SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT
OF 1934
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14a-6(e)(2))
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INSO Corporation
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(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------
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<PAGE> 1
[INSO LOGO]
March 28, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
INSO Corporation, a Delaware corporation, to be held at the John Hancock
Conference Center, 40 Trinity Place, Boston, Massachusetts, at 9:00 a.m.
on Thursday, May 1, 1997.
At the Annual Meeting, stockholders will be asked to elect three Class I
directors and to consider and to ratify the selection of Ernst & Young
LLP as INSO's independent auditors.
It is important that your shares be represented at the Annual Meeting whether
or not you are able to attend personally. Please make sure your views are
considered by completing, signing and returning the enclosed proxy card
promptly.
Sincerely,
/s/ Steven R. Vana-Paxhia
- -------------------------
Steven R. Vana-Paxhia
President and Chief
Executive Officer
<PAGE> 2
[INSO LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 1, 1997
Notice is hereby given that the Annual Meeting of Stockholders of INSO
Corporation, a Delaware corporation (the "Company"), will be held at the
John Hancock Conference Center, 40 Trinity Place, Boston, Massachusetts,
at 9:00 a.m. on Thursday, May 1, 1997, to consider and act on the
following matters:
1. Election of three Class I directors to serve until the Company's 2000
annual meeting of stockholders and until their successors are elected
and qualified;
2. Ratification of the selection of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1996; and
3. Any other matter that may properly come before the meeting or any
postponement or adjournment thereof.
Stockholders of record at the close of business on March 14, 1997, will be
entitled to vote at the Annual Meeting of Stockholders and any postponement
or adjournment thereof.
By order of the Board of
Directors,
Bruce G. Hill
Secretary
March 28, 1997
IMPORTANT
Whether or not you plan to attend the meeting in person, you are urged to
complete, date and sign the enclosed proxy card and return it promptly in
the enclosed reply envelope. This will assure representation of your
shares and a quorum for the transaction of business at the meeting. If you
attend the meeting, you may, of course, vote your shares in person even
though you have sent in your proxy.
<PAGE> 3
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 1, 1997
GENERAL INFORMATION
Solicitation and Revocation of Proxies
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of INSO Corporation, a Delaware corporation
(the "Company"), of proxies to be voted at the Annual Meeting of Stockholders
of the Company to be held at the John Hancock Conference Center, 40 Trinity
Place, Boston, Massachusetts, at 9:00 a.m. on Thursday, May 1, 1997, and at
any adjournment thereof (the "Meeting"). The solicitation of proxies by mail
may be followed by personal solicitation of certain stockholders by officers
or employees of the Company. Any proxy given pursuant to this solicitation
may be revoked in writing (including by delivery of a later dated proxy) or
in person by notifying the secretary of the meeting, in writing, at any time
prior to the voting of the proxy. This Proxy Statement and the accompanying
proxy card are being mailed on or about March 28, 1997, to stockholders of
record as of the close of business on March 14, 1997 (the "Record Date").
At the Meeting, the stockholders of the Company will vote (i) to elect three
Class I directors to serve until the Company's 2000 annual meeting of
stockholders and until their successors are duly elected and qualified,
(ii) to ratify the Board's selection of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1997, and
(iii) to transact such other business as may properly come before the
Meeting, as set forth in the preceding Notice of Meeting. If any other
business is properly presented for action by the stockholders of the
Company at the Meeting, shares represented by proxies received by the
Board will be voted in accordance with the judgment of the persons named in
the proxy. If the enclosed proxy card is properly executed and returned to
the Company, all shares represented thereby will be voted as indicated
therein. If a proxy is returned without instructions it will be voted FOR the
three nominees named herein and FOR the ratification of Ernst & Young LLP as
the independent auditors of the Company for the fiscal year ending December
31, 1997. The expense of solicitation of proxies will be borne by the
Company.
The address of the Company's principal executive offices is 31 St. James
Avenue, Boston, Massachusetts 02116-4101, USA, and its telephone number is
(617) 753-6500.
Voting Securities
On the Record Date, there were 14,320,138 outstanding shares of Common Stock,
which is the only class of stock outstanding and therefore entitled to vote at
the Meeting. The holders of such shares will be entitled to cast one vote for
each share held of record as of the Record Date. On the Record Date, the
closing sales price of the Common Stock on the Nasdaq National Market was
$37.125 per share.
<PAGE> 4
The holders of a majority of the shares of Common Stock issued, outstanding
and entitled to vote at the Meeting shall constitute a quorum for the
transaction of business at the Meeting. Shares of Common Stock present in
person or represented by proxy (including shares that abstain or do not
vote with respect to one or more of the matters presented for stockholder
approval) will be counted for purposes of determining whether a quorum
exists at the Meeting.
The affirmative vote of the holders of a plurality of the shares of Common
Stock voting on the matter is required for the election of directors. The
affirmative vote of the holders of a majority of the shares of Common Stock
present, in person or by proxy, and entitled to vote is required to ratify
the selection of Ernst & Young LLP as the Company's independent auditors.
Shares that abstain from voting as to a particular matter, and shares held in
"street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter and also will
not be counted as shares voting on such matter. Accordingly, abstentions and
"broker non-votes" will have no effect on the voting on a matter that requires
the affirmative vote of a certain percentage of the shares voting on the
matter.
Abstentions will be treated as shares that are present, or represented, and
entitled to vote for purposes of determining the number of shares that are
present, or represented, and entitled to vote with respect to any particular
matter, but will not be counted as votes in favor of such matter.
Accordingly, an abstention with respect to a matter requiring the vote of a
certain percentage of the shares present, or represented, and entitled to
vote has the same effect as a vote against such matter. Broker non-votes
will not be considered as present and entitled to vote with respect to such
matter and will thus have no effect on the voting on such matter.
<PAGE> 5
SECURITY OWNERSHIP
FIVE PERCENT BENEFICIAL OWNERS
The following table sets forth information relating to the beneficial
ownership of Common Stock by each person known by the Company to own
beneficially more than 5% of the Company's Common Stock as of the Record
Date:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Owndership<F1> Common Stock
- -----------------------------------------------------------------------------
<S> <C> <C>
Houghton Mifflin Company 3,877,600 27.08%
222 Berkeley Street
Boston, MA 02116-3764
Putnam Investments, Inc. 1,623,160<F2> 11.33%
One Post Office Square
Boston, MA 02109
Essex Investment Management 1,051,937<F3> 7.35%
Company
125 High Street
Boston, MA 02110
Investment Advisors, Inc. 1,046,200<F4> 7.31%
3700 First Bank Place,
Box 357
Minneapolis, MN 55440
T. Rowe Price Associates, Inc. 920,000<F5> 6.42%
100 East Pratt Street
Baltimore, MD 21202
<FN>
<F1> Unless otherwise noted, the nature of beneficial ownership is sole voting
and investment power. The information herein is based on reports of
beneficial ownership on Schedules 13D and 13G delivered to the Company
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Information with respect to Houghton Mifflin was provided by Houghton
Mifflin.
<F2> No voting power as to 1,506,960 shares, shared voting power as to
116,200 shares, and shared dispositive power as to all shares.
<F3> No voting power as to 344,622 shares.
<F4> Shared power to vote and dispose as to 138,700 shares.
<F5> These securities are owned by various individual and institutional
investors which T. Rowe Price Associates, Inc. (Price Associates) serves as
investment adviser with power to direct investments and/or sole power to vote
the securities. For purposes of the reporting requirements of the Exchange
Act, Price Associates is deemed to be a beneficial owner of such securities;
however, Price Associates expressly disclaims that it is, in fact, the
beneficial owner of such securities.
</FN>
</TABLE>
<PAGE> 6
MANAGEMENT'S STOCK OWNERSHIP
The following table sets forth information relating to the beneficial
ownership of Common Stock, as of the Record Date, by (i) each director of the
Company, (ii) the Company's Chief Executive Officer and each of the other four
most highly compensated executive officers of the Company (collectively, the
"Named Executive Officers") and (iii) the directors and executive officers of
the Company as a group:
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership<F1><F2> Common Stock
- -------------------------------------------------------------------------------
<S> <C> <C>
Joseph A. Baute 33,750 *
J. P. Barger 70,150 *
Samuel H. Fuller 6,000 *
John Guttag 8,000 *
Stephen O. Jaeger 34,750 *
Joanna T. Lau 33,750 *
Ray Stata 85,750 *
Steven R. Vana-Paxhia 88,176 *
William J. Wisneski 35,750 *
Kirby A. Mansfield 58,734 *
Jeffrey J. Melvin 54,780 *
Bruce G. Hill 35,941 *
Betty J. Savage 34,166 *
All directors and 670,611 4.68%
executive officers
as a group (21 persons)
<FN>
(*) Less than 1%.
<F1> Unless otherwise noted, the nature of beneficial ownership is sole
voting and investment power.
<F2> Includes shares over which the directors, the Named Executive Officers
and all directors and executive officers as a group are deemed to hold sole
voting and/or investment power by reason of options granted to them which
will be exercisable within 60 days of March 14, 1997, as follows: Joseph A.
Baute - 28,750; J. P. Barger - 28,750; Samuel H. Fuller - 5,000; John
Guttag - 5,000; Stephen O. Jaeger - 28,750; Joanna T. Lau - 28,750; Ray
Stata - 28,750; Steven R. Vana-Paxhia - 67,145; William J. Wisneski - 28,750;
Kirby A. Mansfield - 46,360; Jeffrey J. Melvin - 42,360; Bruce G. Hill -
32,500; Betty J. Savage - 32,500; and all directors and executive officers as
a group - 470,224.
</FN>
</TABLE>
ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of three Class I
directors, three Class II directors and three Class III directors. The Class
I, Class II and Class III directors will serve until the annual meetings of
stockholders to be held in 1997, 1998 and 1999, respectively, and until their
respective successors are elected and qualified. At each annual meeting of
stockholders, directors are elected for a full term of three years to succeed
those whose terms are expiring.
The persons named in the enclosed proxy will vote to elect as directors Ray
Stata, William Wisneski and Samuel H. Fuller, the three Class I director
nominees named below, unless the proxy is marked otherwise. Messrs. Stata,
Wisneski and Fuller are currently directors of the Company.
<PAGE> 7
Each Class I director will be elected to hold office until the 2000 Annual
Meeting of Stockholders and until his or her successor is elected and
qualified. Each of the nominees has indicated his willingness to serve, if
elected; however, if any nominee should be unable to serve, the proxies may
be voted for a substitute nominee designated by the Board of Directors, unless
the Board of Directors acts to reduce the number of directors.
For each member of the Board of Directors, including those who are nominees
for election as Class I directors, there follows information given by each
concerning his or her principal occupation and business experience for the
past five years, the names of other publicly held companies of which he or
she serves as a director, his or her age and length of service as a director
of the Company.
<TABLE>
<CAPTION>
Nominees for
Election as Class I
Directors Age Principal Occcupation<F1>
- --------------------------------------------------------
<S> <C> <C>
Ray Stata 62 Mr. Stata has been a director of the Company
since March 8, 1994. Mr. Stata has been the
Chairman of the Board of Analog Devices, Inc.
("Analog Devices"), a manufacturer of
hardware components for computer systems,
since 1973 and was its President from 1971
until 1991 and its Chief Executive Officer
from 1973 until 1996. Mr. Stata is also a
director of Open Market, Inc.
William J.
Wisneski 50 Mr. Wisneski has been a director of the
Company since its inception. Mr. Wisneski
has been Executive Vice President, School
Publishing of Houghton Mifflin since August
1992 and has held various other positions
with Houghton Mifflin Company ("Houghton
Mifflin") and its subsidiaries since June
1990. Mr. Wisneski was originally designated
to serve as a director of the Company by
Houghton Mifflin under the Formation
Agreement. See "Certain Transactions."
Samuel H. Fuller 50 Dr. Fuller has been a director of the Company
since May 1996. Dr. Fuller is currently Vice
President, Corporate Technology Strategy and
Chief Scientist for Digital Equipment
Corporation. Dr. Fuller has held various
other positions with Digital Equipment
Corporation since 1978, and served as its
Vice President of Research from 1983 to
January, 1996. Dr. Fuller is also a director
of Analog Devices, MCC and the National
Research Initiatives.
<PAGE> 8
<CAPTION>
Incumbent Class II
Directors
(Terms Expiring
in 1998) Age Principal Occupation<F1>
- -------------------------------------------------------
<S> <C> <C>
Steven R. Vana-
Paxhia 49 Mr. Vana-Paxhia has been President and Chief
Executive Officer and a director of the
Company since its inception. Mr. Vana-Paxhia
was Director of the Software Division of
Houghton Mifflin from November 1990 until
March 1994 and was a Vice President of
Houghton Mifflin from April 1991 until March
1994. Mr. Vana-Paxhia is also a director
of Spyglass, Inc., a provider of technologies
for the world wide web and MathSoft, Inc., a
provider of technical calculation, data
analysis and communication software tools.
Stephen O. Jaeger 52 Mr. Jaeger has been a director of the Company
since its inception. Since March 1995, Mr.
Jaeger has been Vice President and Chief
Financial Officer of The Perkin-Elmer
Corporation, a leading worldwide producer of
analytical instruments and life science
systems. Mr. Jaeger was Chief Financial
Officer of Houghton Mifflin from 1988 until
March 1995. Mr. Jaeger was originally
designated to serve as a director of the
Company by Houghton Mifflin under
the Formation Agreement, but is no longer
serving as a designee of Houghton Mifflin.
See "Certain Transactions." Mr. Jaeger is
also a director of Strategic Diagnostics, Inc.
John Guttag 47 Dr. Guttag has been a director of the Company
since May 1996. Dr. Guttag is currently
Associate Department Head for Computer
Science of the Electrical Engineering and
Computer Science Department at the
Massachusetts Institute of Technology, where
he has been a member of the faculty since
1979. Dr. Guttag is also a director of
Revco D.S. and of the Computing Research
Association.
<CAPTION>
Incumbent Class
III Directors
(Terms Expiring
in 1999) Age Principal Occupation<F1>
- ------------------------------------------------------
<S> <C> <C>
J.P. Barger 70 Mr. Barger has been a director of the Company
since March 8, 1994. Mr. Barger, who is
retired, was the Chairman of the Board of
Directors of Dynatech Corporation, a
diversified manufacturer, from July 1991
until August 1994 and was its President from
1959 until July 1991 and its Chief Executive
Officer from 1987 until January 1993.
Joseph A. Baute 69 Mr. Baute has served as a director of the
Company since its inception. Mr. Baute has
been a principal in Baute & Baute, a
consulting firm for family businesses, since
1993. Mr. Baute was Chairman and Chief
Executive Officer of Markem Corporation, which
provides systems, supplies, and services to
mark customers' products, from 1979 until
his retirement in June 1993. Mr. Baute is also
a director of Houghton Mifflin, Dead River
Group, State Street Bank and Trust Company,
and Cerion Technologies, Inc. and a
member of the Board of Advisors of Kearsage
Capital Fund, L. P.
<PAGE> 9
Joanna T. Lau 38 Ms. Lau has been a director of the Company
since March 8, 1994. Ms. Lau has been
President and Chairman of the Board of Lau
Technologies, Inc., which provides
manufacturing services for electronic systems
and produces digitized imaging identification
systems, since March 1990. Ms. Lau held
various management positions with Digital
Equipment Corporation and General Electric
Company from 1981 until 1990. Ms. Lau is also
a director of FSI, Inc.
<FN>
<F1> Each nominee and incumbent director has served as a director since
November 10, 1993, the date of the Company's inception, unless otherwise
indicated.
</FN>
</TABLE>
The Board of Directors met six times during 1996. All incumbent directors
attended at least 75% of the aggregate number of meetings of the Board of
Directors and the committees of which they were members.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established four standing committees: the
Compensation, Audit, Governance and Technology and Strategy Committees.
The Compensation Committee
The duties of the Compensation Committee are to oversee the compensation
programs and policies for the Company, to make recommendations to the Board
of Directors regarding the granting of stock options and other equity
incentive compensation and to determine the compensation of the directors
and executive officers of the Company. The Compensation Committee met six
times during 1996. The members of the Compensation Committee are Mr. Stata,
Chairman, Mr. Baute and Mr. Wisneski. Ms. Lau served as a member of the
Compensation Committee until November 1996.
The Audit Committee
The duty of the Audit Committee, which is composed of non-employee directors,
is to review the integrity of the Company's financial statements. The
Company's accounting staff and its independent auditors have direct access
to the Audit Committee. The Audit Committee also reviews the qualifications
of the Company's independent auditors and makes recommendations to the Board
of Directors regarding the selection of the independent auditors, the scope of
their audit and other services and their fees. The Audit Committee is
empowered to investigate any matter concerning the integrity of reported
facts, figures, ethical conduct and appropriate disclosure. The Audit
Committee met three times during 1996. The members of the Audit Committee are
Mr. Barger, Chairman, Mr. Jaeger and Ms. Lau.
<PAGE> 10
The Governance Committee
The duties of the Governance Committee are to nominate individuals to serve as
directors and to evaluate the overall effectiveness of the Board of Directors
and its committees. The Governance Committee met three times during 1996. The
members of the Governance Committee are Mr. Baute, Chairman, Mr. Barger and
Mr. Stata. The Governance Committee will consider nominees recommended by
stockholders of the Company. The names of proposed nominees, along with all
other information required by the Company's By-laws, should be forwarded by
the time periods for such nominations, to Steven R. Vana-Paxhia, President and
Chief Executive Officer, INSO Corporation, 31 St. James Avenue, Boston,
Massachusetts 02116, who will submit the names of the nominees to the
Governance Committee for consideration.
The Technology and Strategy Committee
The duties of the Technology and Strategy Committee are to review and advise
the Board of Directors with respect to development and technical issues and
trends in the software industry. The Technology and Strategy Committee met
once during 1996. The members of the Technology and Strategy Committee are
Mr. Vana-Paxhia, Chairman, Dr. Fuller and Dr. Guttag.
DIRECTORS' COMPENSATION
Each director who is not an employee of the Company receives $1,000 for each
Board of Directors or committee meeting he or she attends, plus 1,000 shares
of Common Stock on an annual basis. Non-employee directors are also
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board of Directors and committees on which they serve. In addition, each
non-employee director received options to purchase 20,000 shares of Common
Stock at the time of the initial public offering of the Common Stock or, if
not a director at the time of the initial public offering, upon the
commencement of his or her service as a director, and receives options to
purchase an additional 5,000 shares on an annual basis.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors, executive
officers and holders of more than 10% of the Company's Common Stock
(collectively, "Reporting Persons") to file with the Commission initial
reports of ownership and reports of changes in ownership of Common Stock of
the Company. Based on its review of the copies of such filings completed in
1996, the Company believes that all Reporting Persons complied with all
Section 16(a) filing requirements in 1996 with the following exception: Ms.
Carol Mitchell, Vice President and Director of Sales, did not file a timely
Statement of Changes in Beneficial Ownership of Securities on Form 4 in
respect of the sale of 63 shares of Common Stock in July 1996. Such Form 4
was required to be filed on August 10, 1996, and a Form 5 in respect of such
transaction was filed on February 14, 1997; Mr. Stata, a director of the
Company, did not file a timely Statement of Changes in Beneficial Ownership
of Securities on Form 4 in respect of the purchase of 9,000 shares of
Common Stock in November 1996. Such Form 4 was required to be filed on
December 10, 1996, and an amended Form 5 in respect of such transaction was
filed on February 28, 1997.
<PAGE> 11
EXECUTIVE COMPENSATION
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's executive compensation program is determined by the
Compensation Committee of the Board of Directors (the "Compensation
Committee"), which is composed of non-employee directors. The Compensation
Committee approves the compensation plans for the executive officers of the
Company and oversees the general compensation policy of the Company. The
Compensation Committee has furnished the following report.
The goals of the Company's executive compensation program are to attract,
motivate and retain talented senior management by providing compensation at
competitive levels based on the long-term performance of the Company. The
Company's executive compensation program includes base salary, annual cash
incentive compensation and long-term equity incentives, primarily awards of
restricted stock and stock options under the Company's incentive compensation
plans. The Company's executive compensation program is weighted toward long-
term equity incentives for the Company's executive officers.
Base salaries are based on median salaries for similar positions for
comparable companies in the computer software industry, as determined by an
independent compensation consultant. In general, base salaries are designed
to be at or slightly below the comparable-company median, based upon the
Compensation Committee's assessment of the relative importance and
responsibilities of the position and, in all cases except Mr. Vana-Paxhia's,
upon Mr. Vana-Paxhia's recommendation. During 1996, the Compensation
Committee approved increases of five percent to 15% in the base salaries of
executive officers of the Company, including Mr. Vana-Paxhia. Such increases
were effective as of April 1, 1996.
In reviewing Mr. Vana-Paxhia's base salary for 1996, the Compensation
Committee reviewed information regarding the salaries of chief executive
officers at the comparable companies described above, Mr. Vana-Paxhia's salary
for 1995 and Mr. Vana-Paxhia's increased responsibilities at the Company in
light of the Company's revenue and product line growth. After review of these
factors, the Compensation Committee determined to increase Mr. Vana-Paxhia's
salary from $172,800 to $210,000 per annum.
Annual cash incentive compensation for all executive officers, including Mr.
Vana-Paxhia, for 1996 was based upon a mathematical formula using a weighted
average of the Company's earnings per share of Common Stock and total revenue
received from products developed or acquired since January 1, 1994. No cash
incentive compensation would have been paid if the weighted average had been
85% or less of the weighted average of the target amounts for each of these
measures, and no individual measure would have been given any weight unless
the Company had achieved 80% of the individual target amount. These target
amounts were set by the Compensation Committee during 1996 after review of
the Company's strategic goals for 1996. The Compensation Committee believes
that disclosure of the target amounts would be detrimental to the Company's
competitive position and such disclosure has been omitted from this report.
Target awards were 60% of base salary for Mr. Vana-Paxhia and 45% for all
other Named Executive Officers. Actual awards exceeded these targets, based
on the Company's actual earnings per share and revenue from products
developed or acquired since January 1, 1994.
<PAGE> 12
The Compensation Committee determined that the executive compensation
program of the Company must create strong incentives for the executive
officers of the Company to maximize long-term appreciation in the price of
the Common Stock. The Compensation Committee believes that such a program
will maximize value for the Company's stockholders by providing the
management of the Company with a substantial equity stake in the future
success of the Company. In addition, the Compensation Committee believes that
the appropriate use of equity vehicles, such as restricted stock and stock
options, will provide a strong incentive for key executives to remain with
the Company for a substantial period of time. The Compensation Committee
believes that, in the case of a growth-oriented business such as the
Company, a substantial portion of the compensation of executive officers
should be contingent on appreciation in the value of stockholders'
investments. The Compensation Committee expects to determine the amount
and form of future equity incentive grants for all executive officers based
on recommendations from an independent compensation consultant and, in the
case of officers other than Mr. Vana-Paxhia, from Mr. Vana-Paxhia.
Based on the foregoing principles, the Compensation Committee awarded equity
compensation in the form of stock options to Messrs. Vana-Paxhia, Mansfield,
Hill and Melvin and Ms. Savage during 1996. In August 1996, the Compensation
Committee awarded Mr. Vana-Paxhia options to purchase 82,500 shares of
Common Stock at $42.75 per share, vesting in 25% annual increments beginning
on the second anniversary of the date of grant. Messrs. Mansfield, Melvin and
Hill and Ms. Savage were awarded options to purchase 55,000, 55,000, 50,000
and 50,000 shares of Common Stock, respectively, on the same terms as the
options granted to Mr. Vana-Paxhia at that time. In the case of these grants,
the Compensation Committee determined that the Company's results through the
first seven months of 1996, and its anticipated full-year results, were
sufficiently above projected levels that it was appropriate to grant
additional stock options to the executives of the Company. The decision to
award these additional equity incentives was based on the Compensation
Committee's analysis of the levels of equity ownership of executives at the
comparable companies it considered and the Compensation Committee's
subjective assessment of the appropriate level of equity incentives necessary
to motivate and retain talented senior management. The Compensation Committee
believes that the Company's policy toward equity grants to executive
officers should reflect the Company's performance in relation to the
comparable companies considered by the Compensation Committee.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
generally disallows a tax deduction to publicly held companies for
compensation in excess of $1,000,000 paid to the chief executive officer and
the four other most highly compensated executive officers. Compensation
based on performance is not subject to this deduction limit, if certain
requirements are met. Based on the compensation awarded to Mr. Vana-Paxhia
and the other executive officers of the Company, it does not appear that the
Section 162(m) limitation will have a significant impact on the Company in
the near term. While the Compensation Committee does not currently intend to
qualify its annual cash incentive awards as a performance-based plan, it will
continue to monitor the impact of Section 162(m) on the Company.
Ray Stata, Chairman
Joseph A. Baute, Member
William J. Wisneski, Member
<PAGE> 13
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Joseph A.
Baute, Ray Stata and William J. Wisneski. Mr. Baute is a director of Houghton
Mifflin and Mr. Wisneski is Executive Vice President, School Publishing, of
Houghton Mifflin. Mr. Baute is also Chairman of the Compensation Committee
of Houghton Mifflin's Board of Directors.
STOCK PERFORMANCE GRAPH
The line graph below compares the percentage change in cumulative total
stockholder return on the Company's Common Stock assuming an investment of
$100 on March 1, 1994, the date on which the Common Stock was first publicly
traded, with the total cumulative return of the Total Return Index for the
Nasdaq Stock Market (US) and the Nasdaq Computer & Data Processing Services
Stock index for the period from January 1, 1994, to December 31, 1996. The
Common Stock was sold in its initial public offering at a price of $7.50,
and the closing sales price of the Common Stock on the Nasdaq National
Market on December 31, 1996, was $39.75.
<TABLE>
<CAPTION>
1993 1994 1995 1996
<S> <C> <C> <C> <C>
INSO Corporation 100 234 567 530
Nasdaq Stock Market (US) 100 98 138 170
Nasdaq Computer & Data
Processing Services
Stocks 100 122 185 227
</TABLE>
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the compensation,
for the last three fiscal years, of the Company's Chief Executive Officer and
each of the four other most highly compensated executive officers during
fiscal 1996.
<PAGE> 14
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Awards
-------------------------- ---------------------
Name and Year Salary($) Bonus($) Restricted Securities All other
Principal Stock Underlying Compensation($)
Position Awards($) Options#
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Steven R.
Vana-Paxhia,
President
and Chief 1996 200,700 144,235 0 82,500 6,365<F1>
Executive 1995 169,600 127,103 0 160,000 4,620<F1>
Officer 1994 157,500 130,513 170,070<F2> 85,526 7,733<F3>
Kirby A.
Mansfield,
Vice
President-
Business 1996 143,750 77,269 0 55,000 6,365<F1>
Develop- 1995 122,500 68,958 0 100,000 2,964<F1>
ment 1994 111,500 84,499<F4>127,535<F5> 59,146 6,536<F3>
Jeffrey
J. Melvin,
Vice
President,
Worldwide 1996 143,750 77,269 0 55,000 5,025<F1>
Sales and 1995 122,500 68,958 0 100,000 3,752<F1>
Services 1994 110,374 84,161<F4>127,535<F5> 59,146 6,697<F3>
Bruce G.
Hill,
Vice
President
and 1996 126,250 66,966 0 50,000 4,956<F1>
General 1995 111,750 63,441 0 85,000 0
Counsel 1994 84,218 62,401 0 40,000 0
Betty J.
Savage,
Vice
President
and Chief 1996 126,250 66,966 0 50,000 4,973<F1>
Financial 1995 111,250 63,441 0 85,000 3,063<F1>
Officer 1994 84,100 61,178 0 40,000 0
<FN>
<F1> Represents matching contributions by the Company to the Company's 401(k)
Plan.
<F2> This restricted stock award representing an aggregate of 14,474 shares
of Common Stock (the total number of shares awarded) had a value of $575,342
on December 31, 1996, based on the closing sales price per share ($39.75) of
the Common Stock on December 31, 1996. Holders of restricted stock awards are
entitled to receive all dividends distributed to holders of the Common Stock.
<F3> Represents matching contributions by Houghton Mifflin to the Houghton
Mifflin Employees' Savings and Thrift Plan of $2,926 for Mr. Vana-Paxhia,
$2,014 for Mr. Mansfield and $2,154 for Mr. Melvin; the balance represents
matching contributions by the Company to the Company's 401(k) Plan.
<F4> Includes bonus of $15,000 paid by Houghton Mifflin during 1994 in
respect of services rendered in 1994.
<F5> These restricted stock awards, each representing an aggregate of
10,854 shares of Common Stock (the total number of shares awarded), each had a
value of $431,447 on December 31, 1996, based on the closing sales price per
share ($39.75) of the Common Stock on December 31, 1996. Holders of restricted
stock awards are entitled to receive all dividends distributed to holders of
the Common Stock.
</FN>
</TABLE>
STOCK OPTION GRANTS
The following table shows information with respect to stock options granted to
each Named Executive Officer during the year ended December 31, 1996. The
Company granted no stock appreciation rights ("SARs") during 1996.
<PAGE> 15
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants for Option Term<F2>
------------------------------------------- ---------------------
Name Number % of Total Exercise or Expiration 5%($) 10%($)
of Options Base Price Date
Securi- Granted ($/share)
ties to
Under- Employees
lying in Fiscal
Options Year
Granted
_____________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Steven
R. Vana-
Paxhia 82,500<F1> 3.65% 42.75 8/1/06 2,218,425 5,620,725
Kirby A.
Mansfield 55,000<F1> 2.43% 42.75 8/1/06 1,478,950 3,747,150
Jeffrey
J.
Melvin 55,000<F1> 2.43% 42.75 8/1/06 1,478,950 3,747,150
Bruce G.
Hill 50,000<F1> 2.21% 42.75 8/1/06 1,344,500 3,406,500
Betty J.
Savage 50,000<F1> 2.21% 42.75 8/1/06 1,344,500 3,406,500
<FN>
<F1> Options vest in 25% annual increments commencing on the second
anniversary of the date of grant.
<F2> Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the dates the respective options were granted to
their expiration dates.
</FN>
</TABLE>
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION TABLE
The following table shows information with respect to stock options exercised
and the number and value of unexercised options as of December 31, 1996 by
the Named Executive Officers. No SARs were held or exercised during 1996.
<PAGE> 16
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
Shares Value Number of Securities Value of Unexercised
Acquired Realized Underlying In-the-Money Options
on ($)<F1> Unexercised Options at at FY-End
Exercise FY-End ($)(Exercisable/
During (#)(Exercisable/ Unexercisable)<F2>
Name 1996 Unexercisable)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Steven
R. Vana-
Paxhia 12,000 $459,000 55,145/260,881 1,202,106/1,943,191
Kirby A.
Mansfield 8,000 306,000 38,360/167,786 827,350/1,225,772
Jeffrey
J. Melvin 12,000 459,000 35,360/166,786 753,100/1,201,022
Bruce G.
Hill 7,500 286,875 24,375/143,125 603,281/1,031,094
Betty J.
Savage 7,500 286,875 24,375/143,125 603,281/1,031,094
<FN>
<F1> Value based on the closing sales price per share of the Common Stock on
the date of exercise, less the exercise price.
<F2> Value based on the closing sales price per share ($39.75) of the Common
Stock on December 31, 1996, less the exercise price.
</FN>
</TABLE>
SEVERANCE AGREEMENTS
The Company has entered into Employee Retention Agreements (the "Retention
Agreements") with Mr. Vana-Paxhia, each of the Named Executive Officers and
two other executive officers. The Agreements expire on December 31, 1998 and
will automatically renew for additional one-year terms unless the Company or
the executive gives written notice of termination not less than one month prior
to the original expiration date or the expiration date of any subsequent
renewal term. The Retention Agreements provide that if a change in control
occurs, and, within 36 months thereafter the executive's employment is
terminated by the Company (other than for cause or by reason of his or her
death or disability) or by the executive for Good Reason (as defined in the
Retention Agreements), the executive is entitled to receive certain severance
benefits, as follows. Upon termination as described above, the Retention
Agreements provide that the executive shall receive (i) a lump-sum payment
equal to (a) three times the higher of the executive's annual base salary at
the time of the change in control or at the time of termination plus (b) one
and one half times the higher of the executive's annual target incentive
bonus in the year the change in control occurs or in the year of termination
and (ii) continuation of insurance benefits for a period of 24
months following the change in control. In addition, under the 1993 Incentive
Plan and the 1996 Incentive Plan, options to purchase shares of Common Stock
granted and restricted stock awarded under such plans would vest immediately
upon a change in control. "Change in control" means that (i) a person other
than the Company or Houghton Mifflin (unless a change in control of Houghton
Mifflin shall have occurred) becomes (other than as the result of the
acquisition of such securities directly from the Company) the beneficial owner
of 33-1/3% or more of the combined voting power of the Company, (ii) over any
two-year period the members of the Board of Directors at the beginning of such
period, and any director nominated or approved by at least two-thirds of such
members, cease to constitute a majority of the Board, (iii) the stockholders
of the Company approve a merger or consolidation, other than a merger or
consolidation (a) in which the voting securities of the Company prior to the
transaction represent more than 50% of the voting securities of the surviving
entity or (b) effected to implement a recapitalization of the Company in which
no person (other than a person holding more than 50% of the Company's then
outstanding securities immediately prior to such recapitalization) acquires
more than 50% of the voting securities of the Company or (iv) the
stockholders of the Company approve a plan of liquidation or a sale of
substantially all of the Company's assets.
To the extent that payments or other benefits to an executive pursuant to
the Retention Agreements (together with any other payments or benefits,
stock awards received by the executive in connection with a change in
control) would result in triggering the provisions of the Sections 280G and
4999 of the Code, the Retention Agreements provides for the payment of an
additional amount such that the executive receives, net of excise taxes,
the amount he or she would have been entitled to receive in the absence of
the excise tax provided in Section 4999 of the Code.
<PAGE> 17
CERTAIN TRANSACTIONS
The Company is a party to various agreements with, and transactions involving,
Houghton Mifflin. Amounts incurred under these agreements and transactions
totaled $1,189,000 in 1996, excluding the amounts described under "Almanac
Transaction" below. Houghton Mifflin is the beneficial owner of approximately
27.08% of the Company's Common Stock. Mr. Wisneski, a director of the
Company, is also an executive officer of Houghton Mifflin. In addition, Mr.
Baute, also a director of the Company, is a director of Houghton Mifflin.
LICENSE AGREEMENTS
The Company is a party to certain agreements with Houghton Mifflin entered into
in connection with the initial public offering of the Company's Common Stock.
Pursuant to these agreements, licenses to original equipment manufacturers
("OEMs") to materials derived from Houghton Mifflin's published reference
products that existed at the time of that offering were transferred to the
Company as part of the assets covered by the Formation Agreement between the
Company and Houghton Mifflin, subject to the Company's obligation to pay
Houghton Mifflin a royalty expressed as a percentage of the Company's revenue
from those existing licenses. In addition, the Company and Houghton Mifflin
have entered into license agreements that grant the Company rights to develop
and sublicense products incorporating certain specified Houghton Mifflin
published reference works. In these license agreements, Houghton Mifflin
granted the Company rights for a period of five years to distribute and
sublicense electronic forms of the American Heritage(R) dictionaries,
electronic adaptations of Roget's II: The New Thesaurus, Simpson's
Contemporary Quotations and The Dictionary of Cultural Literacy, as well as
certain more limited rights to the Information Please(R) almanac series, at
defined royalty rates, subject to certain restrictions and certain
review and approval rights retained by Houghton Mifflin. In connection with
the licenses for these reference works, the Company is obligated to pay
Houghton Mifflin a royalty of not less than 15% of revenues received under
licenses entered into after January 1, 1994, for the products based on the
specified works, with higher rates applying for licenses of data only without
technology provided by the Company. This compares with a minimum royalty rate
of 10% of license revenues, which applies to OEM licenses that were in effect
before January 1, 1994. In addition, the Company has a right of first
negotiation with respect to electronic publishing rights on certain new
reference titles published by Houghton Mifflin during the three-year period
commencing in March 1994 or until Houghton Mifflin's equity ownership in the
Company is reduced below 20% of the Company's total equity as a result of an
issuance of equity securities by the Company, if earlier. Royalties to
Houghton Mifflin for the year ended December 31, 1996, pursuant to these
license agreements totaled $1,189,000. During 1995, the Company acquired
the rights to the Information Please(R) almanac series from Houghton Mifflin.
See "Almanac Transaction" below.
<PAGE> 18
ALMANAC TRANSACTION
On July 5, 1995, the Company acquired all of the rights to the Information
Please(R) names, trademarks, copyrights, and related assets from Houghton
Mifflin and the Company's obligation to pay royalties to Houghton Mifflin for
the use of the Information Please(R) almanacs was eliminated. The print
rights to the almanacs were licensed back to Houghton Mifflin. In
connection with the print licensing arrangement, the Company recognized
approximately $700,000 in initial guaranteed royalties from Houghton
Mifflin, principally for the print rights to the 1997 editions of the
annual almanacs.
DIGITAL EQUIPMENT CORPORATION
During 1996, the Company received approximately $282,481 in net revenues
from software licenses to Digital Equipment Corporation. Dr. Samuel Fuller, a
director of the Company, is Vice President, Corporate Technology Strategy and
Chief Scientist for Digital Equipment Corporation. Many of the Company's
software licenses with Digital Equipment Corporation were in effect prior to
Dr. Fuller's association with the Company.
RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS THE INDEPENDENT
AUDITORS OF THE COMPANY
The Board of Directors has selected the firm of Ernst & Young LLP, independent
public accountants, to serve as independent auditors of the Company for the
fiscal year ending December 31, 1997. Ernst & Young LLP has served as the
Company's independent auditors since the Company's inception. It is expected
that a member of the firm will be present at the Meeting with the opportunity
to make a statement, if so desired, and will be available to respond to
appropriate questions. Although approval of the Board of Directors' selection
of Ernst & Young LLP is not required by law, the Board of Directors believes
that it is advisable to give stockholders an opportunity to ratify this
selection. If this proposal is not approved at the Meeting, the Board of
Directors will reconsider this selection.
The Board of Directors recommends a vote FOR the ratification of Ernst &
Young LLP as the independent auditors of the Company.
<PAGE> 19
PROPOSALS OF STOCKHOLDERS FOR CONSIDERATION AT THE 1998 ANNUAL
MEETING OF STOCKHOLDERS
Pursuant to the rules of the Exchange Act, a stockholder owning of record or
being the beneficial owner of at least the lesser of one percent or $1,000 in
market value of the Common Stock may present a proposal to be voted on at the
Company's Annual Meeting of Stockholders in 1998; provided such proposal
meets all legal requirements and is received at the Company's executive
offices in Boston, Massachusetts no later than November 29, 1997, it will be
included in the proxy statement and proxy card relating to such meeting.
Stockholders wishing to present business for action (other than proposals
included in the Board of Directors' proxy statement as set forth in the
preceding paragraph) or to nominate candidates for election as directors at a
meeting of the Company's stockholders, must do so in accordance with the
Company's By-Laws. The By-Laws provide that, in order to be presented at
the 1998 Annual Meeting, such stockholder proposals or nominations may be
made only by a stockholder of record who shall have given notice of the
proposed business or nomination to the Company not less than 75 days nor
more than 120 days prior to the anniversary date of the 1997 Annual Meeting,
or, if the 1998 Annual Meeting is called for a date more than seven days
prior to such anniversary date, not later than the 20th day (or, if not a
business day, the next succeeding business day) following the
first date on which the date of the 1998 Annual Meeting is publicly disclosed,
or, if such public disclosure occurs more than 75 days prior to such scheduled
date, then the later of the 20th day (or, if not a business day, the next
succeeding business day) following the first date of public disclosure or the
75th day prior to such scheduled date (or, if not a business day, the next
succeeding business day). The notice must also contain, among other things,
background information concerning the stockholder making the proposal or
nomination, the stockholder's ownership of the Company's capital stock and,
in the case of nominations, background and stock ownership information with
respect to each nominee.
By Order of the Board of Directors,
Bruce G. Hill
Secretary
March 28, 1997
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE
WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION
WILL BE APPRECIATED.
<PAGE> 20
INSO CORPORATION
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Steven R. Vana-Paxhia, Betty J. Savage and
Bruce G. Hill and each of them, as proxies, each with the power of
substitution and resubstitution and hereby authorizes any of them to
represent and to vote as designated below, all the shares of common
stock, par value $.01 per share of Inso Corporation (the "Company"), held
of record by the undersigned on March 14, 1997 at the Annual Meeting
of Stockholders to be held on May 1, 1997 at the John Hancock Conference
Center, 40 Trinity Place, Boston, Massachusetts at 9:00 a.m. local time, or
any postponement or adjournment thereof.
This proxy when properly executed will be voted in the manner directed
herein by the stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ELECTION OF DIRECTORS AND FOR THE PROPOSAL DESCRIBED IN THE ACCOMPANYING
PROXY STATEMENT.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.
Please sign exactly as name appear hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
adminsistrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------- -------------------------
- ------------------------- -------------------------
- ------------------------- -------------------------
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
1. To elect the following For With- For
persons as Class I hold All
--------------------- Directors (except as Except
INSO CORPORATION marked below): [] [] []
---------------------
Ray Stata
RECORD DATE SHARES: William J. Wisneski
Samuel H. Fuller
Note: If you do not wish your shares voted
"For" a particular nominee, mark the "For
All Except" box and strike a line through
the nominee's(s') name(s). Your shares will
be voted for the remaining nominee(s).
2. To ratify the selection For Against Abstain
of Ernst & Young LLP as [] [] []
the Company's indepen-
dent auditors for the
1997 fiscal year.
In their discretion, the proxies are
authorized to vote upon any other
business that may properly come before
the meeting or at any adjournment(s)
thereof.
Please be sure to sign and
date this Proxy. Date Mark box at right if an address change
- --------------------------- or comment has been noted on the reverse
Stockholder Co-owner side of this card []
sign sign
here here
DETACH CARD DETACH CARD
INSO CORPORATION
Dear Stockholder,
Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of your
Corporation that require your immediate attention and approval. These are
discussed in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders, May
1, 1997.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Inso Corporation
