qualified Stock Option) a Stock Reload Option
up to the amount of shares of Stock held by the Holder for at least six months
and used to pay all or part of the exercise price of an Option and, if any,
withheld by the Company as payment for withholding taxes. Such Stock Reload
Option shall have an exercise price of the Fair Market Value as of the date of
the Stock Reload Option grant. Unless the Committee determines otherwise, a
Stock Reload Option may be exercised commencing one year after it is granted and
shall expire on the date of expiration of the Option to which the Stock Reload
Option is related.
SECTION 7. STOCK APPRECIATION RIGHTS.
7.1. GRANT AND EXERCISE. Stock Appreciation Rights may be granted in
tandem with (I.E., Tandem Stock Appreciation Right) or in conjunction with all
or part of any Stock Option granted under the Plan or may be granted on a
free-standing basis. In the case of a Non-Qualified Stock Option, a Tandem Stock
Appreciation Right may be granted either at or after the time of the grant of
such Non-Qualified Stock Option. In the case of an Incentive Stock Option, a
Tandem Stock Appreciation Right may be granted only at the time of the grant of
such Incentive Stock Option.
7.2. TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject
to the following terms and conditions:
(a) EXERCISABILITY. Tandem Stock Appreciation Rights shall be
exercisable only at such time or times and to the extent that the Stock Options
to which they relate shall be exercisable in accordance with the
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provisions of Section 6 hereof and this Section 7 and may be subject to the Code
with respect to related Incentive Stock Options and such additional limitations
on exercisability as shall be determined by the Committee and set forth in the
Agreement. Other Stock Appreciation Rights shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee and set forth in the Agreement.
(b) TERMINATION. A Tandem Stock Appreciation Right shall
terminate and shall no longer be exercisable upon the termination or exercise of
the related Stock Option, except that, unless otherwise determined by the
Committee at the time of grant, a Tandem Stock Appreciation Right granted with
respect to less than the full number of shares covered by a related Stock Option
shall not be reduced until after the number of shares remaining under the
related Stock Option equals the number of shares covered by the Tandem Stock
Appreciation Right.
(c) METHOD OF EXERCISE. A Tandem Stock Appreciation Right may be
exercised by a Holder by surrendering the applicable portion of the related
Stock Option. Upon such exercise and surrender, the Holder shall be entitled to
receive such amount in the form determined pursuant to Section 7.2(d) below.
Stock Options which have been so surrendered, in whole or in part, shall no
longer be exercisable to the extent the related Tandem Stock Appreciation Rights
have been exercised.
(d) RECEIPT OF SAR VALUE. Upon the exercise of a Stock
Appreciation Right, a Holder shall be entitled to receive up to, but not more
than, an amount in cash and/or shares of Stock equal to the SAR Value with the
Committee having the right to determine the form of payment.
(e) SHARES AFFECTED UPON PLAN. Upon the exercise of a Tandem
Stock Appreciation Right, the Stock Option or part thereof to which such Tandem
Stock Appreciation Right is related shall be deemed to have been exercised for
the purpose of the limitation set forth in Section 3 hereof on the number of
shares of Common Stock to be issued under the Plan, but only to the extent of
the number of shares, if any, issued under the Tandem Stock Appreciation Right
at the time of exercise based upon the SAR Value.
SECTION 8. RESTRICTED STOCK.
8.1. GRANT. Shares of Restricted Stock may be awarded either alone or
in addition to other awards granted under the Plan. The Committee shall
determine the eligible persons to whom, and the time or times at which, grants
of Restricted Stock will be awarded, the number of shares to be awarded, the
price (if any) to be paid by the Holder, the time or times within which such
awards may be subject to forfeiture ("Restriction Period"), the vesting schedule
and rights to acceleration thereof, and all other terms and conditions of the
awards.
8.2. TERMS AND CONDITIONS. Each Restricted Stock award shall be subject
to the following terms and conditions:
(a) CERTIFICATES. Restricted Stock, when issued, will be
represented by a stock certificate or certificates registered in the name of the
Holder to whom such Restricted Stock shall have been awarded. During the
Restriction Period, certificates representing the Restricted Stock and any
securities constituting Retained Distributions (as defined below) shall bear a
legend to the effect that ownership of the Restricted Stock (and such Retained
Distributions), and the enjoyment of all rights appurtenant thereto, are subject
to the restrictions, terms and conditions provided in the Plan and the
Agreement. Such certificates shall be deposited by the Holder with the Company,
together with stock powers or other instruments of assignment, each endorsed in
blank, which will permit transfer to the Company of all or any portion of the
Restricted Stock and any securities constituting Retained Distributions that
shall be forfeited or that shall not become vested in accordance with the Plan
and the Agreement.
(b) RIGHTS OF HOLDER. Restricted Stock shall constitute issued
and outstanding shares of Common Stock for all corporate purposes. The Holder
will have the right to vote such Restricted Stock, to receive and retain all
regular cash dividends and other cash equivalent distributions as the Board may
in its sole discretion designate, pay or distribute on such Restricted Stock and
to exercise all other rights, powers and privileges of a holder of Common Stock
with respect to such Restricted Stock, with the exceptions that (i) the Holder
will not be entitled to delivery of the stock certificate or certificates
representing such Restricted Stock until the Restriction Period shall have
expired and unless all other vesting requirements with respect thereto shall
have been fulfilled; (ii) the Company will retain custody of the stock
certificate or certificates representing the Restricted Stock during
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the Restriction Period; (iii) other than regular cash dividends and other cash
equivalent distributions as the Board may in its sole discretion designate, pay
or distribute, the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Stock (and such
Retained Distributions will be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions shall
have been made, paid or declared shall have become vested and with respect to
which the Restriction Period shall have expired; (iv) a breach of any of the
restrictions, terms or conditions contained in this Plan or the Agreement or
otherwise established by the Committee with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
(c) VESTING; FORFEITURE. Upon the expiration of the Restriction
Period with respect to each award of Restricted Stock and the satisfaction of
any other applicable restrictions, terms and conditions (i) all or part of such
Restricted Stock shall become vested in accordance with the terms of the
Agreement, and (ii) any Retained Distributions with respect to such Restricted
Stock shall become vested to the extent that the Restricted Stock related
thereto shall have become vested. Any such Restricted Stock and Retained
Distributions that do not vest shall be forfeited to the Company and the Holder
shall not thereafter have any rights with respect to such Restricted Stock and
Retained Distributions that shall have been so forfeited.
SECTION 9. DEFERRED STOCK.
9.1. GRANT. Shares of Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom and the time or times at which grants of Deferred
Stock shall be awarded, the number of shares of Deferred Stock to be awarded to
any person, the duration of the period ("Deferral Period") during which, and the
conditions under which receipt of the shares will be deferred, and all the other
terms and conditions of the awards.
9.2. TERMS AND CONDITIONS. Each Deferred Stock award shall be subject
to the following terms and conditions:
(a) CERTIFICATES. At the expiration of the Deferral Period (or
the Additional Deferral Period referred to in Section 9.2(c) below, where
applicable), share certificates shall be delivered to the Holder, or his legal
representative, representing the number equal to the shares covered by the
Deferred Stock award.
(b) VESTING; FORFEITURE. Upon the expiration of the Deferral
Period (or the Additional Deferral Period, where applicable) with respect to
each award of Deferred Stock and the satisfaction of any other applicable
limitations, terms or conditions, such Deferred Stock shall become vested in
accordance with the terms of the Agreement. Any Deferred Stock that does not
vest shall be forfeited to the Company and the Holder shall not thereafter have
any rights with respect to such Deferred Stock that has been so forfeited.
(c) ADDITIONAL DEFERRAL PERIOD. A Holder may request to, and the
Committee may at any time, defer the receipt of an award (or an installment of
an award) for an additional specified period or until a specified event
("Additional Deferral Period"). Subject to any exceptions adopted by the
Committee, such request must generally be made at least one year prior to
expiration of the Deferral Period for such Deferred Stock award (or such
installment).
SECTION 10. OTHER STOCK-BASED AWARDS.
10.1. GRANT AND EXERCISE. Other Stock-Based Awards may be awarded,
subject to limitations under applicable law, that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related
to, shares of Common Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, purchase rights, shares of
Common Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares
of Common Stock and awards valued by reference to the value of securities of or
the performance of specified Subsidiaries. Other Stock-Based Awards may be
awarded either alone or in addition to or in tandem with any other awards under
this Plan or any other plan of the Company.
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10.2. ELIGIBILITY FOR OTHER STOCK-BASED AWARDS. The Committee shall
determine the eligible persons to whom and the time or times at which grants of
such Other Stock-Based Awards shall be made, the number of shares of Common
Stock to be awarded pursuant to such awards, and all other terms and conditions
of the awards.
10.3. TERMS AND CONDITIONS. Each Other Stock-Based Award shall be
subject to such terms and conditions as may be determined by the Committee.
SECTION 11. AMENDMENT AND TERMINATION.
The Board may at any time, and from time to time, amend, alter, suspend
or discontinue any of the provisions of the Plan, but no amendment, alteration,
suspension or discontinuance shall be made which would impair the rights of a
Holder under any Agreement theretofore entered into hereunder, without his
consent.
SECTION 12. TERM OF PLAN.
12.1 EFFECTIVE DATE. The Plan, as amended and restated, shall be
effective as of April 28, 1997 ("Effective Date"), subject to the approval of
the Plan by the stockholders of the Company within one year after the Effective
Date. Any awards granted under the Plan after the Effective Date and prior to
such approval shall be effective when made (unless otherwise specified by the
Committee at the time of grant), but shall be conditioned upon, and subject to,
such approval of the Plan by the Company's stockholders and no awards shall vest
or otherwise become free of restrictions prior to such approval.
12.2 TERMINATION DATE. Unless terminated by the Board, this Plan shall
continue to remain effective until such time no further awards may be granted
and all awards granted under the Plan are no longer outstanding. Notwithstanding
the foregoing, grants of Incentive Stock Options may only be made during the ten
year period following the Effective Date.
SECTION 13. GENERAL PROVISIONS.
13.1 WRITTEN AGREEMENTS. Each award granted under the Plan shall be
confirmed by, and shall be subject to, the terms of the Agreement executed by
the Company and the Holder. The Committee may terminate any award made under
the Plan if the Agreement relating thereto is not executed and returned to the
Company within 60 days after the Agreement has been delivered to the Holder for
his or her execution.
13.2 UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation and the Company shall
not be required to segregate any assets in respect of the Plan. With respect to
any payments not yet made to a Holder by the Company, nothing contained herein
shall give any such Holder any rights that are greater than those of a general
creditor of the Company.
13.3 EMPLOYEES.
(a) ENGAGING IN COMPETITION WITH THE COMPANY. In the event an
employee Holder terminates his employment with the Company or a Subsidiary for
any reason whatsoever, and within eighteen (18) months after the date thereof
accepts employment with any competitor of, or otherwise engages in competition
with, the Company or any Subsidiary, the Committee, in its sole discretion, may
require such Holder to return to the Company the economic value of any award
which was realized or obtained (measured at the date of exercise, vesting or
payment) by such Holder at any time during the period beginning on that date
which is six months prior to the date of such Holder's termination of employment
with the Company or a Subsidiary.
(b) TERMINATION FOR CAUSE. The Committee may, in the event a
Holder is terminated by the Company or a Subsidiary for cause, annul any award
granted under this Plan to such Holder and, in such event, the Committee, in its
sole discretion, may require such Holder to return to the Company the economic
value of any award which was realized or obtained (measured at the date of
exercise, vesting or payment) by such Holder at any time during the period
beginning on that date which is six months prior to the date of such Holder's
termination of employment with the Company or a Subsidiary.
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(c) NO RIGHT OF EMPLOYMENT. Nothing contained in the Plan or in
any award hereunder shall be deemed to confer upon any Holder of the Company or
any Subsidiary any right to continued employment with the Company or any
Subsidiary, nor shall it interfere in any way with the right of the Company or
any Subsidiary to terminate the employment of any of its employees or agents at
any time.
13.4 INVESTMENT REPRESENTATIONS. The Committee may require each person
acquiring shares of Stock pursuant to a Stock Option or other award under the
Plan to represent to and agree with the Company in writing that the Holder is
acquiring the shares for investment without a view to distribution thereof, or
to take any other action which may be required in order to comply with any
applicable state securities laws or regulations.
13.5 INDEMNIFICATION. No member of the Board or the Committee, nor
any officer or employee of the Company acting on behalf of the Board or the
Committee, shall be personally liable for any action, determination or
interpretation taken or made with respect to the Plan, and all members of the
Board or the Committee and all officers or employees of the Company acting on
their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action, determination or
interpretation.
13.6 ADDITIONAL INCENTIVE ARRANGEMENTS. Nothing contained in the Plan
shall prevent the Board from adopting such other or additional incentive
arrangements as it may deem desirable, including, but not limited to, the
granting of Stock Options and the awarding of stock and cash otherwise than
under the Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
13.7 WITHHOLDING TAXES. Not later than the date as of which an amount
first becomes includible in the gross income of the Holder for Federal income
tax purposes with respect to any option or other award under the Plan, the
Holder shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any Federal, state and local taxes of any
kind required by law to be withheld or paid with respect to such amount. If
permitted by the Committee, tax withholding or payment obligations may be
settled with Common Stock, including Common Stock that is part of the award that
gives rise to the withholding requirement. The obligations of the Company under
the Plan shall be conditional upon such payment or arrangements and the Company
or the Holder's employer (if not the Company) shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Holder from the Company or any Subsidiary.
13.8 GOVERNING LAW. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of Texas (without regard to choice of law provisions).
13.9 OTHER BENEFIT PLANS. Any award granted under the Plan shall not
be deemed compensation for purposes of computing benefits under any retirement
plan of the Company or any Subsidiary and shall not affect any benefits under
any other benefit plan now or subsequently in effect under which the
availability or amount of benefits is related to the level of compensation
(unless required by specific reference in any such other plan to awards under
this Plan).
13.10 COMPLIANCE WITH RULE 16b-3. With respect to persons subject to
Section 16 of the Exchange Act, transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Committee.
13.11 NON-TRANSFERABILITY. Except as otherwise expressly provided in
the Plan, no right or benefit under the Plan may be alienated, sold, assigned,
hypothecated, pledged, exchanged, transferred, encumbered or charged, and any
attempt to alienate, sell, assign, hypothecate, pledge, exchange, transfer,
encumber or charge the same shall be void.
13.12 APPLICABLE LAWS. The obligations of the Company with respect to
all Stock Options and awards under the Plan shall be subject to (i) all
applicable laws, rules and regulations and such approvals by any governmental
agencies as may be required, including, without limitation, the effectiveness of
a registration statement under the Securities Act of 1933, as amended, and (ii)
the rules and regulations of any securities exchange on which the Stock may be
listed.
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13.13 CONFLICTS. If any of the terms or provisions of the Plan conflict
with the requirements of (with respect to Incentive Stock Options) Section 422
of the Code, then such terms or provisions shall be deemed inoperative to the
extent they so conflict with the requirements of said Section 422 of the Code.
Additionally, if this Plan does not contain any provision required to be
included herein under Section 422 of the Code, such provision shall be deemed to
be incorporated herein with the same force and effect as if such provision had
been set out at length herein.
13.14 NON-REGISTERED STOCK. The shares of Stock being distributed under
this Plan have not been registered under the Securities Act of 1933, as amended
("1933 Act"), or any applicable state or foreign securities laws and the Company
has no obligation to any Holder to register the Stock or to assist the Holder in
obtaining an exemption from the various registration requirements, or to list
the Stock on a national securities exchange.
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EXHIBIT B
SOURCE MEDIA, INC.
EMPLOYEE STOCK PURCHASE PLAN
Section 1. PURPOSE. It is the purpose of the Plan to promote the
interests of the Company and its shareholders by providing a method by which
eligible employees may use voluntary payroll deductions to purchase shares of
Common Stock at a discount, thereby affording them the opportunity to invest in
the Company at a preferential price, and to acquire a proprietary interest in
the Company and an increased personal interest in its continued success and
progress. The Plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Code and shall be construed
accordingly.
Section 2. DEFINITIONS. As used herein the following terms have the
following meanings:
(a) "Affiliate" means any corporation that is a subsidiary
corporation of the Company within the meaning of Section 424(f) of the Code
and that has been designated by the Committee as an Affiliate for purposes
of the Plan.
(b) "Board of Directors" means the Board of Directors of the
Company.
(c) "Code" means the United States Internal Revenue Code of 1986,
as from time to time amended.
(d) "Committee" means the Committee described in Section 4 hereof.
(e) "Common Stock" means the $.001 par value Common Stock of the
Company.
(f) "Company" means Source Media, Inc.
(g) "Compensation" means (i) with respect to a salaried employee,
one-half of the basic annual salary of such employee as of the first day of
the Plan Period (except with respect to a salaried employee whose
participation in the Plan begins on September 1, 1996, in which case, for
the initial Plan Period only, "Compensation" means five-sixths of the basic
annual salary of such employees as of the first day of the Plan Period), not
including bonuses, overtime pay, allowances, commissions, deferred
compensation payments or any other extraordinary compensation, (ii) with
respect to an hourly compensated employee, the straight-time hourly rate of
pay of such employee as of the first day of the Plan Period, multiplied by
780 (except with respect to an hourly employee whose participation in the
Plan begins on September 1, 1996, in which case, for the initial Plan Period
only, "Compensation" means the straight-time hourly rate of pay of such
employee as of the first day of the Plan Period multiplied by 1,295) and
shall not include bonuses, overtime pay, premium pay or other irregular
payments, and (iii) with respect to a commission-only sales employee, the
total amount of commission earned by such employee commencing the first day
of the Plan Period (except with respect to a commission-only sales employee
whose participation in the plan begins September 1, 1996, the total
commission earned by the employee commencing September 1, 1996), not
including bonuses, overtime pay, allowances, deferred compensation payments
or any other extraordinary compensation. The Compensation of an employee who
does not receive salary or wages computed in United States dollars shall be
determined by converting such salary or wages into United States dollars in
accordance with the Compensation Exchange Rate.
(h) "Compensation Exchange Rate" means the New York foreign
currency exchange rate as reported in THE WALL STREET JOURNAL for the
last business day immediately preceding the first day of the applicable
Plan Period.
(i) "Eligible Employee" means any employee of the Company or an
Affiliate who is eligible to participate in the Plan pursuant to Section 5
hereof.
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(j) "Enrollment Date" means the first day of any Plan Period.
(k) "Fair Market Value" means the closing sale price on the date
in question (or, if there was no reported sale on such date, on the last
preceding day on which any reported sale occurred) of the Common Stock on
the Nasdaq National Market or any national stock exchange or other stock
market on which the Common Stock may from time to time be traded.
(l) "Option" means any option to purchase shares of Common Stock
granted by the Committee pursuant to the provisions of the Plan.
(m) "Participant" means an Eligible Employee who elects to
participate in the Plan pursuant to Section 6 hereof.
(n) "Plan" means this Source Media, Inc. Employee Stock Purchase
Plan.
(o) "Plan Period" means the period beginning on January 1 and
ending on the following June 30, and the period beginning on July 1 and
ending on the following December 31, except that the initial Plan Period
shall commence on September 1, 1996, and end on June 30, 1997, for a
Participant electing to participate in the Plan before or on
September 1, 1996, and shall commence on January 1, 1997, and end on
January 1, 1997, for a Participant electing to participate in the Plan
after September 1, 1996, and before or on January 1, 1997.
Section 3. NUMBER OF SHARES. The aggregate number of shares of Common
Stock issued pursuant to Options granted under the Plan shall not exceed a total
of 100,000 shares. The maximum number of shares of Common Stock available for
sale under the Plan is subject to adjustment as provided in Section 13. The
Common Stock to be delivered upon exercise of Options may consist of authorized
but unissued shares of Common Stock or shares of Common Stock previously issued
and reacquired by the Company.
Section 4. ADMINISTRATION OF THE PLAN. The Plan shall be administered
by the Committee, which shall consist of three or more employees of the Company
or an Affiliate. Each member of the Committee shall be appointed by and shall
serve at the pleasure of the Board of Directors. The Board of Directors shall
have the sole continuing authority to appoint members of the Committee both in
substitution for members previously appointed and to fill vacancies however
caused. The following provisions shall apply to the administration of the Plan
by the Committee:
(a) The Committee shall designate one of its members as
Chairperson and shall hold meetings at such times and places as it may
determine. Each member of the Committee shall be notified in writing of
the time and place of any meeting of the Committee at least two days
prior to such meeting, provided that such notice may be waived by a
Committee member. A majority of the members of the Committee shall
constitute a quorum and any action taken by a majority of the members of
the Committee present at any duly called meeting at which a quorum is
present (or action unanimously approved in writing) shall constitute
action by the Committee.
(b) The Committee may appoint a Secretary (who need not be a
member of the Committee) who shall keep minutes of its meetings. The
Committee may make such rules and regulations for the conduct of its
business as it may determine.
(c) The Committee shall have full authority subject to the express
provisions of the Plan to interpret the Plan, to provide, modify and
rescind rules and regulations relating to it and to make all other
determinations and perform such actions as the Committee deems necessary
or advisable to administer the Plan.
(d) No member of the Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or
any Option granted hereunder.
B-2
<PAGE>
Section 5. ELIGIBLE EMPLOYEES. Each employee of the Company or an
Affiliate who is employed by the Company or an Affiliate on the date his
participation in the Plan is to become effective shall be eligible to
participate in the Plan; provided, however, that:
(a) An employee shall not be granted an Option if such employee
would, immediately after grant of the Option, own stock possessing 5% or
more of the total combined voting power or value of all classes of stock of
the Company or any parent or subsidiary corporation of the Company (within
the meaning of Section 424(e) and (f) of the Code). For purposes of
determining stock ownership under this paragraph, the rules of Section
424(d) of the Code shall apply, and stock which the employee may purchase
under any outstanding options shall be treated as stock owned by the
employee; and
(b) No employee shall be granted an Option under the Plan which
would permit such employee's rights to purchase shares of stock under all
employee stock purchase plans of the Company and its parent and subsidiary
corporations (within the meaning of Section 424(e) and (f) of the Code) to
accrue (within the meaning of Section 423(b)(8) of the Code) at a rate which
exceeds U.S. $25,000 of fair market value of such stock (determined at the
time such option is granted) for each calendar year during which any such
option granted to such employee is outstanding at any time.
For purposes of this Section 5, the term "employee" shall not include (i) an
employee who has been employed by the Company or an Affiliate less than six
months prior to an Enrollment Date (except that for participants electing to
participate in the Plan on or before September 1, 1996, the term "employee"
shall include all full-time employees of the Company or an Affiliate as of
September 1, 1996), (ii) an employee whose customary employment is 15 hours or
less per week, or (iii) an employee whose customary employment is for not more
than five months in any calendar year.
Section 6. METHOD OF PARTICIPATION. Each person who will be an Eligible
Employee on any Enrollment Date may elect to participate in the Plan by
executing and delivering to the Company, on or before such Enrollment Date, a
payroll deduction authorization form as provided in this Section. Such Eligible
Employee shall thereby become a Participant on such Enrollment Date and shall
remain a Participant until such Eligible Employee's participation is terminated
as provided in Section 10 or 11 hereof; provided, however, that if the Company
does not receive such payroll deduction authorization form in time to implement
the authorized withholding for the payroll period that includes such Enrollment
Date, no withholding shall be made on behalf of such Participant pursuant to
this Plan until the next succeeding payroll period. It is hereby expressly
recognized that, for the Plan Period ending on June 30, 1997 only, an Eligible
Employee may elect to participate in the Plan either as of September 1, 1996, or
as of January 1, 1997.
The payroll deduction authorization form executed by a Participant shall
request withholding, by means of substantially equal payroll deductions over the
Plan Period (except that for commission-only sales employees, the deductions may
not be substantially equal), of an amount which shall be not more than 10% nor
less than 1% of such Participant's Compensation for the Plan Period. A
Participant may change the withholding rate of his or her payroll deduction
authorization within such limits by delivering a new payroll deduction
authorization form to the Company before the next Enrollment Date for which the
change is to be effective, (except for participants in the Plan enrolling on or
before September 1, 1996, the next Enrollment Date shall be January 1, 1997). A
Participant may not change the withholding rate on his or her payroll deduction
authorization with respect to a Plan Period at any time after the deadline set
forth in the immediately preceding sentence. All amounts withheld in accordance
with a Participant's payroll deduction authorization shall be credited to a
withholding account for such Participant. No interest shall be payable on
withholding accounts.
Section 7. GRANT OF OPTIONS. Each Participant shall be granted an
Option on the first day of each Plan Period to purchase shares of Common Stock.
Each Option shall be exercisable on the last business day of the Plan Period for
the number of whole shares of Common Stock to be determined by dividing (a) the
balance in the Participant's withholding account on the last business day of the
Plan Period by (b) the purchase price per share
B-3
<PAGE>
of the Common Stock as determined under Section 8. In no event shall the number
of shares with respect to which an Option is granted to a Participant in a Plan
Period exceed that number of shares which has an aggregate Fair Market Value
(determined on the date of grant) of U.S. $25,000, and the number of shares
actually purchased by a Participant in a Plan Period may not exceed this number.
The Company shall reduce, on a substantially proportionate basis, the number of
shares of Common Stock receivable by each Participant upon exercise of an Option
in any Plan Period in the event that the total number of shares then available
under the Plan is less than the total number of shares with respect to which all
Participants exercise Options in such Plan Period.
Section 8. OPTION PRICE. The purchase price per share of Common Stock
under each installment of each Option shall equal the lesser of (a) 85% of the
Fair Market Value per share of Common Stock on the date of grant of the Option
or (b) 85% of the Fair Market Value per share of Common Stock on the date on
which the Option is exercised.
Section 9. EXERCISE OF OPTIONS. An employee who is a Participant in the
Plan on the last business day of a Plan Period shall be deemed automatically to
have exercised the Option granted to him or her for that Plan Period. Upon such
exercise, the Company shall apply the entire balance of the Participant's
withholding account to the purchase of the maximum number of whole shares of
Common Stock as determined under Section 7. For purposes of this Section 9, the
balance in the withholding account of a Participant whose salary or wages are
not computed in United States dollars shall be converted into United States
dollars in accordance with the New York foreign currency exchange rate as
reported in THE WALL STREET JOURNAL for the last business day of the Plan
Period. The Company shall issue and deliver to the Participant certificates
representing shares of Common Stock purchased for a Participant under the Plan
as soon as practicable after such shares are purchased; provided, however, that
the obligation of the Company to deliver shares of Common Stock shall be
postponed for such period of time as may be necessary to register or qualify the
purchased shares under the Securities Act of 1933 and any applicable foreign or
state securities law.
A Participant shall possess none of the rights and privileges of a
stockholder of the Company with respect to Common Stock purchased under the Plan
unless and until certificates representing such shares have been issued. No
fractional shares shall be issued upon exercise of an Option. Any balance
representing a fractional share remaining in a Participant's withholding account
following exercise of an Option shall be carried over and applied toward the
purchase of additional stock in the following Plan Period. The cash proceeds
received by the Company upon exercise of an Option shall constitute general
funds of the Company. Any unexercised Option shall expire and become null and
void as of the end of the Plan Period in which such Option was granted.
Section 10. WITHDRAWAL FROM THE PLAN OR TERMINATION OF PAYROLL
DEDUCTION AUTHORIZATION. A Participant who holds an Option under the Plan
shall upon resignation from the Company, be deemed to have canceled such Option.
Upon such cancellation, the balance in the Participant's withholding account
shall be returned to such Participant and he or she shall cease to be a
Participant. Partial cancellation shall not be permitted.
A Participant may terminate his or her payroll deduction
authorization as of any date by written notice delivered to the Company. All
amounts withheld up to the date of termination of payroll deduction
authorization shall be credited to a withholding account for such Participant.
Employee may not reinstitute payroll deduction authorization until the Plan
Enrollment Period at least six months after the date of his or her termination
of payroll deduction authorization. Partial termination of a payroll deduction
authorization shall not be permitted.
A Participant who terminates payroll deduction authorization
during a Plan Period, pursuant to this Section 10 may re-enroll as of any
subsequent Enrollment Date on which he or she is an Eligible Employee in
accordance with the procedure set forth in Section 6 of this Plan; provided,
however, that a Participant shall not be permitted to re-enroll in the Plan
until an Enrollment Date that is at least six months after the date of his or
her or termination of payroll deduction.
Section 11. TERMINATION OF EMPLOYMENT. Upon the termination of a
Participant's employment with the Company or an Affiliate for any reason, such
person shall cease to be a Participant, the unexercised Option held by such
Participant under the Plan shall be deemed canceled, the balance of such
Participant's withholding account
B-4
<PAGE>
shall be returned to such Participant (or, in the event of the Participant's
death, to the executor or administrator of his or her estate) and he or she
shall have no further rights under the Plan.
All Participants shall have the same rights and privileges under
the Plan. Notwithstanding the foregoing, nothing in the Plan shall confer upon
any Participant any right to continue in the employ of the Company or an
Affiliate or in any way interfere with the right of the Company or an Affiliate
to terminate the employment of the Participant at any time, with or without
cause. Transfers of employment among the Company and its Affiliates and
approved leaves of absence not exceeding 90 days shall not be considered
termination of employment for purposes of this Plan.
Section 12. TRANSFERABILITY. An Option granted under the Plan shall
not be transferable by the Participant and shall be exercisable only by the
Participant.
Section 13. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. In the event the
Company shall effect a split of the Common Stock or declare a dividend payable
in Common Stock, or in the event the outstanding Common Stock shall be combined
into a smaller number of shares, the maximum number of shares as to which
Options may be granted under the Plan shall be increased or decreased
proportionately, and the Fair Market Value per share of Common Stock as of the
date of grant of all outstanding Options shall be adjusted, for purposes of
making the determination required by Section 8 of this Plan, in a manner deemed
appropriate by the Board of Directors.
In the event of a reclassification of Common Stock not covered by
the foregoing, or in the event of a liquidation or reorganization of the
Company, including a merger, consolidation or sale of assets, the Board of
Directors shall make such adjustments, if any, as it may deem appropriate in the
number, purchase price and kind of shares that are covered by Options
theretofore granted under the Plan or that are otherwise subject to the Plan.
The provisions of this Section shall only be applicable if, and only to the
extent that, the application thereof does not conflict with any valid
governmental statute, regulation or rule.
Section 14. AMENDMENT AND TERMINATION OF THE PLAN. Subject to the
right of the Board of Directors to terminate the Plan prior thereto, the Plan
shall terminate when all or substantially all of the Common Stock reserved for
purposes of the Plan has been purchased. No Options may be granted after
termination of the Plan. The Board of Directors may alter or amend the Plan but
may not without the approval of the shareholders of the Company and of any
regulatory authorities having jurisdiction make any alteration or amendment
thereof which operates (a) to increase the total number of shares of Common
Stock which may be issued under the Plan (other than as provided in Section 13),
(b) to modify the criteria for determining the employees (or class of employees)
eligible to receive Options under the Plan or (c) to materially increase
benefits accruing under the Plan to Participants who are subject to Section 16
of the Securities Exchange Act of 1934 (the "Exchange Act").
No termination or amendment of the Plan shall adversely affect the
rights of a Participant under an outstanding Option, except with the consent of
such Participant.
Section 15. REQUIREMENTS OF LAW. The granting of Options and the
issuance of Common Stock upon the exercise of an Option shall be subject to all
applicable laws, rules and regulations and to such approval by governmental
agencies as may be required.
Section 16. EFFECTIVE DATE OF THE PLAN. The Plan shall become
effective, as of the date of its adoption by the Board of Directors, if it is
duly approved at the 1997 annual meeting of stockholders of the Company. The
affirmative vote of the holders of at least a majority of the shares of stock of
the Company present and voting on the approval of the Plan at the meeting,
provided that the total number of shares voting for the proposal represents more
than 50% of the total number of shares of stock entitled to vote at such annual
meeting, shall be required to approve the Plan. If the Plan is not so approved,
the Plan shall terminate, all Options granted hereunder shall be null and void
and all shares of Common Stock theretofore issued upon the exercise of Options
under the Plan shall be deemed canceled. Certificates representing shares
issued to Participants prior to shareholder approval of the Plan
B-5
<PAGE>
shall bear appropriate legends indicating that the shares have been issued
contingent upon shareholder approval and are cancelable in the event such
approval is not obtained. Upon such cancellation, Participants shall promptly
deliver to the Company all certificates representing canceled shares and the
Company shall promptly return to the Participants, without interest, all funds
obtained from such Participants through payroll deductions and used for the
purchase of such shares.
Section 17. RULE 16b-3 COMPLIANCE. Transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors adopted under the Exchange Act, some of which conditions are not set
forth herein. To the extent any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Committee.
B-6
<PAGE>
SOURCE MEDIA, INC.
8140 WALNUT HILL LANE
SUITE 1000
DALLAS, TEXAS 75231
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints TIMOTHY P. PETERS and MARYANN WALSH, and
each of them, as the undersigned's attorneys and proxies, each with the power to
appoint his substitute, and hereby authorizes them to represent and to vote as
directed on the reverse side, all the shares of common stock of SOURCE MEDIA,
INC. (the "Company") held of record by the undersigned on April 16, 1997, at the
annual meeting of stockholders to be held on May 21, 1997 or any adjournment
thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR MANAGEMENT'S NOMINEES FOR ELECTION AS DIRECTORS AND FOR EACH OF THE
OTHER PROPOSALS SET FORTH ON THE REVERSE SIDE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
- - --------------------------------------------------------------------------------
- FOLD AND DETACH HERE-
<PAGE>
Please mark
your votes as /X/
indicated in
this example
1. ELECTION OF DIRECTORS:
FOR all nominees WITHHOLD
listed to the right AUTHORITY
(except as marked to vote for all nominees
to the contrary) listed to the right
/ / / /
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name below)
Timothy P. Peters John J. Reed Michael Marocco Robert H. Alter
William S. Bedford David L. Kuykendall James L. Greenwald Robert J. Cresci
2. PROPOSAL TO AMEND THE COMPANY'S 1995 NONQUALIFIED STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS:
FOR AGAINST ABSTAIN
/ / / / / /
3. PROPOSAL TO AMEND THE COMPANY'S 1995 PERFORMANCE EQUITY PLAN:
FOR AGAINST ABSTAIN
/ / / / / /
4. PROPOSAL TO APPROVE THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN:
FOR AGAINST ABSTAIN
/ / / / / /
5. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997:
FOR AGAINST ABSTAIN
/ / / / / /
6. The above-named attorney and proxy (or his substitute) is authorized to
vote in his discretion upon such other business as may properly come before
the meeting or any adjournment thereof.
Date: , 1997
---------------------------
- - --------------------------------------
Signature
- - --------------------------------------
Signature if held jointly
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
- - --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
