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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 Section240.14a-11(c) or
Section240.14a-12
INPUT SOFTWARE, INC.
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(Name of Registrant as Specified In Its Charter)
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(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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(3) Filing Party:
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(4) Date Filed:
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INPUT SOFTWARE, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 27, 1999
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To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
INPUT SOFTWARE, INC. (the "Company"), which will be held at the Company's
principal executive offices, 1299 Parkmoor Avenue, San Jose, California, at 9:00
a.m. on May 27, 1999, for the following purposes:
1. To elect directors to serve for the ensuing year or until their
successors are elected;
2. To approve an amendment to the Company's 1993 Stock Option/Stock
Issuance Plan to increase the number of shares of Common Stock available
for issuance thereunder by 300,000 shares;
3. To approve an amendment to the Company's 1998 Employee Stock Purchase
Plan to increase the number of shares of Common Stock available for
issuance thereunder by 50,000 shares;
4. To ratify the selection of PricewaterhouseCoopers LLP as independent
public accountants for the Company for the fiscal year ending December
31, 1999; and
5. To act upon such other business as may properly come before the meeting
or at any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on April 8, 1999, as
the record date for determining those stockholders who will be entitled to vote
at the meeting. The stock transfer books will not be closed between the record
date and the date of the meeting.
Representation of at least a majority of all outstanding shares of Common
Stock of the Company is required to constitute a quorum. Accordingly, it is
important that your shares be represented at the meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. You may revoke your proxy at any
time prior to the time it is voted. If you attend the Annual Meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
Annual Meeting will be counted.
Sincerely,
/s/ KIMRA D. HAWLEY
Kimra D. Hawley
PRESIDENT AND CHIEF EXECUTIVE OFFICER
San Jose, California
April 19, 1999
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STOCKHOLDERS SHOULD READ THE ENTIRE PROXY STATEMENT
CAREFULLY PRIOR TO RETURNING THEIR PROXIES
------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS OF
INPUT SOFTWARE, INC.
TO BE HELD MAY 27, 1999
------------------------
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of INPUT SOFTWARE, INC. ("Input" or the "Company") of proxies
to be voted at the Annual Meeting of Stockholders which will be held at 9:00
a.m. on May 27, 1999, at the Company's principal executive offices 1299 Parkmoor
Avenue, San Jose, California, or at any adjournments or postponements thereof,
for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders. This Proxy Statement and the proxy card were first mailed to
stockholders on or about April 19, 1999.
VOTING RIGHTS AND SOLICITATION
The close of business on April 8, 1999, was the record date for stockholders
entitled to notice of and to vote at the Annual Meeting. As of that date, Input
had 4,592,227 shares of common stock, $0.01 par value per share (the "Common
Stock"), issued and outstanding, exclusive of treasury stock. All of the shares
of the Company's Common Stock outstanding on the record date are entitled to
vote at the Annual Meeting, and stockholders of record entitled to vote at the
meeting will have one vote for each share so held on the matters to be voted
upon.
Shares of the Company's Common Stock represented by proxies in the
accompanying form that are properly executed and returned to Input will be voted
at the Annual Meeting of Stockholders in accordance with the stockholders'
instructions contained therein. In the absence of contrary instructions, shares
represented by such proxies will be voted FOR the election of each of the
directors as described herein under "Proposal 1--Election of Directors," FOR
approval of the amendment to the Input 1993 Stock Option/Stock Issuance Plan as
described herein under "Proposal 2--Approval of Amendment to the 1993 Stock
Option/Stock Issuance Plan," FOR approval of the amendment to the Input 1998
Employee Stock Purchase Plan as described herein under "Proposal 3--Approval of
the Amendment to the 1998 Employee Stock Purchase Plan," and FOR ratification of
the selection of accountants as described herein under "Proposal 4--Ratification
of Selection of Independent Public Accountants." Management does not know of any
matters to be presented at this Annual Meeting other than those set forth in
this Proxy Statement and in the Notice accompanying this Proxy Statement. If
other matters should properly come before the meeting, the proxy holders will
vote on such matters in accordance with their best judgment. Any stockholder has
the right to revoke his or her proxy at any time before it is voted.
The entire cost of soliciting proxies will be borne by Input. Proxies will
be solicited principally through the use of the mails but, if deemed desirable,
may be solicited personally or by telephone, facsimile or special letter by
officers and regular Input employees for no additional compensation. The Company
has engaged Equiserve to provide routine advice and services for proxy
distribution and collection. Equiserve will receive approximately $5,000 from
the Company per annum for such advice and services. Arrangements may be made
with brokerage houses and other custodians, nominees and fiduciaries to send
proxies and proxy material to the beneficial owners of the Company's Common
Stock, and such persons may be reimbursed for their expenses.
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VOTES REQUIRED
PROPOSAL 1. Directors are elected by a plurality of the affirmative votes
cast by those shares present in person, or represented by proxy, and entitled to
vote at the Annual Meeting. The seven nominees for director receiving the
highest number of affirmative votes will be elected. Abstentions and broker non-
votes will not be counted toward a nominee's total. Stockholders may not
cumulate votes in the election of directors.
PROPOSAL 2. Approval of the adoption of the amendment to the Company's 1993
Stock Option/Stock Issuance Plan requires the affirmative vote of a majority of
those shares present in person, or represented by proxy, and entitled to vote at
the Annual Meeting. Abstentions will be treated as votes against the proposal.
Broker non-votes will be treated as not entitled to vote on this matter and thus
will have no effect on the outcome of the vote.
PROPOSAL 3. Approval of the adoption of the amendment to the Company's 1998
Employee Stock Purchase Plan requires the affirmative vote of a majority of
those shares present in person, or represented by proxy, and entitled to vote at
the Annual Meeting. Abstentions will be treated as votes against the proposal.
Broker non-votes will be treated as not entitled to vote on this matter and thus
will have no effect on the outcome of the vote.
PROPOSAL 4. Ratification of the appointment of PricewaterhouseCoopers LLP
as the Company's independent public accountants for the fiscal year ending
December 31, 1999, requires the affirmative vote of a majority of those shares
present in person, or represented by proxy, and cast either affirmatively or
negatively at the Annual Meeting. Abstentions and broker non-votes will not be
counted as having been voted on the proposal.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be considered at the 2000 Annual Meeting
of Stockholders must be received by Input no later than December 21, 1999. The
proposal must be mailed to the Company's principal executive offices, 1299
Parkmoor Avenue, San Jose, California 95126, Attention: Corporate Secretary.
Such proposals may be included in next year's proxy statement if they comply
with certain rules and regulations promulgated by the Securities and Exchange
Commission.
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MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL 1:
ELECTION OF DIRECTORS
The nominees for the Board of Directors (the "Board") are set forth below.
The proxy holders intend to vote all proxies received by them in the
accompanying form for the nominees for directors listed below. In the event any
nominee is unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for any nominee who shall be designated by
the present Board of Directors to fill the vacancy. In the event that additional
persons are nominated for election as directors, the proxy holders intend to
vote all proxies received by them for the nominees listed below. As of the date
of this Proxy Statement, the Board is not aware of any nominee who is unable or
will decline to serve as a director.
NOMINEES TO BOARD OF DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR
NAME SINCE AGE
- ------------------------------------ ----------- ---
<S> <C> <C>
James Crawford, III................. 1991 53
John Finegan........................ 1997 49
Kimra D. Hawley..................... 1998 42
Johannes P. Schmidt................. 1998 34
Bruce Silver........................ 1995 50
Daniel D. Tompkins.................. 1992 58
Thomas T. van Overbeek.............. 1988 49
</TABLE>
Mr. Crawford has been a director since February, 1991. He is a general
partner of Frontenac Company, a venture capital fund that he joined in
September, 1992. From February, 1984, to August, 1992, Mr. Crawford was a
general partner of William Blair Venture Management Co. ("Blair Management
Co."), the general partner of William Blair Venture Partners III, a venture
capital fund. He was also a general partner of William Blair & Company, an
investment bank and brokerage affiliated with Blair Management Co., from
January, 1987, to August, 1992.
Mr. Finegan joined the Company in July 1989 and was elected Chief Financial
Officer in July 1990 and was elected to the Board in June 1997. Mr. Finegan was
elected Secretary in June 1993. From September 1988 until joining Input, Mr.
Finegan was a self-employed financial consultant. From March 1984 to September
1988, he was Vice President of Finance at Faraday Electronics-Western Digital.
Mr. Finegan holds a B.S. in Engineering from Tufts University and a M.B.A. from
the University of Massachusetts.
Ms. Hawley joined the Company in February 1992 as the Product Marketing
Director and became Vice President of Input Subsystems and Software Tools in
November 1994 and in November 1996 was appointed Senior Vice President and
General Manager for the Software Division. In April 1998, Ms. Hawley became
Chief Executive Officer and President and was also elected to the Board. Ms.
Hawley holds a B.S. in Psychology from Pittsburgh State University.
Johannes Schmidt joined the Company in June 1994 when the company he
founded, Pixel Translations, was acquired. In 1995, Mr. Schmidt assumed the role
of Vice President of Software Development and in November 1996 was appointed
Chief Technical Officer and was elected to the Board in November, 1998. Mr.
Schmidt founded Pixel Translations in 1990 and served as President and CEO. Mr.
Schmidt holds a B.S. in Engineering and Applied Science from the California
Institute of Technology.
Mr. Silver has been a director since July, 1995. Since October, 1994, Mr.
Silver has been a principal of Bruce Silver Associates, a document imaging
consulting firm that he founded in 1994. Prior to founding
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Bruce Silver Associates, Mr. Silver was a vice president of BIS Strategic
Decisions from May, 1990, until October, 1994.
Mr. Tompkins has been a director since June, 1992. Since June, 1994, Mr.
Tompkins has been the managing general partner of DT Associates, a partnership
which is the managing general partner of Novus Ventures, a venture capital
partnership licensed as an S.B.I.P. by the Small Business Administration. From
March, 1988, until October, 1993, he was the managing general partner of DSC
Associates, which was the general partner of DSC Ventures, a venture capital
firm. Mr. Tompkins is a director of two private companies.
Mr. van Overbeek joined the Company as President and was elected to the
Board of Directors in 1988. He was elected Chief Executive Officer in July,
1990. Upon completion of the sale of the Company's display products division in
1998, Mr. Van Overbeek resigned as President and CEO and became Chairman of the
Board of Directors. Mr. Van Overbeek is presently CEO of Wavtrace, Inc. Prior to
joining Input, Mr. van Overbeek held various positions from March, 1984, to May,
1988, at Western Digital Corporation-Paradise Systems, most recently as
President of Paradise Systems.
Mr. van Overbeek, Chairman of the Board of Directors of the Company, is
married to Ms. Hawley, President and Chief Executive Officer. There are no other
family relationships among executive officers or directors of the Company.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1998, the Board of Directors of
the Company held a total of seven meetings. During this period, all directors
attended or participated in at least 75% of the aggregate of (i) the total
number of meetings of the Board and (ii) the total number of meetings held by
all committees of the Board on which they were members.
The Company has an Audit Committee and a Compensation Committee of the Board
of Directors. There is no nominating committee or committee performing the
functions of such committee.
The Audit Committee meets with the Company's financial management and its
independent accountants at various times during each year and reviews internal
control conditions, audit plans and results, and financial reporting procedures.
This Committee, consisting of Messrs. Crawford and Tompkins, held two meetings
during fiscal 1998.
The Compensation Committee reviews and approves the Company's compensation
arrangements for management. This Committee, consisting of Messrs. Crawford and
Tompkins, held five meetings during fiscal 1998.
DIRECTOR REMUNERATION
Non-employee members of the Board are each paid a fee of $3,000 per calendar
quarter and are reimbursed for all out-of-pocket costs incurred in connection
with their attendance at Board and committee meetings.
Under the automatic option grant program in effect under the Company's 1993
Stock Option/Stock Issuance Plan, an individual who first becomes a non-employee
member of the Board will receive an automatic option grant for 10,000 shares of
the Company's Common Stock upon commencement of Board service, and each
individual with six or more months of Board service will receive an automatic
option grant for an additional 2,500 shares at each Annual Stockholders Meeting
at which he or she continues to serve as a non-employee Board member. See
Proposal 2.
No other compensation is paid to the non-employee members of the Board with
respect to their service on the Board.
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RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
election of each of the above nominees.
PROPOSAL 2:
APPROVAL OF AMENDMENT TO THE 1993 STOCK OPTION/STOCK ISSUANCE PLAN
The stockholders are being asked to vote on a proposal to amend the 1993
Stock Option/Stock Issuance Plan (the "1993 Plan"). The 1993 Plan was amended by
the Board on January 22, 1999, to increase the number of shares of Common Stock
authorized for issuance thereunder by 300,000 shares to 2,974,852 shares. The
1993 Plan was adopted by the Board on August 11, 1993, to be effective on
September 8, 1993 (the date of the Company's initial public offering, the
"Effective Date") to provide a means whereby employees, officers, directors,
consultants, and independent advisers of the Company or parent or subsidiary
corporations may be given an opportunity to purchase shares of Common Stock. The
Board believes the amendment is necessary in order to provide the Company with a
sufficient reserve of Common Stock for future option grants needed to attract,
employ, and retain employees, directors, and consultants of outstanding ability.
The principal terms and provisions of the 1993 Plan, as modified by the
recent amendment, are summarized below. The summary, however, does not purport
to be a complete description of all the provisions of the 1993 Plan. Any
stockholder of the Company who wishes to obtain a copy of the actual plan
document may do so by written request to the Corporate Secretary at the
Company's principal executive offices in San Jose.
STRUCTURE
The 1993 Plan includes three separate equity incentive programs: (i) a
Discretionary Option Grant Program, under which eligible individuals may be
granted options to purchase shares of Common Stock at an exercise price not less
than 85% of their fair market value on the grant date, (ii) an Automatic Option
Grant Program, under which option grants will automatically be made to eligible
non-employee members of the Board to purchase shares of Common Stock at an
exercise price equal to their fair market value on the grant date, and (iii) a
Stock Issuance Program, under which eligible individuals may be issued shares of
Common Stock directly, through the immediate purchase of the shares or as a
bonus tied to the performance of services or the Company's attainment of
financial objectives, at a price not less than 85% of their fair market value on
the stock issuance date.
Options granted under the Discretionary Option Grant Program may be either
incentive stock options designed to meet the requirements of Section 422 of the
Internal Revenue Code (the "Code") or non-statutory options not intended to
satisfy such requirements. All grants under the Automatic Option Grant Program
will be non-statutory options.
SECURITIES SUBJECT TO THE 1993 PLAN
2,674,852 shares of Common Stock have been reserved for issuance over the
ten-year term of the 1993 Plan. If Proposal 2 is approved, that number will
increase by 300,000 shares to 2,974,852 shares. The 1993 Plan has been amended
on several prior occasions, including an amendment to increase the share reserve
by 200,000 shares, approved in 1998.
Shares of Common Stock will be drawn from either the Company's authorized
but unissued shares of Common Stock or from reacquired shares of Common Stock,
including shares repurchased by the Company on the open market. Should an option
(including outstanding options incorporated into the 1993 Plan from the
predecessor plans) expire or terminate for any reason prior to exercise in full
(including options canceled in accordance with the cancellation-regrant
provisions of the 1993 Plan), the shares
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subject to the portion of the option not so exercised will be available for
subsequent issuance under the 1993 Plan. Shares subject to any option
surrendered or canceled in accordance with the stock appreciation right
provisions of the 1993 Plan and all stock issuances under the 1993 Plan, whether
or not the shares are subsequently reacquired by the Company pursuant to its
repurchase rights under the 1993 Plan, will reduce on a share-for-share basis
the number of shares of Common Stock available for subsequent issuance.
No individual participating in the 1993 Plan may be granted stock options
and direct stock issuances for more than 500,000 shares of Common Stock in the
aggregate over the term of the 1993 Plan, exclusive of option grants or stock
awards made prior to January 1, 1996.
PLAN ADMINISTRATION
The 1993 Plan (other than the Automatic Option Grant Program) is
administered by a committee (the "Committee") comprised of two or more
non-employee Board members appointed by the Board. The Committee has discretion
(subject to the provisions of the 1993 Plan) to authorize stock option grants
and direct stock issuances. The 1993 Plan may be administered with respect to
participants who are not directors by a secondary committee comprised of one or
more Board members or by the full Board. All grants under the Automatic Option
Grant Program will be made in compliance with the provisions of the program, and
no administrative discretion will be exercised with respect to the automatic
grants.
The Committee (or Board or secondary committee to the extent acting as plan
administrator) has full authority (subject to the express provisions of the 1993
Plan) to determine the eligible individuals who are to receive grants under the
1993 Plan and stock awards under the Stock Issuance Program, the number of
shares to be covered by each granted option and stock award, the date or dates
on which each option is to become exercisable, the maximum term for which each
option is to remain outstanding, whether a granted option will be an incentive
stock option ("Incentive Stock Option") which satisfies the requirements of
section 422 of the Code or a non-statutory option not intended to meet such
requirements, and the remaining provisions of the option grant or stock
issuance.
ELIGIBILITY
Officers and other employees, non-employee members of the Board who do not
serve on the Committee, and independent consultants and advisors to the Company
(or any parent or subsidiary corporation) are eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs. All non-employee members
of the Board participate in the Automatic Option Grant Program.
As of March 31, 1999, it was estimated that nine executive officers and
approximately 110 other employees were eligible to participate in the 1993 Plan
and three non-employee Board members were eligible to participate in the
Automatic Option Grant Program.
VALUATION
The fair market value per share of Common Stock on any relevant date under
the 1993 Plan will be the closing price per share on that date on The Nasdaq
National Market ("Nasdaq"). If there is no reported closing price for such date,
then the closing price for the last previous date for which such quotation
exists will be determinative of fair market value. The fair market value of
Common Stock on March 1, 1999, as reported on Nasdaq, was $5.75 per share.
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DISCRETIONARY OPTION GRANT PROGRAM
PRICE AND EXERCISABILITY
Under the Discretionary Option Grant Program, the exercise price per share
of Common Stock subject to an Incentive Stock Option may not be less than 100%
of the fair market value per share on the grant date. The exercise price per
share of the Common Stock subject to a non-statutory option may not be less than
85% of the fair market value of that security on the grant date, except that
grants intended to be exempt from the $1 million limitation on compensation
deductions will be made at 100% of fair market value. No option will have a
maximum term in excess of ten years measured from the grant date. The Committee
has discretion to grant options (i) that are immediately exercisable for vested
or unvested shares or (ii) that become exercisable in installments for vested
shares over the optionee's period of service.
The exercise price may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date. Options may also be exercised through
a same-day sale program, pursuant to which a designated brokerage firm is to
effect the immediate sale of the shares purchased under the option and pay over
to the Company, out of the sale proceeds on the settlement date, sufficient
funds to cover the exercise price for the purchased shares plus all applicable
withholding taxes. The Committee may also assist any optionee (including an
officer or director) in the exercise of his or her outstanding options by (a)
authorizing a Company loan to the optionee, or (b) permitting the optionee to
pay the exercise price in installments over a period of years. The terms and
conditions of any such loan or installment payment will be established by the
Committee in its sole discretion.
The Committee will have the authority to effect, on one or more separate
occasions, the cancellation of outstanding options under the Discretionary
Option Grant Program (including outstanding options incorporated from the
predecessor plans) and to issue replacement options with an exercise price based
on the market price of Common Stock at the time of the new grant.
TERMINATION OF SERVICE.
Any option held by the optionee at the time of cessation of service will
normally not remain exercisable beyond the limited period designated by the
Committee (not to exceed 36 months) at the time of the option grant. During that
period, the option will generally be exercisable only for the number of shares
in which the optionee is vested at the time of cessation of service. Under no
circumstances, however, may any option be exercised after the specified
expiration date of the option term. The Committee may extend the period
following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability of
such options in whole or in part at any time while the options remain
outstanding.
Any unvested shares of Common Stock will be subject to repurchase by the
Company, at the original exercise price paid per share, upon the optionee's
cessation of service prior to vesting in those shares. The Committee will have
complete discretion in establishing the vesting schedule for any such unvested
shares and will have full authority to cancel the Company's outstanding
repurchase rights with respect to those shares in whole or in part at any time.
The optionee does not have any stockholder rights with respect to the option
shares until the option is exercised and the exercise price is paid for the
purchased shares. Options are not assignable or transferable other than by will
or by the laws of inheritance following the optionee's death, and the option
may, during the optionee's lifetime, be exercised only by the optionee.
INCENTIVE STOCK OPTIONS.
Incentive Stock Options may only be granted to individuals who are employees
of the Company or its parent or subsidiary corporation. During any calendar
year, the aggregate fair market value (determined as
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of the grant date(s)) of the Common Stock for which one or more options granted
to any employee under the 1993 Plan (or any other option plan of the Company or
its parent or subsidiary corporations) may for the first time become exercisable
as Incentive Stock Options cannot exceed $100,000.
TANDEM STOCK APPRECIATION RIGHTS.
The Committee is authorized to issue tandem stock appreciation rights in
connection with option grants under the Discretionary Option Grant Program.
Tandem stock appreciation rights provide the holders with the right to surrender
their options for an appreciation distribution from the Company equal in amount
to the excess of (i) the fair market value of the vested shares of Common Stock
subject to the surrendered option over (ii) the aggregate exercise price payable
for such vested shares. Such appreciation distribution may, in the discretion of
the Committee, be made in cash or in shares of Common Stock.
LIMITED STOCK APPRECIATION RIGHTS.
Officers of the Company subject to the short-swing profit restrictions of
the Federal securities laws may be granted limited stock appreciation rights in
connection with their option grants, at the discretion of the Committee. Any
option with such a limited stock appreciation right in effect for at least six
months may be surrendered to the Company upon the successful completion of a
hostile tender offer for securities possessing more than 50% of the combined
voting power of the Company's outstanding securities. In return for the
surrendered option, the officer will be entitled to a cash distribution from the
Company in an amount per vested share of Common Stock subject to the surrendered
option equal to the excess of (i) the price per share of Common Stock paid in
such hostile tender offer over (ii) the option exercise price.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who was serving as
a non-employee Board member on November 5, 1993, was automatically granted a
non-statutory option to purchase 10,000 shares of Common Stock. In addition,
each individual who first becomes a non-employee Board member after November 5,
1993, whether through election by the Company's stockholders or appointment by
the Board, will automatically be granted at the time of such election or
appointment a non-statutory option to purchase 10,000 shares of Common Stock. On
the date of each Annual Stockholders Meeting, beginning with the 1995 Annual
Meeting, each individual who is then serving as a non-employee Board member,
whether or not standing for re-election at that meeting, will automatically be
granted a non-statutory option to purchase 2,500 shares of Common Stock,
provided such individual has served as a Board member for at least six months.
No non-employee Board member who has previously been in the employ of the
Company or any parent or subsidiary corporation will be eligible to receive an
automatic option grant.
The exercise price per share of the Common Stock subject to an automatic
option grant will equal the fair market value per share of Common Stock on the
automatic grant date. Each option will have a term of ten years measured from
the grant date. Each 10,000-share option will become exercisable for the option
shares in a series of four equal annual installments over the first four years
of the optionee's period of Board service. Each 2,500-share option will become
exercisable for the option shares on the fourth anniversary of the automatic
grant date provided the optionee remains in Board service. The option will
remain exercisable for a three-month period following the optionee's cessation
of Board service for any reason other than death and for a twelve-month period
following death. In no event, however, may the option be exercised after the
expiration date of the option term. During the applicable exercise period, the
option may not be exercised for more than the number of shares (if any) in which
the optionee is vested at the time of the optionee's cessation of Board service.
However, should the optionee die while serving as a Board member and holding one
or more automatic option grants that had been outstanding for at least one year,
then each such option will become fully vested and remain exercisable for a
twelve-month period
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following such optionee's death and may be exercised by the personal
representative of the optionee's estate or the person to whom the grant is
transferred by the optionee's will or the laws of inheritance.
Each automatic option grant will become exercisable in full upon the
occurrence of certain changes in control or ownership of the Company, as
explained in more detail below in the subsection entitled "Option/Vesting
Acceleration." Upon the successful completion of a hostile tender offer for
securities possessing more than 50% of the combined voting power of the
Company's outstanding securities, each automatic option grant that has been
outstanding for at least six months may be surrendered to the Company for a cash
distribution per surrendered option share in an amount equal to the excess of
(i) the price per share of Common Stock paid in such tender offer over (ii) the
exercise price payable for such share.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share not
less than 85% of the fair market value, payable in cash or through a promissory
note payable to the Company, or as a bonus for past services. Shares issued
under the Stock Issuance Program may either be vested upon issuance or subject
to a vesting schedule tied to the participant's period of service or the
attainment of designated performance goals. Unvested shares will be subject to
certain transfer restrictions and to repurchase or cancellation by the Company
upon either the participant's cessation of service prior to vesting in those
shares or the non-attainment of the applicable performance goals. The Committee
has discretion to accelerate the vesting of any issued shares in whole or in
part at any time. Individuals holding shares under the Stock Issuance Program
will have full stockholder rights with respect to those shares, whether the
shares are vested or unvested.
GENERAL PROVISIONS
OPTION/VESTING ACCELERATION
Outstanding options under the 1993 Plan will become immediately exercisable
in full, and unvested shares issued under the 1993 Plan will become fully
vested, in the event of certain changes in the ownership or control of the
Company. The transactions that will trigger such option/vesting acceleration are
as follows:
CORPORATE TRANSACTION: any one of the following stockholder-approved
transactions:
- a merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated,
- the sale, transfer or other disposition of all or substantially all of the
Company's assets in complete liquidation or dissolution of the Company, or
- any reverse merger in which the Company is the surviving entity but in
which securities possessing more than 50% of the total combined voting
power of the Company's outstanding securities are transferred to a person
or persons different from those who held such securities immediately prior
to the merger.
CHANGE IN CONTROL: a change in ownership or control of the Company effected
through either of the following transactions:
- any person or related group of persons (other than the Company or a person
that directly or indirectly controls, is controlled by, or is under common
control with, the Company) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Act of 1934, as amended) of securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made
9
<PAGE>
directly to the Company's stockholders, which the Board does not recommend
such stockholders to accept; or
- a change in the composition of the Board over a period of 36 consecutive
months or less such that a majority of the Board members (rounded up to
the next whole number) ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who either
(i) have been Board members continuously since the beginning of such
period or (ii) have been elected or nominated for election as Board
members during such period by at least a majority of the Board members
described in clause (i) who were still in office at the time such election
or nomination was approved by the Board.
Immediately following the consummation of a Corporate Transaction, all
outstanding options under the 1993 Plan will, to the extent not previously
exercised by the optionees or assumed by the successor corporation (or its
parent company), terminate and cease to be exercisable. Options under the 1993
Plan that are accelerated in connection with a Change in Control will remain so
exercisable until the expiration or sooner termination of the option term.
Certain outstanding stock options under the predecessor plans that were
incorporated into the 1993 Plan do not contain any automatic acceleration
provisions that would allow the option to become immediately exercisable upon a
Corporate Transaction or change in control of the Company, and certain other
such incorporated options will accelerate on an acquisition subject to certain
limitations. The Committee has discretion to extend the automatic acceleration
provisions of the 1993 Plan to any or all stock options incorporated from the
predecessor plans.
The acceleration of options or vesting of shares in the event of a Corporate
Transaction or Change in Control may be seen as an anti-takeover provision and
may have the effect of discouraging a merger proposal, a takeover attempt or
other efforts to gain control of the Company.
CHANGES IN CAPITALIZATION
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the maximum number and/or class of securities issuable under the
1993 Plan, (ii) the maximum number and/or class of securities for which any one
individual may be granted stock options and direct share issuances in the
aggregate over the term of the 1993 Plan, (iii) the number and/or class of
securities and price per share in effect under each outstanding option,
including options from the predecessor plans incorporated into the 1993 Plan,
and (iv) the number and/or class of securities for which automatic option grants
will subsequently be made under the Automatic Option Grant Program per non-
employee Board member.
SPECIAL TAX ELECTION
The Committee may provide one or more holders of non-statutory options or
unvested shares under the Discretionary Option Grant or Stock Issuance Program
with the right to have the Company withhold a portion of the shares of Common
Stock otherwise issuable to such individuals in satisfaction of the Federal,
state and local income and employment tax liability incurred by such individuals
in connection with the exercise of those options or the vesting of the shares.
Alternatively, the Committee may allow such individuals to deliver previously
acquired shares of Common Stock in payment of such tax liability.
10
<PAGE>
AMENDMENT AND TERMINATION
The Board may amend or modify the 1993 Plan in any or all respects
whatsoever. However, no such amendment may adversely affect the rights of
existing optionees or holders of unvested shares without their consent. In
addition, the Board may not, without the approval of the Company's stockholders,
(i) materially increase the maximum number of shares issuable under the 1993
Plan (except in connection with certain changes in the Company's capital
structure), (ii) materially modify the eligibility requirements for option
grants or share issuances or (iii) otherwise materially increase the benefits
accruing to participants under the 1993 Plan.
Unless sooner terminated by the Board, the 1993 Plan will in all events
terminate on August 10, 2003. Each stock option or unvested share issuance
outstanding at the time of such termination will remain in force in accordance
with the provisions of the instruments evidencing such grant or issuance.
As of March 1, 1999, options covering 1,976,000 shares were outstanding
under the 1993 Plan, 544,000 shares remained available for future grants,
assuming approval of Proposal 2, and 540,000 shares have been issued under the
1993 Plan. The expiration dates for all such options range from April 4, 1999 to
March 24, 2000.
NEW PLAN BENEFITS
Because the 1993 Plan is discretionary, benefits to be received by
individual optionees are not determinable. However, each of Messrs. Crawford,
Silver and Tompkins will receive an option grant to purchase 2,500 shares under
the Automatic Option Grant Program on the date of the Annual Meeting, with an
exercise price per share equal to the closing price per share of Common Stock on
the date of the Annual Meeting. To date, no options have been granted with
respect to the 300,000 share increase in the 1993 Plan's reserve being submitted
to the stockholders as Proposal 2.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS GRANTED UNDER THE 1993 PLAN
Options granted under the 1993 Plan may be either incentive stock options
that satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options that are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
INCENTIVE STOCK OPTIONS. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. However, the amount by which the fair market
value (at the time of exercise) of the purchased shares exceeds the exercise
price paid for those shares will constitute an adjustment to income for purposes
of the alternative minimum tax. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition. For Federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. The optionee will make a
qualifying disposition of the purchased shares if the sale or other disposition
of such shares is made after the optionee has held the shares for more than two
years after the grant date of the option and more than one year after the
exercise date. If the optionee fails to satisfy either of these two holding
periods prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying disposition
of the shares, then generally the excess of (i) the fair market value of those
shares on the date the option was exercised over (ii) the exercise price paid
for the shares will be taxable as ordinary income. Any additional gain
recognized upon the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction for the taxable
year in which such disposition occurs equal to the
11
<PAGE>
amount of ordinary income recognized by the optionee. In no other instance will
the Company be allowed a deduction with respect to the optionee's disposition of
the purchased shares. The Company anticipates that any compensation deemed paid
by the Company upon one or more disqualifying dispositions of incentive stock
option shares by the Company's executive officers will remain deductible by the
Company and will not have to be taken into account for purposes of the $1
million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income in the year in which the option is exercised equal to the excess
of the fair market value of the purchased shares on the exercise date over the
exercise price paid for the shares, and the optionee (if an employee or former
employee) will be required to satisfy the tax withholding requirements
applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition of
Common Stock under a non-statutory option if the purchased shares are subject to
repurchase by the Company. These special provisions may be summarized as
follows:
(i) If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by the Company at the original exercise price in the
event of the optionee's termination of service prior to vesting in such
shares, the optionee will not recognize any taxable income at the time of
exercise but will have to report as ordinary income, as and when the
Company's repurchase right lapses, an amount equal to the excess of (a) the
fair market value of the shares on the date such repurchase right lapses
with respect to such shares over (b) the exercise price paid for the shares.
(ii) The optionee may, however, elect under Section 83(b) of the
Internal Revenue Code to include as ordinary income in the year of exercise
of the non-statutory option an amount equal to the excess of (a) the fair
market value of the purchased shares on the exercise date (determined as if
the shares were not subject to the Company's repurchase right) over (b) the
exercise price paid for such shares. If the Section 83(b) election is made,
the optionee will not recognize any additional income as and when the
repurchase right lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee. The Company anticipates that the compensation deemed paid by the
Company upon the exercise of non-statutory options with exercise prices equal to
the fair market value of the option shares on the grant date will remain
deductible by the Company and will not have to be taken into account for
purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company.
STOCK APPRECIATION RIGHTS. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. The Company will be entitled to a business
expense deduction equal to the appreciation distribution for the taxable year of
the Company in which the ordinary income is recognized by the optionee.
STOCK ISSUANCES. The tax principles applicable to direct stock issuances
under the 1993 Plan will be substantially the same as those summarized above for
the exercise of nonstatutory option grants.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote on Proposal 2 at the 1999
Annual Meeting is required for approval of the amendment to the 1993 Plan.
SHOULD SUCH STOCKHOLDER APPROVAL NOT BE OBTAINED, THEN THE AMENDMENT TO
12
<PAGE>
THE 1993 PLAN WILL NOT BECOME EFFECTIVE, AND ANY OUTSTANDING OPTIONS GRANTED ON
THE BASIS OF THE 300,000 SHARE INCREASE WILL TERMINATE WITHOUT EVER BECOMING
EXERCISABLE FOR ANY OF THE OPTION SHARES.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendment to the 1993 Plan.
PROPOSAL 3:
APPROVAL OF THE AMENDMENT TO THE 1998 EMPLOYEE STOCK PURCHASE PLAN
The stockholders are being asked to vote on a proposal to amend the 1998
Employee Stock Purchase Plan (the "ESPP"). The Board of Directors adopted the
ESPP in March of 1998 to provide employees of the Company with an opportunity to
purchase Common Stock through payroll deductions. The principal provisions of
the ESPP are summarized below. The summary, however, does not purport to be a
complete description of the ESPP. Any stockholder who would like to obtain a
copy of the plan text may request one in writing from the Corporate Secretary at
the Company's principal offices in San Jose.
SUMMARY OF ESPP
The ESPP became effective on July 1, 1998, and replaced an employee stock
purchase plan that the Company maintained since 1993. Under the ESPP, 50,000
shares of Common Stock are available for issuance during each semi-annual
accumulation period. Shares that are not used during a semi-annual accumulation
period may not be carried forward to any subsequent accumulation period. A total
of 150,000 shares are available for issuance during the life of the Plan,
including the 50,000 share increase being submitted to the stockholders for
approval. All full-time regular employees who have completed at least 30 days of
service (approximately 120 individuals) will be eligible to participate in the
ESPP.
Eligible employees may contribute up to 10% of their base salaries to the
ESPP. Amounts withheld are applied at the end of every six-month accumulation
period to purchase shares of Common Stock, but not more than 1,000 shares per
accumulation period. The value of the Common Stock (determined as of the
beginning of the offering period) that may be purchased by any participant in a
calendar year is limited to $25,000. The closing price of Common Stock was $5.75
per share on March 1, 1999. Participants may withdraw their contributions at any
time before stock is purchased.
The purchase price is equal to 85% of the lower of (a) the market price of
Common Stock immediately before the beginning of the applicable offering period
or (b) the market price of Common Stock at the time of the purchase. In general,
each offering period is 24 months long, but a new offering period begins every
six months. Thus up to four overlapping offering periods may be in effect at the
same time. An offering period continues to apply to a participant for the full
24 months, unless the market price of Common Stock is lower when a subsequent
offering period begins. In that event, the subsequent offering period
automatically becomes the applicable period for purposes of determining the
purchase price.
The Board of Directors may amend any provision of the ESPP. Amendments do
not require stockholder approval, unless the aggregate number of shares of
Common Stock available for purchase under the ESPP is increased. The ESPP may be
terminated at any time by the Board of Directors.
NEW PLAN BENEFITS
Since purchase rights are subject to discretion, including an employee's
decision not to participate in the ESPP, awards under the ESPP for the current
fiscal year are not determinable. No purchase rights have been granted to date
under the ESPP with respect to the 50,000 share increase in the ESPP's reserve
being submitted to the stockholders as Proposal 3.
13
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following is a general description of certain federal income tax
consequences of the ESPP. This description does not purport to be complete.
The ESPP is intended to qualify as an "employee stock purchase plan" under
section 423 of the Code. No income is recognized by a participant at the time a
right to purchase shares is granted. Likewise, no taxable income is recognized
at the time of the purchase, even though the purchase price reflects a discount
from the market value of the shares at that time.
A participant must recognize taxable income upon a disposition of shares
acquired under the ESPP. The tax treatment may be more favorable if the
disposition occurs after the holding-period requirements of section 423 have
been satisfied (a "qualifying disposition"). To satisfy the holding-period
requirements of section 423, shares acquired under the ESPP cannot be disposed
of within two years after the first day of the offering period during which the
shares were purchased nor within one year after the shares were purchased. The
U.S. income tax consequences of a qualifying disposition are as follows:
The participant recognizes ordinary income equal to the lower of (a) the
excess of the fair market value of the shares on the date of the disposition
over the purchase price or (b) 15% of the fair market value of the shares on the
first day of the applicable offering period. The Company will not be entitled to
any deduction under these circumstances. The excess, if any, of the fair market
value of the shares on the date of the disposition over the sum of the purchase
price plus the amount of ordinary income recognized (as described above) will be
taxed as a long-term capital gain. If a taxable disposition produces a loss
(i.e., the fair market value of the shares on the date of the disposition is
less than the purchase price) and the disposition involves certain unrelated
parties, then the loss will be a capital loss.
A participant who disposes of shares acquired under the ESPP without meeting
the holding-period requirements makes a disqualifying disposition of such
shares. The U.S. income tax consequences of a disqualifying disposition are as
follows:
The entire difference between the purchase price and the market value of the
shares on the date of purchase will be taxed to the participant as ordinary
income in the year of disposition. The Company will be entitled to a deduction
for the same amount, subject to certain conditions. The excess, if any, of the
market value of the shares on the date of disposition over their market value on
the date of purchase will be taxed as a capital gain (long-term or short-term,
depending on how long the shares have been held). If the value of the shares on
the date of disposition is less than their value on the date of purchase, then
the difference will result in a capital loss (long-term or short-term, depending
on the holding period), provided the disposition involves certain unrelated
parties. Any such loss will not affect the ordinary income recognized upon the
disposition.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendment to the ESPP.
PROPOSAL 4:
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm of PricewaterhouseCoopers LLP served as independent public
accountants for the Company for the fiscal year ended December 31, 1998. The
Board of Directors desires the firm to continue in this capacity for the current
fiscal year. Accordingly, a resolution will be presented to the meeting to
ratify the selection of PricewaterhouseCoopers LLP by the Board of Directors as
independent public accountants to audit the accounts and records of the Company
for the fiscal year ending December 31, 1999, and to
14
<PAGE>
perform other appropriate services. In the event that stockholders fail to
ratify the selection of PricewaterhouseCoopers LLP, the Board of Directors would
reconsider such selection. Even if the selection is ratified, the Board of
Directors in its discretion may direct the appointment of a different
independent auditing firm at any time during the year if the Board of Directors
believes that such a change would be in the best interests of the Company and
its stockholders.
A representative of PricewaterhouseCoopers LLP will be present at the Annual
Meeting to respond to appropriate questions and to make a statement if such
representative desires to do so.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of PricewaterhouseCoopers LLP to serve as the
Company's independent auditors for the fiscal year ending December 31, 1999.
OWNERSHIP OF SECURITIES
MANAGEMENT AND DIRECTORS
The following table sets forth the beneficial ownership of the Company's
Common Stock as of March 1, 1999, by each director, each executive officer named
in the Summary Compensation Table in the "Executive Compensation" section below,
and all directors and executive officers as a group. All shares are subject to
the named person's sole voting and investment power except where otherwise
indicated.
<TABLE>
<CAPTION>
APPROXIMATE
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME OWNED OWNED (1)
- ----------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
James Crawford III (2)....................................................... 15,290 *
Bruce Silver (3)............................................................. 9,600 *
Daniel D. Tompkins (4)....................................................... 76,000 1.61%
Thomas T. van Overbeek (5)................................................... 441,535 8.93
John Finegan (6)............................................................. 118,455 2.48
Johannes P. Schmidt (7)...................................................... 213,603 4.48
Kimra D. Hawley (8).......................................................... 441,535 8.93
Matthew Albanese (9)......................................................... 28,126 *
Cynthia Anderson (10)........................................................ 23,517 *
Joe Falk (11)................................................................ 16,250 *
Stephan Francis (12)......................................................... 151,780 3.18
Michael Parker............................................................... 629 *
John Stetak.................................................................. 11,031 *
All current directors and executive officers as a group (13 persons) (13).... 1,105,816 21.03
</TABLE>
- ------------------------
* Less than one percent of the outstanding Common Stock.
(1) Percentage of beneficial ownership is calculated assuming 4,691,227 shares
of Common Stock were outstanding on March 1, 1999. This percentage also
includes Common Stock of which such individual or entity has the right to
acquire beneficial ownership within sixty days of March 1, 1999, including
but not limited to the exercise of an option; however, such Common Stock
shall not be deemed outstanding for the purpose of computing the percentage
owned by any other individual or entity. Such calculation is required by
General Rule 13d-3(1)(i) under the Securities Exchange Act of 1934.
(2) Includes 10,000 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 1,
1999.
15
<PAGE>
(3) Includes 7,500 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 1,
1999.
(4) Includes 10,000 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 1,
1999.
(5) Includes 115,625 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 1,
1999. Also includes 159,161 shares beneficially owned by Ms. Hawley, Mr.
van Overbeek's wife.
(6) Includes 81,562 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 1,
1999.
(7) Includes 146,499 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 1,
1999.
(8) Includes 132,352 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 1,
1999. Also includes 276,124 shares beneficially owned by Mr. van Overbeek,
Ms. Hawley's husband.
(9) Includes 25,275 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 1,
1999.
(10) Includes 17,750 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 1,
1999.
(11) Includes 16,250 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 1,
1999.
(12) Includes 76,000 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 1,
1999.
(13) Includes 620,063 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 1,
1999.
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the only person,
other than directors and executive officers, who beneficially owned (to the
Company's knowledge) more than 5% of the Common Stock of Input as of March 1,
1999.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Cannell Capital Management................................................................. 334,300 7.34%
600 California Street
San Francisco, California 94108
Dimensional Fund Advisors.................................................................. 414,600 8.84%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Kopp Investment Advisers................................................................... 913,178 19.47%
6600 France Avenue South, Suite 672
Edina, Minnesota 55435
</TABLE>
16
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than ten percent of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten percent beneficial owners are required
by SEC regulation to furnish the Company with copies of all Section 16(a)
reports they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that, except as further described below, there was compliance
for the fiscal year ended December 31, 1998, with all Section 16(a) filing
requirements applicable to the Company's officers, directors and greater than
ten percent beneficial owners.
17
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer, former Chief Executive Officer and each of the
Company's four other highest-paid executive officers (the "Named Executives")
(as determined as of the end of the last fiscal year) for services rendered in
all capacities to the Company and its subsidiaries for the three fiscal years
ended December 31, 1998. No executive officers who would have otherwise been
includible in such table on the basis of salary and bonus earned for the 1998
fiscal year have resigned or terminated employment during the fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
----------------------------------- SECURITIES ALL OTHER
SALARY UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION FISCAL YEAR ($)(1) BONUS ($) OPTIONS (#) ($)(2)
- ----------------------------------------------------- ----------- --------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Thomas T. van Overbeek............................... 1998 147,212 226,563 0 1,000
Director and Former Chief Executive 1997 250,000 50,000 0 1,000
Officer 1996 250,000 50,000 100,000 1,000
Kimra D. Hawley...................................... 1998 195,000 78,500 50,000 1,000
President, Chief Executive Officer and 1997 165,000 45,000 144,000 1,000
Director 1996 150,000 35,000 70,000 1,000
Joe Falk............................................. 1998 135,530 74,677 20,000 1,000
Vice President, 1997 84,375 46,317 65,000 1,000
Worldwide Sales 1996 -- -- -- --
Stephen Francis...................................... 1998 149,215 52,500 30,000 1,000
Vice President, General Manager of 1997 105,000 30,000 70,000 1,000
Pixel Division 1996 19,609 20,000 40,000 1,000
John Finegan......................................... 1998 166,667 194,175 30,000 1,000
Chief Financial Officer, Secretary and 1997 186,146 40,000 60,000 1,000
Director 1996 145,000 40,000 50,000 1,000
Johannes P. Schmidt.................................. 1998 183,333 58,599 40,000 1,000
Chief Technical Officer and Director 1997 165,000 45,000 100,000 1,000
1996 145,000 35,000 115,000 1,000
</TABLE>
- ------------------------
(1) Includes salary deferred under the Company's 401(k) Plan.
(2) All other compensation consists of a matching contribution to the Company's
401(k) Plan.
18
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options made under the Company's 1993 Stock Option/Stock Issuance Plan for the
1998 fiscal year to the Named Executives.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------ POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED ANNUAL
SECURITIES RATES OF STOCK PRICE
UNDERLYING % OF TOTAL EXERCISE APPRECIATION FOR OPTION
OPTIONS OPTIONS GRANTED PRICE PER TERM
GRANTED TO EMPLOYEES IN SHARE EXPIRATION ------------------------
NAME (#)(1) FISCAL YEAR ($/SH)(2) DATE 5% ($)(3) 10% ($)(3)
- ---------------------------------------- ----------- --------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Thomas T. van Overbeek.................. 0 -- -- -- -- --
Kimra D. Hawley......................... 50,000 10.0% 7.25 11/11/08 227,974 577,731
Joe Falk................................ 20,000 4.0% 7.25 11/11/08 91,189 231,092
John Finegan............................ 30,000 6.0% 7.25 11/11/08 136,784 346,638
Stephen Francis......................... 30,000 6.0% 7.25 11/11/08 136,784 346,638
Johannes P. Schmidt..................... 40,000 8.0% 7.25 11/11/08 182,379 462,185
</TABLE>
- ------------------------
(1) The options listed in the table were granted under the 1993 Stock
Option/Stock Issuance Plan. For a complete description of the 1993 Plan, see
Proposal 2. All of the options granted become exercisable as follows: 25%
upon the completion of each of the first year of service measured from the
vesting date, and an additional 2.083% upon the completion of each full
calendar month elapsed thereafter, until the option is fully vested upon the
completion of the fourth year of service from the vesting date. The options
were granted and began vesting on the date ten years before the expiration
date set forth in the table. Each option will become exercisable and then
terminate in the event the Company is acquired by a merger or in the event
of a liquidation or acquisition of the Company, except that the option does
not terminate if it is assumed by the acquiring entity. Each option has a
maximum term of ten years, subject to earlier termination in the event of
the optionee's cessation of service with the Company.
(2) The exercise price of each option may be paid in cash, in shares of Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares and the
federal and state tax liability incurred in connection with such exercise.
The optionee may be permitted, subject to the approval of the plan
administrator, to apply a portion of the shares purchased under the option
(or to deliver existing shares of Common Stock) in satisfaction of such tax
liability. The plan administrator also has the authority to reprice
outstanding options through the cancellation of those options and the grant
of replacement options with an exercise price equal to the fair market value
of the option shares on the regrant date.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the Securities and Exchange Commission. There
is no assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the
ten-year option term will be at the assumed 5% or 10% levels or at any other
defined level. Unless the market price of the Common Stock does in fact
appreciate over the option term, no value will be realized from the option
grants.
19
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named
Executives concerning the exercise of options during the 1998 fiscal year and
unexercised options held as of the end of the 1998 fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
SHARES VALUE YEAR-END (#) YEAR-END ($)(2)
ACQUIRED ON REALIZED ------------------------------- -------------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE (3) UNEXERCISABLE EXERCISABLE (3) UNEXERCISABLE
- ----------------------------------- ------------- --------- --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas T. van Overbeek............. 0 0 103,125 21,875 3,750 0
Kimra D. Hawley.................... 0 0 100,483 166,017 21,000 31,500
Joe Falk........................... 0 0 16,250 68,750 5,625 16,875
John Finegan....................... 0 0 64,812 87,688 9,000 13,500
Stephen Francis.................... 0 0 69,500 70,500 9,000 13,500
Johannes P. Schmidt................ 0 0 114,874 140,125 21,000 31,500
</TABLE>
- ------------------------
(1) Based on the fair market value of the shares on the exercise date less the
exercise price paid for the shares.
(2) Based on the fair market value of the shares on the last day of the fiscal
year ($5.75 per share) less the exercise price payable for such shares.
(3) Includes shares that, upon exercise, are subject to repurchase by the
Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is a former or current officer or
employee of the Company or any of its subsidiaries. No executive officer of the
Company serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE
The following is the Report of the Compensation Committee of the Board of
Directors, describing the compensation policies and rationale applicable to the
Company's executive officers with respect to the compensation paid to such
executive officers for the year ended December 31, 1998.
PURPOSE OF THE COMPENSATION COMMITTEE
The Committee is responsible for determining compensation levels for the
executive officers for each fiscal year based upon a consistent set of policies
and procedures.
COMMITTEE STRUCTURE
The Committee is made up of two independent, non-employee members of the
Board of Directors who meet during the first quarter of each fiscal year to set
executive officer salaries, and as needed thereafter. No prior or current member
of the Committee has any interlocking relationships as defined by the SEC.
20
<PAGE>
OBJECTIVES OF THE COMPENSATION PROGRAM
The objectives of the compensation program are: (1) to provide a means for
the Company to attract and retain high-quality executives; (2) to tie executive
compensation directly to the Company's business and performance objectives; and
(3) to reward outstanding individual performance that contributes to the
long-term success of the Company.
ELEMENTS OF COMPENSATION
Each executive officer's compensation package is comprised of three
elements: (1) base compensation, which reflects individual performance and is
designed primarily to be competitive with salary levels in a comparative group,
(2) annual bonus plan compensation payable in cash and tied to the achievement
of financial performance goals established by the Committee, and (3) long-term
stock-based incentive compensation which emphasizes a focus on Company growth
and increased stockholder value.
BASE COMPENSATION
The base compensation for each executive officer is determined using an
analysis of competitive salary ranges provided by an independent public
accounting firm which focuses on companies similar in size and business who
compete with Input in the recruitment and retention of senior personnel. The
Committee believes that the Company's most direct competitors for executive
talent are not necessarily all of the companies that the Company would use in a
comparison of stockholder returns. Therefore, the compensation comparison group
is not the same as the industry group in the index used in the PERFORMANCE
GRAPH, below.
The Committee considers specifically the following factors in determining
base compensation: (1) a comparison of the Company's growth and financial
performance relative to the performance of competitors, (2) salary levels for
comparable positions in the compensation comparison group and (3) each
executive's responsibility level and financial and strategic objectives for the
subsequent year. The Committee believes that the current base compensation for
executive officers is at the low end of the companies in the compensation
comparison group with which the Company competes for talent.
ANNUAL BONUS PLAN COMPENSATION
The Company's annual bonus plan provides for incentive bonus compensation to
all officers and a number of key employees based on the achievement of specific
corporate performance targets established at the beginning of the fiscal year
relating to revenues and operating profits. For fiscal year 1998, a bonus range
was established such that achievement of planned revenue and operating profits
would result in a specified bonus level. For performance levels over plan, the
bonus compensation amount would increase proportionately. For fiscal year 1998,
revenue and operating profits were slightly below established targets and
bonuses were paid in accordance with the plan. In addition, Messrs. van Overbeek
and Finegan were awarded bonuses in conjunction with the sale of the Company's
display division.
The Company's incentive bonus compensation structure was reviewed and
revised for fiscal year 1998 to include specific corporate performance targets
relating to revenues and net profits as well as specific individual performance
objectives.
LONG-TERM STOCK-BASED INCENTIVE COMPENSATION
Long-term incentives are provided through stock option grants. The grants
are designed to align the interests of each executive officer with those of the
stockholders and provide each individual with a significant incentive to manage
the Company from the perspective of an owner with an equity stake in the
business. Each grant generally allows the officer to acquire shares of the
Company's common stock at a fixed price per share (the market price on the grant
date) over a specified period of time (up to ten years). Each option generally
becomes exercisable in installments over a four-year period, contingent upon the
21
<PAGE>
executive officer's continued employment with the Company. Accordingly, the
option will provide a return to the executive officer only if the executive
officer remains employed by the Company during the four-year vesting period, and
then only if the market price of the shares appreciates over the option term.
The size of the option grant to each executive officer, based on the aggregate
exercise price, generally is set to a multiple of salary that the Committee
deems appropriate in order to create a meaningful opportunity for stock
ownership based upon the individual's current position with the Company, but
also takes into account comparable awards to individuals in similar positions in
the industry as reflected in external surveys, the individual's potential for
future responsibility and promotion over the option term and the individual's
personal performance in recent periods. The Committee also takes into account
the number of vested and unvested options held by the executive officer in order
to maintain an appropriate amount of equity incentive for that individual. The
weight of these various factors will vary over time and with respect to each
individual. However, the Committee does not adhere to any specific guidelines as
to the relative option holdings of the Company's executive officers.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Compensation for the Chief Executive Officer is determined by a process
similar to that discussed above for executive officers. Ms. Hawley's base
compensation for fiscal 1998 was established by the Board of Directors in the
first quarter of 1998 and was increased by the Committee effective September 1,
1998. The Committee established Ms. Hawley's base salary adjustment based on an
evaluation of her personal performance and the objective of having her base
salary keep pace with salaries being paid to similarly situated chief executive
officers. Further, the Committee intends base salary to provide Ms. Hawley with
a level of stability and certainty each year and intends that this particular
component of compensation not be affected to any significant degree by Company
performance factors.
The remaining components of Ms. Hawley's 1998 compensation, however, were
dependent upon financial performance and provided no dollar guarantees. The
incentive bonus compensation for Ms. Hawley for the 1998 fiscal year was
dependent on the achievements of specific corporate performance targets
established at the beginning of the fiscal year, and adjusted in June, as set
forth above in the discussion in Annual Bonus Plan Compensation.
DEDUCTION LIMIT FOR EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code, enacted in 1993, limits federal
income tax deductions for compensation paid to the Chief Executive Officer and
the four other most highly compensated officers of a public company to $1
million per year, but contains an exception for performance-based compensation
that satisfies certain conditions.
The Committee believes that option grants under the 1993 Plan are exempt
from the deduction limit. Because it is unlikely that other compensation payable
to any Company executive would exceed the deduction limit in the near future,
the Committee has not yet considered whether it will seek to qualify
compensation other than options for the performance-based exception or will
prohibit the payment of compensation that would exceed the deduction limit.
However, in approving the amount and form of compensation for Company
executives, the Committee will continue to consider all elements of cost to the
Company of providing that compensation.
Submitted by the Compensation Committee of the Company's Board of Directors:
DANIEL D. TOMPKINS, CHAIRMAN
JAMES CRAWFORD III
22
<PAGE>
COMPARISON OF STOCKHOLDER RETURN
This graph reflects a comparison of the cumulative total return (change in
stock price plus reinvested dividends) of the Company's Common Stock price with
the cumulative total returns of the S&P Midcap 400 Index and the S&P High
Technology Composite Index.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEARS ENDING DEC93 DEC94 DEC95 DEC96 DEC97 DEC98
<S> <C> <C> <C> <C> <C> <C>
INPUT SOFTWARE INC 100 $103.3898 $98.30508 $49.15254 $34.31864 $38.98305
S&P MIDCAP 400 INDEX 100 $96.41515 $126.2483 $150.4894 $199.0277 $237.054
TECHNOLOGY-500 100 $116.5486 $167.8807 $238.1729 $300.3195 $519.4816
DOLLARS
</TABLE>
- ------------------------
(1) The graph covers the five period from January 1, 1994, through the fiscal
year ended December 31, 1998.
(2) The graph assumes that $100 was invested on January 1, 1994, in the
Company's Common Stock and on January 1, 1994, in each index and that all
dividends were reinvested. No cash dividends have been declared on the
Company's Common Stock.
(3) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
(4) The performance graph and all of the material in the Compensation Committee
Report is not deemed filed with the Securities and Exchange Commission, and
is not incorporated by reference to any filing of the Company under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
whether made before or after the date of this Proxy Statement and
irrespective of any general incorporation language in any such filing.
CERTAIN TRANSACTIONS
On April 10, 1997, Mr. van Overbeek, President and Chief Executive Officer
of the Company, received a loan from the Company of $276,000. The loan has an
interest rate of 8.25% per annum and a two year term and is secured by certain
of Mr. van Overbeek's personal assets. At February 28, 1998, the total amount
owed by Mr. van Overbeek, including principal and interest amounts, was
$322,974.
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1998, has been mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Annual Meeting. Except for
"Executive Officers" from Part I of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, the Annual Report is not incorporated
into this Proxy Statement and is not considered proxy solicitation material.
23
<PAGE>
FORM 10-K
The Company filed an Annual Report on Form 10-K with the SEC. Stockholders
may obtain a copy of this report, without charge, by writing to Mr. John
Finegan, Secretary, at the Company's executive offices at 1299 Parkmoor Avenue,
San Jose, California 95126.
OTHER MATTERS
Management does not know of any matters to be presented at this Annual
Meeting other than those set forth herein and in the Notice accompanying this
Proxy Statement.
THE BOARD OF DIRECTORS
OF INPUT SOFTWARE, INC.
April 19, 1999
San Jose, California
24
<PAGE>
1209-PS-99
<PAGE>
INPUT SOFTWARE, INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS
MAY 27, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints KIMRA HAWLEY and JOHN FINEGAN and each
or either of them as Proxies of the undersigned, with full power of
substitution, and hereby authorizes them to represent and to vote, as
designated below, all of the shares of Common Stock of INPUT SOFTWARE, INC.,
held of record by the undersigned on April 8, 1999, at the Annual Meeting of
Stockholders of Input Software, Inc. to be held May 27, 1999, or at any
adjournment or postponement thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NOS. 1, 2, 3 AND
4. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ON THE
REVERSE SIDE. THIS PROXY WILL BE VOTED FOR PROPOSAL NOS. 1, 2, 3 AND 4 IF NO
SPECIFICATION IS MADE.
- ------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS
/ / 1 FOR all nominees / / 2 WITHHOLD AUTHORITY
to vote for all nominees
/ / 3 EXCEPTIONS
listed below
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
the "EXCEPTIONS" box and strike a line through the nominee's name in the list
below:
James Crawford III Bruce Silver
Kimra Hawley Daniel D. Tompkins
Thomas T. van Overbeek Johannes P. Schmidt
John Finegan
2. To approve an amendment to the Company's 1993 Stock Option/Stock Issuance
Plan to increase the number of shares of Common Stock for issuance thereunder
by 300,000 shares to 2,974,852 shares.
/ / 4 FOR / / 5 AGAINST / / 6 ABSTAIN
3. To approve an amendment to the Company's 1998 Employee Stock Purchase Plan
to increase the number of shares of Common Stock for issuance thereunder by
50,000 shares to 150,000 shares.
/ / 7 FOR / / 8 AGAINST / / 9 ABSTAIN
4. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors of the Company.
/ / 10 FOR / / 11 AGAINST / / 12 ABSTAIN
5. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting.
Please sign exactly as your name(s) is (are) shown on the share certificate
to which the Proxy applies. When shares are held by joint tenants, both
should sign. When signing as an 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.
DATED: ___________________________, 1999
Signature ________________________________________________________________
________________________________________________________________
(Additional signature if held jointly)
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
