UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-23384
INSO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-3216243
(State or other (I.R.S. Employer Identification No.)
jurisdiction of
incorporation or organization)
31 St. James Avenue, Boston, MA 02116
(Address of principal executive offices) (Zip Code)
(617) 753 - 6500
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes (X) No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 9, 1996
Common Stock (par value $.01 per share) 13,084,124
<PAGE>
INSO CORPORATION
FORM 10-Q INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
Consolidated Statements of Income
Three Months Ended June 30, 1996 and 1995
Six Months Ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 4. Submission of Matters to a Vote of
Security-Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
INSO CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 and DECEMBER 31, 1995
(Unaudited, in thousands of dollars)
<TABLE>
<CAPTION>
June 30 December 31
ASSETS 1996 1995
--------- ---------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,312 $ 37,235
Marketable securities 49,598 25,397
Accounts receivable, net 11,761 8,264
Other current assets 1,132 530
-------- --------
Total current assets 68,803 71,426
Property and equipment, net 3,250 2,257
Royalty advances and other assets, net 2,304 980
Product development costs, net 4,085 3,229
Intangible assets, net 9,484 9,390
Deferred income tax benefit, net 3,803 3,847
-------- -------
TOTAL ASSETS $ 91,729 $ 91,129
-------- -------
-------- -------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities $ 2,359 $ 1,885
Accrued salaries, commissions and bonuses 2,540 2,094
Unearned revenue 449 875
Royalties payable 1,748 1,461
Due to Houghton Mifflin Company 346 314
Promissory notes 6,037
Current income taxes payable 1,406 883
Deferred income taxes 2,417 2,417
-------- -------
Total current liabilities 11,265 15,966
Stockholders' equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized; none
issued
Common stock, $.01 par value;
50,000,000 shares authorized;
13,078,448 shares issued in 1996
(12,965,700 in 1995) 131 130
Capital in excess of par value 66,585 64,096
Retained earnings 14,377 11,657
-------- -------
81,093 75,883
Unamortized value of restricted shares (572) (669)
Treasury stock, at cost, 5,075 shares
in 1996 (4,975 in 1995) (57) (51)
-------- -------
Total stockholders' equity 80,464 75,163
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 91,729 $ 91,129
-------- -------
-------- -------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
INSO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 1996 and 1995
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Net revenues $ 15,144 $ 10,372
Cost of revenues 2,200 1,294
-------- -------
Gross profit 12,944 9,078
Operating expenses
Sales and marketing 2,824 1,519
Product development 2,718 1,848
General and administrative 1,955 1,902
Purchased in-process research and
development 5,500
-------- -------
Total operating expenses 7,497 10,769
-------- -------
Operating income (loss) 5,447 (1,691)
Net investment income 727 166
Income (loss) before provision for -------- -------
income taxes 6,174 (1,525)
Income tax expense 2,173 1,550
-------- -------
Net income (loss) $ 4,001 $ (3,075)
-------- -------
-------- -------
Net income (loss) per share $ 0.29 $ (0.25)
-------- -------
-------- -------
Weighted average shares outstanding 13,877 12,424
-------- -------
-------- -------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
INSO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996 and 1995
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net revenues $ 27,605 $ 17,925
Cost of revenues 3,845 2,516
-------- --------
Gross profit 23,760 15,409
Operating expenses
Sales and marketing 4,927 2,634
Product development 5,281 3,291
General and administrative 3,951 3,101
Purchased in-process research
and development 4,400 5,500
-------- --------
Total operating expenses 18,559 14,526
-------- --------
Operating income 5,201 883
Net investment income 1,533 337
-------- --------
Income before provision for income taxes 6,734 1,220
Income tax expense 4,014 2,583
-------- --------
Net income (loss) $ 2,720 $ (1,363)
-------- --------
-------- --------
Net income (loss) per share $ 0.20 $ (0.11)
-------- --------
-------- --------
Weighted average shares outstanding 13,690 12,292
-------- --------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
INSO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 and 1995
(Unaudited, in thousands of dollars)
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Cash flows from (used in) operating
activities:
Net income (loss) $ 2,720 $ (1,363)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 2,759 1,369
Purchased in-process research
and development 4,400 5,500
--------- --------
9,879 5,506
Changes in operating assets and
liabilities:
Accounts receivable (4,362) (1,384)
Royalty advances and other assets (239) 233
Accounts payable and accrued
liabilities 1,108 433
Current and deferred income taxes 1,516 10
Royalties payable 293 120
Due to Houghton Mifflin Company 32 (304)
Other assets and liabilities (1,368) (362)
--------- -------
Net cash provided by operating activities 6,859 4,252
Cash flows from (used in) investing
activities:
Property and equipment expenditures (1,447) (1,503)
Capitalized product development costs (865) (572)
Acquisition of Systems Compatibility
Corporation, net of cash acquired
and issuance of promissory notes (4,184)
Acquisition of ImageMark Software Labs,
Inc., net of cash acquired (6,492)
Purchase of marketable securities (24,201)
-------- -------
Net cash used in investing activities (33,005) (6,259)
Cash flows from (used in) financing
activities:
Net proceeds from issuance of common stock 297 122
Purchases of treasury stock (6) (7)
Proceeds from exercise of stock options 969 578
Repayment of promissory notes (6,037) (110)
-------- -------
Net cash provided by (used in) financing
activities (4,777) 583
-------- -------
Net decrease in cash and cash equivalents (30,923) (1,424)
Cash and cash equivalents at beginning
of period 37,235 13,858
-------- --------
Cash and cash equivalents at end of period $ 6,312 $ 12,434
-------- -------
-------- -------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
INSO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
Note 1. Basis of Presentation
All normal and recurring adjustments that are, in the opinion of management,
necessary for a fair presentation of the results for the interim periods
have been included.
For further information, refer to the consolidated financial statements and
footnotes thereto included in INSO Corporation's annual report on Form 10-K
filed with the Securities and Exchange Commission for the year ended December
31, 1995.
Note 2. Acquisitions
ImageMark Software Labs, Inc.
On January 9, 1996, the Company acquired all of the outstanding capital stock
of privately held ImageMark Software Labs, Inc. (now INSO Kansas City
Corporation) for a purchase price of $5,500,000. The purchase price was
paid from available cash and may increase $950,000 if certain 1996
revenue levels are met or exceeded. The Company also caused INSO Kansas City
to enter into employment and noncompetition agreements with two key executives
and made aggregate payments of $1,000,000 in cash under those agreements.
The transaction was accounted for as a purchase and has been included in
the consolidated financial statements since the date of acquisition. The
acquisition included the purchase of certain in-process research and
development, which resulted in a charge to the Company's consolidated
results for the quarter ended March 31, 1996 of $4,400,000, or $0.34 per
share. The charge was not deductible for tax purposes. The purchase price
has been allocated on the basis of the estimated fair market value of the
assets acquired and liabilities assumed. Intangible assets of approximately
$351,000 were recorded as part of the acquisition and are being amortized on
a straight-line basis over their estimated useful lives of seven years. The
employment and noncompetition agreements are being amortized over three years.
Unaudited pro forma net revenues, net loss and net loss per share shown
below for the six months ended June 30, 1995 assumes the ImageMark Software
Labs, Inc. acquisition described above occurred on January 1, 1995:
<TABLE>
<CAPTION>
Six months ended
June 30, 1995
----------------
<S> <C>
Net Revenues $19,086,000
Net Loss $(1,684,000)
Net Loss per share $ (0.14)
</TABLE>
Systems Compatibility Corporation
On April 1, 1995, the Company acquired all of the outstanding capital stock
of privately held Systems Compatibility Corporation (now INSO Chicago
Corporation), for a purchase price of $12,367,500. The purchase was paid in
the form of $6,000,000 in available cash and $6,367,500 in promissory notes
which were repaid on February 1, 1996. The transaction was accounted for as
a purchase and has been included in the consolidated financial statements
since the date of acquisition. The acquisition included the purchase of
certain technology under research and development, which resulted in a
charge to the Company's consolidated results for the quarter ended
June 30, 1995 of $5,500,000, or $0.44 per share. The charge was not
deductible for tax purposes. The purchase price has been allocated on the
basis of the estimated fair market value of the assets acquired and
liabilities assumed. Intangible assets of $3,842,000 were recorded as part
of the acquisition and are being amortized on a straight-line basis over
their estimated useful lives of seven years.
Note 3. Shareholder Resolutions
On May 2, 1996, the Company's stockholders voted to increase the number of
authorized shares of common stock from 25,000,000 to 50,000,000.
On May 2, 1996, the Company's stockholders approved the Company's 1996 Stock
Incentive Plan. The 1996 Stock Incentive Plan provides that up to 2,000,000
shares of common stock may be issued pursuant to this Plan.
On May 2, 1996, the Company's stockholders approved the 1996 Non-employee
Director Plan. The 1996 Non-employee Director Plan provides that up to
250,000 shares of common stock may be issued pursuant to this Plan.
On May 2, 1996, the Company's stockholders approved amendments to the
Company's 1993 Stock Incentive Plan (the "1993 Incentive Plan") to (a) limit
the number of shares of common stock which may be subject to grants of
options or awards of stock in a single year to a single participant to
300,000, (b) provide that options granted to purchase shares of common stock
and restricted common stock awarded under the 1993 Incentive Plan to become
vested and exercisable in full upon a change in control, whether or
not vested or exercisable in accordance with their terms, and (c) provide
that no further grants of options or awards of stock be made to non-employee
directors of the Company under the 1993 Incentive Plan.
Note 4. Subsequent Events
On July 16, 1996, the Company acquired all of the outstanding capital stock of
privately held Electronic Book Technologies, Inc. (now INSO Providence
Corporation). The Company paid an aggregate of approximately $27,800,000
in cash at the closing from the Company's cash on hand. In addition,
certain stock options of INSO Providence survived the closing and, if
exercised, the Company has the right and obligation to purchase shares
issuable upon the exercises, for an additional aggregate amount of
approximately $10,400,000, which is also expected to be paid from
the Company's cash on hand. The transaction will be accounted for as a
purchase and provides for additional payments of approximately $1,500,000
to the principal stockholder of INSO Providence eighteen months after the
closing date and contingent payments up to an additional $5,300,000 in the
event that certain INSO Providence financial and operating goals are met.
The acquisition includes certain technology under research and development,
which is to be written-off with a charge estimated between $30,000,000 and
$35,000,000 to the Company's consolidated 1996 third quarter earnings.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Revenues for the quarter ended June 30, 1996 increased $4,772,000, or 46.0%,
to $15,144,000 compared to $10,372,000 for the quarter ended June 30, 1995.
Royalty revenues increased 17.6% due primarily to higher earnings from
existing licenses of CorrecText(R) Grammar Correction System ("GCS"),
IntelliScope(R) search enhancer, ImageStream(R) graphic filters,
International CorrectSpell(TM) Concise spelling correction system and Word
Finder(R) electronic thesaurus. Contributing to the royalty revenue
increase were revenues from the January 1996 INSO Kansas City acquisition as
well as higher revenues from existing licensees. Non-refundable royalty
revenues more than doubled over the same period last year, reflecting new
licenses of Outside In(R) viewing technology, ImageStream(R) graphic filters,
The Columbia Encyclopedia, Fifth Edition, the Information Please(TM)
almanacs, and CorrectEnglish(TM) ESL writing system. Direct and retail
sales of Quick View Plus(R), CyberSpell(TM), InWords(TM), and
SciWords(TM) also contributed to the overall increase in total revenues.
Gross profit increased $3,866,000, or 42.6%, from $9,078,000 for the three
months ended June 30, 1995 to $12,944,000 for the three months ended June 30,
1996. Gross profit as a percentage of revenues for the three months ended
June 30, 1996 was 85.5% compared to 87.5% for the three months ended June 30,
1995. The decrease in gross profit percentage was primarily attributable to
higher amortization of license fees and other intangibles.
Total operating expenses decreased $3,272,000 to $7,497,000 for the three
months ended June 30, 1996 from $10,769,000 for the three months ended
June 30, 1995. Included in total operating expenses for the quarter ended
June 30, 1995 was an acquisition charge of $5,500,000 for certain purchased
technology under research and development by INSO Chicago at the time of the
April 1, 1995 acquisition. Sales and marketing expenses increased
$1,305,000 to $2,824,000 for the three months ended June 30, 1996
reflecting staff additions in sales as the Company establishes its presence
in the corporate sales channel and staff additions in the product
management area to support new product development. Sales and marketing
expenses increased as a percentage of revenues to 18.6% for the three
months ended June 30, 1996 from 14.6% for the three months ended
June 30, 1995. Product development expenses increased $870,000 due to
revisions to, and new product development for, the Company's proofing tools,
information products, and information management tools product lines.
The Company's total product development costs, including capitalized costs,
were $3,103,000, or 20.5% of revenues, for the three months ended
June 30, 1996 compared to $2,164,000, or 20.9% of revenues, for the
three months ended June 30, 1995. New products released during the
quarter included the IntelliScope(R) search enhancer for Japanese,
Inso Search Wizard(TM), ImageStream(R) for Microsoft(R) Office, and Quick
View Plus(R) plug-in for Netscape Navigator 2.0. General and
administrative expenses increased $53,000 to $1,955,000 for the three months
ended June 30, 1996, compared to $1,902,000 for the three months ended
June 30, 1995. General and administrative expenses declined as a
percentage of revenues to 12.9% for the three months ended June 30, 1996
from 18.3% for the three months ended June 30, 1995 as a result of improved
efficiencies and economies of scale in the administrative area.
The Company's effective tax rate for the three months ended June 30, 1995 was
influenced by the $5,500,000 INSO Chicago charge for purchased technology
under research and development at the time of the acquisition. The
charge was not deductible for tax purposes. Exclusive of the charge, the
Company's effective tax rate was 39.0% for the three months ended June 30,
1995 compared to 35.2% for the three months ended June 30, 1996.
Excluding the $5,500,000 ($0.44 per share) in-process research and
development charge related to the INSO Chicago acquisition, net income
and earnings per share for the quarter ended June 30, 1995 would have
been $2,425,000 and $0.20, respectively, compared with net income and
earnings per share for the quarter ended June 30, 1996 of $4,001,000
and $0.29, respectively.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenues for the six months ended June 30, 1996 increased $9,680,000, or 54.0%,
to $27,605,000 compared to $17,925,000 for the six months ended June 30,
1995. Royalty revenues increased 26.8% due primarily to higher earnings
from existing licenses of GCS, IntelliScope(R), ImageStream(R), and Outside
In(R). Contributing to the royalty revenue increase were revenues from the
INSO Chicago and INSO Kansas City acquisitions as well as higher revenues
from existing licensees. Non-refundable royalty revenues more than doubled
over the same period last year, reflecting new licenses of the Information
Please(TM) almanacs, Dutch, Italian, Spanish, German, and French bilingual
dictionaries, ImageStream(R), and Outside In(R). Direct and retail sales
of Quick View Plus(R), CyberSpell(TM), InWords(TM), and SciWords(TM)
also contributed to the overall increase in total revenues.
Gross profit increased $8,351,000, from $15,409,000 for the six months ended
June 30, 1995, to $23,760,000 for the six months ended June 30, 1996. Gross
profit as a percentage of revenues for the six months ended June 30,
1996 was 86.1% compared to 86.0% for the six months ended June 30, 1995. The
increase in gross profit percentage was primarily attributable to higher
revenues from ImageStream(R), and Outside In(R), which carry lower
royalty burdens partially offset by higher amortization of license fees and
other intangibles.
Total operating expenses increased $4,033,000 to $18,559,000 for the six
months ended June 30, 1996 from $14,526,000 for the six months ended
June 30, 1995. Included in total operating expenses for the six months ended
June 30, 1996 and 1995, were acquisition-related charges of $4,400,000 and
$5,500,000, respectively, for certain purchased technology under research
and development at INSO Kansas City and INSO Chicago, respectively, at the
time of the acquisitions of those companies. Sales and marketing expenses
increased $2,293,000 to $4,927,000 for the six months ended June 30, 1996,
reflecting staff additions in sales as the Company establishes its presence
in the corporate sales channel and staff additions in the product management
area to support new product development. Sales and marketing expenses
increased as a percentage of revenues to 17.8% for the six months ended
June 30, 1996 from 14.7% for the six months ended June 30, 1995. Product
development expenses increased $1,990,000 due to revisions to, and new
product development for, the Company's proofing tools, information products,
and information management tools product lines. The Company's total product
development costs, including capitalized costs, were $6,146,000, or 22.3%
of revenues, for the six months ended June 30, 1996 compared to $3,863,000, or
21.6% of revenues, for the six months ended June 30, 1995. New products
released during the first six months of 1996 included CyberSpell(TM),
SciWords(TM), InWords(TM), the electronic versions of the 1996 Information
Please(TM) Almanac and the Information Please(TM) Sports Almanac,
IntelliScope(R) search enhancer for Japanese, Inso Search Wizard(TM),
ImageStream(R) for Microsoft(R) Office, and Quick View Plus(R) plug-in
for Netscape Navigator 2.0. General and administrative expenses
increased $850,000 to $3,951,000 for the six months ended June 30, 1996
compared to $3,101,000 for the six months ended June 30, 1995. General and
administrative expenses declined as a percentage of revenues to 14.3% for
the six months ended June 30, 1996 from 17.3% for the six months ended
June 30, 1995 as a result of improved efficiencies and economies of scale
in the administrative area.
The Company's effective tax rate for the six months ended June 30, 1996 and
1995 was influenced by the $4,400,000 INSO Kansas City and the $5,500,000
INSO Chicago charges, respectively, for purchased technology under research
and development at the time of the acquisitions. The charges were not
deductible for tax purposes. Excluding the charges, the Company's effective
tax rate for the six months ended June 30, 1996 was 36.1% compared to
38.4% for the six months ended June 30, 1995.
Excluding the $4,400,000 ($0.34 per share) in-process research and development
charge related to the INSO Kansas City acquisition in the six months ended
June 30, 1996 and the $5,500,000 ($0.44 per share) in-process research and
development charge related to the INSO Chicago acquisition in the six
months ended June 30, 1995, net income and earnings per share would have
been $7,120,000 and $0.52, respectively, for the six months ended June 30,
1996 compared to $4,137,000 and $0.34, respectively, for the six months
ended June 30, 1995.
Liquidity and Capital Resources
The Company's operating activities provided cash of $6,859,000 for the six
months ended June 30, 1996 compared to $4,252,000 for the six months ended
June 30, 1995. The increased contribution from operating activities was
primarily attributable to increased net income offset by the timing of
receipts on accounts receivable, royalty advance payments for new
content acquired in 1996, and incentive compensation paid in 1996 for 1995
performance.
The Company's investing activities used cash of approximately $33,005,000 for
the six months ended June 30, 1996 compared to $12,626,000 for the six
months ended June 30, 1995. The increase reflects the January 9, 1996
acquisition of all of the outstanding capital stock of ImageMark Software
Labs, Inc. for a net $6,492,000 in cash. Investments in marketable
securities of $24,201,000 also contributed to the increase in the Company's
investing activities.
The Company's financing activities used cash of approximately $4,777,000 for
the six months ended June 30, 1996 compared to providing cash of $6,950,000
for the six months ended June 30, 1995. On February 1, 1996, the
Company repaid outstanding promissory notes of $6,037,000 issued in connection
with the acquisition of INSO Chicago in April 1995.
As of June 30, 1996, the Company had working capital of $57,538,000. Total
cash, cash equivalents, and marketable securities at June 30, 1996 were
$55,910,000. On July 16, 1996, the Company acquired all of the
outstanding capital stock of Electronic Book Technologies, Inc. The purchase
price of $39,700,000 is expected to be paid from available cash and may
increase $5,300,000 in the event that certain INSO Providence financial
and operating goals are met. The Company believes that funds available,
net of this transaction, together with funds expected to be generated
from operations, will be sufficient to finance the Company's operations
through the foreseeable future.
Future Operating Results
This report, and other reports, proxy statements and other communications to
stockholders, as well as oral statements by the Company's officers or its
agents, may contain forward-looking statements with respect to, among other
things, the Company's future revenues, operating income or earnings per share.
Please refer to the Company's Report on Form 10-K for the fiscal year ended
December 31, 1995 for a description of certain factors which may
cause the Company's actual results to vary materially from those forecasted
or projected in any such forward-looking statement.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
At the Annual Stockholders' Meeting on May 2, 1996, at which a quorum was
present, the stockholders approved the following proposals by the number
of shares of common stock voted as noted:
Proposal #1 - Election of Class III Directors for a three-year term.
<TABLE>
<CAPTION>
Number of Shares
Voted For Withheld
--------- --------
<S> <C> <C>
Joseph A. Baute 9,582,500 5,730
J.P. Barger 9,582,500 5,730
Joanna T. Lau 9,582,500 5,730
</TABLE>
The following directors' terms of office continued after the
Annual Stockholders' Meeting.
Steven R. Vana-Paxhia
Stephen O. Jaeger
Ray Stata
William J. Wisneski
Proposal #2 - Approval of an amendment to the Company's
Certificate of Incorporation, as amended,
that would increase the number of authorized
shares of the Company's common stock, par
value $.01 per share, from 25,000,000 to 50,000,000.
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For 9,282,808
Against 75,362
Abstain 2,910
Broker Non-Votes 227,150
</TABLE>
Proposal #3 - Ratification and Approval of amendments to the
Company's 1993 Stock Incentive Plan.
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For 8,683,237
Against 509,218
Abstain 8,703
Broker Non-Votes 387,072
</TABLE>
Proposal #4 - Approval of the Company's 1996 Stock
Incentive Plan.
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For 7,530,714
Against 1,285,943
Abstain 8,872
Broker Non-Votes 762,701
</TABLE>
Proposal #5 - Approval of the Company's 1996 Non-employee Director Plan.
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For 7,373,746
Against 1,443,194
Abstain 8,589
Broker Non-Votes 762,701
</TABLE>
Proposal #6 - Ratification of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For 9,571,465
Against 1,105
Abstain 1,660
Broker Non-Votes 14,000
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following are filed as exhibits to this Form 10-Q:
3.1 Restated Certificate of Incorporation of the Company, dated June 21,
1996, incorporated by reference to Exhibit 4.1 to Registration Statement
Number 333-06847 on Form S-8, filed with the Commission on June 26, 1996.
10.1 INSO Corporation 1993 Stock Incentive Plan, as amended.
10.2 INSO Corporation 1996 Non-employee Director Plan.
10.3 INSO Corporation 1996 Stock Incentive Plan.
27 Financial Data Schedule.
(b) Report on Form 8-K
Registrant filed no reports on Form 8-K during the quarter ended
June 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSO Corporation
Registrant
Date: August 9, 1996 /s/ Betty J. Savage
-------------------
Betty J. Savage
Vice President and Chief
Financial Officer
Date: August 9, 1996 /s/ Linda J. Barnes
-------------------
Linda J. Barnes
Vice President and Controller
(Chief Accounting Officer)
<PAGE>
Exhibit Index
Exhibit No. Description
3.1 Restated Certificate of Incorporation of
the Company, dated June 21, 1996, incorporated
by reference to Exhibit 4.1 to Registration
Statement No. 333-06847 on Form S-8, filed
with the Commission on June 26, 1996.
10.1 INSO Corporation 1993 Stock Incentive Plan, as
amended.
10.2 INSO Corporation 1996 Non-employee Director Plan.
10.3 INSO Corporation 1996 Stock Incentive Plan.
27 Financial Data Schedule.
<PAGE>
Exhibit 10.1
INSO CORPORATION
1993 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the INSO Corporation Stock Incentive Plan (the
"Plan"). The purpose of the Plan is to encourage and enable the officers and
employees of INSO Corporation, formerly known as InfoSoft International, Inc.
(the "Company") and its Subsidiaries upon whose judgment, initiative and
efforts the Company largely depends for the successful conduct of its
business to acquire a proprietary interest in the Company. It is
anticipated that providing such persons with a direct stake in the Company's
welfare will assure a closer identification of their interests with those of
the Company, thereby stimulating their efforts on the Company's behalf and
strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards," except where referring to a particular category of grant
under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock Awards, Unrestricted Stock Awards and Performance
Share Awards.
"Board" means the Board of Directors of the Company.
"Cause" means and shall be limited to a vote of the Board of Directors
resolving that the participant should be dismissed as a result of (i) any
material breach by the participant of any agreement to which
the participant and the Company are parties, (ii) any act (other than
retirement) or omission to act by the participant that may have a material
and adverse effect on the business of the Company or any
Subsidiary or on the participant's ability to perform services for the Company
or any Subsidiary, including, without limitation, the commission of any crime
(other than ordinary traffic violations) or (iii) any material misconduct or
neglect of duties by the participant in connection with the business or
affairs of the Company or any Subsidiary.
"Change in Control" shall be deemed to have occurred only upon the occurrence
of any of the following events:
(A) any "person," as such term is used in Sections 13(d) and 14(d) of the
Act, (other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, any
corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportion as their ownership of
stock of the Company or an Exempt Person) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly
or indirectly, of securities of the Company representing 33 1/3% or more
of the combined voting power of the Company's then outstanding
securities (other than as a result of the acquisition of such
securities directly from the Company);
(B) during any period of two consecutive years (not including any period
prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described
in paragraph (A), (C) or (D) of this Subsection) whose election by
the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously
so approved cease for any reason to constitute at least a majority
thereof; or
(C) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than (1) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or
(2) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
person (as hereinabove defined), other than a person holding more than
50% of the combined voting power of the Company's then outstanding
securities immediately prior to such recapitalization, acquires more
than 50% of the combined voting power of the Company's then outstanding
securities; or
(D) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
"Exempt Person" means Houghton Mifflin Company ("HMC"), provided that HMC
shall cease to be an Exempt Person if and when, following a Change in Control
(as defined above but substituting "Houghton Mifflin Company" for the
"Company" as used therein) of HMC, HMC, directly or indirectly, acquires
beneficial ownership of any additional shares of the Company's capital stock.
"Code" means the Internal Revenue Code of 1986, as amended, and any successor
Code and related rules, regulations and interpretations.
"Committee" means any Committee of the Board referred to in Section 2.
"Disability" means disability as set forth in Section 22(e)(3) of the Code.
"Disinterested Person" means a Non-Employee Director who qualifies as such
under Rule 16b-3(c)(2)(i) promulgated under the Act, or any successor
definition under the Act.
"Effective Date" means the date on which the Plan is approved by stockholders
as set forth in Section 14.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and the related rules, regulations and interpretations.
"Fair Market Value" on any given date means the last reported sale price at
which Stock is traded on such date or, if no Stock is traded on such date, the
most recent date on which Stock was traded, as reflected on the Nasdaq
National Market System or, if applicable, any other national stock exchange
on which the Stock is traded.
"Incentive Stock Option" means any Stock Option designated and qualified as an
"incentive stock option" as defined in Section 422 of the Code.
"Non-Employee Director" means a number of the Board who is not also a current
employee of the Company or any Subsidiary, a former employee of the Company
who is receiving compensation for prior services (other than benefits from
tax qualified retirement plans), a former officer of the Company or a
consultant or otherwise receiving compensation for personal services in any
capacity other than as a director.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Performance Share Award" means Awards granted pursuant to Section 8.
"Restricted Stock Award" mean Awards granted pursuant to Section 6.
"Stock" means the Common Stock, $0.01 par value per share, of the Company,
subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the Company) in
any unbroken chain of corporations or other entities, beginning with the
Company if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the total combined voting power of all classes of
stock or other interests in one of the other corporations or entities in the
chain.
"Unrestricted Stock Award" means Awards granted pursuant to Section 7.
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT
PARTICIPANTS AND DETERMINE AWARDS
(a) Committee. The Plan shall be administered by all of the Non-Employee
Director members of the Compensation Committee of the Board, or any other
committee of not less than two Non-Employee Directors performing similar
functions, as appointed by the Board from time to time (the "Committee").
Each member of the Committee shall be a Disinterested Person.
(b) Powers of Committee. The Committee shall have the power and authority to
grant Awards consistent with the terms of the Plan, including the power and
authority:
(i) to select the officers and other employees of the Company and its
Subsidiaries to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant and the extent, if any, of
Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock,
Unrestricted Stock and Performance Shares or any combination of the
foregoing, granted to any one or more participants;
(iii) to determine the number of shares to be covered by any Award;
(iv) to determine and modify the terms and conditions, including
restrictions, not inconsistent with the terms of the Plan, of any Award,
which terms and conditions may differ among individual Awards and
participants, and to approve the form of written instruments evidencing
the Awards;
(v) to accelerate the exercisability or vesting of all or any portion
of any Option;
(vi) subject to the provisions of Section 5(a)(ii), to extend the
period in which Stock Options may be exercised;
(vii) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the participant and whether
and to what extent the Company shall pay or credit amounts equal to
interest (at rates determined by the Committee) or dividends or deemed
dividends on such deferrals; and
(viii) to adopt, alter and repeal such rules, guidelines and practices for
administration of the Plan and for its own acts and proceedings as it shall
deem advisable; to interpret the terms and provisions of the Plan and any
Award (including related written instruments); to make all determinations it
deems advisable for the administration of the Plan; to decide all disputes
arising in connection with the Plan; and to otherwise supervise the
administration of the Plan.All decisions and interpretations of the Committee
shall be binding on all persons, including the Company and Plan participants.
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) Shares Issuable. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be three million (3,000,000).
For purposes of this limitation, the shares of Stock underlying any Awards
that are forfeited, canceled, reacquired by the Company, satisfied without
the issuance of Stock or otherwise terminated (other than by exercise) shall
be added back to the shares of Stock available for issuance under the Plan
so long as the participants to whom such Awards had been
previously granted received no benefits of ownership of the underlying shares
of Stock to which the Award related. Subject to such overall limitation,
shares may be issued up to such maximum number pursuant to any type or types
of Award, including Incentive Stock Options. Shares issued under the Plan
may be authorized but unissued shares or shares reacquired by the Company.
(b) Stock Dividends, Mergers, etc. In the event of a stock dividend, stock
split or similar change in capitalization affecting the Stock, the Committee
shall make appropriate adjustments in (i) the number and kind of shares of
stock or securities on which Awards may thereafter be granted, (ii) the
number and kind of shares remaining subject to outstanding Awards and (iii)
the option or purchase price in respect of such shares. Upon the
occurance of a Change in Control, (i) each option outstanding under the
Plan immediately prior to the effective date of such Change in Control
shall become automatically exercisable in full, and (ii) each outstanding
share of Restricted Stock Awards will immediately become free of all
restrictions and conditions.
(c) Substitute Awards. The Committee may grant Awards under the Plan in
substitution for stock and stock-based awards held by employees of another
corporation who concurrently become employees of the Company or a Subsidiary
as the result of a merger or consolidation of the employing corporation with
the Company or a Subsidiary or the acquisition by the Company or a Subsidiary
of property or stock of the employing corporation. The Committee may direct
that the substitute awards be granted on such terms and conditions as the
Committee considers appropriate in the circumstances.
SECTION 4. ELIGIBILITY
Participants in the Plan will be such full or part-time officers and other
employees of the Company and its Subsidiaries as are responsible for or
contribute to the management, growth or profitability of the
Company and its Subsidiaries and as are selected from time to time by the
Committee, in its sole discretion.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the Committee
may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options or
Non-Qualified Stock Options. To the extent that any option does not qualify as
an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after December 15,
2003.
(a) Stock Options. The Committee in its discretion may grant Stock
Options to employees of the Company or any Subsidiary. Stock Options granted
to employees pursuant to this Section 5(a) shall be subject to the following
terms and conditions and shall contain such additional terms and conditions,
not inconsistent with the terms of the Plan, as the Committee shall deem
desirable:
(i) Maximum Grant per Employee. No employee may be granted annually in
excess of 300,000 Stock Options in the aggregate, such maximum to be adjusted
appropriately to reflect any stock split, stock dividend or similar change in
capitalization affecting the Stock.
(ii) Exercise Price. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall be
determined by the Committee at the time of grant but shall be, in the
case of Incentive Stock Options, not less than 100% of Fair Market Value
on the date of grant and, in the case of Non-Qualified Stock Options,
not less than 85% of Fair Market Value on the date of grant. If an
employee owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any Subsidiary
or parent corporation and an Incentive Stock Option is granted to such
employee, the option price shall be not less than 110% of Fair Market
Value on the grant date.
(iii) Option Term. The term of each Stock Option shall be fixed by
the Committee, but no Incentive Stock Option shall be exercisable more
than ten years after the date the option is granted. If an employee owns
or is deemed to own (by reason of the attribution rules of Section 424(d)
of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation and an
Incentive Stock Option is granted to such employee, the term of such
option shall be no more than five years from the date of grant.
(iv) Exercisability; Rights of a Stockholder. Stock Options shall become
vested and exercisable at such time or times, whether or not in installments,
as shall be determined by the Committee at or after the grant date. The
Committee may at any time accelerate the exercisability of all
or any portion of any Stock Option. An optionee shall have the rights of a
stockholder only as to shares acquired upon the exercise of a Stock Option
and not as to unexercised Stock Options.
(v) Method of Exercise. Stock Options may be exercised in whole or in
part, by giving written notice of exercise to the Company, specifying the
number of shares to be purchased. Payment of the purchase price may be
made by one or more of the following methods:
(A) In cash, by certified or bank check or by other instrument acceptable
to the Committee;
(B) In the form of shares of Stock that are not then subject to restrictions
under any Company plan and that have been held by the optionee for at least
six months, if permitted by the Committee in its discretion. Such surrendered
shares shall be valued at Fair Market Value on the exercise date; or
(C) By the optionee delivering to the Company a properly executed exercise
notice together with irrevocable instructions to a broker to promptly deliver
to the Company cash or a check payable and acceptable to the Company to pay
the purchase price; provided that in the event the optionee
chooses to pay the purchase price as so provided, the optionee and the broker
shall comply with such procedures and enter into such agreements of indemnity
and other agreements as the Committee shall prescribe as a condition of such
payment procedure. Payment instruments will be received subject to
collection.
The delivery of certificates representing shares of Stock to be purchased
pursuant to the exercise of a Stock Option shall be contingent upon receipt
from the Optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase
price for such shares and the fulfillment of any other requirements contained
in the Stock Option or applicable provisions of law.
(vi) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution and all Stock Options shall be exercisable, during
the optionee's lifetime, only by the optionee.
(vii) Annual Limit on Incentive Stock Options. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
Stock with respect to which Incentive Stock Options granted under this Plan
and any other plan of the Company or its Subsidiaries become exercisable
for the first time by an optionee during any calendar year shall not
exceed $100,000.
(viii) Form of Settlement. Shares of Stock issued upon exercise of a
Stock Option shall be free of all restrictions under the Plan, except
as otherwise provided in this Plan.
(b) Reload Options. At the discretion of the Committee, Options granted under
this Section 5(a) may include a so-called "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock
in accordance with Section 5(a)(iv)(B) hereof would automatically be granted
an additional Option (with an exercise price equal to the Fair Market Value of
the Stock on the date the additional Option is granted and with the same
expiration date as the original Option being exercised and with such other
terms as the Committee may provide) to purchase that number of shares of
Stock equal to the number delivered to exercise the original Option.
SECTION 6. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Award. The Committee may grant Restricted
Stock Awards to any employee of the Company or any Subsidiary. A
Restricted Stock Award is an Award entitling the recipient to acquire, at
no cost or for a purchase price determined by the Committee, shares of Stock
subject to such restrictions and conditions as the Committee may determine at
the time of grant ("Restricted Stock"). Conditions may be based on
continuing employment and/or achievement of pre-established performance
goals and objectives. In addition, a Restricted Stock Award may be
granted to an employee by the Committee in lieu of a cash bonus due to such
employee pursuant to any other plan of the Company.
(b) Acceptance of Award. A participant who is granted a Restricted Stock
Award shall have no rights with respect to such Award unless the participant
shall have accepted the Award within 60 days (or such shorter date as the
Committee may specify) following the award date by making payment to the
Company, if required, by certified or bank check or other instrument or form
of payment acceptable to the Committee in an amount equal to the specified
purchase price, if any, of the shares covered by the Award and by executing
and delivering to the Company a written instrument that sets forth the terms
and conditions of the Restricted Stock in such form as the Committee shall
determine.
(c) Rights as a Stockholder. Upon complying with Section 6(b) above, a
participant shall have all the rights of a stockholder with respect to the
Restricted Stock including voting and dividend rights, subject to
non-transferability restrictions and Company repurchase or forfeiture rights
described in this Section 6 and subject to such other conditions contained in
the written instrument evidencing the Restricted Stock Award. Unless the
Committee shall otherwise determine, certificates evidencing shares
of Restricted Stock shall remain in the possession of the Company until such
shares are vested as provided in Section 6(e) below.
(d) Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein. In the event of termination of employment by
the Company and its Subsidiaries for any reason (including death,
Disability, and for Cause), the Company shall have the right, at the
discretion of the Committee, to repurchase shares of Restricted Stock with
respect to which conditions have not lapsed at their purchase price or to
require forfeiture of such shares to the Company if acquired at no cost,
from the participant or the participant's legal representative. The
Company must exercise such right of repurchase or forfeiture not later than
the 90th day following such termination of employment (unless otherwise
specified in the written instrument evidencing the Restricted Stock Award).
(e) Vesting of Restricted Stock. The Committee at the time of grant shall
specify the date or dates and/or the attainment of pre-established performance
goals, objectives and other conditions on which the non-transferability of
the Restricted Stock and the Company's right of repurchase or forfeiture
shall lapse. Subsequent to such date or dates and/or the attainment of such
pre-established performance goals, objectives and other conditions, the
shares on which all restrictions have lapsed shall no longer be
Restricted Stock and shall be deemed "vested." Restricted Stock, unless
subject to performance restrictions, shall have a minimum restriction period
of three years.
(f) Waiver, Deferral and Reinvestment of Dividends. The written instrument
evidencing the Restricted Stock Award may require or permit the immediate
payment, waiver, deferral or investment of dividends paid on the Restricted
Stock.
SECTION 7. UNRESTRICTED STOCK AWARDS
(a) Grant or Sale of Unrestricted Stock. The Committee may, in its sole
discretion, grant (or sell at a purchase price determined by the Committee) to
any employees of the Company or any Subsidiary shares of Stock free of any
restrictions under the Plan ("Unrestricted Stock"). Shares of
Unrestricted Stock may be granted or sold as described in the preceding
sentence in respect of past services or other valid consideration or in lieu
of any cash compensation due to such employee. Shares of Unrestricted Stock,
unless granted in lieu of cash compensation, shall be awarded to employees
based on Company or individual performance.
(b) Elections to Receive Unrestricted Stock In Lieu of Compensation.
Upon the request of an employee and with the consent of the Committee,
each employee may, pursuant to an irrevocable written election delivered to
the Company no later than the date or dates specified by the Committee,
receive a portion of the cash compensation otherwise due to him in
Unrestricted Stock (valued at Fair Market Value on the date or dates the
cash compensation would otherwise be paid, or on the effective date of the
election, if later). Such Unrestricted Stock may be paid to the employee
at the same time as the cash compensation would otherwise be paid, or at
a later time, as specified by the employee in the written election.
With respect to any employee who is subject to Section 16 of the Act,
such irrevocable election shall become effective no earlier than six
months and one day following the date of such election and the
revocation of such election shall be effective six months and
one day following the date of the revocation.
(c) Restrictions on Transfers. The right to receive Unrestricted Stock
may not be sold, assigned, transferred, pledged or otherwise encumbered,
other than by will or the laws of descent and distribution.
SECTION 8. PERFORMANCE SHARE AWARDS
(a) Nature of Performance Shares. A Performance Share Award is an award
entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Committee may make Performance Share
Awards independently of or in connection with the granting of any other
Award under the Plan. Performance Share Awards may be granted under the Plan
to any employees of the Company or any Subsidiary, including those who
qualify for awards under other performance plans of the Company. The
Committee in its sole discretion shall determine whether and to whom
Performance Share Awards shall be made, the performance goals applicable under
each such Award, the periods during which performance is to be measured and
all other limitations and conditions applicable to the awarded Performance
Shares; provided, however, that the Committee may rely on the performance
goals and other standards applicable to other performance unit plans of the
Company in setting the standards for Performance Share Awards under the Plan.
(b) Restrictions on Transfer. Performance Share Awards and all rights with
respect to such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
(c) Rights as a Stockholder. A participant receiving a Performance Share
Award shall have the rights of a stockholder only as to shares actually
received by the participant under the Plan and not with respect to shares
subject to the Award but not actually received by the participant. A
participant shall be entitled to receive a stock certificate evidencing the
acquisition of shares of Stock under a Performance Share Award only upon
satisfaction of all conditions specified in the written instrument evidencing
the Performance Share Award (or in a performance plan adopted by the
Committee).
(d) Termination. Except as may otherwise be provided by the Committee at
any time prior to termination of employment, a participant's rights in all
Performance Share Awards shall automatically terminate upon the participant's
termination of employment by the Company and its Subsidiaries for any
reason (including death, Disability and for Cause).
(e) Acceleration, Waiver, etc. At any time prior to the participant's
termination of employment by the Company and its Subsidiaries, the Committee
may in its sole discretion accelerate, waive or, subject to Section 11,
amend any or all of the goals, restrictions or conditions imposed under
any Performance Share Award.
SECTION 9. TAX WITHHOLDING
(a) Payment by Participant. Each participant shall, no later than the date as
of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant
for federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of any federal, state or local
taxes of any kind required by law to be withheld with respect to such income.
The Company and its Subsidiaries 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 participant.
(b) Payment in Shares. A participant may elect to have such tax withholding
obligation satisfied, in whole or in part, by (i) authorizing the Company to
withhold from shares of Stock to be issued pursuant to any Award a number of
shares with an aggregate Fair Market Value (as of the date the
withholding is effected) that would satisfy the withholding amount due or
(ii) transferring to the Company shares of Stock owned by the participant
with an aggregate Fair Market Value (as of the date the withholding is
effected) that would satisfy the withholding amount due. With respect to any
participant who is subject to Section 16 of the Act, the following additional
restrictions shall apply:
(A) the election to satisfy tax withholding obligations relating to an
Award in the manner permitted by this Section 9(b) shall be made either
(1) during the period beginning on the third business day following the
date of release of quarterly or annual summary statements of sales and
earnings of the Company and ending on the twelfth business day following
such date or (2) at least six months prior to the date as of which the
receipt of such an Award first becomes a taxable event for Federal income
tax purposes;
(B) such election shall be irrevocable;
(C) such election shall be subject to the consent or disapproval of the
Committee; and
(D) the Stock withheld to satisfy tax withholding, if granted at the
discretion of the Committee, must pertain to an Award that has been held by
the participant for at least six months from the date of grant of the Award.
Notwithstanding the foregoing, the option stated in Section 9(b)(A)(i) shall
not be available until and unless the Company has been subject to the
reporting requirements of Section 13(a) of the Act for at least a year prior
to the election and the Company has filed all reports and statements required
to be filed pursuant to that section for that year.
SECTION 10. CASH AWARDS
If the payment or delivery of (or lapsing of restrictions with respect to) any
Restricted Stock, Unrestricted Stock or Performance Share Awards (each, a
"Stock Award") granted to a participant under the Plan shall be subject to
the imposition of any federal, state or local income tax, the Committee, in
its discretion, either at the time the award is granted or thereafter, may
also grant the participant a cash award. The cash award may be in any
amount up to an amount such that the value retained by the participant
(from the total of the Stock Award and the related cash award) after payment
of any such income taxes imposed on the Stock Award and any such income
taxes imposed on the cash award itself shall be equal to the Stock Award.
SECTION 11. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from the
Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for any
other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
SECTION 12. AMENDMENTS AND TERMINATION
The Board may at any time amend or discontinue the Plan and the Committee may
at any time amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise
or purchase price, but such price, if any, must satisfy the requirements
which would apply to the substitute or amended Award if it were then initially
granted under this Plan) for the purpose of satisfying changes in law or for
any other lawful purpose, but no such action shall adversely affect rights
under any outstanding Award without the holder's consent. To the extent
required by the Code to ensure that Options granted hereunder qualify as
Incentive Stock Options and to ensure that Awards and Options granted under
the Plan are exempt under Rule 16b-3 promulgated under the Act, Plan
amendments shall be subject to approval by the Company's shareholders.
SECTION 13. STATUS OF PLAN
With respect to the portion of any Award that has not been exercised and any
payments in cash, Stock or other consideration not received by a participant,
a participant shall have no rights greater than those of a general creditor
of the Company unless the Committee shall otherwise expressly determine in
connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the
Company's obligations to deliver Stock or make payments
with respect to Awards hereunder, provided that the existence of such trusts
or other arrangements is consistent with the provision of the foregoing
sentence.
SECTION 14. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The Committee may
require each person acquiring shares pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all applicable
securities law and other legal and stock exchange requirements have been
satisfied. The Committee may require the placing of such stop-orders and
restrictive legends on certificates for Stock and Awards as it deems
appropriate.
(b) Delivery of Stock Certificates. Delivery of stock certificates to
participants under this Plan shall be deemed effected for all purposes when
the Company or a stock transfer agent of the Company shall have delivered
such certificates in the United States mail, addressed to the participant, at
the participant's last known address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing contained
in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan and
the grant of Awards do not confer upon any employee any right to continued
employment with the Company or any Subsidiary.
SECTION 15. EFFECTIVE DATE OF PLAN
The Plan shall become effective upon approval by the holders of a majority of
the shares of capital stock of the Company present or represented and
entitled to vote at a meeting of stockholders. Subject to such approval by
the stockholders, and to the requirement that no Stock may be issued hereunder
prior to such approval, Stock Options and other Awards may be granted
hereunder on and after adoption of the Plan by the Board.
SECTION 16. GOVERNING LAW
This Plan shall be governed by Delaware law except to the extent such law is
preempted by federal law.
<PAGE>
EXhibit 10.2
INSO CORPORATION
1996 NON-EMPLOYEE DIRECTOR PLAN
1. Purpose
The purpose of this 1996 Non-Employee Director Plan (the "Plan") of INSO
Corporation, a Delaware corporation (the "Company"), is to encourage
ownership in the Company by outside directors of the Company whose continued
services are considered essential to the Company's future progress and to
provide them with a further incentive to remain as directors of the Company.
2. Administration
The Board of Directors shall supervise and administer the Plan. Grants of
stock options and awards under the Plan and the amount and nature of the
options and awards to be granted shall be automatic in accordance with
Section 5. However, all questions of interpretation of the Plan or of any
options issued under it shall be determined by the Board of Directors and such
determination shall be final and binding upon all persons having an interest
in the Plan.
3. Participation in the Plan
Directors of the Company who are not employees of the Company or any subsidiary
of the Company shall be eligible to participate in the Plan.
4. Stock Subject to the Plan
(a) The maximum number of shares which may be issued under the Plan shall be
250,000 shares of the Company's Common Stock, $.01 par value per share
(the "Common Stock").
(b) If any outstanding option under the Plan for any reason expires or is
terminated without having been exercised in full, the shares allocable to
the unexercised portion of such option shall again become available for
grant pursuant to the Plan.
(c) All options granted under the Plan shall be nonstatutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue
Code of 1986, as amended to date and as it may be amended from time to
time (the "Code").
5. Terms, Conditions and Form of Options
(a) Option Grants. Options will be granted in accordance with the following:
(i) Initial Grants. An option for 20,000 shares of Common Stock shall
automatically be granted to each non-employee director of the Company elected
to the Board of Directors after the adoption of the Plan, such option to be
granted upon his or her initial election to the Board of Directors. Each
such option shall vest 25% upon grant and 25% upon each of the first three
anniversaries of the grant.
(ii) Annual Grants. An option for 5,000 shares shall automatically be
granted on the date of each annual meeting of stockholders of the Company to
each non-employee director of the Company, provided that he or she was
elected to serve as a director of the Company at least three months prior to
the date of such meeting. Each such option shall vest 25% upon grant and 25%
upon each of the first three anniversaries of the grant.
(b) Option Exercise Price. The option exercise price per share for each
option granted under the Plan shall be equal to the Fair Market Value per
share of Common Stock on the date of grant. "Fair Market Value" shall be
(i) the last reported sales price per share of the Company's Common Stock on
the Nasdaq National Market (or, if the Common Stock is traded on a national
securities exchange, the reported closing sales price per share of the
Common Stock on such exchange) or if no such price is reported, such price
as reported on the nearest preceding day or (ii) if the Common Stock is
not traded on the Nasdaq National Market or a national securities exchange,
the fair market value per share as determined by the Board of Directors.
(c) Options Non-Transferable. Each option granted under the Plan by its
terms shall not be transferable by the optionee otherwise than by will, or
by the laws of descent and distribution, and shall be exercised during the
lifetime of the optionee only by him or her. No option or interest
therein may be transferred, assigned, pledged or hypothecated by the
optionee during his lifetime, whether by operation of law or otherwise,
or be made subject to execution, attachment or similar process.
(d) Termination. Upon termination of an optionee's service as a director of
the Company, each option held by him or her may be exercised during the three
month period following such termination of service, as to the vested portion
of such option as of the date of termination, provided that (i) no option may
be exercised more than ten (10) years after the date of grant, and (ii) in the
event an optionee ceases to serve as a director due to his death or
disability (within the meaning of Section 22(e)(3) of the Code or any
successor provision), each option may be exercised, within the period of 180
days following the date the optionee ceases to serve as a director, by the
optionee or by the person to whom the option is transferred by will, by the
laws of descent and distribution, or by written notice, as to the total number
of shares subject to such option, whether or not then vested.
(e) Exercise Procedure. Options may be exercised only by written notice to
the Company at its principal office accompanied by (i) payment in cash of the
full consideration for the shares as to which they are exercised or (ii) an
irrevocable undertaking, in form and substance satisfactory to the Company, by
a broker to deliver promptly to the Company sufficient funds to pay the
exercise price or delivery of irrevocable instructions, in form and
substance satisfactory to the Company, to a broker to deliver promptly to the
Company cash or a check sufficient to pay the exercise price.
(f) Exercise by Representative Following Death of Director. An optionee, by
written notice to the Company, may designate one or more persons (and from
time to time change such designation), including his or her legal
representative, who, by reason of the director's death, shall acquire the
right to exercise all or a portion of the option. If the person or persons
so designated wish to exercise any portion of the option,
they must do so within the term of the option as provided herein. Any exercise
by a representative shall be subject to the provisions of the Plan.
(g) Form of Agreement. Each option granted under the Plan shall be evidenced
by a written agreement in such form as the Board of Directors shall from time
to time approve, which agreements shall comply with and be subject to the
terms and conditions of this Plan.
6. Unrestricted Stock
(a) Annual Award. On January 27 of each year (or if such day is not a
business day, then on the next succeeding business day), the Company shall
grant and issue to each non-employee director of the Company an award of
1,000 shares of Common Stock of the Company.
(b) Election to Receive Unrestricted Stock in Lieu of Directors' Fees. Each
non-employee director may elect, pursuant to an irrevocable written election
delivered to the Company no later than the date on which the directors' fees
would otherwise be paid, to receive all or a portion of such fees in shares of
Common Stock (valued at Fair Market Value on the date on which such
directors' fees would otherwise be paid or on the effective date of the
election, if later). Such stock shall be paid to the non-employee director at
the same time the directors' fees would otherwise have been paid, or at a
later time, as specified by the non-employee director in the
election. Such election shall be effective no earlier than six months and one
day following the date of such election. Any revocation of such election
shall be effective six months and one day following the date of the
revocation.
7. Assignments
The rights and benefits of participants under the Plan may not be assigned,
whether voluntarily or by operation of law, except as provided in Section 5(f).
8. Effective Date
The Plan shall become effective immediately upon its adoption by the Board of
Directors, but all grants of options shall be conditional upon the approval
of the Plan by the stockholders of the Company within 12 months after
adoption of the Plan by the Board of Directors.
9. Limitation of Rights
(a) No Right to Continue as a Director. Neither the Plan, nor the granting
of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding,
express or implied, that the Company will retain the optionee as a director for
any period of time.
(b) No Stockholders' Rights for Options. An optionee shall have no rights as
a stockholder with respect to the shares covered by his or her options until
the date of the issuance to him or her of a stock certificate therefor, and
no adjustment will be made for dividends or other rights (except as provided in
Section (10) for which the record date is prior to the date such certificate
is issued.
10. Changes in Common Stock. If the outstanding shares of Common Stock are
increased, decreased or exchanged for a different number or kind of shares or
other securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or
other securities, through merger, consolidation, sale of all or
substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse
stock split or other distribution with respect to such shares of
Common Stock, or other securities, an appropriate and proportionate
adjustment will be made in (i) the maximum number and kind of shares
reserved for issuance under the Plan, (ii) the number and kind of shares
or other securities subject to then outstanding options under the Plan
and (iii) the price for each share subject to any then outstanding
options under the Plan, without changing the aggregate purchase price as
to which such options remain exercisable. No fractional shares will be
issued under the Plan on account of any such adjustments.
11. Change in Control.
(a) Upon the occurrence of a Change in Control, all options outstanding under
the Plan immediately prior to the effective date of such Change in Control
shall become automatically exercisable in full.
(b) A "Change in Control" shall be deemed to have occurred only upon the
occurrence of any of the following events:
(i) any "person," as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
(other than the Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company, any corporation owned
directly or indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of stock of the Company or an Exempt
Person) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 33 1/3% or more of the combined voting power of the Company's
then outstanding securities (other than as a result of the acquisition of
such securities directly from the Company);
(ii) during any period of two consecutive years (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board of Directors of the Company
(the "Board"), and any new director (other than a director designated by a
person who has entered into an agreement with the Company to effect a
transaction described in paragraph (i), (iii) or (iv) of this Subsection)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved cease for any reason to constitute at least a majority thereof; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A)
a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation or (B) a merger or consolidation effected
to implement a recapitalization of the Company (or similar transaction) in
which no person (as hereinabove defined), other than a person holding more
than 50% of the combined voting power of the Company's then outstanding
securities immediately prior to such recapitalization,
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
(c) "Exempt Person" means Houghton Mifflin Company ("HMC"), provided that HMC
shall cease to be an Exempt Person if and when, following a Change in Control
(as defined above but substituting "Houghton Mifflin Company" for the
"Company" as used therein) of HMC, HMC, directly or indirectly, acquires
beneficial ownership of any additional shares of the Company's capital stock.
12. Amendment of the Plan
The Board of Directors may suspend or discontinue the Plan or revise or amend
it in any respect whatsoever; provided, however, that without approval of
the stockholders of the Company no revision or amendment shall change the
number of shares subject to the Plan (except as provided in Section 10), or
materially increase the benefits accruing to participants under the Plan.
The provisions of Sections 5(a) and 5(b) and Section 6 of the Plan may not
be amended more than once in any six-month period.
13. Notice
Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
14. Governing Law
The Plan and all determinations made and actions taken pursuant hereto shall
be governed by the laws of the State of Delaware.
Adopted by the Board of Directors
on March 7, 1996.
Approved by the stockholders
on May 2, 1996.
Exhibit 10.3
INSO CORPORATION
1996 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 1996 Stock Incentive Plan (the "Plan") of INSO
Corporation, a Delaware corporation (the "Company"), is to advance the
interests of the Company by enhancing its ability to attract and retain
key employees, consultants and others who are in a position to contribute
to the Company's future growth and success.
2. Definitions
"Award" means any Option, Stock Appreciation Right, Performance Shares,
Restricted Stock or Unrestricted Stock awarded 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.
"Committee" means a committee of not less than two members of the Board
appointed by the Board to administer the Plan, each of whom shall be a
"disinterested person" within the meaning of Rule 16b-3 under the
Exchange Act ("Rule 16b-3").
"Common Stock" means the Common Stock, .01 par value per share, of the
Company.
"Company" means INSO Corporation and, except where the context otherwise
requires, all present and future subsidiaries of INSO Corporation as
defined in Section 424(f) of the Code.
"Designated Beneficiary" means the beneficiary designated by a Participant, in
a manner determined by the Board, to receive amounts due or exercise rights
of the Participant in the event of the Participant's death. In
the absence of an effective designation by a Participant, Designated
Beneficiary shall mean the Participant's estate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Fair Market Value" means, with respect to Common Stock or any other property,
the fair market value of such property as determined by the Board in good
faith or in the manner established by the Board from time to time.
"Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 which is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 which is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
"Participant" means a person selected by the Board to receive an Award under
the Plan.
"Performance Shares" mean shares of Common Stock which may be earned by the
achievement of performance goals established for a Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the Exchange Act or
any successor provision.
"Restricted Period" means the period of time selected by the Board during which
shares subject to a Restricted Stock Award may be repurchased by or
forfeited to the Company.
"Restricted Stock" means shares of Common Stock awarded to a Participant
under Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
Fair Market Value of shares of Common Stock over the exercise price of the
Award granted to a Participant under Section 7.
"Unrestricted Stock" means shares of Common Stock awarded to a Participant
under Section 9(c).
3. Administration
The Plan will be administered by the Board. The Board shall have authority
to make Awards and to adopt, amend and repeal such administrative rules,
guidelines and practices relating to the Plan as it shall deem
advisable from time to time, and to interpret the provisions of the Plan.
The Board's decisions shall be final and binding. No member of the Board
shall be liable for any action or determination relating to the Plan made in
good faith. To the extent permitted by applicable law, the Board may delegate
to one or more executive officers of the Company the power to make Awards
to Participants who are not Reporting Persons and all determinations
under the Plan with respect thereto, provided that the Board shall fix the
maximum amount of such Awards to be made by such executive officers and a
maximum amount for any one Participant. To the extent permitted by
applicable law, the Board may appoint a Committee to administer the Plan and,
in such event, all references to the Board in the Plan shall mean such
Committee or the Board. All decisions by the Board or the Committee
pursuant to the Plan shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award.
4. Eligibility
All of the Company's employees, officers, consultants and advisors who are
expected to contribute to the Company's future growth and success, other
than persons who have irrevocably elected not to be eligible, are
eligible to be Participants in the Plan. Incentive Stock Options may be
awarded only to persons eligible to receive Incentive Stock Options under
the Code.
5. Stock Available for Awards
(a) Subject to adjustment under subsection (b) below, Awards may be made
under the Plan for up to 2,000,000 shares of Common Stock. If any Award in
respect of shares of Common Stock expires or is terminated unexercised or is
forfeited for any reason or settled in a manner that results in fewer shares
outstanding than were initially awarded, the shares subject to such Award or
so surrendered, as the case may be, to the extent of such expiration,
termination, forfeiture or decrease, shall again be available for award under
the Plan, subject, however, in the case of Incentive Stock Options, to any
limitation required under the Code and provided that shares made available
pursuant to this sentence shall be available for Awards to Reporting Persons
only to the extent consistent with Rule 16b-3. Shares issued under the Plan
may consist in whole or in part of authorized but unissued shares or
treasury shares.
(b) In the event that the Board, in its sole discretion, determines that
any stock dividend, extraordinary cash dividend, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination or
other similar transaction affects the Common Stock such that an adjustment is
required in order to preserve the benefits or potential benefits intended
to be made available under the Plan, then the Board, subject, in the case
of Incentive Stock Options, to any limitation required under the Code, shall
equitably adjust any or all of (i) the number and kind of shares in respect
of which Awards may be made under the Plan, (ii) the number and kind of
shares subject to outstanding Awards, and (iii) the award, exercise or
conversion price with respect to any of the foregoing, and if considered
appropriate, the Board may make provision for a cash payment with respect to
an outstanding Award.
(c) The Board may grant Awards under the Plan in substitution for stock and
stock based awards held by employees of another corporation who concurrently
become employees of the Company as a result of a merger or consolidation of
the employing corporation with the Company (or a subsidiary of the Company)
or the acquisition by the Company (or a subsidiary of the Company) of
property or stock of the employing corporation. The substitute Awards shall
be granted on such terms and conditions as the Board considers appropriate in
the circumstances.
(d) Subject to adjustment under Section 5(b), the maximum number of shares
with respect to which an Award may be granted to any employee under the
Plan shall not exceed 300,000 per calendar year (subject to adjustment
pursuant to Section 5(b)). For purposes of calculating such maximum number,
(i) an Award shall continue to be treated as outstanding notwithstanding its
repricing, cancellation or expiration and (ii) the repricing of an
outstanding Award or issuance of a new Award in substitution for a canceled
Award shall be deemed to constitute the grant of a new additional Award
separate from the original grant of the Award that is repriced or canceled.
6. Stock Options
(a) General
(i) Subject to the provisions of the Plan, the Board may award Incentive
Stock Options and Nonstatutory Stock Options and determine the number of shares
of Common Stock to be covered by each Option, the option price of such
Option and the conditions and limitations applicable to the exercise of such
Option. The terms and conditions of Incentive Stock Options shall be subject
to and comply with Section 422 of the Code, or any successor provision, and
any regulations thereunder.
(ii) The Board shall establish the exercise price at the time each Option is
awarded. In the case of Incentive Stock Options, such price shall not be less
than 100% of the Fair Market Value of the Common Stock on the date of grant;
and in the case of Nonstatutory Stock Options, such price shall not be less
than 85% of the Fair Market Value of the Common Stock on the date of grant.
(iii) Each Option shall be exercisable at such times and subject to such terms
and conditions as the Board may specify in the applicable Award or thereafter.
The Board may impose such conditions with respect to the exercise of
Options, including conditions relating to applicable federal or state
securities laws, as it considers necessary or advisable.
(iv) Options granted under the Plan may provide for the payment of the
exercise price by delivery of cash or check in an amount equal to the
exercise price of such Options or, to the extent permitted by
the Board at or after the award of the Option, by (A) delivery of shares of
Common Stock owned by the optionee for at least six months (or such shorter
period as is approved by the Board), valued at their Fair Market Value,
(B) delivery of a promissory note of the optionee to the Company on terms
determined by the Board, (C) delivery of an irrevocable undertaking by a
broker to deliver promptly to the Company sufficient funds to pay the
exercise price or delivery of irrevocable instructions to a broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise
price, (D) payment of such other lawful consideration as the Board may
determine, or (E) any combination of the foregoing.
(v) The Board may at any time accelerate the time at which all or any
part of an Option may be exercised.
(b) Incentive Stock Options
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(i) All Incentive Stock Options granted under the Plan shall, at the time of
grant, be specifically designated as such in the option agreement covering
such Incentive Stock Options. The Option exercise period shall not
exceed ten years from the date of grant.
(ii) If any employee to whom an Incentive Stock Option is to be granted under
the Plan is, at the time of the grant of such option, the owner of stock
possessing more than 10% of the total combined voting power of all classes
of stock of the Company (after taking into account the attribution of stock
ownership rule of Section 424(b) and of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
(x) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the Fair Market Value
of one share of Common Stock at the time of grant; and
(y) The option exercise period shall not exceed five years from the date
of grant.
(iii) For so long as the Code shall so provide, options granted to any
employee under the Plan (and any other incentive stock option plans of the
Company) which are intended to constitute Incentive Stock Options shall
not constitute Incentive Stock Options to the extent that such options, in the
aggregate, become exercisable for the first time in any one calendar year
for shares of Common Stock with an aggregate Fair Market Value (determined
as of the respective date or dates of grant) of more than $100,000.
(iv) No Incentive Stock Option may be exercised unless, at the time of such
exercise, the Participant is, and has been continuously since the date of
grant of his or her Option, employed by the Company, except that:
(x) an Incentive Stock Option may be exercised within the period of three
months after the date the Participant ceases to be an employee of the
Company (or within such lesser period as may be specified in the applicable
option agreement), provided, that the agreement with respect to such Option
may designate a longer exercise period and that the exercise after such
three-month period shall be treated as the exercise of a Nonstatutory
Stock Option under the Plan;
(y) if the Participant dies while in the employ of the Company, or within
three months after the Participant ceases to be such an employee, the
Incentive Stock Option may be exercised by the Participant's Designated
Beneficiary within the period of one year after the date of death (or within
such lesser period as may be specified in the applicable Option
agreement); and
(z) if the Participant becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provision thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised within
the period of one year after the date of death (or within such lesser period
as may be specified in the applicable Option agreement).
For all purposes of the Plan and any Option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of
the Income Tax Regulations (or any successor regulations).
Notwithstanding the foregoing provisions, no Incentive Stock Option may be
exercised after its expiration date.
(v) Incentive Stock Options shall not be assignable or transferable by the
person to whom they are granted, either voluntarily or by operation of law,
except by will or the laws of descent and distribution, and, during the
life of the optionee, shall be exercisable only by the optionee.
7. Stock Appreciation Rights
(a) The Board may grant SARs entitling recipients on exercise of the SAR to
receive an amount, in cash or Common Stock or a combination thereof
(such form to be determined by the Board), determined in whole or in part
by reference to appreciation in the Fair Market Value of the Common Stock
between the date of the Award and the exercise of the Award. A SAR
shall entitle the Participant to receive, with respect to each share
of Common Stock as to which the SAR is exercised, the excess of the share's
Fair Market Value on the date of exercise over its Fair Market Value on
the date the SAR was granted. The Board may also grant SARs that
provide that, following a change in control of the Company (as defined by the
Board at the time of the Award), the holder of such SAR will be entitled to
receive, with respect to each share of Common Stock subject to the
SAR, an amount equal to the excess of a specified value (which may include an
average of values) for a share of Common Stock during a period preceding
such change in control over the Fair Market Value of a share of Common Stock
on the date the SAR was granted.
(b) SARs may be granted in tandem with, or independently of, Options granted
under the Plan. A SAR granted in tandem with an Option which is not an
Incentive Stock Option may be granted either at or after the time the
Option is granted. A SAR granted in tandem with an Incentive Stock Option may
be granted only at the time the Option is granted.
(c) When SARs are granted in tandem with Options, the following provisions
will apply:
(i) The SAR will be exercisable only at such time or times, and to the
extent, that the related Option is exercisable and will be exercisable in
accordance with the procedure required for exercise of the related Option.
(ii) The SAR will terminate and no longer be exercisable upon the
termination or exercise of the related Option, except that a SAR granted
with respect to less than the full number of shares covered by an
Option will not be reduced until the number of shares as to which the related
Option has been exercised or has terminated exceeds the number of shares not
covered by the SAR.
(iii) The Option will terminate and no longer be exercisable upon the
exercise of the related SAR.
(iv) The SAR will be transferable only with the related Option.
(v) A SAR granted in tandem with an Incentive Stock Option may be exercised
only when the market price of the Common Stock subject to the Option exceeds
the exercise price of such Option.
(d) A SAR not granted in tandem with an Option will become exercisable at such
time or times, and on such conditions, as the Board may specify.
(e) The Board may at any time accelerate the time at which all or any part of
the SAR may be exercised.
8. Performance Shares
(a) The Board may make Performance Share Awards entitling recipients to
acquire shares of Common Stock upon the attainment of specified performance
goals. The Board may make Performance Share Awards independent of or in
connection with the granting of any other Award under the Plan. The Board in
its sole discretion shall determine the performance goals applicable under
each such Award, the periods during which performance is to be measured, and
all other limitations and conditions applicable to the awarded Performance
Shares; provided, however, that the Board may rely on the performance goals
and other standards applicable to other performance plans of the Company in
setting the standards for Performance Share Awards under the Plan.
(b) Performance Share Awards and all rights with respect to such Awards may
not be sold, assigned, transferred, pledged or otherwise encumbered.
(c) A Participant receiving a Performance Share Award shall have the rights
of a stockholder only as to shares actually received by the Participant
under the Plan and not with respect to shares subject to an Award
but not actually received by the Participant. A Participant shall be
entitled to receive a stock certificate evidencing the acquisition of
shares of Common Stock under a Performance Share Award only upon satisfaction
of all conditions specified in the agreement evidencing the Performance
Share Award.
(d) The Board may at any time accelerate or waive any or all of the goals,
restrictions or conditions imposed under any Performance Share Award.
9. Restricted and Unrestricted Stock
(a) The Board may grant Restricted Stock Awards entitling recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their purchase price (or to
require forfeiture of such shares if purchased at no cost) from the recipient
in the event that conditions specified by the Board in the applicable Award
are not satisfied prior to the end of the applicable Restricted Period or
Restricted Periods established by the Board for such Award. Conditions for
repurchase (or forfeiture) may be based on continuing employment or service
or achievement of pre-established performance or other goals and
objectives.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Board, during
the applicable Restricted Period. Shares of Restricted Stock shall be
evidenced in such manner as the Board may determine. Any certificates issued
in respect of shares of Restricted Stock shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited
by the Participant, together with a stock power endorsed in blank, with the
Company (or its designee). At the expiration of the Restricted Period, the
Company (or such designee) shall deliver such certificates to the
Participant or if the Participant has died, to the Participant's Designated
Beneficiary.
(c) The Board may, in its sole discretion, grant (or sell at a purchase price
determined by the Board, which shall not be lower than 85% of Fair Market
Value on the date of sale) to Participants shares of Common Stock free
of any restrictions under the Plan ("Unrestricted Stock").
(d) The purchase price for each share of Restricted Stock and Unrestricted
Stock shall be determined by the Board of Directors. Such purchase price
may be paid in the form of past services or such other lawful
consideration as is determined by the Board.
(e) The Board may at any time accelerate the expiration of the Restricted
Period applicable to all, or any particular, outstanding shares of
Restricted Stock.
10. General Provisions Applicable to Awards
(a) Applicability of Rule 16b-3. Those provisions of the Plan which make an
express reference to Rule 16b-3 shall apply to the Company only at such
time as the Company's Common Stock is registered under the Exchange Act,
or any successor provision, and then only to Reporting Persons.
(b) Reporting Person Limitations. Notwithstanding any other provision of the
Plan, to the extent required to qualify for the exemption provided by
Rule 16b-3, (i) any Option, SAR, Performance Share Award or other similar
right related to an equity security issued under the Plan to a Reporting
Person shall not be transferable other than by will or the laws of descent
and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I or the Employee Retirement Income
Security Act ("ERISA"), or the rules thereunder, and shall be
exercisable during the Participant's lifetime only by the Participant or the
Participant's guardian or legal representative, and (ii) the selection of a
Reporting Person as a Participant and the terms of his or her Award shall
be determined only in accordance with the applicable provisions of Rule 16b-3.
(c) Documentation. Each Award under the Plan shall be evidenced by an
instrument delivered to the Participant specifying the terms and conditions
thereof and containing such other terms and conditions not inconsistent with
the provisions of the Plan as the Board considers necessary or advisable.
Such instruments may be in the form of agreements to be executed by both
the Company and the Participant, or certificates, letters or similar
documents, acceptance of which will evidence agreement to the terms thereof
and of this Plan.
(d) Board Discretion. Except as otherwise provided by the Plan, each type of
Award may be made alone, in addition to or in relation to any other type of
Award. The terms of each type of Award need not be identical, and the
Board need not treat Participants uniformly. Except as otherwise provided by
the Plan or a particular Award, any determination with respect to an Award
may be made by the Board at the time of award or at any time thereafter.
(e) Termination of Status. Subject to the provisions of Section 6(b)(iv), the
Committee shall determine the effect on an Award of the disability, death,
retirement, authorized leave of absence or other termination of employment
or other status of a Participant and the extent to which, and the period
during which, the Participant's legal representative, guardian or Designated
Beneficiary may exercise rights under such Award.
(f) Change in Control.
(i) Upon the occurrence of a Change in Control, (A) each option
outstanding under the Plan immediately prior to the effective date of such
Change in Control shall become automatically exercisable in full, and (B)
each outstanding share of Restricted Stock will immediately become free of
all restrictions and conditions.
(ii) A "Change in Control" shall be deemed to have occurred only upon the
occurrence of any of the following events:
(A) any "person," as such term is used in Sections 13(d) and 14(d) of
the Exchange Act, (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company,
any corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportion as their ownership of stock of
the Company or an Exempt Person) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 33 1/3% or more of the combined
voting power of the Company's then outstanding securities (other
than as a result of the acquisition of such securities directly from the
Company);
(B) during any period of two consecutive years (not including any period
prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new director (other
than a director designated by a person who has entered into an agreement with
the Company to effect a transaction described in paragraph (A), (C) or
(D) of this Subsection) whose election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved cease for any reason to constitute at least a majority
thereof; or
(C) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (1) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of
the surviving entity) more than 50% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (2) a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no person (as hereinabove defined),
other than a person holding more than 50% of the combined voting power of
the Company's then outstanding securities immediately prior to such
recapitalization, acquires more than 50% of the combined voting power of the
Company's then outstanding securities; or
(D) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
(iii) "Exempt Person" means Houghton Mifflin Company ("HMC"), provided
HMC shall cease to be an Exempt Person if and when, following a Change in
Control (as defined above but substituting "Houghton Mifflin Company" for the
"Company" as used therein) of HMC, HMC, directly or indirectly, acquires
beneficial ownership of any additional shares of the Company's capital stock.
(g) Withholding. The Participant shall pay to the Company, or make provision
satisfactory to the Board for payment of, any taxes required by law to be
withheld in respect of Awards under the Plan no later than
the date of the event creating the tax liability. In the Board's discretion,
and subject to such conditions as the Board may establish, such tax
obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued
at their Fair Market Value. The Company may, to the extent permitted by
law, deduct any such tax obligations from any payment of any kind otherwise
due to the Participant.
(h) Foreign Nationals. Awards may be made to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Board
considers necessary or advisable to achieve the purposes of the Plan or
comply with applicable laws.
(i) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the
same or a different type, changing the date of exercise or
realization and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be
required unless the Board determines that the action, taking into
account any related action, would not materially and adversely affect the
Participant.
(j) Cancellation and New Grant of Options. The Board of Directors
shall have the authority to effect, at any time and from time to time,
with the consent of the affected optionees, (i) the cancellation of any or
all outstanding Options under the Plan and the grant in substitution
therefor of new Options under the Plan covering the same or different
numbers of shares of Common Stock and having an option exercise price per
share which may be lower or higher than the exercise price per share of
the canceled Options or (ii) the amendment of the terms of any and all
outstanding Options under the Plan to provide an option exercise price per
share which is higher or lower than the then current exercise price per
share of such outstanding Options.
(k) Conditions on Delivery of Stock. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan (i)
until all conditions of the Award have been satisfied or removed, (ii) until,
in the opinion of the Company's counsel, all applicable federal and state
laws and regulations have been complied with, (iii) if the outstanding
Common Stock is at the time listed on any stock exchange, until the shares to
be delivered have been listed or authorized to be listed on such exchange
upon official notice of issuance, and (iv) until all other legal matters in
connection with the issuance and delivery of such shares have been approved by
the Company's counsel. If the sale of Common Stock has not been registered
under the Securities Act of 1933, as amended, the Company may
require, as a condition to exercise of the Award, such representations or
agreements as the Company may consider appropriate to avoid violation of
such Act and may require that the certificates evidencing such Common
Stock bear an appropriate legend restricting transfer.
11. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued
employment or service for the Company. The Company expressly reserves the
right at any time to dismiss a Participant free from any liability or
claim under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she becomes the record holder thereof.
(c) Exclusion from Benefit Computations. No amounts payable upon exercise of
Awards granted under the Plan shall be considered salary, wages or
compensation to Participants for purposes of determining the amount or
nature of benefits that Participants are entitled to under any insurance,
retirement or other benefit plans or programs of the Company.
(d) Effective Date and Term. No Award granted under the Plan shall become
effective until the Plan shall have been approved by the Company's
stockholders. If such stockholder approval is not obtained within twelve
months after the date of the Board's adoption of the Plan, no Options
previously granted under the Plan shall be deemed to be Incentive Stock
Options and no Incentive Stock Options shall be granted thereafter.
No Award may be made under the Plan after March 7, 2006, but Awards previously
granted may extend beyond that date.
(e) Amendment of Plan. The Board may amend, suspend or terminate the Plan or
any portion thereof at any time, provided that no amendment shall be made
without stockholder approval if such approval is necessary to comply
with any applicable tax or regulatory requirement, including any requirements
for compliance with Rule 16b-3. Amendments requiring stockholder
approval shall become effective when adopted by the Board of Directors,
but no Incentive Stock Option granted after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was
required to enable the Company to grant such Incentive Stock
Option to a particular Participant) unless and until such amendment shall
have been approved by the Company's stockholders. If such stockholder
approval is not obtained within twelve months of the Board's adoption of such
amendment, any Incentive Stock Options granted on or after the date of such
amendment shall terminate to the extent that such amendment to the Plan
was required to enable the Company to grant such option to a particular
Participant.
(f) Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the State of Delaware.
Adopted by the Board of Directors
on March 7, 1996.
Approved by the stockholders
on May 2, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF INCOME
FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERNCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,312
<SECURITIES> 49,598
<RECEIVABLES> 11,761
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 68,803
<PP&E> 3,250
<DEPRECIATION> 0
<TOTAL-ASSETS> 91,729
<CURRENT-LIABILITIES> 11,265
<BONDS> 0
0
0
<COMMON> 131
<OTHER-SE> 80,333
<TOTAL-LIABILITY-AND-EQUITY> 91,729
<SALES> 27,605
<TOTAL-REVENUES> 27,605
<CGS> 0
<TOTAL-COSTS> 3,845
<OTHER-EXPENSES> 18,559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,734
<INCOME-TAX> 4,014
<INCOME-CONTINUING> 2,720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,720
<EPS-PRIMARY> .20
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</TABLE>
